Business ethics and Corporate Governance

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Business ethics and Corporate Governance

  1. 1. BUSINESS EHTICSANDCORPORATE GOVERNANCE
  2. 2. Corporate Governance• In narrow sense, corporate governance deals withmaximizing the shareholder’s wealth.• In broader perspective, it considers the welfare ofthe all stakeholders and the society.
  3. 3. EthicsIt is a branch of philosophy and is considered asa normative science because it is concernedwith the norms of human conduct.
  4. 4. Ethics is a conception of right and wrongbehavior, defining for us when our actions aremoral and when immoralEthics
  5. 5. Business EthicsBusiness is the art and discipline of applyingethical principles to examine and solve complexmoral dilemmas.
  6. 6. Business EthicsA business is considered to be ethical only if ittries to reach a trade off between pursuingeconomic objective and its social obligations.
  7. 7. Importance of Business EthicsEthical is all about developing trust maintainingit fruitfully so that the firm flourishes profitablyand maintain good reputation. Trust leads topredictability and efficiency of the business.
  8. 8. • Trust is used as a indicator variable of ethics.Basically trust is three dimensional i.e., trust insupplier relationships, trust in customerrelationships, and employee relationships.• If the company is able to maintain trustRelationship with all stakeholders, then we callthat company an ethical company• Boeing, J&J, Tata Steel and Ford are the companies whichsucceeded in following in ethical practices.Importance of Business Ethics (cont’d)
  9. 9. UNETHICAL ISSUES
  10. 10. Unethical IssuesThere must be a strong corporate governanceto control the unethical issuesand activities.
  11. 11. BriberyAccepting bribe create a conflict of interestbetween the person receiving bribe and hisorganization. And this conflict would result inunethical practices.
  12. 12. CoercionIt is forcing a person to do things which areagainst his personal believes. E.g. blocking apromotion, loss of job or blackmailing.
  13. 13. Insider TradingInsider trading is misuse of official position.Here the employee leaks out certain confidential datato outsiders or other insiders which effect thereputation and performance of company.
  14. 14. Conflicts of InterestConflict of interest when Private interests areimportant for employees which are againstthe desire of employer
  15. 15. Unfair DiscriminationUnfair treatment or given privileges to personson the base of race, age, sex, nationality orreligion. It is failures to treat all personsequally.
  16. 16. Political Donations and GiftsGifts, donations or contribution to politicalleaders or parties to get any unconditional actdone e.g. sanctioning of any special contract,issue of licenses etc.
  17. 17. Presentation of false returns ofincome and statementsIt is to prepare false income returns andstatements of accounts for evasion of tax andgetting various govt. benefits and incentives.
  18. 18. Accumulation of profits by illegalmeansSometimes business undertakes variousunethical and unconstitutional activities tomaximize its profits e.g. hoarding of goods,black marketing, speculation etc.
  19. 19. CHARACTERISTICS OF ETHICALORGANIZATONS
  20. 20. Characteristics of Ethical Organizations• Ethical organizations are based on the principle offairness.• All stakeholders are treated equally without anydiscrimination.• Benefit of stakeholders in given precedence overown interest.• There is clear communication in ethicalorganizations.• What is to be done, how it is to be done is clearlystated.
  21. 21. Characteristics (cont’d)• No bureaucracy.• Minimum bureaucracy and high control helps inimplementing business ethics easily.• Compliance with applicable laws.E.g., rules made by SECP, federal government, etc.Honesty, fairness and accuracy in operations.
  22. 22. CATEGORIES OF CODE OFETHICS FOR EMPLOYEES
  23. 23. Category 1“Be a dependable organization citizen”:→demonstrate honesty and fairness in relationshipswith customers, suppliers ad employees.→Be reliable in attendance and punctuality.→Comply with safety, health and security regulations.
  24. 24. Category 2“Don’t do anything unlawful or improper thatwill harm the organization”:→ Maintain confidentiality of customer, employee andcorporate records and information.→Avoid outside activities which conflict with or impairthe performance of duties.→Make decisions objectively without regard tofriendship or personal gain.→Do not provide false or misleading information tocorporation or government agency.
  25. 25. Category 3“Be good to customers and suppliers”:→Strive to provide products and services of highestquality.→Convey true claims for products.
  26. 26. Category 4→ Exhibit standards of personal integrity andprofessional conduct.→Protect Quality of environment.→ Racial and religious discrimination isprohibited.
  27. 27. CAUSES OF UNETHICAL CONDUCTIN AN ORGANIZATION
  28. 28. 1. Pressure to meet unrealistic objectives anddeadlines:According to a recent survey, the pressure frommanagement or from the Board to meet unrealisticbusiness objectives is the leading factor that causesunethical behavior.
  29. 29. 2. Increase in acute competition:Competition is increasing at national and internationallevel. Every business aims to be the highest profit maker.To achieve this goal, organization/individuals are urgedto act dishonestly and unethically.
  30. 30. 3. Economic Greed:People have a desire to live a life full of comforts andluxuries. Some people follow unethical means to earnmore money.Personal financial worries become a cause for unethicalpractices such as accepting a bribe.
  31. 31. 4. Information of unethical acts through media:The information given by media provides ideas toinexperienced businessman for doing unethical activities.
  32. 32. 5. Pressure to earn profit:- Shareholders expect larger returns.- Employees hope for higher salary and benefits- Directors expect higher remuneration- Thus there is an increasing pressure to maximizeprofit to cope with enlarged requirements.
  33. 33. 6. Lack of Management Support or PoorLeadership:- Leader is responsible for motivating his staff.- If the leader does not encourage his subordinates to beethical then there are higher chances of unethicalconduct- If the leader himself is involved in unethical activities,his employees may do the same.
  34. 34. BENEFITS OF BUSINESSETHICS
  35. 35. Goodwill of the Business• People like to build long term relationships withorganizations that perform their tasks onthe principles of ethics.• Following a code of ethics enhances the goodwillof the organization and organization possess a strongpublic image.• Moreover strong public image leads to continualloyalty and attracts new investors
  36. 36. Prevention from Legal Action• By implementing ethical practicesorganizations are automatically preventedfrom illegal and objectionable activities asbusiness ethics instruct to avoid all that iswrong or evil.• Such organizations have no fear of legal actionand social boycott.
  37. 37. Business ethics have substantiallyimproved society.Establishment of anti-trust laws, unions andother regulatory bodies has contributed to thedevelopment of the society.
  38. 38. Ethical practices create a strong publicimage• Organization with strong ethical practices willpossess a strong image among the public.• This image would lead to strong loyalty.• Strong public image results in attracting newinvestors
  39. 39. Ethics practices support employeegrowth• Ethics in the workplace helps employees facereality, both good and bad -- in theorganization.• Employees feel full confidence and thereforethey can deal with any sort of situation.
  40. 40. Strong teamwork and highproductivity• Constant check and dialogue will ensure thatthe employee matches to the value oforganization which will in turn results in betterco-operation and increased productivity .
  41. 41. Build trust with key shareholders• Implementation of ethics helps organizationto gain trust of their shareholders.• Shareholders feel confidence that company iswell monitored.
  42. 42. High Profits• Business ethics create high returns or profitsfor the company• Reputation of the company and its shareprices also increase if the company acts uponcorporate social responsibility (CSR).
  43. 43. Business Ethics & Good Governance• Most of the benefits received from businessethics are the goals of corporate governance.• Thus we can say that ethics have a strongimpact on corporate governance and theimplementation of business ethics can ensuregood governance.
  44. 44. TECHNIQUES TO IMPROVEETHICAL PRACTICES
  45. 45. Efforts at Institutional LevelEfforts at Governmental LevelEfforts ay Social and Religious Level
  46. 46. At Institutional LevelEthical code of conduct:“Handbook containing the rules, regulations andprocedure to be followed by the employees ofan organization”.Ethics committees:Ethics committees are formed for influencingthe ethical conduct of business on a permanentbasis.
  47. 47. Transparency in working:The procedure, rules and policies of a business organizationshould not be kept so secret.Penalties:Criminal and monetary punishments may be given to thosewho neglect the ethical code of conduct.
  48. 48. Efforts At The Government LevelClear cut policies and working procedures:Due to unclear policies and procedures of working, certainbusiness people adopt corrupt practices, for takingadvantages of the situation.Strict penalty provisions:Strict penalty provisions especially in the CompaniesAct, 1956 must be altered so as to give more criminal andmonetary punishments.
  49. 49. At The Social And Religious Levels• A businessman who follows the unethical conduct inbusiness should be socially boycotted by the people.• Social service institutions should take effective stepsto bring in the notice of authorities of suchbusinessmen who act on unethical grounds.
  50. 50. HOW ETHICS CAN MAKECORPORATE GOVERNACE MOREMEANIGFUL?
  51. 51. •Good corporate governance should look at allstakeholders and not just shareholders alone.•Corporate governance is something WHICHCOMES FROM WITHIN!•The provisions of companies act should befollowed both in letter and spirit.

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