Sangam University "'Ethics - The Foundation of Good Corporate Performance and Governance"

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Pride of Mewar Sangam University VC Prof BR Natarajan gave a talk on "'Ethics - The Foundation of Good Corporate Performance and Governance" at the Technical Session in SIP organized by the ICSI - Bhilwara Chapter 26 July 2013

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Sangam University "'Ethics - The Foundation of Good Corporate Performance and Governance"

  1. 1. Ethics is the Foundation of Good Corporate Performance and Governance
  2. 2. Ethics is study of standards of behavior which promote human welfare and the good. Ethics is about how we behave, about the standards we hold ourselves to as well as how we treat each other even those we do not know. Ethics is not just feelings or conscience, not the same as religion, not just following the law, not following what everybody does, not technology or science.
  3. 3. Business Ethics is study of standards of business behavior which promote human welfare and the good. Business Ethics is how we act as individuals in business, how we structure our business organizations and the way they work, how we structure our business society, our laws affecting business and our systems.
  4. 4. According to the great German Philosopher Immanuel Kant “In Law, a man is guilty when he violates the rights of others, in Ethics; he is guilty if he only thinks of doing so.” To quote Albert Einstein, “try not to become a man of success but rather try to become a man of value.”
  5. 5. Most violations of corporate governance processes are a result of the absence of properly structured ethics management processes in organizations. Ethical cultures must anchor the development and practice of sound governance paradigms in today's organization. Corporate governance is basically about rules and procedures and ethics is about values. Corporate governance rules and regulations will remain ineffective for as long as they are not supported by strong ethical values.
  6. 6. An ethical foundation in corporate governance is decisive because it helps to build enduring corporate governance processes that thrive even in the most difficult of circumstances. It is the rock upon which ethical businesses stand and ethics is the tower of strength which intrinsically police the behavior of every leader including those in key positions. Business ethics must be embedded in business strategy and embedding ethics in strategy goes beyond merely mentioning ethics in the corporate governance policy document.
  7. 7. It entails company leaders making a deliberate effort to unlock the ethical value in the policy document by asking tough questions such as: •Has the company assigned someone to co- ordinate the ethics function? •Does the company have a helpline to assist employees report observed misconduct and seek help on ethical issues? •Has the company embedded ethics in the reward management systems? •Does the company monitor, evaluate and audit ethics performance? •Does the company reward ethical behavior and punish unethical behavior?
  8. 8. Globally, companies are moving towards building business ethics performance indicators and measurements into employee performance objectives as a way of cementing the impact of ethics on the overall performance of the organization. The resultant ethics performance metrics and competencies are then used during promotions, salary increases and to inform decisions on all other key staff issues, thus sending a clear message to all and sundry that both job performance and ethics matters.
  9. 9. Corporate governance rules cannot simply be written to address every possible leadership moral breakdown and imposing more governance rules without creating a strong ethical culture will not grow responsible behavior either. Rather, it is when leaders embrace ethics and make a deliberate effort to embed it in business operations that ethical cultures are built to form the basis for good corporate governance.
  10. 10. Real and lasting governance imperatives can become a reality only when leaders foster a genuine commitment to grow ethical behavior right across the organization. When leaders embrace ethical leadership as the basis for good governance, they become good communicators of ethics to staff and all stakeholders through their deeds and actions. Companies must build ethical cultures that should anchor their governance processes and help to improve business competitiveness.
  11. 11. Personal modelling of ethical behavior, and exhibiting accountability and transparency in one's dealings with the business of the organization are visible elements that will ensure the leader's positive tone reaches everyone in the organization. In today's highly competitive global marketplace ethical leadership is emerging as a key competence for impactful business leaders and company executives.
  12. 12. Ethical leadership is not simply a matter of a good upbringing. Ethical leadership goes beyond morality to focus on the acquisition of ethical skills through regular ethical leadership training. Corporate leaders must understand that it is commitment to practicable ethics that makes all the difference, not simply a corporate governance and ethics policy statement.
  13. 13. The best written set of corporate governance principles are bound to fail if ethics are given lip service or fail to get the seriousness they deserve. The Ethical Leadership Quotient of an organization is now a key indicator for business success on the global marketplace. For more details about Ethical Leadership Scales and Quotients see http://www.ethicalleadership.com/EthicalLead ershipScales.html
  14. 14. In companies today, maximum performance will only be achieved by those companies able to trust their people to make sound decisions within a condensed time-frame. Such people will need to exercise a considerable degree of autonomy. Yet, at the same time, risk to the company must be minimized.
  15. 15. There was a time when people thought that risk could be controlled through the application of detailed rules, regulations and compliance regimes. It is now known that this approach is highly unstable and relatively costly. Things move too fast and are too ambiguous for the old paradigm of command and control to work. Instead, prudent boards and management should evolve corporate cultures in which decisions are based on the application of general values and principles – rather than specific rules and regulations.
  16. 16. The challenge for companies is therefore to create an environment in which its people feel that the values and principles at work within the company are real. The trouble is that it is extremely difficult to do this if the company adopts a minimalist approach and therefore seems prepared to sacrifice anything and everything in the name of increasing shareholder wealth. Paradoxically, the key to shareholder wealth is to be found in sincerely believing in a purpose for the company that goes beyond this
  17. 17. Various research studies have shown that a proper concern with the ethical environment of a corporation is essential to long-term business success. Many are familiar with an interesting book, Built to Last: Successful Habits of Visionary Companies authored by James Collins and Jerry Porras. Visionary companies pursue a cluster of objectives, of which making money is only one – and not necessarily the primary one. Yes, they seek profits, but they're equally guided by a core ideology – core values and a sense of purpose beyond just making money. While the visionary companies such as 3M, American Express, Boeing, Citigroup, Disney, Ford, General Electric, HP, IBM, Johnson & Johnson etc outperformed the stock market by 15 times while their competing companies did by only 2 times.
  18. 18. An organization that deals with the ethical dimension of all its activities will be, at the same time, building a high-trust environment. As we know, high-trust correlates with low cost. This is especially so when ethical commitments are reinforced so that they become part of the deep structure of organizations. In these circumstances, blind rule following is replaced by compliant behavior based on the voluntary expression of dispositions that accord with desired practices. A certain degree of vigilance is still appropriate. However, far less supervision is required. And where rules are silent or ambiguous, there is still a basis for proper action.
  19. 19. All of this relates to the performance of boards in a very direct way. Directors are required to provide leadership to the corporation. As such, they need to model the very values and principles that they rely upon for the overall success of the company. But beyond this, there is a further requirement that was touched upon above. This is that directors have a capacity to engage in the wider kind of debate that current and future companies will have to address. This ability is not a skill that can be picked up overnight. Rather, it needs to be fostered under the careful guidance of a chairman. Yet, not all chairmen are equipped for this task.
  20. 20. Working at the chairman's right hand, a proficient COMPANY SECRETARY will be far more than an amanuensis - a person employed to write or type what another dictates or to copy what has been written by another. He or she will also be a trusted professional adviser possessed of sound, independent judgment – part of the management team and yet, somewhat apart.
  21. 21. Business Corporations are like ships at sea. A marginally competent sailor can get by when the wind and weather is fair. However, a combination of technical excellence, experience and sound judgment is required by those who would survive the occasional tempest. Many boards are forced to pretend that they are coping – even as they feel themselves caught between Devil and the Deep Sea.
  22. 22. Every captain needs a confidante who can act as a sounding board when tough decisions must be made and executed. This means that there will be occasions when the corporate secretary may need to adopt a position of providing disinterested advice that goes beyond that of setting out the formal requirements of the law and applicable regulations.
  23. 23. Indeed, it could be argued that corporate secretaries are bound to adopt this role because of their chosen status as professionals. Belonging to a profession means accepting that there is a significant (if not overriding) duty to act in a spirit of public service. In fact, this determination to act in this spirit is the key defining characteristic of a professional.
  24. 24. If the idea of a profession is to have any significance, then it must hinge on this notion that professionals make a bargain with society in which they promise conscientiously to serve the public interest – even if to do so may, at times, be at their own expense. That is, to be a professional is to face the very real prospect of having to act with moral courage.
  25. 25. Ten facets of Ethical Leaders are: 1. Articulate and embody the purpose and value of the organization 2. Focus on organizational success rather than on personal ego 3. Find the best people and develop them 4. Create a living conversation about ethics, values and the creation of value for stakeholders 5. Create mechanism of dissent
  26. 26. 6. Take a charitable understanding of others’ values 7. Make tough calls when being imaginative 8. Know the limits of the values and ethical principles they live 9. Frame actions in ethical terms 10.Connect the basic value proposition to stakeholder support and societal legitimacy. For more details see http://www.corporate- ethics.org/pdf/ethical_leadership.pdf

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