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Ethics In A Corporate Environment


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The word 'ethic' always comes with a lot of heated discussion, probably because standard ethics cannot be practically be defined. They vary at every level. Let us have a look on business ethics that should be administered in a corporate environment.

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Ethics In A Corporate Environment

  1. 1. BUSINESS ETHICS JRA & Associates
  2. 2. ORIGIN IN GLOBAL SCENARIO -  Approximately in early 1970s, the term 'business ethics' came into common use in the United States. Originally, this term was used in academy and research.  As the term entered more general usage in the media and public discourse, it often became equated with either business scandals or more broadly with what can be called "ethics in business”.  After the mid-70s, business ethics became institutionalized at many levels.  By the mid-1980s, there were at least 100 courses in business ethics taught across the country to more than 40,000 students.  ‘Business ethics’ involves applying ethical principles to the activities of business and to the relationships between businesses and various stakeholders. It applies to a wide range of business activities such relationship with suppliers, employees, consumers as well as the overall governance system by which a company is directed and controlled.  Business ethics, as a movement, referred to the development of structures internal to the corporation which are likely to help it & its employees to act ethically, as opposed to the structures that provide incentives to act unethically. JRA & Associates
  3. 3. LEGALIZING BUSINESS ETHICS - Foreign Corrupt Practices Act, 1977  Established after a series of scandals involving bribery by U. S. firms abroad Sarbanes-Oxley Act, 2002  Passed as a result of a rash of scandals involving Enron, WorldCom, Arthur Andersen and other prominent corporations  The Act requires, that the CEO and CFO certify the fairness and accuracy of corporate financial statements (with criminal penalties for knowing violations) and a code of ethics for the corporation's senior financial officers, as well as requiring a great deal more public disclosure  First piece of legislation that attempted to control the actions of U.S. corporations in foreign countries  20 years later, the OECD countries agreed to adopt similar legislation JRA & Associates
  4. 4. FUNDMENTAL PRINCIPLES OF BUSINESS ETHICS - • All rules & norms should be equally applicable to all • In other words, favoritism and partiality should not be allowed Standardized • The prospective effects of business ethics should be objectively available to all in the form of stated policy statements • As such, ‘others’ are so important for its successful implementation Workable • Commitment on top management’s part is critically important • Only when the top management demonstrates its commitment to business ethics, then only it is likely to work Driven from the Top JRA & Associates
  5. 5. CASE STUDIES (ETHICAL FALLOUTS) - Nike –  Since the mid 90’s, Nike has faced a barrage of criticism from labour rights activists, media and others for human rights violations in their factories in the third world countries  Ernst and young, commissioned by Nike to audit one of its factories, reported presence of unacceptable standards of chemicals and cases of employee health problems Primark –  The BBC's Panorama program, which carried out a six-month investigation, alerted Primark to the problem of the suppliers sub- contracted smaller firms, which were using child labour to carry out embroidery and sequin work  New code of practices for suppliers were established which prohibited the use of child labour in its manufacturing chain JRA & Associates
  6. 6. PREVALENT CORRUPTION…!! BIGGEST CHALLENGE AHEAD  In the past years, India has witnessed several scams of unprecedented magnitude. Amongst the ones are- • 2G spectrum • Adarsh Housing Society • Commonwealth Games • Land scams in Karnataka These scams have established a dangerous nexus between politicians- administrators-businessmen. “State practices exhibit substantial legal and policy incoherence and gaps. The most common gap is the failure to enforce existing laws” - John Ruggie SOLUTION?? …“Stringent Code of Ethics for Indian Industry” JRA & Associates
  7. 7. CORPORATE GOVERNANCE - Corporate Governance & Business Ethics  Both have cognate interests  Both promote greater transparency of functioning & accountability within business houses  Need of external Chairman in the Board of Directors  Regular meetings of the Board  Accurate financial reports and extensive disclosures in this regard Norms of Corporate Governance - With this in view, corporate governance would do well to be more proactive on management issues & take within its ambit the following tasks as well-  Evaluation of Company’s strategic planning process  Assessment of the level and clarity of upstream and downstream communication  Implementation of a risk management mechanism that would safeguard interest of stakeholders  Conducting orientation & educational workshops JRA & Associates Section 134 casts responsibility on the Board of Directors to disclose in Board’s report-  Composition of CSR Committee  Details of CSR policy  CSR related initiatives taken during the financial year
  8. 8. India At Work (SURVEY) : What Our Employees Think Of Job Ethics..?? *Source: Hindustan Times, C-Fore Certain number of working professionals across sectors and salary brackets were quizzed to analyze the level of honesty and dedication that Indians felt towards their professional lives. Extracts are hereunder- 11% 28% 23% 38% “How much time is it okay to waste time at work..?” 1 hour Taking a short break of 15 minutes every few hours is okay I believe in completing work first before thinking of leisure I see no harm as long as I'm completing my duties on time JRA & Associates
  9. 9. 66% 11% 18% 5% “Do you think it is important to report to work on time..?” Yes Absolutely No Only on days where there is some meeting deadline Only juniors/trainees should report on time Findings : More than half (52%) of working professionals in India do not enjoy their work and do not look forward to new challenges at work. About 29% of the work force in both organised as well as unorganised sectors feels that wasting time at work has become an unwritten office culture. The majority is working because of compulsions; obviously there is a little chance of them putting their best foot forward. It's often also the lack of a happy work atmosphere that results in compromised work ethics. JRA & Associates
  10. 10. NEED FOR ETHICAL WHISTLE BLOWING - JRA & Associates Whistle blowing is a necessary facet within an organization. Without it, fraud, misconduct, and failure become prominent within an organization. Thus, by promoting clear communication, keeping the organization's goals in focus for the entire organization, one can certainly minimize their chances of reaching an organizational disaster  Section 177 of the Companies Act, 2013 requires every listed company to establish a vigil mechanism for the directors and employees, thereby providing a framework for responsible and secure whistle blowing/vigil mechanism  Provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases has also been made  With effect from Oct 1, 2014- Clause 49 of the Listing Agreement between listed companies and the Stock Exchanges, inter alia, provides for a non-mandatory requirement for all listed companies to establish a mechanism called ‘Whistle Blower Policy’ for employees to report to the management instances of unethical behaviour, actual or suspected, fraud or violation of the company’s code of conduct
  11. 11. PROMOTING AN ETHICAL WHISTLE BLOWING CULTURE - JRA & Associates  Creating a Policy -  Formal mechanisms for reporting violations, such as hotlines and mailboxes  Clear communications about the process of voicing concerns and bans on retaliation  Getting Endorsement From Top Management -  Demonstrating a strong commitment to encourage whistle blowing  Communicated by line managers at all levels, who are trained continuously in creating an open-door policy regarding employee complaints  Publicizing the Organization's Commitment -  Publicly acknowledging and rewarding employees who pinpoint ethical issues is one way to send the message that management is serious about addressing issues before they become endemic  Assess the Organization’s Internal Whistle blowing System -  Finding out employees' opinions about the organization's culture vis-à-vis its commitment to ethics and values  Investigate and Follow Up -  Managers be required to investigate all allegations promptly and thoroughly, and report the origins and the results of the investigation to a higher authority
  12. 12. CONCLUSION -  Stakeholders want to be associated with responsible organisations. Operating with integrity must be a key part of sustainable success for business. More recently, the concept of sustainability has become important in the notion of ethical and responsible business. By definition, this adds a long term dimension  Having clearly articulated values and an ethics policy is seen to be good governance practice; it is one of the hallmarks of a well-run business Companies Act, 2013 mandates increased corporate transparency and accountability in order to strengthen corporate governance and provides for provisions to ensure ethical and vigilant activities of directors and other professionals in the company JRA & Associates Ethics go far beyond the legal requirements for a company and is, therefore, about discretionary decisions and behaviour guided by values