Ethics in Business and Corporate Governance

S K MANDAL
Developed by: Anubhuti Jain

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Introduction to Ethics and Corporate Governance

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Ethics in Business and Corporate Governance

INTRODUCTION
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Our acts or responses to a situation practically reflect our feelings, thinking and judgment based on our moral principles and values. The ultimate aim of ethical behaviour and practice is to feel satisfied (and not necessarily justified) about ones conduct and behaviour or action and its outcome. Acting in keeping with ones ethics involves making an effort to know the possible consequences of ones action and, then, to be sure that the action is to his or her satisfaction.

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Ethics in Business and Corporate Governance

Ethics
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Ethics is a system of moral principles and attitude that guides our actions to be morally correct, fair and just. Ethics is about enforceable morality, justice and fairness of conduct, actions and governance by individuals, institutions, companies, organisations, societies and governments. However, ethics are not the law unto itself nor are they instruments parallel to the laws of the land.

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Ethics in Business and Corporate Governance

Morality
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Morality and morality of actions are the yardsticks of ethics. Morality is the subject matter that ethics investigates through a process of moral reasoning. Moral standards include those norms that we believe are morally right or wrong as well as the value we place on subject matters that are morally good or bad.

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Ethics in Business and Corporate Governance

CHARACTERISTICS OF MORAL STANDARDS

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Moral standards deal with subject matters that have serious implications in society, environment and workplace, irrespective of whether the implications are beneficial or harmful. Moral standards are self-regulatory. Moral standards are not guided by the self-interest or other non-moral standards and values. Moral standards are based on impartial considerations. Moral standards are self-inflicting.

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Ethics in Business and Corporate Governance

Levels of development of Moral understandingKohlberg

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Level I: Childhood Stages

Punishment and obedience orientation Instrument and relativity orientation

Level II: Conventional Stages

Interpersonal concordance orientation Law and order orientation

Level III: Principled Stages

Social contract orientation Universal ethical principles orientation

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Ethics in Business and Corporate Governance

MORAL REASONING FOR ETHICS

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Moral reasoning tries to logically place or project facts and figures that help one to judge human behaviour, institutional activities, policies, programmes, etc. as to whether they are in accordance to, or in violation of, acceptable moral standards. Distinct features of Moral or ethical reasoning:
identifying what constitutes moral standards; examining facts and figures concerning the policy, behaviour and actions under the specific situation; and arriving at a moral judgment on the basis of rightness or wrongness of policy, behaviour or actions.

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Ethics in Business and Corporate Governance

Cont
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To decide if an action or policy is ethical, one has to exercise moral reasoning by examining the factual information with regard to morality of the action or policy by analyzing:
a) b) c) d) the utility of the decision, rights and duties of the individuals concerned with the decision; if justice is being meted out by the decision; the amount of care being shown to those who are related and valued in the subject matter; and the consistency of the decision with the past and present.

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Ethics in Business and Corporate Governance

MORAL RESPONSIBILITY
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Moral responsibility means owning responsibility for doing something knowingly and deliberately that had caused harm or injury to others. Establishing moral responsibility has the connotation of law or rules, in addition to its ethical implications. If any one under the circumstances acted out of (a) ignorance or (b) inability, he or she may be excused of moral responsibility. However, one cannot deliberately stay ignorant and claim innocence for a wrongdoing be it as a person or company.

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Ethics in Business and Corporate Governance

Principles to establish Moral Responsibility

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Ignorance of fact or consequences. Ignorance of moral standards.

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Ethics in Business and Corporate Governance

A tentative flow sheet for Ethical Judgement

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Ethics in Business and Corporate Governance

HOW ETHICS WORKS IN BUSINESS

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Ethics, in business practices, are reflected through the display of feelings, reasoning, deliberations and actions of individuals in the business. Business organisations have the moral responsibility to ensure that their policies, practices and behaviour (of its members) are fulfilling legal as well as moral standards of the society and the country. A companys actions and behaviour have to be equally moral and responsible as that of an individual, so as to ensure right direction and no wrongdoing or harm to the society, employees, investors, suppliers, etc. all of who are a part of the business and are interested in its beneficial objectives/outcomes.

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Ethics in Business and Corporate Governance

Cont
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With respect to business operations to establish if an action has been moral and ethical - at least two aspects of business have to be considered: (a) purpose of business; and (b) how and who takes decisions for the business. Most aspects of ethics and moral behaviour in business arise from the concept of rights, justice and fairness of deals with respect to its various stakeholders.

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Ethics in Business and Corporate Governance

CORPORATE GOVERNANCE
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Corporate governance is a set of processes, policies, regulations, rules, customs and laws governing the way a corporation should be directed, administered and controlled to maximise the efforts of its employees and the resulting gains for all stakeholders. Stakeholders include shareholders or promoters, board of directors, management, financiers, employees, customers, vendors, society, community, government, etc.

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Ethics in Business and Corporate Governance

Cont
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Important issues relating to ethics that corporate governance must focus on, are: setting ethical standards and rules in the company, accountability of actions, managing the trusts with respect to fiduciary duty, and managing economic efficiency without compromising ethical principles and values.

Now-a-days many management experts feel that corporate governance should also be equally concerned with employee morale, technological improvement, product quality, product reliability, customer satisfaction, and the environment protection.

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Ethics in Business and Corporate Governance

ETHICS AND CORPORATE GOVERNANCE

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To achieve good corporate governance, the following ethical aspects must be ensured: Rights and equitable treatment of shareholders Protection of interests of other stakeholders Role and responsibilities of the board Integrity and ethical behaviour Disclosure and transparency

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Ethics in Business and Corporate Governance

The flow of ethical governance process in a company

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Ethics in Business and Corporate Governance

CORPORATE SOCIAL RESPONSIBILITY

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Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. CSR, being a voluntary measure, has no rules, regulation or procedure to comply with. Some companies appoint an Ethics Officer a senior member of the management team who would not only establish ethical standards but also oversee the companys compliance to its CSR policy.

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Ethics in Business and Corporate Governance