Ethics and good governance

As the world becomes increasingly dominated by interconnected corporations alongside increasing demands for transparency and accountability, governance is no longer just about running governments, companies and organisations efficiently, but about managing wider responsibilities. Cabinet Ministers, like Company directors, need to move beyond governance concerns that deal with their functional responsibilities towards understanding how their personal values and actions affect the state or organisations they lead, and how in turn these affect local and global communities. The Code Guides requiring honesty and integrity in all matters should be understood thoroughly to follow the precepts in the workplace and larger community.
The Code is normally administered by Ethics & Compliance Committee in a Company. A cross-functional senior management team oversees all ethics and compliance programmes and determines Code violations and maintenance of discipline. The Committee generally has operational responsibility for education, consultation, monitoring and assessment related to the Code of Business Conduct and compliance issues. The Committee regularly monitors and audits the business operations to ensure compliance with the Code and the law. They maintain a consistent set of best-in-class standards around the world that govern how to investigate and handle Code issues.
Corporate governance policies are designed to foster ethical conduct and comply with regulatory requirements and applicable laws for publicly listed companies. Companies are to implement practices that help manage risk exposure and appropriately align risk-taking to increase shareholder value and promote responsible business practices at every level of the company and expect their partners to meet high ethical standards as well. Corporate Governance, in a narrow sense, deals with maximising the shareholder's wealth. In broader perspective, it considers the welfare of the all stakeholders and the society.
Ethics is a branch of philosophy and is considered as a normative science because it is concerned with the norms of human conduct. It is a conception of right and wrong behaviour, defining for us our actions as either moral or immoral. Business ethics is the art and discipline of applying ethical principles to examine and solve complex moral dilemmas. A business is considered to be ethical only if it tries to reach a trade-off between pursuing economic objectives and its social obligations. Being ethical is all about developing trust maintaining it fruitfully so that the firm flourishes profitably and maintains good reputation.
Trust leads to predictability and efficiency of the business.  Trust is used as an indicator variable of ethics. Basically, trust is three dimensional i.e., trust in supplier relationships, trust in customer relationships, and employee relationships. If the company is able to maintain trust relationship with all stakeholders, then one can call that company an ethical company. Boeing, J&J, Tata Steel and Ford are companies that succeeded in following ethical practices.
BUSINESS ETHICS: Johnson and Scholes while defining business ethics, provides a useful way of classifying the diverse elements in three levels of business ethics:
At the macro level: the role of business in the national and international scales, the relative virtues of different political/social systems, such as free enterprise, centrally planned economies, international relationships and so on.
At the corporate level: corporate social responsibility issues facing individual corporate entities (private and public) when formulating and implementing strategies.
At the individual level: the behaviour and actions of individuals within organisations.
At the highest (macro) level, people may ask the fundamental question of the role of business in society and what governance model works best to deliver the most benefits in a moral and responsible way. Morality itself, of course, is a widely interpretable concept but for this purpose we will assume a broad understanding of "proper behaviour" and "knowing the difference between right and wrong", without specifying what constitutes right and wrong. Suffice it to say here that morality sets the stage for ethics, and therefore the code of conduct by which business activity is carried out and allowed to be carried out by national and international rules and standards.
At the corporate level, the interpretation of those rules and standards is often what defines business ethics, affected by the specific circumstances and socio-cultural context in which the business or public sector organisations are operating. While all corporate entities in theory are directly influenced by personal morality and ethics, in practice, there is often a gap between the behaviour of individuals within the working environment and outside it. This, one may argue, is one of the major factors leading to mistrust of big business, where the task of separating ownership and management is tough. Even if directors/senior managers are not acting unethically, it might so happen that they would act differently if the money and the company about which they are making decisions were their own (there are obvious exceptions as with any generalisation.)
At the individual level, this separation creates a distinct ethical model, which depending on factors like personality, peer pressure and the socio-political environment, can be closer or further away from the individual's own moral/ethical code of conduct. With limited liability, meaning individuals are protected, this can affect smaller businesses too as the consequences of one's actions has a greatly reduced impact on personal circumstances. Clearly, every corporate entity is directly affected by the individual's moral and ethical stance, and any difference between business and personal ethics is itself arguably an indictment of that individual stance as it implies some level of double standards.
The trouble with much of the debate about corporate governance is that it appears to be a separate discipline, a series of boxes to be ticked, including ensuring that the business is perceived to be ethical. Often, this results in grandiose statements or whole reports in the annual accounts about all the initiatives the company funds, participates in or supports in many ways. Worthy as these initiatives may be, in our view, in most cases this is at least as much (or more) about the perception than a real commitment to running the business ethically. To do this requires business ethics to permeate the whole organisation - including, especially, the recruitment process. In this way, it is much less likely that people with malicious intent or susceptible natures will survive in the organisation, because such behaviour will be picked up and fed back to senior management and the board, ideally via the Senior Independent Director and other non-executives. As the famous saying goes, the fish rots from the head, so this requires complete commitment from the Board not only to the principles of business ethics but to the measurement and benchmarking of ethical performance.
CAUSES OF UNETHICAL CONDUCT:  Pressure to meet unrealistic objectives and deadlines: According to a recent survey, the pressure from management or from the Board to meet unrealistic business objectives is the leading factor that causes unethical behavior.
Increase in acute competition: Competition is increasing at national and international level. Every business aims to be the highest profit maker. To achieve this goal, organisations/individuals are at times forced to act dishonestly and unethically.
Economic greed: People have a desire to live a life full of comforts and luxuries. Some people follow unethical means to earn more money. Personal financial worries become a cause for unethical practices such as accepting bribe.
Information of unethical acts through the media: Information given by media provides ideas to inexperienced businessman for doing unethical activities.
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 maximise profit to cope with ever expanding requirements.
Lack of management support or poor leadership: If the leader does not encourage his subordinates to be ethical, then there are higher chances of unethical conducts.
GUARDING AGAINST UNETHICAL PRACTICES There must be a strong corporate governance to control unethical activities, like (a) bribe taking -- bribery creates a conflict of interest between the person receiving bribe and his organisation; (b) Coercion - it forces a person to do things such as blocking a promotion, blackmailing etc.; (c) Insider Trading - this is misuse of official position where the employee leaks out certain confidential data to outsiders or other insiders which affect the reputation and performance of company; (d) Conflicts of Interest - it arises  when private interests are important for employees which are against the desire of employer; ( e) Unfair Discrimination - clearly, it is about giving privileges to persons on the basis of race, age, sex, nationality or religion; (f) Political donations and gifts-- donations or contribution to political leaders or parties to get privilege over others in business promotes unethical practices; (G) False returns of income and statements - this relates to preparing false income returns and statements of accounts for evasion of tax and getting various government benefits and incentives.
Dr Muhammad Abdul Mazid, former Secretary and Chairman NBR
mazid.muhammad@gmail.com