Corporate Governance, Corporate Disasters and Ethics: The current spate of corporate collapses and accounting fraud has

brought the focus back on corporate governance. Only values, ethics, and the attendant processes are necessary to prevent corporate disasters. The collapses of Satyam Computers, Enron, Global Proxy, Xerox, WorldCom etc has brought the focus back to the importance of ethics. Unfortunately, ethics has not been sufficiently integrated with corporate governance Corporate Social Responsibility, Stakeholders and Ethics: Corporate Social Responsibility has been manipulated today to suit ones disposition and ideology. Even among several organizations, aspects of CSR, stakeholders, values and ethics have been noticeably underplayed. OECD principles of Corporate Governance states, The corporate governance framework should recognize the rights of stake-holders as established by law and encourage active cooperation between corporations and stake-holders in creating wealth, jobs, and the sustainability of financially sound enterprises. Consequently, the OECD principle suggests that corporations principal objective of a business enterprise is to generate economic returns to its owners. The CACG has adopted a more inclusive approach and refers explicitly to values, ethics, and professions. The CACG guidelines appear to promote better stakeholder engagement and that strategies should be supported by values. The principles also recognize that while the Board is accountable to the shareholders of the corporation as the owners of its capital, society expects a corporation to act responsibly in regard to aspects concerning its broader constituency such as the environment, health, and safety, employee relationship, equal opportunity for all employees, the effect of anti-competitive practices, ethical consumer conduct, etc. Thus the CACG reiterates that corporates need to go beyond the statutory minimum and take responsibility for good corporate citizenship. Ethics, Managers and Professionalism: Amongst the other stakeholders, managers need to integrate ethics into their conduct for two interrelated reasons. (1)Firstly, most unethical actions are at the individual level than as a collective formal decision of the Board or the Management Committee. Thus, operational decisions that attract risk or expose the companies to a risk are often taken at the managers level. Sensitivity to ethics will not only enable employees to reduce misusing expenses account, misusing leave provisions, window dressing the financial statements, cronyism in employment and selection of suppliers, actions leading to environmental degradation, sexual harassment at work, violation of minority rights, etc. but also will help in corporate strategic decisions such as whether to enter into a questionable product line, enter into a joint venture with a known corporate criminal, use auditor clout to earn more income through consulting and the like. Overstating the profits and making things look smarter than they are is another problem. In many cases it all begins with technical / professional mismanagement. The potential for corporate risks

will reduce if the need for ethics is implanted in the conscience of all directors and employees. This will ensure that the company does not suffer from ethical complacency. (2)The second reason that should compel managers and directors to study the ethical component of Corporate Governance is related to professionalism. Several managers belong to strong professions such as those of accountants, company secretaries, lawyers, human resources, advertising, and marketing. These functions must recognize that a profession has an intimate connection with welfare, and is strongly based on aspects of ethics, and values. The standards, principles, codes and best practices evolved in these professions are founded on assumptions of human welfare. The professional is thus expected to owe an allegiance to his calling, which expects him to put his personal interests or that of the company behind those of the professional standards. A professional is expected to have five distinctive attributes: a. A commitment to a calling which has a set of normative and behavioural expectations b. A specialized education and training of substantial duration c. Membership of an association comprising of similarly trained and practicing individuals for the purpose of protecting and enhancing the interest of the calling. d. A service orientation keeping in view the requirements of the client and the society e. A relative degree of autonomy in the use of his/her knowledge and skills. Though training and sensitization may not prevent fraud, it will enable the organisation to be ethical. The 14 propositions are as below: 1. Ethical conflicts and choices are inherent in business decision-making. 2. Proper ethical behaviour exists on a plane above the law. The law merely specifies the lowest common denominator of acceptable behaviour. 3. There is no single satisfactory standard of ethical action agreeable to everyone that a manager can use to make specific operational decisions. 4. Managers should be familiar with a wide variety of ethical standards. 5. The discussion of business cases or of situations having ethical implications can make managers more ethically sensitive. 6. There are diverse and sometimes conflicting determinants of ethical action. These stem primarily from the individual, from the organization, from professional norms, and from the values of the society. Individual values are the final standard, although not necessarily the determining reason for ethical behaviour. 8. Consensus regarding what constitutes proper ethical behaviour in a decision making situation diminishes as the level of analysis proceeds from abstract to specific. 9. The moral tone of an organization is set by top management. 10. The lower the organizational level of a manager, the greater the perceived pressure to act unethically. 11. Individual managers perceive themselves as more ethical than their colleagues. 12. Effective codes of ethics should contain meaningful and clearly stated provisions, along with enforced sanctions for non-compliance.

13. Employee must have a non-punitive, fail-safe mechanism for reporting ethical abuses in the organization. 14. Every organization should appoint a top-level manager or director to be responsible for acting as an ethical advocate in the organization.

Stakeholders and Ethics A stakeholder is any individual or organisation that is affected by the activities of a business. They may have a direct or indirect interest in the business, and may be in contact with the business on a daily basis, or may just occasionally. The main stakeholders are: Shareholders (not for a sole trader or partnership though) they will be interested in their dividends and capital growth of their shares. Management and employees they may also be shareholders they will be interested in their job security, prospects and pay. Customers and suppliers. Banks and other financial organisations lending money to the business. Government especially the Inland Revenue and the Customs and Excise who will be collecting tax from them. Trade Unions who will represent the interests of the workers. Pressure Groups who are interested in whether the business is acting appropriately towards their area of interest. Stakeholders versus Shareholders It is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They sound the same but the difference is crucial! Shareholders hold shares in the company that is they own part of it. Stakeholders have an interest in the company but do not own it (unless they are shareholders). Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict. The conflict often arises because while shareholders want short-term profits, the other stakeholders desires tend to cost money and reduce profits. The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e.g. the workers may go on strike or the customers refuse to buy the companys products).

To promote ethics, stakeholders need to - Find ways to satisfy the needs of various stakeholder groups - Pressure from outside stakeholders will promote ethical behaviour - Government agencies, industrial councils, regulatory bodies and consumer watchdogs all play a role in promoting ethical behaviour