a.

Title : Business Ethics in Ensuring Corporate Governance

b. Name of the author: Pankaj Khanna

c. Designation : Associate Company Secretary of R.C.A Limited

d. Membership No : A27867

e. Department : Secretarial Practice & technical analysis

f. Mailing Address : Flat No. 301, Block – A

21, Ramlal Mukherjee Lane (3rd Floor)

Howrah – 711106

g. E-mail address : cspankajkhanna@gmail.com

h. Phone: +91 9831877481 (P), +91 79809914339

Ethics & Corporate governance
Pankaj Khanna is an MBA (finance) graduated from EIILM and a Company

Secretary. He has a strong passion for academics. He is working as a CS for

R.C.A limited and even engaged as a technical analyst. As a freelance writer

he is associated with ASBAS solutions Pvt. Ltd as a subject matter expert.

Active as a blogger and a fitness freak, multitasking is his cup of tea. Even

serves the CS institute as a Counsellor.

The articles consist of 9 journals, 1 book and 5 websites. I found them

immensely useful in completing the project.

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Ethics & Corporate governance
Abstract

Corporate governance and business ethics go hand in hand as strong ethics leads to strong corporate
governance. Whenever corporate governance is discussed questions of ethics are bound to be present. It is
present in every aspect of corporate governance, as well as the decision of the board. Ethical choices need to be
determined so that the board has clarity and is able to guide the business on the future course of activities.
Business ethics provides support to corporate as it lays down the foundation for a strong organization where
people follow the desired rules and regulations. The paper sheds light on the Indian corporate governance,
corporate governance, business ethics and its advantages. The article even evaluates the link that is present
between the corporate governance and business ethics. Further, the role of business ethics is even highlighted
that helps in ensuring strong corporate governance.

Keywords – Corporate governance, Business ethics, Ethics, regulations, transparency,

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Ethics & Corporate governance
Contents
1. Introduction..................................................................................................................................... 5
2. Requirement for a strong Corporate Governance ........................................................................... 7
 Discipline ........................................................................................................................................ 7
 Fairness ........................................................................................................................................... 7
 Transparency................................................................................................................................... 7
 Social Responsibility ...................................................................................................................... 7
2. Board Behavior Dynamics .............................................................................................................. 8
3. Business Ethics ............................................................................................................................... 9
4. Advantages of business ethics ........................................................................................................ 9
 Attracting new Talent ..................................................................................................................... 9
 Investor trust ................................................................................................................................... 9
 Satisfaction of customers ................................................................................................................ 9
5. Business ethics link in Corporate Governance ............................................................................. 10
6. Corporate where Ethics and Corporate Governance is highly observed....................................... 12
 Tata group ..................................................................................................................................... 12
 Sundaram Clayton Ltd .................................................................................................................. 12
 Dr. Reddy's Lab ............................................................................................................................ 13
7. Conclusion .................................................................................................................................... 14
References............................................................................................................................................. 15

Table 1
Exhibit 1: Structure of Corporate Governance .......................................................................... 6
Exhibit 2: Board Behavior Dynamics........................................................................................ 8
Exhibit 3: Code of Ethics ....................................................................................................... 11
Exhibit 4: Board Evolution ...................................................................................................... 12

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Ethics & Corporate governance
1. Introduction
Corporate governance is an important mechanism of the business, as well as organizational management that
has extended to internal trade and politics, globalized corporations, organizations, and markets. The theories
and principles related to corporate governance initiated in the year 1990 and currently, it is the need of the hour
as it helps in regulation of the risk of entities thereby mitigating corporate scandals and disaster, losses and
damage that might happen to investors, society, etc. It is stated as the manner in which the business is
regulated. It is majorly concerned with the functioning of the board as it contains the maximum responsibility
for the overall business (Kowalewski, 2016).

Governance pertains to the manner in which the board is constituted and performs the function. It goes far
beyond the issue of the composition of the board, the framework and the stakeholder accountability. Corporate
governance has become a buzzword because of much corporate failure in the past. Corporate governance
projects the value framework, the ethical, as well as a moral framework under which the decision of the
business is structured. When the process of investment happens across the national borders then the investors
wants to confirm that their capital is managed in a manner that is genuine and transparent and does not involve
any scandals (Holm & Laursen, 2007). In tune to this, corporate governance ensures transparency,
accountability, and safeguard of the public interest in the light of changing scenario. Further, it calls for strong a
regulation that safeguards the investor’s rights and companies to enhance the productivity, as well as
profitability. Moreover, it ensures ethical and efficient business framework (Behan, 2009). The principles of
corporate governance are not limited to a specific area. It can be used and applied in public service organization
and other small businesses and social enterprises.

The concept of corporate governance was shot by the Cadbury Committee in 1992 and published the Code of
Best Practice in 1992. The recommendations contained dividing the role of the chairman and the CEO with a
minimum of three non-executive directors on the board. Further, the formation of the audit committee was
coined and advocated an active and stronger role for the institutional investors to foster good practices in
corporate governance (Dedman, 2002).

Cadbury committee set up in the UK in 1992 shot Corporate Governance in prominence world over. It
published its Code of Best Practice in December 1992. The recommendations included separating the roles of
the CEO and chairman, having a minimum of three non-executive directors on the board and the formation of
audit committees. The code also advocated a more active role for institutional investors to promote good
practices in corporate governance

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Ethics & Corporate governance
Exhibit 1: Structure of Corporate Governance

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Ethics & Corporate governance
2. Requirement for a strong Corporate Governance
Good corporate governance can be described as a formal system that is designed for accountability and ethical
decision making (Lee & Shailer, 2008). The main features of Good Corporate governance are as follows:

 Discipline
Corporate policies are successful when they are implemented. The management of a company spend years to
establish a strategy that will help in breaking new grounds, however, if it fails to mobilize the workforce then
the effort might fail. Corporate governance needs discipline, as well as commitment to implement policies and
strategies.

 Fairness
Fairness is always the topmost objective of the management. It is important for the managers to influence the
employees so that the work done is of high caliber and rapid. However, it must be kept in mind that a huge
work pressure can derail the smooth progress. The companies should treat the customers in a fair manner in
terms of ethics and public relation else it might erode the goodwill.

 Transparency
Corporate transparency is the need of the hour after innumerable fiasco and issues. It uplifts the morale of the
organization because the employee understands the strategy of the managers and work as per the expectation.
Moreover, the customers like those corporations that have a strong transparency.

 Social Responsibility
Social responsibility has assumed a place of special importance. Consumers are expecting the company to play
a leading role in terms of recycling of waste and reduction of pollution. Corporate governance prescribed and
spots ways to enhance the practices by the promotion of social welfare in the economy.

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Ethics & Corporate governance
Exhibit 2: Board Behavior Dynamics

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Ethics & Corporate governance
3. Business Ethics
Business ethics can be termed as applied ethics. It is a way through which the moral or ethical norm is applied
to the business. The term ethics appear from the Greek word “ethos” meaning custom or character, moral
nature, feelings, or guiding beliefs. Ethics can be defined as a set of principles that guides the individual
behavior or any organization. Moreover, it can be described as the discipline that is related to the moral
obligations and duties. It is even the study of features that deals with the moral selection when moral
connections are established with another (Tricker & Mallin, 2012). Further, it consists of the principles, as well
as standards that guide behavior considering the stakeholder's needs.

4. Advantages of business ethics

To ensure a strong performance it is important for the company to establish a link between ethics and financial
performance. Companies that are involved in a strong ethical commitment are able to showcase a better as
compared to the ones that do not follow an ethical code of conduct.

 Attracting new Talent

People aim to join organizations that contain strong ethical values. Hence, companies with a strong ethical and
moral value are able to win over new talent. An ethical company ensures that their employees are taken care of.
An ethical ambiance is the need of the hour and creates a workplace that is laced with trust enabling the
employees to act, operate in a diligent manner.

 Investor trust
Investors are always concerned regarding ethic, trust, morale, responsibility and reputation of the business in
which they want to invest. With the due passage of time, investors have framed an opinion that an ethical
environment will help in enhancing the activities of the company and thereby lead to an increment of wealth
(Tricker & Mallin, 2012).

 Satisfaction of customers
Customer satisfaction ranks high when it comes to business plans. A business can succeed when it has repeated
the purchases and build a strong bond of trust and confidence with the customers (Tricker & Mallin, 2012).
This can be attained when the business operates considering strong ethics. When a company has high ethical
value, any mishap in the course of activity will be considered a minor fault.

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Ethics & Corporate governance
5. Business ethics link in Corporate Governance

Corporate governance resides on various cardinal ethical values. There are various codes that highlight the
ethical feature of good corporate governance. Some of the values that can be counted upon are the values of
Transparency, responsibility, accountability and probability. Such values should pervade all features of
corporate governance and projected in every action of the board (Walker, 2004). There are various features of
corporate governance like functional reporting, disclosure, risk management, etc that are instrumental in
gaining the cardinal values of corporate governance. Apart from the values that are underlying in corporate
governance, it even contains moral obligations of specific nature that the board, as well as the company needs
to follow (Robert, 2009). The noteworthy fact is that the company should act on standards that are high in terms
of ethics so that the goodwill of the company will be safeguarded and the rights of the shareholders are given
due respect. It is to be noted that a strong structure of corporate governance establishes a structure that works
for the benefit of everyone and complies with all the ethical standards.
Ethics are not mentioned in the code of corporate governance yet any fault leads to an ethical issue. Most
importantly business ethics guides the company and governs them. Business ethics are part and parcel of
corporate governance and not an optional exercise. Ethics is linked to behavior and business ethics is related to
the behavior in business and the behavior of the business (Robert, 2009). The decision making should have an
ethical base and that stretch to the board room, organization, and various other activities. The board and the
management have the main task of ensuring ethical behavior. The company’s risk profile is determined by the
board in consultation with the top management by considering the appropriate level of risk. Some companies
have a higher risk appetite as compared to others. Establishing a defined level of ethical should be a vital part of
every organization strategy, policy making, and risk management (Gillan, 2006). Often many dilemmas happen
in the course of business and it needs to be determined what the best course is for the company and those
influenced by the actions. Boards need to understand and ensure a proper decision making. It is a prime
function of corporate governance that needs to be established considering the business ethics. The future course
of action of corporate governance depends immensely on the development of business ethics (Willis, 2005).

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Ethics & Corporate governance
Exhibit 3: Code of Ethics

With the due passage of time, corporate governance has received paramount attention owing to huge scandals
that abused the corporate power and in various cases, many criminal activities are involved too. All such
matters and issues jolted the corporate arena and hence, the ethical code needs to be implemented and followed
strictly. An essential part of corporate governance should contain a provision for civil, as well as criminal
prosecution of persons who are engaged in unethical practices or acting illegally on behalf of the organization
(Ghafran & Sullivan, 2013).
All the codes prescribe that the board should take into consideration that a code of ethics is established,
implemented and endorsed by the board. Corporate governance even provides guidance on the development of
a code of ethics or referring to issues that must be addressed in the code by stressing on the process that must be
followed to design the process. There is numerous codes that take an in-depth view of the ethical happenings
(Lee & Shailer, 2008). The best comprehensive recommendations can be traced in the Narayana Murthy
Committee report on Corporate Governance.
Amendment in the Companies Act 1956 were done to bring a new and refined version that is the companies Act
2013 to provide strong back up to the standards of the corporate governance. Hence, there is a coordinated
effort of the market, the regulator, and the government to work together and enhance corporate governance in
India. The three Indian companies listed on NASDAQ are Rediff, Infosys, and SIFY. They have set examples
of high standards of corporate governance along with the high ethical value in the dealings (Ntongho, 2016).
Infosys, Tata Group, Wipro and the Reliance Industries were among the four Indian companies that are rated in
the most respected tag (as per the survey conducted by the Financial Times).
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Ethics & Corporate governance
Exhibit 4: Board Evolution

6. Corporate where Ethics and Corporate Governance is highly observed

 Tata group
Tata Group is well known for its business excellence. Words like quality and excellence have become a part
and parcel of the management. The group delivers a strong understanding of the importance of the health and
wealth of the entrepreneurial activity. The ethical practice in Tata Group is signified by the framework Tata
Business Excellence Model (TBEM) that was adapted from the Malcolm Baldrige archetype (Tata Group,
2016). It focuses on business excellence and business ethics.

 Sundaram Clayton Ltd

Sundaram-Clayton Limited (SCL) has a major reliance on the concept of independence, transparency,
accountability, code of ethics that are major elements of corporate governance. It seeks to attain the optimum
performance at various levels by adhering to the best practices of corporate governance (Sudaram Clayton
Limited, 2016). It has always stressed on corporate governance as a way to enhance the long-term stakeholder’s
value through ethics and sustained growth.

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Ethics & Corporate governance
 Dr. Reddy's Lab
Dr. Reddy's commitment to strong standards of corporate governance and ethical business practices is by dint
of the Board of Directors, management, and employees. The corporate governance policy is strong owing to the
timely disclosures, accountability, transparency, etc and preservation of the trust of the shareholders
(Dr.Reddy's Laboratories Ltd, 2015). The company has traced, as well as developed the purpose and core
values for the attainment of corporate governance.

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Ethics & Corporate governance
7. Conclusion
Ethics can be defined as the first step towards corruption and brings harmony to the overall organization. Good
corporate governance is the need of the hour as it encompasses rules and regulations implemented by the
government. Moreover, it is even regarding ethics, as well as values that drive the companies in steering their
business. It is all about the goodwill that the business has established over a period of time between the
company and stakeholders. Good corporate governance does not ensure a failure free organization, however,
the avoidance might lead to practices that might dampen the goodwill and question the practices. To ensure
ethics work in an organization, there must be a strong synergy between vision, mission, core values and code of
conduct. An effective ethics program needs a proper enforcement of strong values. Therefore, to ensure a bright
ethical ambiance it is essential that a right combination of spirit and structure is needed.

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Ethics & Corporate governance
References
Behan, B. (2009, January 17). Governance lessons from India's Satyam. Retrieved from:
https://www.bloomberg.com/news/articles/2009-01-16/governance-lessons-from-indias-satyambusinessweek-
business-news-stock-market-and-financial-advice

Dedman, E. (2002). The Cadbury Committee recommendations on corporate governance – a review of

compliance and performance impacts. International Journal of Management Reviews. 4, 333-352.
doi:10.1111/1468-2370.00091

Dr.Reddy's Laboratories Ltd. (2015). Dr.Reddy's Laboratories Ltd 2016. Retrieved from:
http://in.reuters.com/finance/stocks/companyProfile?symbol=REDY.BO

Robert, E.F. (2009). A companion to Business Ethics. Doi: 10.1111/b.9780631201304.2002.x

Ghafran, C. & Sullivan, N. (2013). The Governance Role of Audit Committees: Reviewing a Decade of
Evidence. International Journal of Management Reviews, 15, 381–407. doi:10.1111/j.1468-2370.2012.00347.x
Gillan, S. L., (2006) Recent developments in corporate governance: an overview. Journal of Corporate
Finance, 12, 381–402. http://dx.doi.org/10.1016/j.jcorpfin.2005.11.002

Holm, C. & Laursen, P. B. (2007). Risk and Control Developments in Corporate Governance: changing the role
of the external auditor?. Corporate Governance: An International Review, 15: 322–333. doi:10.1111/j.1467-
8683.2007.00563.x

Kowalewski, O. (2016). Corporate governance and corporate performance: financial crisis. Management
Research Review, 39(11), 1494-1515. doi: 10.1108/MRR-12-2014-0287
Lee, J & Shailer, G. (2008). The Effect of Board-Related Reforms on Investors Confidence. Australian
Accounting Review, 18, 122-134. Doi: 10.1111/j.1835-2561.2008.0014.x
Ntongho, R.A. (2016). Culture and corporate governance convergence. International Journal of Law and
Management, 58(5), 523-544. doi: 10.1108/IJLMA-04-2015-0016

Sudaram Clayton Limited. (2016). Sudaram Clayton Limited. Retrieved from: http://www.sundaram-
clayton.com/Profile.htm

Tata Group. (2016). Tata group profile. Retrieved from:

http://www.tata.com/aboutus/sub_index/Leadership-with-trust

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Ethics & Corporate governance
Tricker, B & Mallin, C. (2012). Business ethics is the bedrock of corporate governance. Retrieved from
https://businessethicsblog.com/2010/10/20/corporate-governance-and-ethics/

Walker, R. G. (2004). Gaps in Guidelines on Audit Committees. Abacus, 40: 157–192. doi:10.1111/j.1467-
6281.2004.00156.x

Willis, A. (2005). Corporate governance and management of information and records. Records
Management Journal, 15(2), 86-97. doi: 10.1108/09565690510614238

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