Chapter-11 Ethics and Corporate Governance

PREPARED BY: HIRAL SHAH MAYANK PANCHAL DARSHIL KHADKHAD

Ethics and corporate governance

Ethics :

'moral values and principals'.It is a decision of choosing right among wrong and right.
Corporate governance :

An lnternal system encompassing policies,process and people,which serves the needs of shareholders,and other stakeholders,by directing and controlling management activities.

SIGNIFICANCE OF ETHICS IN CORPORATE GOVERNANCE

Ideally,corporate governance should aim to integrate and direct

the resources and efforts of a company in a manner that enables it to accomplish its vision,mission and goals.
appropriate company strategy and policy which should be ethically correct-for sustainibility.

However,attaining vision and mission needs the support of

Businesses fails because of:

- lack of transperancy in operations. - closed-loop opeartions to benefit few principal stakeholders. - cutting corners of regulatory provisions. - lack of care for investing public.

Ethics equally applicable to all business

Finance

Manufacturing
Service IT-industries Any other institutions or orgs. System

Through which these businesses produce & distribute goods and services in a society and serve its customers,employees,suppliers and all other stakeholders.

Business goals with Ethics and CG

Ethics and corporate governance should be reflected in

companys business goal.

It is not enough for a company to create environmental &

social valuesthrough in CSR programme;it is necessary to build and implement these concepts into the companys corporate governance strategy.
Business practice for good governance must show deep

concern and respect-expressed through daily bness processe for the welfare of employees,associates,its social environment,for the needs of its customers,and for the environment and ecology.

Contd
It should also be commited to ethical practises for

pricing and supplies,for regulations which have evolved with a view to take care of potential risks and damages to investors,society,other stakeholders.

VALUE CREATION

BRAND VALUE

SOCIAL VALUE

ECONOMIC VALUE ETHICS GOVERNANCE

ADDING VALUE TO THE ORGANISATION IN ETHICAL SUSTAINABLE MANNER

In a competitive,free market environment,a company must

stand the test of BRAND IMAGEfor success in the market place.

Brand image is mostly the result of SOCIAL VALUE

creations which in turns attracts customers,clients,employees,vendors alike.

If social value is the force that drives the company in the

external market,ECONOMIC VALUE is important for its stakeholders.

CORPORATE GOVERNANCE STRUCTURING

The basic purpose of corporate governance structuring is.. To motivate and control executive and employees to respect and retain fair business practices. Effectively utilise various resourses. To maximise efficiency of a business for economic,moral,social and environmental benefits of the stake holders. WITH CHANGING BUSINESS ENVIRONMENT,THE TASK OF CORPORATE GOVERNANCE MUST ALSO CHANGE.

Contd..

- Without ethical guidance,governance would loose its direction

and purpose.

- Companies would fail to create value themselves without holding

onto moral principles and ethical standards for decisions and actions.

- In fact,CG is the journey towards creating sustainable growth

through continuous value edition to the organisation-creating an environment beyond the self; creating faith in the collective entity and creating a sense of spiritualism whilst doing things.

Ethically a business must:

Adopt a transperant policy of management and governance abiding by

rules & regulations and laws,codes of best practices and the principle of holistic approach.

Adopt a principle approach to product/service design for customers and

consumption by the society.

Be fair in bness goals,and transparent in market dealings. Listen to and communicate with people and customers with honesty and

integrity.

Make efforts to reach out to all in the community and the society. Protect and promote health and safety,enironment in the society because

they are the base support on which businee stands and grows.

Components of Japanese CG
Leadership charged with moral responsibility Deep concern&care for employees Respect for customers

Commitment for fair bness practice

Exellence through creativity Discipline in thoughts,deeds&actions Consciousness for social responsibility

Improving ethics in corporate

In improving the corporate governance via ethical means it is important to first understand the important features of modern features such as: Not confined to one location Continuously changing environment and economical conditions A business is greatly affected by the global financial and business environment Thus model of corporate governance should that which is robust enough to adapt to situational variations with assured sustainability of business A good corporate governance need to ensure that business process are: Fair and Transparent Respectful to customs and culture of the country Following government regulations, trade agreements, tariffs, labour laws etc Concerned about interest of minorities Concerned about well being of society

The aim of good corporate governance is to create not only economic value but also social value for the sustainability of the business. This dual aim could be achieved only through the means of ethics and ethical conduct The companies may try to achieve the short term economic advantage by overlooking ethical responsibility but it cannot be sustained to long term. Many companies such as Enron, Lehman brothers have faced this. In indian, many organisations still do not fully apreciate the sinificance of ethics in corporate governance and this is evident from the reports about violation of tax, pension fund etc Such behavior affects the interest of shareholders,society, suppliers,employes etc The good governance is the proper mixture of ethics and management to achieve the companiys mission and vission

Holistic nature of corporate governance

Big S

Big S

Governance

Regulators/societ y

Enviroment

The three essential component of the corporate governance are: Society Environment Stakeholders The aim of corporate governance should be to: To promote culture of ethics in corporate decision and actions Ensure fairness. Justice and equity to all connected with the business Corporate governance must also go beyond the law because loop holes of the laws are sometimes used for unethical practices Corporate governance should be empathic to the interest of employees and society along with enhancing the earnings of the shareholders and promoters

Along with improving internal enviroment companies should also focus on improving external factors such as:government rules and regulations, trade pacts, labour laws etc Most of companies rely on feedback control system of ethics to govern the internal factors however instead companies should use feed-forward which tend to rely on prevention of causes and promotion of ethical culture The governance of internal controls is largely focused on controlling financial irregularities to control the damages to stakeholders The governance of external controls is largely focused on ethical compliance to laws, agreements , social cultures, interest of those who affect the business etc CSR are also considered by many companies to achieve social value

Total ethical practice(TEP)

It s a new strategy introduced to promote ethical practices The aim of TEP is to prevent the occurrence of misconduct, ensure just and equitable protection, promote fairness focus on the vision and mission of the company

Steps in TEP
Monitor measure control and prevent wrongdoings Identify moral guidelines for governance and operations

Manage the execution and operation by ethics driven policy deployment

Identify executive processes that are critical for success

Understand ethical implications and directions of these executive process

Another important aspect of corporate governance is leadership. leadership refers to the top management The task of leadership does not only include controlling the acts in the organization but also to contribute to policy framing that ensure fairness and justice in the organization Leaders should believe that the value of organization is not only in distributing dividends or carrying out expansion but to create sustainable value for self and society Leaders are expected to establish and maintain equilibrium of objectives that are beneficial for not only shareholders but also other stakeholders like employees, customer, society etc. Thus good corporate governance means the companies should carry out their business in ethical way by controlling internal and external factors to obtain proper balance between its vision mission and benefit of society