Business Ethics and Corporate Governance
Companies are increasingly being required by both regulatory authorities and by their shareholders to operate efficiently, responsibly and ethically. How banking companies – especially those that are in public trade – meet these requirements has a direct impact on public confidence in the free market system.
Corporate governance is defined by Sheik and Chaterjee (2001) as:
“Distribution of rights and responsibilities among different participants in the
organization, such as the board, managers, shareholders, and other stakeholders, and
spells out the rules and procedures for making decisions on corporate affairs”
Corporate governance, therefore, is concerned with establishing a system
whereby the directors are entrusted with responsibilities as well as duties in relation
to the direction and day to day operation of a company’s affairs. It is also founded on
the system of accountability, primarily directed towards the shareholders, in addition
to maximizing the shareholder’s welfare in the long-term.
(i) State Bank of India
The Golden Peacock Global Award was honored State Bank of India for
excellence in corporate governance’ in 2012from Mr. Eric Picker, Former Prime
Minister of the Sweden and Co-chair of the World Commission on Forest and
Sustainable Development. State Bank of India has a three-pronged governance
structure that provides for checks and balances throughout its operation.
First layer of this structure is the ‘law of the land’. Statutes on the number of
non-executive and independent directors, board procedure, and terms of office
are followed with rigor.
Second layer is ‘ethics and compliance through audit committee’. As
stipulated by the code, and this comprises, among other things, employee
welfare measures leave with pay, provident fund, gratuity and profit sharing.
Third layer is ‘communication’. To ensure that a culture of safeguard all the
stakeholders interest by applying prompt transparency and integrity in all the
banking operations/transactions. Evenly communicates for excellence in
customer service through answerability and highly standardized leadership to
build ideal leadership skills among other employees
(ii) ICICI bank
Among the top ten companies in Asia ICICI bank received one of the
prestigious award Corporate Governance Asia Annual Recognition Awards 2013 and
also awarded the certificate of recognition as one of the top 5 companies Corporate
Governance in The Institute of Company Secretaries of India (ICSI) National Awards
for Corporate Governance. The ICICI bank, consistently one of the highest CG score
companies in India is ahead of prevailing CG norms and has implemented most of the
reforms even before they became mandatory.
Till today its disclosure standards are among the best in the entire industry.
Also, it provides the most comprehensive manpower data like age profiles,
experience, education levels, and gender mix etc., elaborated in detail. ICICI is one of
the very few companies in India to have a board with a majority of independent
directors, as well as wholly independent audit, nominations, compensation, board
governance, CSR, customer service, fraud monitoring, information technology
strategy, share transfer & shareholders’/investors’ grievance, credit and risk
committees and committee of executive directors.
1.5 Measures to Create Ethical Behavior
Theodre Purcell and James Weber (1981) suggested three ways for applying
and integrating ethical concepts into daily action. They include:
1. Establishing appropriate company policy or a code of ethics,
2. Using a formally appointed ethics committee, and
3. Teaching ethics in management development programs.
Thus it is top management which has to take initiative to establish ethical
organization.
Creating Value System
In common parlance, value is indicative of worth, honor, and finally right and
wrong actions and choices. It is also associated with norms, world views, culture and
tradition.
Values can be classified into individual and organizational values. Values at
the Individual level includes faith, self-respect, setting an example or being ideal,
open-mindedness, competitiveness, creativity, devotion towards work, tolerance,
sacrifice, courtesy, good, just, civic sense, honesty, humility, simplicity, reason, truth,
non-covetousness, forgiveness, fortitude, cleanliness, absence of egoism, detachment,
poise, equanimity etc,
Values that can be imparted to the members of organization collectively
include harmony, resourcefulness, discipline, dharma, equality, brotherhood, unity,
peace, social conscience, co-operation, live and let live concern, care, mutual trust,
love, team-spirit, efficiency, effectiveness, excellence, morale, productivity,
responsibility, risk-bearing, accountability, sharing, sacrifice, etc.
Open Book Management – The goal of open-book management is to get employees
to think like an owner by seeing the impact of their decisions and actions on financial
results.
Employee Selection – The selection process should be viewed as an opportunity to
learn about an individual’s moral level of development, personal values, ego strength,
and locus of control.
Codes of Ethics – A code of ethics, a formal statement of an organization’s primary
values and the ethical rules it expects its employees to follow, is a popular choice for
reducing that ambiguity. For instance, nearly 95 percent of Fortune 500 companies
now have codes of conduct.
Ethics Game – Individuals are grouped into small groups or large groups are divided
into several teams. Individuals or teams are presented with ethical dilemmas based on
the company’s actual experiences. The goals of the game are to help employees
recognize ethical dilemmas and increase their understanding of its rules and policies
regarding ethical behavior.
Ethics Committees – Many companies have ethics committees to advice on ethical
issues. Such a committee can be a high-level one, comprising the board of directors
and chaired by the CEO of the company.
Board- Many boards of directors now include outside directors, such as influential,
academic, minority, and religious leaders, who give “society’s” view during decision
making.
The Ethical and Social Responsibility Review -Written regulations cannot possibly
cover all potential marketing abuses, and existing laws are often difficult to enforce.
However, beyond written laws and regulations, business is also governed by social
codes and rules of professional ethics. Enlightened companies encourage their
managers to look beyond what the regulatory system allows and simply “do the right
thing”. These socially responsible firms actively seek out ways to protect the long-run interests of their consumers and the environment.
Ethics Hot Lines – A member of the ethics committee receives the confidential call
and then quickly investigates the situation. Elaborate steps are taken to protect the
identity of the caller, so as to encourage more employees to report any deviant
behavior.
Ethics Training Programs – Generally speaking, ethics training is most effective
when it is conducted by company managers, and is steered away from abstract
philosophical discussions to focus on specific issues from the work environment.
Ethics Manual – If an organization is keen to set up explicit norms that will guide its
general business principles and code of conduct, it needs to first craft a business ethics
manual. Such a manual will begin with the ‘Vision Statement’ and proceed from there
to a clear declaration of actual norms, practices and what the company considers to be
strict. A good ethics manual will integrate these different aspects within a common
and reiterative scheme such that the whole manual hangs together as a unity.
Ombudsman Position – An ombudsman is a person within an organization, often an
elder and respected manager, close to retirement, who has been relieved of operating
responsibilities and assigned the task of counseling younger employees on career
problems, organizational difficulties and ethical issues. The term in Swedish, refers
to a government agent in that country who has been especially appointed to investigate
complaints made by individual citizens against pubic officials for abuses of power or
unfeeling/uncaring acts. Often the ombudsman can go considerably beyond
counseling and investigation and is able to act informally to resolve problems.