- Chapter 01 -
THE PROLOGUE
Like most things in life, issues arising in the field of corporate governance boil down to a set of questions about relationships. For all the current debate about whether ‘corporate governance’ refers solely to matters affecting the structure and composition of boards of directors or a broader range of issues relating to the framework within which corporate policy is made and articulated, there is no escaping the fact that we are discussing a series of arrangements contrived by and for human beings.
When it comes to the nature, form and functions of a corporation; nothing is given. Everything is a matter of choice. All is open to criticism and justification. As such, there is a critical ethical dimension to the debate - which, inevitably, forces us to consider the nature, quality and extent of the underlying relationships on which the corporation is founded.
In answering the question, “what is corporate governance?” it is said, “It is the relationship among various participants in determining the direction and performance of corporations”.
The key participants as being: shareholders, management and the board of directors. This identification obviously invites a response from those who hold that other key ‘stakeholders’ ought to be included in the discussion of corporate governance. Obvious contenders include employees, creditors and the community - especially as the latter manifests itself in the form of government.
The corporation enjoys the status of person as a legal fiction. But behind this fiction is a reality constituted entirely by the actions and interactions of people: people interacting with other people; people interacting with the products of technology; people interacting with systems and people interacting with the full variety of the natural world.
Aims and Objectives
The basic aim of this project is to study the ethical views on Corporate Management and Corporate Governance.
The basic objective of this project is to understand the concept of Corporate Management and Corporate Governance.
Scope
The scope of this project is restricted to just the ethical perspective as a area for Corporate Management and Corporate Governance.
Anything outside this cannot be taken into consideration until unless it is used to attain the said aim and objectives.
Research Tools
The research of this project was carried out with the help of the Internet and the various books available in the Library.
In whole of the project, uniform footnoting style is adopted in conformity with the National Law University , Jodhpur
Methodology
In this project we shall be studying about Corporate Management and Corporate Governance in the light of its ‘ethical perspective’.
Hence, the methodology used shall be deductive.
Research questions
1) How is Corporate Governance different from Corporate Management?
2) What was the use of Corporate Governance when Corporate Management was already present?
3) What is the talk of ethics all about?
4) How is code of practice different from code of ethics?
5) How to implement and monitor code of practice?
- Chapter 03 -
CORPORATE GOVERNANCE v/s CORPORATE MANAGEMENT
The term ‘corporate governance’ has recently become a buzz-word. Seminars are being held in corporate governance and exercises are being conducted at different levels to bring in better corporate governance. The SEBI recently has also notified the corporate governance guidelines based on the Kumaramangalam Committee Report.
What is corporate governance and how is it different from corporate management? As I see it, corporate governance is nothing but the moral or ethical or value framework under which corporate decisions are taken. Corporate managements generally have been concerned with using the physical, financial and human resources available with the management to get the best possible results in the interests of the stake holders and, particularly, shareholders. It is quite possible that in the effort at arriving the best possible financial results or business results there could be attempts at doing things which are verging on the illegal or even illegal. There is also the possibility of grey areas where an act is not illegal but considered unethical. These raise moral issues.
The issue of corporate governance became particularly significant in the context of globalisation because one special feature of the late 20th century / 21st century globalisation is that in addition to the traditional three elements of the economy, namely physical capital in terms of plant and machinery, technology and labour, the volatile element of financial capital. Financial capital invested in the emerging markets and in third countries is an important element of modern globalisation and has become particularly powerful. Thanks to the ubiquitous application of information technology, at the touch of a computer mouse, it is possible now to transfer billions of dollars across borders. The significance and the impact of the volatility of the financial capital was realised when in June 1997 the currency of South East Asian countries started melting down in countries like Thailand, Indonesia, South Korea and Malaysia. It was realised by the World Bank and all investors that it is not enough to have good corporate management but one should have also good corporate governance because the investors want to be sure that the decisions taken are ultimately in the interest of all stake holders. Honesty is the best policy is a fact that is now being re-discovered.[1]
In practical terms, corporate governance has meant that there should be at the board level non-official directors who are professionals and who have no conflicting interests and who can particularly operate the two key committees, the Ethics Committee and the Finance Committee to see that there is greater transparency in the management of the enterprise. Corporate governance ultimately has to come to mean better transparency in the operations without sacrificing business strategy or business secrets which are necessary for success in the market place and absolutely ethical behaviour where the conduct of the company will not only be legal but also ethical.
That brings us to the basic issue of what will be the ethical issues in corporate governance. Honesty is the best policy. This means that there has to be absolute integrity in all operations. Integrity is of three types:
* Financial integrity
* Moral integrity
* Intellectual integrity
So far as corporate governance is concerned, it is financial integrity that assumes tremendous importance. This would mean that the directors and all concerned should be open and straight about issues where there is conflict of interest involved in financial decision making. When it comes to even the purchase procedures, there is need for greater transparency.
The need for greater transparency, especially in corporate management arises because with transparency comes accountability. Firstly, people at large were surprised that there could be transparency. Secondly, it exposed the delay in our departmental systems when some of those, whose names were in the web site claimed that they have not even received the charge sheet. This means that the disciplinary authorities were slow or worse, they were protecting the corrupt. If an honest public servant was involved in a departmental inquiry, delay meant causing harassment to him. The web site strategy has helped me now to vigorously pursue every month the pending cases with the various disciplinary authorities. Thirdly, it shows that how the people of doubtful integrity who were facing prosecution or penalty procedures can be in sensitive positions. Fourthly, it also showed that such transparency could have a deterrent effect on those likely to cross over from being honest to dishonest. So, transparency has a direct link with accountability and automatically acts as a self-corrective mechanism.[2]
When it comes to the ethical issues in corporate governance, linked with transparency, the question is to what extent the management or the manger would practice openness about facts, which may even be embarrassing.
Many a time, the issues may arise about being transparent, which may compromise the financial interests of the company. Suppose a company has been behaving in a manner, which is harmful to the environment, there may always be a tendency to downplay the impact or even cook up the figures to say that there is no damage caused to the environment. These are really ethical issues where I think the corporate management will have to show its commitment to good governance by accepting responsibility. There have been examples of good companies including Maruti recalling defective vehicles when safety of the people was threatened. Many a time, such a course of action has been forced on the companies because of whistle blowers or consumer activist movements. To the extent the company is able to take the initiative once the facts come to notice for correcting itself, it is ethically on the right lines.[3]
The same issue of ethics may arise where negotiations have to take place especially, for instance, with financial institutions for projecting the viability of a case. Here absolute integrity is essential because many a time we find that the industries have become sick because of fudging of figures and not being transparent when the projects being evaluated. Even more important is the day to day operations. There was a public sector enterprise, which was allegedly involved in a case of giving illegal gratification to a State Government enterprise in order to secure a contract. When the issue came up before us the point to be decided was whether the act of the public sector enterprise in engaging a so-called consultant and paying heavily to him for securing the contract was proper though the public sector enterprise would have got the contract on merits alone?
But, the fact that corruption is a two way street. If suppose one is running an enterprise and one’s competitors are going to resort to bribes to get the contract, what should one do? I think whistle blowing is needed in this situation. I would, therefore, suggest that in stead of compromising and paying the bribes, it is better, especially where the CVC has a role to play, to inform the CVC. In such a situation, the CVC will take up the matter both with the organisation concerned and the higher authorities, like the Secretary to the Government, so that such practices can be curbed.[4]
The concept of dharma sankata is well known in our Hindu religion. Narova Kunjarova (human or elephant) was the situation where Yudhistra in Mahabharata lied. For the sake of getting a short-term benefit, resorting to lies or straying from the straight and narrow path ultimately leads to a long-term failure. I would, therefore, suggest that even at the cost of sacrificing short-term benefits, it is better for an enterprise to adopt healthy practices.
There is an excellent example of Alacrity, an enterprise concerned with building houses as NBCC. They have adopted the policy, though in the private sector, that will deal only with cheques and there will be no cash transactions. This has brought such a reputation to alacrity that even the public servants who normally take bribes in Chennai when they come across an employee of alacrity, do not ask for bribes. Can we not create through, at least our public sector enterprises, an environment in which there will be no underhand dealings and no violations from the path of integrity and corporate transparency?
Corporate governance and ethical behaviour have a number of advantages. Firstly, they help to build good brand image for the company. Once there is a brand image, there is greater loyalty, once there is greater loyalty, there is greater commitment to the employees, and when there is a commitment to employees, the employees will become more creative. In the current competitive environment, creativity is vital to get a competitive edge.
Another area where corporate governance and ethical issues may arise is at the time of the annual report and particularly preparing the annual balance sheet. There may always be a tendency to do what is called, window dressing and to show that the results were better than what were projected. I think a stage has come when it is better to be transparent and not do much of financial engineering but be straight because this may prove to be better in the long run. Especially now in the context of the liberalisation and the opening up of the Indian companies for foreign competition, an issue will also be raising about the accounting practices that are being followed in our companies. Probably we will have to fall in line with the international accounting standards so that both in terms of transparency and in terms of actually measuring the effectiveness of the enterprise there is a certain amount of uniformity. This in turn will also strengthen our Indian companies to take on the global competition more effectively.[5]
Finally, we can say that the basic issue of effective corporate governance in the ethical side by ensuring corruption within the organisation is also kept under control. Here a three-point strategy, which can perhaps be adopted by the corporates also mutatis mutandis so far as their checking up corruption is concerned. The three points are:
- Simplification of the rules and procedures so that the scope for corruption is reduced,
- Bringing in greater transparency and empower the public. In this case, the public enterprises are those which are interacting with the enterprise or with which the enterprise has to have supplier or customer transactions, and
- Effective punishment of the guilty.
This three-point strategy should help to nurture a culture of honesty in the organisation. Once the culture of honesty is built up in the organisation, good corporate governance becomes an automatic healthy by product.
- Chapter 04 -
VALUES AND PRINCIPLES – IN PRACTICE
The development of virtuous individuals and organisations is only possible in an environment in which people are consciously reflective about the status of shared practices that define their daily activity. In this context, the two great enemies of progress are firstly, a lack of integrity through which people (or organisations) say one thing and do another and secondly, a lack of thought in which people do things “just because that’s the way we do things around here”.
Fear of punishment or an over-reliance on control mechanisms are replaced with a fair degree of self-regulation as the preferred basis for ensuring sound practice in the field of corporate governance. The reason for this is simple. Virtuous dispositions can only be developed through practice. Similarly, a sense of personal responsibility only develops in an environment where choice is a genuine option. In circumstances where all or most matters are decided in advance by the legislature, or regulators, individual directors and boards are (somewhat paradoxically) relieved of their sense of responsibility. One hears comments like: “Why bother worrying about x. It’s up to the government to decide. If they haven’t said that it is wrong; if it is legal - then it must be ok”. In such circumstances, all manner of wrongs can be committed by otherwise decent people who have suspended their judgement in deference to the authorities.[6]
At the ‘micro’ level, good corporate governance will be fostered by the adoption of ‘inclusive’ procedures designed to bring all the relevant parties into the process. For example, if compliance is an issue, say, for a Board’s Due Diligence Committee, then it might achieve best practice by encouraging management to focus on developing a culture (or ethos) that is supportive of compliant behaviour. That is, the Board will adopt policies that reward compliant behaviour and not just punish the errant.
The board’s key role is to ensure that corporate management is continuously and effectively striving for above-average performance, taking account of risk. This is not to deny the board’s additional role with respect to shareholder protection.
It is clear that boards must do everything in their power to establish a framework of policies within which performance can be maximised, taking account of risk. Given recent developments in the theory of organisational behaviour, there are good reasons for holding that people perform best when managed according to a paradigm which assumes the predominance of positive aspects in human nature. A responsible board should take full account of this sort of information and ensure that it informs its deliberations when approving policy. Not to do so, would be to court the charge of insincerity in the pursuit of improved performance.[7]
Other recent research suggests that a proper concern with the ethical environment of a corporation is essential to long-term business success.
Visionary companies pursue a cluster of objectives, of which making money is only one - and not necessarily the primary one. Yes, they seek profits, but they’re equally guided by a core ideology - core values and a sense of purpose beyond just making money. Yet, paradoxically, the visionary companies make more money than the purely profit-driven comparison companies.
A moment’s reflection should suggest why the increased profitability enjoyed by ‘visionary’ companies is not all that paradoxical. Any organisation capable of managing the complexities associated with paying proper attention to the way in which values are expressed in practice will be well-equipped to cope with the burgeoning complexity that defines the world in which we live.
Furthermore, an organisation that deals with the ethical dimension of all its activities will, at the same time, be building a high-trust environment. As we know, high trust correlates with low-cost. This is especially so when ethical commitments are reinforced so that they become part of the deep structure of organisations. In these circumstances, blind rule following is replaced by compliant behaviour based on the voluntary expression of dispositions that accord with desired practices. A certain degree of vigilance is still appropriate. However, far less supervision is required. And where rules are silent or ambiguous, there is still a basis for proper action.
“I put it to you that the directors are responsible to the shareholders for profit in perpetuity; and that this general expression of a principle permits, indeed requires, directors to pay full regard to their employees, to labour relations generally, to the community, to the country, in all their decisions for and on behalf of shareholders.”
All of this may seem to be suggesting that a commitment to ethical behaviour can be generated by quoting the misleading nostrum that “good ethics is good business”. While the evidence suggests that good ethics is good for business, it would be misleading to suggest that narrow self-interest can generate a stable commitment to ethical behaviour. Instead, the values and principles that count most are those that will attract support - even if there is a cost. People should be ethical because this is the right thing to do.
Needless to say, a great number of practical souls will be wondering about the detail of a programme designed to deliver the kind of results that I envisage. Those of a more sceptical bent may even doubt that such a programme can be devised. The Ethicscan process, developed by The St James Ethics Centre is one such approach. It not only generates a base-line study but also assists organisations in the development and implementation of strategies designed to foster an inherently ethical culture - a culture which builds successful performance on a foundation of consistently applied values.[9]
The kind of process applied by the Centre is essentially practical in nature. It not only maps a culture but, equally importantly, takes a hard look at the systems and policies so as to determine the nature of signals being sent in the organisation. The aim is ultimately to ensure that all the signals - values statements, remuneration policies and so on, are in alignment.
- Chapter 05 -
WHAT ARE ETHICS ALL ABOUT
For some years now, the topic of ‘ethics’ has been gaining increased exposure across the ranks of the management community, its advisors and regulators. Many believe that the rise of interest in this topic can be traced back to the latter years of the last decade - a time when society began to look for an appropriate response to what has been labeled ‘the excesses of the 80s’.
While the activities of the ‘corporate cowboys’ certainly gave impetus to the current wave of interest in business and professional ethics, it is important to recognise the force of other factors driving the process.
Of these, the most important factor is the rate and process of change. As the rate of change accelerates, so novel problems arise with increasing frequency. Some of the most obvious challenges come about because of developments in technology. For example, people working in the field of medicine regularly encounter circumstances where technology could be applied to sustain life but where to do so would merely be to extend the natural process of dying. At the same time there are issues to do with equity and the allocation of the community’s resources. Should every person have access to the latest diagnostic tool or medical treatment? Or should there be some kind of ‘rationing’ in the interests of containing costs? Whether attention focuses on developments in medical research or the practice of health care professionals, the questions go on.[10]
Although ‘bio-ethical’ questions capture the popular imagination, technological developments in other areas give rise to equally pressing issues. The use and potential abuse of information and communications technology has the power radically to affect the nature of society. New forms of surveillance may limit our effective zone of privacy. Genetic engineering gives rise to new life-forms which, as commodities, may serve commercial interests while defying nature’s laws of evolution.
Looking towards the horizon of the future, it should be obvious that complex ethical questions are going to be a constant feature of our environment - touching the public and private sectors alike.
Another reason for a boost in the volume of talk about ethics can be found in a sincere determination to find an alternative to escalating regulation and surveillance. There can be no doubt that there is popular pressure on governments to ensure that the community is protected from some of the worst excesses perpetrated by those who would put profit or personal success before all else. And governments, of all persuasions, need little encouragement to expand their sphere of influence.[11]
The trouble is that too much regulation and surveillance can destroy the very qualities of personal and institutional responsibility that should be encouraged. External controls can only do so much. Their limitation is that no matter how comprehensive, people will be tempted to wriggle through loopholes - especially if there is no understanding of the underlying principles that are being reflected in the rules. Let me be clear, I am not suggesting that government abdicate its responsibility to set the framework within which commercial and professional behaviour is conducted. And I am not wanting to advocate the abolition of regulation. Rather, I am concerned to argue that a balanced approach be adopted. In particular, an essential element of self-regulation ought to be allowed otherwise we will find that individuals and corporations surrender their judgment about the rights and wrongs of a situation in favour of a limited and strict interpretation of the law. As we have seen, once the language of ethics has been lost, it is hard to recover.
One implication flowing from the view I have advanced is that organisations will need to become far more sophisticated in the way they manage the ethical dimension of their environment. A concern about ethics needs to become a vital component in the process of strategy development. Policies and procedures need to reflect a genuine commitment to building a culture in which deep values are explicitly acknowledged. This means going beyond a commitment to the ‘shallow’ commercial values of profit maximisation and instead allowing a full appreciation of what underlies such commitments. In other words, the organisation needs to know why profits are important. Only then will other legitimate concerns be weighed in the balance.[12]
A failure to address these issues at a deep level will reinforce community cynicism that talk about ethics is just another piece of window dressing, just another public relations stunt. If this cynical view is reinforced then the cost will not just be borne by the management community. All of us will be affected - and so much for the worse.
A final reason for attention to ethics is the evidence of an increasing focus on the need to develop the skills of leadership as well as those of management. Or perhaps, it might be better observed that the inherent role of leadership in management is again being made explicit. For some time now, the idea of an ‘art’ of management has been replaced by the idea that management is a kind of ‘science’. Invariably, the creative aspect of science has been ignored in favour of its technical aspect. Management has been reduced to a kind of technology overseen by a crop of narrowly trained MBA graduates.
A renewed concern about leadership and its role in the art of management now means that there is a need to address issues to do with the character of those who lead organisations. In turn, this leads to a consideration of whether or not managers should possess a range of virtues suitable to their task. For example, do managers need courage, fortitude or even wisdom? Each person will have their own answer to such questions. The important thing to note is that whatever the ultimate answer may be, the conversation is once again about ethics.
Many discussions about ‘ethics’ begin with a flourish only to grind to a halt as people encounter disagreement about the answer to a fairly fundamental question, “What is ethics all about?”
The disagreement flows from the fact that most people only have a partial understanding of the basic questions that are addressed in the field of ethics. The most commonly held views include a mixture of the following:[13]
Ø Ethics is the same as morality
Ø Ethics is about rules for behaviour (‘soft laws’)
Ø Ethics is to do with theory (part of the useless species of things dreamed up in ivory towers)
While each view is severely limited, it is easy to see how it can be held as most people tend to see only part of the overall picture. Those wanting to capture the broader perspective may be best assisted by returning to what is regarded to be the founding question in ethics.
Few will be surprised to learn that the basic question of ethics has an ancient pedigree. Indeed, it can be traced back to a Greek philosopher who lived and taught in Athens
‘What ought one to do?’[14]
It should be obvious that this is an immensely practical question confronting us whenever we have a choice or decision to make. It is also a question that is extremely difficult to avoid. Indeed, the only sure way to escape this question is to be a creature of unthinking habit who goes about life doing things “because everyone does it” or because “that’s just the way we do things around here” or because “it seemed like a good idea at the time”.
People who are dissatisfied with this approach; people who wish to make their lives their own will recognise that Socrates’ question ultimately requires each of us to give an account of how our choices and decisions contribute to what we would defend as a ‘worthwhile’ life. And that is how we come to address issues of good and evil, right and wrong.
If ethics is about practical rather than purely theoretical matters, it should also be understood that it encompasses a general conversation about how people should live a ‘good’ life. This helps to explain the difference between ethics and morality. The distinction can be demonstrated by using the analogy of a conversation. If one imagines that the field of ethics is a conversation that has arisen in order to answer the question, "What ought one to do?", then moralities (and they are various) are voices in that conversation.
Each voice belongs to a tradition or theory that offers a framework within which the question might be contemplated and answered. So there is a Christian voice, a Jewish voice, an Islamic voice, Buddhist voice, Hindu voice, Confucian voice and so on. Each voice has something distinctive to say - although they may all share certain things in common.
There are, in addition to the moralities that flow from the world's religions, the voices that represent the various attempts to found moral systems on the thinking of secular philosophers. No ethical theory or morality (from the West) has found a way to answer Socrates' question in a way that totally avoids the countless ethical dilemmas that seem to be a persistent feature of what might be called the ‘ethical landscape’.
One simple example may suffice as an indication of the type of dilemma that might be encountered. Most people would agree (possibly for quite different reasons) that people ought to tell the truth. These same people will hold that one ought to avoid causing harm. But what happens when to tell the truth will cause another person harm? Each principle seems to be valid on its own account, but when put in combination with other values an irreconcilable tension may arise. This is not a trivial point. It reminds us that the ethical landscape is painted in shades of grey and not black and white. Sometimes we need to accept the limits to certainty when trying to decide how best to proceed. Sometimes our range of choice is reduced to picking the least bad alternative. Sometimes we may have nothing more than a well-informed conscience to guide us through the maze of ethical decision making.
In all this discussion one crucial point has been left unsaid: that ethical considerations involve an essential social element. Whether one seeks to move from religious conviction, or from a position in which one seeks to generate consequences in which pleasure is maximised and pain minimised, or from the point of view in which other persons are seen as being members of the 'kingdom of ends', the result is the same - a consideration of ethical questions involves a consideration of the quality and nature of relationships with other people.
- Chapter 06 -
CODES OF – ETHICS AND PRACTICE
How To Implement And Monitor A Code Of Practice
As will be seen from the matter given below, there are two principal types of code - codes of ethics and codes of conduct or practice. It goes without saying that the difference is often ignored. Yet the distinction is an important one. Before setting out some thoughts on how to develop these codes and make them work, it may be useful to say something about why they so frequently fail.
Putting it bluntly, even well-intentioned people are committed to the folly of developing codes as an alternative to the active and creative management of an organisation's culture. The development of a code is an understandably attractive alternative. At first glance the solution seems to be relatively cheap and efficient. In fact, it is regrettably common for the following process to unfold:
1. refer the matter of 'ethics' to Corporate Counsel, Human Resources or a consultant
2. have the appointed individual draft an appropriate document (usually based on earlier attempts by others)
3. publish the code (occasionally with a 'sign off' requirement)
4. activate the internal monitoring / enforcement regime
5. sit back and relax
This is, of course, something of a caricature. However, when it comes to addressing the 'problem of ethics', most companies look for a cheap 'off the shelf' solution. What is more, those who seek such a solution do so in the face of compelling evidence that solutions of this type may be superficially efficient - but almost totally ineffective.
A moment's reflection about the thought experiment outlined at the beginning of this chapter will begin to suggest some fairly obvious reasons for why codes might fail when developed or applied in such circumstances. For example, it is clear that there needs to be a level of trust within an organisation sufficient to ensure that people are prepared to believe claims by management et al that rules are designed to prevent a serious mischief or promote a worthwhile good. In a similar vein, one recognises that the range and quality of relationships that underpin an organisation's culture need to be such that a sufficient degree of loyalty is felt to be owed to the institution and its defining ends.
Recourse to a 'quick fix' has a further disadvantage. At first glance, the error might seem to be quite trivial. However, there is considerable significance to be found in the fact that so many organisations set out to develop a Code of Ethics and, instead, produce a Code of Conduct (or some sort of hybrid). The significance of this goes beyond the issue of mis-description. Rather, the confusion is evidence of the phenomena described above - phenomena in which the broader issue of ethics is set aside in favour of the 'hard science' of specifying types of behaviour that, in defined situations, are to be prescribed or proscribed.
The discussion above has alluded to a difference between Codes of Ethics and Codes of Conduct. What are these differences? The difference between the two alternatives is relatively easy to describe. A Code of Ethics expresses fundamental principles that provide guidance in cases where no specific rule is in place or where matters are genuinely unclear. A well drafted Code of Conduct will be consistent with the primary Code of Ethics, however, it will provide much more specific guidance. In comparison to a Code of Conduct, a Code of Ethics will tend to:
Ø be more general,
Ø contain fewer principles,
Ø be expressed in terms of "ought" or "should" (and not "must"),
Ø be directed to all persons affected (and not just to 'employees'), and
Ø provide general guidance in those cases where a Code of Conduct is silent, ambiguous or unclear.
Bearing this in mind, a Code of Ethics might include provisions such as:
Ø That our actions should be based on a recognition of the essential dignity of each and every person.
Ø That we should have an active concern for the well-being of the community and the environment.
Ø That we should provide a challenging and safe work-place in which people can flourish.
(...and so on. Naturally enough the principles need to be amended to take into account the distinctive ends that an organisation might seek to achieve).
On the other hand, a Code of Conduct will have a number of discreet headings which cover specific instructions. For example:
Gifts & Benefits
Employees must:
Ø not demand or accept any unauthorised gifts, rewards or benefits because of the employee's status
Ø disclose to their manager any gift, reward or benefit offered or suggested to them in connection with their duties.
Conflicts of Interest
Employees must:
Ø ensure that there is no actual or apparent conflict between their personal interests and the performance of their duties
Ø identify, and fully disclose in writing to their manager, possible conflicts of personal or financial interests.
At first glance, it may seem that far more use can be made of a Code of Conduct. After all, such a Code provides clear and unambiguous direction about appropriate standards of behaviour. However, further examination of the issue reveals that the less specific Code of Ethics is the more significant document.
Despite (or some would say because of) its 'fuzzy' form, a Code of Ethics is the better vehicle for ensuring long-term commitment to important values. This is because a Code of Ethics demands something more than mere compliance. Instead, such a Code calls forth an exercise in understanding that is linked to a requirement that people exercise judgment and accept personal responsibility for the decisions that they make. As a North American manager observed to Fortune:
Today life is fired at us point-blank. People don't have time to refer to the Bible or to the company handbook. You've got to have all that internalised.
A Code of Ethics should be a document that expresses an organisation's underlying values. It is therefore essential that the document ring true for those to whom it applies. And this means that Codes of Ethics need to be devised in consultation with the people most directly affected by its application. In other words:
Everyone who's going to have to live with the statement should get a chance to put his or her two cents in.
Codes of Ethics and Codes of Conduct are not 'magic bullets' that solve an organisation's problems. And the fact that an organisation has a written Code will not guarantee that its personnel are especially ethical. But good managers will realise that, if approached with the proper degree of care and sophistication, the very process of developing these Codes can have a profoundly positive effect on the culture of an enterprise.
If it is not already clear, let it be stated directly that organisations should be looking to develop both types of code. Indeed, serious consideration should also be given to the suggestion that there be an additional level of documentation outlining the responsibilities owed to stakeholders. The idea is to create a series of 'nested' and logically related documents each of which contributes something different to the process of reinforcing the ethos of the organisation.
Having undertaken a cursory explanation of the difference between the two types of code and bearing in mind the earlier discussion about the ways in which common approaches to developing these codes can lead to failure, what can be said by way of advice about the appropriate way to proceed?
To many, the following observations will seem blindingly obvious. The only thing that might prevent them from being labelled as the fruit of common sense is the fact that they are so uncommonly applied in practice.
Map the base-line
It is interesting to note that very few organisations take the trouble to assess the culture that they seek to reinforce or change. Anecdotal evidence or a kind of 'group memory' may provide a fecund source of assumptions that are seldom tested. At the very least, this opens one to the risk that the ideals of an elite come to form the basis for developing an approach to the organisation's ethos. In the same vein, it is possible that a 'mythical' culture can emerge from the minds of idealistic enthusiasts. It is possible to avoid such pit-falls by the relatively simple expedient of conducting a 'values audit'.
In its simplest form such an audit will seek to establish three things. What do people in the organisation:
Ø think to be its most important values?
Ø believe to be the ideal level of presence of each of these values?
Ø believe to be the actual level of presence of each of these values?
Such a survey will help to identify what people think to be important. But more importantly, this exercise will begin to identify what has been called 'the values gap'. It is an obvious step beyond this point to involve the workforce in suggesting the means to close the gap. In addition to this the audit will provide a base-line against which progress (such as in closing the gap) can be assessed.
Although becoming something of a cliché, it is still important to observe that people are more likely to apply rules that they have had a hand in developing than those which have been handed down - as if from 'on high'. At a fairly basic level it is easy to understand how it is that a degree of ownership of a process can create an acknowledged prima facie obligation. This naturally works to the advantage of those who look for compliance.
An additional practical reason for ensuring a broad base of involvement in the development and implementation of the codes is that this will increase the likelihood that the resulting documents will be relevant to the daily experiences of those to whom they apply. Beyond this, widespread involvement will help to ensure that codes don't call for one kind of approach while custom and practice demand another.
However, there are more important reasons for involving everyone. The foremost of these is that such a policy can be an effective expression of the principle that all people are owed respect. The fact that a company chooses to encourage all of its people to participate in defining its ethos indicates that personnel are regarded as being more than mere means for securing the organisation's ends.
An open culture in which each person is encouraged to contribute to the process outlined above is one that is likely to be one in which trust can be engendered. It is likely to be a culture with the underlying resilience to cope with periods of rapid change. When value questions are reserved for the judgment of the few (lest the public airing of such issues cause dissension), then the foundations of an organisation can be undermined by hidden pockets of unresolved difference. Cracks are papered over until the degree of tension increases to an unsustainable level.
Finally, it is important to understand that the requirement to involve everyone suggests that the process should be extended from the board-room to the factory floor. In a similar vein, the various codes ought to apply to all members of the organisation, and if there are to be differences, then these will need to be justified.
Aim For Short Development Cycles
Some organisations accept the importance of consulting their employees. But there is less of a concern to provide timely reports of the findings. Such practices can lead to a serious erosion in the level of morale within an organisation. People become cynical and easily develop the perception that the entire exercise was nothing more than a 'gesture' by management.
On the practical front, the quicker the turn-around, the greater the likelihood that positive reinforcement can be achieved.
Build In A Process For Review
It is important to avoid circumstances in which codes come to be seen as stale or 'set in stone'. It does not take many generations before unreconstructed codes lose their immediacy and relevance. Should this happen, then the code is likely to fail in its application. This is not to suggest that companies need constantly to be reinventing the wheel. It may be that despite being regularly (and fairly frequently) reviewed, the code(s) will continue, unchanged for years. However, the development of a review process will help to ensure that the documents remain relatively fresh and relevant. Indeed, the process of keeping the code(s) before people as living documents can prove to be an extremely effective 'handle' for those who have responsibility for developing strategies for the effective management of values.
There Is No Need For Managers To Surrender Responsibility
Much of the above suggests a commitment to principles of work-place democracy. Many managers will object to this implied orientation. Bearing this in mind, it should be stressed that none of the above is meant to suggest that managers ought to surrender their prerogative to manage. An important part of the process will be to define and articulate the various spheres of responsibility. It is perfectly reasonable for managers to specify that while they are genuinely interested in consulting their colleagues they will, in the end, have to accept responsibility for making the final decisions.
Some people labour under the false impression that there is just one type of culture that can be described legitimately as possessing sound ethical characteristics. The prevalence of this sort of belief may be a contributing factor to the tendency (noted above) to gravitate towards generic products that can be bought 'off the shelf'. There is also a level of comfort that flows from adopting positions that are similar to the existing norm.
Yet there is no need for homogeneity in the cultures and codes of organisations. In normal circumstances one would expect individual differences flowing from the existence of variations in defining ends, personnel and so on, to lead to natural variety in the types of ethos to be found in distinct organisations. All the same, there is no essential virtue in variety. One would not be too surprised to find organisations sharing a number of commitments and values. However, the key feature to be sought is an authentic expression of what people hold to be important and right.
One can mount convincing arguments to support the claim that there are ethical grounds for encouraging broad participation in the process of developing codes. Yet one needs to recognise that no matter how attractive and convincing these arguments, it is almost certain that organisations will focus on the 'bottom line'. And they will do so with the clear recognition that the 'quick fix' is the cheaper option. To follow the recommendations outlined in this chapter would be to commit a significant investment of resources - especially resources of time and personnel. So why make such an investment?
There are a number of other points that could be made touching on subjects such as the need for codes to be in plain English, to use inclusive language and so on. Any observations in these areas would be largely self-evident.
- Chapter 07 -
THE EPILOGUE
In the current social environment there are many who would argue that a genuine commitment to ethics is an unrealisable ideal. Many think that sound ethical principles are fine in theory but that they can’t really be applied in practice. To try to do so is to be nostalgic. They say that to promote virtue is to be old fashioned, to hark back to ideas only useful in a different era. They ask us to be 'realistic' and to embrace the 'modern' way of doing things. This plea is often nothing more than an ill disguised plea to allow for the survival of the fittest. Perhaps such people are right. Perhaps a dog-eat-dog world will be the most efficient. And perhaps efficiency is the only value that we need to embrace in the search for a worthwhile life. Or perhaps efficiency is only one of a number of important values that we must learn to juggle across an unpredictable landscape.
Those of us who are serious about the need to make ethical considerations an explicit concern in our daily lives must face up to this challenge. After all, what if our critics in the market place are right? What if the prime (and exclusive) aim in life really is to maximise our satisfaction of wants (and not just needs)? What if the liberty of the individual (important as it is) transcends all other considerations? What if it is through competition alone that we find the ultimate expression of our humanity?
One can only reply that an authentic commitment to leading an ethical life may require us to live in a way that makes only partial sense in a world dominated by an orientation to the principles of laissez faire. The noted Australian social researcher, Hugh Mackay,4 argues that a commitment to ethics may only make full sense when viewed against a background of community. That is, the possibility of leading an ethical life probably depends on the prior existence of a society and not just an enterprise association.
Most people have a fairly good feel for what it means to live in a 'society'. But what about an 'enterprise association'? We might imagine a city founded purely as a trading post. The laws of the city will reflect its original purpose, and have to be understood in relation to this purpose. Contracts will be vigorously enforced however unreasonable or unjust, because it is of the highest importance to retain the confidence of those with whom the city trades. Indeed, the notion of a contract being 'unjust' will have no meaning. All education will be subordinated to the need to produce an 'enterprise culture', and no subject will be studied as an end in itself. The rulers of the city will regard themselves essentially as the managers of the enterprise. Their tasks will be to maximise wealth and promote trade.
Is this so very far from what we now experience? Some may say that this is an accurate and even attractive picture of the type of world in which we live. But does such a view of our relationships miss something of vital importance? For example, do we exist simply to "facilitate the exchange of commodities" or is there something more? Is there, for example, a need to value friendships, to realise that other people can make a claim on us? Is living in a society only possible when we recognise that each person is bound to others within a network of formal and informal relationships?
The professions, and the community that warrants their continued existence, face the challenge of making a choice about the kind of society to be preferred. Do we desire a community of citizens in which something like the professions make sense? Or do we want the enterprise association in which each of us is little more than a purveyor or consumer of commodities? The latter consigns us to a place where the active pursuit of public service will seem strange and alien - just a shadow of a once remembered past.
Corporate secretaries ought to be at the forefront of debates about such matters. Beyond this, they need to demonstrate a practical commitment to being ethical and doing that which is right and good. Above all else, this will be the bedrock of their contribution to the task of building and maintaining a more ethical society.
[1] N. Vittal, Ethical Issues In Corporate Governance; cited from: http://cvc.nic.in/vscvc/cvcspeeches/march2k.html
[3] http://cvc.nic.in/vscvc/cvcspeeches/sp13mar02.pdf
[5] http://cvc.nic.in/vscvc/cvcspeeches/sp19mar02.pdf
[13] https://www.ab.ust.hk/sao/dir3/student_activities/ICAC_Speech_Ambrose_Lee_Eng.doc
[16] https://www.ab.ust.hk/sao/dir3/student_activities.html
[19] Mr. Ambrose LEE Siu-kwong, IDSM Commissioner, Independent Commission Against Corruption, HKSAR; cited from: https://www.ab.ust.hk/cm/dir2/adrs.html
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