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Ethical Governance- The Emerging Role of Company Secretaries as Ethics Officers by Joffy George and Prof. (Dr.) K.sasikumar 3

Ethical Governance- The Emerging Role of Company Secretaries as Ethics Officers by Joffy George and Prof. (Dr.) K.sasikumar 3

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Published by: routraykhushboo on May 04, 2011
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Ethical Governance: The Emerging Role of Company Secretaries as Ethics Officers
Joffy George, ACS and Prof. (Dr.) K.Sasikumar, Head of Department of Commerce,University of Kerala, Kerala.
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Ethics and Compliance go together in many aspects and in many companies individualsresponsible for the compliance function perform the role of ethics officer. Ongoingcommitment to an ethical code backed by disciplinary procedures and regularmonitoring of adherence to the code can help an organisation to negotiate anincreasingly complex business environment.
Many investors have faith in the ability of code of ethics tomeaningfully influence corporate behaviour and preventcorporate mishaps. Code of ethics alone are unable to influencecorporate behaviour and prevent corporate misdemeanours.If code of ethics are supported by everyone in an organisation,from the chairman down, and are continually updated andmonitored, they can set a sound framework for decision-makingand risk management. Just saying ‘don’t lie and cheat’ isn’tgoing to stop someone from doing it – how naïve. To besuccessful, codes of ethics must have the support of everyonein the organisation. As we know, ‘the fish starts stinking fromthe head’. Having the right ethical structure in place fosters aclimate of transparency and a culture in which good decision-making can flourish. But ethical structures do not have theability, or power, to eliminate dishonesty; they will never beable to completely eradicate this part of human nature. Enronhad had a code of ethics which was not followed because thecorporate culture did not support it. It is generally agreedthat, to be effective, an ethical code has to be a living documentsupported by an appropriate organisational culture and valuesystem. Moreover, to be of value, a code must be consulted,updated and debated.A host of factors determine whether a code will work.Individuals ‘sometimes inadvertently flout ethical codesbecause they misunderstand their duties’. A short-termmentality to performance sometimes breeds a culture in whichit is acceptable to make decisions that compromise ethics.When individuals feel ‘remote’ from a principle in a code,this principle is unlikely to be followed. Many codes requirean individual to ‘avoid conflicts of interest’ but few explainhow this should be done. While codes of ethics will neverstamp out greed, a principles-based code can encouragebusiness to use its ‘ethical muscle’ to make decisions for thelong-term good of the organisation. Ideally, ongoingcommitment to an ethical code, backed by disciplinaryprocedures and regular monitoring of adherence to the code,can help an organisation negotiate an increasingly complexworld.
Business Ethics and Organisational Culture
As far as organisational culture is concerned, instead of analysing various definitions of this expression, it makes muchmore sense to describe its essential characteristics. Thus, ‘ithas a guiding role that helps to know which activities suit bestthe firm’s personality, its existence is associated with the ideaof sharing intentions’; it is due to an empirical need to solvemanagerial problems’; and finally ‘it is specific to each firm’.It must be emphasised that ethical values can only have a lifeof their own if we make sure they are shared by the vastmajority of corporate members. In other words, these valuescannot be in the mind of a single executive or a small groupof executives; they must be assumed by the rest of people inthe organisation. From this perspective, corporate governanceappears as a function that can largely help to consolidateorganisational behaviour patterns.
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If the senior management decides to formulate a strategywithout the involvement of middle managers and others, itwill have a difficult time espousing a collegial flow of authorityand influence. Culture is more powerful than anything else inthe organisation. We can go even further saying thatorganisational ethical culture or, more specifically, the ethicalenvironment within the firm created through managementpractices and espoused values, may be the most importantdeterrent to unethical behaviour; or also point out that behavingethically depends on the ability to recognise that ethical issuesexist, to see things from an ethical point of view. This abilityto see and respond ethically may be related rather to attributesof organisational culture than to attributes of individualemployees.All firms have cultures, although it cannot be inferred fromthis that the actions of all firms are ethically correct. Thereare cultures where ethical issues are denied, ignored or removed.Furthermore, trusting, admiring and respecting a leader donot necessarily mean that followers will behave with integrity.The ethics component of organisational culture is composedof a complex interplay of formal and informal systems thatcan support either ethical or unethical behaviour. The formalsystems include leadership, structure, policies, reward systems,orientation and training programmes, and decision-makingprocesses. Informal systems include norms, heroes, rituals,language, myths, sagas and stories.
Corporate Governance and Business Ethics
The complexity of corporate governance means that no onetheory or model of society is likely to be sufficient forunderstanding, evaluating or designing governance structures.In a similar way, it can be said that there is little consensuson what good corporate governance entails. Another aspectto have in mind is that corporate governance is not the panaceafor the resolution of group or individual problems withinthe firm. In this respect, no leadership style can solve aloneall the situations in which a manager might find himself.Emphasis will have to be laid on one aspect or anotherdepending on the specific department or individualconcerned. An essential quality for those who have to developthis function lies in being able to diagnose the specificsituation and knowing which of the possible ways or stylesto deal with it is the best.In short, leadership by corporate governance goes beyondmanagement, since it also includes the concepts of encouragement, help and service to others with the purpose of carrying out the organisational mission through ethicallycorrect work. This must be accompanied by the existence of aformal corporate ethics programme which should necessarilyincorporate the following elements:(a)A code of ethics in line with the company’s ethicalexpectations.(b) Creation of ethical committees.(c) Maintenance of ethics communications systems thatallow employees to report abuses.(d) Appointment of an Ethics Officer.(e) Ethical training and regulation of a disciplinary processthat can correct unethical behaviours.
Codes and Ethical Governance
The increased global emphasis on regulation of financialmarkets is supposed to significantly improve the overall qualityof corporate governance. However, regulation by itself is notenough to prevent company collapses. It is impossible toregulate against greed and incompetence. Issues of trust andintegrity are paramount – no amount of regulation can influencethis. Public needs to be confident that regulations are in place,but they did not want regulation to stifle growth. Regulationis unable to prevent company collapses. The greedy part of human nature cannot be eradicated by legislation – butregulation can make it tougher for unethical behaviour toflourish. Impetus for better corporate governance should comefrom within an organisation.A strong preference for a principled, rather than a prescriptive,approach to regulation needs to emerge. Many feel thatprescriptive rules date quickly and foster a culture in whichthe letter, rather than the spirit, of the law is followed. On theother side, for many, regulation is only one part of thecorporate responsibility jigsaw, but one that can always beimproved. Regulators cannot be everywhere and do everything– a better solution is for the whole market to work together.Regulation can’t produce a blueprint for a risk-free world –economic growth has to be tolerant of these risks.
Emergence of Ethics Officers
The strategic leadership of ethical behavior in business can nolonger be ignored. In any case, we run the risk of convertingmuch of what is related to business ethics into a mere fashionif it really do not have practical value. A large number of problems arise in this context that have to do with the creationof the Ethics Officer figure and the role he or she must play inorder to champion business ethical values that can later beassumed by the rest of the organisation.Ethics Officer is someone who makes sure the organisation
 Ethical Governance: The Emerging Role of Company Secretaries as Ethics Officers
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is doing its best to satisfy stakeholders (all those internallyand externally related to the firm, such as employees,shareholders, clients, suppliers, the local community and thesociety as a whole). From this important premise, the figureof the Ethics Officer when he or she carries out his or hertask properly can become the meeting point between thesenior management, in general, and the rest of thecollaborators of the firm, as far as ethical issues are concerned.We are aware of the fact that ethical management issues arenot easily delegated in the same way as production, marketingor finance functions. Nevertheless, the creation of the EthicsOfficer figure is justified once the ethical guidelines havebeen established.
Do you need an Ethics Officer?
Ethical governance encompasses, not only teaching people howto be ethical but also teaching ethical people how to make agood decision when it could be difficult. Two decades ago,many businesses did not believe they had a duty beyond theminimum dictates of the law. That just doesn’t work today. Asmall number of wayward employees can sink a company,however massive it is. For companies to survive, they have tolearn to be pro-active in the gray areas of business. That iswhere the tough decisions are made. That is when ethics paysoff.An “Ethics Officer”, is one of a new generation of corporatemanagers who believe that “Business Ethics” need not be anoxymoron. The goal of an ethics officer is not only to insurethat the company operates in a compliance environment butthat all bring a strong, personal sense of values to our everyday experience in the workplace. Many times, employees haveno place to turn when they are under pressure - there were noclear company-wide ethical standards, no ethical hotline, andno ombudsmen to take their concerns.One of the roles of an Ethics Officer is to examine the statedvalues, mission, and goals of an organization and to determinewhether or not the organization’s behavior actually supportsthese statements. A company which claims to behave ethicallymay use an Ethics Officer as a symbol of accountability,showing that it does not just pay lip service, but actually hasan ethics code in force and appoints people to enforce it.Ethics Officers can also be part of the ethical review boardswhich review proposed experiments in the researchenvironment or consider other proposed activities which mayhave ethical implications. The Ethics Officer may also beempowered to undertake investigations into specific employeesor activities to confirm that they conform with company’sethical guidelines.
Common characteristics of Ethics Officers
They are strong communicators.
They are objective and thoughtful.
They have the ability to establish and maintain credibilityand trust throughout the organisation.
They have the ability to quickly assimilate informationrelating to complex issues.
They have the ability to network on all levels of anorganisation.
They have reached personal and professional maturity.
They show rationality in tense interpersonal situations.
They have a deep organisational knowledge.
They have a working knowledge of applicable laws andregulations.
They have experience and training in ethics andcompliance.
They have integrity and common sense.
Major Ethical Issues
Ethical governance is not just a question of process but of mindset and values among all stakeholders – and this can posethe greatest challenge. One thing is certain: nobody likes to‘lose face’. Nervousness about doing the wrong thing hasheightened. If companies value the formalizing of an ethicalframework, it is surely because it helps them cope with anincreasingly complex business environment due to openingmarkets, falling trade barriers, and intensified competition.The threat of legal penalties exists, but that is not the mainmotivation. Upholding the company’s good name andreputation for integrity are important competitive advantages,and that’s the main motivation.Board of Directors shall pay enough attention to the followingethical issues:
Creating a culture of integrity
Implementing a code of ethics
Assessing level of adherence to code of ethics
Fraud prevention
Tackling actual or suspected fraud
Tackling bribery
Removing conflicts of interest
Ensuring objectivity in financial reporting
Equal treatment of shareholders
 Ethical Governance: The Emerging Role of Company Secretaries as Ethics Officers

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