1. Meaning of Ethics:-
Ethics in Latin Language is called “Ehicus”
and in Greek, it is called “Ethicos”. In fact
this word has originated from ‘ethos’ meaning
Character or Manners.
Ethics is thus said to be the source of
morals -------- moral principles, recognised
rules of conduct. The character of a man is
expressed in terms of his conduct.
Ethics refer to the code of conduct
that guides an individual while dealing in
a situation. It relates to the social rules that
influence people to be honest in dealing with
the other people.
Ethics are the principles of behaviour
that distinguish between the right from the
According to Oxford Dictionary,
Ethics is related to morals. It is the science
of morals which is concerned with human
character and conduct, capable of knowing
right and wrong.
Ethics concern the rightness or
wrongness of human conduct. It describes
what is right and what is wrong in human
behaviour. These rules tell us when our
behaviuor is acceptable and when it is
disapproved and considered to be wrong.
These are a set of rules that define right and
wrong conduct.
2. Meaning of Business Ethics:-
Business Ethics is the Evaluation of
business activities and behaviour as right or
wrong. Ethical conduct confirms with what
a group or society as a whole considers right
In the simplest forms, Business Ethics
are moral principles that define right and wrong
behaviour in the world of business. What
constitutes right and wrong behaviour in business
is determined by the public interest groups,
and business is organizations, as well as an
individual’s personal words and values.
Business Ethics are the desired norms of
behaviour exclusively dealing with commercial
transactions. Business Ethics, in short, can
be described as the systematic study of moral
matters pertaining to Business, industry or related
activities, institutions or practices and beliefs.
These are rules of business conduct by which the
proprietary of business activities may be judged.
But also relates to the behaviour of managers.
Business Ethics concentrate on moral standards
as they apply to business policies, institutions
and behaviour. It is a specialised study of moral
right or wrong. Today, more and more interest is
being given to the application of ethical practices
in business dealing and the ethical implications
of business as Business Ethics are nothing but the
application of ethics in business.
Introduction to Business Ethics
Leads To Taken together
-------- Decided by considered as
Know as
By which we can Moral
Judge again Requires Judgment
Ethics thus can be considered as the source of Character of
a person expressed as Right or wrong conduct or Actions.
An understanding of Ethics:-
In any organization, from top management
to Employees at all levels, Ethics is considered as
everybody’s business. In business it is not just only
achieving high levels of economic performance, but
also to conduct one of business’s most important social
challenges, ethically.
The problems in a business are multifold. Many
of the vendors offer Kickbacks to the buyers, for the
purchase of their goods and securities. These bribes are
many a times hefty and within a short period, the buyers
Character of
a Man
Conduct of a
Service of
Good or Bad
Right or Wrong
Moral or Immoral
make plenty of money.
A number of Ethical Problems in business can
Case Study No. 1: - When orders dropped in any
manufacturing company, the Supervisor is asked to
terminate a few employees to save cost. The Supervisor
knows that some of them though loyal, hard working,
they have to be terminated to save his skin. He knows it is
unfair to terminate the employees and still he is helpless.
Even if he is given two months termination time by the
Company, he will not reveal his plan of termination to
the employees with a fear that employees will quit while
still needed or not work as hard as they usually did after
being told. The Supervisor had to entrée all company rules
and policies. For him, the ethical dilemma relates to two
dimensions :- (I) Personal (II) Professional.
Case Study No.2: - In another case, a senior Librarian
who was very casual and negligent in his attitude, had to
make one of his weak Assistant a scapegoat at the end of
the year when Library Inventory was checked and nearly
500 books were short. The Senior Librarian know very
well that his Assistant is highly loyal, sincere and honest
in his work and such a thing would not have happened
from him. However, the reason of the books lost could not
be found out by him and he had to put the blame on his
junior who is mentally weak and innocent. Otherwise, he
had to take the full blame. He took the decision of putting
the blame on his junior rather than on himself.
There would be many episodes like this, raising
ethical question for a number of reasons. Sometimes
society is harmed. At other times the individual makes
profit in an unfair way at the expense of others. We all
know the story of the clever monkey that ate the curd
rice and smeared it on the face of the goat. The Goat was
punished severely by his master who thought that it had
eaten the same
A business firm suffers many a times with
higher costs when the firm has to pay hidden costs for its

Ethical Rules:-
Ethical rules are guides to moral behavior. For
example, all Societies have ethical rules and these are
all basic rules of behavior which are of much use for the
presentation and continuation of organised life.
I. Forbidding
II. Buying
III. Stealing
IV. Deceiving and
V. Harming others.
Similar to these, other ethical rules are.:-
1. Honesty
2. Keeping Promises
3. Helping Others and
4. Respecting the right of others.
Sources of Ethics
The earliest recorded Codes of Conduct found in the
Bible are:-
1. Honour your father and your mother, that you may have
a long life in the land which the Lord, your God is giving
2. You shall not kill.
3. You should not commit Adultery.
4. You shall not steal.
5. You shall not bear false witness against your
6. You shall not covet your neighbour’s house; you shall
not covet your neighbour’s wife, nor his male or female
slave, nor his ox or ass, nor anything else that belongs to
him or her.
Primary Sources of Ethics:-
1. The legal system.
2. Religion
3. Genetic Inheritance.
4. Philosophical System
5. Code of Conduct
6. Cultural Experiences.
1. The legal System:-
Laws represents a rough approximation of society’s ethical standards. Thus the laws
serves to educate about the ethical causes in life.
2. Religion:-
Religious morality is clearly a primary force in shaping our societal ethics. The
applicability of religious ethics to the business community is the concern.
3. Genetic Inheritance:-
In recent years, Socio- Biologists have lots of evidence and arguments to suggest
that the evolutionary forces of natural selection influence the development of traits such as
cooperation and alteration that lie at the core of our ethical systems.
4. Philosophical System:-
To the Epicureans the quality of pleasure to be derived from an act was the
essential measure of its goodness. Philosophies have been instrumental in our society’s moral
5. Code of Conduct:-
The primary categories of codes are ,(1) Company codes, (2) Company operating
policies, (3) Codes of Ethics.
6. Cultural Experience:-
The rules, customs and standards transmitted from generation to generation are
considered as guide lines for appropriate conduct. Individual values are shaped in large measure
by the norms of the society.
Objectives of Ethics:-
The primary objective is to define the highest good of man and set a standard for the same.
Here we have to consider ethics to deal with several interrelated and complex problems which may be
of psychological, legal, commercial, philosophical, Sociological and political in nature.
The other objectives are:-
1. Study of human behaviour, making evaluative assessment about them.
2. Establishing moral standards and norms of behaviour.
3. Making judgment upon human behaviour based on these standards and norms.
4. Prescribing moral behaviour and making recommendations how to behave or vice-versa.
5. Expressing an opinion or attitude about human conduct in general.
Scope and objectives Business Ethics:-
Ethical issues exist at all levels of business activity. As per Peter Pratley, Business Ethics has a
two fold objective:-
1. Evaluates human practices by calling upon moral standards.
2. Gives prescriptive advice on how to act morally in a specific kind of situation.
The first objective implies Analysis and Evaluation. It leads to an ethical diagnosis of past
actions and events.
The second objective is to provide the Therapeutic advice. It suggests slowdowns and
policies when facing the present dilemmas and future dangers, based on well- informed opinions.
This specially requires an identification of relevant stakeholders and a clear understanding of the
vital issues at stake.
Scope of Business Ethics:-
1. Stakeholders Level:-
I. Employees:-
− Security of Job
− Better working condition
− Better Recommendation
− Participative Management
− Welfare Facilities.
II. Customers:-
− Better quality of goods.
− Goods and services at reasonable price.
− Not to corner stocks and create securities.
− Not to practice discriminatory pricing.
− Not to make fake claims about product in advertisements.
III. Shareholders:-
− Ensure capital appreciation.
− Ensure steady and regular dividends.
− Disclose all relevant information.
− Protect minority shareholders interest.
− Not to window dress balance sheets.
− Protect interest in times of merges, amalgamations and takeovers.
IV. Bank and other lending institutions:-
− Guarantee safety of borrowed funds.
− Prompt repayment of loans.
V. Government:-
− Complying with rules and regulations.
− Honesty in paying taxes and other dues.
− Acting as Partner in the progress of the country.
2. Personal Policy level:-
− Not to use office Car, Stationary and other facilities for personal use
− Not to fall prey to short ends.
− Not to misuse others for personal.
− Not to indulge in policies to gain power.
− Not to spoil promotional chances to others.
− Promise keeping
− Mutual help.
3. Societal level:-
− Concern for poor and downtrodden.
− No discrimination against any particular section or group.
− Concern for clean environment.
− Preservation of scarce resources for prosperity.
− Contributing to better quality of life.
4. Internal policy level:-
− Fair practices relating to requirement, compensation, layoffs, perks promotion etc.
− Transformational leadership to motivate employees to aim at better and higher things
in life.
− Better communication at levels.
Case Study No. 3: -
Work on bridge construction was going on over the river Ganga. The contractor who had been
awarded the contract had quoted the lowest rates on the condition that the Executive Engineer
would allow him to use hot annealing of steel, where he would save nearly Rs. 2, 00,000/- per ton.
The bridge required fifty thousand tons and the contractor was to save ten crore of rupees, if the
Engineer overlook the provision of cold annealing. The Contractor was ready to share half of the
Extra profit with the Engineers. The Executive Engineer Incharge had agreed to the stipulation.
He knew that a lay person would never be able to decipher the difference between cold and hot
annealing of steel. Usually the auditing and costing people belonged to that category and the
Executive Engineer was sure that he would be able to keep the audit team happy by looking after
them and by giving expensive gifts.
The Executive Engineer had not considered the possibility of a new young Assistant Engineer
joining the team for the bridge project. On his first inspection tour, the Engineer stopped the work
on the bridge site after finding out that hot annealing was being carried out. When the contractor
told him that before stopping the work he should consult his boss the Executive Engineer, who
in fact authorised the hot annealing by explaining that the hot annealing would yet take care
of the bridge for at least the next 10 years and by that time he would have retired from service.
The assistant Engineer remained adamant on his decision and decided to report the matter to the
Executive Engineer.
Assistant Engineer:
You may not be aware that on the bridge site, the Contractor is cheating the
Government by using not annealed steel. Thereby risking the safety of the bridge. I have stopped
the work, although the contractor was justifying hot annealing as you had approved it. Of course,
he could not show any written approval given by you.
Executive Engineer:
I believe what you did was the right decision from a youngster like you. You have
no experience of building bridges, while I am veteran in this game. I can recount at least ten
bridges which I got constructed and all of them have stood the test of time, by being in use for 10
years or more.
The Assistant Engineer had read the reports of the collapse of the Mandovi river
bridge in Goa, which was constructed by the Executive Engineer but he kept quiet about it. The
Executive Engineer said you have had a tiring day. Go home and relax. You will find your wife in
quite a good mood tonight.
The Assistant Engineer found a new Thirty inch TV had been installed in his
house, courtesy the Contractor.
Question for the students:-
1. Accept the gift and fall in line with the Executive Engineer.
2. Politely return the TV and yet kept protesting with the boss about the
Un-ethical practice of the contractor.
3. Report the matter to the Chief Engineer; even though he has a sneaking
suspicious that perhaps even he was involved in the racket.
4. Report the matter to the Minister and the Police.
It is the job of the CEO to organize training programmes in ethical business for the new entrants
in the organization and also have refresher course for the existing employees. Such training
programmes need the total support and the approval of the Board of Directors. The training
should be done by using real life case studies, where free and frank views need to be expressed by
the participants without any fear of persecution at a later date. The HR Department should ensure
that no training programme is organised without an element of training on Ethics. The employees
must be encouraged to report on unethical behaviour of any employee (at whatever level he or she
works in the organisation) found guilty. For this purpose the CEO has to build the organisational
culture, which is conducive to ethical behaviour and of non tolerance of unethical behaviour.
Each member of the company, new and old, must be given a copy of the code of conduct for the
employees with continuous updates to it as and when made. The CEO plays an integral role in
the conduct of business of the organisation and in today’s competitive world he can servive in the
market place only by conducting himself ethically and creating the organisational culture, which
fosters such behaviour among other employees.
Case Study No. 4: -
The marketing manager is visiting a top office of his customer’s firm, who has to place a large order
on the firm.
Top Officer:- I think you have come on a wrong day. I am very disturbed today. My college going
son has been pestering me to buy a new Motorcycle, worth Rs. 50000/-. I do not have spare money
today to buy it. Even my wife joined my son and I do not get any peace at home. Naturally, I am in
no condition mentally to take a decision on your tender.
Marketing Manager:- Sir, why do you worry? Just give me a cheque in the name of Ram
Automobiles for Rs. 50000/- and the Motorcycle will be at your house by tomorrow.
Top Officer:- Why do you want the cheque? It May bounce!
Marketing Manager:- Sir, these days the Vigilance has become active and I am only booking at
your safety. The cheque will be encashed, please keep that much money in the Bank.
Next day the Motorcycle receipts for the cheque and an envelope with Rs. 50000/- cash was
delivered at the officer’s house.
Case Study No. 5: -
Distributor:- I know my quota is only 7’ tons per month. If you can allot 70 tons instead, I promise
to place Rs. 1000/- per ton, that is Rs. 70000/- per month in any Bank account you name in India or
even in Switzerland.
After 6 months, if you keep starving other distributors, I will double the amount. We both will
become richer by your decision and since other distributors will keep getting some quantities, they
will not complain. If any one complains I will settle with him by going him some quantities.
Top Officer:- Mr. Distributor, you have come to the wrong place. I do not play such games. Now
you better leave the place or I will have you thrown out of my office by calling our security guards.
The story does not end here. The Distributor writes letters to the concerned Minister,
the Prime Minister and the Managing Director of the firm saying that the office is depriving him of
his legitimate quota because on the last visit to his office, the officer had asked for Rs. 2000/- per ton
on being allotted minimum quota of 70 tons.
Lucky for the officer, his implacable reputation as a rare honest officer came to his
rescue, when the Managing Director assured the concerned persons about his honesty.
Case Study No. 6: -
The boss of an International Firm in India orders supply of 10 Tank Wagons of white oil (used in
dry cleaning process) to be delivered to one of the Major Distributors of the of the Firm. This high
demand came up because the boss came to know that the white oil can be mixed to the extent of
up to 50%in petrol and the cars would run smoothly for at least 3 years is long enough period, and
cars mostly go bad in this period anyhow. On the financial side, the distributor would make Rupees
hundred thousand per wagon and he was agreeable of giving the boss Thirty Thousand per wagon.
It would amount to Three hundred thousand per month and in the next 4 years; the boss would have
enough money to retire in peace. All went well till some wise guy the boss’s junior, stated prying into
the deal and in less than 3 months, the boss who was to take over as the Top Boss in the country, was
given the sack. It was his good luck that he was not handed over to the Police.
The students have to analyse the case for the following:-
1. The junior who disclosed the fraud risked his job. Was it the right thing to do?
2. Other juniors also had come to know about it and some had in fact abetted in the crime. How
should the firm treat them, in view of the fear under which they use operating?
The boss in India rules supreme as he keeps a sword hanging over the head of his employees,
especially, those who are not part of a union, and with this fear psychosis the employees are ready
to do anything ordered by the Boss. These are people, who are extremely honest in their private
life, while they succumb to the boss’s orders during office operations. Then these are others, who
do the illegal tasks ordered by the Boss willingly, almost eagerly, ready to deliver the bribe to the
right person as they would take a handsome cut from the bribe as personal insurance against any
problem they may face as a result of the act of giving the bribe.
Conclusion of the Case Study:-
There are two types of firms: Some firms have stayed on the right track of ethical business for a long
time. These are a few elite firms, who have been carrying on their operations on ethical moral and
even religious lines. Such firms keep a steady but slow growth since they do not believe in get rich
quick. Techniques of the present day business. In fact in the 18
century, rarely a firm could be found
indulging in unethical operations. They were turned to their social responsibilities. The emergence of
unethical firms can be traced to the twentieth century in India for the following reasons:-
1. Government controls on Private Business, which result in quota, permit raj.
2. Powers vested with even the junior government officers who demanded benefits each time the
firms wanted a favours, even if it was strictly under the law.
3. The Government departments like the public utility offices had an axe to grind with the firms
operations and they had to pay these people money for letting the firm carry out its legitimate
4. Government approvals, Licenses, No objection certificates all had a price and some of them are
still present giving opportunities to Government officers to make money.
Most persons are quick to blame the system, the Government for the state of affairs. They believe that
the laws are made for letting the Government officers make as much money as they can.
Today, the first kind of honest firm has become a rarity as the others have taken over the
business world. It must be argued that it is the businessmen who have corrupted the Government
officers for their benefit and in the process unleashed a major Frankenstein, who they find different to
tie down.
Types of Ethics:-
There are normally three types of Ethics.
1. Transactional Ethics are performed on the basis of connected interests of Equality, Honesy
and reciprocity.
2. Participatory Ethics are privileged part of Business Ethics for common good and common
3. Recognitional Ethics are one’s moral rights vis – a – vis moral duty. For example, the
Employees aged 57 to 60 years morally obliged to retire to give way to some younger
colleagues, who being in the midst of their careers can rise to more weighty claim to a job.
There are also 3 other important Ethics as below:-
Personal Ethics:-
The Personal Ethics reflects general expectations of any person in any society, acting in any
The Principles of Personal Ethics include:-
1. Concern for the well – being of others.
2. Trustworthiness & Honesty.
3. Willing compliance with the law.
4. Refusing to take unfair advantage.
5. Preventing Harm.
Professional Ethics:-
The Professional Ethics are written codes containing rules of conduct and standards of
behaviour based on the principles of Professional Ethics, which include: -
1. Impartiality.
2. Objectivity.
3. Confidentiality.
4. Avoiding potential or apparent conflict of interest.
Business Ethics:-
The Business Ethics are desired norms of behaviour exclusively dealing with actions related to
performance of duty.
1. Moral principles that define right and wrong behaviuor in the world of Business.
2. The desired norms of behaviour exclusively dealing with commercial transactions.
3. Systemic study of moral matters pertaining to Business, Industry or related activities or
practices and beliefs.
4. It is a specialised study of moral right or wrong and the application of Ethics in Business.
Values of Ethics:-
Values are a set of principles that will govern behaviour in the pursuit of a vision.
Values are a general term referring to those things which people regard as Good, Bad, Right, Wrong,
Desirable, Justifiable etc. We can speak of “truth Values” (true or false) and the value of judgments
which are statements about what is Valued, Sound, Deplorable, Skilled etc.
Business is driven by Values. Values determine :- (I) What Business people do?
(II) How other react?
Values are potent sources of conflict as well as of Co-Operation, Control and Self – control. Through
values, business can and does create value in the form of goods, services, employment etc. It is
also noted that in extreme cases business and whole industries can cease to function because their
continued existence to inconsistent with certain powerful values.
Values are of many types, like Cultural values, Moral Values, Ethical Values,
Managerial Values. Hence, values are collective representations of what constitutes a good life or a
good society. Health is a value and self respect and so are democracy, tolerance and freedom. The
basic premise is that these values not across culture and time.
Norms of Ethics:-
Norms are expectation of proper behaviour. These are criteria of behaviour. Each
individual within the society has a set of norms, beliefs and values that together form his or her moral
standards. Norms are the ways an individual expects all people to act with a given situation.
In India lower level employees address the higher level at the time of starting the
discussions as “SIR” to show respect to them. The same is not found in USA, as they call their
bosses by name as “MR”. This may look awkward in the beginning for the Indian students or Indian
employees who go for employment to USA.
The norms are not published, may not be obeyed and cannot be enforced. It is not
consistent nor universal. Norms are just the way we feel about behaviour. Norms are collective
expectations regarding a certain type of behaviour, for example, Brush your teeth twice a day, keep
your premise clean, Chew the food properly while eating, etc.
Beliefs of Ethics:-
The beliefs in an ethical code are standards of thoughts. These are the ways that the
Senior Executive in the organisation wants others to think. The intention is to encourage ways of
thinking and patterns of attitudes that will pave way towards the wanted behaviour. It is expressed in
a positive form in an ethical code. “Our first intention to serve our customer” is an example of a
positive belief that commonly appears in Code of Ethics.
Beliefs are criteria of thought. They are the ways an individual expects people to think
about given concepts.
For Example:- (i) I believe in the present method adopted by University regarding teaching. I
expect others to recognise the worth of that concept and accept it as a form of teaching.
(ii) Similarly, I believe I energy conservation or afforestation and I expect
other people to recognise the importance of that idea and accept it as a good worth preceding in that
Morality In Ethics:-
Morality is the standards that an individual for a group what is right and wrong, good
and evil. The term morality is derived from the Latin root “ Morales” means “Behaviour” Moral
standards examples could be “ Integrity is good Dis honesty is Bad. It is right to tell the truth and
wrong to endanger the lives of others.” So, Moral standards includes the norms we have about the
kinds of action we believe are morally right and wrong as well as the values we place on the kinds of
objects we believe are morally good and morally Bad. Moral Norms are expressed as general rules
or statements such as, “Always tell the truth.” It is wrong to kill the innocent people etc.
Moral Value are expressed as statements describing objects that have worth, such as, “Honesty is
good. Anger is bad.”

Moral Actions pertain to set of actions engineered by the characters and expressed
through behaviours. In Gandhiji or J.R.D Tata we find certain set of activities like (I) Honesty, (II)
Truthfulness, (III) Sincerity, (IV) Generosity, (V) Transparency, (VI) Co-Operation, (VII) Integrity
and (VIII) Strong will power etc.

1. Help maintain a moral Course at all times.
2. Take right decisions at all times.
3. Cultivates strong teamwork and productivity.
4. Supports employee growth and meaning.
5. Helps excuse that policies are legal.
6. Promotes a strong public image.
7. Helps to pursue Business Excellence.
8. Helps commitment towards equal opportunity for personal
recognition and career development.
Normative Ethics in Management:-
A Normative Study is an investigation that attempts to reach normative
- Conclusions about what things are good or bad?
- About what actions are right or wrong?
A normative study aims to discover what should be Ethics are the study of moral
standards whose explicit purpose is to determine as far as possible which standards are
Correct or supported by the best reasons. It attempts to reach conclusions about moral
right and wrong and moral good and evil.
Though Ethics are a Normative Study, the Social Sciences engage in a
Descriptive Study of Ethics. A descriptive study is one that does not try to reach any
conclusions, about what things are truly good or bad or right or wrong. Instead, it
attempts to describe or explain the world without reaching any conclusions about
whether the world is, as it should be.
Normative Ethics in Management
Principals of Eternal Ethics believe in the core divinity of individuals. Holistic
Theory believes that these are two different approaches in Ethics.
The eternal and empirical. These could be read in the Bhagwad Geeta shlokas
15 and 16.
“The world consists of the empirical and the externals. All the worldly things
come under the empirical self, whereas the timeless, spaceless dimension comes under
the Eternal.”
Empirical is the one whose knowledge is got from experiences and induction
only whereas Eternal is ever lasting, an appettation of God.
Man is not only potential divine but also divine in all our behaviour and actions. It
is this intrinsic divinity that takes place not only in human dimension but also in other
dimensions also. Man is considered as an embodiment of the divine. It is the divine
who thinks and gets in the garb of man. Biodiversity is the diverse revelation of the
same divine in different directions and proportions.
The Teleological and Deontological theories are utilitarianism and Kantianism.
Teleological Theory determine ethics of an act by looking to the consequences of the
decision. Rightness of actions is determined solely by the good consequences they
Deontological theory determines the Ethics of an act by looking at the process
of the decision. It does not appeal to consequences (Kantian Ethics).
The Holistic

Ethical Decision Making:-
Ethical issues arise out of every day business decisions. An individual’s
Personal benefits and the moral atmosphere of the organisation in which one works
significantly after the behaviour one exhibits. Many philosophers, organizational
relationship and opportunity influence behaviour as does the organizational

Individual Behaviour components, The factors influencing Behaviour.
If any garment manufacturer selects a small place in India where
these is no Industry and make improvements in the place through:-
Brought a higher standard of living to the local people.
− Provided with opportunities.
− Provided Skill.
− Produce quality products at a competitive price.
− Products used by local people also to meet their requirements.
But paid kickback to the local State Government officials for operation.
To discuss the Role of Moral Philosophies in decision making:-
Moral Philosophy is a set of principles setting forth what is believed to
be the right way to behave.
Role is something that is moral conforms to a standard of
A philosophy is a study of the general principles of a subject such
as Morality. Individuals learn the principles through socialization by family
members, social groups and formal education.
1.Top Management can improve behaviour. The managers should
be quick to consider ethical principles in their decision making by
improving their understanding to develop their moral philosophies.
2. Code of Ethics improves decision making: - Business establish codes
of Ethics and corporate policies on ethics to foster ethical decision
making by reducing the opportunity for unethical activity. Enforcement
of corporate policies is a common way of dealing with ethical
problems. The establishment of corporate policies and codes of
ethics helps employees understand what is expected of them.
Understanding how individuals choose their standards of Ethics and
what prompt a person to engage in unethical behaviour may reverse
the current trend towards unethical activity in Business.
3. Interactions with Peers and other colleagues: - People learn ethical
behaviour from interacting with individual also in Social, Business
and other groups. Thus Business should examine their to see
how policies, rewards and punishments affect ethical beahaviour.
Without companywide standards for behaviour employees generally
base ethical decision on their on their observation of Peers and
4. Control System:- If a Company is to maintain ethical behaviour, its
policies, rules and standards must be worked into its control system.
Reducing unethical behaviour is a business goal, not very much
different from increasing profits. The business set a goal – achieving
greater ethical behaviour among company employees and measures
the out come.
Control System
Not Making Then Company to
Ethical behaviour occurs only when a plan is developed and successfully
implemented, through stronger re-inforcement of current standards and
Number of
Why? Take
Strengthen the
standards and
The Ethical issues that arise for Managers are indeed for all people,
including Employees, Customers, Consumers and Members of the public.
Corporate activities affects us all and so the conduct of business is a matter of
concern for everyone with a stake in ethical management. The ethical issues
are regularity faced by the Managers in the Ordinary Course of their works.
These are also major issues debated in the Parliament and scrutinised by the
courts, This is because ethical issues in Business are closely tied to important
matters of Public Policy and to the Legislative and Judicial Processes of the
Cross Cultural Contradiction:-
These problems arise and occur because Corporations do
business in other societies where ethical standards differ from those
at home.
Competitive Pressures: -
When Companies are squeezed by severe competition,
Managers sometimes engage in un-ethical activities to beat out a
Personal Gain: -
Personal gain or even greed, causes some ethical problems.
Business sometimes employs people whose personal values are less
than desirables.
Organisational Goals:-
Ethical conflicts in Business frequently occur when a Company
pursues goals or uses methods that are not acceptable to some of the
Managers are the key people to investigate whether a
Company will act ethically or un-ethically. As major decision makers
and policy makers, they have more opportunities than others to set an
ethical time for the Company.
What business needs is a set of guidelines for thinking about ethics. The
guidelines should help Corporate managers and employees.
− Identify the nature of the ethical problems.
− Decide which course of action is likely to produce the most ethical
3. Methods of Ethical Reasoning Are
− Utilitarian
− Rights
− Justice
Utilitarian are comprising benefits and costs where an action is ethical when
net benefits exceeds net costs. It’s limitation is, it is difficult to measure some
human and social costs. Majority may dis-regard rights of minority.
Rights: - The critical determining factor is to respect the basis human Rights,
where it is difficult to balance conflicting Rights.
Justice: - Here an action is ethical when benefits and costs are fairly distributed.
But it is difficult to measure benefits and a cost as these is lack of agreement
on fair shares.
The levels of Decision - making occurs in 3 distinct levels:-
− Level of the Individual.
Individuals in the work place require to make a decision about their own
response – whether to live with the difficult boss or blow the whistle?
− Level of the Organisation.
Problems at the level of the organisation – To bring out some
organizational change e.g. Sexual Harassment an individual matter for
the person suffering the abuse.
− Level of the Business System.
Problems resulting from accepted business practices cannot effectively
be addressed by any single organisation, much less a line individual.
The Individuals are faced with questions about ethics in their relations with
customers, employees and members of the larger society. Frequently the
ethical correct course of action is clear and people in Business act as per
that. Exceptions occur, when these is uncertainty about ethical obligations
in particular situation or when considerations of ethics come into conflict with
practical demands of Business e.g. Sales Representative not sure about the
extent to which he is obliged to provide information about possible delays in
Delivery to Customers.
In deciding on an ethical course if action, we can reply to some extent on
the rules of right conduct that we employ in everyday life. Deception is wrong
(e.g. whether we deceive a friend or a customer)
One of the feature that distinguishes business activity is an economic
character. In the world of business, we interact with each other not as family
members, friends or neighbours but as Buyers and Sellers, employers and
Employees and the like Employment is also recognised as a special relation
with its own standard of Right and Wrong. Employers are generally entitled to
hire and promote whomever they wish and to lay off (or terminate) the workers
without regards for the consequences. The Ethics of Business, is atleast
impart the ethics of economic relation – such as those involving buyers, sellers,
employers, employees.
Gandhian Philosophy of Ethics and Wealth
Gandhiji laid great stress on Personal
integrity. According to Gandhiji it is this characteristic
in human beings which takes them far ahead of
others. However, no one can just hang it on his
chest as a medal, proclaiming his integrity. Integrity
is also of thoughts, words and deed. Integrity is not
only about taking bribes, but much more than that.
Given below are a few examples of Integrity or lack
of it.
−A person sitting in his office during office time,
in his busy schedule, write a personal letter. He
even uses office stationary for the letter.
−A person promises his colleagues something
of corporate importance in private and in office
meeting he just denies ever having given the
−A person knowingly gives a torn note (Cash)
while buying a product at a busy sales counter.
So, integrity is a character trait. It is doing
what is right even when no one is looking. It helps
maintain a moral course at all times.
The following areas require safeguards
against unethical behaviour in Business.

Supply of products not exactly as
per the order or the sample shown.

Treating two customers differently
without valid reasons.

Delaying the supply of goods,
without proper reason and not
communicating the delay to the

Using superlative adjectives to
describe the product when the
actual product will not stand the
customer’s security.
Advertising and Promotion:-

Supplying products which are
different than those advertised.

Giving wrong price idea in
advertisements by not including
the necessary add-ons.

Exaggerating the product benefits
to the customers.
After Sales Service :-

Using substandard material
during service and charging for
the real material.

Service Engineers not going
by the priority fixed and playing
favourites for personal gain.

Over-billing the service charge
when the customer is not aware
of the rates.

When the product comes for
servicing, exchanging a few
healthy parts with sub-standard
parts. These removed parts are
then sold to other customers.

Marketing Research:-

Research is conducted only to
substantiate the Manager’s view

Selling the Research report to

Research is focused on areas,
which need not be covered, as
the manager does not want the
truth to ever come out.
H.R. Management:-

Recruitment of kins without
assessing their abilities.

Recruitment based on getting
financial favours from the

Arranging training for only pet
employees, whether they deserve
it or not.

Planning training programme
without assessing the training
needs of the employees.
Production Functions:-

Using substandard material in

Delaying the supply of products
to the customers to help

Purchasing from obliging Firms
who give gifts and cash to the
purchase Manager.

Purchasing from Firms owned by

Placing orders without verifying
the suppliers credential because
of personal benefits.

Management of Quality:-

Accepting marginally bad

Allowing substandard materials
to be used in the manufacturing

Rejecting materials from good
vendors for reasons that they are
not obliging them.

Unnecessary raising the
standards to exclude good
Finance Function:-

Over budgeting the project costs.

Using under-hand tactics with the
financers to gain benefits.

Showing inflated salaries, getting receipts
from Employees for a larger amount than
they actually get.

Paying over time bill wages when none
needs to be paid.

Allowing extra TA bill to favourate

Delaying clearing the bills payable to get
the maximum interest for the amount to be

Ignoring the lowest tender for personal

Accepting as Official, payments made by
the Directors for personal purchases.

Approving substandard construction by
the contractor and approving his bill for
CEO of the Company:-

Nepotism in recruitment.

Favouritism in purchasing.

Extra consideration to friendly buyers

Use of position for gaining personal
favour from suppliers and Contractors.

Allowing the use of sub-standard
material for personal gains.

Not keeping promises made to buyers,
suppliers, employees and other

Manipulating Records for personal
Ethics in International
Business is being conducted
across national boundaries and
increasingly becoming global because
of the mobility of Employment, Capital,
produce and technology. Intense
competition is forcing companies
worldwide to enter the global market.
In India, Software companies in
Information Technology have grown
tremendously and are entering globally.
Such developments present a host of
ethical problems that Managers are
unprepared to address. Many of these
problems arise from the diversity of
Business standards around the world.
Having the diversity of Ethical outlooks
in the world, it is possible to agree
on ethical “Convergence” or a set of
standards for Business worldwide such
a goal is possible if globalisation is to
The very phenomenon of
globalisation makes it clear that these
must be a globalisation of Ethics. This
requires a commitment to same core
standards or atleast a willingness to
abide by them. The United Nations
(UN) has developed a Code of
Conduct for Multinational
Corporations. These Codes have many
guidelines in common and cover the
areas of Employment practices,
consumer protection, Environmental
preservation, Involvement in Politics,
Including Bribery and Basic Human
MNC’s generally recognize
a Social Responsibility and attempt to
fulfill their responsibilities everywhere
they are located. The major cause of
occasional failure to act responsibly
is not because of lack of effort but the
diversity of political and legal systems
around the world and differences in
economic development.
Foreign operations create
challenges as well as opportunities
for mis- conduct that simply do not
exist for purely domestic enterprises.
The question for MNC’s is deciding
which standards to follow. The solution
to many of the Ethical problems
of International Business lies in
the development of International
agreements and Code of Ethics. Some
of the Companies experience difficulty
and hence adopt local conditions:-

Paying low wages (exploitive wages)

Imposing straight or unsafe working
conditions (standards are kept low).

Violation of Human Rights.

May even try to avoid fair share of

Some criticised practices are
said to be legal in the countries in
question and are not considered to
be un-ethical by local standards.

Should global Companies are bound
by the prevailing morality of the
home Country?

Should they follow the practices
of the host country and adopt the
adage. ( Be a Roman while you are
in Rome)

Are these special Ethical standards
that apply when business is
conducted across national
Business ought to be
conducted in the same way
the world over with no double
standards. Hence it is necessary to
observe a single Code of Conduct
in their dealing everywhere.
Operating outside the home
country, create Dilemmas that lead
to charges of serious ethical failings.
MNC’s generally recognise a social
responsibility and attempt to fulfill
their responsibilities everywhere
they are located.
3 kinds of Guidelines have
been offered for global Companies:-


Human Rights

For Justice, one kind of unfairness is
offer the one – sided division of the
benefits from foreign investment.
The gap between the rich and poor
Countries is an urgent moral concern
and MNC’s have much to offer.
Another kind of unfairness is violating
the rules of the market place which is
to say engaging in unfair competition
and otherwise taking unfair advantage.
Guidelines for Human Rights application:-

Failing to provide safety equipment
to protect employees from serious
hazards (the right to physical

Bribing Government officials to
violate their duty or seeking to
overthrow democratically elected
governments. (the right to political

Employing child labour as found
mostly in India (the right to minimum

Guidelines offered for Welfare are:-

Do not intentional direct harm.

More good than harm for the host

Contribute by their activity to host
country’s development.

Respect the human rights of their

To the extent that local culture does
not violate ethical norms, respect
the local culture and work with and
not against it.

Pay their fair share of Taxes.

Coperate with the local government
in developing and enforcing just
background organizations.
Global Companies are criticised
primarily in cases where they take
more than a fair share by exploiting
their superior’s position in an imperfect
Morality is the standards that an individual
or a Group has about what is Right and
Wrong, Good & Evil. Like Ethics, Morality
is a similar term that prevails in and many
times considered as Synonymous of
Ethics and is derived from the Latin root
“MORALES” means Behaviour. Moral
standards examples could be “Integrity is
Good. Dis-Honesty is Bad. It is right to tell
the Truth and wrong to endanger the lives
of others.”
Moral Norms can usually be expressed as
statements such as, “Always tell the truth”.
It is wrong to kill the innocent people etc.
Moral Values are usually expressed as
statements describing objects or features
of objects that have worth, such as,
“Honesty is good. And Ager is Bad”.
Ethico – Moral Actions
Ethica and Morality have different
concepts. Ethico – Moral actions pertain to
set of actions engineered by the character
and expressed through behaviour.
Gandhiji and J.R.D. Tata have certain set
of qualities like:-







Strong will Power etc.
Ethics codes in Business Organisations
was there even in earlier 1940s and these
are not an innovation of the later years like
1990s or 2000s. A leading manufacturing
Firm of World Health Care products at
that time and even as on today continued
to be one of the leading manufactures
had established Ethical Codes. In the
recent years, larger organizations have
adopted this approach to CORPORATE
ETHICS. In order to improve standards of
Behaviour, many American organisations
have introduced codes on their own.
Moral Codes may therefore, be referred
to general areas of Business conduct
to increase respect and recognition for
the profession at local, national and
International levels.
In India, Tata Group of
Companies are practicing Business Ethics
and Tata Code of Conduct have governed
the manner in which Tata Companies
and their Employees should conduct
themselves. Tata’s code of conduct
serves as a Guide to each Employee
on the values, Ethics and Business
Principles expected of him or her. Each
Tata Employee take pride in up-holding
the high standards of Corporate and
Personal Behaviour on which the Tata
Group’s reputation and respectability have
been built.
Over the past 130 years. For
the stages of Ethical Growth and Ethical
organisation, Tata Group of Companies
have highest standards and Values in
Some of the Codes in Tata Code of Conduct:-
1. National Interest.
2. Financial Reporting as per financial
Reporting Standards.
3. Equal opportunity Employer.
4. Gifts and Donations.
5. Political, Non – Alignment.
6. Health, Safety and Environment.
7. Quality of Products and Series.
8. Corporate Citizenship.
9. Use of Tata Brands.
10. Shareholders
11. Ethical Conduct
12. Regularly Compliance
13. Conflict of Interest
14. Citizenship and
15. Reporting Concerns.
Every Employee of a
Tata Company shall promptly report
to the management any actual or
possible violation of the Code or event
he becomes aware of that could affect
the business or reputation of his or any
other Tata Company.
A Director of a company
had to issue a supply order
to a company supplying for
purchasing of computers.
Marketing Manager of the
Computer Supplying Company
went to the Director for
expediting the supply order.
But the Director had some
problems with his college
going Son and Wife.
The College going
son wanted a Motor – cycle
and the Director did not have
sufficient money to purchase
it. The case went to little more
complication when his wife
also justified the need of their
son for a Motor-Bike to go to
College. So, the Director told
to the Marketing Manager to
come on other day since that
day was a bad day for him
with difficulties with his family
members like his son and his
wife. Hearing the difficulties
of the Director, the Marketing
Manager of the Computer
Supplying Company told to the
Director that it did not appear
to be a difficult case and
offered to help the Director to
meet the need of his son and
The Marketing
Manager asked the Director
to give a cheque of Rs.
50000/- in favour of M/s. Ram
Automobiles who would be
supplying the Motor cycle.
But The Director informed the
Marketing Manager that he did
not have sufficient Balance in
the Bank. Account and hence,
if the cheque is issued , it
would be surely Bunched
due to not having sufficient
Balance. The Marketing
Manager informed the Director
that he would take care of this
Bank’s problem.
Next morning,
the Marketing Managers came
to the Director and delivered
a New Motorcycle, a packet
containing Rs. 50000/- Cash
and a payment – receipt
from M/S Ram Automobiles.
Marketing Manager asked the
Director to deposit this cash
of Rs. 50000/- in his Bank
Account. So that the cheque
is not Bunched. Also informed
the Director that Non- a- days
vigilance Department is very
efficient and they might check
and verify the payment details
and hence a proper Payment
Receipt is obtained so that
the Director do not have any
problem with the Vigilance
Department at any time.
1.Was it right on the part of
the Director to accept this
bribe of Rs. 50000/- from the
company from whom they
would be purchasing some
computers? Please explain
with justification of your
2. Was it proper for the
Marketing Manager to bribe
the Director for getting the
purchase orders as now- a-
days both the Receiver as
well as Giver of the Bribe are
considered Guilty?
3. Was not the family
Members i.e. son and wife
of the Director also were
responsible for this ethical
failure since they knew
that the Director did not
have money at that time to
purchase the Motor cycle but
still they insisted for a Motor-
Enlightened companies have chosen to embark on the
journey of Corporate Social Responsibility in an effort to
broaden the traditional corporate goals of profitability and
productivity and adopt social trusteeship as a desirable
Corporate Social Responsibility(CSR) is the process
by which a corporation participates in the welfare activities of
both internal as well as external community by actively
assisting in the improvement of quality of life of the people in
the communities in which it operates. It also aims at building
relationship with all types of public and enhancing the
reputation of the Company.
CSR in practice is being influenced by two major
concepts. One is the stakeholder model, wherein it is
recognized that good business practice entails engaging
all it’s stakeholders in the company’s business. So good
business is not only seen as maximizing shareholder value
but also stakeholder value. The other concept is where
companies would no longer be judged on the conventional
financial bottom-line but also on their performance in the
social and environmental bottom-line.
So, CSR is the commitment of Business to contribute to
sustainable economic development, working with employees
and their families, the local community and society at large
to improve their quality of life, in ways that are both good for
Business and good for development.
Corporate Social Responsibility emerged from
corporate philanthropy. The primary purpose of a business
is to improve the quality of life of people and that a corporate
entity exists to serve society from where it source it’s
customers and other stakeholders. There is relationship
between a company’s needs and the community’s
needs. Here the company feels a level of obligation and
discharges that obligation through contributions to disaster
relief, supporting sustainable development and corporate
philanthropy for the benefit of the community at large. Here
the company is fulfilling it’s responsibility towards community
and society and does not expect anything in turn for its
contributions. During natural calamities, good companies
invest large amounts to provide relief and rehabilitation
measures to the victims. In such case, the companies want
to help the community and in doing so, they are also seen
involved in the socio-economics development activities for
the benefit of the community.
Companies persue the Triple Bottom Line Reporting
initiative (i.e. Economic Bottom Line, Environment Bottom
Line and Social Bottom Lines) to demonstrate it’s
commitment to be a good corporate citizen. Man is the social
being and is also a part of the society. He lives in and
constitutes the society. He moulds the morals and norms of
the society and is in turn, moulded by the society. One of the
postulates of citizenship is the conferment of rights and
acceptance of duties towards society including social
responsibility. This responsibility devolves on man as
“human being” who is part of the society and as a corporate
citizen which owns social responsibility.
The community is central to the core values of
Corporate Social Responsibility and the community
development programmes aim at building trust and
improving the quality of life.Corporate Community initiatives
tries to help communities to become strong and self reliant.
Business can play it’s part in making a community
prosperous. The company can take care to nurture the
community welfare and the environment in which it does its
business. From the community needs, there arises the need
for Corporate Social Responsibility. Here the companies not
only recognize that they have a responsibility to contribute
some of their profits into the welfare of needy communities in
which they operate, but also take the view that it is also in
the interest of companies to benefit from the community.
Community gives the Corporate World valuable opportunities
to learn.
Hence, Corporate Social Responsibility is also viewed as a
necessary and integral part of the stakeholder approach, an
approach on maintaining good relations with all corporate
public, employees, shareholders, customers and general
The Corporate World should discharge its social
responsibility as a good Corporate Citizen. It is against this
background that planned Corporate Social Responsibilities
demand the same vigour to be applied as to any other
business operation. The process of Corporate Social
Responsibility like any campaign planning lies in a
systematic planned approach such as :-
• Research
Assessment of the needs of Community
• Identification of problem
Key problems confronting the community out of research
and needs
• Set Objectives
Objectives for solving problems.
• Design the strategy and levels of investment.
• Implementation of community welfare programme to
reach the objectives.
• Public Relations Communication programmes to provide
• Evaluations of Community Programmes
• Report to the Management and relevant audiences on
progress based on evaluation and measurement.
To ensure community development in diverse spheres
of the society, it is necessary that the Corporate World
should set their action plan to the task on hand. To
quote Joel Arthur Barker
“Vision without action is merely a dream,
Action without vision just passes the time,
Vision with action can change the world”
Corporate Social Responsibility programme include
a wide range activities, often far removed from the
corporation’s economic function. Examples of such
activities include :-
- Sponsorship of Sport Event or the Arts,
- Donations to charity and contribution in either cash or
kind such as office facilities, equipments, professional
advice, training, technology,
- Public or voluntary Sector activities which includes
– education, population control, removal of poverty
illiteracy and ignorance, combating corruption,
ensuring free and fair elections, providing
employment, pushing through reforms, eradicating
communicable diseases and finding answer to
problems pertaining to gender discrimination, child
labour, mother and child health HIV prevention,
energy, conservation etc. The canvas is so large
that there is a need for coordinated action from the
Government, Local and Corporate bodies, NGOs as
well as individuals.
These programmes are also termed as community
relations activities, as social responsibility and
community relations go hand in hand.
In any community development initiatives, it is
very important to understand the meaning and
utility of some of the words like self-help, charity,
friendship, culture, social service, self-reliance and
Self-help is the habit of confidently standing on one’s
own legs. God helps those who help themselves. Every
man should bear his own burden. To be dependant on other
is a curse. Living upon charity robs us of independence and
undermines every manly virtue. Efforts from within always
bring out our latent virtues and strengthen our character.
Charity is that disposition of the heart which leads to
think favourably of their fellowmen and do them good. The
practice of charity calls forth all the nobler qualities of the
mind and the right use of it, brings peace on earth and
goodwill among men. It is a form of self-sacrifice without
which society cannot exist.
Friendship is a felling of goodwill and affection between
two persons. Friendship often springs from similarity of
taste, feeling and sentiments; sometimes from gratitude, and
sometimes from close association. Friendship is based on
love and consideration of mutual welfare.
Culture is one of the most frequently used expression in
the world. Perhaps, it means a individual’s way of looking at
things or general approach towards life as a whole. “Truth is
Beauty and Beauty is truth” is the doctrine though universally
accepted seems yet to represent the spirit of Indian culture
more than of any other – “Satyam, Shivam, Sunderam” thus
runs the significant message of Indian culture enjoining the
worship of beauty and truth as the source of all good in the
Social Service is the service rendered to other
members of the society in their need i.e. nursing the sick,
reliving the sufferings of the poor, spreading education
among the illiterate, making people conscious of their rights
and duties. We, social beings, can be really happy if all of us
are individually happy. So, when an individual or a portion of
our society suffers from any trouble we cannot remain idle.
Everybody can render service in his own way, some by
spreading education, other by relieving the sufferings of the
poor etc. Sympathy and fellow-feeling are mainly required.
Self-reliance is the habit of relying on one’s own powers
and abilities in the midest of difficulties and dangers. A self
reliant man does not depend on others for help but uses his
own judgment and powers in facing difficulty or carrying out
an undertaking. Self-reliance is great virtue. It is a secret in
life. A self-reliant man has full confidence in his own powers.
Self-reliance contributes very largely to success in life and to
the fulfillment of our ambitions.
We should, therefore, cultivate this great virtue from early
life, as without self-reliance no great undertaking is possible
in life. For corporate Social Responsibility, a Company
should be committed to be a good Corporate Citizen not
only in compliance with all relevant laws and regulations
but also to maintain and enhance its environment and
well being to the advantage of the organization and the
community concerned with the objective of making them
self-reliant. Such Social Responsibility would comprise,
to initiate and support community initiatives in the field of
community health and family welfare, water management,
vocational training, education and literacy and encourage
application of modern Science and Managerial Techniques
and Expertise. The Company would also encourage
volunteering amongst its employees and help them to work
in the communities. Companies are also encouraged to
develop social accounting systems and to carry out social
audit of the operations.
Corporate Philanthropy is the practice of helping the
poor and those in need. The Corporate CSR emerged from
Corporate Philanthropy, the link between a company’s needs
and community’s needs. Here the Company feel a level of
obligation and discharges that obligation through financial
contributions usually to non-profit making organizations which
in turn perform important social welfare and cultural activities
for the benefit of the community at large.
Corporate undertake projects in the fields of education,
vocational training, and community health and water
management. The Head of CSR of the Companies
is responsible for creating and enabling condition for
every Employee who chooses to volunteer in community
development work.
A majority of the Indian Companies recognize
social responsibility as core to taking their business
forward. Enlightened companies have chosen to embark
on the journey of Corporate Social Responsibility in
an effort to broaden the traditional corporate goals of
profitability and productivity and adopt social trusteeship
as a desirable objective. Empirical studies have
demonstrated that CSR has had a positive impact on the
business and economic performance of such companies
while also contributing to enhancing shareholders value.
One of the strongest reasons for a company to adopt
social commitment is the ocean of gratitude and goodwill
of the community that is earned, in addition to building
up of corporate image based upon secure local identity
and harmonious interaction with the community.


Corporate Governance practices have emerged
in free-market economies as a set of structural
arrangements with a view to aligning the management
of Companies with the interests of its Shareholders.
Subsequently, Corporate Governance concerns extend to
the interests of its Shareholders and eventually to Society
at large.
Company Directors around the world are now under
intense public scrutiny. Increasingly, the actions of
Companies and their Directors are under intense public
scrutiny and comment. Shareholders and the Public are
demanding ever higher standards of Ethics and Corporate
There is considerable debate about what actually
constitutes Corporate Governance. Simply put, Corporate
Governance outlines how individuals charged with the
responsibility of running a Corporation should conduct
their own and their Organization’s affairs.
Corporate Governance refers to the management’s
recognition of its fiduciary responsibility to all shareholders, in
particular minority shareholders. Managements that do things to
benefit one class of shareholders over another are not practising
Good Corporate Governance.
The key elements of Corporate Governance, however,
concern the enhancement of Corporate Performance through the
supervision and monitoring of management performance and
the ensuring accountability of management to all Shareholders
and Stakeholders. Corporate Governance is clearly a system
through which corporate entities are directed and controlled.
It encompasses the entire mechanics of the functioning of a
company and attempts to put in place a system of checks and
balances between Shareholders, Directors, Auditors and the
Government is the single most important storehouse of
information on a variety of subjects. In certain areas, the
Government is the only source of information. But getting
information out of this vast storehouse is difficult because of the
secrecy inherent in the bureaucracy. For Good Corporate
Governance, society should have the right to know how matters
are being managed by the Government. They should be able to
understand how they are being ruled. This is possible only by
creating a well-informed society. Effective accountability
depends on the people having the necessary information. If
there is no accountability, the Government is not open. What
Government administrations need to realise is the elementary
fact that their work affects several `publics’, which each
department needs to identify, consult and try to satisfy within
the confines of the Government’s policies and programmes.
The Cudbury Report gave a Code of Best Practice which was to
serve as a guideline to those public companies which wanted,
on voluntary basis, higher standards of Corporate Governance.
These are as follows :-
1. In every firm there should be a separate CEO and Chairman
of the Board of Directors. When the same person carries on
with the two roles, that of the CEO and the Chairman of the
Board, it provides too much authority with little check on
such power with the person. ( The old saying that
“ Power Corrupts and absolute power Corrupts absolutely)
holds good in Corporate Governance also).
2.It should be the function of the Chairman to manage the
affairs of the Board, including the hiring and firing of the
CEO of a Company when necessary. The CEO on the other
hand is responsible for the day-to-day management of the
3.The Chairman should be responsible for setting up Goals
and Objectives of the CEO and of monitoring the CEO’s
performance in the implementation of the oranisation’s
strategy. If the Chairman and the CEO are one and the same
person, this level of supervision is lost, bringing it with
higher risks to the organisaton.
4. It is the interests of the organization to have Non-Executive
Directors bringing to the Board their experiences and
expertise and not as Rubber-Stamps for endorsing the
Chairman’s decisions. The rational is that these Experienced
Part-Time Directors are already in Senior Executive Position
with other organizations and they would supplement the
efforts of the full-time Executive Directors on the Board.
Since the Advent of the limited liability form of Corporate
Business organisation, the issues of Corporate Governance
have assumed great importance. We find reference to the term
corporate Governance in academic and professional literature
both in the West and in India only recently in 1980s.
Financial Scandals like Harshad Mehta Episode where a
stockbroker could wield his power over the Banks for gaining
huge amounts of credit without matching collaterals. In
the debate of Corporate Governance, the Kumarmangalam
Birla Committee Report on Corporate Governance can
justifiably be viewed as a well thought response to our need
for better Corporate Governance. In May 1999, SEBI set up
the Kumaramangalam Birla Committee. SEBI is already in the
process of encouraging better Corporate Governance through
the adoption of the recommendations of Kumarmangalam Birla
Committee Corporate Governance.
According to Kumaramangalam Report, the Corporate
Governance is a process or a set of systems and process to
ensure that the Company is managed to suit the best interests of
all. Corporate Governance is the system by which companies are
directed and controlled. The concept of Corporate Governance
is on Transparency, Integrity and Accountability of the
Management, which includes Non-Executive Directors.
It is a system of making management accountable to the
shareholders for the effective management of companies, in the
interest of the Company with its Ethics and Values.
The Indian Corporate Scenario has undergone tremendous
changes with new opportunities and threats from the MNC’s
since 1991, when the liberalization Era started and Indian
Business became part of the market economy of the west. Hence,
Corporate Governance requires bold intiative without using the
Rules of Thumb. Indian Corporates need to evolve and imbibe
Corporate Governance at a rapid pace if they have to survive.