Ethics must go beyond Legal Mandates and Regulations

21 Jan 2019

A business is guided above all else by the principle of wealth creation. However, in the pursuit of this objective, a business may sometimes fail to acknowledge the possible negative externalities and lose sight of a greater objective – that of ensuring moral, ethical, transparent and fair business practices. Issues, such as corporate governance, workplace discrimination, anti-bribery and anti-money laundering are as important today as conventional issues of organizational growth and stakeholder value creation. The idea of ethics, transparency and integrity in a corporate framework is like a collective murmur that is rapidly rising in volume. Many leaders have a somewhat translucent idea, but specifics remain yet to be formalized. However, such is the criticality of this issue that ethics and integrity need to be integrated into the very vision, mission, strategies, planning and processes of a business enterprise – with its own tracking mechanism and performance metrics, and, above all, it has to be a collective effort.

The importance of ethical conduct, transparency and integrity in business becomes all the more crucial in the face of greater scrutiny that businesses and companies are subjected to in every sphere of economic activity. Careful scrutiny applies to all aspects of business conduct, from corporate strategies and how companies treat their employees and business partners to selling techniques and accounting practices. This is why ethics must go beyond legal mandates and regulations and should instead become an unwritten code of moral and ethical behaviour shared equally by the organization and its members.

A well-designed code would contain clear and unambiguous rules for individual and peer responsibilities, in addition to organizational responsibilities for all stakeholders, external and internal. But to ensure that the code is followed in letter and spirit, organizational leadership must set examples to create a culture of voluntary compliance. Having dedicated and trained compliance officers in place, to take charge of this large and vital area of responsibility, would certainly pay rich dividends. It is not only necessary from the perspective of regulatory compliance, but it also makes good business sense. Companies overseas looking to partner with Indian companies almost always favour those with good ethical reputation.

This necessitates a systemic approach, an authoritative framework and a set of sacrosanct guiding principles, which would ensure that business and ethical business practices progress hand in hand. While much of this need relegates responsibility to the Government, an equally large part of it rests in the domain of businesses. In other words, if businesses become more responsive to these issues and take the appropriate measures to uphold them, then the need for us to be monitored becomes redundant. Even more pertinent is the fact that being aligned with ethical business practices can be beneficial to companies in the broader perspective.

Many companies have responded proactively to this imperative, while many others have been coerced by mandate. Whatever the case, the fact remains that a business enterprise that is perceived as being ethical, transparent and fair has a far greater acceptance in the society for its products, prices and operations. Businesses must strike up a balance between aspirations for growth and commercial success on one hand and the necessity to respect and uphold fair and transparent business practices. Businesses are dependent on human and natural resources, in addition to physical and financial capital. It is therefore in the best interests of industry to safeguard the interests of all stakeholders in their operations. Businesses must focus in equal measure on all the three pillars of an ethical organization – protect, respect and remedy – to look beyond short term objectives. Such a shift cannot be enforced by laws and regulations. It would involve the complete overhauling of business vision, missions, objectives and processes – at the most fundamental level – to truly internalize ethics and integrity into the moral fibre of an enterprise.

However, there are challenges too. While businesses traditionally seek precision and practicality as the basis for their planning efforts, ethics as a concept is not amenable to such simple and universal parameters. It is fluid and has evolving ramifications in response to increased information and society’s changing priorities. Companies continually face the need to trade off on what they would like to do and what they must do in pursuit of corporate growth objectives. The role of businesses in upholding ethical business practices remains indefinite. There can be no consensus among leaders as to the best balance between commercial interests & initiatives and policies adopted for the overall well-being of stakeholders.

Policies though, mean little if they are not funnelled into precisely measurable goals and clear evaluation metrics. Objectives of ethics and integrity need to be integrated into the company’s business policy if they are to remain relevant. This does not mean that management methods need to be reinvented. Rather, it requires a new cultural orientation and extensive refinement to systems, practices and procedures. Companies would benefit from applying the same principles and metrics to these initiatives as they do to performance evaluation in core business functions. Developing an effective management framework for ethical compliance requires addressing both decision-making and governance. Governance is increasingly important because of the growing accountability of the corporation and its senior management to public scrutiny. Management information and reporting systems must be upgraded to support this need.

Decision makers at all levels of the organization must necessarily be more receptive to the issues concerning ethical compliance. Success is contingent upon strict adherence to a few basic principles. A stakeholder analysis has to be performed in order to identify all parties that are directly or indirectly affected by the enterprise’s operations. It sets out the issues and concerns in the right perspective. Next, a set of policies need to be chalked out with clear and measurable objectives that articulate:

  • The core values of an enterprise that in turn would determine socially and ethically responsible ways of doing business, and set a remediation mechanism to deal with possible violations.
  • An unambiguous code of conduct that lays down the rules to be followed by employees and promises to treat every employee with dignity, impartiality and equality.
  • A set of precise targets for compliance and performance along the approved lines. This needs to be followed up with an execution plan to translate objectives into precisely measurable goals – it involves changing the corporate culture, defining responsibilities and accountability, changing attitudes of employer and employees, and establishing structured grievance redressal mechanisms.

Such substantial changes inevitably require leadership intervention. The Board of Directors, CEO / MD and other senior executives must be actively involved in the process. They need to lead by example and set the tone for the rest of the organization. Leadership is most ideally poised to drive this agenda. If the leadership prioritizes correctly, then other decision makers down the chain of command would not stumble. What we would get as a result is an organization unwavering in its commitment to ethics, instead of fragmented activities that are not aligned with the central objectives and hence of little consequence.

Contributed by:
Sumit Mazumder
Past President, CII and Chairman, CII Task Force on Ease of Doing Business and CII Task Force on Integrity and Transparency in Governance and Chairman & Managing Director, TIL Limited.
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