March 2005

Getting started on business ethics

Best practices in corporate governance can only emerge when informed by an established set of business principles and a defined approach towards organisational behaviour, says management consultant Anil Chopra

The fall of many US corporations in the early years of the 21st century brought one clear message to the fore: ethics matters in business. You can fool some people all the time, or all people some of the time, but ultimately you cannot fool all the people all the time. If you are not running an ethical enterprise, it will cost you dearly at some point or the other. Business leaders, thus, need to bring ethical conduct to the core of their agenda, if they have not already done so.

But how does a company go about doing this? To share experiences and look for answers, four business ethics organisations joined forces in early 2004 to create the first European conference for ethics and compliance practitioners. The conference, called Ideas and Best Practices in Business Ethics, was held in France and around 100 corporate ethics practitioners from nine countries attended it. The meeting provided them an opportunity to meet their counterparts, share ideas and best practices, and create a forum for continuous dialogue among ethics and compliance professionals in organisations. The participants came from a range of industries, including information technology, telecommunications, oil and gas, defence, banking and finance, utilities, automotive, retail and healthcare. The overwhelming majority of the delegates gave the event a high rating and voted in favour of having another conference this year.

The main takeaway from the conference is simple: the sooner companies begin discussing and enacting processes for managing integrity standards within their organisations, the better. In India senior business leaders have to start giving more thought to this area of organisational behaviour, start framing their beliefs on integrity standards, circulate these among their employees and get their conference and affirmation on adherence to these standards.

More important, senior leaders must create communication platforms that encourage employees (and other associates of the company) to raise concerns related to possible or actual deviations from integrity standards especially those that could damage the reputation of the organisation. All such platforms and processes must get institutionalised in due course.

Kenneth E. Goodpaster, professor of business ethics at the University of St. Thomas, Minneapolis, USA, emphasises that "business leaders are the principal architects of corporate conscience. They are the ones who must manage the challenges associated with pursuing profit while maintaining integrity. They are the ones most responsible for delivering on the moral agenda of the corporation. That agenda includes three broad imperatives: orienting, institutionalising and sustaining ethical values within the corporate culture."

Given the high competitive pressures, it is easy for business leaders to say that enforcing ethical conduct is difficult, but this is not an excuse they can use. As Jeffrey E. Garten, dean of the Yale School of Management, wrote in his book, The Politics of Fortune: A New Agenda for Business Leaders, "The essential point should not be lost: the more complex the markets become, the more the integrity of its leaders matters, and the less likely that higher prescriptive laws and regulations will really matter."

Thomas W. Dunfee of the Wharton School, who holds the Kolodny Chair of Social Responsibility in Business, even has a tool the C2 Principles for Combating Corruption that business leaders can use as a starting point for framing their own ethical standards.

Among the first issues that need discussing in organisations that want to be seen as ethical are the following:
  • Creating the post of ethics practitioner or counsellor, with a specific description of the job and its responsibilities.
  • Discussion of ways and means of embedding values in an organisation.
  • Route map for implementing a code of conduct and establishing a clearly stated set of integrity standards.
  • Working out the relationship between ethics and other business functions, and aligning company policies with the code.
  • Planning for ethics training and communication to employees.
  • Creating a structure for ethics monitoring, compliance auditing and whistle blowing.

Best practices in corporate governance can emerge when informed by an established set of business principles and a defined approach towards organisational behaviour. Without such business ethics, governance stands bereft of a well-reasoned rationale. Left to itself, corporate governance runs the real risk of becoming a mere form-filling exercise, dedicated to observing form. The roadmap, thus, needs to be based on substance, which means adhering to a dedicated code of behavioural norms in its spirit.

My past employers, the Tatas, have used the maxim 'leadership with trust' to promote ethical conduct throughout the group, and this is borne out by its longevity. The group's embedded values have been unity, integrity, excellence, responsibility and understanding. Since 1999, the group has circulated to all its employees a document called the 'Tata code of conduct', which is simple, easy to understand and easy to follow. In its journey towards institutionalisation, the substance of the code is constantly communicated at all levels of the organisation, apart from parties with whom the Tatas do business.

The content of the code covers such areas as commitment towards national interest, maintaining harmonious relations with employees, abhorrence of bribery and corruption, avoidance of conflicts of interest, and emphasis on corporate social responsibility. The Tata code enhances internal and external trust and confidence.

The key pitfall to avoid while drawing up such codes is that the contents should not give employees a feeling that these are a set of dos and don'ts, or that they are too complex. In fact, whenever employees are faced with ethical dilemmas, the code should offer clear integrity standards to follow. The organisation (through its senior leadership) should communicate often that it has formally adopted a specific position or set of beliefs regarding these fundamental values or principles and that it expects (and wants) employees to use them as the basis for business decision-making.

A code's credibility depends largely on setting up an effective compliance programme, the key elements of which should include:

  • Clear, established standards, policies and procedures that are reasonably capable of reducing the likelihood of violations of the code.
  • Assigned supervision to high-level personnel. Each CEO should be the principal ethics officer, with the process being delegated, top down, to credible individuals in each company.
  • A clearly designated ethics counsellor / officer. At Tatas the role of the ethics counsellor is well defined.
  • Encouragement to whistleblowers to report violations, or possible violations, to the ethics counsellor.
  • Communication and training to all employees. This is the ultimate guarantee of the success of the ethics code.
  • Establishment of an advisory channel so that employees can obtain advice regarding possible ethics dilemmas.
  • Establishment of uniform disciplinary actions in case of violations and taking preventive steps to head off future violations, after understanding the 'root' causes of such violations; for example, by forming appropriate organisational policies.

At company management conferences, the CEO, as the principal ethics officer, could facilitate occasional 'breakout sessions' to discuss subjects like payment of facilitation and speed money, handling letters received in anonymity, board oversight of the process for driving ethical behaviour and so on.

The Sarbanes-Oxley Act stipulates that any company whose securities are registered or traded in the US has to adopt a code of ethics. Calpers (the California Public Employees' Retirement System), one of largest US pension funds, is a prominent crusader for reform in corporate governance and its fund managers may well adopt reality tests on whether processes for managing business ethics are in place to safeguard the interests of its shareholders, that is, US pensioners.

While economists and managers know how to measure efficiency, we also need to define and find acceptable measures of fairness. Tools have been developed to capture the perceptions of employees in organisations that have developed robust ethical standards per se. Moving forward, companies need to collaborate to weed out corrupt practices. At the macro level, though, effective corporate governance would largely depend on reforms related to robust corporate law, accounting standards, strong regulations, an efficient judicial system, and determined efforts to establish integrity standards within companies by clamping down on corruption and preventing violations. .

In India, the Department of Company Affairs, the Securities and Exchange Board and organisations such as the Central Vigilance Commission need to start a dialogue with international bodies like the Ethics Officers Association, the Conference Board, USA, and Transparency International, Berlin, among others. This will help put in place appropriate processes for managing ethics, implementing codes of integrity standards and business principles for countering bribes, dissuading corrupt practices and the like.

*Anil Chopra is a management consultant and was till recently a senior consultant on the management of business ethics at Tata Quality Management Services. This article has been taken from the February 2005 issue of Indian Management, a publication from the Business Standard group.

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