ETHICAL PRACTICES IN CORPORATE GOVERNANCE

“Community engagement is a central pillar of our ethical business strategy.”

Corporate Governance is concerned with holding the balance between economic

and social goals and between individual and communal goals. The corporate

governance framework is there to encourage the efficient use of resources and

equally to require accountability for the stewardship of those resources. The primary

purpose of corporate leadership is to create wealth legally and ethically. Governance

specialists sum up corporate governance in four words: people, purpose, process,

and performance. These four Ps serve as the foundational principles for both the

existence and operation of governance.

“The main objective of every corporate body is to ensure predictability, sustainability

and profitability of revenues year after year.” - N R Narayana Murthy

Nonetheless, business ethics is not there only to differentiate between wrong and

right; it also deals with reconciling what legal actions should be taken and

maintaining a competitive advantage over other businesses. While doing business is

essential to the company, carrying out work correctly is critical. It affects the

business’s reputation since investors are less likely to buy stock or invest in a

company that operates unethically. Therefore, the ethical operation is directly linked

to short-term and long-term profitability. With strong business ethics, a company is

sure to work legally, protecting both its workers and clients. These principles

preserve manufacturing standards, keep businesses honest and fair, and stop

misleading or unfounded product claims. A strong ethical business culture also

supports better performance and reduces employee burnout, among other things.
Businesses can promote ethical behaviour through clear communication of values

and standards, comprehensive ethics training for employees, implementing robust

compliance programs, establishing ethical decision-making frameworks, and

fostering a culture of transparency and accountability. Unethical business practices

can lead to a range of negative consequences, including legal penalties, damaged

reputation, loss of trust from customers and stakeholders, decreased employee

morale, and ultimately, financial losses and business failure.

Corporate governance is the set of rules and processes that guide how a company is

managed and overseen. It's vital for ensuring that businesses operate ethically

and in the best interests of those involved. A primary goal of corporate

governance is to prevent corporate greed and promote responsible and transparent

business practices.

By establishing and enforcing high ethical standards and holding individuals

accountable for their actions, corporate governance serves as a safeguard against

misconduct, protecting the interests of shareholders, customers, and the

wider community.

Establishing a Code of Ethics: A code of ethics sets the standards of conduct and

behaviour for employees and leaders in a company. It outlines the values and

principles that the company stands for and expects all members to follow. By

establishing a code of ethics, a company can promote ethical behaviour and prevent

unethical practices.

Encouraging Ethical Behaviour: A company must promote a culture of ethics to

encourage ethical behaviour. This can be done by rewarding ethical behaviour,

providing ethics training, and creating an open and transparent environment where

employees feel safe to report any unethical behaviour.

Maintaining Accountability: Corporate governance must hold its leaders and

employees accountable for their actions. This can be done by implementing policies

and procedures to prevent unethical practices, such as conflicts of interest or insider

trading. It is essential to establish clear reporting mechanisms to ensure that all

incidents of unethical behaviour are identified and appropriately addressed.

Upholding Legal and Regulatory Requirements: A company must adhere to legal

and regulatory requirements. This means complying with laws related to finance,

labour, environment, and other areas. Failure to comply with these laws can result in

legal consequences and harm the company’s reputation.

Promoting Transparency: Transparency is vital in corporate governance.

Companies must be transparent in their operations, decision-making processes, and

financial reporting. By being transparent, a company can build trust with its

stakeholders, including customers, employees, shareholders, and the public.

Building a Strong Reputation: Ethical behaviour can help a company build a strong

reputation. By promoting ethical behaviour, a company can demonstrate its

commitment to its values and principles. This can lead to increased trust and loyalty

from stakeholders, which can help the company achieve long-term success.

Some specific ethical issues associated with corporate governance include:

Conflict of interest: Corporate leaders may prioritize their personal interests over the

interests of the company or its stakeholders, such as shareholders or employees.

This can lead to unethical behaviour such as insider trading or awarding contracts to

companies in which they have a financial interest.

Excessive executive compensation: The issue of excessive executive compensation

is often viewed as an ethical issue, as it can result in significant wealth disparities

and may be perceived as unfair to other employees.

Accounting and financial reporting practices: Misleading or fraudulent financial

reporting can harm shareholders and investors, and may be illegal.

Environmental and social responsibility: Companies have a responsibility to minimize

their negative impact on the environment and to act in socially responsible ways,

such as by ensuring safe working conditions for employees and avoiding exploitative

practices.

Bribery and corruption: Companies may engage in bribery or other corrupt practices

in order to gain a competitive advantage, which can be harmful to society and

undermine trust in the company.

Board composition and independence: The composition and independence of a

company’s board of directors can be an ethical issue, particularly if board members

are not independent or do not have the necessary skills or experience to oversee the

company effectively.

Companies should establish a robust code of ethics that outlines expected

behaviours and consequences for violations. They should also create a

whistleblower mechanism, conduct regular ethics training, and appoint an ethics

committee to investigate and resolve issues. Ethical corporate governance can

enhance shareholder value by reducing the risk of financial scandals and unethical

behaviour. It promotes responsible decision-making and ensures that shareholders’

investments are managed in their best interests. Proactive measures include

fostering a culture of ethics and integrity from the top down, conducting regular
ethics audits, encouraging employees to report concerns, and enforcing stringent

consequences for unethical behaviour. Companies should also ensure the board of

directors actively oversees ethical compliance.

Addressing the multifaceted aspects of corporate governance in India requires a

holistic approach involving legal reforms, regulatory enhancements, and a cultural

shift towards ethical business practices. Continuous monitoring and adaptation to

evolving global standards are imperative for sustaining investor trust and fostering

economic growth.