BUSINESS ETHICS VS CORPORATE GOVERNANCE

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1 BUSINESS ETHICS VS CORPORATE GOVERNANCE MANOJ XAVIER Lecturer, Research And Post Graduate Department Of Commerce, St. Aloysius College. Edathua, Kerala. ABSTRACT Corporate governance is a wider concept and one of the techniques for good corporate excellence is business ethics. Business ethics is the art and discipline of applying ethical principles to examine & solve complex moral dilemmas. A business is considered to be ethical only if it tries to reach a trade off between objectives and its social obligations. The code of ethics required for a business unit includes good business senses, fair competition, accountable business and transparent business standards which enable positive community action and stakeholders in adopting ethics. This study focuses on how far the corporate governance with business ethics is effective in Indian industry and to know about the benefits and contributions of business ethics. Key words: Business ethics, corporate governance, code of ethics. Introduction The word ethics is derived from the Greek word Ethos, which means customary or habitual conduct. Business ethics is a discipline of the applied ethics that analyses the moral qualities of commercial activities. Business ethics as a branch of study deals with the principles, values and standards that describe right conduct in business. A business activity is considered ethical if it is legal and safeguards the interests of the stakeholders of a business. An ethical decision is one that duly follows law and moral values of the society. In an ethical perspective, a business that pays no attention to values and principles in its operations to earn money is a poor business. The role of ethics in business is setting right goals, selecting right ways, making right decisions and doing right actions so as to ensure honesty and fairness in its operations. Ethical business practices stem from ethical corporate cultures. The most systematic approach to fostering ethical behaviour is to build corporate cultures that link ethical standards and business practices. Such an institutionalization of ethical standards begins with an understanding of ethics philosophies, and is sustained by mechanisms such as corporate structuring, credos, training programmes, committees and social audits. Definition As per Business Dictionary Business ethics is a system of moral principles applied in the commercial world. Business ethics provide guidelines for acceptable behaviour by organizations in both their strategy formulation and day to day operations. Significance of The Study Globally it has been realized that the challenge facing business is not just to market a product, rather it lies in making the process Socially Acceptable. The rising concern for charting a road map for sustainable business manifests this challenge to have an updated code of ethics for the industry icmrrjournal@gmail.com

2 In a competitive world, an updated and well-defined code of ethics reflects the core values of an organization. This can protect against harassments or dictum, fines and sanctions. Sustainable business incorporates four interrelated but distinct conceptual components. This study seeks to augment this effort to frame of code of Ethics for Indian Industry. Through this study the following components are painstakingly co-relates between each other s. They are; Economic sustainability Social sustainability Ecological sustainability Ethical and Human Rights Aspects Statement of the Problem Ethics is an important factor while it is related with business. For the successful conduct of a business ethics is must. Business activities might be legal and profitable but that does not mean that they are ethical. A business activity is considered ethical if it is legal and safeguards the interests of all the stakeholders of a business. In India there is no separate law for business ethics while corporate governance and corporate social responsibility had. As a branch of corporate governance, corporate social responsibility had a separate law for the conduct. But as a branch of corporate governance, business ethics has no such legal assistance. This study was intended to make an analysis why business ethics is not backed by a law. Limitations of the Study Time available for the completion of the study is very short, which might result in insufficient collection of data required to come to an appropriate conclusion. Due to time limit, study concentrated in one industry. The study is purely based on secondary data. The study limited to India. The analysis and conclusion made is as per our limited understanding for this concerned subject. Theoretical Framework Review of literature is very significant and essential part of study. It helps to gain a wider and deeper understanding of the area of study. Chandler (1996)observed, that by 1900 it was becoming easier to rise to positions of economic influence thoroughly the newly centralised management structures of the large corporations than by owning one s own business. This pattern was already clear in the rail roads, the nation s first business bureaucracies (Chandler, 1996, pp.66/67). The discussion of issues, associated with ethical or unethical behaviour in business organizations, has become prominent in human resource development (HRD) literature in recent years Hatcher and Aragon (2000a,2000b) provided a compelling rationale for the development of standards on ethics and integrity for HRD research and practice. This initial discussion was followed by a special issue of Advances in Developing Human Resources, devoted to an in-depth analysis of theoretical and practical challenges of developing such standards. In addition, the issue reported empirical studies and/or practical work related to the implementation of ethical HRD practices (Hatcher & Aragon, 11 icmrrjournal@gmail.com

3 2001). Hatcher s (2002) book, ethics and HRD, provided a detailed discussion of the role of HRD in promoting ethical business practices and corporate social responsibility. Ethics in business has been an issue for as long as trade and commerce have taken place. The field of business ethics is, however, of more recent vintage, possibly from around 1920 onwards (De George, 1987). There is a clear relationship between ethics in business and business ethics for the latter is at one and the same time, commentator, critic, philosopher and prophet on the former. This literature review employs the phrase ethics in business in its title, but draws upon various philosophical and empirical literature sources to identify and discuss key issues within the field. Corporate Governance Vs Business Ethics The phrase corporate governance describes the framework of rules, relationships, systems and processes within and by within and by which authority is exercised and controlled within corporations. It encompasses the mechanisms by which companies and those in control are held to account, Good corporate governance promotes investor confidence, which is crucial to the ability of entities listed on the ASX to compete for capital. In this broad sense ethics in business is simply the application of everyday moral or ethical norms to business. In general, in the United States thus focuses on the moral or ethical actions of individuals. It is in this sense that many people, in discussing business ethics, immediately raise examples of immoral or unethical activity by individuals. Included with this notion, however, is also the criticism of multinational corporations that use child labour or pay pitifully low wages to employees in less developed countries. Many business persons are strongly influenced by their religious beliefs and the ethical norms that they have been taught as part of their religion, and apply these norms in their business activities. Code of Ethics for Indian Industry The Code of Ethics A. Inclusive Business B. Accountable Business C. Transparent Business Standards D. Commitment to Professed Quality and Representation Accuracy E. Fair Competition F. Equal opportunities to employers G. Upholding of Employee Human Rights H. Health, safety and environment I. Corporate Citizenship J. Stakeholder Representation 12 icmrrjournal@gmail.com

4 K. Business Association L. Conflict of interest The Need for Code of Ethics for Indian Industry (Significance of Study) Framing of specialized guidelines in a domestic setting and ensuring that companies can be held accountable for human rights abuses by the local government can be done most effectively by forming a specialized Corporate Code of Ethics & bringing it under a separate legal regulatory framework. In terms of locally owned companies operating in a State, a Corporate Code of Ethics is still vital to ensure protection and respect for human rights. Although there is no dispute based on whether the State has jurisdiction in these cases, a Corporate Code of Ethics does more than just outline accountability of companies. A Code of Ethics also provides basic guidelines for companies to create a working atmosphere that incorporates business respect for human rights. In different regions, different vulnerable groups exist (E.g. in some areas, there may be tribal employees/ linguistic minorities working at the companies) and a Code of Ethics that clearly outlines the specific challenges faced by marginalized groups is necessary to ensure equal human rights respect and protection for all. Also, a Code of Ethics is needed to correlate company policy with other relevant laws of the region to ensure that company operation keeps pace with environmental, labour, anti-corruption, nondiscrimination and property laws amongst others. If there is no Code of Ethics, it can lead to serious implications for the rights-holders (who include not only employees, but people living in the surrounding areas and other stakeholders in the company) as well as for the business itself. Significance A Code of Ethics will provide the company with guidelines on its far-reaching human rights impact, and existing laws governing human rights in the territory. Also, in a situation where human rights abuses take place, businesses cannot plead ignorance of existing norms since they have been set out in the Code of Ethics. In short, a Corporate Code of Ethics is extremely important from the point of view of the State in order to clearly define legal liability of companies and enforcement of law to ensure protection and respect for human rights. Indian Scenario A number of instances of similar human rights and corporate ethics abuses including grave human rights violations can be cited throughout India. One of the most potent incidents has been the Bhopal Gas Tragedy It has been 26 long years since one of the world's worst industrial disasters struck Bhopal. However, even today, most of the victims await justice even as the main accused of the tragedy, Warren Anderson, walks free. All business enterprises have an obligation to respect and protect human rights through their conduct. This obligation is independent of, and reinforced by State obligations under international law and domestic laws regarding human rights. Another article titled Second India Scandal Has Business Leaders Rethinking Ethical Standards shows how grave the situation in India is. It states Recent scandals in India s technology industry have triggered new scrutiny of the country s ethics practices and standards. In the most recent development, WIPRO, one of India s biggest computer outsourcing firms, was blacklisted by the World Bank for allegedly providing improper benefits to Bank staff, reports Forbes. Prevention is always better than cure 13 icmrrjournal@gmail.com

5 Conclusion The study has been carried out to find out whether Business Ethics as a branch of corporate governance is reliable in India. Business ethics stipulates the morality standards and behavioural patterns expected individuals and the business as a whole. As a branch of corporate governance, corporate social responsibility had a specific law to assist it. So now it is a mandatory process. But business ethics is not compulsory in India. Why because there is law that specified by SEBI in 49 clause only for listed companies. Other companies had no such law. It has been found that if there is a specific law for business ethics, it helps the organizations to conduct the business in a good manner and also helps to achieve good morale. References 1. K.R. Sampath, Law of Corporate Governace: Principles and Perspective 2. Inderjit Dube, Corporate Governance. 3. Renu Nainawat and Ravi Meena, Corporate Governance and Business Ethics icmrrjournal@gmail.com