Module 5

Ethics management

Management Ethics’ is related to social responsiveness of a firm. It is “the discipline dealing

with what is good and bad, or right and wrong, or with moral duty and obligation. It is a standard
of behaviour that guides individual managers in their works”. It is the set of moral principles that
governs the actions of an individual or a group.”

Organizational culture

Organizational culture is the collection of values, expectations, and practices that guide and
inform the actions of all team members. It is defined as the underlying beliefs, assumptions,
values and ways of interacting that contribute to the unique social and psychological
environment of an organization. It also refers to a company's mission, objectives, expectations
and values that guide its employees.

Ways to Improve an Organization's Ethical Climate

1. organization is to give employees more power over their work
2. Improve communication policies and procedures so that information will flow more
smoothly and frequently between employees and managers.
3. Enforce consequences for violations of the ethics policy

Structure of ethics management

Ethical structures represent the various systems, positions and program a company can undertake
to implement ethical behavior. An ethics committee is a group of executives appointed to
oversee company ethics. The committee provides rulings on questionable ethical issues.

CEO AND Duties of CEO

The Chief Ethics Officer (EO) is a senior ranking individual in an organization. The primary

role is to build a strong ethical culture within the organization. In order to perform these
responsibilities the chief ethics officer must be given support, independence, and opportunity to
influence key decision-making board members. The chief ethics officer normally reports to
the chief executive officer, and have some access to the board of directors.
Code of conduct

A code of conduct is a set of organizational rules and standards regarding the company’s values,
ethics, and beliefs that determine the conduct or action of the organization and its members. It
also includes matters of legal compliance. The different rules set out in a code of conduct
determine which practices are required or restricted.

Code of business ethics

A code of ethics in business is a set of guiding principles intended to ensure a business and its
employees act with honesty and integrity in all facets of its day-to-day operations and to only
engage in acts that promote a benefit to society. All companies can set their own value-based
policies as part of the company brand. 

Code of professional ethics

A code of professional ethics is a set of customs that outline an organisation's mission and
values. A code of professional ethics acts as a warning, informing people about the consequences
should they break any guidelines.

Ethics committee

An ethics committee is a body responsible for ensuring that medical experimentation and human
subject research are carried out in an ethical manner in accordance with national and
international law. Ethics committees review research proposals involving human participants and
their data to ensure that they agree with local and international ethical guidelines. They also
monitor studies once they begin and—if necessary—may take part in follow-up actions after the
end of the research.

Ethics training

Ethics training programs refer to the programs which are designed by a firm to promote ethical
behavior. An ethics training program provides employees with instructions on how to deal with
ethical dilemmas when they occur and improve their overall ethical conduct. The purpose of
Ethics Training is "to enable employees to identify and deal with ethical problems developing
their moral intuitions, which are implicit in everyday choices and actions.
Features of good ethics program me

 Standards, policies, and procedures.

 Compliance program administration.
 Communication, education, and training.
 Monitoring and auditing.
 Internal reporting systems.
Functions of ethics committee
The main role of an ethics committee is to set and oversee the rules for a company's conduct.
They provide accountability for the company's behavior. The three primary functions commonly
cited for an ethics committee are education, policy development and review, and case analysis.
Communication Ethics

Communication Ethics is how a person uses language, media, journalism, and creates
relationships that are guided by an individual's moral and values. These ethics consider being
aware of the consequences of behavior and consequences; it's to “respect other points of view
and tolerate disagreement”.

Communication

Communication is the act of giving, receiving, and sharing information -- in other words, talking
or writing, and listening or reading. Good communicators listen carefully, speak or write clearly,
and respect different opinions. Communication serves five major purposes: to inform, to express
feelings, to imagine, to influence, and to meet social expectations. Each of these purposes is
reflected in a form of communication.

Corporate governance
Corporate governance is the combination of rules, processes or laws by which businesses are
operated, regulated or controlled. The term encompasses the internal and external factors that
affect the interests of a company’s stakeholders, including shareholders, customers, suppliers,
government regulators and management. The board of directors is responsible for creating the
framework for corporate governance that best aligns business conduct with objectives.

Principles of corporate governance

While corporate governance structure may vary, most organizations incorporate the following
key elements:
 All shareholders should be treated equally and fairly. Part of this is making sure shareholders
are aware of their rights and how to exercise them.

 Legal, contractual and social obligations to non-shareholder stakeholders must be upheld.

This includes always communicating pertinent information to employees, investors,
vendors and members of the community.

 The board of directors must maintain a commitment to ensure accountability, fairness,

diversity and transparency within corporate governance. Board members must also possess
the adequate skills necessary to review management practices.

 Organizations should define a code of conduct for board members and executives, only
appointing new individuals if they meet that standard.

 All corporate governance policies and procedures should be transparent or disclosed to

Objectives of Corporate Governance

• To align corporate goals of its stakeholders (society, shareholders,etc.)

• To strengthen corporate functioning and discourage mismanagement

• To achieve corporate goals by making investment in profitable investment outlets.

• To specify responsibility of the B.O.D and managers in order to ensure good corporate
performance.

NEED for Corporate Governance, (REASONS FOR CORPORATE GOVERNANCE)

Corporate Governance is needed to create a corporate culture of Transparency, accountability

and disclosure. It refers to compliance with all the moral & ethical values, legal framework
and voluntary adopted practices. This enhances customer satisfaction, shareholder value and
wealth.

1. Corporate Performance

Improved governance structures and processes help ensure quality decision-making,

encourage effective succession planning for senior management and enhance the long-term
prosperity of companies, independent of the type of company and its sources of finance. This
can be linked with improved corporate performance- either in terms of share price or
profitability.
2. Enhanced Investor Trust

Investors consider corporate Governance as important as financial performance when

evaluating companies for investment. Investors who are provided with high levels of
disclosure & transparency are likely to invest openly in those companies.

3. Better Access to Global Market

Good corporate governance systems attract investment from global investors, which
subsequently leads to greater efficiencies in the financial sector.
4. Combating Corruption
Companies that are transparent, and have sound system that provide full disclosure of
accounting and auditing procedures, allow transparency in all business transactions, provide
environment where corruption will certainly fade out. Corporate Governance enables a
corporation to compete more efficiently and prevent fraud and malpractices within the
organization.

5. Easy Finance from Institutions

Several structural changes like increased role of financial intermediaries and institutional
investors, size of the enterprises, investment choices available to investors, increased
competition, and increased risk exposure have made monitoring the use of capital more
complex thereby increasing the need of Good Corporate Governance. Evidence indicates that
well-governed companies receive higher market valuations. The credit worthiness of a
company can be trusted on the basis of corporate governance practiced in the company.

6. Enhancing Enterprise Valuation

Improved management accountability and operational transparency fulfill investors’

expectations and confidence on management and corporations, and return, increase the value
of corporations.

7. Reduced Risk of Corporate Crisis and Scandals

Effective Corporate Governance ensures efficient risk mitigation system in place. The
transparent and accountable system that Corporate Governance makes the Board of a
company aware of all the risks involved in particular strategy, thereby, placing various
control systems to monitor the related issues.
 8. Accountability

Investor relations’ is essential part of good corporate governance. Investors have directly/
indirectly entrusted management of the company for the creating enhanced value for their
investment. The company is hence obliged to make timely disclosures on regular basis to all
its shareholders in order to maintain good investor’s relation. Good Corporate Governance
practices create the environment where Boards cannot ignore their accountability to these
stakeholders.

Importance of Corporate Governance

• It shapes the growth and future of capital markets of the economy

• It helps in raising funds from capitals markets

• It links company’s management with its financial reporting system.

• It improves efficiency and effectiveness of the enterprise and wealth of the economy

• It improves international image of the corporate sector and enables home companies to raise
global

• It helps management to take innovative decisions for effective functioning of the enterprise
Seven Characteristics of Good Corporate Governance

1. Clear Organizational Strategy

Good corporate governance starts with a clear strategy for the organization. Knowing the
overall strategy helps the company’s workforce stay focused on the organizational mission:
meeting the needs of the consumers in that target market.

2. Effective Risk Management

a company’s management might decide to diversify operations so the business can count on
revenue from several different markets, rather than depend on just one.

3. Discipline and Commitment

Good corporate governance requires having the discipline and commitment to implement
policies, resolutions and strategies.
4. Fairness to Employees and Customers

Fairness must always be a high priority for management.  Companies also must be fair to their
customers, both for ethical and public-relations reasons. Treating customers unfairly, whatever
the short-term benefits, always hurts a company’s long-term prospects.

5. Transparency and Information Sharing

Corporate transparency helps unify an organization: When employees understand

management’s strategies and are allowed to monitor the company’s financial performance,
they understand their roles within the company. Transparency is also important to the public,
who tend not to trust secretive corporations.

6. Corporate Social Responsibility

Social responsibility at the corporate level is increasingly a topic of concern. Consumers

expect companies to be good community members. Good corporate governance identifies ways
to improve company practices and also promotes social good by reinvesting in the local
community.

7. Regular Self-Evaluation

. The key is to perform regular self-evaluations to identify and mitigate brewing problems.
Employee and customer surveys, for example, can supply vital feedback about the
effectiveness of your current policies. Hiring outside consultants to analyze your operations
also can help identify ways to improve your company’s efficiency and performance.

Factors Affecting Corporate Governance

Corporate Governance is a dynamic practice consisting of internal control provisions and

procedures to manage a company. It affects and gets affected by a number of factors. These
factors can range from internal to external factors.

Market factors can be cited as an example of external factors, whereas the practice of effective
communication can be an example of internal factors. 
1. Shareholders Activism

Activist shareholders pressure companies to pass their proposals of change. This class of people
acts in the belief that the proposal will increase the market values of their equity.

They may use various tactics for creating pressure on the board, such as filing of lawsuits and
seeking representation on the board. Raising their issues during shareholders meetings or even
among the public is another tactic practiced by activist shareholders to influence the decision
making and ultimately the corporate governance processes.

2. Threat of Hostile Takeover

The management acts as an agent of the shareholders. The principle job of the board is to serve
the interests of the shareholders. If the management fails to do so, the shareholders may replace
the board. Shareholders do so in a belief that by doing so, the performance will improve, and
results will change.

This threat of hostile takeover for management keeps them in pressure to act in the best interest
of the shareholders. Policies, procedures, and practices adopted by the board are influenced by
their expected alignment with the shareholder’s interest. This may act as a factor to keep other
stakeholders at a disadvantaged position. Principles of good corporate Governance expect that
board to work in an impartial manner.

3. Legal Environment

Another factor that influences the relationship between the Company and its stakeholders is the
prevailing legal environment. The legal system of the state influences the affairs of corporate
Governance. 

Shareholders and creditors tend to have more protection in countries where common law is in
practice. Under this system, previously held rulings can act as the rule of law. This is unlike the
civil law system, where the rule of law books has the highest authority. The punishment,
compensation, and procedures are defined in the book of the law, and rulings are based on these
enacted laws.

Relationship between business ethics and corporate governance

Every company, as their progress has many stakeholders such as employees, vendors,
shareholders, customers, community and more. For survival and development, organizations
have to rely upon good terms with all these stockholders. So companies need to return good
favour to every stakeholder; great returns for shareholders, jobs for employees, reliable products
for consumers, responsible relations with the community and a clean environment.

Business ethics is basically the implementation of general ethical principles to business

dilemmas and brings a broader range of problems and concerns than law because everything that
is legal might not be ethical. Ethics means the knowledge and awareness of what is right or
wrong, and then following the right path but, the right path is not nearly as simple.

The purposes of business ethics include providing people with the tools by which they can deal
with moral complexity in business, business decisions have ethical components- ethical
implications should be weighed before acting.

While ethics provides moral guidelines, organizations must apply these guidelines in making
decisions. Ethics that applies to business means business ethics is not a separate theory of ethics;
instead, it is an application of ethics to business situations.

Good Corporate Governance is key to empower profits and reputation. It represents the relations
among stakeholders used to determine and control the strategic direction and performance of
companies. Accountability is a major element and needs for corporate governance, fortifying the
latter in the way that it offers a transparent template for governing critical decisions, activities,
and procedures.

Corporate Governance generally focuses on two major questions;

1. Who benefits from corporate decisions/senior management actions?

2. Who should benefit from senior management action or corporate decisions?

There are numerous reasons why organizations should act ethically. Since behaviour varies as
per the values priorities, a mutual effort at all levels to deal with corporate ethics start with a
clear understanding of core values, both organizationally as well as individually.

Good corporate governance starts with the own internal practices and policies of the company.
Although the issues regarding corporate governance are common across companies, each
organization needs unique governance principles. It also ensures that long term strategic
objectives and plans are well set up and the proper management structure is in place. The
corporate governance actually presents the moral framework, the ethical frameworks and the
value framework under which decisions are taken in an organization.
Importance of ethics training programs
Consumers today are more conscious of ethical business practices than ever before. In today’s
business world, there is easy access to information about companies and how they conduct
business. Consumers have become acutely aware of this information and have made it an
important part of where they decide to invest their money.

Due to the ease of access to information provided by modern communication, people have
become very aware of ethical businesses and the impact that they have. There are even
businesses that were created to showcase and give awards that highlight companies who are
ethical leaders in their industries. This includes lists like EthiSphere’s annual ethical company
ratings that consumers use to determine the ethical standing of a company. Companies will
promote these achievements in their corporate literature and their websites because it has become
an essential part of being a successful company.

Avoiding unethical business practices will not only help to create a good reputation, but keeps
the company safe from litigation. Money scandals and poor business practices can cause a major
loss in profit. These can lead to a loss in motivation in employees and ultimately bankruptcy.
Maintaining quality and productivity by not cutting corners can only create a good reputation and
preserve a good code of ethics for the company.

This is why having training in ethics is necessary for a successful business. They not only help
promote awareness to the ethical practices in the company, but ethics training programs boosts
morale so that employees work more effectively and harmoniously with their co-workers. Being
ethically aware helps to maintain a positive corporate culture and upholds a strong public image.

Ethics trainings are essential to preserving a positive business culture and responsive to any
ethical dilemmas that could arise. Communicating ethical business behavior and implementing
that behavior into the workplace is an important business strategy that can only improve a
business. By having these programs in place and updating them when necessary, companies will
flourish and grow into a thriving and respected business for years to come.