Corporate
Morals
Ethics and corporate performance
I was recently at a sports event for professional students where
I was shocked to see widespread cheating by young individuals to
win their events. Elections are rigged in this country and even
corporate leaders set poor examples at times. All in all there is
a need to build ethics.
Ethics
is about what is right and wrong. An ethical behaviour is one which
would ensure that only the right things are done. It is essential
for corporates to take an approach towards ethics. The two commonly
followed approaches are:
1. Integrity based
approach
2. Compliance based
approach
Integrity based approach
This is where ethics are built into the culture of the corporate
and reflected in its values. Employees sharing similar principles
are recruited to the organisation and further inculcated in its
ethical principles. Companies such as Toyota practised principles
such as "Get it right the first time, Zero Defects" which
they passionately believed in and employees were inculcated in these
values with a zeal.
Compliance
based approach
This is an approach whereby a corporate develops a set of ethical
guidelines for its staff, issues them a manual, trains them in the
guidelines and monitors compliance. Compliance officers are appointed
to monitor the conformance to the guidelines and board level support
is provided through non-executive directors and the encouragement
of whistleblowers.
If
a compliance-based approach is to be implemented a company has to
first of all decide what ethical standards they intend to adhere
to.
Some
suitable ethical standards
The CIMA guidelines provide ethical standards members should comply
with in order to become successful professionals. Similar principles
can be adopted by corporates with regard to the behaviour and conduct
of their staff members. The standards which a corporate could introduce
would include:
* Integrity
* Objectivity
* Due care
* Professional behaviour
* Avoidance of conflict of interest
Integrity
Integrity would simply be honesty. Honest staff would lead to honest
companies and the outcome would be a socially admirable organisation.
British Petroleum, the world's largest oil company, has been honest
in admitting that oil extraction is environmentally harmful and
has taken an approach of supporting environmental groups on researching
into methods as to how they could minimise the impact.
Objectivity
Staff should have the culture of making business decisions in an
objective manner to maximise the welfare of the shareholders. Whether
it is recruitment, purchasing or customer related transactions subjectivity
should be eliminated when making decisions.
At
Enron the company booked executive travel through a travel agency
which was run by the chairman's sister and which charged above market
prices.
Due care
Staff should take due care in their work particularly when it affects
external parties or customers. Toyota has achieved the lowest defect
level per vehicle manufactured thereby enjoying the highest level
of confidence and respect among automobile users.
Professional
behaviour
Ethical guidelines should encourage staff to act professionally
and treat all stakeholders with respect and care. The professional
behaviour of staff in difficult times with stakeholders will earn
accolades and admiration from the stakeholder community. Companies
like Wal-Mart and IKEA are famous for the professional behaviour
of their staff.
Avoidance
of conflict of interest
Staff should avoid conflict of interest in transactions. When there
are transactions where top management may have a conflict of interest,
it is better for them to be out of the whole negotiation process
and allow others to carry out the transaction.
Implementation
of ethical standards
A common trend among many corporates in the West is encouraging
their staff to give tip-offs to a committee of non-executive directors
on any unethical or socially unacceptable acts committed by any
individual in the organisation.
The scandal at Enron was in fact revealed when Sharon Watkins, an
accountant, blew the whistle and informed the state of affairs to
Kenneth Lay, the chairman.
Message
to the investor
The free market economy is encouraging firms to work towards maximising
profits. Individuals are driven by short-term personal benefit.
There is a risk of society degenerating if ethical conduct does
not prevail in corporates. It is the responsibility of the shareholders
to exert pressure on the corporates to do so. Organisations with
low ethical standards do live dangerously. |
