Managerial Ethics: National Level Ethics and Views on Corporate Social Responsibility

Learn about:- 1. The Macro View and National Level Ethics 2. The Meso View and Corporate Social Responsibility 3. The Meso View and Corporate Social Responsibility.

The Macro View and National Level Ethics:

Voltaire was said to have remarked that he would never give up his right to say what he thought was right but would with equal tenacity defend the right of those who spoke their mind against his views. National level consciousness and the development of a civilized society is viewed very often from the points of view of liberty and repression of thought.

Viewing the level of ethics at the national level can as well take a similar position. Liberty is best defined in the tradition of Rousseau and Laski as the right of a citizen to do what he/she likes as long as it does not impede or hinder the right of the other citizen to do what he/she likes. Whenever thought is repressed it gives out a signal that those in power feel threatened. If those in power have acted ethically, adopted good governance practices, not exploited their fellow mankind and pursued an honest cause by fair means, then they would have nothing to fear, even in a Plutocracy.

Jayashree had remarked that a spectre is haunting India, the spectre of mediocrity. This was an extension of the logic that mediocrity is a self-perpetuating phenomenon that is actively encouraged by those insecure persons at the higher rungs of a hierarchy.

A lot of water has flowed from under the proverbial bridge since then. The greatest threat to Indian civil society today, we opine, is not from AIDS, SARS, or Bird Flu but from intolerance.

An explanation follows-When a lecture is in progress some students arbitrarily get up and walk out purpor­tedly to say namaz on Fridays. This is not liberty but a misuse of tolerance. When a cricket match is in progress between India and Pakistan and prayers are chanted for the victory of Pakistan in a local place of worship, it is not an exercising of the right to religion but a willful affront to nationalist feelings and bordering on treason.

When forty odd Hindu temples are destroyed in the Jammu-Kashmir region the fourth estate is muted supposedly because it is politically wise to do so. But when the Babri Masjid is demolished the same fourth estate suddenly wakes up. When lecturers are told to pursue research, it is a legitimate UGC /AICTE /AIU directive governed by the need to improve the quality of management education.

Now suppose a director or trustee in a management institute says that he must approve all faculty research or that all such research must be conducted only after working hours which begin at 10:00 am and fend any time between 7:00 and 8:00 pm, then that director or trustee can be rightly accused of not only exposing his own ignorance of academics but also becoming an obstacle to intellectual progress and impeding the liberty of academics in his Institute. So, what exactly is liberty and what exactly is tolerance?

Liberty in the highest tradition of Voltaire is seen for instance when nobody prevents students in a hostel from having night long parties with loud music blaring and damaging ear drums provided it does not deny the inhabitants of the locality from having a peaceful night’s sleep.

Only because it destroys another’s right to rest is it banned. But what is the position of society on social dissent? A great deal has been said in recent times and a lot less is being reported because the fourth estate considers it politically proper to do so. Even in political parties this trend surfaces itself blatantly.

Once upon a time Rajendra Prasad, Govind Vallabh Pant and Firoze Gandhi criticized Jawaharlal Nehru and remained within the Congress Party with their dignity intact. In fact, Rajendra Prasad who is the only President to have enjoyed two full terms in office had regular conflicts with Prime Minister Nehru.

Can the same thing happen today? Do leaders walk their talk, as did E M S Namboodripad when he gave up his ancestral wealth for the cause of the Party or Gulzarilal Nanda who gracefully retired to his farm after his political innings were over? In contradistinction, the servile attitude, of some Indian Presidents like Giani Zail Singh is legion.

Liberty does not mean license and tolerance cannot be confused with appeasement. Liberty and tolerance are hallowed virtues that flow out of moral strength whereas licence and appeasement are vices of the morally weak.

Since business organisations and academic institutions are a part of the larger civil society, this intolerance will raise its ugly head within management and academic circles. Once that happens we can kiss goodbye to creativity, innovation and progress. The moot ethical question is will history and subsequent generations pardon us for doing so?

Unless the culture of academic tolerance, a scientific temperament, an inquiring mind and rational thought is imbibed in the country’s youth, we do not have a cat’s chance in hell of achieving progress. In addition, this is the first issue, we opine, which Indian ethos in management should seriously address in the years to come.

The second issue according to us is that the Indian ethos in management should address is that of water conservation. As against anything from 3% to 8% of the drinkable water being wasted in Europe we waste up to 42% of the drinking water in India. Theft and squander of power is high enough but it is nowhere near the level of theft and squander of water. The availability of drinking water is fast depleting. Perhaps future wars will not be fought over possession of land and territory but over drinking water!

The third issue in our opinion that must be squarely addressed relates to the environment and engulfs issues like depletion of forests, acid rain, climatic changes, the cooling and heating of El Nino, melting of glaciers, expanding deserts, drying up of lakes, the greenhouse effect and termination seeds. Are we ethically justified in the wanton pillage of Mother Earth in the name of development and is this world not being held by us only in trust for succeeding generations?

But is global warming really a phenomenon attributed to burning fuel and damaging the ozone layer, we ask? Should people stop wearing deodorants in hot humid weather for the larger good of mankind? Should we stop spraying DDT and allow malaria to take its toll? Let us posit a counter proposition.

The earth is a basically cold planet that draws its energy from the sun and heat is but a form of energy. Firstly, by the same logic if there is global warming it is the sun and not the earth that is to blame.

Secondly, after and during World War II there was more fossil fuel emission than thereafter. Yet global temperatures were lower then than they are now when lower levels of emissions take place globally. Surely we are using ethics to bark up the wrong tree and are forgetting the good old “sun spot theory”, it could be further argued.

Hence the third issue that we must address is the larger social-cultural environment and not necessarily only the geo-physical environment. It is not global warming per se but the destruction of flora and fauna that we should take up issue with. It is not ideology but the repression of thought and restriction of liberty that should concern us.

In order to ensure that the above three questions are addressed we opine that there must be a rise of professionalism at all levels and therefore a code of professional ethics must be formulated and implemented. Of course, a professional is anyone who promises to deliver and delivers as promised without giving up his or her values. This code must have teeth and cannot be a wish list.

The Medical Council and the Bar Council have already made headway into this, and other professions must follow. The academic community is conspicuous by its silence on this score at least in the B-School circuit. Moreover, in framing these codes sufficient provision for governance must be made with the enforcing authorities having punitive power as well as being accountable. This is the fourth issue on the agenda of developing the new Indian ethos that we consider important.

Planet M has replaced the portals of an institution where stalwarts like Girilal Jain made history. Increasingly, the fourth estate must rise to the occasion and instead of eulogizing the page three girls, taking politically skewed positions and talking mainly about the social glitterati and tinsel town we need people who have both a conscience and gumption.

What are needed is some more leading lights of journalism (at all levels) like Rusi K Karanjia, Prem Shanker Jha, Bibek Debroy, Dom Moraes, Sanjaya Baru, Tarun Tejpal, Sucheeta Dalai and in our opinion, it is the Hindu and Dainik Bhaskar that are carrying the torch for top class professional journalism these days. The others have fallen into the trap of commodity fetishism where the market has been transformed from a concept where exchange takes place into flogging the wares of those who can pay the piper the highest.

To sum up this section of the macro level argument, there is no doubt that we need a new Indian national ethos in management, which is fair and above board, prefers meritocracy to mediocrity, promotes innovation and encourages divergent opinion, allows constructive criticism and has a truly futuristic perspective.

This means that real time support from the lawmakers must be forthcoming and we, as a people, must first talk of academic freedom before we speak of religious freedom. Parliamentary democracy after all is difficult to practice on an empty mind and an empty stomach. In addition, we have an abundance of both!

In a socio-political hierarchy constructed in a positivist manner all change must begin at the top, notwithstanding Peter Ducker’s famous quip the bottleneck is always at the top of the bottle.

To have the desired Indian ethos in management within a system of secular parliamentary democracy we need the following political-economic policies to be firmly in place with complete accountability and professionally ethical conduct on the part of the persons involved at all levels-

1. An allocation of at least 8% of the central budget to education and a system that prevents siphoning of these funds and plugs leakages so that universal education is no longer a pipe dream.

2. A politically independent and non-corrupt judiciary and education system.

3. An effective public distribution system for agricultural produce and cooking gas.

4. Uninterrupted supply and availability of power to fuel the engines of economic growth.

5. A strong and quality based manufacturing sector that can compete globally and give gainful employment to varying talent locally.

6. A service sector mindset, which will convert a recalcitrant bureaucracy into a proactive facilitative one.

7. Devoting the talents of the 15% intellectual elite in the urban sector towards developing the life of 85% of the population living in relative squalor within the rural and urban sectors.

In addition to the above seven requirements there is one more, which can best be explained in the form of a little anecdote. The educational-entrepreneur of Symbiosis, S B Mujumdar narrated an interlude between J B S Haldane and Jawaharlal Nehru. When the politician-statesman (supposedly) asked the erudite and scholarly biology professor what he (Nehru) should do to bring about development of the Indian masses, Haldane replied that if every Indian had boiled drinking water, a great improvement in the quality of life would take place.

Today, more than half a century later safe drinking water has been a mirage. This is the eighth issue that the new ethos in Indian management must seriously address and find solutions for, since this is what holds the key to an improvement in the quality of human life. In addition, how is this eighth concern going to be actualised? We speak of rainwater harvesting, environmental health and civic amenities but ground realities belie many such claims.

The Meso View and Corporate Social Responsibility:

In taking up the question of Corporate Social Responsibility (CSR) it is very important to delve into the ends and means question to glean the real essence of the organisational policy towards civil society. Hence while corporate social responsibility is a term that transcends the corporate world and is generic in nature so much so that it concerns every single type of organisation that has a social conscience, it is certainly not window dressing for an organisation to don a facade of social respectability.

As we have argued elsewhere (2007), while there is no single, commonly accepted definition of corporate social responsibility, or CSR, it generally refers to managerial decision-making linked to ethical values, compliance with legal requirements, and respect for people, communities, and the environment.

For purposes of our argument one could easily follow the US-UK tradition according to which CSR is defined as operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business.

There are definite views on what social responsibility is or means to different corporations and people. We shall review the most important among these views and find a link between all of them and then posit our own. The basic question that arises when we speak of corporate social responsibility is how we live in relation to one another?

As long ago as 1762 Jean Jacques Rousseau had accepted that social relations were unequal and distribution of wealth was uneven. Hence in his work A Discourse on the Origin of Inequality, he had warned that by placing new fetters on the poor and giving more powers to the rich, the State itself would be put in danger.

Society and corporations must co-exist and each must contribute to the well being of the other while seeing that other members of society do not suffer. Let us now examine some of the leading views on corporate social responsibility.

(1) Andrew Carnegie and the Gospel of Wealth:

The name of Andrew Carnegie at least in the US is synonymous with corporate philanthropy and corporate social responsibility. Writing in the Gospel of Wealth and Other Timely Essays, (1862) Carnegie had argued.

There is but one right mode of using enormous fortunes – namely, that the possessors from time to time during their own lives should so administer these as to promote the permanent good of the communities from which they were gathered.

The two principles that formed the basis of his philosophy were purely paternalistic and these were:

(a) Charity Principle- those in society who were more fortunate should assist others who were less fortunate,

(b) Stewardship Principle- it is a biblical doctrine that requires business and wealthy individuals as stewards or care takers holding their property in trust for the benefit of the society as a whole. Modern environmentalists take a similar position when they argue that we hold the wealth of the world in trust for succeeding generations and cannot be permitted to squander these resources. Carnegie had identified seven best uses to which a millionaire can devote the surplus of which he must regard himself as only the trustee.

These were:

(a) The founding of a university,

(b) Providing free libraries,

(c) Founding or extension of hospitals, medical colleges and laboratories,

(d) Public parks,

(e) Providing halls suitable for meetings and concerts of elevating music,

(f) Public swimming baths,

(g) One’s own church and churches in poor neighbourhoods.

Carnegie’s contribution should be seen in the perspective of ethical thought that prevailed in the Anglo-American world prior to his time so as to appreciate his impact. From a basic trader mindset he took the world of business into the mindset of the modern entrepreneur and thus positively tried to affect his managerial ethic.

(2) Milton Friedman and Honest Profit:

Raising the time honoured question in political economy, was this moneymaking through exploitation of man by man being alluded to, honest? To what extent can the capitalist stoop to acquire this honest profit? After all Indian trade unions prior to 1950 were charged with creating an impediment to a citizen’s right to trade every time they took up the workers’ cause.

More recently, statistics reveal that in India more man-days were lost due to management action or inaction than due to workers’ disputes! The post 1991 (relatively) free economy con­sequently suffered. And yet to the ultimate homo logicus philosophicus, Friedman, the purpose of business is to make profit and that is all. Writing almost a century after Engels, he said-

There is one and only one social responsibility of business- to use its energies and activities designed to increase its profits as long as it stays within the rules of the game…(and) engages in open and free competition without deception and fraud.

As argued elsewhere whereas Keynes (2007) had conclusively proved that free market economics would not work without state intervention and yet many economists today are trying to take the hands of the clock back and usher in a new form of free market economics, Milton Friedman leads this pack.

Friedman, however, added a new twist in the capitalist logic-exploitation with honesty. He argued that corporate officials are in no position to determine the relative urgency of social problems or the amount of organisational resources required to be committed for a problem.

Businesses should produce goods and services efficiently and leave the solution of social problems to concerned individuals (NGOs) and to the government agencies. In India a lot of small traders in the manufacturing sector and several software firms adopt this position where they have no responsibility to society as such.

After all Friedman had said, they remind us, that – If businesses do have a social responsibility other than making maximum profits for their shareholders, how are they to know what it is? Can self-selected private individuals decide what social interest is?

(3) Keith Davis and Enlightened Self-Interest:

There is no doubt that business has taken a lot from society and must somehow pay back society for it. Thus social responsibility of business is often referred to as having risen from an Enlightened Self Interest where organisations realise that it is in their own best interest to act in ways that the community considers socially responsible.

In the USA there is a 5% club where a group of companies donate five percent of their pre-tax profits to charity. In India, many large companies do the same thing in the name of religion and either build temples (mainly Hindu), run charitable religious trusts (mainly Parsi), give liberally to the church fund (mainly Christian) or promote the study of religious (mainly Quranic) literature.

Unfortunately, there is inadequate mechanism in place to prevent misuse of such funds. This was brought into the limelight by the media coverage of the post September 11 tragedy in 2001 in the USA and the ubiquitous role played by Pakistan, which fought terrorism on the diplomatic front and supplied the foot soldiers for jihad simultaneously.

(4) Robert Ackerman and Corporate Social Responsiveness:

This was the official view taken by ICSI-CCRT in Navi Mumbai between 2000 and 2002. Bureaucrats, procedural minded administrators, paper pushers and those who are used to working in the state capitalist sector are more at home with reacting to stimuli than they are to pre­empting situations with careful planning, foresight and innovation.

To them the issue is no longer one of corporate responsibility but of corporate responsiveness. Before they do something they usually ask what is in it for me or immediately for the organisation. They invariably act in the teleological mode. Unfortunately their social interventions are mundane and short-lived and scarcely create a ripple in the long run.

Robert Ackerman dealt with how such a social problem is identified and then addressed. The question arises, he argues, as to how does an organisation become aware of and then respond to social issues. Companies react to a societal stimulus rather than blaze a trail for others to emulate.

There are two variants to the answer- (a) How do individual companies respond to social issues? (b) What are the forces that determine the social issues to which individual companies must respond? This response to issues has its own life cycle starting from problem recognition, problem analysis and going on to problem resolution.

Usually it has been seen that bureaucratic organisations as well as large organisations are slower in their response than those that are blessed with good leadership and those that are lean and mean. The former is caught up in the process of administration while the latter concentrates on the purpose of administration.

(5) Archie Carroll and Social Performance:

Taking up from the theme propounded by social action theorists in sociology, Carroll combines social responsibility and social responsiveness to form a social action approach. The basic thesis emerging out of this view is that a corporate body responds differently in different situations and the phenomena that unfold could be either one or a combination of the four stances given below. Carroll thereby tries to posit a single theory encompassing social principles, processes, and policies.

In doing so he maintains that corporate policies and decisions can reflect one of these four stances:

(i) Reactive – the company responds to an issue after its goals are under threat,

(ii) Defensive – the company acts to ward off challenge,

(iii) Accommodative – the company falls in line with public opinion,

(iv) Proactive – the company anticipates demands that have not yet been made on it by social forces.

The basis of social responsibility of business, he agrees, lies in values and beliefs that in turn form the backbone of ethics and so it is not wise to separate the two. Indeed a corporation’s social role is based on and flows from its business ethics that in turn forms the platform on which managerial ethics thrives.

An organisation exists within a given society. Its activities influence the social environment just as the social environment influences its activities. The span of this social environment has expanded along with the breaking down of international trade barriers, the globalisation of markets, and the evolution of the concept of a global village. The organisation’s social responsibility has similarly expanded.

(6) The Selective Intervention Approach:

It has, of late, been noticed that high achievers in the corporate world have initiated interventions based solely on their core competency. Just as companies wish to stick close to areas in which they have core competency and not diversify in general so too their efforts at fulfilling social responsibility are restricted to areas in which the corporate body has known and proven core competency.

For instance, the Azim Premji Foundation (Wipro) aided by a contribution from the principal donor Azim Premji of 2.7 lakh Wipro shares (valued in late 2002 at Rs. 38.8 crore) aims and works towards improving elementary education to children in India. A pilot project has been launched in 1,300 villages of Kolar and Mandya Districts in Karnataka.

Community learning centres have been established in 34 rural schools covering 10,000 children and has started a remedial teaching program covering 36,500 children. Infosys Foundation funded by Infosys with Rs. 7.72 crore that started off in 1996 has among other things constructed orphanages in Banpur and Kalahandi in Orissa, Maharshi Karve Stri Shikshana Samasthe Girls Hostel and Jagruti Blind School in Pune.

It also distributes sewing machines to destitute women. Media Labs Asia was a collaborative effort by the Indian Government and IT companies to fund research works by the Massachusetts Institute of Technology in India. MIT Media Labs established Media Labs Asia (MLA) for bridging the digital divide by adopting villages and IT enabling them.

Funding for the project is expected to reach Rs 4000 crore over the decade 2001-11. Satyam Computers Social Service Project, Alamana, Karnataka, works with under-privileged people primarily on a voluntary basis by Satyam employees. The most notable impact has been made by IT Projects for Slum Children.

Similarly, Dr. Reddy’s Labs are doing good work in health care areas and Godrej & Boyce have used their geological expertise to create a beautiful mangrove rich in flora and fauna (of the bird variety) at Pirojshah Nagar in the heart of Mumbai. Social responsibility is then particularized and narrowed down to the areas in which the corporate body has its main source of strength.

This is, no doubt, more of a strategic option rather than a theoretical position but all the same it needs to be cited. However, let the reader not assume that these strategic options can be down played or that they serve no useful social purpose.

(7) Sadri and Jayashree on CSR:

The position adopted in their various published papers between 2002 and 2007 as well as their forthcoming book Business Ethics and Corporate Governance-Towards Organisational Excellence, is not unique but assimilative and rationalistic. Based on these works we can say that in very simple terms, Corporate Social Responsibility is the ethical face of the management of business that shows what it is and what it stands for to the civil society at large.

According to us Corporate Social Responsibility (CSR) is nothing but what an organisation does to positively influence the society in which it exists. It could take the form of community relations, volunteer assistance programs, and special scholarships, preservation of cultural heritage and beautification of the city. The philosophy is basically to return to society what it had taken from it in the course of its quest for the creation of wealth.

Along with rights and privileges come duties and corresponding obligations. The corporations enjoy certain rights and privileges by way of government policy, legislation, custom, and practice. The corporations fulfill their obligations and duties by undertaking their social responsibilities.

Patterns of social and political competition highlight the world of uncertainty and change in which organisations are forced to thrive. Environmental groups, for instance, have proved to be very effective in creating awareness of the effects of certain types of corporate actions.

The importance of CSR in recent years has grabbed the attention of corporate leaders and it will be quite soon for the interest of management scholars in India to be raised as well. What is very important is that corporate leadership leads from the front and by example if CSR is to be taken seriously.

In 2006 Johan Grafland and Bert van de Ven of Tilburg University, for instance, had studied 111 Dutch firms to ascertain the relationship between the views of management on strategic and moral views on CSR and their actual CSR performance. They did not find any significant relationship.

In short, management failed to walk its talk and the gap between pronouncement and practice shows their inability to put their money where their mouth is (to use the old gambling parlance). We are not aware of any study of this type having been conducted in India but we will not be at all surprised to see a similar finding if a study was indeed conducted.

The Micro View and Good Governance Practices:

Whereas managerial ethics tells us how to act in an organisational setting, Business Ethics shows the strategic position that the corporation takes on social, cultural, political and economic issues and corporate governance (CG) provides the system and method for management to perform actions that spring from policies.

Jayashree had argued that whereas Managerial Ethics gives the modus vivendi for achieving excellence, corporate governance provides the modus operandi for doing so. Ethics gives the organisation a set of value systems on which to operate. But this operation must remain within certain boundaries. Corporate governance determines these limits.

Both ethics and governance are instruments of corporate development. This term when used in the context of business organisations is a system of making directors accountable to shareholders for effective management of the companies, in the best interest of the company and shareholders along with concern for ethics and values.

It is a management of companies by the board of directors. It hinges on complete transparency, integrity and accountability of management that includes executive and non-executive directors. Its genesis can be traced to the internal audit function and its importance was enhanced after the Stock Market Crash of 1987.

With the corporate governance reports of Adrian Cadbury in the United Kingdom, Mervyn King in South Africa and Kumarmangallam Birla in India the subject was reduced to controlling shareholder operations and ensuring ethical practices in the financial sector. From thence, it has moved into other areas of the organisation but unfortunately restricts itself to the management and control of funds.

The ambit of significance of corporate governance lies far beyond this as has been explained at length in the forthcoming book Business Ethics and Corporate Governance-Towards Organisational Excellence (2007). Corporate Governance has fast become a major instrument for organisational development, which is a kind of cause celebre for management professionals.

Is corporate governance just another fashionable word or is it a more important concept of lasting value? There is no gainsaying the fact that corporate governance is an important concept and a means to an end; that of achieving corporate excellence. Managerial ethics and corporate governance are positively correlated.

Without ethics governance is puerile and without governance ethics is restricted to wishful thinking. In the end, it is difficult to achieve excellence without managerial ethics and corporate governance. Many experts prefer to define corporate governance in the narrow sense, i.e. making the management accountable to the owner (the shareholders) through the board of directors.

Jayant Oke and Shahrukh Tara have done some excellent research work on the subject that stands head and shoulders above work done by other academics. Work of empirical nature by scholars like G Sethu, Thirpal Raju and Anand Prakash are a class apart. We also see the work coming out of ICSI that is more procedural and mundane than intellectual and conceptual.

Some experts adopt a broader definition of corporate governance to include the interests of all the stakeholders like employees, customers and the civil society at large. Sustaining the balance between different and often conflicting interest groups is however an extremely difficult task, which is in fact, the real challenge of good governance.

Essential ingredients of excellence in this author’s opinion are: attitude, management structure and governance. These fall plumb into the ambit of strategic management. Organisations that are value based and value driven become known as being value centred. The basis for such a culture is the key to success. Any corporate worth its name should not bask in past success, as past success is no guarantee for continued and future success. And that too is something every management professional ought to be competent to handle.

Past success only increases expectations and therefore any management has necessarily to strive harder and harder to meet challenges and to emerge continually successful. Past success is static success and in a competitive world it would be foolish to rest on its laurels. Progressive managements should pursue the path of dynamic success. Ethics of success is important for dynamic success. The ethics of success is thus entwined in corporate governance.

Management and business failure results if ethics of success is ignored or sidelined. And failure increases costs considerably and erodes profitability. Dynamic success keeps on raising the expectations of everyone and managements will face on-going challenges. As success depends on corporate governance, managements must believe in and practice good governance principles. Corporate governance is only a means, the end being corporate excellence.

Corporate governance is not just only for the shareholders, but it is as important for the corporations themselves since it encompasses the well-being of all stakeholders. To experience the goodness of corporate governance and to realize its immense benefits, corporates should have staunch belief in the concept and its practice.

As Toffler had said, the illiterates of the 21^st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn. The dawn of the new millennium has ushered in an era of liberalisation, privatisation, and globalisation, digital technology and information super highways.

A desirable paradigm on corporate governance must, therefore, in our opinion, address and accommodate myriad compulsions and convulsions due to discontinuous, non-linear technological upheavals, fast integrating world economy and a fast shrinking world characterizing the new millennium.

Corporate governance is a necessary condition and not a sufficient condition for succeeding in the global market place. Friedman’s formulation that the business of any business is business has outlived its relevance and the social responsibility of business has become the buzzword in the international corporate arena and has assumed importance in ensuring long term success of companies.

What constitutes corporate governance is transparency, accountability, investor protection, better compliance with statutory laws and regulations, social value is good CG practices. However, mere understanding and appreciation of the principles of corporate governance just would not do.

The principles must be implemented with religious sincerity and rigidity. Implementation is the litmus test. This is particularly so because the road ahead is bumpy and rocky and we are habitually obsessed with complacency. Only when failure hurts, do people become serious enough.

One can ignore corporate governance only to lose out to competition globally. This view has been amply argued in Jayashree’s (2006) paper where the paradigm of the Strategic Triad has been elaborated. The need of the hour is to initiate firm action for implementation of CG practices.

Awareness is a prelude to action. Corporate houses should identify reform processes voluntarily and not just wait for the laws and regulations to be promulgated. Organisations trapped into conforming to a set of regulations formulated by a set of regulators will never make the progression from compliance and conformance to developmental growth.

Corporate governance per se might not lead to corporate excellence as it deals with the form and not the substance, which is the key to corporate excellence. In order to create this substance, corporate houses should continually strike alignment between their business environment and business strategy, between their strategy and organisational structure and between their structure and corporate culture and philosophy.

Customers should be valued the most. The effort should be to get the best out of the people by focusing on employee contribution and developing a culture of continual learning. Knowledge management is another vital ingredient necessary for corporate excellence.

During the 1990’s a large number of companies had failed and the economy had witnessed a number of rating downgrades, both in the manufacturing sector and the financial sector. A plethora of companies that collected funds from the public through public issues during the stock market euphoria had just vanished from the scene and investors were left in the lurch.

Names of individuals like Harshad Mehta and Ketan Parekh in India are known to all, as are the names of organisations like the Unit Trust of India and Larsen and Toubro that fell foul of proper corporate governance practices months after they were anachronistically given the award for good governance practices.

This has raised an important question-Why were the board of directors, auditors and the regulating authorities not able to detect and pre-empt these irregular practices? The role of the State Bank of India, the Vijaya Bank and the Madhavpura Bank readily come to mind for their failure to contain the siphoning of public funds for private benefit. It was clear that business and Managerial Ethics were given a convenient miss in favour of short run private gain.

The role of financial institutions and the role of the board of directors has been a major focus in many studies on corporate governance. While these two bodies no doubt have a major role to play in ensuring good corporate governance the concept has to include the very fundamentals on how the company functions in its day-to-day dealings with customers, with the trader, with the suppliers, with the shareholders, with the government and with the public at large.

By its very definition, corporate governance requires more internal discipline over external accountability, and that comes only from managerial ethics. This internal discipline implies that the quality of its management has to be of a high order to be able to exercise that discipline in the organisation.

By this one would expect that a good management would lead a company to being a good corporate citizen. It may soon be that in the open market economy survival itself may be at stake if the issues of corporate governance are not given due importance.

Corporate governance is a process or a set of systems and processes to ensure that a company is managed to suit the best interests of all. The systems that can ensure this may include structural and organisational matters. The stakeholders may be internal stakeholders (promoters, members, workmen and executives) and external stakeholders (promoters, members, customers, lenders, vendors, bankers, community, government and regulators).

Corporate governance is concerned with establishing a system whereby the directors are entrusted with responsibilities and duties in relation to the direction of corporate affairs. It is concerned with accountability of persons who are managing it towards stakeholders. It is concerned with the morals, ethics, values, parameters of conduct and behaviour of the company and its management. Corporate governance is nothing but a voluntary ethical code of business of companies. This is based on the core values of the top management and the guiding principles that emanate from it.

According to the Cadbury committee on financial aspects of corporate governance it is the system by which companies are directed and controlled. The board of directors is responsible for the governance of the company. The directors and the auditors are to satisfy themselves that an appropriate governance structure is in place.

The concept of corporate governance hinges on total transparency, integrity and accountability of the management. This includes non-executive directors. It is a system of making management accountable to the shareholders for effective management of the companies, with adequate concern for ethics and values.

Corporate governance recognizes issues like maintaining continuity by succession planning, identifying opportunities, facing challenges and managing changes within the business and allocation of resources towards the right priority.

Corporate governance therefore mainly consists of two elements:

(a) A long-term relationship, which has to deal with checks and balances, incentive of managers and communications between managers and investors,

(b) A transactional relationship involving matters relating to disclosure and authority.

Corporate governance hinges on complete transparency, integrity and accountability of management, which includes executive and non-executive directors. Corporate governance is a way of life and not a set of rules; a way of life that necessitates taking interest in every business decision.

A key element of good corporate governance is transparency projects through a code of ethical managerial conduct, which incorporates a system of checks and balances between key players, mainly the board of management, auditors and shareholders. Corporate governance is in essence determination of how companies are governed, how executive actions are supervised and how a company is accountable to regulations imposed on it by law or other commitments to shareholders.

Our research has showed that adherence to managerial ethics and good governance practices enhance the efficiency of the corporate sector in the following manner:

(a) They provide stability and growth to the companies.

(b) The two systems, demonstrated by adoption of good corporate practices build confidence.

(c) Effective governance based on ethics reduces perceived risks, consequently reducing cost of capital.

(d) In the knowledge driven economy, excellence in skills like management will be the ultimate tool for corporate houses to leverage competitive advantage in the financial market. What will make the difference is whether or not ethics accompanies governance.

(e) Adoption of good corporate practices promotes stability and long-term sustenance of stakeholders’ relationship.

(f) A good corporate citizen becomes an icon and enjoys a position of pride.

(g) Potential stakeholders aspire to enter into a relationship with enterprises whose governance credentials are exemplary.

Corporate governance then is basically a system of making directors accountable to share-holders for effective management of the company along with concern for ethics and values. It is the management of companies by the board of directors. It hinges on complete transparency, integrity and accountability of management that includes executive and non-executive directors. Clearly therefore, at the micro level too its foundation rests on the ethics of management.

Further we posit the argument that managerial ethics is the fundamental basis of corporate governance and that corporate governance is not a static but a dynamic process which ensures on one hand conformance of policy and practice while keeping values in place and compliance of the corporate intent to actualize the vision. Thus corporate governance becomes an indelible part of the target setting exercise as well.

Corporate governance can then be defined, on lines of Anand’s 2007 study, as a complete systemic process by which companies are directed and controlled to enhance their wealth generating capacity. Corporate governance processes continuously reinforce and help realize the company’s belief in ethical corporate citizenship, which symbolises excellence and sustainability through high scores on strategic motives and humanity/ altruism.

We understand that all the corporate creatures are bound in the defined limits of strategic motives and humanity, emphasising that corporate governance is essentially good corporate citizenship.

Managerial ethics without corporate governance is wishful thinking and puerile whereas corporate governance without managerial ethics is nothing but an impotent and blinkered vision. The relationship between the two is mutually dependable and symbiotic. Having one without the other would reduce a firm to playing blind man s buff in the larger corporate arena.

Developed in the winter of 2006-07 by Sadri and Prakash and shows how managerial ethics is represented at the macro, the meso and the micro levels. Further we are aware that managerial ethics is the action of the manager while business ethics is the action of the corporation and the two are symbiotically linked.

The question is posed whether ethics and CSR are viewed as altruism or as conscious strategy. On the horizontal axis we have plotted strategic motives of the business and hence of the managers. On the vertical axis we have plotted altruism which again manifests itself like ethics in several dimensions. On the basis of our survey of companies in Pune, we found the following which is depicted in the chart.

If the altruism is low and the strategic motive is also low then three manifestations arise. At its lowest are corporate frauds like those of Harshad Mehta, Ketan Parekh and C R Bansali. In the next order we find parasites who are the lumpen petit bourgeoisie that live on the fringes of society, producing nothing, growing nothing and making money in between.

This is the small time crook who thinks in a big time way. He uses flashy cars, makes questionable deals, lends money, (probably) pimps, lives in charity blocks, extorts money and drops names of bigwigs to the unsuspecting listener. Then we come to the tax evader who cheats the bank and the government at the same time. Examples such as the IDBI deal with Usha Ispat readily come to mind. All three destroy public wealth while their individuals are busy amassing private wealth.

If the altruism is high and strategic motives are low then again three manifestations arise. At its highest altruism is a charity organisation like the ones that give grants to students to study abroad like the J N Tata Endowment Trust and the R D Sethna Foundation. Slightly lesser altruism gives rise to philanthropy and we have organisations like the Centre for the Advancement of Philanthropy in Mumbai.

Moderate scores on account of altruism with low strategic motive gives rise to CSR which basically involves giving back something to the civil society in recognition of what the corporation gained from it. The maintenance of mangroves in Vikhroli by the Godrej Group is a case in point.

These organisations are called wealth distributors who perform their civic duty without fear or favour and without any motive of personal gain either to the individual manager or to the corporation.

With high scores on strategic motive and low altruism we get three more manifestations. At the lowest is the manipulator, fixer and middleman who often represents political and corporate interests. A good example is to be found in Abdul Rahim Telgi and the masterminds behind the MPSC scam.

Then we come to the logical speculator who plays the stock market and often indulges in insider trading. Dalai Street in Mumbai and the adjoining areas is teeming with them. Finally comes business merit that is by no means benevolent but is exploitative only within acceptable limits.

Such exploitation is of a primitive variety and aimed at profit making only. Several owners of SMEs will fall within the definition as will big companies like those within the Sahara Group and the Reliance Group. If an industry were to be taken as an example that fits this quadrant then it would inevitably be the film industry.

Finally, we come to the quadrant wherein altruism is high and strategic motive is also high. In this arena come companies that use ethics as the platform for good governance and convert the same into corporate citizenship. Names like Ratan Tata, Narayana Murthy, Azim Premji, Verghese Kurien, Deepak Parekh, K V Kamath, and Anu Aga readily come to mind.

Herein we find a symbiosis of ethics, governance and excellence that lead to corporate citizenship on the one hand and, through it business sustainability, on the other. And that the direction this country must take if the evils of development-less growth are to be avoided.

A depiction of a paradigm and we do not suggest that the correlation has been empirically verified like other assertions in this long argument. What we have given above is yet to be empirically tested by some future scholar and that is all. Whatever comments we have made, (in this regard), are based on our perception of reality from afar and on the basis of published media and visual television reportage.

Academic integrity forces us to make the following declaration openly so that the readers are not misled and our statements are not misinterpreted. The emergent outcomes based on our logic and our perception of social reality. To that extent it is subjective.

However that depiction is based on scientifically determined results of observations and to that limited extent only it is objective. The gap between policy and practice will undoubtedly exist. The question is to narrow down this gap to the extent humanly possible within the constraints imposed by the internal and the external environments. For this, proactive OD interventions that raise the level of managerial civic consciousness are imperative.