Study Materials: Ethics & Governance - A Perspective
Ranjana Kumar Vigilance Commissioner
It is a well known fact that management plays a vital role in
shaping the future of any organization as the optimum utilization of all
resources hinges upon the efficacy of the management. The core of a
successful management lies in its Clarity of Vision, Plan of Action and
more importantly Execution of the Plan of Action – the real gamut of
operations as it were, and it is here that the importance of Corporate
Governance and Ethics comes into being. Our Hon’ble Prime Minister, Dr.
Manmohan Singh has said that whereas our policies and systems are good but
the implementation needs much to be desired.
Organisations are managed by Policies, Guidelines and
Systems. These are dynamic instruments, and therefore need to be reviewed
from time to time to gauge their efficacy to the said organization. This
review is all the more necessary when a lapse or an untoward incident
takes place. It could happen that the review undertaken reveals that the
said policy is very much sound and in place, however over a period of time
wrong practices have come into being, and which are the reasons for the
problems that have occurred, therefore corrective steps need to be taken
forthwith A review could also reveal that the problems have occurred in spite of
the policy in place, and which means that the policies would need to be
modified or amended as the case may be in the best interest of the organization.
Normally, decisions are being taken within the framework of
the policies and guidelines in place. Now, there could be critical
situations wherein the policy in question would need to be slightly
deviated from, in order to take the right decision, in the best interests
of the organization. In such situations, a very clear and precise note
should be brought out giving the reasons which necessitated the said
deviation from the policy. The said note should also contain the
implications to the organization if the decision was not taken. This would
serve as a very Transparent and an Objective analysis, bringing out the
need for deviation from the policy on this “case specific” issue, whereas
the said policy in principle would continue on an as is where is basis.
Experience has taught us that it is the Economic
Downturn, as we witness world wide today, rather than Up Swing, which
raises sharp focus on issues relating to Ethics & Corporate
The two Major Reasons for Corporate failures have been
“Greed” and “Excess Leverage”. The moot point is whether these two
need to be completely done away with? If so, what is the Incentive for
Aggressive growth and competition? If not, how are these to be kept
within controllable limits and yet higher growth achieved? It is here
that Business Ethics & Corporate Governance need to be focused on.
Whether it was abroad in the U.S. earlier, or more
recent, and nearer home, it is seen that a “slip” in Corporate
Governance is always initiated by the Promoters themselves.
Independent Directors are expected to be “Watch Dogs”.
They can at best be accused either of ‘Lack of application of mind’ or
of, consciously or otherwise overlooking the “slip” that has taken
place. But not necessarily initiating the actual wrong doing, conspiracy,
collusion or fraud as such. It has to be understood that they, the
Independent Directors, cannot work as investigators as they are very
much part of the decision making process in the Company.
Having said this, Each Member of the Board has a Key Role
to play and an Important/Sacred Responsibility to deliver, and
therefore they need not get unduly overawed or paranoid by size of the
Company or any extraneous situation that they are faced with. They
need to bring their Special Expertise and Experience on Corporate
issues to the Board, and always, to keep “Broad Stakeholder Interest”
They need to Set & Follow Policies pertaining to
“Conflict of Interest”. All Directors must therefore be “above Board”.
They would be required to diligently & keenly watch the
changes in Assets & Liabilities in the Balance Sheet, to ensure quick
corrective action if needed
The Board Agenda should be circulated well in time.
Though this may appear to be an elementary and fundamental requirement, it
is very significant, the Directors of the Board must have “sufficient
time” to go through the papers and to apply their mind, and come duly
prepared to the Board Meeting. The various issues deliberated upon,
queries raised, clarifications given must be precisely minuted in a
Table Agenda to be only taken up on emergent issues and
not be made into a routine affair. There must be adequate time for
discussion of the Table Agenda to ensure an indepth deliberation. So also
for an agenda put up for Ratification to the Board. This also needs
proper understanding and also as to why the decision needed to be
taken by the company. Questions to be raised when in Doubt by the
It is extremely important to ensure Auditor Independence.
The Audit firm assigned to the company should fulfill its mission in a
Competent & Independent manner. Further, Effectiveness of Audit Committee of
the Board is of Paramount Importance. It should exhibit the same in its
functioning and should properly guide the Board.
It is vital that the Independent Directors understand the
Impact and Consequences of the proposals they are clearing in the
Board Meetings. They should not forget that they would be held
responsible were things to go wrong and they should also remember that
they have a right under the Company Law to put up a note of dissent
(of course for valid reasons) as per their own judgment.
This does not mean that a ‘Confrontation’ is created
between the Promoters and the Directors. Infact, both should clearly put
forth their point of view backed by facts and supportive data. They need
to deal with adequate Patience. After all, the Promoters have got the
Independent Directors on Board to ‘add value’ and to contribute with their
distinct individual expertise and experience.
The goals of the Promoters and Directors being the “Long Term
Sustainable Well Being” of the Company, why should there be friction of
Of late, since January 2009, we have been hearing that some Independent
Directors have chosen to resign. This is certainly not a healthy trend and
should be discouraged.
12. Finally, Board Members must embrace Corporate Ethics by
creating a climate of Integrity and Responsibility within the company,
expressed in both the written code and by living example i.e. both
Directors & Promoters need to come together to Build a strong Ethical
Culture for the Company, that would ensure Correct Behaviour/ the Right
Behaviour, when policies are either unwritten, unclear or are unenforced.
13. “Ethics & Corporate Governance” are not just Moral or Compliance
Issues. In the long term they are Essential Behavioural Traits for the
Organisation, that strengthen the Organisation’s “Brand Equity” and help
ensure Stable Sustainable Growth.
Finally, the world over people have been talking about “Self
Regulation” being an Integral part of Corporate Governance stating that it
has to come from within. But of late, experience has shown that this has not
really worked, so people are now talking of Rule Based Regulations i.e. need
to be more specific, where Dos & Don’ts are Specified. Which of the two
should we follow? Well it is for the individual company to decide.
Courtesy: Ranjana Kumar Vigilance Commissioner