Establishing a Code of Business Ethics

Our personal ethics define our personal value systems, character and
behavior. In the present world, with organization having an identity of its
own, it requires a code of business ethics with which people can identify its
value system and expected behavior.

Ethics
Principles that when followed, promote values such as trust, good behavior, fairness, and/or kindness.
There is not one consistent set of standards that all companies follow, but each company has the right
to develop the standards that are meaningful for their organization. Ethical standards are not always
easily enforceable, as they are frequently vaguely defined and somewhat open to interpretation ("Men
and women should be treated equally, " or "Treat the customer with respect and kindness."). Others
can be more specific, such as "Do not share the customer's private information with anyone outside of
the company." (Courtesy: Business Dictionary)

Business ethics defines a code of moral conduct for the business, which
specifies that the business should achieve growth and profits in a socially
and legally responsible manner and is accountable for their decisions to the
internal and external stakeholders and public at large. Institute of Business
Ethics, London defines it as Business ethics is the application of ethical
values to business behavior. It applies to any and all aspects of business
conduct, from boardroom strategies and how companies treat their
employees and suppliers to sales techniques and accounting practices.
Ethics goes beyond the legal requirements for a company and is, therefore,
about discretionary decisions and behavior guided by values. Business ethics
is relevant both to the conduct of individuals and to the conduct of the
organization as a whole.
In most countries, the accounting and stock exchange institutes have
mandated that each organization should have a code of conduct
implemented within the organization. There is no standard code of ethics,
and broad guidelines are given which can be adapted according to the
organization culture and business requirement. Each organization Ethics &
Compliance department is required to prepare a written Code of Conduct and
implement the same within the organization.
The section below gives the procedure for developing, implementing and
monitoring a Code of Conduct. The main step has been mentioned with a
brief narration and key activities required:

1. Mandate & commitment from top management: The Code of Conduct

defines the core values of the organization thus impacting the organization
culture. It also has an impact on the reputation of the organization as it
specifies the organizations stance towards corporate social responsibility.
Involvement of senior management is a must to provide direction, funding
and resources.

Obtain a formal commitment from the management and board of directors to

establish the Code of Conduct
Approval for budgets for development, implementation and regular
monitoring is required.
Approval for staffing the department and establishing the reporting lines is
need.

2. Preparation of the policy document: The main policy document

contains the values of the organization, management commitment to the
same, details of the ethics program, and the monitoring process. Additionally
all supporting policies are mentioned. For example, if the code specifies fair
and just treatment for employees, there should be additional policies relating
to workplace aggression, diversity, sexual harassment, equal opportunity
etc.

The core areas for the policy document needs to be identified.

The main policy document needs to be supported by additional policies to
ensure proper coverage and implementation.
Benchmark the policy document with other organizations policy documents.
Incorporate the legal requirements for the policy document

3. Approval of draft policy document: After completion of the policy

document and supplementary policies the same should be approved by the
senior management.

The draft policy document needs to be formally approved by the top

management, audit committee and board of directors.
Obtain feedback from business users to determine if they are going to face
any practical difficulties in implementing it

4. Develop an implementation strategy: An implementation strategy is

critical for the success of the program. A project plan should be developed
along with the implementation strategy. Involvement of Human Resources
department is a must at this stage as they will be responsible for deploying
training, incorporating the code of conduct in the appointment letters,

establishing the reward system for maintaining ethics and also the reasons
for terminating employees on grounds of unethical behavior. The
implementation process will require:

Department structure and staff requirements of the Ethics office.

Selection of vendors for hotline and web systems implementation incase it is
not being done in-house.
Reward and recognition system to be established by HR. Ethical values should
ideally be incorporated in the balance score card of the employee.
Training deployment strategy including the trainers, schedules, material and
evaluation system.

Investigation and reporting procedures for minor and major deviances

5. Training & Awareness: Communication is the key to a successful

implementation of the Code of Conduct. Various methods and sources of
training should be deployed simultaneously to train the staff and external
stakeholders. A training calendar should be published for rolling out the
training. Explore the following ideas for building awareness and training
resources:

Prepare class room training material for educating the staff on the detailed
policies.
Develop web based training program which includes ethical tests, case
studies and business scenarios.
Publish relevant cases of ethical dilemmas on the intranet
Provide training to existing staff and incorporate the same in induction
training for the new staff.
Publish the relevant policies on the web for external stakeholders like
suppliers, etc.
Issue checklists for determining how to make decisions while facing ethical
dilemmas.

6. Implementing the required hotlines and software to monitor

complaints: The organization has an option to develop a web-based
reporting tool internally or outsource it. Whichever the case maybe, the final
contact details and services should be published throughout the organization
to enable staff to report complaints and discuss cases when they are facing
ethical dilemmas. Undertake the following two steps for it:

Publish the contact numbers, email ids and websites for reporting complaints
Staff these 24/7 for effective monitoring or as per business requirement

7. Reporting deviances and taking corrective action: Minor and major

breaches to the Code of Conduct should be investigated properly. The report

should identify people responsible for the breach, the level of it, corrective
action to be taken and modifications required to the existing policies, if any.
Do the following:

Conduct investigations of the cases reported and submit reports to the audit
committee and board of directors.
Perform root cause analysis to determine the reason for deviances, and
identify solutions to mitigate the risks.

8. Evaluating commitment to ethical values: Depending on the

requirements, periodically, surveys and audits should be conducted to
evaluate the adherence to the policies and the overall attitude of the
organization towards ethics. One must be aware that having a Code of
Conduct does not ensure that it will be followed, hence regular monitoring is
required to assess adherence. Adopt the following practices:

Conduct an Organization Survey to evaluate employee understanding and

commitment to the Code of Business Ethics.
Periodically audit the practices being followed by benchmarking them against
the policy document.

9. Annual update: Policies are dynamic documents subject to revisions on

the basis of changing economic and legal requirements. Do an overall
assessment of the existing policies on annual basis, and incorporate changes
after senior management approval. Also, for all additions and modifications,
send formal communication to the staff. Use the following process:

Conduct an annual review of the policies.

Address gaps and deficiencies identified in the policies
Obtain management approval for the same
Roll out the updated policies and provide training to the staff.

The advantage of implementing a Code of Conduct is that it enhances the

corporate governance efforts of the organization by establishing a uniform
set of core values and behavior for all the staff. The staff knows what is the
right course of action, whom to approach in a dilemma and what will be the
risks of adopting unethical behavior pattern. Due to this, the reputation and
legal risks of the organization are also reduced since it is mandatory for
employees to follow the law.

Four Steps to a More Ethical Organization

( William Seidman and Michael McCauley)

1. Set the Bar

First, use your organizations positive deviants to establish a clear, specific
standard of ethical values, attitudes and behaviors. Positive deviants are
highly respected individuals who are consistent top performers and can
typically be identified simply by asking management who stands out. They
model the ideal ethical attitudes and best practices all others should achieve
and are therefore the primary creators and preservers of an organizations
ethics. Positive deviants are motivated by a commitment to ethically creating
a social good for their customers and for their organization.
2. Motivate Ethics
Second, guide all personnel to firmly embrace the goal of ethically achieving
the positive deviants social good. When a positive deviants social good, or
the inspiration behind their work, is presented to others in an empowering
manner, it can be contagious for an organization. It naturally and organically
spreads the commitment to the social good, and its ethical foundation,
quickly and efficiently.
More specifically, once a strong understanding of the positive deviants social
good has been established, it can be packaged into a short, emotionally
powerful statement that excites and empowers other employees. To be
successful, the social good must be presented in a way that creates a sense
of honor and dignity (i.e., fair process). It must also cause people to naturally
visualize themselves as having the same personal standards and
commitment as the positive deviants (i.e., positive visualization). When these
occur, people quickly embrace the positive deviants perspectives, improving
the ethics of the entire organization.
3. Sustain Ethics
Next, ensure that the commitment to ethics is sustainable, even in the face
of contrary pressures. True ethical behavior is profound and long term. It is a
way of doing business that is so engrained in the organization that people
cannot imagine functioning any other way.

The most effective means of generating this depth of commitment comes

from the neuroscience principle neurons that fire together wire together. All
profound learning is a change to the underlying neural structure of the brain
that occurs when neurons fire together around consistent concepts. If the
concepts are focused around the positive deviant ethics, new learning occurs
that can be so complete that people do not even recognize they were ever
any other way.
What makes neurons fire together? The key to achieve this organizational
depth is simple practice, practice, practice. Everything the organization
does needs to exercise and reinforce the mental commitment to ethics.
4. Scale Ethics
Finally, engage a critical mass of the organization quickly to ensure that
ethics pervades all aspects of the organization and becomes a true reflection
of the organization as a whole. At the same time, individuals must display
ethical behaviors in ways that are unique to their function and personality.
Persuasive technology technology designed to change what people
believe and do that incorporates the principle of mass customization can
facilitate widespread commitment to an organizations ethics. Because this
type of technology can touch many people simultaneously, individuals
function more ethically and the organization as a whole builds a lasting
foundation for ethical behavior.

Contributing to Success
The notion of an ethical organization may seem abstract, yet people who
work in an organization with healthy ethics absolutely know it. They love
their work, and they ultimately create better, more successful institutions.

Resolving Ethical Dilemmas and Making Ethical Decisions

Perhaps too often, business ethics is portrayed as a matter of resolving conflicts in
which one option appears to be the clear choice. For example, case studies are

often presented in which an employee is faced with whether or not to lie, steal,
cheat, abuse another, break terms of a contract, etc. However, ethical dilemmas
faced by managers are often more real-to-life and highly complex with no clear
guidelines, whether in law or often in religion.
An employee/ member of organisation knows when they have a significant ethical
conflict when there is presence of a) significant value conflicts among differing
interests, b) real alternatives that are equality justifiable, and c) significant
consequences on "stakeholders" in the situation. An ethical dilemma exists when
one is faced with having to make a choice among these alternatives .

Corporate governance
Corporate governance broadly refers to the mechanisms, processes and relations by which
corporations are controlled and directed. Governance structures and principles identify the
distribution of rights and responsibilities among different participants in the corporation and
includes the rules and procedures for making decisions in corporate affairs.
Corporate governance is most often viewed as both the structure and the relationships which
determine corporate direction and performance. The board of directors is typically central to
corporate governance. Its relationship to the other primary participants, typically shareholders
and management, is critical. Additional participants include employees, customers, suppliers, and
creditors. The corporate governance framework also depends on the legal, regulatory,
institutional and ethical environment of the community.
Generally, corporate governance refers to the host of legal and non-legal principles and practices
affecting control of publicly held business corporations. Most broadly, corporate governance
affects not only who controls publicly traded corporations and for what purpose but also the
allocation of risks and returns from the firms activities among the various participants in the
firm, including stockholders and managers as well as creditors, employees, customers, and even
communities. However, American corporate governance doctrine primarily describes the control
rights and related responsibilities of three principal groups:
1. the firms shareholders, who provide capital and must approve major firm transactions,
2. the firms board of directors, who are elected by shareholders to oversee the management
of the corporation, and
3. the firms senior executives who are responsible for the day today operations of the
corporation.
Corporate governance system is the combination of mechanisms which ensure that the
management (the agent) runs the firm for the benefit of one or several stakeholders (principals).
Such stakeholders may cover shareholders, creditors, suppliers, clients, employees and other
parties with whom the firm conducts its business. Goergen and Renneboog, 2006
In broad terms, corporate governance refers to the way in which a corporations is directed,
administered, and controlled. Corporate governance also concerns the relationships among the
various internal and external stakeholders involved as well as the governance processes designed
to help a corporation achieve its goals. Of prime importance are those mechanisms and controls
that are designed to reduce or eliminate the principal-agent problem. (H. Kent Baker and Ronald
Anderson, Corporate Governance: A Synthesis of Theory, Research, and Practice, 2010)

Corporate governance is a field in economics that investigates how to secure/motivate efficient

management of corporations by the use of incentive mechanisms, such as contracts,
organizational designs and legislation. This is often limited to the question of improving
financial performance, for example, how the corporate owners can secure/motivate that the
corporate managers will deliver a competitive rate of return. (Mathiesen, 2002)

Multinationals And Corporate Governance

What Are Multinational Enterprises?

Corporations that have production operations in various countries for many reasons including,securing supplies
of raw materials,utilizing cheap labour,taking advantage of local markets, saving tax differences etc. the
economy has become most important issue in this globalize world and now all the companies are welcomed
and appreciated to start their operations internationally. Multinational enterprises have a strong influence on
local and world economy. and playing important role in international relations and globalizations.
multinationals are actually the best form of organization, making the effective use of worlds resources and
transferring technology between the countries.

What Is Corporate Governance

Corporate governance is a system by which the companies are directed and controlled report of committee
on the financial aspects of corporate governance (the UK Cadbury code ),London,1992.actually corporate
governance involves a set of relationships between a company, s management ,its board, its shareholders and
other stakeholders. this term of corporate governance is very wide in which rights and responsibilities are
shared among all stakeholders in a company and all stakeholders perform their liabilities with due care and
diligence to contribute in good corporate governance in concerned companies.

Corporate Governance:
According to Solomon there is no single, accepted definition of corporate governance.', hence it shows that
the subject cannot be confined to a oneliner definition. To get an idea of the approach of corporate governance
it can be defined as the system by which companies are directed and controlled', this relates to the corporate
social responsibility which is critical in the current ever changing political and economic environment.
However the definition aiding this coursework would be that corporate governance contributes both to
business prosperity and to accountability and requires an appropriate balance so as the maximum is achieved
from these two goals.

Importance Of Corporate Governance

Corporate governance has gained an increasingly high profile in the last decade. The intrest in corporate
governance spans countries and continents, and applies not only to large public corporations but also to a wider
range of business forms including state-owned enterprises, family-owned firms and not-for-profit
organisation.Corporate governance is about performance. Corporations must deliver good result not only to
the shareholders, but also to all of the stakeholders, the community, the society, and the economy as a whole
That good corporate governance contributes to competitiveness facilitates corporate access to capital markets,
and thus helps develop financial markets and spur economic growth. Improvement in corporate governance
practices can improve the decision making process within and between a company's governing bodies, and
should thus enhance the efficiency of the financial and business operations. Better corporate governance also
leads to an improvement in the accountability system, minimizing the risk of fraud or self-dealing by company
officers. An effective system of governance should help ensure compliance with applicable laws and
regulations, and further, allow companies to avoid costly litigation.
The presence of strong governance standards provides better access to capital and aids economic growth.
Corporate governance also has broader social and institutional dimensions. Properly designed rules of
governance should focus on implementing the values of fairness, transparency, accountability, and
responsibility to both shareholders and stakeholders. In order to be effectively and ethically governed,
businesses need not only good internal governance, but also must operate in a sound institutional environment.
Therefore elements such as secure private property rights, functioning judiciary, and free press are necessary to
translate corporate governance laws and regulations into on-the-ground practice.
Good corporate governance ensures that the business environment is fair and transparent and that companies
can be held accountable for their actions. Conversely, weak corporate governance leads to waste,
mismanagement, and corruption. It is also important to remember that although corporate governance has
emerged as a way to manage modern joint stock corporations it is equally significant in state-owned
enterprises, cooperatives, and family businesses. Regardless of the type of venture, only good governance can
deliver sustainable good business performance. Good corporate governance is key to the integrity of
corporations, financial institutions and markets, and central to the health of our economies and their stability.
OECD work on in this area revolves around the OECD Principles of Corporate Governance and
their implementation in economies throughout the world.

Corporate Social Responsibilities

The corporative according to their volumes has their social responsibilities in the society where they are doing
their business.
This is common question that what its means difference organization has create different definitions. My own
definition is that C S R i

Corporate social responsibilities - what does it means? s about own which process companies operate the
business procedure to product and overall positive results on society.
According the world business council for sustainable development in its publicationmaking good business
sense by lord holms and Richard watts, used the following definitions, corporate social responsibilities is the
continuing commitment by business behave ethically and contribute to economic development whilst
improving the quality of life of the work force and their family as well as of the local community and society at
large
In the USA, C S R has been defined much more in terms of a philanthropic model.
Companies make profits, unhindered except buy full filling their duties to pay taxes. They denote certain part
of their earnings to charitable cause. Its means this act of the company shows that they spend that money
which they received from the benefit after giving the charity.
European model is more focussed on managing the core business in social responsible way, implemented by
investment in communities for strong business. Personally, I believe this model is more suitable because:
1. Social responsibilities become an essential part of the wealth generate process which is organized
properly should increase competitiveness of business and pick the value of wealth creation to society.
2. When times get tough, there is the incentive to the practice C S R more and better it is a philanthropic
exercise which is peripheral to the main business, it will always be the propriety things to go when
push comes to shove.
But as with any procedure based on the collective activities of communities of human beings (as companies
are) there is no one size fits all. In different countries of the world there is different priority and values that
will show how business act. And even the oberservation of the circumstances shows the changing over time. In
USA also growing numbers of people looking towards important business issues. When we review each of
these that they agree that the definition now focus to the impact of the core business how can they manage.
It is key difference, when many business leaders that their companies are note doing satisfactorily social
responsibilities and that companies have no democratic legitimacy to play such role. Those particular debates
will continue.(B S reporter- new Delhi November 18,2009,0;51 IST)
Union minister's corporate affairs salman khurshaid has asked the industry to propose a corporate social
responsibilities system that rewards industry.
Addressing a conference on companies' bill organised by the Federation Indian chamber commerce and
industry here today, Khurshaid suggests that the incentives for C S R could even be facial incentives that are
proportionate to the C S R initiative being under taken.

Corporate Code Of Conduct

Code of conduct is a single most element of ur ethics and complies project. It managed the direction and tone
for the function of the company. Therefore, the code is modal document, to provide the concept of ethics and
compliances and given and summary of what you mean what you talk about ethical business conduct.
It provide why do employees read a code of conduct
For example we have a good idea of the kind of question that employees are likely to ask.
Which person do I talk when I want to make a report?
Which are our rules on outside employment?
What our C E O say about ethics?
Is our rules on ethics apply to everyone, including members of the board ?
Who is accountable under our code?
What is my role as a member of management and what is expected of me and my team and this code is
enforceable?
Can there be a universal code for a global company? as much as we would like to find common grounds
amongst the legal systems of global 193 nations each sovereign nations laws are unique

Depending on necessity, codes can be changed or updated in every specific time - for
example every five years because this is not longer relevant the business itself has changed
radically in the interim.
Code of conduct must help your employee make decisions, quickly and effectively. They need to get to the
point. Remember a code of conduct is part of all of the laws that effects your companies operation.

Competition:
Multinational Enterprises must encourage fair competition and refrain from entering into or carrying
out anti-competitive agreements that restrict free trading and competition between business entities.
The fair and free competition is regarded to contribute to the promotion of trade and investment, the
maintenance of sustainable economic growth by enhancing economic efficiency and productivity.
Competition law assumes that markets generally work best when competitors compete, rather than cooperate on the other hand anti-competitive agreements or practices such as such as fixing prices,
collusive tenders, output restrictions or quotas and sharing markets or unlawfully excluding
competitors are harmful for economic growth.

Multinational Enterprises should act in compliance with national and international competition laws
and promote awareness to the employee for the importance of compliance with all applicable
competition laws and policies.
Multinational Enterprises should co-operate with the competition authorities at national level by,
among other things and subject to applicable law and appropriate safeguards, providing as prompt and
complete responses as practicable to requests for information.

Disclosure and Transparency

Structure Disclosure:
Multinational enterprises should disclose the information about the structure of the company, the
directors, shareholder and stakeholders of the company. Enterprise should disclose the name of the
company, its affiliations and the parent enterprise's name.

Objectives:
Multinational enterprises should disclose the information about the objectives of the company the
financial operating results of the company.

Risk Factors and Policies:

Enterprise should disclose the Information about the key executives their roles and about their
remuneration, Information about the risk factors and the issues of the shareholders and Information
about the future policies.

Financial And Non Financial Disclosure:

Multinational Enterprises should disclose the information regarding their financial situation, their performance,
their costs, their activities and their structure as a whole. All this information should match to the size, nature
and location of the company. Business confidentiality and competitive concerns should also be taken in to
account.
Multinational enterprises should disclose the financial and non financial information including environment,
audit and accounting.
Multinational enterprises should disclose the information about the objectives of the company the financial
operating results of the company. Enterprise should disclose the Information about the key executives their

roles and about their remuneration, Information about the risk factors and the issues of the shareholders and
Information about the future policies.

Code Of Conduct Disclosure:

Multinational enterprises should disclose the code of conduct of the company and in how many countries these
codes will be applied in relation to their performance. Enterprise should disclose the Information about the
relation between the shareholders and the employees and how to manage the risks.
All this information should be disclosed under the national law of individual country in which they operate.
Combating Bribery
It is the duty of enterprises to avoid bribery because it is harmful for society, enterprises should not involve,
offer or demand bribe and should not take any illegal advantage for company or for personal purpose. the
enterprises should not offer bribe to any public official or employees and should not promise the payment of
any portion of contract. Enterprises should make sure about the remuneration of their agents and remuneration
should be reasonable according to their job and the enterprises should maintain the record of their dealings
with public bodies and other enterprises for a fair check.
The company's activities should be transparent to fight for bribery and the enterprises should disclose the
system which they have adopted to eradicate bribery and honour their commitments with society. The
enterprises should start training programmes and disciplinary procedures to enhance employee's awareness for
the compliance of the policies against bribery and fraud. Enterprises should promote management control
system that hinder bribery and corruption and promote financial and tax accounting and discourage the
establishment of secret accounts and fake records of transactions. Enterprises should not donate money to any
public office holder or political candidate or political organization for the achievement of their illegal
advantage and all donations if any given should be in knowledge of senior management. After following all
these measures the enterprises can contribute in good corporate governance under OECD guidelines.

Areas Of Improvement
The business costs of government failures and of associated problems of rights violations (including
investors' rights), violence and corruption are large - they include direct costs and missed opportunities.
Individual companies and the business sector as a whole might therefore find it in their broad self interest - as
important members of weak governance host societies - to help these societies get on the path of institutional
reform.
However, the roles they can usefully play in this area are not always well defined and there may be risks
associated with business engagement in this area.

A durable exit from poverty and insecurity will need to be driven by the leadership and people of the countries
concerned: host country actors - including citizens, politicians and civil servants - have the primary
responsibility for reforming institutions in weak governance zones.
International organisations and home country governments can play important supporting roles.
Some welcome such involvement, noting that multinational enterprises are relatively powerful actors in weak
governance host societies and that they might be better placed to advocate reform than most of the citizens of
these countries. Some participants underscored the risks for companies of being seen as associated with or
even complicit with a weak governance regime - it may be prudent for companies in weak governance zones to
be seen as making credible efforts to promote better policies and practices in both the public and the private
sectors. Others were strongly opposed to political advocacy by companies, fearing that it would inevitably
deteriorate into inappropriate involvement in local politics.
When discussing how companies can support weak governance host countries' efforts to enact institutional
reform, consultation participants generally agreed on the importance of partnership. Multinational enterprises
can help by working in partnership with host country business and professional associations, trade unions and
civil society organisations. They also noted the potential usefulness of partnerships involving international
organisations, home governments and international business, trade union and civil society organisations (the
Extractive Industries Transparency Initiative was cited by many as a good example of international, multistakeholder partnership for promoting fiscal reform and transparency).

Future of Corporate Governance In Multinational

Enterprises
Corporate governance in the future will, reflect an increasing emphasis on customer satisfaction as a way of
measuring the adaptability of the organization over time. "By focusing too strongly on financial records (and
audit committee work), we lose sight of the fact that departments like operations and human resources are very
important components (in forecasting future success).
The world of corporate governance will benefit from the establishment of "a new type of corporate information
and control architecture." that a network of more specialized board groups and "advisory stakeholder councils"
comprising employees, lead customers, suppliers, and others offers a useful solution to the governance vacuum
that exists in many large corporations today.
While agreeing that "customer and employee satisfaction and loyalty are indeed good predictors for (the)
future success of a company," these measures have to be viewed with a long-term lens, one that accommodates
the fact in the short-run, managements may take actions to reduce costs and the size of the labor force to
achieve long-term successactions that could adversely affect non-financial indicators used as inputs for
corporate governance.