Ethics and corporate governance

Name of Author- Dr. Mrs. Beenu A.Singh

Designation- Assistant Professor
Organization- B.M.Ruia College Gamdevi Mumbai -400007
Address- Res-104-B Rahul Apts S.V.Road Andheri (w) Mumbai 400058
Email: beenuasingh@hotmail.com
Abstract:
Purpose Corporate governance is the system through which the companies make policy decisions and
managed to its affairs. corporate governance is nothing but the moral and Ethical or value framework
under which corporate decisions are taken. The study aims to analyze how the corporate governance due
to lake of transparency fraud in companies are going on and learn their impact on society and ultimatelaly
come to know the action taken by government against these companies.
Design/methodology/approach All the research work is based on published articles and data produced
by companies. The sample included different corporate Ethics and corporate governance in Indian
Industries. The sample included different level of corporate governance and Ethic. The sample included
50 companies working environments, their trade practices from different sectors.
Findings The observation instrument was shown to be both reliable and valid statistical analytical tools
and other descriptive statistics scores has been used.The result of the data analysis revealed sufficient
evidence to establish a correlation between Ethics and corporate governance.
Research limitations/implications The accuracy of the analysis is dependent upon the accuracy of the
observation and study on selected organization.
Practical implications The result of this study would help Indian economy hard pressed to attract
investments. This model is in sustainable to Brand India to retain values, there must be checks and
balances. This is where auditing firms form an integral part of the system. When a corporate entity falls
foul of these, there must be a transparent process of accountability. The result of this study would help to
solve the problem of ethic related corporate governance require urgent attention from policy makers,
Economists, Share holders, accountants and general public
Originality/value this study is a systematic analysis of ethics and corporate governance and to
understand the role of Auditors and Accountants and various laws and its sustainability and find out
loopholes in the global accounting system and to evaluate corporate governance legislation in India.
Keywords- Ethics and corporate governance, Role of Auditors and Accountants, Laws and its
sustainability, Transparancy, disclosure and instance of falsification of accounts.
Paper type- Research paper.

Introduction
Ethics is a conception of right and wrong behaviour, defining for us when our actions are moral and when
immoral. The principal of ethical reasoning are useful tool for sorting out the good and bad components
within complex human interaction. Business ethics is the application of general ethical ideas to business
behavior. Business ethics is the art and discipline of applying ethical principal to examine and solve
complex moral dilemmas.*Business Ethics proves that business can be and have been ethical and still
profit making.
The word ethics is derived from the Greek word ethocosmeaning custom or character. It is science of
morals describing a set of rules of behaviour Business ethics itself is offshoot of applied ethics. Ethics is a
branch of philosophy and is considered a normatitive science because it is concern with the norms of the
human conduct, as distinguished from formal science such as mathematics and logic, physical science
such as chemistry and physics, and empirical science such as economics and psychology. As a science
ethics must follow the same rig ours of logical reasoning as other sciences. What is Corporate
Governance It is known fact that vital needs of success of any organization lingers on its ability to
mobilize and utilize all kinds of resources to meet the objectives clearly set as part of the planning
process. Managing well depends on internal and external factors, the latter include availability, cost
effectiveness; technological advancement. Increasingly, revelations of deterioration in quality and
transparency, have called for adoption of internationally accepted Best Practices. The acceptance of the
concept gave rise of Corporate Governance. Corporate Governance encompasses commitment to
values and to ethical business conduct to maximize shareholder values on a sustainable basis, while
ensuring fairness to all stakeholders including customers, employees, and investors, vendors, Government
and society at large. Corporate Governance is the system by which companies are directed and managed.
It influences how the objectives of the company are set and achieved, how risk is monitored and assessed
and how performance is optimized. Sound Corporate Governance is therefore critical to enhance and
retain investors trust.
Ethics is closely related to trust. Ethical behavior is necessity to gain trust. Trust will be used as an
indicator variable of ethics. Basically, In India corruption is an all embracing phenomenon. In this, if the
respective players in the field were to adopt healthy principles of good corporate governance and avoid
corruption in their transactions, India could really take a step forward to becoming a less corrupt country
and improving its rank in the Corruption Perception
Index listed by the Transparency International.
The case examines the corporate governance issues at the India based IT services company, Satyam
Computer Services Limited (Satyam). In mid-December 2008, Satyam announced acquisition of two
companies - Maytas Properties and Maytas Infrastructure owned by the family members of Satyam'
s
founder and Chairman Ramalinga Raju (Raju). Due to adverse reaction from institutional investors and
the stock markets, the deal was withdrawn within 12 hours. Questions were raised on the corporate
governance practices of Satyam with analysts and investors questioning the company'
s board on the
reasons for giving consent for the acquisition as it was a related party transaction.
The case '
Childhood obesity: Should junk food be regulated?'provides an overview of the marketing of
junk food (food with limited nutritional value) to children across the world, and the role of government

regulations and industry self-regulation. The case looks into the concerns raised by consumer groups and
health organizations the world over, due to the increasing levels of childhood obesity which have reached
alarming proportions. Junk food manufacturers like McDonald'
s, Kraft Foods, PepsiCo, and Coca-Cola
have come under intense pressure to withdraw advertisements and promotional campaigns that target
children. The case also gives a brief account of the arguments put forward by the Alliance for American
Advertising (AAA) in defense of the '
rights'of companies to advertise to children.
The case examines Alacrity Housing'
s history and how it grew to become the first listed corporation in the
Indian construction industry. The company started operations as a consultancy and later entered the
housing construction industry. Alacrity behaved in a strictly ethical manner and valued ethical practices
over profits.
As the Indian construction industry was highly corrupted with bribery for licenses/permissions, cost and
time overruns, black money transactions etc., Alacrity had gained reputation as the most ethical builder in
a short time. However, in the early stages, the corporation faced many problems because of its strict
adherence to the ethical principles and policies and often the projects were delayed.
Cola Wars Continue: Coke and Pepsi in the Twenty-First Century is about the love-hate relationship
between the two largest cola companies of America, as they fight with each other for shares of a $60
billion industry, while also fighting with the industry to increase and fuel growth for cola consumption.
From 1975 to 1990 both companies achieved an average annual growth of about 10%, while consumption
grew in the U.S. and worldwide, but a turn of events in the late 1990s threatened the companies with
consumption of carbonated soft drinks (CSD) dropping for a consecutive two years and worldwide
shipments were also slowing. The decline is thought to be from the consumers want for alternatives to
CSDs like sports drinks, bottled water, juices, teas, etc. The solution to this problem relies on both of the
companies abilities to boost flagging domestic sales, venture into emerging international markets,
broaden their brand portfolio for new streams of revenue and include non-carbonated beverages in their
big plan.

Importance and need for Ethics

Good ethics and governance are not just "moral" or "compliance" issues. In the long term, they are
essential behavioral traits for the organization that strengthen the brand equity and help ensure stable
growth.
Business ethics is a form of applied ethics. It aims at inculcating a sense within a companys employee
population of how to conduct business responsibly. Because the term ethics can pose problems in an
international context, i.e., the term does not translate well and it can be difficult to find a common
understanding of the term, some organizations choose to recast the concept of business ethics through
such other terms as integrity, business practice of responsible business conduct responsible business
conduct.
U.S. business scandals that occurred in the 1980s parNo objective test has been traced which indicates if
and to what extent a corporation is committed to doing business ethically and socially responsibly. With

this in mind I consulted experts in the industry and collectively we developed the following objective
indicators to compare the sample companies:
Has the company publicized a Code of Conduct/Ethics?
Are the companys conflict of interest guidelines publicly available to investors?
Does the company make it clear who the designated Ethics/Compliance Officer is?
Does the company have a whistle blowing process implemented and is it easily accessible?
Does the company publish a CSR or sustainability report?
Is CSR one of the companys core corporate principles or business objectives?
Baxter compliance program reflects the company'
s commitment to comply with the laws and regulations
that govern in the U.S. Baxter'
s program seeks to prevent, detect and resolve potential violations of law or
company policy. This compliance program is dynamic, involving multiple polices, procedures and
programs.
Corporate Governance, after the Enron debacle of 2001, came other scandals involving large US
companies such as WorldCom, Qwest, Global Crossing, and the auditing lacunae that eventually led to
the collapse of Andersen. These scandals triggered another phase of reforms in corporate governance,
accounting practices and disclosures this time more comprehensive than ever before. In July 2002,
less than a year from the date when Enron filed for bankruptcy, the Sarbanes-Oxley Bill (popularly called
SOX) was enacted. The Act brought with it fundamental changes in virtually every area of corporate
governance and particularly in auditor independence, conflicts of interest, corporate responsibility,
enhanced financial disclosures, and severe penalties, both fines and imprisonment, for wilful default by
managers and auditors. It is fair to predict that the SOX Act will do more to change the contours of board
structure, auditing, financial reporting and corporate disclosure than any other previous law in US history.
Corporate Governance The Theory of Corporate Governance The fundamental theoretical
basis of corporate governance is agency costs. Shareholders are the owners and are the principals. By
virtue of their ownership, the principals define the objectives of a company. The management, directly or
indirectly selected by shareholders to pursue such objectives, are the agents. While the principals might
wishfully assume that the agents will invariably do their bidding, it is often not so. In many instances, the
objectives of managers are quite different from those of the shareholders. Such misalignment of
objectives is called the agency problem; and the cost inflicted by such dissonance is the agency cost. The
core of corporate governance is designing and putting in place disclosures, monitoring, oversight and
corrective systems that can align the objectives of the two sets of players as closely as possible and,
hence, minimise agency costs.
Citizens never support a weak company and birds do not build nests on a tree that does not bear
fruits. Chanakya Arthshastra .Corporate Governance Generic Issue Good Corporate Governance
practices essential to ensure inclusive growth, wherein every section of society enjoys the fruits of the
corporate growth.
Corporate Governance Good corporate governance is essential for the integrity of corporations,
financial institutions and markets. Strong governance standards focusing on fairness, transparency,
accountability and responsibility are vital not only for the healthy and vibrant corporate sector growth, as
well as inclusive growth of the economy.
Four pillars of Good Governance Accountability Transparency Predictability

TOR of Naresh Chandra Committee: the heart of corporate governance. the statutory auditor-company
relationship, so as to further strengthen the professional nature of this interface; the need, if any, for
rotation of statutory audit firms or partners; the procedure for appointment of auditors and determination
of audit fees; restrictions, if necessary, on non-audit fees; independence of auditing functions; measures
required to ensure that the management and companies actually present true and fair statement of the
financial affairs of companies; the need to consider measures such as certification of accounts and
financial statements by the management and directors; the necessity of having a transparent system of
random scrutiny of audited accounts; adequacy of regulation of chartered accountants, company
secretaries and other similar statutory oversight functionaries; advantages, if any, of setting up an
independent regulator similar to the Public Company Accounting Oversight Board in the SOX Act, and if
so, its constitution; and the role of independent directors, and how their independence and effectiveness
can be ensured. SUNIL KOHLI INDIA: JUNE 2011Infosys is the high priest of corporate governance.
Infosys had accepted the recommendations of both the CII and Kumar Mangalam Birla committee. This
part of the paper provides an overview of corporate governance practices followed by Infosys.
Infosys has an executive chairman and chief executive officer (CEO) and a managing director, president
and chief operating officer (COO). The COO is responsible for all day to day operational issues and
achievements of annual targets in client satisfaction, sales, profits, quality, productivity, employees'
empowerment and employee retention. The CEO, COO, executive directors and the senior management
made periodic presentations to the board on their targets, responsibilities and performance. Infosys
adopted the tough US Generally Accepted Accounting Practices (GAAP) many years before other
companies in India did. To maintain transparency, Infosys provided details on high or low monthly
averages of share prices in all the stock exchanges on which the companies share were listed.
Narayan Murthy believed in commitment to values, ethical conducts of business. He said, "Investors,
Customers, Employees and Vendors have all become sharp, and are demanding greater transparency and
fairness in all dealings." He also made a clear distinction between personal and corporate funds. Founding
members took only salaries and dividend and did not have other benefits from the company
When we study the case of Satyam we find it very socking and unbelievable. How a person can dare to
take such step? How it could happen? Where was the law and codes of Corporate Governance? In this
part of the paper we will discuss, what was the complete story of Satyam scam? How they had slapped on
the face of Corporate Governance? "Satyam" it is a Sanskrit word which means the truth but the Satyam
case is one of the biggest frauds in India'
s corporate history. B. Ramalinga Raju, Founder & CEO of
Satyam Computers announced that his company had been falsifying its account for years. It proves that
Satyam Computers had been feeding investors, shareholders, clients and employees a steady diet of
asatyam (Untruth)
January 7, 2009 will go down as a black day in corporate India for this was the day India was hit by its
first market scandal. Ramalinga Raju founder & former chairman of Satyam, admitted to fraud and
inflating the revenue and costs and resigned from the company and the board. He admitted that he
falsified the accounts books at Satyam.
What had socked analysts is that the money, that supposed to be fictitious later, had been recorded in
Satyam'
s balance sheets and books of account that had been audited by the internationally reputed firm of
auditors, PriceWaterhouseCoopers (PWC).

A most alarming aspect that of the episode was that Raju acknowledged that his company'
s financial
records had been fudged and manipulated for the last several years. In his letter Raju wrote that "It was
like riding a tiger without knowing how to get off without being eaten".
The down fall of Raju began when Satyam attempted to acquire two companies controlled by his sonsMaytas Properties and Maytas Infrastructure for 1.6 billion dollars in order to compensate the holes in his
books of accounts.
The entire episode of attempt to purchase of Maytas by Satyam was nothing but making mockery of the
concept of corporate governance in India, the very definition of which ie. Fairness, transparency and
accountability have failed here. Satyam Computers episode has raised a question on the role performed by
independent directors and whether they all need to be regulated. This case is a eye opener of the extent to
which the independent directors are really performed well their role.
Now, if we conclude the complete paper we can easily compare both the companies'honesty level,
accountability level and off course transparency level. These are the pillars of Corporate Governance.
When we talk about Infosys, We find it strong in all aspect and above all the company thinks of its
employees first then about anything else. Because, the founder of the Company Narayanmurthy believes
that employees are the biggest assets for any company.
Nevertheless, if we talk about Satyam, we find holes everywhere. Company'
s founder Ramalinga Raju,
Never thought about employees and the code of Corporate Governance. He always thought of fraud. First
he made a mistake that he falsified the books of accounts for last several years. And then he made another
mistake for trying to overcome the first one by attempting to purchase Maytas infrastructure and Maytas
Properties.
So, we find that Infosys had not only acquired a best position for it self but by its best Corporate
Governance practices it has made a great perception of Investors about Indian companies in International
market.
On the other hand Satyam Computers had lost the trust of itself and other Indian companies in the
International Market by its bad Corporate Governance conduct.
So, it can be said that fulfilling the needs and requirements of Corporate Governance is not the matter of
choice but it'
s a compulsion for companies.
Ethics, Efficiency and Accountability are most important for long term survival and prosperity of any
organization. So, Companies should follow the way Infosys has followed and still following not the way
which Satyam took.
The fall of many leading corporates such as Enron, WorldCom, and Parmalat in recent years has brought
one clear message to the fore: ethics matter in business. In early 2004 the first ever European Conference
for ethics and compliance practitioners called Sharing Ideas and Best Practices in Business Ethics, was
held in Paris, and around 100 corporate ethics practitioners from nine countries attended it. The main
takeaway from the conference was that the sooner companies begin discussing and enacting processes for

managing integrity standards within their organizations, the better. In India senior business leaders have to
start giving more thought to this area of organizational behavior, start framing their beliefs on integrity
standards, circulate these among their employees and get their views and affirmation on adherence to
these standards. More important, senior leaders must create communication platforms that encourage
employees (and other associates of the company) to raise concerns related to possible or actual deviations
from integrity standards especially those that could damage the reputation of the organization. All such
platforms and processes must become institutionalized in due course.
For many companies in India, being a good corporate citizen is a vital aspect of their identity, their values
and their vision. For Industrial houses such as the Tatas and Birlas concepts of nation-building and
trusteeship have been an intrinsic part of their business model long before the CSR term came into vogue
and became a popular cause. At public sector enterprises such as BHEL, HDFC, NTPC and ONGC (our
public sector is alas, beset by acronyms) but anyway, social obligations remain an integral part of their
business. Over 200 Indian companies have already joined the UN Global Compact Initiative, which
provides an extremely relevant vehicle for Indian business, academic institutions and civil society
organizations to join hands towards strengthening responsible business initiatives in India and abroad.
More and more corporations in India are coming up with ethics codes, which encompass guidelines on
human rights, child labor, working conditions, and obligations to a wide variety of stakeholders. Equally
striking is the appearance of ethics officers in the private sector whose primary responsibility is ensuring
that ethical responsibilities are respected throughout their companys operations. I shall try to conclude
quickly. For we are all like Egyptian mummies, strapped for time.
After Independence, JRD Tata who always laid a great deal of emphasis to go beyond conducting
themselves as honest citizens pointed out that there were many ways in which industrial and business
enterprises can contribute to public welfare beyond the scope of their normal activities. He advised that
apart from the obvious one of donating funds to good causes which has been their normal practice for
years; they could have used their own financial, managerial and human resourced to provide task forces
for undertaking direct relief and reconstruction measures. Slowly, it began to be accepted, at least in
theory that business had to share a part of the social overhead costs of. Traditionally, it had discharged its
responsibility to society through benefactions for education, medical facilities, and scientific research
among other objects. The important change at that time was that industry accepted social responsibility as
part of the management of the enterprise itself. The community development and social welfare program
of the premier Tata Company, Tata Iron and Steel Company was started the concepts of "Social
Responsibility." (Gupta, 2007)
According to Infosys founder, Narayan Murthy, '
social responsibility is to create maximum shareholders
value working under the circumstances, where it is fair to all its stakeholders, workers, consumers, the
community, government and the environment'
. Commission of the European Communities 2001 stated
that being socially responsible means not only fulfilling legal expectations, but also going beyond
compliance and investing '
more' into human capital, the environment and the relation with
stakeholders(Bajpai, 2001). Over the time four different models have emerged all of which can be found
in India regarding corporate responsibility (Kumar et al., 2001).
Business houses all over the world are realizing their stake in the society and engaging in various social

and environmental activities. The need of the hour is to formulate effective strategic policies and adopt
various instruments according to the company history, its content, peculiarity in relationship with its
different stakeholders so that CSR can be best implemented towards its goals--sustained environmental,
social and economic growth

Conclusion
Business houses all over the world are realizing their stake in the society and engaging in various social
and environmental activities. The need of the hour is to formulate effective strategic policies and adopt
various instruments according to the company history, its content, peculiarity in relationship with its
different stakeholders so that CSR can be best implemented towards its goals--sustained environmental,
social and economic growth.
Corporate no doubt have made significant contributions towards the sustainable development of our
country. Considering the limitations of the corporate in their CSR activities, some recommendations
which can be used towards satisfaction like companies should extend their CSR activities in less
privileged states rather than concentrate in resource rich states. It is essential that companies develop an
effective value chain system of their products through their CSR activities, which is essential for
competing in the global market. It will give better results if activities are based on a more practical &
participatory approach and touch the grassroots level. Voluntarism among employees should be
encouraged and institutionalized through recognition and incentives. There is also need for public-private
partnership with well-defined controls and process for the best use of resources for social change. Special
training needs to be given to business managers in working with social issues. Participation of small and
medium business should be encouraged. Experience has shown that working with NGOs is more
worthwhile and result-oriented. Joining hands with related NGOs is therefore advisable.If values are the
bedrock of any corporation culture, ethics are foundation of authentic business relationship .

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