|Investing in an ethical corporate culture|
|Sayantani Kar / Mumbai February 13, 2012, 0:50 IST|
Ethics is an integral part of organisational culture. Our panel of experts say the focus is shifting from writing a comprehensive code of rules to empowering employees to align their actions with the mission of the organisation.
“Customers will shy away from companies that don’t follow the rules”
Senapathy (Kris) Gopalakrishnan
Effective corporate governance is pivotal to long- term success of a corporation. Corporate governance can be broadly viewed as a set of practices and associated processes that a corporation deploys to safeguard interests of its stakeholders. The stakeholders include clients, employees, investors, vendor partners, government and society at large.
We at Infosys, strongly believe that corporate governance is not just a “compliance” matter, instead is integral to our value system. In my view, effective corporate governance enhances competitive advantage of a corporation in the long term. The key dimensions of deployment of effective corporate governance are outlined below.
1. An independent board is the starting point: It is important that the board has a majority of independent directors and all the committees of the board comprise entirely of independent directors. This ensures healthy debate on strategic aspects and takes into account “outside in” view. Infosys board has a majority of independent directors including an independent chairman. We have been immensely benefited by fresh perspectives and inputs of our independent board members. We deployed the practice of separating the roles of chairman of the board and CEO long ago, to ensure that board governance aspects get adequate focus.
2. Transparency, fairness and accountability: Management in corporations with good governance understand that they are merely trustees managing the affairs of the company in the best interests of all the stakeholders. Obviously this calls for greater symmetry of information between them and their stakeholders. At Infosys, we have consistently followed highest level of disclosure to stakeholders, both financial and non-financial, so as to minimise asymmetry of information between stakeholders and management. We follow the adage “when in doubt, disclose.”
3. Effective risk management: The true test of good governance and risk management practices are their ability to meet business objectives of the corporation in a volatile business environment. The long-term sustainability of a corporation rests on ability of risk management practices to deliver in both good and bad times. Board level supervision of risk management of a corporation is critical for effective risk management. Further, risk management is not about “risk avoidance,” it is about mitigating risks to achievement of business objectives, both short term and long term.
4. Enhancing ethical judgment of employees: While percolating good governance across the corporation, it is important to focus on enhancing the ethical judgment of employees, managers and executive board members, in the same way that they focus on developing technical and skill-based competencies. Organisations with good governance recognise and realise that it is their people, not regulations, that run the company and the measure of success in this area is the sum total of several day-to-day decisions taken by the management and employees at every level. At Infosys, senior management regularly conducts value workshops to reinforce ethical conduct. Consequences of non-compliance is explicitly made known to every employee joining the company.
5. Substance over form: It has been rightly said that the 'tone' of good governance is set right at the top and flows all the way down the organisation leaving no one out-from chairman to doorman! Long-term sustainable growth is all about a commitment to values and ethical business conduct. It encompasses laws, regulations, processes and practices affecting the way a corporation is directed, administered, controlled and managed.
Longevity of a corporation depends on the faith of its stakeholders in the governance practices. Good performance, not combined with good governance, will not be palatable to the investing community. Employees will think twice before joining companies which don’t have good governance practices. Customers will shy away from companies that don’t follow the rules. Society will not respect companies which don’t follow the best practices. Only those companies that earn respect from all stakeholders will survive in the long run.
The author is co-chairman, Infosys
“The CEO has to inspire the right policies, review them from time to time and communicate them effectively”
On account of its high visibility and influence, the marketing services, media and communications industry accounts for a disproportionately important role in the country’s economy. It embraces a host of different communications disciplines, works with a plethora of communications tools and stands at the cutting edge of digital technology. Creative ideas and hence people are its main resource. Given its key role in creating wealth and employment for the country, it is necessary to examine the gamut of ethical issues that are relevant to it. Broadly, I would categorise these into five:
* Maintaining the confidentiality of information: The need to maintain confidentiality and respect the sanctity of insider information is of primary importance. Several practitioners in this sector are afforded unparalleled access to information of a confidential nature such as the business plans and projections of various clients. They also need to build and maintain trust in order to lay the foundation of an enduring relationship with clients. The nature of the business requires all parties concerned to work in genuine partnership and to safeguard client interests as their own. Like Caesar’s wife, they have to be above suspicion.
* Financial gratification: This encompasses the whole gamut of unfair business practices with a view to getting business and would include items such as providing discounts or rebates in excess of accepted industry norms or paying kick-backs and other forms of financial gratification. Given the nature of the business which requires speedy clearances and deliveries to tight deadlines, the ‘touch’ points or opportunities for financial misconduct at operational levels are countless.
* Collusion or misrepresentation of facts: This again is a whole area that can be conducive to misconduct. Readership, circulation, viewership and listenership data can be manipulated, exaggerated or wrongly represented. The influencing of audit, research and rankings studies can be influenced. Vendors can be colluded with to provide misleading data. These are all examples of non professional conduct that deprives the deserving from attracting their fair allocation of resources.
* Plagiarism and piracy: This is of particular concern globally today. Ideas, articles, software, music, lyrics and so on are routinely borrowed and copyrights flagrantly disrespected. The internet has made it so easy to download information, video clips, sound-bytes, ideas and content of a proprietary nature and to pass it off as original without disclosing the correct source. This is highly unfair to the company that has spent millions on the original only to see its profits nosedive because a pirated copy if being viraled across the internet.
* Sexual harassment and misconduct: As with any other industrial or commercial sector, the marketing services, advertising and media sector also needs to guard against the misuse of power to obtain gratification. Particularly since the average age of most of those working in media and advertising agencies tends to be skewed heavily to the 20s and 30s.
Today, most organisations in this industry sector have realised the need to take a responsible stand on an entire gamut of ethical business practices through well-articulated and followed business guidelines and HR policy manuals. These published documents generally prescribe the behaviour required of their employees and associates in a host of different situations. The policy document is generally maintained and updated regularly on the intranet HR portal.
There are specific provisions that prohibit and ban use of child labour in offices and provide equal opportunities to all regardless of race, colour, religion, national origin, age gender, marital status, sexual orientation, or disability. There is generally also a separate policy document on sexual and/or any other form of harassment.
In the DDB Mudra Group which I head, apart from the stipulated policies there are a host of unwritten prescriptions that are inherent in its well-developed value system. We place immense importance on respecting the confidentiality of all data shared by our clients. We also have an unwritten policy that we will neither pay nor accept bribes to expedite our business interests. Meritocracy is upheld above all else in human resource matters.
Recently, all employees and associates were put through a brief web training module developed by Omnicom on the ethical practices expected to be followed by employees and associates worldwide. Successful completion of the module resulted in the issue of a certificate to be printed out and displayed.
I believe that the CEO is the custodian of ethics in the organisation. Supported in its implementation by HR, the CEO has to inspire the right policies, review them from time to time, communicate them effectively throughout the organisation and ensure that they are followed both in letter and in spirit. The role of the CEO is to lead by example and be a role model that is worthy of emulation.
As the group CEO & managing director, I have made it a point to demonstrate a policy of zero-tolerance in all cases where ethical business practices are not followed. In my career as a CEO, I have relieved a head of a branch office of his duties when an independent enquiry revealed that he had tried to use his position to obtain sexual favours from one of the women employees who reported to him. I remember another instance where the service of a senior level finance manager was terminated when the audits revealed that he had been embezzling funds.
The author is group CEO and MD, Mudra Group
“There has to be a multi-pronged approach to ingrain ethics in the long term”
Kamal K Sharma
Ethics is integral to the governance of any organisation. It is not something that you develop overnight. One can’t be ethical today and not tomorrow. Instead, it is a reflection of the organisation’s culture, its principles and practices over time. At the same time, ethics is not something that can be measured since it is ordinal in nature, only an exception to the norms can be felt and debated.
For a pharmaceutical company such as ours, since we are in the business of saving lives, apart from corporate governance of various management and operations processes, ensuring equity and product quality also form veritable parts of our ethics framework. There are six core values in our company which are also parameters for ethics. These are superior performance, customer orientation, entrepreneurship, working together, integrity and respect for people.
The custodians of ethics at Lupin would be the CFO and I. The management is responsible for inculcating these values through the rank and file of the organisation. Lupin has a code of ethics which every member of the company abides by. This is supported with a very sound whistle-blower policy, through which employees are encouraged to report any cases of unethical behaviour. Alongside, we also have a policy on workplace harassment in place.
While, I as the CEO, along with the CFO, am ultimately accountable for all ethical practices in the organisation, there is a strong ethics committee comprising an executive director of the board, CFO and president (human resource), who are responsible for dealing with any aberrations and establishing the correct code.
Once, reported, the cases are dealt with immediately. Even administrative issues such as an unfair preference for a supplier, for example, can invite severe punishment like removal from the company. At the frontline, our medical representatives have to tie primary sales with secondary sales. This prevents tendencies such as hoarding stocks through orders to the company without generation prescriptions.
There are more such checks and balances, be it in planning, procurement, sales, investment decisions or performance appraisals. Programs such as SAP help us leverage technology to keep a close watch on information exchange and transfer.
It is up to the senior management team to demonstrate ethics over time. We have product quality meetings every month which I preside. We have also institutionalised a quality council in the company and through this council we regularly invite independent inspections of our manufacturing units, systems and processes. The council comprises 45 senior members of the company belonging to quality assurance, research and development, manufacturing and projects and is led by the executive director on the company’s board. The council meets every month to take stock of quality issues across all geographies of business.
I also make sure that I sit in on key negotiations. This ensures that grants and sanctions are given based on fair parameters. It also ensures that there is no favouritism when choosing our suppliers. Even mundane practices such as not accepting expensive gifts for Diwali go a long way in setting an example for ethics in our company. But it is important, nevertheless, because once sown, an unethical culture can spread rapidly.
The modern-day leader has a much larger responsibility in demonstrating ethics by practising it himself. This is because the socio-cultural fabric has changed with more materialism, consumerism and nuclearisation seeping in. To ingrain ethics in the long term, there has to be a multi-pronged approach.
First, we have to create awareness through policies. For this Lupin has its book of code of conduct which is communicated through the intranet and also at the orientation sessions during boarding of every employee. It is then followed by communication of the code and expectations at every forum, often by the senior management. Finally, all that talk needs to be backed by quick and strict action should there be any lapses. Done over time, these have the power to create an ethical organisation.
The author is MD, Lupin
“Ethics cannot be established only through policies; it needs role models in an institution”
When establishing a greenfield bank, one aspect that stands out and is intrinsically tied with ethics is that we are in the business of trust. We are a public trust institution, and it is this philosophy that forms the bed-rock of all business strategies, product and service offerings. Banks are trustees on behalf of our valuable customer, as well as advisors on financial matters including wealth creation and preservation. In this role, it is sine qua non for organisations in this sector to abide by the highest standards of professional ethics and integrity, that is, ‘act in good faith’. Therefore we need to have codes of conduct, of corporate governance, of ethics, disclosure and transparency. The culture becomes vital to creating the HR character of the organisation.
Being a non-legacy institution, Yes Bank has had the opportunity to imbibe the best practices and highest standards of professional ethics and conduct into its culture right at the start. The challenge was to communicate as well as imbibe this culture throughout the organisation, particularly given the unparalleled expansion that the bank has had in the last seven plus years since inception, to become the fourth largest private sector bank in India.
One of the biggest steps we took to encourage ethics in the bank was to minimise layers in the organisation. In 2008-09, we relooked at the span of control. It was then that we made the management frameworks almost flat. In our branches, there are only five layers from the bottom up to my level and in non-branch functions, there are just four layers. Other private banks, leave alone public sector banks, have as many as 12-16 layers.
What this does is create a culture where communication effortlessly flows up and down the organisation. It is what ensures the ‘plumbing lines’ of the bank works smoothly. Not just between senior and junior positions, but this ensures that communication exists between different departments too, horizontally. I believe when teams work in silos, cut off from the other groups in a company, it creates more situations for cutting corners.
Symbolic of this de-layered structure is our meetings every Monday morning. All the branches are expected to hold branch executive leadership team meetings where the department chairing the meeting keeps changing every week and discussions are in consonance with the branch execution strategy template. These Monday meetings work like a safety valve, allowing employees to discuss both positives and negatives of work that might be bothering them. The discussions then get reported to the regional heads. When different departments interface with each other, the chances of wrong-doing goes down significantly, as there are inherent ‘Checks and Balances’. Not just because of the fear of getting caught, but also because problem-solving becomes more resourceful.
The bank branches are envisaged as societal transformation centres and work as harbingers of good community practices. The nature of the products and services, and its significant impact on society, places additional responsibility on banks to maintain the highest standards of ethics and professional conduct at all times.
Ethics cannot be established only through policies, it needs role models in an institution. I try and put the message out every 15 days about being the ‘best quality bank of the world in India’, which is our stated mission over the next five years, as well as building the organizational character as the ‘Professionals’ Bank of India’ This requires me and other top management to spend time on video communication, at various employee for a, utilise our internal Yes TV Network. Yes Bank also observes an Annual Investor Day in April every year, with analysts, media and other stake holders, to discuss the achievements, strategies and various annual milestones, as we meet our Version 2.0 goals. This is to provide regular reinforcements at every employee engagement programme of our code of conduct. We also have Yes Mentors, who communicate the code and address issues at the branch level. I oversee the institutional framework in the form of committees and escalation in case of non-adherence to any of the policies we have established.
Of course, there are the systemic checks. Ethical conduct is built into the business strategy in the form of systems, processes and controls. These flow into the individual goals of each team member with defined accountability. The bank has put in place institutional frameworks to monitor and track the parameters of compliance. Well-defined board-approved