The awareness and concern about the role of the auditors in assisting companies in withholding information from the investors in general and minority shareholders in particular, has been heightened after the saga of the ENRON, Worldcomm and other well-respected global companies. As confidence in corporate America has been shaken to its roots, talk of reforms is in the air. As Mr. Rajawade wrote in his well read and respected columns, this crisis of confidence should not blind us to the enormous strengths of the system and the speed with which it has acted. Several subsidiaries of the bankrupt corporations were quickly sold, a line of credit put in place, should Worldcomm go bankrupt and actually activated, top executives arrested and trials fixed within couple of months. The contrast with the conditions prevailing in India, do not need a mention.

At home, another crisis stemming from absence of good governance, has involved two of India's most respected firms, one in the field of audit and the other a large business house. Given the fact that auditors are chosen and paid by the company management, there is always a possibility of a nexus between the two. Not only is it common for managements to persuade auditors to gloss over questionable accounting and disclosure practices, but often auditors advise a company on how doubtful accounting choices may be reported so as to remain on the right side of the law and at the same time escape detection by users of financial information. It is important not only to punish the guilty, 'quickly', but to take this as an opportunity to introspect and cleanse the entire system.

Editor

• Has strategic philanthropy replaced corporate philanthropy in Indian corporations?
• Are Indian corporations strategically managing and evaluating the impact of their giving?
• What is the extent of giving in Indian corporations?
• How do the giving activities of Indian corporates compare with that of multinational corporations in India?

  To study these issues, the websites of 309 corporations (209 Indian and 100 multinational) were visited and data was gathered regarding their self-professed activities in the domain of corporate philanthropy.

Results

Websites were searched for write-ups on corporate philanthropy related activities in the homepage or elsewhere in the site. The location of information about corporate philanthropy on company websites is shown in Exhibit 1.

Exhibit – 1

The data for Indian and multinational companies operating in India are presented separately. It was found that only 21% of all the company websites visited displayed information about the corporate giving activities prominently as a separate heading. Only 17.8% and 21% respectively of the Indian corporations (IC) and multinational corporations (MNC) had information on their giving programmes on the homepage itself. However, only one third of the MNCs had no information on their giving programmes while two thirds of the IC websites had no in-formation about their giving programmes.

The nature of the giving activity of the corporations, categorised as philanthropy and strategic philanthropy, is presented in Exhibit 2. The forms of corporate philanthropy practised by ICs and

MNCs are shown in Exhibit 3.

Exhibit - 2

Exhibit - 3

Only 12.4% of ICs pursue strategic philanthropy as compared to 48% of the MNCs. Philanthropy is pursued by 35% of Indian companies and 62% of MNCs. Both Indian and multinational corporations give money mainly to support education services ( IC-22.9% & MNC-43.0%), environment (IC-12% & MNC-32%), health services (IC-15.8% & MNC-26.0%), and uplifting living conditions (IC-24.9% & MNC-20.0%). Support for art and culture (17.0%), employee volunteerism (16.0%), event sponsorship (12.0%), and matching grants (8.0%) are some of the important activities of the MNCs but not ICs. Other forms of corporate philanthropy included diversity management, generating alternative resources, and support for agriculture. In addition the data was analysed to find if there was any relationship in the forms of corporate giving and business sectors. While there was no clear relationship between the nature of business and the giving pattern, it was observed that:

• Group companies, transport companies, and banks practised philanthropy in all forms.
• Entertainment and R&D companies were not involved in any philanthropic activities.
• Companies involved in advertisement, publishing, health care, construction, consultancy, courier, insurance engaged in four or less forms of philanthropy.
• Health care, consultancy, software, and pharmaceutical industries were more strategic in their giving activities.

Discussion

Companies used various words like ‘corporate concern’, ‘community development’, ‘beyond business’, ‘Citizen (company name)’, etc. to refer to their social development activities. Overall, information regarding corporate philanthropy was not given prominence in the webpage. In more than 82% of the cases, the write-ups on corporate philanthropy and social responsibility are shown as a small part of the corporate profile. In most cases, the required information was found only by searching the website. But as is evident from the results Indian corporates do not yet view philanthropy as an organised activity. And most of them do not consider philanthropy as business strategy.

Information about their involvement in social development either seems to be lost in the small print of the corporate profile or is simply not there. The websites of the Aditya Birla Group and Canara Bank are exceptions where the link for social action appears on the home page itself. The giving programmes of only a quarter of the organisations included in this study were classified as strategic.

Many companies, mainly manufacturers, are apparently concerned about the environment. These have put up their concern and efforts to save the environment as a separate item. Their activities often include treatment of effluents, creating green belts, etc. However, in some cases they are only complying with the legal requirements of maintaining environmental standards.

There are three main ways in which organisations support the various causes mentioned above. One is to give money to non-governmental organisations (NGOs) working in the area that the organisation wants to support. The second common method is to establish a foundation or trust with the mandate to work in the specified areas of social development. The third method is to support programmes on an as-and-when basis. Most organisations follow the third method. Some corporations formulate special programmes (such as polio immunization programmes) for supporting a specific cause.

Of the 209 Indian companies studied, only 24 have established foundations for their philanthropic activities; and only three support NGOs. Among the 100 MNCs studied, 23 have foundations and

19 support NGOs. Some companies claim to believe in the Gandhian concept of trusteeship, which calls for conversion of private-property capitalism into a public-property social institution.(15) Godrej and Aditya Birla Group are prominent examples of those using the Gandhian concept of trusteeship (16) . The involvement of the corporate sector in social causes can be classified under three broad approaches: service delivery approach that focuses on safe water, sanitation and health facilities, education, etc; empowerment approach that focuses mainly on economic and income-generation capabilities; and the advocacy approach which focusses on providing/ensuring basic rights to the members of society.(17)

Our data shows that most corporates take the first two approaches. One of the few organisations opting for advocacy is the Aditya Birla Group, which espouses social causes like widow remarriage, anti-dowry drive, etc. Only a few organisations in our study made explicit mention of reasons for spending money on social projects and ways of furthering their goals. One interesting example is that of Intel Corporation, which supports multimedia learning in schools in India. Intel produces specialised processors that enable better multimedia capacity in PCs. ICICI and Canara Bank have also aligned their giving with the company’s goals. The goal of Canara Bank 18 is to eradicate poverty, illiteracy and unemployment in rural areas as banks are the prime movers in their economic upliftment. According to its website (19), ICICI pays special attention to social projects on technology, finance, education and training, healthcare and aid to the physically challenged. Britannia backs the ‘Save the Tiger’ cause, aligned with its Tiger brand of biscuits, while Citibank, sticking to its core competence, has taken up a project extending micro credit.(20) Our data also shows that unlike MNCs, Indian corporations do not encourage their employees to contribute to social causes. Programmes like ‘matching grant’ and employee volunteerism have not been adopted by the Indian corporations included in this study. Interestingly, though MNCs have elaborate programmes for philanthropic activities in their home countries, their Indian counterparts do not have many. It was not possible to locate India-specific details from the websites of MNCs. While MNCs in India were involved in providing for basic services to society at large, knowledge-based companies (such as consultancy and software companies) in India seem to be lagging in fulfilling their social commitments, possibly because most of them are new and therefore more concerned about translating opportunities into wealth.

The corporations most active in philanthropic activities are the old blue chip companies such as Tata, Birla, Bajaj, Godrej etc. After independence when nation building was a primary concern, these companies had responded by building schools, colleges, and hospitals. Companies like Reliance and Nirma, which are relatively young, have also taken up social responsibilities as part of their commitment to society. However, in most cases there is very little emphasis on strategic philanthropy. Sundar (21) has discussed the haphazard nature in which funds are allocated to philanthropy and also the lack of any planning for sourcing of funds for ensuring sustained philanthropic activities among Indian corporations. In our exploration of various websites we came across a few interesting practices among some Indian corporations that are worth mentioning here. ICICI has a separate department for coordinating and providing financial/ technical support to various charitable, educational and social welfare organisations.

Another innovation from ICICI is the creation of a w e b s i t e (22) which makes it easy for individuals and organisations to contribute towords various social needs using the Internet. It makes the process of matching the donor and the receiver easier.

Another example is that of the Pirijosha Godrej Foundation established in 1972 by Godrej. One third of the shares of Godrej Boyce have been given to this trust as a corpus. The foundation funds various philanthropic activities from the interest that it earns from its corpus.

Conclusion

From the results and inferences it is clear that though corporate India has helped society significantly, much remains to be done. Corporate India should reorient its giving policies and move to viewing them as a means of enhancing its business interests along with the betterment of

society, rather than as an obligation to society. There is an urgent need to align corporate giving to corporate strategies to satisfy all stakeholders of the business. This alignment would not only be useful for the corporations but will also benefit the causes they support more effectively. Porter and Kramer (23) go a step further and urge corporates to strive to improve their performance in philanthropy as they would their other activities that are germane to their existence.

They claim that improved philanthropy would enable organisations to have a much greater impact on society and thus further their own interests.

References and Notes

1. “Corporates to Contribute for Shiksha Kosh”, The Times of India, Ahmedabad, 2 nd March 2000, p 5.

2. Friedman, M, 1970, “The Social Responsibility of Business is to Increase its Profits”, New York Times Magazine,

13 September, 122-126.

3. Quinn, D, and T Jones, “An Agent Morality View of Business Policy”, Academy of Management Review, 20(1),

1995, 22-42.

4. Freeman, R E, 1984, Strategic Management: A Stakeholder Approach, Boston: Pitman.

5. Donaldson, T, and L E Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications”, Academy of Management Review, 20, 1995, 65-91.

6. Andrews, K R, 1971, The Concept of Corporate Strategy, Homewood, IL: Dow Jones-Irwin.

7. Sethi, S P, and C M Fable (eds), 1987, Business and Society: Dimensions of Conflict and Cooperation, Mass:

Lexington Books.

8. www.arvindmills.com

9. www.jnj.com

10. Levy, Reynold, 1999, Give and Take: A Candid Account of Corporate Philanthropy, Boston: Harvard Business

School Press.

11. Wood, D J, “Corporate Social Performance Revisited”, Academy of Management Review, 16, 1991, 691-718.

12. Levy, Reynold (1999). Give and take: A Candid Account of Corporate Philanthropy; Research and Forecasts

1989, The Chivas Regal Report. Working Americans: Emerging values for the 1990s, New York: House of Seagram.

13. Marx J D, “Corporate Strategic Philanthropy: Implications for Social Work”, Social Work, 43, 1998, 34-42.

14. Marx J D, “Corporate Strategic Philanthropy: Implications for Social Work”; Tokarski, K, 1999, “Give and

Thou Shall Receive”, Public Relations Quarterly, 44(2), pp 34-40; Porter, M E, and M R Kramer, “Philanthropy’s

New Agenda: Creating Value”, Harvard Business Review, Nov-Dec, 1999 121- 130.

15. Proceedings of Social Responsibility of Business, quoted in Pushpa Sundar 1998, Beyond Business: From Merchant Charity to Corporate Citizenship, New Delhi: Tata McGraw-Hill.

16.w w w.g o d r e j i n d i a .c o m ; www.adityabirlagroup.com

17. Mahadevia, D, and W D’Costa, 1997, “Poverty and Vulnerability in Ahmedabad”, Oxfam Urban Poverty

Research Programme, Oxfam Trust, Ahmedabad.

18. www.canbankindia.com

19. www.icici.com

20. “Giving it Away’s Much in Sync with Brand Identity”, Economic Times, 23 Jan 2001, p1.

21. Sundar, Pushpa, Beyond Business

22. www.icicicommunities.org

23. Porter and Kramer, “Philanthropy’s New Agenda: Creating Value”.

Go to top

A growing number of commentators believe the power of the multinational corporation is growing beyond the control of national governments. Writers such as

Ralston Saul, Handy and Hutton (1) amongst many others, criticise the impact of the ‘mergering’ giants on society. Such organisations are seen as becoming all too influential, operating without responsibility for the world. They have lost touch with the human values necessary to sustain and preserve life forms, human, animal or biological (2).

However, as globalism develops, consumer awareness grows. Media services extending rapidly around the world. Some suggest that corporations today have nowhere to hide. Transparency is being sought on many fronts, ranging from scientific experimentation with plants to executive salary packages. The state of the physical environment, the changes to society emerging from increasing materialism and the way economies are being influenced by the private sector are three major issues which have worried people in the last two decades. There is little doubt that corporations are facing an increasingly hostile and complex environment in which to conduct their business.

Consequently ethics, reputation and governance processes are being reviewed more than ever. It is often argued that the survival of business entities is becoming increasingly dependent on

how they maintain their reputation in a competitive world. An emerging body of research suggests that ethical behaviour and reputation provide a basis for corporate stability, especially as the global market place becomes more sensitive and dynamic.

Defining Key Terms

Definition of the key terms helps establish the boundaries for the discussion and identify the path of the argument.

Corporate Governance

Before one can define corporate governance, the notion of a corporation has to be established. It has been defined from two perspectives. A legal definition (3) states it is: “an artificial person of legal entity created by, or under the authority of, the laws of a state…. (and) is distinct from the individuals who comprise it.”

However, Bierce (4) suggests, more ironically, that it is: “an ingenious device for obtaining Individual profit without individual responsibility,” a view shared by many who see it as an economic device which widens the gap between those with financial power and those without. Such writers identify the corporation as either an amoral structure or one which actively encourages immoral behaviour.(5) The term ‘corporate governance’ has become associated with senior management and control of corporations, ultimately, the creation, management and control systems of the board of directors. Cadbury (6) says it is the system by which companies are directed and controlled… or, more specifically, it is “to do with power and accountability: who exercises power, on behalf of whom, how the exercise of power is controlled”.(7) There is an increasing volume of literature identifying different principles relating to boards and board management. Whilst there is a variety of approaches, influenced by context and culture, some universal concepts are emerging. Boards are usually involved with strategic planning, broad risk assessment, and the overseeing of control systems established by the management of corporations. They are not usually involved with operational management. A hierarchy of boardroom concerns can be presented as: first philosophy, second strategy and finally structure. Here, the first two elements have been concentrated upon.

Reputation

Corporate reputation can be related to four themes. These can be seen as the four elements which underpin the establishment growth and sustainability of organisations, as shown in Exhibit 1. It suggests that society will provide a ‘licence to operate’ if these factors are properly managed. If not the ‘licence’ becomes restricted and ultimately withdrawn.

First, and most commonly, reputation is associated with the relationship with customers or clients

— the way the products or services provided by the organisation are accepted in the marketplace. He

nce in the 1970s and 80s many corporations believed reputation was based on quality control and customer service. The power of the quality movement was reflected by the widespread adoption of international standard systems and quality auditing. Slogans such as ‘customer is king’ and ‘treat your client as one of the family’ became common and are still heard ringing out from sales staff training rooms.

However two other elements can also be identified. First, the pragmatic issue of functionality and cost must be addressed – the ‘do what is promised’ and ‘value for money’ concerns.

Secondly emotional acceptance by customers can be influential. How does the product ‘look’ or do I ‘like’ what is being offered? The ability to appeal aesthetically to customers enhances reputation.

Business Reputation

The broader business reputation emerges when stakeholders other than the customer are taken into account. Relationships with suppliers, employees, government bodies and other members in the industry may influence how the business per-forms. Proper specifications for purchasing, prompt payment of bills, negotiating effectively with employees and/or unions, developing employee support schemes, (health, training/education, superannuation), helping establish industry standards, are all activities which enhance the reputation of the corporation.

The final arena is how societies respond to perceived corporate behaviour. The choice to buy a product or pay for a service is often a psycho-social decision. Consequently it can be influenced by environment and social concerns as well as economic factors. Globally marketed products which are not easily distinguished from their competitors by price are most susceptible to this influence. Product acceptability is often a reflection of the national or global media’s response to a corporation’s reaction to social and environmental issues. Nike’s market position in foot-wear sales was significantly affected by the social response to the establishment of factories in low cost labour markets (8). In the mid 1990’s Shell Oil’s petroleum sales were directly affected by public opposition to the way it was perceived to be running its business (9) . Multinational corporations in particular have be come sensitised to the importance of social reputation. Today most large corporations have established corporate affairs divisions specifically to monitor and protect their social reputation.

So how then are the arenas of governance, reputation and competitive credibility integrated?

It is evident from a close review of the definitions that this question can be answered from a variety of perspectives. Here, corporate governance will be used as the foundation and the other two themes will be related to the concept.

Tone at the Top — Steward or Agent

The consideration of governance from a philosophical perspective helps clarify our under-standing and provides a link to the themes of reputation and competition. First, one can reflect on directors as wanting to be ‘good stewards’. This orientation suggests that board members’ concerns are primarily to ‘look after’ or ‘care for’ the assets of others. It assumes trust and honesty — people are driven by higher motives and want to fulfill their duty of care. Consequently, a director’s prime concern is to protect the others’ interests. Such a perspective relates to a belief in society as a ‘good’ environment where the interests of ‘self’ are best managed by looking after the interests of the community. It sees virtues and professional character as the best means of social control. Such directors will not only ‘look after widows’ money’ or preserve the ‘wealth of grandmothers’ (11) , but also balance their needs with those of society and the environment, ensuring that the rights of all stakeholders in the corporation, present and future, are pre-served. An alternative philosophical approach to corporate governance assumes an ‘Agency Theory’ orientation - a more ‘economically rationalist’ perspective. It suggests board members act as ‘employed agents’ to undertake roles on behalf of their principals. They will be driven by their own, ‘primarily financial’ needs. Agents who act out of self-interest must therefore be managed through a system of explicit rewards and punishments. This approach recognises that there will be continuing tension between the self-interest of agents and their principals. Roles and duties must be defined. Regulation is required to prevent either individually or organizationally based abuses of power. Such an approach is imbedded in libertarian/utilitarian theories of social control and linked to Hobbsian or Machiavellian views of society (12). Exhibit 2 shows how these two philosophical perspectives can be related.

The Management/Stakeholder/Shareholder Dilemma — Impact on Reputation

However the review of this model highlights, but does not resolve, the basic dilemma

faced by business leaders: how can they balance the interest of all parties and how will this process affect reputation? This debate about the role and duties of the board has become more evident in literature and research in the last five years.

Prior to this period there was little doubt that the interest of shareholders was paramount. Expanding shareholder value has been a dominant concern in emerging and developed countries.

This approach has focused on dividend returns or share price growth as a measure of success. Therefore, boardrooms have concentrated their efforts on monitoring financial reports and ensuring that suitable information is provided to financial markets. However as noted above, in the last five years social sensitivities, towards multi-national corporate strategy in particular, have emerged as potentially influential. This has led to a revision of thinking about whether or not the board should be so focused on shareholder representation. Increased emphasis on stewardship for all stakeholders, as outlined in Exhibit 2, is emerging (13) . Others suggest that this shifts the focus away from the prime concern of governance — the representation of shareholder interests. A third perspective, which straddles these two positions, suggests that accounting for wider social interests is the most effective way of preserving shareholder value. Commentators on corporate governance have put forward cases to justify all positions, with perhaps the third position gaining ascendancy in recent years.(14)

Market Perceptions — Implications for Reputation and Corporate Credibility

Market perceptions about successful or admired organisations offer another perspective on the relationship between these areas. Two recent surveys identify different factors that influence corporate reputation. A recent report on Asia’s leading companies (15) noted that “high quality services and products” (69% of respondents to the survey noted this as the most important factor) and “innovative responses to customer needs” (56%) were identified as the key leadership qualities. These relate to the first level of reputation previously discussed and are noted in the report as consistent with the resurging consumption in Asian markets. The report however noted that “growing discernment” and an awareness of longer-term values and vision were important.

An alternative perspective on perceived success is suggested by the Hay Group’s analysis of the world’s most admired companies as reported in Fortune (16). It emphasises leadership as the key to ‘corporate admiration’ and highlighted global leadership qualities of staff. ‘Top’ corporations develop a culture which ‘nurtures and retains outstanding talent’. They do this by disciplined leadership selection, running leadership programmes which address individual needs as well as strategic goals, stressing values that take account of people as well as financial results, and seeking to develop human attributes such as self confidence and self-control, achievement, empathy and teamwork. This report supports the view of a broader, more socially aware focus emerging. It emphasizes the development of senior employee skills and an awareness of social and cultural influences.

Strategy and Risk Management — Impact on Reputation

As corporations become more globally oriented, strategic planning and risk management have become major issues in the boardroom. Two Australian cases illustrate how poor strategic planning and risk assessment dramatically influenced reputation and competitive vi-ability.

In the three decades up to 1990, the BHP corporation was the country’s largest company by market capitalisation. It was often referred to in the financial press as ‘The Big Australian’. In the mid 1980’s, the mining conglomerate decided to move into international markets to maintain its growth and market credibility. It invested heavily in mining operations in Chile and Papua New Guinea (PNG). The OK Tedi mine in PNG became one of the planks in the corporate strategy plat-form, a platform that eventually turned out knotty, twisted and impossible to walk on. Although the mine was rich in ore, the disposal of the mining ‘tailings’ was not properly managed and became a nightmare for the company. The mine site was in a mountainous region and the river leading away the mine site became contaminated, causing considerable hardship for villagers downstream who were dependent on the water for fishing and agriculture. This, amongst other problems faced by BHP in the 1990’s, caused it to become a much smaller operation in Australia. By 1998 its share price had nearly halved. It currently faces a major ethical dilemma. Should it close down a ‘dirty’ but workable mine which provides considerable income to the government of PNG or should it maintain it, aware it causes pollution, which can be minimised but not entirely prevented? A better assessment of the environmental risks and a greater sensitivity towards its impact on the country may have lessened the effect of the problem. This public relations nightmare for BHP has been financially and socially detrimental to it.

The second case relates to an old trading company in Australia, Burns Philp. It had established a spice division and decided it had to globalise to sustain its position as a leader in this market. In this case senior managers had developed the strategies for global expansion. They were apparently accepted by a board which was made up primarily by ‘friends of management’, former executives, and long standing legal and financial advisers. Burns Philp expanded by moving into the spice market in the US as well as opening up offices in South East and North Asia. In America a retail ‘price war’ in the spice market broke out and the costs of developing other regions were higher than expected. Within two years Burns Philp had changed from being one of Australia’s ‘blue chip’ investments to being a ‘basket case’. It had to sell off much of its asset base to remain afloat. Its share value dropped from over A$2-00 to 10 cents. An analysis of this corporate failure suggested the board were unable to effectively assess the risks of global expansion or were unware of the potential disaster. The financial reputation and competitive credibility of the organisation were shattered. It is slowly re-establishing itself with a significantly reduced asset base.

These two cases highlight that corporate governors need to take proactive positions. Boards must insist on strong, thoroughly considered strategic planning which takes account of all contingencies. Financial cost/benefit analysis alone is unlikely to highlight the potential for unintended consequences. Full scenario evaluation, which takes account of social, environmental and financial factors, must be undertaken.

Maintenance of an Ethical Framework for Boardroom Decision-Making

Ultimately directors have to make decisions which can be defended as logical, appropriate and in accordance with the objectives outlined above. The most useful tools of analysis, which increasing numbers of boardrooms are turning to, is the development and maintenance of an ethical framework for decision making. Three themes are briefly considered below.

Values Perspective

The values which underpin boardroom decisions will provide a foundation for establishing an ethical framework. Much has been written about the importance of human values in leadership over the centuries, most of which applies to the ‘ideal’ board. Integrity, transparency, honesty, care, fairness and balanced, judgement, are all well-known attributes which are universally applauded. If they are used as a basis for the analysis of decisions, and are properly documented, board members will be able to defend their decisions at a later stage. If these elements have not been considered, or have been avoided, mistakes are likely to emerge and risks of liability will transpire. The rush for quick decisions, the need to grab a market opportunity, the concern for an immediate return without considering a longer term outcome, the in-ability to resist economically strong, but morally weak, arguments, are themes which, in retrospect, seem to have led to poor decision making.

Reputation and Director Selection

The path to the boardroom often comes via technical expertise, (operational, financial or legal) former colleague association (co-members of other boards, family members etc) or fame and fortune (former politicians, sports stars, media personalities etc). Many corporations are aware that the reputation of board members is likely to enhance the credibility of the organisation. This may indirectly lead to the ‘reputable/ethical’ people being chosen.

Their former success may indicate that high standards of behaviour have been maintained. However, it is no guarantee. In Australia the prime concern about board selection is balance and appropriate remuneration. The personal risks associated with being a director have be-come a significant concern. Legal liability cases have, in the past decade, spread to include members of the board. Controversies relating to the banking industry in Australia 18 suggest ethical decision making at boardroom level is becoming a major issue. If ‘ethical fitness’ is specifically included as a selection criterion, such problems may be less likely.

Ethics Maintenance – Conflicts of Interest

So how can an ethical frame-work be established as part of the governance process? As noted above, awareness and appropriate director selection are the first considerations. However, due process needs to be maintained to ensure ‘slippage’ does not occur. The most common com-plaints relating to ethical behaviour in boardrooms revolves around ‘conflicts of interest’. Arguably, it is the major reason for accusations of un-ethical decision making. Will lawyer or accountant board members whose firms are retained by the corporation be able to make unbiased balanced judgements? Will directors associated with companies who have close trading arrangements with the corporation, be able to judge fairly, if the issue being debated is going to affect the performance of the other company? Will personal friendship or family affiliations dull the critical faculties of board members? Such factors are well known, and are rarely directly addressed. They are often the basis of boardroom scandals (19).

Thankfully director and industry associations are facing up to some of these concerns.

Both corporations and director associations are actively promulgating codes of conduct and creating boardroom management systems. Corporate regulations relating to governance are being further developed. The boardroom is being professionalised. However the development of guidelines or regulations is not the final step in maintaining an ethical frame-work. Ultimately ethics come from within the individual. It is necessary to develop processes and mechanisms which ensure directors individually can fully consider all ethical perspectives. Consequently, ethics is the ‘glue’ which binds the foundation stones of corporate governance, reputation and competitive credibility together. Without systematic ethical practices these three elements fall apart and the entity is likely to crack and crumble, eventually to be dismantled or to disintegrate and disappear.

References and Notes

1 Ralston, Saul J, 1997, The Unconscious Civilization, Australia: Penguin.

2 Handy, C, 1990, The Age of Unreason, London: Arrow Books.

3 Hutton, W, 1995, The State We’re in, UK: Random House.

4 The ongoing legal battle Microsoft is facing in America is a clear indication of this concern in the information technology industry.

5 Black’s Law Dictionary, 6th Edition, 1990.

6 Roy, D R, “Can Corporations Become Enlightened? – Buddhist Reflections on TNCs”, in Globalisation: The Perspectives and Experiences of Religious Traditions of Asia Pacific, International Movement for a Just World, J Camilleri and C Muzaffar C (eds), Malaysia, Petaling Jaya, 1998.

7 Nike’s decision to buy from factories using child labour in Indonesia caused a considerable public outcry.

9 Its proposal to sink the defunct Brent Spar oil rig in the North Sea and its apparent support of a military regime in Nigeria.

11 ‘Widows’ money’ or ‘grandmothers’ savings’ have been used as metaphors for the savings for retirement in both India and America. Refer: N Balasubrumanian, “Changing Perceptions of Corporate Governance in India”, ASCI Journal of Management, 27 (1&2) 55-61 1998.

12 Thomas Hobbes suggested acceptance of a ‘social contract’ is a way of curbing human beings innate capacity for self interest. Machiavelli’s The Prince similarly presents human’ behaviour as fundamentally self-seeking which is best controlled by fear and power.

13 This is evidenced in much of the literature considering corporate citizenship, corporate social responsibility and social auditing. See D Wheeler and M Sillanpaa, 1977, The Stakeholder Corporation; A Blueprint for Maximising Stakeholder Value, London: Pitman Publishing.

14 For further details on this debate refer to Editorial, The Company Director, The Australian Institute of Company Directors, Sydney, Dec 1999, and N Balasubrumanian “From Shareholders to Stakeholders”, Business Today, Jan 7, 2000.

15 “Special Report - Asia’s Leading Companies”, Far East Economic Review, Dec 30, 1999, & Jan 6, 2000.

16 Kahn, J, “The World’s Most Admired Companies”, Fortune, Oct 1999, pp 173-188.

17 The Hay Group survey used eight criteria — management quality, product/ service quality, innovation, talent management, long term investment value, community and environment, and asset management.

18 A ‘cash for comment’ scandal involving talkback radio announcers who were being paid to make favourable comments about specific products and the banking industry generally led to an inquiry into the media industry and its relationship with corporations. Four major banks were involved. It helped fuel the considerable cynicism about banks in Australia. Currently their ethical credibility is very low in Australia

19 In Australia in the early 1990’s, Coles Myer, the major retailer, was involved in such a boardroom scandal. It led to a major board overhaul, and a case against a former CEO who was convicted of fraudulently misappropriating company assets.

20 In Australia the Olympics planning process has been continually dogged by claims of preferential treatment and unethical practices. These range from deciding where the Olympics will be held to who should be in the torch carrying team. Many of these controversies relate back to conflicts of interest, either real or perceived.

Go to top