Too many rules spoil the game

The subject of corporate ethics has attained global significance. It applies to all aspects of business conduct.

That said, a dynamic understanding of corporate ethics is called for as it reflects the norms of a given period.

Such norms evolve over time, causing behaviour that is acceptable at one point in time to be considered unacceptable at another. Global firms highlighted their ethical positions post 1980s, probably to distance themselves from business scandals of the time.

Management consultant Peter Drucker has suggested that standards of personal ethics should cover business situations too. These would include the rights and duties between a company and its employees, suppliers and customers, and a company’s fiduciary responsibility to its shareholders. Stakeholders have the right to expect a business to be ethical.

Sometimes it is held that business is not bound by ethics; merely abiding by the law is enough. Nobel Prize winning economist Milton Friedman was of the view that the duty of business was “to make as much money as possible while conforming to basic rules of the society, both as embodied in law and in ethical custom”.

A more balanced counter is that legal procedures are bureaucratic, rigid and obligatory, whereas ethical acts are a voluntary choice.

The foundation for ethical behaviour goes well beyond corporate culture and policies; it depends greatly upon an individual’s early moral training, the other institutions that affect an individual, the competitive business environment and society as a whole.

Ultimately, the burden lies equally on improving upon our own societal values and the culture of jugaad and impatience, and on providing and enforcing laws.

Studies show that countries can reach middle-income levels despite moderate corruption but further progress is entirely dependent on institutional integrity. India is at this stage now and therefore needs better governance in general, and focus on the issue of corruption in particular.

China and some other economies have been plagued by similar issues and have made efforts to improve. We must offer security of contract and property to uphold our position as an investment destination and a trustworthy trade partner.

Reforms can be strengthened if there is more visible evidence that governments are even-handed, attacking bribe-givers and bribe-takers with equal force.

A joint survey by Ficci and Ernst and Young titled ‘Bribery and Corruption: Ground Realities in India’ indicates that most organisations demonstrate an awareness of risks and have intensified anti-bribery and corruption compliance policies.

More often than not, corporations are compelled to undertake practices just to survive in a web of complex laws and regulations.

Nothing illegal per se would have been done within their own processes, but systemic procedural burdens are leveraged to obtain private gains.

There is large scope for graft where officials have the power to offer a government contract, issue a licence, or allocate a scarce resource. Such incidents create a trust deficit between industry and government, and vitiate the business sentiment and investment environment.

There is need for a conducive environment so that businesses can grow. Recent events in India highlight the pressing need for a more constructive engagement between industry and government.

We should press for a transparent regime, with little or no scope for the exercise of discretion --- a system where each side is strictly held to contract.

Amendments to India’s Companies Act on vigil mechanism are intended to foster greater transparency and accountability within India’s burgeoning corporate sector. However, it is important to introduce checks and balances that ensure vigil based on facts rather than speculation.

The business potential of the domestic market makes us a preferred investment destination.

However, in recent times, we have been hitting the headlines with scams, graft, endemic corruption and lack of enforcement.

These scare away investors who then begin re-evaluating their “being in India” strategy, and distort the functioning of a free market and create unfair competition.

FDI flows into India are a fraction of what India merits or requires. The regulatory framework needs to be further improved.

The Damodaran Committee has covered considerable ground and its recommendations should be acted upon in earnest.

Our judicial system also needs to become more efficient so that the implementation of contracts and dispute resolution become less onerous.

The writer is the president of the Federation of Indian Chambers of Commerce and Industry (FICCI)

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