Building Ethical

Organizations
Scope

1. What does it mean

2. Different forms of Organization
3. Earlier Research
4. Essentials for Building Ethical Organization
5. Model For Building Ethical Organization
6. Toughest Challenge
Choice

Integrity should be the Litmus Test for Managerial

Character.
-Peter Drucker

Ethical Organization is the one that discharges its duties

towards its shareholders, obeys Laws of Land and is
‘Ethical’.

Often the choice for a manager is between right and right

or wrong and wrong…
Organizational Ethics

Organizational ethics are the principals and standards by

which businesses operate, according to Reference for
Business. They are best demonstrated through acts of
fairness, compassion, integrity, honor and responsibility.

Ethics concern an individual's moral judgement about

right and wrong. Decisions taken within an organization
may be made by individuals or groups, but whoever
makes them will be influenced by the culture of the
company.
Forms of Organizations

Sole Proprietorship
Partnership
Limited Companies
– Private
– Public
LLPs
Section 25 Companies
What is a Corporation?

Nexus of legal contracts

“Artificial Persona”
Articles of Association
“Going Concern”
Agency Theory

 Berle & Means (1932)

“Modern Corporation & Private Property”
 Divorce of Ownership (principals) &
Management (Agents)
 Mechanism to ensure that management acts
in the best interest of the owners
Tom Cannon’s Views

Society / State / Law gives to businesses

two special privileges
– Potential Immortality
– Limited Liability
_______________________________
In return, business needs to be socially
responsible & ethical
Code of Conduct

 A written document that outlines co’s values &

principles
 Publicly state to all stakeholders the way you intend to
do business
 Made mandatory by Surbanes-Oxley Act in US &
Clause 49 of Listing agreement in India

A code of ethics, also known as a code of conduct, clarifies

“an organization's mission, values, and principles, linking them
with standards of professional conduct.”
A code of conduct serves as a reference for managers and employees
when making decisions at work.
A Model Code

 Honesty & integrity

 Conflict of interest
 Compliance
 Confidentiality of information
 Insider trading
 Gifts & donations
 How to make it succeed

Must emanate from the top

Transparently communicated
Disciplinary action, if violated
Periodically reviewed
Whistle Blower Policy

Voluntary release of non- public

information, by a member of the
organisation, outside the normal channels
of communications of an illegal or immoral
act
 Model for Building Ethical Orgnization

Structure and Systems

Incentives, Rewards & Ethical Organizations
Punishments

Creation of
Supporting Culture
Defining Ethical Standards

Role of Leadership Monitoring for Compliance

Institutionalizing Values

Being Ethical, IIM Ahmedabad Business Books, Prof S. Manikutty

 Jack Welch –
Types of Managers

High
4 3
Performance

1 2
Low
Values High