Legal Framework and Methods used to implement an ethical code of conduct
The issue concerning corporate governance came to light with the report of the Kumar Mangalam Birla Committee (2000), which was set up by SEBI. This led to the inclusion of Clause 49 in the Listing Agreement, to promote good corporate governance. Furthermore, the Narayana Murthy Committee (2003), formed by SEBI laid down further recommendations on the issues of independent directors, audit committee’s responsibilities, risk management, director compensation, financial disclosures and codes of conduct. Further Clause 49 was amended in 2013 to bring it in line with Companies Act 2013. Clause 49, on the recommendation of the Naresh Chandra Committee, lays down the mechanism for an internal code of conduct for whistle blower mechanism to incorporate reporting of unethical or improper practices and the Audit Committee is relied upon to review the functioning of this mechanism4. Clause 49 of the Listing Agreement mandates all the listed companies to have a code of conduct in place. It is important to note that here, the code of conduct is about all Board members and Senior management of the company, not the employees for the company. This clause moves to lay importance on honestly and accountability to be maintained by way of a code of conduct, but only for senior personnel of a company.
In most cases, companies move to do trainings, workshops and courses to encourage better understanding of the code of conduct of a company, this would further help in better implementation of the same. The same has always been heavily relied upon by the companies to implement the aspects of code of conduct. These are the formal methods used to implement a code of conduct, however, a lot of managers have observed that informal methods engaged on a personal level with the employees have proved to give better results. In general, policy makers prefer laying down formal methods, however academicians advice a mixture of both.
A company needs to tailor a code of conduct implementation plan in a manner which gains maximum returns and understanding for the employees. Formal methods include training programs to familiarize employees with the code of conduct to be followed in the organization. Informal methods include a social dictate wherein a superior supervises the behavior of the subordinate and interacts with them to indicate what is right and what isn’t, in line with the values of the organization.
Most studies have concluded that employees majorly prefer informal methods of regulation of code of conduct, which includes examples set by a manager and the social norms followed. Further, teamwork style of implementation has also been preferred by the employees. Whereas, a large portion of the respondents also mentioned how formal training is also required for mandating a code of conduct. Thereby, a policy formulated keeping in mind both formal and informal methods of implementation can prove to give best results for implementation of an ethical code of conduct. In furtherance, an avenue for entertaining views and suggestions of the employees for better implementation of the code.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.
