Corporate Governance needs a Moral Compass – Ethics in Indian Boardrooms!

Trupti Karkhanis

02 Apr 2021

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An important part of the role of directors in governing an organization is navigating complex ethical issues that impact the decision-making process in the boardroom. Yet, in order to portray a good corporate culture and a well-governed organization, tone at the top i.e. boardroom is the ultimate source of ethical tone that could make the stakeholders realize the worth of organizational culture and values that board possesses.

It is very well understood that ethical decisions taken or proposed to be taken by the Board must be completely aligned with the duty to act in the best interest of Company, keeping in view the long-term impact of such decisions on associated stakeholders. The board has been given a clear responsibility to establish the principles and values that embed ethical decision-making in the organization’s culture and then focus resources and incentives to consistently do the right thing. More than merely a responsibility, where on one hand, the post pandemic times have introduced a great shift in the mindset of directors in understanding the essence of ethics in their decision making and taking due care of stakeholder needs, on the other hand, new ethical challenges like adoption of technologies, acceleration of digital transformation, introduction of Artificial Intelligence and more have entered the boardroom. The boards’ mind is always occupied with multiple challenges. Devising appropriate strategies and plan of actions to face challenges and reduce their complexities, of course after due analysis of its impact on stakeholders is currently the moral responsibility of directors in addition to their routine tasks.

When it comes to ethical decision making, it is certainly a cumbersome process for the board. Highlighted below are few pointers that could help boards to view ethical issues from different lenses and arrive at a better decision:

a.     General Influences

Every board to analyze the situation and take appropriate decision, must first and foremost identify issues related to such situation that

may impact the Company as a stakeholder in the general society. The easiest way to reach conclusion is to assume that the Company

is a part of public and is getting impacted by that decision. Automatically then the board will start considering the following questions to

analyze the situation in a more holistic manner:

• Who are the relevant stakeholders whose interest is getting impacted by such decision?
• What are the interests that are getting affected?
• Is the board able to make the right choice considering the long-term impact of decisions on the stakeholders?
• Has the board studied the internal and external environments getting affected?
• After taking the decision, how does the board wish to position themselves in front of the stakeholders?

b.     Board’s collective culture and character

It is important that the character and culture of the Board represents ethical framework of the Company i.e. its values, purpose and

principles at large. Therefore, before arriving at any decision, it is extremely critical for the boards to align their thought process with

the culture and character of the Company so that nothing goes out of the way. For the same, following questions will help boards:

• Does the board have a culture that enables and supports ethical considerations, including calling on the organization’s ethical framework?
• Upto what extent is the decision of the board linked to the organization’s ethical framework?
• Has the board analyzed the impact of decision on the organizational culture?
• Where are the potential “ethical blind spots” on the board?

c.      Interpersonal relationships and reasoning

Every director brings an individual decision-making style in the boardroom based on different modes of reasoning. Personal

relationships between board members also affect decisions. To get on to the right decision, it is extremely crucial to list following

questions and try to seek their answers:

• How do group dynamics impact on board discussions?
• How does board member’s own default decision-making style fit in the expected boardroom culture?
• How well is the board prepared to handle and encourage diversity and difference in perspectives?
• Are all board members given a fair chance to put forth their viewpoint and reasoning of making such points in the boardroom?
• Does the board identify and question the assumptions on which recommendations are based?
• Are directors given the time and opportunity to offer critiques of their own arguments? 

d.     Individual Directors

This very fine lens of reaching the right decision helps in understanding that every individual director has his / her own ethical

character which certainly reflects in the decision-making style. It is important for all board members to self-realize about such inherent

motivations, biases and ethical reasoning that will help them give better outputs in the boardroom. Therefore, directors must ponder

upon the below mentioned questions be aware about their own self:

• Does the personal values and principles of individual directors align with well defined organizational values and principles?
• Is every board member aware about their own motivations and biases?
• Does every individual recognize their decision-making style?
• In case if the other board member does not have an aligned though process with that of yours, are you prepared for a potential debate over the same?

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