Crisis in PSBs - II: Ethics Must Be Made Integral to Governance

Crisis in PSBs - II: Ethics Must Be Made Integral to Governance

Moneylife Digital Team

30.7.2019

If we want to improve the governance process, we have to make ethics at the centre. Ethics and values should be the basis on which all corporates and more particularly, banks dealing with public resources shall function, as trustees. It is the attitude to life and the value system one has to cherish and live with.

Values are universal in character whereas their application changes. Business executives apply various ethical tests as a guide. There is variation among them on what test they apply on different occasions.  These tests, developed by Fr K Cyric include:

Corporate Executive Ethics Tests[i]

Ethics Test	Focus Question by the Executive
Relevant Information Test	“Have I obtained as much information as possible to make a decision?”
Involvement Test	“Have I involved all who have a right to have input?”
Test of Common Sense	“Does the action I am getting ready to take really make sense?”
Consequential Test	Have I anticipated and attempted to accommodate the consequences of this decision on any, who are affected by it?”
Mirror Test	“What does the man in the glass really say?”
Conventionalist Ethics Test	“Does this fall within the legal framework?”
Hedonistic Ethics Test	“Does it feel good to make such decision?”
Intuition Ethics Test	“Does my gut feeling approve of this decision?”
Revelation Ethics Test	“Does the decision cause greatest good for greatest number?”
Professional Ethics Test	“Will the decision be approved by the professional peers?”
Organizational Ethics Test	“Is the decision consistent with organizational goals?”
Test on one’s best self	“Is this action or decision I am getting ready to make, compatible with my concept of myself at my best?”
Fairness Test	“Would I consider this decision fair from the point of view of stakeholders?”
Enduring Values Test	“Does this decision uphold the enduring values?”
Universality Test	“Would I apply this decision to all similar situations, even to myself?”
Test of making public	“How do I feel if others knew I was doing this?”
Test of ventilation	“How would others view my decision?”
Test of Purified ideas	“Am I thinking that the decision I am making is right because some authority says, it is right?”

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[i] R. Durgadoss & B. Yerram Raju (2011), ‘A Saint in the Board Room’, Konark Publishers (P) Ltd., New Delhi

Ethical Decisions Vary with Executive Profiles

A survey conducted in 1992 in Malaysia on 252 executives from different countries revealed that there were differences in ethical decisions, which varied with job position, job specialization, ethnic group, age and salary. There were differences in attitude between the USA and Hong Kong personnel. 77% of USA personnel said that they would report a defective or unsafe product, compared to 50% of Hong Kong respondents.

Three women, Sherron Watkins (ENRON), Coleen Rowley (FBI agent on clues to September 11) and Cynthia Cooper (World Com), all whistle blowers were named as the persons of the year 2002 by Time magazine.

Cuoto, an employee of Bayer Corporation who knew how Bayer was making wrong claims on the USA government, fought a hard battle to have his testimony recorded and videotaped in August 2002, even though he was struggling with terminal illness. Bayer pleaded guilty and paid fines under False Claim Act.

Such a strong level of conviction and whistle blowing attitude is not prevalent in many countries, where people do not come forward, even when they see wrong-doing happening in front of their eyes; thus, the behavior of executives differ from region to region. Moneylife in India has been acting as a whistle blower in many breaches to the legitimate claims of various stakeholders of the banks and FIs. Much ahead of the unfolding of the IL&FS collapse, it has warned that this monolithic institution has made many compromises of the rules and regulations of SEBI and RBI, though it took quite some time for the regulators to take note of them.  It is therefore important that each bank board should approve a Whistle Blower Policy and prominently display it on its website.

Facing Ethical Dilemmas

In business, not only are executives faced with questions between right and wrong, but also between right and right. We have experienced situations in which the professional responsibilities unexpectedly come into conflict with deepest values. Executives are caught in a conflict between right and right. And no matter which option they choose, they feel like they have come up short.

Research on moral standards and business ethics is sparse. Martin Weber in 1998 found that 85.9% of managers claim drawing their moral standards at work from the expectations perceived in the work environment. Organizational norms embodied by the corporation’s culture are strong determinants of individual thought and behavior in the workplace, whereas corporate culture establishes and maintains norms.

When employees have no clear picture of the moral or ethical stance of the organization, they tend to operate at the lowest perceived level. Going by the increasing frauds, the alleged corruption in banks at various levels where they interface with the customers on loans and the way persons in top positions compromised the principles and statutes leads us to conclude that the ethics committees of bank boards, even where they are in place, have not functioned effectively.

A quote from a Raghuram, Rajan’s speech of May 2014, would be an apt conclusion of this paper: ‘The banking sector is on the cusp of revolutionary change. . .  Let us remember that what is at stake is not just the tremendous amount of national value that is represented by public sector banks but future financing and investment in our economy. A healthy public sector banking system should be distant from government influence but not from public purpose.’ https://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=893