ETHICAL ANALYSIS OF CORPORATE FRAUDS
As many prominent firms continue to be tarnished by a slew of scandals and frauds, business ethics is critical. Corporate fraud results in the loss of a company's market capitalization and brand image. They are disturbingly common in a variety of countries and sectors of the economy. Corporate fraud has a long and tumultuous history in India. For decades, ethics has been a grey area in Indian corporations. As competition has become stronger over time, organizational structures have been increasingly fragmented, resulting in a lack of internal control within organizations. As a result, the number of large and small corporate frauds has increased.
To combat this threat, early detection is becoming increasingly vital. According to a PWC survey, internal controls, internal and external audits, compliance programs, and a code of ethics have all been implemented to combat fraud. In India, corporate fraud has increased dramatically in the past few years, and firms, strangely, believe it is unavoidable. In India, the frequency and scope of corporate fraud have expanded drastically in the previous 15 years, with promoters/top management syphoning funds and defrauding lenders accounting for more than half of all cases.
FRAUD:
"Fraud" is defined in Section 17 of the Indian Contract Act as "any of the acts performed by a party to a contract, or with his connivance, or by his agents, with the intent to deceive another party thereto, or to encourage him to enter into a contract."
CIMA (Chartered Institute of Management Accountants) defines corporate fraud as "a sort of fraud that generally entails utilizing deception to make a personal gain for oneself dishonestly and/or cause a loss for others."
ANALYSIS OF THE REASONING BEHIND CORPORATE FRAUDS:
The following 5 key categories can be used to explain the reasons for corporate fraud:
- Personal Ethics
- Decision-Making Processes
- Unrealistic Performance Goals
- Organizational Culture
- Management
To begin with, business ethics are similar to personal ethics, which are universally recognized concepts of right and wrong that regulate individual behaviour. Our ethical code has a significant impact on how we conduct ourselves as businesspeople. As a result, emphasizing strong personal ethics is the first step toward establishing a strong sense of corporate ethics.
Many studies of unethical behaviour in the workplace have found that companies don't always know they're acting unethically because they don't think about whether the decision they've made is ethical or not. The problem is with the processes that do not take ethical considerations into account while making commercial decisions.
One of the primary causes of corporate fraud is that most company cultures have deemphasized business ethics, restricting all decisions to just financial considerations. Values and conventions define a company's culture, and culture has a significant impact on the ethics of business decision-making.
Unrealistic performance targets, as well as pressure from the parent business, the economy, and society at large, which can only be met by cutting corners or acting unethically, contribute to a major portion of corporate frauds (example in point: Satyam).
The corporate entity's leaders, on the other hand, are at the heart of everything. Leaders influence the culture of an organization by setting an example for others to follow. Other employees in the company often absorb and adapt the leadership's technique or behaviour, and if the leaders do not act ethically, there is a good probability that the company's employees will as well.
WHISTLEBLOWING AND BUSINESS ETHICS (LEGAL SOLUTION):
It is widely acknowledged that effective corporate governance is based on the ethical behaviour of the organization's top leadership. Whistleblower policies are a vital part of establishing a culture of ethics and values. In Clause 49 of the Listing Agreement, which deals with corporate governance rules, the Securities and Exchange Board of India (SEBI) specifies a whistleblower mechanism. Since 2003, it has been in effect, although it has not proven to be as useful as intended.
The Public Interest Disclosure Bill of 2010, which increased public awareness of whistleblowing actions and the necessity to protect whistleblowers, was passed 2010. However, more effort remains to be done in order to prevent or identify the disease. Corporate fraud is becoming more prevalent. According to research published by Singapore Press Holdings Limited, over half of Asia Pacific organizations are confident in their internal fraud controls. However, according to a Price Water house Coopers analysis, only 16% of economic crimes in the region are caught by risk-management systems, according to Coopers. The overwhelming majority of Economic crime is found by accident, tip-off, internal and external audit, according to the research.
LEADERSHIP AND ORGANIZATIONAL CULTURE:
Values that stress ethical behaviour must be openly articulated by businesses. Many businesses now do so by establishing a Code of Ethics, which is a public statement of the company's ethical values. The UN Universal Declaration of Human Rights, which is based on Kantian and rights-based moral theory, is heavily referenced in the Code of Ethics. Unilever, for example, does not allow inadequate working conditions, child labour, or bribes under any circumstances, according to its code of conduct. It also refers to treating employees with dignity, which is a statement based on Kantian Ethics. Firm leaders must infuse those words with meaning and value by emphasizing the importance of ethics repeatedly and then acting on it, i.e., stressing the importance of business ethics at every relevant opportunity and ensuring that key business decisions are not only sound economically but also ethically.
CONCLUSION: Corporate fraud is both a social and financial liability. The primary cause of this sad ailment is a failure of ethical values at both the individual and organizational levels. A deep social revolution that touches the core of human hearts, as well as strong leadership capable of instilling discipline at all levels, maybe the only way out of the quagmire. Incorporating cutting-edge technology to catch white-collar criminals is a necessity of the day. Organizations must cultivate and foster an ethical culture inside their organizations, in addition to undergoing periodic ethical audits.
http://www.aims-international.org/aims12/12A-CD/PDF/K318-final.pdf
https://studycorgi.com/corporate-fraud-as-an-ethical-and-leadership-dilemma/
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