“An ethical company doesn’t just follow the law — it follows a moral compass, doing what is right even when no one is watching.”
Dr. A.K. Rath, IAS (Retd.), is a distinguished civil servant and thought leader in governance, ethics, and public policy. With decades of experience at the highest levels of administration, Dr. Rath has served in several key positions in the Government of India, including Secretary to the Government in the Ministry of Human Resource Development and is currently Visiting Professor Indian Institute of Management Nagpur.
Dr. Rath is widely respected for his deep commitment to transparency, institutional integrity, and ethical governance — values that are central to both public administration and corporate leadership. His academic credentials, combined with his administrative acumen, give him a unique perspective on how ethical frameworks can be embedded in organisational cultures— in the public sector or corporate boardrooms. Excerpts from an interview on corporate governance in India, and importance of ethical decision-making in the private sector.
What does ethical leadership mean in today’s corporate environment, and how can it be effectively demonstrated by business leaders?
Corporate governance goes beyond mere legal compliance. In addition to following the provisions of law, the corporate leaders and executives are expected to be morally and ethical committed in their decision-making. It is imperative to follow the principles of fairness, transparency, and accountability in all corporate activities and operations.
In India, Companies are incorporated under the provisions of the Companies Act 2013. All companies must obey the provisions of this Act and the guidelines issued by the competent authorities, including SEBI as long as they operate. The companies, their management, and executives are liable for action if they don’t comply with the prescribed legal framework. Hence, well-governed companies must uphold the ethics and values in all transactions.
Ethics is subjective, law is objective. Ethics and law converge in certain situations; but different otherwise. Laws lay out the road-map for conducting the business as mandated by the law-making authorities. Laws are codified, universal, and enforceable. Violation of laws attracts punishment, whereas ethics is not enforceable. Ethics constitute norms of moral conduct with no legal penalty against violations. Nevertheless, ethics has a moral force and is expected to be observed by corporate leadership for building the image and credibility of the corporation. The executives must be ethical in their conduct, observing utmost honesty, integrity, and probity in all corporate transactions to instil confidence among all stakeholders, including the shareholders and customers who constitute the backbone of the company.
A company that is weak in ethical standards and moral values is prone to financial scams and scandals that can lead to its fast decline. The corporate leadership must ensure principled management practices, financial accuracy, and fair treatment to all. Adequate disclosures, informed and objective decision-making, commitment to social good and environmental conservation, earn respect from all stakeholders and ensure long term sustainability of the business enterprise.
How should companies balance profitability with ethical responsibilities, especially when operating in regions with lax regulations?
Some people may consider ethics and values as obstacles to profit. It is easy to argue that “business ethics” is an oxymoron, which means combining two opposite words. It is tempting to adopt unfair business practices in search of easy money by dodging tax or earning black money to fill the corporate coffers, particularly is a lax and weak enforcement system. But research presents a different picture. “As much as 25 percent of annual revenues are lost in India due to fraud”. (KPMG India Fraud Survey 2015). “Socially responsible companies outperform their less fastidious peers on the stock market” (The Economist, New York). As such, ethical business is a sound proposition that is good for the companies.
An ethical company attracts as well as retains talent, and builds trust among stakeholders. Ethical practices boost the brand value of the company and attract customers and suppliers, who like to do business the company. In the long run, the ethical company is seen as more reliable for business transactions than a company prone to malpractices and scams.
A company may try to abuse the lax regulations in the system. In the case of India, laws are not enforced strictly, which gives the impression of India being a soft state or heaven for wrong doers. India’s image is suffering as a safe investment destination. Ease of doing business presupposes an honest and transparent environment conducive to investment. Corruption perception Index, as assessed by Transparency International, reveals a falling rank of India in the global landscape. It is high time that India adopts a policy of zero tolerance to prevent corruption to improve its image and attract investment.
Corporate sector in India should also adopt ethical practices to build India as an attractive investment destination.
In your experience, what are some of the most common ethical dilemmas businesses face today, and how should they navigate them?
Ethical or moral dilemmas are situations in which a choice is to be made between two options, neither of which resolves the situation. The best classical example of an ethical dilemma is the case of Hamlet, the Prince of Denmark, in Shakespeare’s drama. The famous quote, “To be or not to be,” epitomizes the ethical dilemma faced by Hamlet.
In the complex business scenario today, executives face ethical dilemmas of various kinds. There are many factors behind such situations where the executive finds it difficult to decide the course of action. Generally, the problems arise out of factors like conflicts of interest, falsifying records for higher profits, accepting or giving bribes, selling sub-standard or spurious products, misuse of proprietary information for personal benefits, misuse of company assets, stealing client’s data and selling out, invading privacy of clients, sharing company’s secret information and misuse of company assets.
Sometimes, the employees may face dilemmas in carrying out unethical directives of the boss and work under pressures to achieve unrealistic goals. The employees are also forced to adopt unfair practices to fudge achievement of targets. Employees are often afraid of taking a stand against corrupt practices in the company for fear of reprisals. All such factors are detrimental to building up an ethical culture in the company.
How can organizations build a culture where ethical decision-making is encouraged and rewarded at every level?
Building an ethical culture must be a priority for organisations in India in the 21st century. Corporate strategy should promote honesty and integrity among the employees to build up a positive image for the business enterprise. The employees need to be trained on the benefits of ethics and values for the success of the business. The company should identify employees who are examples of ethical conduct and reward them with leadership roles to inspire other employees.
Organisations should incorporate moral values in the work culture. The following five-pronged strategy is necessary to build an ethical culture in any organisation:
Honesty and integrity must begin at the top levels of the organisation. Corporate leaders must set examples of ethical conduct for the employees to follow. The company’s value system must be codified and communicated to all employees with a clear directive to adhere to the Code of Ethics in all situations. Ethics must be discussed by top management regularly in employee meetings and interactions, which will show the seriousness of top management in building an ethical culture. Employees must have the liberty to speak up and point out cases of ethical violations whenever such violations occur. Top management should not impose grossly unrealistic targets on the employees as that would force employees to resort to unfair means or falsify records and accounts
With the rise of AI and data-driven decisions, what new ethical challenges are emerging, and how should businesses prepare for them?
The power of Science and Technology for peace, prosperity, and happiness of humanity is vast and endless. In the twenty first century, there has been phenomenal growth of AI, machine-learning, IOT along with big data, which are becoming unmanageable and sometimes beyond control by human beings. All these inventions may help mankind up to a point, but may start becoming detrimental to human civilisation. The machine is emerging smarter, perhaps more intelligent than man. Such consequences raise huge ethical issues.
The distortions in the Industrial Revolution 4 (IR 4) must be rectified in the 5th IR. Elon Musk, the CEO at Tesla, has admitted that “excessive automation” at his company was a mistake, tweeting that “Humans are underrated.” The Fifth Industrial Revolution must place human beings at the forefront of the production process. A focus during the 5th Industrial Revolution should be in placing trust in sound technology which focuses on a human-centric approach to manufacturing that is good of the world, not just for profit.
Important concepts in the Fifth Industrial Revolution should include “human-centeredness” and “sustainability.” Production processes around the world must humanise the machines and not end up creating Frankenstein-like machines which will overpower the man. That would be a threat to human civilisation.
The biggest ethical challenge for mankind in the 21st century is to create human human-centric workplace where man controls the Robot and can harness the power of AI for social good and civilisation with human values.
Can ethics and competitive advantage coexist, or does being ethical sometimes come at a business cost?
Yes, ethics and competitive advantage can coexist. Indeed, ethics is at the heart of sustainability. It is wrong to say that being ethical comes at a business cost. In fact, the contrary is true. Unethical practices are proving to be costly. Unethical Practices may lead to expensive court cases, bad publicity, damage to reputation, loss of brand value and fall in share price.
Research has shown that ethics builds trust and loyalty in the minds of the stakeholders of the company. It attracts talented employees to join the company and stay with it enjoying assurance and satisfaction. Customers prefer to do long-term business with a company that is honest and trustworthy. Society is a powerful force acting in favour of companies managed by ethical leadership.
Ethics builds the foundation of sustainable business by creating trust among the stakeholders of the company and promoting long-term business relations for the greater good of society.
