Ba7402 Notes

BA7402 Business Ethics, Corporate social Resposibility

BA7402BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND GOVERNANCE

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BA7402 B USINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND GOVERNANCE

LTPC 3003

. UNIT I IN TR ODUC TI ON 9 Definition & nature Business ethics, Character istics, Ethical theor ies; Causes o f unethical behavior; Ethical abuses; Work ethics; Code o f conduct; Public good. UNIT II ETHICS THEOR Y AND BE YOND

9 Management of Ethics - Ethics analysis [ Hosmer model ]; Ethical dilemma; Ethics in practice-

ethics for managers; Role Competitiveness, and function of ethical managersative ethical behaviour of managers; Code o f ethics; or ganizational size,Compar profitability and ethics; Cost of ethics in Corporate ethics evaluation. Business and ecological / envi ronmental issues in the Indian context and case studies. UNIT III LEGA L AS PEC TS OF ETHICS

9 Political – legal environment; Provisions of the Indian constitution per taining to Business; Political setup – major character istics and their implications for business; Prominent features of MRTP & FERA. Social – cultur al envi ronment and their impact on business operations, Salient features of Indian culture and values. 30 UNIT IV ENVIR ON MEN TA L ETHICS 9 Economic Environment; Philosophy o f economic grow and its implications for business, Main features of Economic Planning with respect to business; Industr ial policy and framework of government contr act over Business; Role of chamber of commerce and con federation o f Indian Industr ies. UNIT V COR POR ATE SO CIAL R ES PONSI BILI T Y AND GOVERNANC E 9

Def inition-StrEvolutionor CSR; Theor pe rspectives; Corporate citizenship; Business pr actices; ategies for Need CSR; fChallenges and etical implementation; Evolution of cor porate gover nance; Gover nance practices and regulation; Str ucture and development of boards; Role of capital market and gover nment; Governance ratings; Futur e of gover nance- innovative practices; Case studies with lessons learnt. TOTA L: 45 PERIODS TEX TBOOKS 1. S.A. Sher lekar, Ethics in Management, Himalaya Publishing House, 2009. 2. W illiam B. Werther and David B. Chandler, Strategic corporate social responsibility, Sage Publications Inc., 2011 3. Rober t A.G. Monks and Nell Minow, Corpor ate gover nance, John W iley a nd Sons, 2011. R EFERENC ES 1. W.H. Shaw, Business Ethics, Cengage Lear ning, 2007. 2. Beeslor y, Michel and Evens, Co rporate Social Responsibility, Taylor a nd Francis, 1978. 3.Philip Kotler and Nancy Lee, Corporate social responsibility: doing the most good for company and your ca use, Wiley, 2005. 4.Subhabr ata Bobby Baner2007. jee, Corporate social responsibility: the good, the bad and the ugly, Edwar d Elgar Publishing, 5. Satheesh kumar, Corporate gover nance, Oxford University, Press, 2010. https://www.francisxavier.ac.in


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CON TEN TS S.N o.

To pics

UNIT I 1. INTR ODUC TI ON

Page N o.

6 - 26

1.1. Definition & nature of business ethics, 1.2. Character istics of business ethics 1.3. 1.4. 1.5. 1.6. 1.7.

Ethical theor ies Causes of unethical behavior Work ethics Code of conduct Public good.

UNIT II 2. ETHICS THEOR Y AND BE YOND

27 – 45

2.1. Management of Ethics – 2.2. Ethics analysis [ Hosmer model ] 2.3. Ethical dilemma 2.4. Ethics in practice 2.5. ethics for managers 2.6. Role and function o f ethical managers 2.7. Comparative ethical beha viour of managers 2.8. Code of ethics 2.9. Competitiveness 2.10. Organizational size 2.11. Profitability and ethics 2.12. Cost of ethics in Corporate ethics e valuation 2.13. Business and ecological / environmental issues in the Indian context and case studies. UNIT III 3 LEGAL ASPECTS OF ETHICS

46 - 58

3.1 Political – le gal environment 3.2 Provisions of the Indian co nstitution pertaining to Business 3.3 Political setup – major characteristics and their implications for business 3.4 Prominent features of MRTP & FER A 3.5 Social – cultural envi ronment and their impact on business operations 3.6 Salient features of Indian culture and values.



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE

UNIT IV 4 ENVIRONMEN TA L ETHICS

59 - 82

4.1 Economic Environment 4.2 Philosophy o f economic grow and its implications for business 4.3 Main features of Economic Planning with r espect to business; 4.4 Industrial policy a nd framework of government co ntr act over Business; 4.5 Role of chamber of co mmer ce and con federation o f Indian Industr ies. UNIT V 5 COR PORA TE S OCIA L R ES PONSI BILITY AND GOV ERNANC E

83 – 106

5.1 Definition- Evolution- Need for CSR 5.2 Theoretical perspectives 5.3 Corporate citizenship 5.4 Business practices 5.5 Strategies for CSR 5.6 Challenges and implementation 5.7 Evolution of corporate gover nance 5.8 Gover nance practices and regulation 5.9 Str ucture and development of boards 5.10 Role of capital market and gover nment 5.11 Gover nance ratings 5.12 Future of gover nance- innovative practices 5.13 Case studies with lessons lear nt. –

Que st ion Ba nk

107

Univers ity Que st ion pa pe r

110 -113


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UNIT – I - INTR ODU CTION OF BUSIN ESS ETHICS Unit St ructu re :

1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9

Objectives Introduction Definition & nature of business ethics, Characteristics of business ethics Ethical theor ies Causes of unethical beha vior Ethical abuses Work ethics Code of conduct Public good. Objec t ives

After reading this unit youshould be able to understand: 

The meaning of ethics and business ethics.

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The impor tance of business ethics.

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The var ious type s of Ethic s.

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Code o f conduct etc., Introduc tio n

Some years ago, one sociologist asked business people, "What does an ethic mea n to you?" Among their replies were the following: "Ethics has to do with what my feelings tell me is r ight or wrong." "Ethics has to do with my religious beliefs." "Being ethical is d oing what the law requir es." "Ethics consists of the standards of behavior our society accept s." "I don't know what the word means." 1.1 De finition & Nature of bus ine ss e thics: The ter m "ethics" is derived from t he Greek word "ethos" which refers to character or customs or accepted behaviors. The Oxford Dictionar y states ethics as "the moral principle that gover ns a https://www.francisxavier.ac.in


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person's behaviour or how an activit y is conducted ". The synonyms of ethic s as per Collins Thesaurus are - c onscience, moral code, morality, moral p hilosophy, moral values, pr inciples, r ules of conduct, standards. 6



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE Ethics refers to well- founded standards o f r ight and wrong that p rescr ibe what humans o ught to do, usually in ter ms of r ights, obligations, benefits to society, fair ness, or specific virtues.

Ethic s is a set of p r inciple s or standa rds o f human conduct that gove r n the behavio r o f individual s or o r ganization s. Using these ethical standa rds, a pe rson or a group of persons or an or ganization r egulate thei r behavior to distinguish bet ween what is r ight and what is wrong a s perceived b y othe rs. It is not a natu ral science but a c r eation o f the human mind. For this reason, it is not absolute and i s open to the in f luence of time, place andsituation. In bygone times, kings used to keep food testers who ate the food prepar ed for the king before it was offered to him. This was royal clinical r esear ch to f ind out if the food was p oisoned. The practice did not r aise eyebrows becau se the king was regarded a s the most impor tant person in the kingdom, and hi s life was more precious than that o f anyone e lse. It was the ethics of the t ime. — Ethics can be de fined as the discipline dealing with moral duties and obligation, and explaining what is good or not good for others and for us. — Ethics is the study o f mor al deci sions that are made by u s in the cou rse o f p erfor mance of our duties. — Ethics is the study o f c har acter istics o f morals and it al so deal s with the mor al cho ices that a re made inrelationship with others. — Ethics is conce r ned with truth and ju stice, conce r ning a variety o f aspects like the expectations of society, fair competition, public r elations, social responsibilities and corporate behavior. Busine ss Ethics

Business ethics is a form of applied ethics. In broad sense ethics in business is simply the application mor al or ethical nor ms to business. Business ethics refers to a 'code of conduct' which businessmen are expected to follow while dealing with othe rs. 'Code o f conduct ' is a set of principles and expectation s that a r e considered binding on any pe rson who is member of a particular gr oup. The alter native names for code of conductare 'code of ethics' or 'code of practice'. Business ethic s comp r ises the pr inciples and standa rds that guide behaviou r in the conduct of business. Businesses must balance their desire to maximize profits again st the needs of the stakeholders. Maintaining this balance often r equires tr adeoffs. To address these unique aspects of businesses, rules - articulated and implicit, are developed to guide the bu sinesses to earn prof its without har ming individual s or society a s a whole. The coverage of b usiness ethics is ver y wide as it deals with nor ms relating to a company and its employees, suppliers, customers and neighbors, its fiduciar y r esponsibility to its shareholders. It reflects the philosophy of business, one o f whose aims is to determine the fundamental p urposes of a compan y. Business ethics stands for the saneness or p ur ity of purpose that is upheld through ca refully designed actual pr actice s of business ente rpr ises. It is an embodiment o f conscience conce r n towards execution o f business processes in tune with the nobility of the p urpose.

SCOPE OF BUSINESS ETHICS https://www.francisxavier.ac.in


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Ethical p roblems and phenomena a r ise across all the functional a reas of companie s and at all levels within the company which are discussed belo w: 7



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Ethics in Compliance

Compliance is about obeying and adhering to r ules and author ity. The motivation for being compliant could be to do the r ight thing out of the fear of being caught rather than a de sire to be abiding by the law. An ethical climate in an o r ganization en sures that compliance with law is fuelled by a de sir e to abide by the la ws. Or ganizations that value high ethics comply with the laws not only in letter but go beyond what is stipulated or expected of them.

Ethics in Finance

The ethical issues in finance that companies and employees are con fronted with include:

— In accounting - window dressing, misleading financial analysis. — Related party transactions not at arm‘s length — Insider trading, secur ities fraud leading to manip ulation of the financial markets. — Executive co mpensation. —Br iber y, k ickbacks, over billing of expenses, facilitation payments. — Fake reimbursements Case of une thical practice

Mr. A, is a respect ed senior officer in the company, he enjoyed all the bene fits and perquisites from the co mpany including car with driver, medical facility, reimbursements of certain expenditures. Dur ing the , October , s. December vedR that his telephonic reimbursements wermonths e on a September r is ing note, fro m R 500 p.m it it was wentobser up to s. 2500 p.m. The matte r was r ep or ted and was investigated. It was found that Mr . A has made arrangeme nts with the Telephone Company for making a single bill for two te lephone numbers at his residence. Case of une thical practice A middle level executive,Mr. X, based in Delhi, opts for a 3 day training programme in Bangalore, which happens to be his hometown. He also applies leave for 3 day s immediately following the training which is granted to him.Mr. X reaches the venue of the training. On the first day, registers himself, takes the training kit, attends the training for two hours, befriends a dealing o fficer and arranges to have the presentations etc. sent to him. He does not attend the training programme thereafter. 1.2 Characterist ics of Busi ne ss Ethic s: (i) A D is cipline :

Business ethics are the guiding pr inciples of business function. It is the knowledge through which human be haviour is lear nt in a business situation. https://www.francisxavier.ac.in


(ii) Ancie nt Co nce pt:

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE Business ethics is an ancient concept. It has it or igin with the development of human c ivilization. (iii) Pers onal D ignity :

The pr inciples of et hics develop the personal d ignity. Many o f the problems of ethics ar ise due to not giving dignity to individual. All the business decisions should be aimed by giving dignity to the customers, employees, distr ibutors, shareholders and creditors, etc. otherwise they develop in immorality in the business conducts. (iv) R elate d to H uma n Aspec t:

Business ethics studies those activities, decisions and behaviors which are concer ned with human aspect. It is the function of the business ethics to notify those decisions to customers, owners of business, gover nment, society, competitors and others on good or bad, proper or improper conduct of business. (v) Study of Goals and Me ans:

Business ethics is the study o f goals and means for the rational selection of sacr ed objects and their fulf illment. It accepts the pr inciples of ―Pure goals inspire for pure means ‖ and ―Means justif ies the end‖. It is essential that goals and means should be based on morals. (vi) D iff erent f ro m Social R e sponsibility:

Social responsibility mainly relates to the policies and functions of an enterpr ise, wher eas business ethics to the conduct and behaviour of businessmen. But it is a fact that social responsibility of business and its policies is influenced b y the b usiness ethics. (vii) Greater tha n Law:

Although the law approves various social deci sions, but the law is not greater than et hics. Law is usually related to the minimum control of social cu stoms whereas ethics gives impor tance to individual and social welfare actions. 1.3 Ethics Theorie s:

Theories

Ethical theor ies are based on the previously explained ethical principles. They each em phasize different aspects of an ethical dilemma and lead to the most ethically correct resolution acco rding to the guidelines within the ethical theor y itself. People usually base their individual choice of ethical theor y upon their life exper iences. D eo ntology https://www.francisxavier.ac.in


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The deontological theor y states that people should adhere to their obligations and duties when analyzing an ethical dilemma. This means that a person will follow his or her obligations to another individual or society beca use upholding one's duty is what is co nsidered ethically correct (1,2). For 9



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE instance, a deontologist will always keep his promises to a fr iend and will follow the law. A person who follows this theor y will produce ver y consistent decisions since they will be based on the individual's set d uties. Deontology p rovides a basis for special dut ies and obligations to specific people, such as those within one's family. For example, an older brother may have an obligation to protect his little sister when they cross a busy road together. This theor y also praises those deontologists who exceed their duties and obligations, which is ca lled "supererogation" (1). For example, if a person hijacked a tr ain full of students and stated that one person would have to die in order for the rest to live, the person who volunteers to die is exceeding his or her duty to the other students and perfor ms an act o f supererogation. Although deontology contains man y positive attr ibutes, it also contains its fair number of flaws. One weakness of this theor y is that ther e is no rationale or logical basis for deciding an individual's duties. For instance, bu siness man may decide that it is his duty to al ways be on time to meetings. Although this appears to be a noble duty we do not know why the person cho se to make this his duty. Per haps the reason that he has to be at the meeting on time is that he al ways has to sit in the same chair. A similar nario unearths two other faults of deontology including the fact that sometimes a person's duties conflict and that deontology is not concer ned with the welfare of others. For instance, if the deontologist who must be on time to meetings is running late, how is he supposed to drive? Is the deontologist supposed to speed, breaking his duty to society to uphold the law, or is the deontologist supposed to arrive at his meeting late, breaking his duty to be on time? This nar io of conflicting obligations does not lead us to a clear ethically correct resolution nor does it protect the welfare of others from the deontologi st's decision. Since deontology is not based on the context of each situation, it does not provide any guidance when one enters a complex situation in which there are con flicting obligations. Utilitarianis m

The utilitar ian ethical theor y is founded on the ability to predict the consequences o f an action. To a utilitarian, the choice that yields the gr eatest bene fit to the most people is the choice that is ethically correct. O ne benefit of this ethical theor y is that the utilitar ian can compa re similar predicted solutions and use a point system to determine which choice is more beneficial for more people. This point system p rovides a logical and rationale ar gument for each deci sion and allows a person to use it on a case- by-case. There ar e two types of utilitar ianism, act utilitarianism and r ule utilitar ianism. Act utilitar ianism adheres exactly to the definition of utilitar ianism as descr ibed in the above section. In act utilitarianism, a person pe rfor ms the acts that benefit the most people, regardless of personal feelings or the societal con str aints such as laws. Rule utilitarianism, however, takes into account the law and is concer ned with fair ness. A r ule utilitar ian seek s to benefit the most people but th rough t he fairest and most just means available. Therefore, added benefits of r ule utilitar ianism are that it values justice and includes beneficence at the same time. https://www.francisxavier.ac.in


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As with all ethical theor ies, however, both act and r ule utilitar ianism contains numerous flaws. Inherent in both are the flaws associated with predicting the future. Although people can use their life experiences to attempt to predict outcomes, no human being can be certain that his predictions will be tr ue. This uncertainty can lead to unexpected results making the utilitar ian look unethical as 10



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE time passes because his choice did not benefit the most people as he predicted (1,2). For example, if a person lights a fire in a fireplace in order to warm his fr iends, and then the fire burns down the house because the soot in the chimney caught on fire, then the utilitar ian now seems to have chosen an unethical dec ision. The unexpected house fire is judged as unethical because it did not benefit his friends. Another assumption that a utilitarian must make is that he has the ability to compare the var ious types of consequences against each other on a similar scale. However, comparing mater ial gains such as money against intangible gains such as happiness is impossible since their qualities d iffer to such a lar ge extent. A third failing found in utilitar ianism is that it does not allow for the existence of supererogation or heroes. In other words, people are obligated to constantly b ehave so that the most people benefit regardless o f the danger associated with an act (1). For instance, a utilitar ian who sacr ifices her life to save a train full of people is actually fulf illing an obligation to society rather than pe rfor ming a selfless and laudable act. As explained above, act utilitarianism is solely concer ned with achieving the maximum good. According to this theor y an individual's r ights may be infringed upon in order to benefit a greater population. In other words, act utilitar ianism is not al ways concer ned with justice, beneficence or autonomy for an individual if oppressing the individual leads to the solution that benefits a major ity of people. Another source of instability within act utilitar ianism is apparent when a utilitar ian faces one set o f variable conditions and then suddenly exper iences a change in those var iables that causes her to change her or iginal deci sion. This means that an act utilita rian could be nice to you one moment and then dislike you the next moment because the var iables have changed, and you are no longer beneficial to the most people. Rule utilitar ianism also contain s a source of instability that inhibits its usef ulness. In r ule utilitarianism, there is the possibility of co nflicting rules (1). Let us r evisit the example of a person running late for his meeting. While a r ule utilitar ian who just happens to be a state gover nor may believe that it is ethically correct to arrive at important meetings on t ime because the members of the state gover nment will benefit from thi s decision, he may encounter conflicting ideas about what is ethically correct if he is r unning late. As a r ule utilitar ian, he believes that he should follow the law because this benefits an entire society, but at the same time, he believes that it is ethically correct to be on time for his meeting because it is a state gover nment meeting that also benefits the society. R ights

In the r ights ethical theor y the rights set for th by a society ar e protected and given the highest pr ior ity. Rights are considered to be ethically co rrect and valid since a lar ge or r uling population endorses them. Individuals may al so bestow r ights upon others if t hey ha ve the a bility and resources to do so. For example, a pe rson may say that her fr iend may borrow the car for the a fternoon. The friend who was given the ability to borrow the car now has a r ight to the car in the after noon. https://www.francisxavier.ac.in


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A major co mplication o f this theor y on a lar ger scale, however, is that one must decipher what the character istics of a right are in a society. The society has to deter mine what r ights it wants to uphold and give to its citizens. In order for a society to deter mine what rights it wants to enact, it must decide what the society's goals and ethical pr iorities a re. Therefore, in order for the r ights theor y to 11



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE be useful, it must be used in conjunction with another e thica l theor y that will consistently explain the goals of the society (1). For example in America people have the r ight to choose their religion because this right is upheld in the Constitution. One of the goals of the founding fathers' of Amer ica was to uphold this r ight to freedom o f r eligion. However, under Hitler's reign in Ger many, the Jews were persecuted for their religion because Hitler decided that Jews were detr imental to Ger many's future success. The Amer ican government upholds freedom o f religion while the Nazi gover nment did not uphold it and, instead, chose to eradicate the Jewish religion and those who practiced it. Casuist

The casuist ethical theor y is one that compa res a current ethical dilemma with exa mples of similar ethical dilemmas and their outcomes. This allows one to deter mine the sever ity of the situation and to create the best possible solution according to others' exper iences. One drawback to this ethical theor y is that there may not be a set of similar examples for a given ethical dilemma. Per haps that which is controversial and ethically questionable is new and unexpected. Along the same line of thinking, a casuistical theor y also assumes that the results o f the current ethical dilemma will be similar to results in the examples. This may not be necessar ily tr ue and would gr eatly hinder the effectiveness of applying this ethical theor y. Virtue

The virtue ethical theor y judges a person by his character rather tha n by an action that may deviate from his nor mal behavior. It takes the person's morals, reputation and motivation into account when rating an unusual and irr egular behavior that is considered unethical. For instance, if a person plagiar ized a passage that was later detected by a peer, the peer who knows the person well will understand the person's character and will be able to judge the friend. If the plagiar izer nor mally follows the r ules and has good standing amongst his colleagues, the peer who encounters the plagiar ized passage may be able to judge his fr iend more leniently. Per haps the researcher had a late night and simply for got to credit his or her source appropr iately. Conversely, a person who has a reputation for scientif ic misconduct is more likely to be judged harshly for plagiar izing because of his consistent past o f unethical be havior One weakness of this ethical theor y is that it does not take into consideration a pe rson's change in moral character. For example, a scientist who may have made mistakes in the past may honestly have the same late night stor y as the scientist in good standing. Neither of these scientists intentionally plagiar ized, but the act was still committed. 1.4 What A re the Ca uses of Une thical Be havior in the Workplace?

What is an Une thical Be havior?

The Civil Ser vice Commission o f Philippines defined an unethical behavior as any behavio r prohibited by law. In a dynamic business environment, a ―lar ge gray area ‖ exists that makes it https://www.francisxavier.ac.in


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difficult and unclear to distinguish what is ethical. An unethical behavior would therefore be defined as one that is not morally honorable or one that is prohibited by the law. Many behaviors will fall in the classification including corruption, mail and wire fraud, discr imination and harassment, insider trading, conflicts of interest, improper use of company assets, br iber y 12



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE and kickbacks, compliance procedures, ethical relations with others, disciplinar y action, fraud, illegal business donations, patent infringement and product liability (Barrcus & Near, 1991, 12). Unethical behaviors that stimulated interest in ethics include Water gate events, Lockheed Scandal, the 1972 United States presidential election, illegal business donation s and b r iber y o f foreign o fficials in order to induce business abroad (Carroll, 1978, 5). Today, the most common ones a re false communication, collusion, conflicts o f interest, gifts and kickback s, health services providers ‘ unfair practices, insider trading, discr imination and harassment, and embezzlement. Fals e Communicat io ns

False communication s fall into var ious categor ies. They include falsif ication of auditor‘s or controller‘ s report o r any for m o f manipulation that does not tell the whole tr uth. These include cheating on tax retur ns or inappropr iate depreciation schedule and wrong expen ses (Brennan Jr., Valtz, Shallenber ger & Stanton, 1961, 164). Feeding the public with wrong repor t of the organization‘ s business perfor mance to make the or ganization look good is another common practice. In 2001, Enron gave wrong infor mation about thei r loss because K en Lay, the CEO of Enron, was advised by some tr usted Enron executives to repor t only $1.2 b illion o f the $7 billion in losses because it was felt that the amount could be explained reasonably without doing more damage to the falling stock pr ice of the company (Collins, 2007, 3). Similar to this was the case of Manville Co rporation. The top management of the Corporation suppressed, for decades, evidence which proved that asbestos inhalation was killing their employees. Collusio n

Collusion, especially with competitors, to fix pr ices, is an un fair business practice today. This could be considered stealing from cu stomers. However, there are differences of opinion on whether or not pr ice fixing is stealing from cu stomers (Brennan Jr., Valtz, Shallenber ger & Stanton, 1961, 174). Gifts and Kickbacks

Some or ganizations do not allow their employees to receive gifts from clients during nor mal course of business. Those who do, generally provide guide lines on limitations as to the amount an employee can receive as gift. Sometimes a buyer may r equest for kickback s or enter tainment which, if not provided, may lead to the loss of the customer. An employee frequently receives pressure from the management to behave unethically or to obtain profitable business at any co st, which may include the use of a ny possible dir ty tr ick s. The employees who desire to be retained or promoted have no choice but to dance to the tune o fthe management. Thi s is because there were cases of those who refused to behave unethically the way management instr ucted and were fired or near ly fir ed (Brennan Jr., Valtz, Shallenber ger & Stanton, 1961, 165). Conflict o f Interest

Conflict of interest occurs when ones pr ivate interest interferes or appears to interfere in any way https://www.francisxavier.ac.in


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with the interest of the or ganization. According to Sliglitz, it can be argued that there is no conflict of interest because, based on Adam Smith‘s view, the individuals, when pursuing their own self- interest are actually pu rsuing the general interest of society (Sliglitz, 2003, 2). Some 13



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BA7402 examples of conflicts of interest are:

- diver ting from the or ganization for personal bene fit, a business opportunity, - using the or ganization‘s assets for personal be nefit, - accepting any valuable thing from t he or ganization‘s customers or suppliers, and - having a financial interest in an o r ganization‘s competitor. Une thical pract ices in the Health Care Sec tor

There are three common unethical p ractices in the Health Care Sector. The first is refusing to provide health car e ser vices to the patients who have no medical insurance. Some Health Centers do not admit patients who have no insurance unless they can p rovide evidence that they have the ability to pay for the health ser vice. The second unethical practice in the health care sector is over treating patient s to boost income. The third is doing sur ger y at sur gical cente rs instead of the hospital so that the doctors do not have to ―pull call at any hospital ‖ Ins i der Tradi ng

Insider trading is an unethical behavior which occurs when a person who has access to confidential infor mation uses or shares the infor mation for secur ities trading pu rposes or any other purpose except the conduct o f regular company bu siness. The confidential infor mation of the company are not to be used for achieving personal gain neither are they to be di sseminated directly or indirectly, to friends, family members and other outsiders who may in tur n trade on or misuse the infor mation. D is cri mi nation a nd Harass me nt

Discr imination involves not providing equal oppo rtunity in employment on mer it but on other basis such as race, sex, national or igin, age, religion, or any othe r basis not related to the job. Harassment is a derogator y comment or unwelcome sexual ad vances (FS Networks, Inc., 2004, Wro ng D oing

A lar ge number of people, including top management, are involved in wrong doing both in the public and in the pr ivate sectors. The managers of E.E. Hutton, for example, were found guilty of 2000 mail and wire fraud. Similarly, the super visors of a defense contractor were accused o f falsifying time cards (Geller man, 1986, 85).

Why People Be have Une thically https://www.francisxavier.ac.in


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Dedicated employees, who are usually honest, sometimes behave unethically because of four rationalizations: that no one will ever find out, that the behavior is not really illegal, that it is in the best interest of the or ganization, and that the or ganization will protect them. Although the 14



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE costs o f unethical be havior a re hard to measure, they can add, acco rding to research, more than 20% to the cost of doing bu siness. The costs will include low wages, unemployment, and pover ty. If top management wants to improve or ganizational perfor mance, they must stand fir m that ethical methods are the only ways business should be done. Cause s of Une thical Be haviors

The study that was commiss ioned by Amer ican Management Association (AMA) and which was conducted by the Human Resource Institute (HRI) using 1121 managers and Human Resource exper ts as participants, revealed that the leading cause of unethical corporate behavior is ―pressure to meet unr ealistic business objectives and deadlines. ‖ The study also showed that the second leading factor that causes unethical behavior is the desire to further one‘s career while the third leading factor is the desire to protect one ‘s livelihood (Schwartz, 2006, 1 ) and (MacDo, 2006, 1). Job pressure, according to the study, causes employees to engage in unethical behavio rs that include cutting co rners on quality c ontrol, cover ing up incidents and lying to customers. Ignorance is another major cause of unethical behaviors. The study o f (AMA) and (HRI), (MacDo, 2006, 1), revealed that the ignorance that the acts are unethical and not knowing the ser iousness of the consequences when caught, ar e causes of unethical be haviors. Competition for scarce resources, power or position can cause individuals to engage in unethical behaviors. Hosmer emphasized that an attempt to improve their corporate competitive positions made managers to take immoral actions (Hosmer, 1987, 439). Bazerman and Banaji felt that the cau se of the unethical behaviors in or ganizations is the pr esence of a ―few bad apples ‖ among or ganizational actors ( Bazer man & Banaji , 2004, 111). The pr imar y cause of unethical behaviors can be traced to lack of maintaining the type of co nsistent leadership that is necessar y for r unning an ethical o r ganization. This exposes the employees to opportunities that make them engage in unethical behaviors. R eco mme ndat ions

The National Defense University proposed three ethical responses to unethical behaviors in their ―Strategic Leadership and Decision Making: ‖ exit, voice and loyalty. With respect to ―exit ‖ it is recommended that if one cannot live with the behavior, or the behavior does not meet one‘s ethical standards, one should leave. The second response, ―voice, ‖ is to express d iscomfort with and opposition to the unethical behavior. The third response, ―loyalty,‖ supports the idea of remaining in the or ganization and tr ying to change it instead of leaving (National Defense University, 1986, 8). In order to restore and maintain a culture that upholds honest and ethical behaviors, the organizational leaders must verbally promote ethical envi ronment and relentless ly ―walk the talk,‖ by making ethical behavior part of the or ganization‘sagenda. They need to e stablis h codes o f business conduct to guide employees‘ behaviors. There should be the establishment o f annual business ethics training for the employees and a good whistle blowing mechanism. Since https://www.francisxavier.ac.in


Dept Of MBA

job pressure was identif ied as major ca use of unethical be havior, in order to reduce the pressure, communications and commitment by top management are recommended (McShulskis, 1997, 24). 15



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Conclusio n

Today, there is a tremendous loss of confidence in corporate conduct and there is an ur gent need to work towards restoring it. Although ethics education seem to pr oduce limited evidence o f changing behaviors, the commitment of management to monitor annual ethic s education for all employees will produce the de sired favorable results. There should be clear communication to the employees of what are honorable and expected behaviors in the or ganization. They must maintain and stand fir m on a clea r cut policy that ethical methods ar e the only way of doing business. People act unethically for a number of reasons. Unethical behavior is defined as behavior that contravenes r ules designed to maintain the fairness and morality of a situation. An example of unethical behavior is a representative of a company taking kickback s from a salesman for preferential treatment. Behavior like this is motivated by var ious things. Kinds of Une thical Be havior in Busine ss The ft

Theft at work comes in a var iety of for ms, and oftentimes employees do not view it as unethical behavior, believing no one gets hurt by the action. Employees take home office supplies, use business computers for personal tasks, pad expense accounts and abu se sick time or allotted personal days. Unethical behavior also includes having anot her e mplo yee punch a time ca rd, or not punc hing out for lunch hours or other nonapproved time off. Though these may seem like minor infractions, they eventually have an impact on the bottom line o f the company, which then hurts all em ployees. Theft also a ffects employee morale and is disheartening to those who choose to behave ethically. Ve ndor Relationshi ps

Businesses that buy from and sell products to other businesses are sometimes subject to unethical behavior. The practice of accepting gifts from a vendo r in exchange for increased purchasing is not only unethical, it may have legal r epercuss ions. The same can be said for offer ing customer kickbacks to incr ease his purchasing habits. Ethics policies often contain guidelines for giving or accepting gifts with vendors or other business associates, such as a cap on the value o f the gift. Other businesses str ictly forbid giving gifts or any othe r item with monetar y value. This is a safeguard to prevent any pe rception of unethical beha vior. Be nding the Rules

Bending the r ules in a business situation is often the result of a psychological stimulus. If an employee is asked to pe rfor m an unethical task b y a super visor or manager, he may do it because his allegiance to author ity is greater than his need to abide by the r ules. Tur ning the other way to avoid trouble for another employee is still unethical, even though the motivation may be empathetic. For https://www.francisxavier.ac.in


Dept Of MBA

example, knowing that a coworker is having iss ues o utside work justifies watching him leave ear ly each day without repor ting it. Withholding information t hat can c hange a n outcome al so falls under the umbrella of unethical behavior, even if the perpetrator believes he is doing what is in the best 16



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE interest o f the business. For example, if a poor e ar nings repor t is withheld until a fter a stock holder meeting. Environme ntal iss ues

Unethical behavior by companie s, such as releasing pollutants into the air, can a ffect cities, towns, waterways a nd masses of people. Though accidents can occu r, the release of har mful toxins into the environment due to lax safety standards, improper maintenance of equipment or other preventable reasons is unethical. If a business willingly continues production o f a product knowing inher ent environmental r isk s exist, it can certainly be categorized as unethical behavior. Wage s and Work ing Co ndi tio ns

Other unethical practices include not paying workers a fair wage, employing children under the legal working age and unsafe or unsanitar y working conditions. Any practices that are not in compliance with fair labor standards and federal working guidelines fall into this categor y. 1.5 Work e thics

Work ethic is a value based on hard work and diligence. It is also a belief in the moral bene fit o f work and its ability to e nhance char acter. Workers exhibiting a good work ethic in theor y would be selected for better positions, more responsibility and ultimately promotion. Workers who fail to exhibit a good work ethic may be regarded as failing to provide fair value for the wage the employer is paying them and should not be promoted or placed in positions of greater responsibility. Five Characte rist ics of a Good Work Ethic s R eliability

Reliability goes hand in hand with a good work ethic. If individuals with a good work ethic say they are going to attend a work function or arrive at a certain time, they do, as they value punctuality. Individuals with a strong work ethic often want to appear dependable, showing their employers that they are workers to whom they can tu r n. Because of this, they put e ffort into portraying -- and proving -- this dependability by being reliable and perfor ming co nsistently. D e dication

Those with a good work ethic are dedicated to their jobs and will do anything they can to ensur e that they perfor m well. O ften this dedication leads them to change jobs less frequently, as they become committed to the positions in which they work and are not eager to abandon these posts. They al so often put in extra hours beyond what is expected, making it easy for their employers to see that they are workers who go beyond the r est of the work for ce and truly dedicate themselves to their https://www.francisxavier.ac.in


positions.

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Pro duct ivity

Because they work at a con sistently fast pace, individual s with a good work ethic are often highly productive. They commonly get lar ge amounts of work done mor e quickly than others who lack their work ethic, as they don't quit until they've completed the tasks with which they were presented. This high level of productivity i s a lso due, at least in par t, to the fact that t hese individuals want to appear to be strong workers. The more productive they ar e, the more beneficial to the company they appear to those managing them. Coope ration

Cooperative work can be highly beneficial in the business environment, something that individuals with a strong work ethic know well. Because they recognize the usefulness of cooperative practices - such as teamwork -- they often put an exten sive amount of effort into working well with others. These individuals commonly respect their bosses enough to work with any individuals with whom they are paired in a productive and polite manner, even if they do not enjoy working with the individuals in question. Character

Those with a good work ethic often also possess generally strong character. This means they are self-disciplined, p ushing themselves to complete work task s instead of requir ing others to inter vene. They are also often ver y honest and trustworthy, as they view these traits as befitting the highquality employees they seek to become. To demonstr ate their strong cha racter, these workers embody these positive traits daily, likely distinguishing themselves from t he rest. 1.6 Co de o f co nduc t

Code o f conduct o r what is popula r ly known as Code o f Business Conduct contain s standards o f business conduct that must guide actions of the Board and senior management of the Co mpany. The Code may include thefollowing: (a) Co mpany Values. (b) Avoidance of conflict of interest. (c) Acc urate and timely disclosure in reports and documents that the company files before Gover nment agencies, as well as in Company's other co mmunications. (d) Compliance of applicable laws, r ules and regulations including Insider Trading Regulations. (e) Maintaining confidentiality of Co mpany affairs. (f) Non-competition with Company and maintaining fair dealings with the Company. (g) Standards of business conduct for Company's customers, communitie s, suppliers, https://www.francisxavier.ac.in


Dept Of MBA

shar eholders, competitors, employees. (h) Prohibition o f Directors and senior management from taking co rporate oppo rtunities for 18



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themselves or their families. (i) Review of the adequacy of the Code annually by the Board. (j) No author ity of waiver of the Code for anyone should be given. The Code of Cond uct for each Co mpany summar ises its philosophy o f doing bu siness. Although the exact details o f this code ar e a matter of discretion, the following principles have been found to occur in most of the companies:

— Use of company's assets; — Avoidance of actions involving conflict of interest; — Avoidance of compromising on co mmercial relationship; — Avoidance of unlawful agreements; — Avoidance of offer ing or receiving monetar y or other inducements; — Maintenance of confidentiality; — Collection of information from legitimate sources only. — Safety at workplace — Maintaining and Managing Records — Free and Fair competition — Disciplinar y action s To create a code o f ethic s, an or ganization mu st de f ine its most impo rtant guiding value s, for mulate behavio r al standa r ds to illustr ate the application o f those values to the roles and responsibilitie s of the pe rsons affected, r eview the exi sting procedur es for guidance and direction a s to how those values and standa rds are typically applied, and e stabli s h the systems and p r oc esses to en sure that the code i s implemented and effective. Codes of ethics are not easily created from boile rplate. Ideally, the development of a code will be a process in which Boards and senior management actively debate and decide core values, roles, responsibilities, expectations, and behavioral standards. Mo del Code of Business Conduct & Ethics

Commitment to ethical p rofess ional conduct i s a MUST for e ver y employee o f the company in all of its businesses/units/subsidiar ies. This code, con sisting o f imperative s formulated a s statement s of personal responsibility, identifies the elements of such a commitment. It contains many, but not all issues, employees are likely to face. The code is intended to ser ve as a basis for ethical deci sion- making in the conduct of professional work. It may also ser ve as a basis for judging the mer it of a for mal complaint pe rtaining to violation of professional ethical standards. It is understood that some words and ph rases in a code o f ethics and conduct document a re subject to var ying interpretation s and that any ethical p r inciple may con flict with othe r ethical principles in s peci fic situation s. Questions r elated to ethical con f licts can be st be answer ed by thought ful con side r ation o f fundamental p r inciples r ather than reliance on detailed r egulations. In case of conflict, the deci sion of the Board shall be final. Applicability https://www.francisxavier.ac.in


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This code i s applicable to the Boa rd Members and all employee s in and above O fficers level (hereinafte r collectivelyreferred to as "Employee(s)"). 19



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All employees must read and understand this code and ensur e to abide by it in their da y-to-day activities. Ge neralMoral Imperatives Co n t ri bute to society an d h u man well bei ng

This pr inciple concer ning the quality of life of all people, affir ms an obligation to p rotect fundamental human r ights and to respect the diversity of all cultures. We must attempt to ensure that the products of our effor ts will be used in socially responsible ways, will meet social needs and will avoid har mful effects to health and welfare of others. In addition to a safe social envi ronment, human well-being includes a safe natural envi ronment. Therefore, all of us who are accountable for the de sign, development, manu factur e and p romotion o f co mpany's pr oduct s, must be ale r t to, and make othe rs a war e of, any potential damage to the local o r global envi ronment. Avoid h ar m to oth er s

"Harm" means injur y or negative consequences, such as loss of proper ty, proper ty damage o r unwanted health and environmental impacts. This pr inciple prohibits use of men, material and technology in ways that r esult in har m to our consumers, employee s and the gener al public. Wellintended actions, including those that accompli sh ass igned duties, may lead to harm unexpectedly. In such an event, the r es po ns ible pe rs on or persons ar e obligated to undo o r mitigate the negative co nsequences as much a s possible. B e h on est an d t r ustwo r t h y

Honesty is an essential component of trust. Without trust an o r ganization cannot function effectively. All of us ar e expected not to make delibe rately false or deceptive claim s about ou r product s/systems, but instead provide full disclosure of all pe rtinent limitations and problems. B e f ai r an d take actio n n ot to di scr i mi n ate

The value s of equality, tole r ance, r es pec t for othe rs, and the p r inciple s of equal ju stice gove rn thi s imperative. Discr imination on the ba sis o f r ace, sex, religion, age, di sability, national origin, or ot her such factors is an explicit violation of this code.

Pr acticei ntegr ityi n ou r i n ter -per son al r elatio n shi ps

In our relationships with colleagues, we should treat them with respect and in good faith. In the same way we ourselves would expect them to t reat us. The pr inciple to be adopted to guard again st loose talk or in its worst for m-character assass ination is not to say anything behind one 's back and never utter something, which cannot be put inwriting. H on or conf i dentiality

The pr inciple of honesty e xtends to iss ues o f confidentiality of infor mation. The ethical concer n is to respect all obligations of confidentiality to all stakeholders unless dischar ged fr om such obligations by requirements of the law or other pr inciples o f this code.We therefore, will maintain the confide ntiality o f all mater ial non-public infor mation about company's business and affairs.

Profe ss ional Responsibilities  Live the Company's Values-each day. https://www.francisxavier.ac.in


We must live the Company's Values-each day. For quick reference our core values are: 

O wn er shi p

This is our company. We accept personal responsibility and accountability to meet 20


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business needs. 

Passi on f or wi nn i n g

We all are leaders in our area of responsibility with a deep commitment to deliver results. We are dete r mined to be t he best at doing what matters most. 

Passi on deveopmen t

People a r e our most important asset. We add value th rough r esult dr iven t raining and we encou rage & r eward excellence. 

Co nsu mer f ocu s

We have super ior understanding of consumer needs and develop products to fulf ill them better. 

Teamwor k

We work together o n the p r inciple of mutual tr ust and transparen cy in a boundar y less organization. We are intellectually honest in advocating proposa ls, including recognizing r isks. 

I nn ovation

Continuous innovation in products and process is the basis of our success. I ntegrity

We are committed to the achieveme nt of business success with integr ity. We ar e honest with con sume rs, busines s p ar tners and each other. St r i ve to ach ieve t h e h i g h est qu ality, eff ecti ven ess an d di gn i t y i n bot h t h e p r oce sses an d

pr odu ct s of pr of essi on al wor k

Excellence is per haps the most important obligation of a professional. We must str ive to achieve the highest quality, effectiveness and dignity in all that we are responsible for each da y. A cqu i r e an d mai n tai n pr of essi on al competen ce

Excellence depend s on i nd iv dual s who take res ponsib ility for a cqui r ing and m aintain ng i i profess ional competence. We must par ticipate in setting standards for appropr iate levels of competence, and str ive to achieve those standards. K n ow an d r espect exi sti n g l aw s

We must obey existing local, state, national, and inter national laws unless there is a compelling ethical basis not to do so. We should a lso obe y the policies, procedures, r ules and regulations o f the company. Violation of a law or regulation may be ethical when that law or r ule has inadequate moral basis or when it con f licts with another law judged to be more important. If one decides to violate a law or r ule because it is viewed as unethical, o r for any othe r rea son, one mu st f ully accept r es ponsibility for o ne's action s and for the con sequences. Accept an d pr ovide appr opr iate pr of essi on al r eview

Quality p rofess ional wor k depend s on profess ional r evie w ing and c r itiquing. Wheneve r ap propr iate, individual membe rs should seek and utilize pee r r eview as well a s p rovide c ritical https://www.francisxavier.ac.in


Dept Of MBA

review o f the work o f theirs. M an age per son n el an d r esour ces to enh an ce t h e equ ality of wo r ki n g li f e

Or ganizational leade rs ar e responsible for ensur ing that a conductive envi r onment i s created 21



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE for fello w employees to enable them deliver ing their best. We all, therefore, are responsible for ensur ing human dignity of all ou r colleague s, ensur ing their personal and p rofessional development and enhancing the qualit y of working life.

D eal with th e M edia tact f ull y

We should guard again st being misquoted and finding ou rselves comp romised. Our role a s individual s is always to be tactful and to avoid comment and to pass enquir ies to those who ar e author ized to r espond to them. B e u pr i ght an d avoid an y i n du cement s

Neither dir ectly no r through family and othe r connection s indi r ectly, should we solicit any personal fee, commiss ion or other for m of remuneration ar ising out of transactions involving Company. This includes gifts or othe r bene f its of significant value, which might be extended at times, to inf luence bu siness-es pecially dur ing bulk pu rchase o f commod ities for the or ganization or awarding a contr act to an agency etc. We a r e likely to be off er ed var ious gifts by vendors/parties/agencie s and people a ssociated with Company under different wraps or generally on personal celeb rations or functions or religious festivals etc. Our flow of communication is not rigid and people are free to express themselves at all levels. However, this informality should not be misunderstood. What it means is that though there is a free exchange of opinions in the process of arriving at a decision, but after the debate is over and a po licy consensus has been established, all are expected to adhere and abide by it, even when in certain instances we may not agree with it individually. In some cases policies act as a guide to action, in others they are designed to put a constraint on action. We all must lear n to recognise the difference and appreciate why we need to observe them. Co n du ct our selves i n a mann er t h at r ef lect s cr edit to t h e Compa n y

All of us are expected to conduct ou rselves, both on and o ff-duty, in a manner that r eflects cred it to the company. The sum total o f our personal attitude and behaviou r has a bear ing on the standing of Compan y and the way in which it is perceived within the or ganization and by t he public at large. B e accoun tableto ou r stake h olde r s

All of those whom we ser ve, be it our customers, without whom we will not be in business, our shareholders, who have an important stake in our b usiness and the employees, who have a vested it all hap akeholde rs. And we must ke ep in mind at al l t ime s that est we in ar emaking accountable to ou inter penr- stakeholde are our strs. "Inside infor mation" gained from the Company o r othe rwise must not be used for personal gains. We undertake to comply with the Company's Code of Conduct for Prevention of Insider Trading. I den ti f y, mitigate an d man age bu si n ess r i sk s

It is o ur responsibility to follow our institutionalized Company's Risk Management Framework to identify the business r isks that surround our function or area of operation and to assist in the company-wide process of managing such r isk s, so that Company may achieve it s wider business objective s. A ll of us shoul d continuously ask ourselves "What can go wrong and what am I doing to prevent itfrom going wrong." Pr otect Compan y' s properti es

We all are perceived as Tr ustees of Company's properties, funds and other assets. We owe fiduciar y https://www.francisxavier.ac.in


Dept Of MBA

duty to each stakeholder, as thei r agent, for protecting the Company 's assets. We, therefore, must safeguard and p rotect the Company 's assets against any misappropr iation, loss, damage, the ft, etc. 22



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE by putting in place proper internal control systems and procedures and effectively insur ing the same against any p robable fir e, bur glar y, fidelity and any other r isk. Compliance with the Code

As employees of Co mpany, we will upheld and promote the principles of this code The future of the or ganization depends on both technical and ethical excellence. Not only is it important for employees to adhere to the pr inciples expressed in this Code, each employee should encourage and suppor t adher ence by ot her employees. Treat violations of this code as inconsistent association with the organization

Adherence o f p rofess ionals to a code o f ethic s is lar gely a volunta r y matter. However , if any o f us do not follow this code by engaging in p roce ss misconduct, the matte r would be r eviewed by the Board and its deci s ion shall be f inal. The Company r eser ves the r ight to take app r opriate act ion again st th e gui lty employee. Millaneous

Continual updation of code This code i s subject to continuou s r evie w and updation in line with any change s in law, change s in company's philosophy, vision, business plans or ot herwise as may be deemed necessar y by the board. Credo

Most Companie s skip the impo r tant pa r t of developing the company 's cre do. A good credo gives the company a reason to exist; it develops the spir it of employees motivating them at all times. It is a statement of common value s that allo ws employee s to understand the impo r tance o f the stakeholde and ser consistent highrs standar d. vices provided. It is the force which makes them work together to achieve a Sam Walton, founder of Wal-Mart, established the "Three Basic Beliefs" as his company's credo. These are: 

Respectfor theIndividual



Service to our Customers



Strivefor Excellence

Johns on & Johns on

The over ar ching philo sophy that gui des business in Johnson & Johnson is their C redo te r med as 'O ur Credo', a deeply held set of values that has ser ved as the strategic and moral co mpass for generations of Johnson & Johnson leaders and employees. The Cr edo challenge s Johnson & Johnson to put the need s and well- being of the people we ser ve first. It also speak s to the responsibilities it has to its employees, to the communities in which the company lives and works and the wor ld community, and to its shar eholders. Johnson and Johnson believes that its C redo is a bluepr int for long-term growth and sustainability that's as relevant today as when it was wr itten. SAIL https://www.francisxavier.ac.in


Credo of SAIL talks about stakeholder respect, and et hical practices to be followed in the 23


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BA7402 company:

We build lasting relationships with customers b ased on t r ust and mutual bene fit. We uphold highest ethical standards in co nduct of our business. We create and nurture a culture that suppor ts flexibility, lear ning and is proactive to change. We char t a challenging career for employees with opportunities for advancement and rewards. We value the oppor tunity and r esponsibility to make a meaningful difference in people's lives. Mr. X sends a report o f the training as soon as he ret ur ns. His reporting officer summons him and asks him where he was dur ing the training. At first, Mr. X reacts in a defensive manner that he was at the training. The reporting officer then tells him that the or ganization in order to extend the training to other employees had got in touch with the p rogr amme or ganizers requesting them for a one to one meetingwith Mr . X already p resent and were infor med of the absence. When con fronted with this, Mr. X had to admit that he had not attended the rtaining programme. Ethics in Marketing

Marketing ethics is the area of applied ethics which deals with the moral pr inciples behind the operation and r egulation o f mar keting. The iss ue of marketing ethic s is not limited to the kind o f product s alone. It also deal s with ho w such p roduct s ar e delive r ed to the cu stomers. The ethical issues co nfronted in thi s a rea include:

— Pr icing: pr ice fixing, price discrimination, pr ice skimming. — Anti- competitive

p ractice s

like

manipulation

o f

supply,

exclu s ive

dealing

arr angement s, tying a rrangements etc.

— Misleading advertisements. — Contents of adve rtisements. — Use of decision — Children and marketing. — Surrogate adve r tising: Many liquo r firms carry adve r tisement s of product s like apple juice, soda water etc.

— Black markets, grey markets. Ethics in Production

This ar ea of busine ss ethic s deal s with the dutie s of a company to en sur e that pr oduct s and production p rocesses do not cause har m. Some o f the mor e acute dilemmas in this area ar ise out o f the fact that ther e is usually a deg ree of dange r in any product or production p rocess and it is difficult to defof ine a degr ee of per missibility, or the degr ee per of ceptions per miss ibility may depend changing state preventative technologies or changing social of accep table r isk. on the

— Defective, addictive and inherently dangerous products and https://www.francisxavier.ac.in


Dept Of MBA

—Ethical relations between the company and the environment include pollution, environmental ethics, carbon emiss ions trading

—

Ethical problems arising out of new technologies for eg. 24



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Genetically modified food — Product te sting ethics. The most systematic app roach to foster ing ethical be havio r is to build corporate cultu res that link ethical standards and business practices. Mor e and mor e companie s r ecog nize the link bet ween bu s ine ss ethic s and f inancial perfor mance. Companie s displaying a "clear commitment to ethical conduct " consistently outperfor m companies that do not display ethical conduct.

1.7 Public Good: 1. Attracting and re taining tale nt People as pire to join o r ganization s that have high ethical value s. Companie s are able to att r act

the best talent and an ethical company that i s dedicated to taking ca r e of its employee s will be rewarded with employee s being eq ually dedicated in taking ca re of the or ganization. The ethical climate matte r to the employees. Ethical or ganizations create an envi ronment that i s trustworthy, making employees willing to rely, take decis ions and act on the deci sions and action s of the co -employee s. In such a wor k envir onment, employee s can expect to be t reated with respect and consideration for their colleague s and super iors. It cultivates strong teamwork and productivity and support employee growth. Retaining talented people is as big a challenge as getting them in the first place. Work is a means to an end for them, not an end in itself. The relationship they have with their employer must be a mutual, win- win one, in which their loyalty should not be taken for granted. Talented people will invest their ener gy and talent only in organizations with values and beliefs that match their own. In order to achieve this match, managers need to build cultur es, compen sation and bene fits package s, and ca reer path s that ref lect and foster c er tain shared values and beliefs. 2. Investor Loyalty

Investors ar e conce r ned about ethic s, social responsibility and reputation o f the company in which they inve st. Investors ar e becoming mo r e and more aware that an ethical climate provide s a foundation

for e ff iciency, p r oductivity and p r of its. Relation s hip w ith any

stakeholde r, including inve sto rs, based on dependability, trust and commitment results in sustained loyalty. 3. Customer satisfaction

Custome r

satisf action

is

a

vital

facto r

in

succe ss ful

bu s iness

str ategy.

Repeat

pur cha ses/or ders and enduring relationship of mutual respect is essential for the success of the company. The name of a company should evoke tr ust and r espect among customers for enduring https://www.francisxavier.ac.in


Dept Of MBA

success. This is achieved by a company that adopt s ethical practices. When a company becau se o f its belie f in high ethics is perceived as such, any cr isis or mishaps along the way is tolerated by 25



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the customers as a mino r aberration. Such companie s are also guided by thei r et hics to sur vive a cr itical s ituation. Pr e ferr ed value s ar e identi f ied en s ur ing that o r ganizational behavio rs are aligned with those values. An or ganization with a str ong ethical envi r onment places its customers' interests as foremost. Ethical conduct towards customers builds a strong competitive position. It promotes a strong public image. 4. Regulators Bus in es s s hould act ethically not only to bene

f it it se lf and it s reputation but al so all

the ke y stakeholders. Regulato rs eye companie s functionin g ethically a s r es ponsible citizen s. The r egulato r need not always monito r the functioning o f the ethically sound company. The company ear ns profits and reputational gains if it acts within the confines of business ethics. To summar ize, companies that are responsive to employees' needs have lower tur nover in staff.

— Shareholde rs inve st thei r money into a company and expect a ce r tain level o f r etur n from that money in the for m of dividends and/or capital growth.

— Customers pay for goods, give their loyalty and enhance a company's reputation in retur n for goods or services that meet their needs.

— Employee s provide thei r time, skills and ene r gy in r etur n for salar y, bonus, car eer progr ess ion, learning. CONCLUSION

In making ethic s work in an or ganization it i s important that the r e is syner gy bet ween vi sion statement, mi ssion statement, core values, general business principles and code of ethics. A commitment by corporate management to follow an ethical code o f conduct con fers a var iety of benefits. An effective ethics program r equir es continual rei nfor cement o f strong value s. Or ganization s a r e challenged with how to make it s employees live and imbibe the o r ganization codes and values. To ensure the r ight ethical climate, a r ight combination of spirit and structure is required. Corporate Ethics is much needed to stress the importance o f sustainability, social development, stakeholders, consumer satisfaction a nd ser vice or ientation in place of profit or ientation. Ethics point out what is good and what is bad, so also what is r ight or wrong. It br ings to the notice of the business community the importance of honesty, sincer ity and fair ness which makes the m alert and socially con scious. This also expedite s a bette r relation bet ween business and the society. It reconciles conflicting interest of var ious sections of the society such as workers, shareholders, consumers, distributors, suppliers, co mpetitors and gover nment.



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE UNIT –II - ETHICS THEOR Y AND BE YOND Unit St ructu re :

2.1 Management of Ethics 2.2 Ethics analysis [ Hosmer model ] 2.3 Ethical dilemma 2.4 Ethics in practice 2.5 ethics for managers 2.6 Role and function o f ethical managers 2.7 Comparative ethical behaviou r of managers 2.8 Code of et hics 2.9 Competitiveness 2.10 Organizational size 2.11 Profitability and ethics 2.12Co st of ethics in Corporate ethics e valuation 2.13Business and ecological / environmental iss ues in the Indian context and case studies. 2.1

Ma nage me nt of Ethics

Ma nage me nt of Ethics Organizational ethics is the ethics of an or ganization, and it is how an or ganization responds to an internal or exter nal stimulus. Organizational ethics is interdependent with the or ganizational culture. Although, it is akin to both or ganizational behavior (O B) and industr ial and or ganizational psychology as well a s business ethics o n the micro and macro levels, or ganizational ethics is neither OB or I/O psychology, nor is it solely business ethics (which includes corporate gover nance and corporate ethics). Organizational ethics e xpress the values o f an or ganization to its employees and/or other entities irrespective of gover nmental and/or regulator y laws. The Foreign Corrupt Practices Act (FCPA) restr icts the United States business firms from engaging in br iber y and other illegal practices inter nationally. There are laws that have the same type of prohibition for European companies which create a disadvantage competitively for both E uropean and U.S. fir ms. Such laws ar e not a restr icting element to o r ganizations that have highly elevated ethical behavior as part o f their values. Or ganizations that lack ethical practices as a mandator y basis of their business str uctur e and corporate culture, have commonly been found to fail due to the absence of business ethics. Corporate downfalls would include, but are not limited to, the recent Enron and WorldCom scandals, are two pr imar y examples of unethical business practices concer ning questionable accounting transactions.

Employees, the community, and corresponding industr ies. Ethical business practices of organizations has resulted in a solid financial bottom- line. This has been seen th rough greater sales and increased revenue by companies retaining talented personnel and att racting newly skilled employees. More importantly, an ethical or ganization will have the ability to retain employees that are experienced and knowledgeable (generally referred to as human capital ). This human capital results in less employee tur nover, less training time for new employees, and gr eater output regarding ser vices (or production of goods). https://www.francisxavier.ac.in


2.2 Ethics Analys is (HosmerMo del)

Manager's Decision C hecklist 27


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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE 1. What are the best economic alter natives? 2. What are the legal alter natives? 3. Does a given decision result in greater benefits t han damages for society as a whole, not just for our or ganization as part of that society? 4. Is the decision self-ser ving, or would we be willing to have ever yone else take the same action when faced with the same circumstances? 5. We understand the need for social cooperation; will our decision increase or decrease the willingness of ot hers to contr ibute? 6. We recognize the importance of personal fr eedom; will our decision incr ease or decrease the liber y of others to act? 7. Lastly, we know that the universe is lar ge and infinite, while we are small and our lives are short; is our personal improvement that important, measured against the immensity of that other scale? The N ature of Ethics in Ma nage me nt "Right" and "proper" and "fair" are ethical ter ms. They express a judgment about ou r behavior towards other people that is felt to be just. We believe that there are right and wrong ways to behave towards others, proper and improper actions, fair and unfair decisions. These beliefs are our moral standards o f be havior. They reflect our sense o f obligation to other people, our sense that it is better to help rather than to harm ot her people. Moral problems are truly manager ial dilemmas. They represent a con flict between an o r ganization's economic perfor mance (measured by revenues, costs and profits) and its social perfor mance (stated in ter ms of ob ligations to persons both within and outside the or ganization). Characteristics of Moral Problems in Management 1. Most ethical decisions have extended consequences.

2. Most ethical decisions have multiple alter natives. 3. Most ethical decisions have mixed outcomes. 4. Most ethical decisions have uncertain consequences. 5. Most ethical decisions have personal implications. 2.3 Analysis of Ethical Problems in Management Economic Analysis (Pareto O ptimality) Ethics are not relevant in business, beyond the nor mal standards not to lie, cheat, or steal. All that is necessar y is to maintain pr ice-competitive markets and recognize the full costs of production in those pr ices, and then the market system will ensure that scarce resources are used to optimally satisf y consumer needs. A fir m that is optimally satisf ying consumer needs, to the limit of the available resources, is oper ating most efficiently and most profitably. Consequently, business managers should act to maximize profits, while following legal requi rements o f no conclusion a nd equal opportunity and adhering to personal standards of tr uthfulness and honesty. Profit Maximization leads automatically from the satisfaction o f individual consumer wants to the generation of maximum social benefits. Profit maximization is the only moral standard needed for management. If we look at the micrcompany oeconomic y asthe an society ethical -system o f beliefcustomers, , explainingsuppliers, our responsibility to others within andtheor within to employees, distr ibutors, and residents of the local area - then is simply falls apart because o f the unlikely assumptions about https://www.francisxavier.ac.in


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human natur e and human wor th. Legal Analys is The law can be de fined as a consistent set of universal r ules that are widely published, generally accepted, and usually enforced. These rules descr ibe the ways in which people are required to act in 28



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE their relationships with others within a society. They are requirements to act in a given way, not just expectations or suggestions or p etitions to act in that way. The law is a guide to manager ial decisions and actions, but it is not enough. And certainly, the absence of a law is not enough to excuse some of those decisions and actions. Ethical Analys is Philosophic analy sis, based on rational thought processes. The view is that a manager should always act in accordance with either a single pr inciple of behavior or a single statement of belief that is "right" and "proper" and "just" in and by itself. This is "moral reasoning": logically working from a first principle through to a deci sion on the duties we owe to others. Philosophy is the study o f thought and co nduct. Nor mative philosophy i s the study o f proper thought and conduct; that is, how we should behave. Morality refers to the standards of behavior by which people are judged, and particular ly to the standards of behavior by which people are judged in their relationships with others. Ethics, on the other hand, encompasses the system o f beliefs that supports a particular view of morality. The difference between morality and ethics is easy to remember if one speaks of moral standards of behavior and ethical systems of belief. Ethical R elativism - Are there objective universal pr inciples upon which one can con struct an ethical system o f belief that is applicable to all groups in all cultures at all times? Fortunately ther e is one pr inciple that does seem to exist across all groups, cultures, and times and that does for m par t of ever y ethical system; that is the belief that members of a group do bear some for m of r esponsibility for the well-being o f other members of that group. Five Ma jor Syst e ms with R eleva nce to Ma nagerial D ecis ions Managers should use ALL FIVE systems to think through the consequences of our actions on multiple dimensions. Eter nal Law - Moral standards are given in an Eter nal Law, which is revealed in Scr ipture or apparent in nature and then interpreted by religious leaders or humanist philosophers; the belief is that ever yone should act in accordance with the interpretation. (Too many interpretations.) Utilitarianis m: A Teleological Theor y - Moral standards ar e applied to the outcome of an action o r decision; the pr inciple is that ever yone should act to generate the greatest bene fits for the lar gest number of people. Differs from the eco nomic co ncept o f cost/benefit analysis in that the distr ibution of the costs and benefits has to be included as well. (Utilitarianism fails becau se we ca n probab ly all agr ee that the re are some actions that are simply wrong, despite great apparent net benefits for a huge majority.) Univers alis m: A Deontological Theor y - The reverse of teleological theor y. Moral standards are appliedto the intent of an action o r deci sion; the principle is that ever yone should act to ensure that similar decisions would be reached by others, given similar circumstances. (Immor al acts can be justified b y persons who are prone to self-deception or self- importance, and there is no scale to judge between "wills". D ist ribut ive Justice - Moral standards are based upon the pr imacy of a single value, which is justice. Ever yone should act to ensure a mor e equitable distr ibution of bene fits, for this promotes

individual whichdiis social r ation. upon acceptance of the propositionself-r that es anpect, equitable stressential ibution offor benef its coope ensures social(Dependent cooper ation.) Cont ri butive Li berty - Moral standards are based upon the pr imacy o f a single value, which is https://www.francisxavier.ac.in


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liber ty. Ever yone should act to ensure greater fr eedom o f choice, for this promotes market exchange, which is essential for social productivity. (Dependent upon the acceptance o f the proposition that a market system o f exchange ensur es social productivity.) 29



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2.3 ETHICA L DI LEMM A

Ma nagers are re sponsible for uphol di ng the e thical co de and hel pi ng others to do s o as well.

Outline the role ma nagers must play i n imple me nting inter nal e thical st a ndar ds and alig ning the organizat io n with ex ter nal st andar ds

Managers hold positions o f authority that make them accountable for the ethical conduct of those who repor t to them. 

Managers monitor the behavior of employees in accordance with the or ganization's expectations of appropr iate behavior, and they have a duty to respond quickly and appropr iately to minimize the impact of suspected ethical violations.  Managers may be responsible for creating and/o r implementing changes to the ethical codes or guidelines of an or ganization. Managers may also be subject to a particular code of profess ional ethics, depending on thei r  position and tr aining. Fiduciar y duty is an example that applies to some manager ial roles. 

The role of e thics Morality a nd e thics Morality refers to the social norms and values that guide both individuals and their interaction with their fellow human beings and communities, and with their environment. In all o f these types of inter action there are impor tant values at stake; r ules and nor ms that are to protect these values; duties implied in social roles and positions that can foster these values and further these rules; and human vir tues or capabilities that enable us to act accordingly. These moral factors are

usually interwoven with religious practices and social po wer str uctures. Ethics is a systematic and critical analysis of morality, of the moral factors that guide human conduct in a par ticular society or pr actice. As fisher ies represent an interaction between humans and the aquatic ecosystem, fisheries ethics deals with the values, r ules, duties and virtues of relevance to both human and ecosystem well- being, providing a c r itical nor mative analysis of the moral issues at stake in that sector of human act ivities. When actual moral values, r ules and duties ar e subjected to ethical analysis, their r elation to basic human interests shared by people, regardless o f their cultural setting, is particular ly impor tant. Moral values may change, and moral reasoning asks whether the practices that are traditionally and factually legitimated by religion, law or politics are indeed worthy o f recognition. Indeed, the development of ethics in the past centur y has been cha racter ized by a tendency to revalue and over throw the mor al co nventions that have guided the interaction between the sexes, betwee n human beings and animal s and between human being s and their environment. A more recent task of et hics is to resist those tendencies of globalization, marketization and technologization that erode both biodiversity and valuable aspects of cultural identity - and may even have effects that threaten human r ights. Although these tendencies are o ften p resented as value-neutral, they ca rr y with them hidden assumptions that are po tential sources of inequity and abuse. H uma n interests implies material well- being, as well as the conser vation of a productive ecosystem, and relates to https://www.francisxavier.ac.in


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fisher ies as a provision of food and livelihood. m, or human self-determination, relates to access to fishing resources, fishers' self-control and other life options related to fisher ies. 30



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE elates to the distr ibution of the b enefits of fishing and to the ownership of scarce resources. In attempting to identify which traditional and innovative practices are worthy o f recognition, a moral ar gument asks whether - and how - actual moral factors further the well- being o f human and non-human creatures. Moral reasoning always relates to the basic interests of humans and other sentient beings and to the value of the environment that sustains both human and non-human life. An ethical analysis can play an important part in identifying human and nonhuman interests and the value o f the ecosystem as a whole. It a lso asks how these values and interests may be threatened or undermined and how they may be furthered or protected. Ecosystem well- being is of cr ucial impor tance both in itself and for basic human inter ests and long -ter m social bene fits. In this document, the main focus is on the way in which fishing policies and practices affect the living conditions, interests and well- being o f fishers and fishing communities, as well a s the well- being o f the ecosystem. This is in keeping with sustainable development, the dominant concept of environmental ethics, enshr ined in the FAO concept of responsible fisher ies. Bas ic huma n i nterests A major aspect o f an ethical analy sis o f fisher ies must be to clar ify the human interests and social benefits that can be con sidered necessar y conditions for leading a decent human life. Basic human interests are related to the main task s that humans need to under take in life in order to satisf y their needs and lead their lives in coexistence with others. In line with class ical ethical thoug ht, these interests can be divided into three main categor ies: (i) Welfare: People need basic goods to survive and care for their o ffspr ing; (ii) Freedom: People seek to regulate their own affairs and realize their life plans in accordance with their own or culturally defined values; (iii) Justice: People need to find ways to share social be nefits and bu rdens and facilitate peaceful coexistence. In this context, moral analysis aims to show, for example, how the human interests in welfare, freedom and justice are r elevant and how they relate to social bene fits in the management o f fisher ies. These basic interests are intricately connected to the capabilities necessar y for leading a decent human life and, thus, to the vulnerabilities against which people must be protected. They constitute the moral values that moral reasoning aims to defend, e.g. by framing fundamental pr inciples that ser ve to guide our moral interaction and to protect basic moral interests. At the most general level, the r elated vulnerabilities against which people must be protected are: poverty, domination and injustice. 2.4 ETHICS IN PRA CTICE:

Although different ethical theor ies may have di ffer ent pr iority pr inciples and reasoning behind them, a consensus has been for ming about the main principles of b ioethics:[1] Human dignity, human r ights and justice, which r efers to the duty to promote universal respect  for the human person. In the context of fisher ies, this pr inciple relates, for example, to fishers' selfdetermination, access to fishing r esources and the r ight to food. It is best r epresented by a r ightsbased approach in ethics that emphasizes the protection of the personal domain of each indi vidual. It may require, however, the establishment of individual or community r ights, the exact nature of which will depend on local conditions. Beneficence, which concer ns human welfare, reducing the har ms and optimizing the bene fits o f  social practices. In the context of fisher ies, this pr inciple needs to be obser ved when the e ffects of https://www.francisxavier.ac.in


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policies and practices upon the livelihoods of fishing communities are evaluated. The pr inciple relates to working conditions (safety on boa rd), as well as food quality and safety. The issue of 31



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE genetically modified or ganisms should also be addressed in this context (FAO, 2001b). This pr inciple invites a n ethical approach to fisher ies that puts co nsequences to gener al welfare in focus. Cultural diversity, pluralism and tole rance, which relates to the need to take different value  systems into account within the limits of other moral pr inciples. The pressing mor al issues in fisheries take different shapes across different cultures, and it is an important moral demand that people themselves define how their interests are best ser ved in a particular cultur al setting. This pr inciple squares well with dialogical ethic s, which stresses the actual pa rticipation of those concer ned.  Solidar ity, equity and cooperation, which r efers to the importance of collabor ative action, shar ing scientific and other for ms of knowledge, and nondis cr imination. In the context of fisher ies, this pr inciple underpins the moral imperative to eradicate po ver ty in developing countr ies and ensure equity within fisher ies and between sectors. It also requires transparent po licies and stresses the need to reduce the gap between producers a nd consumers. This pr inciple is relevant at the level of policy as well as at the individual level of virtues and professional duties to further tr ust and tolerance among stakeholders.  Responsibility for the biosphere, which concer ns the inter connections of all life for ms and the protection of biodiversity. This pr inciple stresses that ecosystem well- be ing is a sine qua non condition of sustainable fisher ies providing for the needs of future gener ations, as well as for the lives of those who currently rely on the natu ral envi ronment and are responsible for its use. This pr inciple combines ethical reasoning ba sed on r ights and on consequences for human welfare, as well as on individual virtues and duties to respect the environment. 2.5 ETHICS FOR M ANAGERS:

In a broad constr uction of the ethical role of the manager, managing and leading can be said to be inherently ethics- laden tasks becau se ever y managerial decision affects either people o r the natural environment in some way—and those effects or impacts need to be taken into consideration as decisions are made. A narrower co nstruction of the ethical role o f the manager is that managers should serve only the interests of the shareholder ; that is, their sole ethical task is to meet the fiduciar y obligation to maximize shareholder wealth that is embedded in the law, predominantly that of the United States, although thi s point of view is increasingly accepted in other parts of the wor ld. Even in this narrow view, however, although not al ways r ecognized explicitly, ethics ar e at the core o f management pr actice. The ethical role of managers is broadened beyond fiduciar y r esponsibility when consideration is given to the multiple stakeholders who constitute the or ganization being managed and to nature, on which human civilization depends for its sur vival. Business decisions affect both stakeholders and nature; therefore, a logical conclusion is that those decisions have ethical content inherently and that manager ial decisions, behaviors, and actions are therefor e inherently ethical in nature. Whenever there are impacts due to a decision, behavior, or action that a leader or manager makes, there are ethical a spects to that decision or situation. While some skeptics claim that business ethics is an oxymor reality is that decisions actions consequences, that reality implies some degreeon, of the ethics, high or low. Thus,and ethics and have the manager ial roleand cannot realistically be teased apar t. https://www.francisxavier.ac.in


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Ethical Leadersh ip

The ethical role of managers, or what the business ethicist Linda Treviño and her collea gues call 32



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE ethical leadership, is a combination of being a moral pe rson and being a moral manager. Being a moral person rests on a combination of key t raits such as integr ity, honesty, and tr ustworthiness. Integr ity involves not only forthr ightness and honesty or tr uthfulness but al so consideration for the soundness of the whole entity that one manages as well as of the society in which the or ganization is located. Integr ity also means fir m adherence to a code, such as an ethical code o f conduct. Thus, being a moral person suggests that the individual has integr ity and can be t r usted. In addition t o these traits, being a m oral pe rson al so involves behaviors such as doing the right thing, concer n for people, being open, and standards of personal integrity. The essence o f ethics, of course, is doing the r ight thing, especially under difficult circumstances, and that involves being able to reason well about what the r ight thing to do actually is. To be able to reason well about a difficult ethical situation, a person needs to be open to lear ning from multiple sour ces about the situation while taking care not to har m people and actually attempting to treat people well in the decision- making process or when decisions are being implemented. To be able to make good decisions ethically, an individual needs to have thoughtfully developed his or her personal set of standards o r values, a personal code o f conduct or integr ity. Personal standards allow an individual to think through a decision with a clear rationale in mind. When decisions involving ethical consider ations need to be made, Treviño and her colleagues argue, the moral pe rson sticks to her or his core values, tr ies to be objective and fair, exhibits concer n for society and the welfar e of t hose in society, and follows ethical deci sion-making r ules. But being a moral person is not the only requirement for becoming a moral leader. Mor al leadership also includes being a moral manager, which involves recognition that the leader or manager ser ves as a role model for others in all his or her duties. It also means providing rewards and di scipline around the ethical and unethical decisions made by others, so that a clear message is sent about what behaviors are and are not acceptable in the or ganization or situation. In addition, moral management means communicating openly, explicitly, and frequently about e thics and values. One question that frequently a r ises in considering the ethics of management is whether individuals can be considered moral leaders or managers in their work lives if they act unethically in their personal lives or vice versa. Consider ing that an individual's character is reflected in all his or her decisions and actions, such an inconsistency would reflect badly on the individual as a whole. The branch o f ethical theor y called virtue ethics explores this relationship in depth. 2.6 R OLE & FUNC TI ONS OF ETHICA L M ANAGERS:

Managers in both lar ge and small enterpr ises face difficult ethical situations daily as they attempt to do their jobs. Since management decisions inherently involve ethical considerations, however, it is important that managers recognize the ethical elements that are embedded in thei r day-to-day job functions. They need to be able to reason through ethical deci sions, just as they would r eason through any manage r ial problem facing them. Many times, ethics- laden situations involve that arFur e clear r ight or wrmanager ong when by the ganization's or code oissfues conduct. therly mor e, most ialjudged decisions andmanager's actions aror e or legal, althoughvalues there are occasions when a certain decision would clearly go beyond legal boundar ies and be illegal. https://www.francisxavier.ac.in


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Assuming that the law itself is just, these decisions are not really ethically problematic in that what to do to make an ethically sound decision is quite clear. In these cases, making a decision to break the law or to do something that di sagrees with a code of conduct or set of values is clear ly unethical. It is not di fficult to know what the r ight thing to do is in such situations. 33



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Ethical decision- making problems ar ise for managers and leaders when d ecisions involve a moral con flict— that is, a moral situation in which a pe rson must choose between at least two equally bad choices, or when there are multiple ethical considerations, some of which conflict with each other. In such circumstances, which are common in bu siness, the manager has to be able to think through the consequences and ethical implications of the decision thoroughly and mindfully so that the best possible decision can be made given the constraints, implications, and ethical considerations. If the decision itself cannot be reframed as a situation in which all parties can benefit— that is, a win-win situation— then the manager needs a deci sion-making framework to help. To help managers think through ethical mo ral con flicts, the business ethicists Gerald Cavanagh and his colleagues have developed a decision- making framework that relies on the ideas of philosophers and ethicists and applies those ideas to business decisions. This approach co mbines four methods of ethical reasoning r ights and duties, utilitar ianism, justice, and the ethics of care— into a framework that helps managers and leaders step through a logica l thinking p rocess to sort out the ethical dimensions o f a d ifficult and inherently con flictual situation. R ights and Du t ies

Rights are justif iable claims or entitlements, frequently ba sed on the law or other author itative documents, such as treaties and inter national declarations that allow people to pursue their own interests. Rights can be vie wed as the positive things that people a re allowed to do, but they come with an obverse side as well, in the form o f duties or obligations that go along with the r ights. For example, in democracies, one r ight is the ability to vote. Along with that r ight comes the duty to exercise that r ight by actually voting. In many countr ies, employee s are granted certain r ights, such as the r ight to safe working conditions or a minimum wage, and employers have corresponding duties to ensur e that these conditions ar e met. These r ights are based on laws and regulations. Other r ights are based on moral grounds and are frequently wr itten into inter national treaties, such as the United Nations Declaration o f Human Rights and the Natural Environment. Such r ights include respect for human dignity, which enables communities, or ganizations, and societies to thr ive. In using Cavanagh's ethical deci sion- making framework to assess a moral con flict, one question that needs to be asked involves r ights and duties: Would this decision respect t he r ights and duties of the individuals involved? Ut ilitaria nis m

A second way of reasoning through a moral con flict involves using utilitar ian analysis, or assessment of the greatest good of the greatest number. This type of cost-benefit analysis is a ver y common management approach, but a s the framework suggests, it may not be a sufficient ba sis by itself to make an et hical deci sion in a moral con flict. In a utilitar ian analysis, the har ms and benefits of a decision to the different parties that would be a ffected by the decision are evaluated, with some sort of weight given to the var ious har ms and benefits that assesses their degr ee. Most utilitarian analysis focuses on the good of the group or collective as a whole over that of any given individual, https://www.francisxavier.ac.in


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unless the most serious har m is to the individual— for example, if the decision would be fatal to the individual. Putting the collective, which can include an or ganization's inter est, over that o f the individual avoids the problem of self- interest. A second question in the ethical decision- making framework for managers, then, would be as follows: Who will be affected by the deci sion and to 34



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what extent will the var ious par ties a ffected by this decision be harmed or benefited? Justice

Pr inciples of j ustice are a third way for managers to reason about ethical deci sions. Just decisions require fair ness, equity, and impar tiality on the part o f decision makers, par ticular ly with respect to the ultimate burdens and benefits that will accr ue from the decision. The philosopher John Ra wls has d iscussed the justice cr iter ion in ter ms o f a concept o f what he ter ms distr ibutive justice, which invites decision makers to make a decision behind a veil o f ignorance that suggests that they do not know where in the system they will be after the decision is made. This veil-of- ignorance consideration forces managers to take into account the fair ness of the decision to any party that will be affected. Similar ly, the philosopher Immanuel K ant suggests that justice can be taken into account using the concept of ―categor ical imperative ‖; that is, one should only act a given way or make a given decision if the decision maker can agree that it would be all r ight if any pe rson in a similar situation acted that way. Alter natively, one can think of the categor ical imperative as asking the decision maker whether t his action or decision would be all r ight if it became a universal la w. In consider ing justice, then, deci sion makers have to ask, How does this decision square with the canons o f justice? Ethic of Care

In addition to assessing a moral con flict from the perspective discussed above, ethical managers and leaders a lso need to look at the impact of a deci sion o n the network of relationships that will be affected. This pers pective is called the ethic o f care. Based on feminist wr itings, the ethic of care proposes that one 's moral responsibilities var y according to how closely one is linked to other people. That is, if a person is ver yclo se to another person, say, a family member, there will be more moral responsibility for ensur ing the well- being of the family member than the well- being of an unrelated pe rson. In an o r ganizational context, using an ethic of ca re, mor e consideration might be given to the impact of a decision on long-term employees, who are more tightly connected to the organization and its goals, than to its impact on newly hired e mployees. 2.7 COMPAR ATIV E ETHICA L BEHAVIO UR OF M ANAGERS:

Managers, according to Gerald Cavanagh, can u se a combination of ways of moral reasoning based on r ights, justice, utility, and care when they face a moral con flict and when these different ways of reasoning con flict, as they o ften do. To decide effectively, managers need to take several factors into consideration as they weigh deci sions based on the p r inciples of r ights, justice, utility, or care. For example, they can con sider whether there are overriding factors in the decision. If a decision might result in the death of a person made one way and the unemployment of a group of persons made another way, then the overriding factor might be the life-death decision. There are, however, no clear r ules for making such decisions, and the judgment of the decision maker is needed to deter mine which of the relevant factors should carr y the most weight. Another consider ation is whether one cr iter ion is more important in a par ticular situation than othe rs. For example, if the r ights of a whole group of people a re to be overrun by a deci sion, that factor might override the fact that one or two individuals would not be treated fair ly when the https://www.francisxavier.ac.in


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decision is made. Similar ly, a consideration might be whether there are incapacitating factors (such as force or violence) that would come into play in making the decision— for instance, to stop a



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE str ike, which might violate a person's r ight to str ike but forestall the destr uction and injur y if the str ike tur ned violent. The decision can be con sidered ethical when there is no intent to make an unethical decision, when a bad effect is simply a by- product, and when the good outcome is sufficiently good that it outweighs the bad. Other decision- making aids for managers include thinking about whether they would want their decision made public— for example, to appear on the front page o f a newspaper or o n television. If they are uncomfortable with such transparency, it would be well to apply an ethical analy sis to the decision. For managers operating in different count r ies around the wor ld, it is useful to remember that virtually ever y nation of the wor ld has at its core some version of the Golden Rule: Do unto others as you would have others do unto you. By keeping some o f these pr inciples in mind, managers can avoid the problem o f relativism in their decision making. Relativism suggests that a decision is all r ight if it is appar ently culturally acceptable, irrespective of the consequences or har ms. Moral D evelo pme nt

The ethical decision making framework for managers relies on reasoning using the pr inciples of r ights, justice, utility, and care. It presupposes that manager ial decision makers have the capacity to reason from pr inciples in making an ethical decision. Unfortunately, not ever yone reasons from moral pr inciples in making ethical decisions. A good deal of research on individual development suggests that people develop their cognitive reasoning skills over time and to different levels, generally ter med preconvention, conventional, and post conventional. Research on moral reasoning in men by Lawrence Kohlber g and on women by Ca rol Gilligan indicates that mor al reasoning passes through similar stages, lagging behind cognitive development, which must come first. At the pr econvention stage of development, the rationale for ethical deci sion making is rewards and punishments or self- interest. Most managers have passed beyond the preconvention stage to the conventional stage of development. In the ear ly stages of conventional reasoning, individuals use their peer group as a reference point for deter mining what is r ight and wrong. At the later stages of conventional r easoning, individuals focus on the r ules, regulations, and nor ms o f society as bases for their ethical deci sions. Only at the post conventional stages o f development, which only about 20 % of adults reach, does reasoning from principles e mer ge. Reasoning from moral pr inciples is a relatively high- level or po st conventional skill. The fact that only about 20% of adults r each the post conventional level of development highlights the need for ethical leaders and managers who are able to reason not just from society's or their peer group's nor ms but also from co re pr inciples such as those discussed above so that decisions can be made with multiple stakeholders' needs and interests in mind. Some of the needed pr inciples are laid out in or ganizational or more generalized codes of conduct, which can al so help managers in their decision- making roles. 2.8 COD ES OF ETHICS: https://www.francisxavier.ac.in


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Most lar ge corporations today have developed codes of conduct inter nally, which ar e intended to provide guidance for managers confronting ethical situations and moral con flicts. Such codes of conduct need to be supplemented by inter nal systems, such as reward and infor mation systems, 36



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE promotion and hir ing practices, recognition syste ms, and or ganizational culture and communication systems, that suppor t their implementation. Strong top management commitment to and communication about values and ethical conduct i s a core element of ethical leadership from the top of the or ganization. Ethical leadership is essential to managers and employees at all levels of the enterpr ise when they ar e faced with difficult ethical decisions and moral con flicts. Codes of conduct alone can seldom be sufficient for managers to come to good decisions unless they are suppor ted by these other aspects of the or ganization. In addition t o company or or ganizational codes of conduct, many of which have been developed inter nally by companies to articulate their own value systems, a number of codes and principles have emer ged globally to help managers think about their ethical r esponsibilities. Some o f these are quite spar e and lay out fundamental pr inciples, based on globally agreed on document s signed by many nations, such as the United Nations Global Co mpact with its 10 core pr inciples or the OECD Guidelines for Multinational Enterpr ises. Others are more elaborate and have been developed by business groups or multi sector alliances to help guide business decision making. Again, as with inter nal codes of conduct, these pr inciples are helpful guides but cannot add ress every unique situation. As a result, codes need to be suppor ted by the or ganization's manager ial decision making, its culture, its reward systems, and the communication that exists about ethical practices within the firm. Ma nagers and Eth ics in Organizat io ns

Many managers find it difficult to speak about and sometimes even recognize ethical issues, a difficulty that the management theor ists James Waters and Freder ick Bird called the moral muteness of managers. Recognizing that management is an inherently ethical task and that the practices of the company embody a set of values or ethics, the management scholar Jeanne Liedtka suggests that ther e does exist a set of ethically based management practices that can help managers lead their companies effectively and so that they a re competitive. By examining numerous organizational improvement initiatives, she deter mined that they shar ed common practices and common sets of values that coul d help an o r ganization achieve its goals most effectively. The ethics of effective and competitive business practices identified by Jeanne Liedtka include creating a shared sense of meaning, vision, and purpose that connect the employees to the organization and are underpinned by valuing the community without subordinating the individual and seeing the community's purpose as flowing from the individuals involved. A second character istic that ethical leadership can p rovide is developing in employees a systems perspective, which is linked to the post conventional stages of cognitive and mor al reasoning discussed above, so that a val ue of ser ving other community members and related entities in the broader ecosystem emer ges. Another theme is that o f emphasizing business processes rather than hierar chy and str ucture, which is based on valuing work itself intrinsically and focusing on both end s and means in decisionprovides making, not ju ends. Localized decision making, particular ly around wor k processes, a value ofstresthe ponsibility for individual actions, and using infor mation within the system is supported by values of t r uth telling, integr ity, and honesty, the characteristics of moral https://www.francisxavier.ac.in


persons, as well as transparency abo ut and access to needed infor mation.

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE Organizations with these types of ethically based approaches also focus on development for both employees and the o r ganization as a whole, which means valuing individuals as ends, not as means to ends (a ke y ethical pr inciple), and focusing on lear ning and growth. Such approaches also encourage dialogue and related freedom o f expression with a commitment to seek common ground when there are differences of opinion. Ethical leaders can al so foster the capacity of others and themselves to take multiple pers pectives simultaneously— in other words, to move toward post conventional levels of reasoning so that they can understand other points of vie w and make better decisions. The final element that managers can think about in their roles as ethical leaders is creating a sense of commitment and ownership among o r ganizational members by empha sizing promise keeping, instilling a sense of urgency about the tasks of the enterprise, and encour aging engagement rather than detachment a mong o r ganizational members. 2.9 COMPETI TIV EN ESS :

Any or ganization, public or pr ivate, lar ge or small, faces inter nal and exte r nal uncertainties that a ffect its ability to achieve its objectives. The effect o f uncer tainty on an or ganization's objectives is "risk." Risk management, commonly kno wn in the bu siness community a s ente rpr ise r isk management (ER M), can p rovide for the str uctured and explicit consideration o f all for ms of uncertainty in making any decision. The overar ching pr inciple of ERM is that it must produce value for the or ganization. It is the cultu r e, processes and str uctur es that is dir ected towards taking advantage of po tential opportunities while managing potential adverse effects. Corporations face the task of managing their r isk exposur es while remaining profitable and competitive at the same time. Managing r isk s is not a new challenge, yet it may get ove rlooked due to sever al reasons. The challenge s and demand s of contempo r ar y mar ket s, custome r expectation s, r egulato r y autho r ities, employees and shareholders present o r ganizations with an interesting array of contradictions. Risk management can enhance the en vir onment for identifying and capitalizing on oppo rtunities to create value and p r otect e stabli s hed value. E ff icient manage rs who unde r take r isk , use a var iety o f r isk management solutions that t rannds through t raditional insurance r isk transf er products. The rapidly changing global economy has created an expanding a rray o f r isks to be managed to ensure the viability and success o f an enterpr ise. Histor ically, the p ractice of r isk management has been co nfined to the traditionally insurable r isks such as loss from fir e, earthquakes, wind, flood, legal liability and other relatively str aightforward potential cau ses o f loss. Solution s involving the purchase of insur ance were empha sized, with focus on type o f cove rage, adequacy o f limits and cost of r isk transfer. Over the last thir ty years, most major corpor ation s have evolved a much more sophisticated vie w of r isk management, encompa ssing tr aditional r isk management concer ns and adding new issues ar ising from the changing inter nal and exter nal environments within which they work. Now, it is understood that ever y aspect of a company's operational and financial https://www.francisxavier.ac.in


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activity c ontains the po tential for r isk t hat can negatively a nd meaning fully affect the success and viability of the or ganization.

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Risk basically refers to the var iations in the outcomes that could occu r over a spec ified pe r iod in a given situation. If only one outcome i s possible, the var iation and hence the r isk is zero. If many outcome s are possible, the r isk is not zero. The gr eater the var iation, the greater the r isk. Risk may also be de fined as the possibility that an event will occur and adversely a ffect the achievement of the Company's objectives and goals. A business r isk is the threat that an event or action will adversely a ffect an o r ganization‘s ability to achieve its business objective s/tar gets. Business r isk ar ises as much from Risk Management andInternal Control 199 poss ibility that opportunitie s will not be r ealized a s much from the fact that ce r tain thr ea ts could well mater ialize and that errors could well be made. R isks may be broadly class ifie d under the following hea ds: (a) In dustr y & Ser vices Ri sks:

These r isks ca n be broadly categorized as follows, namely: risks suchas dependence onone product, one process, one client, one industry,etc. in  Economic the short and long ter m.  Service s risks  Marketstructu re s  Business dynamic risks affectingtariffs prices, costs, revenues and customer preferences  Competition s risks  Customer relation risk  Reputational (b) Ma nage me nt and Operations R isks: These r isk s relate broadly to the company 's or ganisation and management such as planning, monitor ing, and repor ting systems in the day to day management p rocess namely:  Risks to Property  Clea r andwelldefinedwork processes echnology/upgradation  Changes in T  R&D risks  AgencyNetwork Risks r turnover risks involvingreplacementrisks, trainingrisks, cost risks,  Personnelrisks suchas labou skill r isk s etc. The r e ar e also unr est r isk s due to str ike s and lockout s. The se r isk s affect the company's business and earnings. s, etc.  EnviromentalandPollution Control regulation  Locati onalbenefits near metros, railwaystations, ports, cities, etc. (c) Market R isks: These r isks relate to market conditions namely: rialrates  Raw mate s, quality,suppliers, lead time, inte rest rates risks andforex risks namely,fluctuationrisks  Quantitie https://www.francisxavier.ac.in


and interest r ate r isk in respect of foreign exchange transactions.


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(d) Political R isks:

These r isks relate to political uncertainties namely: s  Election  War risks 

Country/Arearisks

Insurance risks like fire, strikes, riots andcivilcommotion, marinerisks, cargo risks, etc.

 

Fiscal/MonetaryPolicy Risks including Taxationrisks.

(e) Cre dit Risks:

These r isks relate to commercial oper ations namely: 

Creditworthiness risks



Risks in settlementof dues by clients

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Provisions for doubtfuland bad debts

(f) Liquidity Risks:

These are financial r isk factors namely: 

Financialsolvencyand liquidity risks



Borrowing limit s, delays



Cash/Reserve management risks



Taxrisks.

(g) Dis aster R isks:

These r isks relate to disasters from following factors: 

Natural risks likefires, floods, earthquakes,etc.



Man-maderisks arising under the Factories Act, Mines Act,etc.



Risk of failure of effectiveDisaster Managementplans formulatedby the company.

(h) Syste ms R isks:

These risks relate to the company's systems namely: 

Systemcapacities



System reliability



Obsolencerisks

DataIntegrityrisks 2.10 OR G ANI ZA TI ON SI ZE: 

An or ganization 's str uctur e is impor tant to the study o f b usiness ethic s. In a Cent ralized https://www.francisxavier.ac.in


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or ganization, deci sion- making author ity is concentr ated in the hands of top- level managers, and little author ity is delegated to lower levels. Responsibility, both inte r nal and exte rnal, rests with top management. Thi s str ucture is especially suited for or ganizations that make high-r isk decisions and whose lower- level managers are not highly skilled in deci sion making. It is also 40



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE suitable for or ganization s in which p roduction p rocesses are routine and efficiency is o f pr imar y importance. These or ganization s ar e usually extremely bu r eauc ratic, and the divi sion o f labou r is typically ve r y well de f ined. Each wor ker knows his or her job and what is s pecif ically expected, and each ha s a clea r understanding of how to carry out assigned tasks. Cent ralized organizations stress for mal r ules, policies, and p rocedures, backed up with elabor ate control systems. Their codes of ethics may specify the techniques to be used for decision making. Because of their top-down approach and the di stance bet ween employee and deci sion maker, cent ralized o r ganizational structures can lead to unethical acts. If the centralized organization is ver y b ureaucratic, some employees may behave according to "the letter of the law" rather than the spir it. In a decentralized or ganization, decision- making author ity is delegated as far down the chain of command as poss ible. Such or ganizations have relatively few formal r ules, and coo rdination and cont rol are usually infor mal and personal. They focus instead on increasing the flow of infor mation. As a result, one of the main strengths of decentr alized or ganizations is their adaptability and ear ly recognition o f external change. With greate r flexibility, manage rs can r eact quickly to change s in thei r ethical envi r onment. Weakne ss of decent ralized o r ganization s is the di ff iculty they have in r esponding quickly to change s in policy and p r ocedures established by top management. In addition, independent p rofit centers within a decent ralized or ganization may deviate from or ganizational objectives.

2.11 PROF ITABI LI TY & ETHICS:

In the fallout from Enron and othe rs, many investors are paying clo ser attention to a company's ethics, as well as their profits. These investors realize that a corporate foc us on profits alone with little regard to ethical standards, conduct and en forcement — may result in short-ter m revenue gain, but long-ter m profitability may be limited.In cases like Enron, long-ter m viability is limited too. Consider this balance between profits and ethics to be "ethical profitability." Well- balanced companies not only consistently reward owners, investors and employees with profitable perfor mance, they also genuinely focus on these five key areas: Leadership by exa mple

The chasm between managing and managing well is wide and deep. To manage si to merely lead employees. To manage well is to lead employees effectively, ethically and without arrogance. Company owners, executives and managers must set the highest examples of attitude and conduct for their employees. "Do what I say, not what I do," is a parental anachronism with no value in https://www.francisxavier.ac.in


management.

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Co mpa ny-w ide e thical a warene ss

Most emp loyees, when not a t work, practice personal ethics in areas such as car ing for others, being kind and honest, and not har ming others. Do these same people, when they arrive at work, maintain their personal guidelines? In-the-office ethical behavior includes demonstrating tr ustworthiness to managers and coworkers, respecting pr ivacy and avoiding conflicts of interest. Ethics knows no time clock. Occasional classes can help, by reminding employees of the simplicity of deter mining ethical behavior. In a nutshell, examine questionable action and speech, and deter mine if it's harmful to yourself or another. If it is, avoid that behavior. Employees with any sort of religious background will recognize this et hic of reciprocity as familiar. The Bible's Golden Rule i s a good example. Stro ng manage me nt o f revenue ge neratio n a nd re port ing

Corporate temptation to stretch ethical behavior in revenue generation and repor ting is universal. From excessive cost-cutting to expand short-ter m market-share, to outright lies about revenue to positively affect stock pr ice, it's easy to see why an otherwise intelligent, educated corporate o fficer can end up behind bars for condoning such behavior. To overcome these temptations, revenue -related managers must establish and maintain a firm stance on ethical marketing, advertising, selling and reporting. This requires regular dissemination and enforcement of code s of conduct. Hig h level of i nter nal t rust

The level of tr ust within a company should reflect the level of tr ust the company solicits from customers. If customers are encouraged to put their complete tr ust in the product or ser vice, then company teams must do the same with each ot her. Management must guide this inter nal process. An increase in trust is a reduction in r isk and uncer tainty, which in tur n will keep the revenue generation process flowing smoothly. Another advantage of r unning a high-tr ust or ganization is improved inter nal flexibility and creativity. Instead of being constantly monitored, the person to whom a task is assigned can accomplish it the best way possible. The outcome is never in doubt because of the tr ust the team shares. For mal a nd ac tive co mplia nce program

Ethical profitability is far more than merely ope rating within the boundar ies of the la w. Legal compliance limits unethical behavior, but it does not define ethical behavior. An or ganizational ethics doctr ine does have legal benefits. Properly wr itten, published and disseminated ethical codes will reduce corporate risk if an employee creates a cr iminal or civil problem because o f poor ethical behavior. (Even federal sentencing guidelines recommend lower fines if such violations occur contrar y to the existence and enforcement of compliance codes.) https://www.francisxavier.ac.in


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The tr ue test of ethical profitability is whether or not the company is a positive example to its employees, to its customers and even to other companies. Such companies practice the tr uest form of leadership- by-example. T hey reach for a higher bar. 42



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE 2.12 COS T OF ETHICS IN CORPORA TE ETHICS EVALUATI O N: O perating in an ethical way may incur additional co sts to a business when compared with other retailers and companies who may not do business in the same way. For example, Pr imark bears the cost of carr ying out all audits. Then ther e are its costs associated with working with ethica l partners. An example of this is Pr imark ‖s par tnership with Nar i Uddug K endra (NUK). This is an organisation supporting women's r ights and health in Bangladesh. See more infor mation and read an interview with NUK o n the Pr imark website. NUK has more than 20 years exper ience in addressing women's r ights and labour issues in the ready-made gar ment sector in Bangladesh. Through this par tnership, Pr imark seek s to identify and address key issues around equal r ights, opportunities for growth and career enhancement, as well as training needs within some o f its key suppliers in Bangladesh. N UK's expertise in this area helps Pr imark provide employees and middle management at factories with more intensive support and training o n ethical issues. Costs to Pr imark of working in a n ethical way include:    

the employment o f the global Ethical Trade team training its buyers o n all ethical trade issues managing and paying for exter nal a udits helping suppliers put r ight issues raised by audits, through t raining and support from the Pr imark Ethical Trade team.

However, rather than seeing these activities as costs, Pr imark believes that they enable the bu siness to operate in a sustainable and well- managed way. Through its remediation p rogramme, Pr imark's team of ethical managers work with factor ies to help them find ways of putting iss ues r ight and developing sustainable practices. This provides a benefit to the supplier but al so in the long term to Pr imark, who gains from having suppliers all working to its standards. T r anspar en cy i n bu si n ess

Transparency is an important part of this process. Transparency means the business is open to people seeing how it manages its r elationships with suppliers. In tur n, suppliers ‖ pr actices also need to be transparent. The alter native would be for an o r ganization to ignor e ethical beha viour. However, this would rapidly lead to a decline in brand reputation and con sumers could move to purchasing from competing retailers behaving mo re ethically. Operating in the 'r ight way' is therefore not just appropr iate for ethical reasons, but is also good business practice. 2.13 BUSINESS & ECOLOGICA L ENVIR ONMEN T IN INDIAN CON TE XT:

A satellite picture, taken in 2004, shows thick haze and smoke along the Ganges Basin in nor thern India. Major sources of aerosols in this area a re believed to be smoke from biomass bur ning in the northwest part of India, and air po llution from lar ge cities in nor ther n India. Dust from deser ts https://www.francisxavier.ac.in


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in Pakistan a nd the Middle East may also contribute to the mix of aerosols. There ar e many environmental iss ues in India. Air pollution, water pollution, garbage, and pollution of the natural envi ronment a re all challenges for India. The situation was worse between 43



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE 1947 through 1995. According to data collection and envi ronment assessment studies of Wor ld Bank experts, between 1995 through 2010, India has made one of the fastest progresses in the wor ld, in addressing its environmental issues and improving its environmental quality. Still, India has a long way to go to reach envi ronmental quality similar to those enjoyed in developed economies. Pollution remains a major challenge and opportunity for India. Environmental issues ar e one of the pr imar y causes of disease, health issues and long ter m livelihood impact for India. Ma jor iss ue s

Floods ar e a significant environmental issue for India. It causes soil e rosion, destr uction of wetlands and wide migr ation of solid wastes. Major environmental issues are forest and ag r icultural deg r adation o f land, resource depletion (water, mineral, for est, sand, rocks etc.), environmental deg radation, public health, loss of biodiversity, loss of resilience in ecosystems, livelihood secur ity for the poor. The major sources of pollution in India include the rampant bur ning of fuel wood and biomass such as dr ied waste from livestock as the primar y source of ener gy, lack of or ganized garbage and waste removal ser vices, lack of sewage treatment operations, lack of flood control and monsoon water drainage system, diversion o f consumer waste into r ivers, cremation p ractices near major r ivers, gover nment mandated protection o f highly polluting old public transport, and continued operation by Indian gover nment of gover nment owned, high emiss ion plants built between 1950 to 1980. Air pollution, poor management of waste, growing water scarcity, falling groundwater tables, water pollution, preservation and quality of forests, biodiversity loss, and land/soil degradation are some o f the major environmental issues India faces today. India's population growth adds pressure to environmental issues and its resources. Po pulat io n gro wth a nd e nviro nme ntal quality

There is a long histor y of study and debate about the interactions between population growth and the environment. According to a Br itish thinker Malthus, for example, a growing population exerts p ressure on ag r icultural land, causing environmental degradation, and forcing the cultivation of land of poorer as well as poor er quality. Thi s environmental degradation ultimately r educes agr icultural yields and food availability, causes famines and diseases and death, thereby reducing the rate of population growth. Population growth, because it can place increased pressure on the a ss imilative capacity of the environment, is also seen as a major cause of air, water, and solid-waste pollution. The result, Malthus theor ized, is an equilibrium population that enjoy s low levels of both income and environmental quality. Malthus suggested positive and preventative forced control of human population, along with abolition of poor laws. https://www.francisxavier.ac.in


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Malthus theor y, published between 1798 and 1826, has been a nalyzed and c riticized ever since. The Amer ican thinker Henr y Geor ge, for example, obser ved with his characteristic piquancy in 44



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE dismissing Malthus: "Both the jay hawk and the man eat chickens; but the more Jayhawks, the fewer chickens, while the mor e men, the more chickens." Similarly, the Amer ican economi st Julian Lincoln Simon cr iticized Malthus's theor y. He noted that the facts of human histor y have proven the predictions of Malthus and of the Neo-Malthusians to be flawed. Massive geometr ic population growth in the 20th centur y did not result in a Malthusian catastrophe. The possible reasons include: increase in human knowledge, rapid increases in productivity, innovation and application of knowledge, general improvements in farming methods ( industr ial agr iculture), mechanization of work (tractors), the introduction o f high- yield var ieties of wheat and other plants (Gr een Revolution), the use of pesticides to control crop pests. More recent scholarly articles concede that whilst there is no question that population g rowth may contribute to environmental deg radation, its effects can be modif ied by economic growth and moder n technology. Research in environmental economics has uncovered a relationship between environmental quality, measured by am bient concentrations of air pollutants and per capita income. This so-called environmental K uznets cur ve shows environmental quality worsening up until about $5,000 of per capita income on purchasing par ity basis, and improving the reafter. The key requirement, for this to be tr ue, is continued adoption of technology and scientific management of resources, continued increases in productivity in ever y economic sector, entrepreneur ial innovation and economic expansion.



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE UNIT –III - LEGA L ASPECTS OF ETHICS

Unit St ructu re :

3.0 O bjectives 3.1 Political – legal environment 3.2 Provisions of the Indian co nstitution per taining to Business 3.3 Political setup – major character istics and their implications for business 3.4 Prominent features of MRTP & FER A

–

3.5 culturesalof envi ronment and the values. ir impact on business operations 3.6 Social Salient featur Indian cultur e and Objec t ives

3.0

After reading this unit youshould be able to understand: 

The Political and legal envi ronment of our country



The features of MRTP and FERA.

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The salient featu r es of Indian cultu r e and value s . 3.1 Politics and Legal Enviro nme ntal Ethics

Some ethical commitments of policy makers-- and their intersections with environmental problems. Policy cannot be value- neutral. If people didn't have different views of things, interests (economic and otherwise), values, and conceptions of "the good," we would have no conflicts and no dec isions would r equire balancing competing "goods." o

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One basic idea of politics is that it is far preferable to resolve these conflicts without violence. If we resor t to that, then we end up being r uled by the most powerful. Power does not r eliably correlate with being intelligent, wise, fair, just, consistent, open- minded and open-hear ted, compassionate, or tr ustworthy. Yet these are the character istics of r ulers who can create the condition s in which human life can flourish, and problems be solved well. So politics is a commitment to the use of reason, and con flict resolution that a llows life to continue. Political science has a long long histor y of thought and disagreement on how politics should be or ganized. Plato at one point wished for "philosopher kings"--w ise people with absolute power. Author itar ian regimes are not usually so enlightened, however. Democratic theor y, fear ing the corruption power may br ing, holds that el gitimate



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power is that which receives the consent of the gover ned. (Modern intellectual dendants of Plato, for their part, bemoan the depth to which the 'tyrr any o f the major ity' can sink. Modern communitarian theor y looks beyond institutional 46



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE gover nance to the fabr ic of the community as what is most important in civic life. Still others seek to found gover nment on the developmental potentials o f humans- -an impor tant point, since education and other positive forces have a lot to do with the quality of person, and thus society. Benjamin makes the point that our politicians must balance their roles as "tr ustee" and "delegate." As delegates they "represent directly the wishes and interests o f their constituencies," but as tr ustees, they must "use their judgment in making what they regard as the best decisions on pa r ticular matters even if in cer tain cases this means taking a position differ ent from the major ity of their constituents" (p. 143 in readings). This indicates that politicians should not look only to opinion polls in their decisions, but should also seek to be infor med. Their judgment in the "tr ustee" role is ver y likely to be essential in environmental ca ses. But note, too, in Benjamin's discussion o f Cuomo's response to Meehan, that "The political question--the question o f how best in certain circumstances in a pluralistic society to translate personal conviction into p ublic policy--is not fully settled by what one regards as the correct answer to the moral question" (p. 146). Later: "A competent politician... is one who manages to retain an independent mor al identity while also, in the inter ests of the integrity of the community as a whole... acknowledging the positions of those whose world views point in a different direction" (149). Political theor ists (such as Heilbroner, and Ophuls) have ar gued that the "consent o f the gover ned," e specially when combined with an expansionist- industr ialist political economy (whether capitalist or socialist), fails in the real wor ld o f ecological limits. Both authors are also cr itical of the envi ronmental records of author itar ian regimes as well. Whether one ag rees with their prognoses or not, one thing is clear: environmental policy mu st incorporate scientific knowledge into many decisions. Science is what tells us (within sometimes lar ge degrees of uncertainty) where the limits are, and can help us pr edict the outcomes of different po licy options.

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One principle that follows from the role of science is that learning must be paramount in environmental policy. We need to track our management attempts and constantly adjust based on what we find out. This approach is often called "adaptive management." But as mentioned in concepts in ethics, "is" does not justify "ought. " The way things in fact are, tells us nothing about how they should be. (This point does not, however, ultimately hold absolutely--a difficult issue in metaethics that stems from an y ethical theor y's basis in unprovable assumptions about the nature of reality.) In the general argument under lying any envi ronmental policy p roposal, there ar e usually empirical



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premises, der ived from science. They pe rtain to what causes what; based on them we can expect certain r esults from ce rtain actions. But which results ought we to choose? Science doesn't tell that. So, policy proposals also have ethical premises, which answer that question. Thus, anyone dealing with policy should be able to articulate, 47



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE compare, select, justify, defend, and cr itique the ethical ass umptions of policy choices. Not all of these are substantive environmental q uestions, but some must be. Some ethical premises of specific areas of environmental policie s are contained in other portions of this course. Briefly, a few of the impor tant dimensions are: Which humans matter in environmental ethics? Only those with the resource to know the r isks and hire lawyers and lobbyists, or all people? Only those in our nation, or beyond? Only ones alive now or others in the future? What environmental obligation s do we owe other humans? Is there a 'r ight' to a o

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healthy environment? One that can provide for a full range o f needs? Of oppo rtunities too? An enjoyable one? How do we define these in specific policy areas? Do only humans have ultimate value? Nonhuman animal s? Any organism? Populations? Species? Not unitar y things of any sort, but instead communities? Systems? How can any o f these units be defined, and our obligation s toward them justified? How do we deal with the many conflicts that ar ise when we grant any nonhumans moral standing? How do we deal with uncertainty and complexity of natural systems? Does this have implications for the burden o f proof? For what we protect and how thoroughly we protect it? How do we think of environmental obligations? In cost- benefit ter ms? In some other way? How do we balance competing interests? Much of environmental policy boil s down not to concrete solutions, but to for mulating, maintaining and correcting proce sses which create solutions when values conflict o

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ineluctably. What procedur es should be used to resolve specif ic conflicts? The law in general, and especially administrative law, is full of such procedures for the many many kinds o f conflicts present in society. See the page on ethical decisions; the second part lists some key values which such procedures should embody. Some in policy positions are politically elected, others are not. Either way, such pos itions carr y r esponsibilities of any ci vil ser vice career. These include a commitment not only to ser ve constituents, but to act as wisely and responsibly as possible. All such positions, because of the decision- making powers they include, carr y potential for corruption and abuse. Ethical public ser vice means self-policing, and supporting reasonable systematic checks, against such corr uption. See information from groups like Common Cau se, that work on ca mpaign finance reform. Political work, in its ver y nature, thr usts participants into controversies. It is often up to them to work out comp romises on ve r y difficult issues. See the Benjamin reading on the multiple senses of compromise. Benjamin ar gues that comp romise, as in a less-than-wished for "splitting the differ nce" between 2 irreconcilable pr inciples or interests, does not have to mean one compromises one's integr ity. He point s to super vening values that must be called into play in such situations: the value on working together nonviolently, on pr eserving the



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possibility of working to get her on another issue later, on reducing pola r ization and stasis in society and gover nment. These, he ar gues, ar e among the most impor tant values when others conflict utterly. 48



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE Provis ions of the India n Co nstitut ion

Provis io ns of the India n Co nsti tutio n tha t are applica ble to the bus ine ss are summarize d belo w

The Co nstitution is a comprehensive one consisting of var ious provisions t hat affect ever y citizen of India. Certain provisions o f the Indian Constitution are applicable to the business which ware summarized under the following headings: I. Preamble of Co nstitut ion a nd Busine ss:

The Indian Con stitution starts with a preamble, which outlines the main objectives of the Constitution. It may be noted that though the pr eamble is not a par t o f the Constitution and is not justifiable, yet its significance cannot be denied. It ser ves as a key to the Con stitution. Whenever the judiciar y is in doubt about any particular provision of the Co nstitution it refers to the preamble to find out the real intentions of the framers o f the Constitution. The preamble reads: ―We,

The People of India, have solemnly resolved to con stitute India into aSovereign, Socialist, and Secular Democratic Republic and to secure to all its citizens: Justice, Social, economic and political; Liberty of thought, expression, belief, faith and worship; Equality of status and of opportunity; and to promote among them all Fraternity ass ur ing the dignity of the individual and the unity and integr ity of the nation; In our Co nstituent Assembly this Twenty-Sixth day of November 1949, we do hereby Adopt, Enact and Give to ourselves this Constitution.‖ A per usal of the preamble shows that it intends India to be a Sovereign, Socialist, Secular, and Democratic Republic. It means that like other states India is a sovereign state and is free to conduct its inter nal a s well as exter nal relations as it deems desirable. The ter ms Socialist ‘ and Secular ‘ were added by the For ty Second Amendment and assert that the government must adopt socialistic policies to ensure decent life for all Indian citizens. The inclusion of word Secular‘ likewise emphasises that the state must abstain from giving pr eferential treatment to any religion. ‗

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Democratic gover nment implies the Government is to be carried on by the elected representatives of the people, and the Gover nment stays in o ffice as long as it enjoys the confidence of their elected representatives. Republic implies that the highest executive author ity in India shall vest in a person directly elected by the people. In other words, there is no place for monarchical or feudal system in India. https://www.francisxavier.ac.in


Econo mic Importa nce : The preamble of the Indian Co nstitution guarantees to its e ver y citizen: (i) Eco no mic J ustice: 49


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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE The Indian Constitution laid down social, economic and political justice to ever y citizen in the countr y. It is, therefore, the duly of the business or ganizations to provide social, economic and political justice to ever y citizen. (ii) Li berty of Tho ug ht, Expre ss ion, Belie f, Faith a nd Worsh i p:

This has been accepted in ou r constitution that ever y citizen has liberty of thought, expression, belief, faith and worship. According to this concept e ver y business, or ganization should have liberty of thought, expression etc., with ever yone. (iii) Equali ty of Sta tus and of Oppor tunity :

According to this concept ever y businessman should believe and give equal opportunity to others. This can be achieved th rough eradication o f poverty. This does not mean winning gap between the poor and r ich. II. Funda me ntal R ig hts and B usi ne ss:

The Indian Constitution incorporates a list o f Fundamental Rights and guarantees their inviolability by executive and legislative author ities. Part III (Articles 12-35) deals with the Fundamental Rights granted to individuals. These r ights were finalised by the committee o f the Constituent Assembly headed by Sardar Vallabhbhai Patel. The fundamental r ights are super ior to ordinar y laws; t hey ca n be alte red only th rough con stitutional amendments. Or iginally, the fundamental Rights were seven but in 1978, th rough the 44th amendment of the constitution, the r ight to property was r emoved from the list of fundamental r ights. The six types of fundamental rights of the constitution are as follows: (1) R ight to Equality (A rt icles 14 to 18):

Articles 14 to 18 deal with r ight to equality. The Constitution clear ly provides that the state shall not deny to any person equality be fore law or the equal protection o f law within the territor y of India. It cannot discr iminate against any citizen on g rounds of religion, race, caste, sex, and place of birth or any of them. It means that ever y citizen has access to shops, public restaur ants, hotels, places of public entertainment etc., and is free to use wells, tanks, roads and places of public r esor t maintained at state funds. In the employment aspects, the appointment to offices under the state also eq ual opportunity shall be provided to all the citizens, and no person shall be denied employment on grounds o f religion, race, caste, sex, dent, and place of bir th, residence or a ny of the m. Again, to make the r ight to equality a reality; untouchability has been abolished and its practice in any form has been made an o ffence punishable in accordance with law. According to this articles the business should provide equality be fore law, social equality and eco nomic equality. (2) R ight to Freedo m (A rticle s 19 to 22):

Ar 22 ty enumer ates cer positive erred b yrthe Constitution to promote theticles ideal19 oftoliber promised in tain the pr eamble.r ights Six fconf undamental ights in the naturin e oorfder fr eedom ‘ are guar anteed to the citizens in the article (or iginally there were seven, but now r ight to property is ‗



deleted). The six Freedoms are as follows: (i) Freedom o f speech and expr ession. (ii) Freedom of peaceful assembly without ar ms. 50


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(iii) Freedom o f association. (iv) Freedom o f movement throughout the territory of India. (v) Freedom to reside or settle any part of the territor y. (vi) Freedo m to p ractise any p rofess ion, or to carr y on any occupa tion, trade or business. The r ight to freedom is also applied equally in business. The businessmen can exp ress their problems freely to the gover nment and can get a solution to it. Similar ly, ever y citizen ha s the r ight to choose any bu siness or profession and ca n form unions, and conduct meetings. (3) R ight against Exploitation (Article s 23 to 24):

Articles 23 to 24 deal with the r ight against exploitation and seek to prevent exploitation of weaker sections of soc iet y by unscr upulous persons as well as the state. Article 23 prohibits traffic in human beings, involuntar y work without payment and other for ms of forced labour. Article 24 prohibits the employment of children below 14 years of age in factor ies and hazardous occupations, employing women employees in night shifts in factor ies etc. Econo mic Importa nce : The economic impor tance of r ight against exploitation is (i) The gover nment takes necessar y steps to remove bonded labour. (ii) The Factor ies Act helps to prevent exploitation of women and children employees. (iii) The owner o f the factor ies are guided to make provision for safety and welfare of the workers and they compulsor ily appoint a labour welfare officer, it in the factor y 500 01 mor e workers are employed. (4) R ight to Freedo m of R eligion (A rt icles 25 to 28):

Articles 25 to 28 deal with the r ight to freedom o f religion. Subject to public order, morality, health etc., the citizens enjoy freedom o f co nscience and are free to profess, practise and propagate any religion. However, the state can regulate or restrict the economic, financial, political or other secular activities associated with religious practices. No citizen can be compelled to pay any taxes the proceeds of which are to be spent for the promotion o r maintenance of any pa rticular religion o r religious domination. Econo mic Importa nce : The Economic importance of the right to freedom o f religion is (i) The gover nment cannot spend tax money for the development of any religion. (ii) Nobody can be compelled to pa y tax for the welfare of any specif ic religion. (iii) No one shall be forced to transfer of property or any ag reement of a business natur e in the name of a particular religion. (5) Cu ltu ral a nd Educat ional R ig hts (Article s 29 to 30):

Article 29 stipulates that the State shall not impose upon it any cultur e other than the community s own cultur A ers minor ity acommunity has the r ight preser its cultur e and religious interests. Article 30 e. conf upon minor ity community the tor ight to ve establish and administer educational institutions of its c hoice. https://www.francisxavier.ac.in


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A notable feature of the educational and cultur al r ight is that unlike other fundamental r ights, it is not subject to any restr iction, except that the State can make special provisions for t he ad vancement of any socially and educationally backward classes of citizens. 51



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Econo mic Importa nce : The economic impor tances of cultural and educational r ights are: (i) The state does not discriminate to give economic assistance to the minor ity institutions. (ii) The aided institution ca nnot refuse admiss ion to any of the citizens on the ground that he belongs to a particular caste, religion, language or region. (6) R ight to Co nstitut io nal R e me dies (Art icle 32):

This r ight has been de scr ibed by Dr. Ambedkar as the heart and soul o f the Constitution. In tact the mere declaration o f fundamental r ights is useless unless effective remedies are available for their ‗

enforcement. This has been en sured under Article 32 which gr ants the r ight to move the Supreme Court by app ropriate proceedings for the enforcement of the r ights conferred b y the Constitution. Clause (2) o f Article 32 confers power on the supreme cour t to iss ue appropr iate directions or orders to writs, including writs in the name of habeas corpus, mandamas, prohibition, quo-warrant and certiorari for the enforcement o f any o f the r ights conferred by Par t III of the constitution. Thus, the fundamental r ights enumerated in the constitution guarantee a number of economic and social lights to the citizens. At the same time the state has the power to impose reasonable restr ictions on such r ights in the interest of the people. 3.3 Political Se tup – Ma jor c haracterist ics & thei r i mplicatio ns for busi ne ss D irective Principles of State Policy:

The Directive Pr inciples of State Policy which have been enshrined in Par t IV of the Con stitution aim at realizing the high ideals o f justice, liberty, equality and frater nity as outlined in the preamble to the constitution. There are ideas which ar e to inspire the state to work for the common good of the people and establish social and economic democracy in the countr y. ‗

The phrase Directive Pr inciples o f State Policy‘ means the pr inciples which the states should keep in mind while framing the laws and for mulating policy. Articles 39 to 51 contain the various directive principles. These pr inciples are amalgamation o f socialistic, Gandhian and liberal pr inciples. Econo mic Importa nce : The economic impor tance of Directive Pr inciples of State Policy is: (i) To provide adequate means of livelihood for all the citizens. (ii) To secure equal pay for work to both men and women. (iii) To protect the workers, especially children. (iv) To regulate the economic system o f the countr y that it does not lead to concentration o f wealth and means of production. (v) To make provision for securing r ight to work, to education and to public assistance in cases of unemployment, old age,sickness and similar other cases. (vi) To ensure a decent standard of living and facilities of leisure for all workers. The main objective of the above noted directive principles ar e to enable the individual to lead a good

and satisf yingdslifthe e. All the prand ovisions d irective prsocial inciples of state policy guide the gover nment policies towar business ot her of economic and activities. The gover nment also so far enacted a number o f acts and laws, policies and r ules keeping in view https://www.francisxavier.ac.in


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the dir ective pr inciples, which a re dir ectly related with the bu siness operations. The var ious Acts like FERA, Factor ies Act. MRTP Act, Minimum Wages Act, Industr ial (Development and Regulation) Act, Industr ial policy, etc., are based o n the Directive Pr inciples of the Constitution. 52



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE The government, through these acts and regulations, protects the interests o f working men, women and children, prevents concentration o f economic power, and promotes and protects the inter est of small and cottage industr ies. Explain the mea ning, relevance and fea tu re s of the Co mpe titio n Act, 2002. In 1969 Govt. has passed an act and it had given the name monopoly and restr ictive trade practices (MRTP). It became popular with the name of MRTP 1969. This act has many provisions to control the monopoly and to promote the competition. It has defined RTP and also explained the powers of MRTP commission. But its scope was ver y narrow and Govt. o f India has made new act called

competition act 2002. On the place of MRTP ACT 1969 a fter this MRTP act 1969 was fully repealed. Explanat io n of Co mpe titio n Act 2002 Competition Act 2002 states that Indian traders must not do any activity for promoting monopoly. If they will do any activity in the form of production, distr ibution, pr ice fixation for increasing monopoly and this will be against this act and will be void. This act is ver y helpful for increasing good competition in Indian economy.

Under this act following ar e restricted pr actice and these practices are stopped b y this act. 1. Price f ixing : If two or more supplier fixes the same pr ice for supply the goods then it will be restricted practice. 2. Bid ragging : If two or more supplier exchange sensitive infor mation o f bid, then it will also be restr icted practice and against competition. 3. R e -s ale price fixat io n : If a producer sells the goods to the distributors on the condition that he will not sell a ny other pr ice which is not fixed by producer. 4. Exclusive deali ng : This is also restr icted practice. If a distr ibutor purchases the goods on t he condition that supplier will not supply the goods a ny other distr ibutor. Above all activities promote monopoly so under competition act these ar e void and action of competition commission will not enter tain by civil cou rt.

3.4

Pro mi ne nt fea tu re s of M R TP and FERA

FEA TURES OF M R TP Est ablishme nt of Co mpe tit io n Co mmiss ion Unde r this la w Govt. of India appoints the chair man and ot her member of competition co mmiss ion. Competition act 2002 gives the r ules and regulation regarding establishment and functions of this commiss ion. Quali ficat io n of c hai rpers on of Co mpe tit io n co mmiss ion

He or she should be Judge of high court + 15 years o r more expe r ience in the field of inter national trade , commerce , economics , law , finance , business and industr y . https://www.francisxavier.ac.in


Function of Co mpetition commission: 1. To stop activity and practice which are promoting monopoly. 2. To promote the competition. 3. To protect the interest of consumers. 53


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Conclusion

India is doing a ll work for safeguarding the interest of consumer and this law is one of the important pillar in this way. FEA TURES OF FERA

The Foreign Excha nge Reg ulatio n A ct (FER A) was legislation passed by the Indian Par liament in 1973 by the gover nment of Indira Gandhi and came into force with effect from Januar y 1, 1974. FERA imposed str ingent regulations on ce rtain kinds o f payments, the dealings in foreign exchange and sec ur ities and the transactions which had an indirect impact on the for eign exchange and the impor t and expor t of c urrency. The bill was for mulated with the aim o f regulating p ayments and foreign excha nge Regulated in India by the Foreign Exchange Regulation Act (FERA),1973.  Consisted of 81 sections.   FERA Emphasized str ict exchange control.  Control ever ything that was specified, relating to foreign exchange. Law violators wer e treated as cr iminal offenders.   Aimed at minimizing dea lings in for eign exchange and foreign secur ities. FERA was introduced at a time when for eign exchange (Forex) reserves of the countr y were low, Forex being a scarce commodity. FERA ther efore proceeded on the presumption that all for eign exchange earned by Indian residents r ightfully belonged to the Gover nment of India and had to be collected and surrendered to the Reser ve bank of India (RBI). FERA pr imarily prohibited all transactions, except one ‘s per mitted by RBI. OBJECTIVES : To regulate certain payments.   To regulate dealings in foreign exc hange a nd secur ities. To regulate transactions, indirectly a ffecting foreign exchange.  To regulate the import and export of currency.  To conserve precious foreign e xchange.  The proper utilization of foreign e xchange so as to promote the economic development of the  countr y. 3.5

Socio-Cultu ral Enviro nme nt a nd thei r Impac t o n Busi ne ss Operat io ns

Businesses do not exist in a vacuum, and even the most success ful business must be awar e of changes in the cultures and societies in which it does business. As society and cultu r e change, businesses must adapt to stay ahead of their competitors and stay relevant in the minds of their consumers. Cha ngi ng Pre ference s

A major socio-cultural factor influencing businesses and business decisions is changing con sumer https://www.francisxavier.ac.in


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preferences. What was popular and fashionable 20 years ago may not be popular today o r 10 years down the road. Different styles and pr ior ities can under mine long successful p roducts and ser vices. For example, a clothing company must constantly be awar e of changing preferences when creating new products or it will quickly become outdated. 54



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D e mographics

Changes in demogr aphics are also a signif icant factor in the business wor ld. As populations age, for example, markets for popular music and fashions may shr ink while markets for luxur y goods and health products may increase. Additionally, changes in the propor tion of genders and differ ent racial, religious and ethnic groups within a society may al so have a signif icant impact on the way a company does business. Adve rtis ing Technique s

Advertising Advertising departments Changes in advertising.

is per haps the area of business most closely in touch with socio-cultural changes. often seeks to be hip and trendsetting, and to do this, adver tising agencies and cannot lose track of the pulse of the societies in which they engage in business. mor als, values and fashions must all be considered when creating out ward facing

Inte rnal Environme nt

In addition to a company's interactions with the market and its customers, socio-cultural factors also impact a company's inter nal decision- making process. For example, changing gender roles and increasing emphasis on family life have led to increased respect for mater nity and even pate r nity leave with or ganizations. Additionally, attitudes towards racial di scr imination and sexual har assment have changed drastically over the years as a result of socio-cultural cha nge.

3.6

Salient fea tu re s of India n Cultu re and val ue s

CH ARACTERIS TICS OF INDIAN CULT URE

Many things can be included while describing the distinguishing char acter istics of Indian culture. But it is a fact that India is a n amalgamation o f var ious thoughts and ideologies. It is ver y vast and var ied culture r ich in knowledge, devotion deeds, emotions and feeling. It is the broad mindedness of Indian culture that it assimilated all those char acter istic features witho ut any hesitation to which it was exposed from var ious other cultures and moulded t hem in own way. India did not believe in invasion or war to propagate its culture, religion, ideology or any other thing. It tr eated all living creatures with same equality and compass ion. Features of India n Cul ture :

1. Longevity and co ntinuity 2. Unity in diversity 3. Tolerance 4. Amalgamation of Spirituality and Materialism VALU ES OF INDIAN CU LTURE

In recent years, many scholars and exper ts engaging in studies of cultural values have https://www.francisxavier.ac.in


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emer ged in China. As a result, quite a few d issertations and works analyzing the values o f Chinese and Wester n cultures have been publi shed. However, those dealing with Indian cultural values are less, not to mention those that ex pound Indian culture and its values systematically and 55



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE comprehensively and conduct comparative research about the m in inter national cultural research. So I want to explore this topic to the best of my knowledge in order to receive advice from expe rts and colleagues. According to knowledge about cultu ral values, the patter ns, factors and traits of specific values are deter mined in many aspects such as politics, morality, religion, nation, equality, justice, tr uth, goodness and beauty. However, they can still be generalized into three major aspects. As Tugalenov, a scholar of the for mer Soviet Union, put it in his book On the Values of Life and Culture, all the cultural values can be class ified into three categor ies: material values, social and political values and spiritual values. In the following paragraphs, I will use these three cr iter ia to advance my study o f the values of Indian culture. M ater i al Val u es

The mater ial value on which Indian culture puts emphasis is the perfect devotion/commitment of humans. Though enjoyment of mater ial values is a part of Indian cultural values, it is only a pa rt and cannot represent the ultimate goal the Indian cultural values pursue, that is, to r ealize the per fect devotion of humans. Most Indians brought up by the traditional Indian culture care less about the possession and e njoyment o f mater ial values: thus t here exists a strong national mentality of helping those in distress and aiding those in per il. In India as well as in other countr ies, it‘s not surpr ising to find that a r ich person, even a ver y wealthy one, hands over his for tune for the good of social welfare. Social an d Political Val u es

The social and political value s of Indian culture are that humans should intend to create a har monious environment, using the eter nal law of the cosmos to nor malize their own conducts in order to reac h the ultimate stage of oneness with Brahman-atman. On the one hand, India attaches some importance to pragmatic interests and desires. On the other hand, more importantly, it spares no efforts to promote that ever yone should persevere in his life and undertake the obligations of his family and his nation for the prosper ity of the society and the wellbeing of his poster ity rather than personal pu rsuits and gains. People must follow law and submit to it, complying with the social r ules and morals prescr ibed by the eter nal law, which is mor e than mere civil law and covers a whole range of meanings such as the task and justice of man, human relations and the social o rder. So the Indian traditional cultu ral values strongly e mphasize that only by dedicating oneself selfless ly to the society can his behaviors tr uly accord with the social and political values and can a ha r monious environment be cr eated. Spi r it u al Val u es

The ultimate goal that the spir itual values of Indian culture pursue is to realize the oneness of Brahman-atman, which is the only way for final salvation. India is a religious countr y. As ear ly as the Vedic era, Indians had a strong belie f that some kind of individual personality existed after death, which was considered to be the primitive soul o f a human. This belief developed into the thought of heaven at the end of this era. It was said in Athar va Veda that the soul o f the dead could rVeda eside that in heaven, earth and midairto , but heaven the most place.who While it was believed in Rig those people eligible enter the is heaven werideal e sadhus conducted atic pr actices, soldiers who gave up their lives on the battlefield and devotees who didn‘ t hesitate to sacr ifice their https://www.francisxavier.ac.in


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properties to Br ahman could a lso enter heaven. Then the conception of karma" began to emer ge in Athar va Veda, which claimed that man must hold responsibility towards both the good kar ma and the evil kar ma on his own, and evil deeds must be puni shed accordingly. Based on this concept, the idea of the round o f death and rebirth ‗

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE came into being. Evildoers must be punished, either being sent to the hell or being t ransmigrated into such humble things as pig, dog and muck, while those who did good would be rewarded by paradise. It was in the Upanishad er a that such issues as the time limit of punishment and reward, soul and salvation were developed and clarified further. The appearance of the Upanishads had a positive signif icance to a certain extent because the text was founded on the three major guiding pr inciples of Br ahmanism. It was the r esult of the effor ts o f some Brahmanic scholars who aspired to seek advanced thoughts to interpret the ultimate meanings of the forest treatises ‘, par t o f the Vedas. These t reatises included philosophic thought s, ‗

so they were a lso called Vedanta philosophy. After it was finalized, the Vedanta philosophy claimed that the dominant in heaven, earth and midair was Brahman. Though invisible and unrevealed as it was, it would appear in ever y place at any time. The mater ial wor ld and ever ything in it were just its illusion. Individual soul was essentially one with Brahman. This was the thinking of "the identity of Brahman-atman". Ther efore, Hinduism sees the self-realization of the identity of Brahman-atman as the loftiest goal of reaching salvation. But because of "kar ma" man can ‘t exper ience and recognize the atman. "Affected by K ar ma, the atman is unable to return to Brahman to identify with it after dea th. So man has to suffer from the round of death and rebirth or be reincarnated into a bird, a beast, a worm and a fish." For that matter, Indians consider life to be pain ful and that they must str ive hard to find the way to reach salvation and the ide ntity o f Brahma-atman so that the suffer ing from the round o f death and rebir th can be exempted, escaped from ‘. In order to achieve this goal, new paths had been put forward in the Bhagavad Gita, the class ic work of Hinduism. They wer e the path of be havior, the path of devotion a nd t he path o f knowledge. ‗

Pat h of B eh avio r . The believers must abide by the moral nor ms str ictly, devoting themselves to the

gods. Actions der ive from freedom, so Hinduism encour ages people to pa rticipate in all kinds of working p ractices, to love their jobs and to dedicate themselves to their jobs, which quite di ffers from the Buddhist way of salvation b y quitting jobs to eliminate the cause of "kar ma". Pat h of Wi sdom . The path o f wisdom is ver y popular among Indians today. To most intellectuals, they feel subconsciously the ur gency to master knowledge and open the door of wisdo m not only for the sake of finding a favor able living and working condition, but al so for approaching God and identifying with him. Path of D ev otion. If a Hindu loves a god and submits to him piously in the extreme, this is a lso a way of gaining the god‘s favor and reaching salvation. It is an e ffective way to identify with a god to cher ish the god in heart, to do ever ything for god and to read the name of god silently ever y minute. N on viole nt T h i n ki n g i n I n di an Cu lt u r al Val u es

‘

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Nonviolence is the goal and state the Indian c ultural values seek to achieve. According to Vedanta philosophy, ever ything in the wor ld is self der iving from Self, so it should be fr iendly and equally disposed to others. Ever ything‘s true nature is divine and has the tr ue, good and beautiful mor al conduct, so people should be kind to and love each other. Moreover, the spir it of friendliness and love ought to be e xtended to beasts and birds, flowers and plants. Thus, killing is forbidden.



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE UNIT IV Environme ntal e thics

Environmental ethics is the par t o f environmental philosophy which considers extending the traditional boundar ies of ethics from solely including humans to including the non-human world. It exerts influence on a lar ge range of disciplines including environmental law, environmental sociology, ecotheology, ecological economics, ecology and environmental geogr aphy. There are many ethical deci sions that human beings make with respect to the environment. For example:  Should we continue to clear c ut forests for the sake of human consumption? Why should we continue to propagate ou r species, and life itself?  Should we continue to make gasoline powered vehicles?   What e nvironmental ob ligations do we need to keep for future generations? Is it r ight for humans to knowingly cause the extinction of a species for the convenience of  humanity?  How should we best use and conser ve the space e nvironment to sec ure and expand life? The academic field of environmental ethic s grew up in response to the work of scientists such as Rachel Ca rson and events such as the first Ear th Day in 1970, when environmentalists star ted ur ging philosophers to consider the philosophical a spects of environmental problems. Two papers published in Science had a cr ucial impact: The first inter national academic jour nals in this field emer ged from Nor th America in the late 1970s and ear ly 1980s – the US-based journal Environmental Ethics in 1979 and the Canadian based jour nal The Tr umpeter : Jour nal of Ecosophy i n 1983. The first Br itish based jour nal of this kind, Environmental Values, was launched in 1992. 4.1 EC ON OMIC ENVIR ON MEN T:

There have been a number o f scholars who've tr ied to categor ize the var ious ways the natur al environment is valued. Alan Mars hall and Michael Smith are two examples o f this, as cited by Peter Vardy in "The Puzzle of Ethics". For Marshall, three gener al ethical app roaches have emerged over the last 40 years. Marshall uses the following ter ms to descr ibe them: Libertarian Extension, the Ecologic Extension and Co nservation Ethics. Liber tarian ex te nsion Marshall‘s Liber tar ian extension echoes a civil liberty app roach (i.e. a commitment to extend equal r ights to all members of a community). In environmentalism, though, the community is generally thought to consist of non-humans as well as humans. Andrew Brennan was an advocate o f ecologic humanism (eco- humanism), the ar gument that all ontological entities, animate and in-animate, can be given ethical wor th purely on the ba sis that they exist. The work of Arne Noses and his collabor ator Sessions also falls under the libertar ian

extension, although they eferrthedofthe m "deep ecology". Deepthat ecology is the ar gument the intrinsic value or inher entprwor theterenvi ronment – the view it is valuable in itself.for Their argument, incidentally, falls under both the libertar ian extension and the ecologic extension. https://www.francisxavier.ac.in


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Ecologic ex te nsion Alan Marshall's categor y of ecologic extension places emphas is not on human r ights but on the recognition of the fundamental interdependence of all biological (and some abiological) entities 58



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE and their essential dive rsity. Whereas Liber tar ian Extension can be thought of as flowing from a political reflection of the natural wor ld, Ecologic Extension is best thought of as a scientific reflection of the natural wor ld. Ecological Extension is roughly the same classification of Smith‘s eco-holism, and it ar gues for the intr insic value inherent in collective ecological entities like ecosystems or the global environment as a whole entity. Holmes Rolston, among others, has taken this approach. Conservat io n e thics

Marshall's categor y of 'conser vation ethics' is an exten sion o f use- value into the non-human biological world. It focuses only on the worth of the environment in ter ms of its utility or usefulness to humans. It cont rasts the intr insic value ideas of 'deep ecology', hence is often referred to as 'shallow ecology', and generally ar gues for the preser vation of the environment on the ba sis that it has e xtrinsic value – instr umental to the welfare of human being s. Conser vation is therefor e a means to an end and purely concer ned with mankind and inter- generational considerations. It could be argued that it is this ethic that for med the under lying ar guments proposed by Governments at the K yoto summit in 1997 and thr ee agreements reached in Rio in 1992 Huma nist theorie s Following the bio-centr ic and eco-holist theor y distinctions, Michael Smith further classifies Humanist theor ies as those that require a set o f cr iter ia for moral status and ethical worth, such as sentience. This applies to the work of Peter Singer who advocated a hierarchy o f value similar to the one devised by Aristotle which relies on the ability to reason. This was Singer's solution to the problem that arises when attempting to determine the interests of a non-sentient entity such as a garden weed. Applied theology

The Chr istian wor ld view sees the universe as created by God, and humankind accountable to God for the use o f the resources entr usted to humankind. Ultimate values ar e seen in the light o f being valuable to God. This applies both in b readth o f scope - car ing for people (Matthew 25 ) and environmental issues, e.g. environmental health (Deuteronomy 22.8; 23.12 -14) - and dynamic motivation, the love of Chr ist controlling (2 Cor inthians 5.14f) and dealing with the under lying spir itual d isease of sin, which shows itself in selfishness and thoughtlessness. In many countr ies this relationship of accountability is symbolised at har vest thanksgiving. (B.T. Adeney: Global Ethics in New Dictionar y of Chr istian Ethics and Pastoral Theology 1995 Leicester) Anth ro pocentrism

Anthropocentr ism simply p laces humans at the cent re o f the universe; the human r ace must always be its own pr imar y concern. It has become customar y in the Wester n tr adition to con sider only our species when co nsider ing the environmental ethics of a situation. Therefor e, ever ything else in existence should be evaluated in ter ms of its utility for us, thus committing specia lism. All environmental studies should include an assessment of the intrinsic value of non- human beings. In fhumans' act, ba sed on this ver y assumption, a philosophical a rticle has The explor ed recently willing extinction as a gestur e toward other beings. authors r efer the to po thessibility idea asof a thought exper iment that should not be understood as a call for action. https://www.francisxavier.ac.in


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A recent view r elates anthr opocentr ism to the future of life. Biotic ethics are based on the human identity as part o f gene/protein or ganic life whose effective purpose is self- propagation. This implies a human pu rpose to secure and propagate life. Humans are central because only we can secure life beyond the du ration o f the Sun, poss ibly for trillions of eo ns. ] Biotic ethics values life 59



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE itself, as embodied in biological str uctures and processes. Humans ar e special beca use we can sec ure the future of life o n cosmological scales. In par ticular, humans ca n continue sentient life that enjoys its e xistence, adding further motivation to propagate life. Humans can secure the future o f life, and this future ca n give human exi stence a cosmic purpose.

4.2 PHI LOSOPHY OF EC ONOMIC GR OW & IT S IMPLICATIONS FOR BUSINESS ’

Introduc tio n: Wha t is Eco no mics ?

Both the definition and the precise domain o f economics a re subjects o f controversy within philosophy o f economics. At first glance, the di fficulties in defining economics may not appear ser ious. Economics is, after all, concer ned with aspects of the production, exchange, distr ibution, and consumption of commodities. But this claim and the ter ms it contains are vague; and it is arguable that economics is relevant to a gr eat deal more. It helps to approac h the question, ―What is economics? ‖ historically, befor e tur ning to comments o n contemporar y featur es of the discipline. The e mergence of eco nomics and of econo mies Philosophical reflection on economics is ancient, but the conception of the economy as a distinct object of study dates back only to the 18th centur y. Aristotle addresses some problems that most would recognize as pertaining to economics mainly as problems concerning how to manage a household. Scholastic philosophers addr essed e thica l questions concerning economic behavior, and they condemned usur y — that is, the taking o f interest on money. With the increasing importance of trade and of nation-states in the ear ly modern per iod, mercantilist‘ philosophers and pamphleteers were lar gely concer ned with the balance of trade and the regulation of the currency. There was an ‗

increasing recognition of the complexities of the financial management of the state and of the possibility that the way that the state taxed and acted influenced the production o f wealth. In the Twentieth Centur y, economists str ipped this general theor y of rationality of its hedonistic clothing (Pareto 1909, Hicks and Allen 1934). Rather than supposing that all consumption choices can be ranked by how much they promote an agent 's happiness, economists focused on the ranking itself. All that they suppose concer ning evaluations is that agents are able consistently to rank the alter natives they face. This is equivalent to supposing first that rankings are complete — that is, for any two alter natives x and y that the agent may evaluate or choose, either the agent rank s x above y (prefers x to y), or the agent prefers y to x, or the agent i s indifferent. Second, economists suppose that agent 's rankings of alter natives (preferences) are transitive. To say that an agent's prefer ences are transitive is to claim that if the agent prefers x to y and y to z, then the agent prefers x to z, with similar claims concer ning indifference and An Essay on the Nature and Significance of Economic Science, Lionel Robbins defined economics as ―the science which studies human behavior as a relationship between ends and scarce means which have alter native uses ‖ (1932, p. 15). According to Robbins, economics is not concer ned with production, exchange, distr ibution, or consumption as such. It is instead concerned with an a spect o f all humanmodels, action. and Although Robbins' definition onesuch to understand efforoftsvoting to apply economic concepts, techniques to other subject helps matters as the analysis behavior and legislation, it seems evident that economics maintains its connection to a traditio nal do main. https://www.francisxavier.ac.in


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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE Conte mporary eco no mics a nd its s everal s chools Contemporar y eco nomics is e xtremely diverse. There are many schools and many br anches. Even so-called ―orthodox ‖ or ―mainstr eam‖ economics has many variants. Some mainstream economics is highly theoretical, though most o f it is applied and relies on only rather r udimentar y theor y. Both theoretical and applied work can be distinguished as microeconomics or macroeconomics. Microeconomics focuses on relations among individuals (though fir ms and households often count as honorar y individuals and little is said about the demand of par ticular individuals for specific commodities as opposed to aggregate demand for those commodities). Individuals have complete and transitive prefer ences that gover n their choices. Consumers prefer more commodities to fewer and have ―diminishing mar ginal rates o f substitution ‖ — i. e. they will pay less for units o f a co mmodity when they a lready have lots o f it than when they have little of it. Fir ms attempt to maximize profits in the face of d iminishing r etur ns: holding fixed all the inputs into production except one, output increases when ther e is more of the remaining input, but at a diminishing rate. Economists idealize and suppose that in competitive markets, fir ms and individuals cannot influence pr ices, but economi sts are also interested in strategic interactions, in which the r ational choices of separate individuals are interdependent. Game theor y, which is devoted to the study o f strategic inter actions, is of growing impor tance both in theoretical and applied microeconomics. Economists model the outcome o f the profit- maximizing activities of firms and the attempts of consumers to best satisf y their preferences as an e quili brium in which there is no excess demand on any market. What this means is that anyone who wants to buy anything at the going market p r ice is able to do so. There is no excess demand, and unless a good is fr ee, there is no excess supply. Macroeconomics grapples with the relations among economic aggregates, such as relations between the money supply and the rate of inter est or the rate o f growth, focusing especially on problems concer ning the business cycle and the influence of monetar y and fiscal policy on ec onomic outcomes. Many mainstream economists would like to unify macroeconomics and microeconomics, but few economists are satisfied with the attempts that have been made to do so, especially via so called ―representative agents ‖ (K irman 1992, Hoover 2001a ). Econometrics is a third main br anch o f economics, devoted to the empirical estimation, elaboration, and to some extent testing of spec ific microeconomic and macroeconomic models (but see summers 1991 and Hoover 1994). Macroeconomics is immediately relevant to economic policy and hence (and unsurpr isingly) subjects to much more heated (and politically- char ged) controvers y than microeconomics or econometr ics. Six ce ntral me tho dological pro ble ms

Although the different br anches and schools of economics r aise a wide var iety of epistemological and ontological iss ues concerning economics, six problems have been central to methodological reflection (in this philosophical sense) concer ning economics: Pos itive versus nor ma tive eco no mics Policy makers look to economics to guide policy, and itseems inevitable that even the most esoter issues in theor eco nomics bear on by some materrial ests. The extent to whichiceconomics bearsetical on and may bemay influenced norpeople's mative conce ns inter r aises methodological questions about the relationships between a pos it ive science concer ning ―facts ‖ and a nor mative https://www.francisxavier.ac.in


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inquir y into values and what ought to be. Most economists and methodologists believe that there is a reasonably clear distinction bet ween facts and values, between what is and what ought to be, and they believe that most of economics should be regarded as a positive science that helps policy makers choose means to accomplish their ends, though it does not bear on the choice o f ends its elf. 61



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE This view is questionable for several reasons (Mongin 2006, Hausman and McPherson 2006). First economists have to interpret and articulate the incomplete specifications of goals and constraints provided by policy makers (Machlup 1969b). Second, econo mic ―science ‖ is a human activity, and like all human activities, it is gover ned by values. Those values need not be the same as the values that influence economic policy, but it is debatable whether the values that govern the activity of economists can be sharply distinguished from the values that govern policy makers. Third, much of economics is built around a nor mative theor y of rationality. One can question whether the values implicit in such theories are sharply d istinguishable from the values that gover n policies. For example, it may be difficult to hold a maximizing view o f individual rationality, while at the same time insisting that social policy should resist maximizing growth, wealth, or welfare in the name of freedom, r ights, or equality. Fourth, people's views o f what is r ight and wrong a re, as a matter of fact, influenced by their beliefs about how people in fact behave. There is evidence that studying theor y that depicts individuals as self-interested leads people to regard self-interested behavior mor e favorably and to become mor e self-interested (Marwell a nd Ames 1981, Frank e t al. 1993). R eas ons versus causes

Orthodox theoretical microeconomics is as much a theor y o f rational c hoices as it a theor y that explains and predicts economic outcomes. Since virtually all economic theor ies that discuss individual choices take individuals as acting for reasons, and thus in some way rational, questions about the role that vie ws of rationality and reasons should play in economics are of gener al impor tance. Economists are typically concer ned with the aggregate results of individual choices rather than with par ticular individuals, but their theor ies in fact o ffer both causal explanation s for why individuals choose a s they do and accounts o f the reasons for their choices. See also the entr y on Methodological Individualism. Explanations in ter ms of reasons have several features that distinguish them from explanations in terms of causes. Reasons justify the actions they explain, and indeed so called ―exter nal reasons ‖ (Williams 1981) only justify action, without purporting to explain it. Reasons can be evaluated, and they are responsive to cr iticism. Reasons, unlike causes, must be intelligible to those for whom they ar e reasons. Social s cienti fic na tu ralism

Of all the social sciences, economics most closely resembles the natural sciences. Economic theories have been axiomatized, and ar ticles and books of economics are full of theorems. Of all the social sciences, only economics boasts an ersatz Nobel Pr ize. Economics is t hus a test case for those concer ned with the extent of the similar ities between the natur al and social sciences. Those who have wondered whether social sciences must d iffer fundamentally from the natural sciences seem to have been concer ned mainly with three q uestions: (i) Are there fundamental di fferences between the str ucture or concepts of theories and explanations in the natural a nd social sciences? Some of t hese iss ues were already mentioned in the discussion above of reasons versus causes. Are ther diffpr eredictive ences inand goals? Philosophers economists have ar gued that in (ii) addition to oe r fundamental instead of the explanator y goalsand of the natural sciences, the social sciences should aim at providing us with underst and i ng. Weber and others have ar gued that https://www.francisxavier.ac.in


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the social sciences should provide us with an understanding ―from the inside‖, that we should be able to empathize with the reactions of the agents and to find what happens ―understandable ‖ (Weber 1904, Knight 1935, Machlup 1969a). This (and the closely related recognition that 62



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE explanations cite reasons rather than just causes) seems to introduce an element o f subjectivity into the social sciences that is not found in the natural sciences. (iii) Owing to the impor tance of human c hoices (or per haps fr ee will), are social phenomena too ―irregular ‖ to be captu red within a framework of laws and theor ies? Given human fr ee will, perhaps human behavior is intr insically unpredictable and not subject to any laws. But there is, in fact, much regular ity in human action, and given the enor mous causal complexity cha racter izing some natural systems, the natural sciences must cope with many irregular ities, too. Abstrac tio n, idealizatio n, a nd ce teris pari bus clause s in econo mics

Economics raises q uestions concer ning the legitimacy of severe abstraction and idealization. For example, mainstream economic models often stipulate t hat ever yone is perfectly rational and has perfect infor mation or that commodities are infinitely divisible. Such c laims a re exaggerations, and they are clearly false. Other schools of economics may not employ idealizations that are this extreme, but there is no way to do econ omics if one is not willing to simplify drastically and abstract from many complications. How much simplification, idealization, abstraction or ―isolation‖ (Mäki 2006) is legitimate? In addition, because economists attempt to study economic phenomena a s constituting a separate domain, influenced o nly by a small number o f causal factors, the claim s o f economics are tr ue only ce teris paribus — that is, they a re tr ue only if there are no interferences or d isturbing causes. What are ce teris pari bus clauses, and when if ever a re they legitimate in science? Questions concerning ce teris paribus clauses are closely related to questions concerning simplif ications and idealizations, since one way to simplify is to suppose that the var ious disturbing causes or interferences are inactive and to explore the consequences o f some small number o f causal factors. These issues and the related question of how well suppor ted economics is by the evidence has been the centr al questions in economic methodology. They will be di scussed fur ther below in Section 3 and elsewhere. Causation in econo mics and econo me t rics

Many important gener alizations in economics are causal claims. For example, the law of demand asserts that a p rice increase will (ceter is par ibus) diminish the quantity demanded. (It does not merely asser t an inverse relationship between p r ice and demand. When demand incr eases for some other reason, such as a change in tastes, pr ice increases.) Econometr icians have also been deeply concer ned with the possibilities of deter mining causal relations from statistical evidence and with the relevance of causal relations to the possibility of consistent estimation of par ameter values. Since concer ns about the consequences of alter native policies are so centr al to economics, causal inquir y is unavoidab le. Befor e the 1930s, economists were generally willing to use causal language explicitly and literally, despite some concer ns that there might be a conflict between cau sal analysis o f economic changes and ―comparative statics ‖ treatments of equilibrium states. Some economists were also worried that thinking in ter ms of causes was not compatible with recognizing the multiplic ity and mutuality of deter mination in economic equilibrium. In the anti- metaphysical intellectual envir onment of the 1930s and 1940s positivism was at leastpsymptomatic), any mention of causation became highly (of suswhich picious,logical and economists commonly retended to avoid causal concepts. The consequence was that they ceased to reflect carefully on the cau sal concepts https://www.francisxavier.ac.in


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that they continued implicitly to invoke(Hausman 1983, 1990, Helm 1984, Runde 1998). For example, rather than for mulating the law of demand in ter ms of the causal consequences of price changes for quantity demanded, economists tried to confine themselves to discussing the mathematical function relating price and quantity demanded. Ther e were impor tant exceptions 63



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE (Haavelmo 1944, Simon 1953, Wold 1954), and dur ing the past generation, this state of a ffairs has changed dramatically. For example, in his Causality in Macroeconomics (2001b) K evin Hoover develops feasible methods for investigating lar ge scale causal questions, such as whether changes in the money supply (M) cause changes in the rate o f inflation P or accommodate changes in P that are otherwise caused. If changes in M cause changes in P, the n the conditional distr ibution of P o n M should remain stable with exogenous changes in M, but should change with exogenou s changes in P. Hoover ar gues that histor ical investigation, backed by statistical inquir y, can justify the conclusion that some par ticular changes in M or P have been exogenous. One can then deter mine the causal di rection by examining the stability of the conditional di str ibutions. Econometr icians have made vital contr ibutions to the contempor ar y r evival of philosophical interest in the notion of ca usation. I n addition to Hoover's work, see for example Geweke (1982), Granger (1969, 1980), Car twr ight (1989), Sims (1977), Zellner and Aigner (1988), Pear l (2000), Spirtes, Glymour and Scheines (2001). One apparently secure way to determine causal relations is via randomized cont rolled exper iments. If the exper imenter‘s sor ts subjects r andomly into exper imental and control groups and var ies just one factor, then unless by bad luck the two groups differ in some unknown way, changes in the outcomes given the common features of the control and treatment groups should be due to the difference in the one factor. This makes randomized controlled tr ials ver y attractive, though no panacea, since the treatment and control groups may not be representative of the population in which policy- makers hope to apply the causal co nclusions, and the causal con sequences of the inter vention might differ across differ ent subgroups within the control a nd treatment groups (Worrall 2007). Struc tu re and st ra tegy of econo mics: para dig ms and re s earch programme s

In the wake of the work of K uhn (1970) and Lakatos (1970), philosophers are much more awar e of and inter in theSince lar germany theoretical structur that or unif y and guide esearc h within particular resear ch ested traditions. theoretical pres ojects appr oaches in reconomics are systematically unified, they pose questions about what guides r esearch, and many economists have applied the work of K uhn or Lakatos in the attempt to s hed light on the overall structure of economics (Baumber g 1977, Blaug 1976, de Marchi and Blaug 1991, B ronfenbrenner 1971, Coats 1969, Dillard 1978, Hands 1985b, Hausman 1992, ch. 6, Hutchison 1978, Lat sis 1976, Jalladeau 1978, K unin and Weaver 1971, Stanfield 1974, Weintr aub 1985, Worland 1972). Whether these applications have been success ful is controversial, but the compar ison of the structure o f economics to Kuhn's and Lakatos' schema has at least ser ved to highlight distinctive features of economics. For example, asking what the ―positive heur istic ‖ o f mainstr eam economics consists in per mits one to see that mainstream models typically attempt to demonstrate that an economic equilibr ium will obtain, and thus that mainstream models are unified in more than ju st their common assumptions. Since the success of research projects in economics is controversial, understanding their global str ucture and strategy may c larify their drawbacks as well as their advantages. Inexactne ss , ce teris paribus clauses , and “ unrealist ic assumpt ions”

As mentioned section, mostication, impor tant methodological concer ning economics involves in thetheverpryevious consider able the simplif idealization, and issue abstraction that character izes economic theor y and the consequent doubts these features of economics raise https://www.francisxavier.ac.in


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concer ning whether economics is well supported. Claims such as, ―Agents prefer lar ger commodity bundles to smaller commodity bundles, ‖ raise ser ious questions, because if they are interpreted as universal generalizations, they are false. Can a science rest on false generalizations? If these claims are not universal generalizations, then what is their logical for m? And how can claims that appear in 64



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE this way to be false or approximate be tested and confir med or d isconfir med? These problems have bedeviled economists and economic methodologists from the first methodological reflections to the present day. Class ical eco no mics a nd the me thod a priori

The first extended reflections on economic methodology appear in the work of Nassau Senior (1836) and John Stuart Mill (1836). Their essays must be understood against the background of the economic theor y of their times. Like Smith's economics (to which it owed a great deal) and moder n economics, the ―class ical‖ economics of the middle decades of the 19th centu r y traced economic r egular ities to the choices of individuals facing social and natu ral con straints. But, as compared to Smith, more reliance was placed on severely simplified models. David Ricardo's Pr inciples of Political Economy (1817) dr aws a por trait in which wages above the subsistence level lead to increases in the population, which in tur n require more intensive agr iculture or cultivation o f infer ior land. The extension of cultivation leads to lower profits and higher rents; and the whole tale of economic development leads to a gloomy stationar y state in which profits are too low to command any net investment, wages retur n to subsistence levels, and only the landlords are affluent. Fortunately for the wor ld, but unfortunately for economic theor ists at the time, the data consistently contradicted the trends the theor y predicted (de Marchi 1970). Yet the theor y continued to holdsway for more than half a centur y and the consistently unfavorable data were explained away as due to var ious ―disturbing causes. ‖ It is consequently not surpr ising that Senior's and Mill's acco unts o f the method of eco nomics e mphasize therelative autonomy of theor y. Friedma n and the de fe nse of “unrealist ic assumpt ions”

Although some contemporar y philosophers have ar gued that Mill's method a pr iori is lar gely defensible (Bhaskar 1978, Ca rtwright 1989, and Hausman 1992), by the middle of the Twentieth Centur y Mill's views appeared too many economists out of step with contempo rar y philosophy o f science. Without studying Mill's text carefully, it was easy for economists to misunderstand his ter minology and to regard his method a pr ior i as opposed to empir icism. Others took ser iously Mill's view that the basic pr inciples of economics should be empir ically established and found evidence to cast doubt on some o f the basic pr inciples, par ticularly the view that fir ms attempt to maximize profits (Hall and Hitch 1938, Lester 1946, 1947). Methodologists who were well- infor med about contempor ary de velopments in philosophy o f science, such as Terence Hutchison (1938), denounced ―pur e theor y‖ in economics as unscientific. Philosophically reflective economists proposed several ways to replace the old- fashioned Millian view with a mor e up-to-date methodology that would continue to justify much of current practice (see par ticularly Machlup 1955, 1960 and K oopmans 1957). By far the most influential of these was Milton Fr iedman's contr ibution in his 1953 e ssay, ―The Methodology o f Positive Economics. ‖ This essay has had an eno r mous influence, far more than any othe r work on methodology. Fr iedman begins essay by stinguishing a conventional bet di ween positive nor mative economics andhis conjectu ringdithat policy di sin putes are typicallyway really sputes about and the consequences of alternatives and can thus be resolved b y progress in positive economics. Tur ning to https://www.francisxavier.ac.in


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positive economics, Fr iedman asser ts (without ar gument) that correct prediction concerning phenomena not yet obser ved is the ultimate goal of all positive sciences. He holds a practical view of science and looks to science for predictions that will guide policy. 65



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE Since it is d ifficult and often imposs ible to carr y out exper iments and since the uncontrolled phenomena economists observe a re d ifficult to interpret (owing to the same causal comple xity that bothered Mill), it is hard to judge whether a particular theor y is a good basis for p redictions o r not. Consequently, Fr iedman ar gues, economists have supposed that they could test theor ies by the realism of their ―assumptions ‖ rather than by the accu racy o f their p redictions. Fr iedman ar gues at length that this is a gr ave mistake. Theor ies may be of great predictive value even though thei r assumptions are extremely ―unrealistic. ‖ The realism of a theor y's assumptions is, he maintains, irrelevant to its predictive value. It does not matter whether the assumption that fir ms maximize profits is realistic. Theor ies should be appraised exclusively in ter ms of the accuracy o f their predictions. What matters is whether the theor y of the firm makes correct and significant predictions. As cr itics have pointed out (and almost all commentators have been cr itical), Fr iedman refers to several di fferent things as ―assumptions ‖ of a theor y and means several di fferent things by speaking of assumptions as ―unr ealistic ‖ (Br unner 1969). Since Fr iedman aims his cr iticism to those who investigate empir ically whether fir ms in fact attempt to maximize profits, he must take ―ass umptions ‖ to include central economic generalizations, such as ―Fir ms attempt to maximize profits, ‖ and by ―unrealistic,‖ he must mean, among other things, ―false. ‖ In ar guing that it is a mistake to appr aise theor ies in ter ms o f the realism of assumptions, Fr iedman is ar guing at least that it is a mistake to appraise theor ies by investigating whether their centr al generalizations ar e true or false. It would seem that thi s interpretation would render Fr iedman's views inconsistent, because in testing whether fir ms attempt to maximize profits, one is checking whether pr edictions of theor y concer ning the behavior of fir ms are true or false. An ―assumption‖ such as ―firms maximize profits ‖ is itself a prediction. But there is a further wr inkle. Fr iedman is not conce r ned with ever y prediction of economic theor ies. In Fr iedman's view, ―theor y is to be judged by its predictive power ”

for the class of phe no me na whic h it is inte nde d to ex plai n

(1953, p. 8). Economists are interested in only some o f the implications of economic theor ies. Other predictions, such as those concer ning the results of surveys of managers, are irrelevant to policy. What matters is whether economic theories are successful at p redicting the phenomena that economists are interested in. In other words, Fr iedman believes that economic theo r ies should be appr aised in ter ms of their predictions concer ning prices and quantities exchanged on markets. In his view, what matters is ―narrow predictive success‖ (Hausman 2008a), not overall predictive adequacy. So economists can simply ignore the disquieting findings of surveys. They can ignore the fact that people do not always prefer lar ger bundles of commodities to smaller bundles of commodities. They need not be troubled that some o f their models suppose that all agents know the pr ices of all pr esent and future commodities in all markets. All that matters is whether the predictions concer ning market phenomena tur n out to be correct. And since anomalous market outcomes could be due to any number of uncontrolled causal factors, while exper iments are difficult to carr y out, it tur ns out that economi sts need not worr y about eve r encountering evidence that would disconfirm fundamental theor y. Detailed models may be con fir med or disconfir med, but fundamental theor y is safe. In this way one can unde rstand how Fr iedman's methodology, which appears the eclectic andabsur pragmatic view that economists should use any model appears to ―workto‖ justif regarydless of how d or unr easonable its ass umptions might appearthat , has been deployed inser vice of a r igid theoretical orthodoxy. https://www.francisxavier.ac.in


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R ational c hoice theory

Insofar as economics explains and predicts phenomena as consequences of individual choices, which are they explained in ter ms of reasons, it must depict agents as to some extent 66



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE rational. Rationality, like reasons, involves evaluation, and just a s one can a ssess the rationality of individual c hoices, so one can a ssess the rationality of social c hoices and examine how they are and ought to be related to the prefer ences and judgments o f individuals. In addition, there are intr icate questions concerning rationality in strategic situations in which outcomes depend on the choices of multiple individuals. Since r ationality is a central concept in b ranches o f philosophy such as action theor y, epistemology, ethics, and philosophy o f mind, studies of rationality frequently c ross the boundar ies betwee n economics and philosophy. Indivi dual ra tionality

The barebones theor y of rationality discussed above in Section 1.1 takes an agent's preferences (rankings of objects of choice) to be rational if they are complete and transitive, and it takes the agent's choice to be rational if the agent does not prefer any feasible alter native to what he or she chooses. Such a theor y of rationality is clear ly too weak, becau se it says nothing about belief or what rationality implies when agents do not know (with cer tainty) ever ything relevant to their choices. But it may also be too strong, since, as Isaac Levi in particular has ar gued (1986), there is nothing irrational about having incomplete preferences in situations involving uncertainty. Sometimes it is rational to suspend judgment and to defer ranking alter natives that are not well understood. On the other hand, transitivity is a plausible condition, and the so-called ―money pump ‖ argument demonstrates that if one's preferences are intransitive and one is willing to make exchanges, then one can be exploited. (Suppose an agent A prefers X to Y, Y to Z and Z to X, and that A will pay some small amount of money $P to exchange Y for X, Z for Y, and X for Z. That means that, starting with Z, A will pay $P for Y, t hen $P again for X, then $ P again for Z and so on. Agents are not this stupid. They will instead refuse to trade o r adjust their preferences to eliminate the intransitivity (but see Schick 1986). On the other hand, there is co nsider able exper imental evidence that people's preferences are not in fact transitive. Such evidence does not establish that transitivity is not a requirement of rationality. It may show instead that people are sometimes irrational. In the case of so-called ―pr eference reversals, ‖ for example, it see ms plausible that people in fact make irrationa l c hoices (Lichtenstein and Slovic 1971, Tversky and Thaler 1990). Evidence of persistent violations of transitivity is disquieting, since standards of rationality should not be impossibly high. . Collective rationali ty and s ocial c hoice Although societies are ver y d ifferent from individual s, they evaluate alternatives and make choices, which may be rational o r irrational. It is not, however, obvious, what pr inciples of rationality should gover n the choices and evaluation s of society. Transitivity is one plausible condition. It seems that a society that chooses X when faced with the alter natives X o r Y, Y when faced with the alter natives Y o r Z and Z when faced with the alter natives X or Z either has had a change of heart or is choosing irrationally. Yet, purported irrationalities such as these can easily ar ise from standard mechanisms that aim to link social c hoices and individual prefer ences. Suppose there a re three individuals in the society. Individual One ranks the alter natives X, Y, Z. Individual Two ranks them Y, Z, X. Individual Thr ee rank s them Z, X, Y. If decisions are made by pai rwise major voting, X will belychosen om the pair Y), Y will be chosen from (Y, Z), and Z will be chosenityfrom (X, Z). Clear this is fr unsettling, but(X, is possible cycles in social c hoices irrational? Similar problems affect what one might call the logical cohe rence of social judgment s (List and https://www.francisxavier.ac.in


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Pettit 2002). Suppose society con sists of three individuals who make the following judgments concer ning the tr uth or falsity of the propositions P and Q and that social judgment follows the major ity. 67



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE P

if P then Q

Q

Individual 1

tr ue

tr ue

tr ue

Individual 2

false

tr ue

false

Individual 3

tr ue

false

false

Society

tr ue

tr ue

false

The judgments of each o f the individuals are consistent with the pr inciples of logic, while social judgments violate them. How important is it that social judgments be consistent with the pr inciples of logic? Although social choice theor y in this way bea rs on questions of social rationality, most work in social choice theor y explores the consequences of principles o f rationality co upled with explicitly e thical constraints. The seminal contr ibution is Kenneth Arrow's imposs ibility theorem (1963, 1967). Arrow assumes that both individual preferences and social choice s are complete and transitive and (as completeness implies) that the method of making social choices issues in some choice for any po ssible profile of individual preferences. In addition, he imposes a weak unanimity condition: if ever ybody pr efers X to Y, then Y must not be chosen. Third, he requires that there be no dictator whose preferences determine social choice s irrespect ive of the preferences of anybody else. Lastly, he imposes the condition that the social cho ice bet ween X and Y should depend on how individuals r ank X and Y and on nothing else. Arrow then proved the surpr ising result that no method of relating social choices and individual preferences can satisf y all these conditions! In the sixty years since Arrow wrote, there has been a plethora of work in social choice theor y, a good deal of which is ar guably of great importance to ethics. For example, John Harsanyi proved that if individual preferences and social evaluation s both satisf y the axioms of expected utility theor y (with shared or objective pr obabilities) and a stronger unanimity condition is imposed, then social evaluation arerecently deter mined by aanweighted individual utilities (1955, Matthew Adler (2012) shas extended approachsum like of Harsanyi's to demonstr ate that1977a). a for m of weighted utilitarianism, which prior itizes the interests of those who are worse off, uniquely satisf ies a longer list of rational and ethical con straints. When there are instead disagreements in probability assignments, there is an imposs ibility result: the unanimity condition implies that social evaluations will not satisf y the axioms o f expected utility theor y (Hammond 1983, Seidenfeld, et al. 1989, Mongin 1995). For further discussion of social choice theor y and the r elevance of utility theor y to social evaluation, see Sen (1970) and for recent reappraisals Fleurbaey (2007) and Adler (2012). Game theory When outcomes depend on what several agents do, one agent 's best choice may depend on what other agents choose. Although the pr inciples of rationality governing individual choice still apply, ar guably ther e are further pr inciples of rationality gover ning expectations of the actions of others (and of their expectations concer ning your actions and expectation s, and so for th). Game theor y occupies an increasingly impor tant role within economics itself, and it is also relevant both to

inquir ationality and yinquir ies concer ethics. yFor furTheor ther discussion see the entr iesies on concer Game ning Theorry, Game Theor and Ethics, and ning Evolutionar Game y.



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Econo mic s and e thics As discussed above in Section 2.1 most economists distinguish between positive and nor mative economics, and most would ar gue that economics is mainly relevant to policy because o f the (positive) information it provides concer ning the consequences of policy. Yet the same 68



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE economists a lso offer their advice concer ning how to fix the economy. In addition, there is a whole field of nor mative economics. Economic outcomes, institutions, and processes may be better or worse in several di fferent ways. Some outcomes may make people better off. Other outcomes may be less unequal. Others may restr ict individual freedom mor e severely. Economists typically evaluate outcomes exclusively in ter ms of welfare. This does not imply that they believe that only welfare is of mor al impor tance. They focus on welfare, because they believe that economics provides a particular ly apt set of tools to address questions o f welfare and because they believe o r hope that questions about welfare can be separated from que stions about equality, freedom, or justice. As sketched below, economists have had some things to say about other dimensions of moral app raisal, but welfare takes center stage. Indeed normative economics is often called ―welfare economics. ‖ Welfare

One central q uestion of moral philosophy has been to deter mine what things are intr insically good for human beings. This is a central question, because all plausible moral views assign an impor tant place to individual welfare or well-being. This is obviously tr ue of utilitar ianism (which hold that what is r ight maximizes total or average welfare), but even non -utilitarian views must be concer ned with welfare, if they recognize the virtue of benevolence, or if they are concer ned with the interests of individuals or with avoiding har m to individuals. There are many ways to think about well- being, and the prevailing view among economi sts themselves has shifted from hedonism (which takes the good to be a mentalstate such as pleasure or happiness) to the view that welfar e can be measured by the satisfaction o f pr eferences. Eff iciency Because the identification of welfare with preference satisfaction makes it questionable

whether one can make interpersonal welfare compar isons, few economi sts defend a utilitar ian view of policy a s maximizing total or average welfare. (Harsanyi is one exception, for another see N g 1983). Economists have instead explored the possibility of making welfare evaluations of economic processes, institutions, outcomes, and policies without making interpersonal compa risons. Consider two economic outcomes S and R, and suppose that some people prefer S to R and that nobody prefers R to S. In that case S is ―Pareto super ior ‖ to R, or S is a ―Pareto improvement ‖ over R. Without making any interpersonal compa risons, one can conclude that people's preferences are better satisf ied in S than in R. If there is no state of affairs that is Pareto superior to S, then economists say that S is ―Pareto optimal ‖ or ―Pareto e fficient.‖ Efficiency here is efficiency with respect to satisf ying preferences rather than minimizing the number of inputs needed to produce a unit of output o r some other technical notion (Legrand 1991). If a state of affairs is not Par eto efficient, then society is missing an opportunity costlessly to satisf y some people's prefer ences better. A Pareto efficient state of affairs avoids this failure, but it has no other obvious virtues. For example, suppose nobody is satiated and people care only about how much food they get. Consider two distr ibutions of food. In the first, millions are star ving but no food is wasted. In the second, nobody is starving, but some food is wasted. The first is Pareto efficient, while the second is not. Other directions in nor ma tive eco no mics Although welfar e economics and concer ns about e fficiency dominate nor mative economics, https://www.francisxavier.ac.in


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they do not exhaust the subject, and in collaboration with philosophers, economists have made var ious important contr ibutions to contempor ar y work in ethics and nor mative social and political philosophy. Section 5.2 and Section 5.3 gave some hint of the contr ibutions o f social choice theor y and game theor y. In addition economi sts and philosophers have been working on the p roblem of 69



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE providing a for mal character ization of freedom so as to br ing tools of economic analy sis to bear (Pattanaik and Xu 1990, Sen 1988, 1990, 1991, Ca rter 1999). Others have developed for mal character izations of equality of resources, oppor tunity, and outcomes and have analyzed the conditions under which it is possible to separate individual and social responsibility for inequalities (Pazner and Schmeidler 1974, Varian 1974, 1975, Roemer 1986b, 1987, Fleurbaey 1995, 2008). John Roemer has p ut contemporar y economic modeling to work to offer precise char acterizations o f exploitation (1982). Amartya Sen and Mar tha Nussbaum have not only developed novel interpretations of the proper concer ns of nor mative economics in ter ms of capabilities (Sen 1992, Nussbaum and Sen 1993, Nuss baum 2000), which Sen has linked to character izations of egalitar ianism and to ope rational measures of depr ivation (1999). There are many lively interactions between nor mative economics and moral philosophy. See also the entries on Liber tar ianism, Pater nalism, Egalitar ianism, and Economic Justice. Conclusions

The frontiers between economic s and philosophy concer ned with methodology, r ationality, ethics and nor mative social and political philosophy a re buzzing with activity. This activity is diverse and concer ned with ver y different questions. Although many of these a re related, philosophy of economics is not a single unified enterpr ise. It is a collection o f separate inquir ies linked to one another by connections among the questions and by the dominating influence o f mainstream economic models and techniques. Main Features of a Planned Economy If we have a look at the planned economies, say, Russian, Chinese or even Indian economy, we shall discover some char acter istics. The for mulation of the plan and its implementation call for a certain type of economic and admini strative organization and a certain type of endeavor and setup. It is only natural, therefore, that the planned economies reveal some common features. Existence of a Central Planning Author ity 4.3 M AIN FEATURES OF A ECON OMIC PLANNIN G WI TH RES PEC T TO BUSIN ESS

Main Features of a Planned Economy If we have a look at the planned economies, say, Russian, Chinese or even Indian economy, we shall discover some char acteristics. The formulation of the plan and its implementation call for a certain type of economic and administrative organization and a certain type of endeavor and setup. It is only natural, therefore, that the planned economies reveal some common features. 1. Exist e nce of a Ce nt ral Pla nning Authority. All countr ies launching on economic pla nning have at the top of economic affairs a Planning Commission or a Central Planning Author ity, e.g., Gosplan in the U.S.S.R. and a Planning Commission in India. Planning has no meaning unless it is centrally planned. Planning b y individual industries or or ganization will simply co nstitute plans and no planning. 2. Laying D own O bjec t ives . Planning to be fr uitful must keep steadily in view certain broad objectives which have to be realized. In the absence of such objectives planning will be merely a leap the dard. k. Planning is not a policy of dr ift and the economic endeavor under planning has not to beinhaphazar Certain ver y desirable objectives are laid down beforehand. The usual objectives are the https://www.francisxavier.ac.in


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maximization of national income, rapid industrialization providing full employment, achieving a socialistic patter n, achieving self- sufficiency, etc. O f course, the objectives will be laid down in the context of the economic situation. 70



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE 3. Fixed targets - Allied with the laying down of the objectives is the fixing of tar gets. The objectives indicate the directions in which the economy is to move and tar gets are fixed for the realization of those objectives. Tar gets are fixed for each industr y and for each sector of major industr ies, transport, and communication, for imports and exports, and also in the field of education and public health. Fixing of tar gets enables the Planning Commiss ion to determine the success or failur e of each component part of the economy. 4. Controls - A planned economy has of necess ity to be subjected to a var iety of controls. The working o f a free market economy has to be modified and controlled in the interest of overall planned development. Thus, in a planned economy we have price controls, control on the distr ibution of essential goods and scarce raw mater ials, through fair pr ice shops, co-operative stores, import control, expo rt cont rol, exchange control, control of capital i ssues, licensing of factor ies, etc. Laissez- faire is dead and gone in all planned economies and extensive State cont rol takes its place. 5. Co-or di natio n. Economic planning has to be comprehensive and not isolated and piecemeal. All economic effor ts aiming at accelerated economic development must be properly coordinated. Without co-ordination a countr y will land itself into chaos and economic mess. 6. Gro wi ng Public Sec tor. Another important feature of a planned economy is the vital role played by the public sector and its growing importance. Pr ivate sector cannot be expected to sink capital in enterpr ises in which the retur n is long-delayed and is uncertain. The State as the custodian of national interest must step in where pr ivate enterprise is shy and is found wanting. The public sector really provides the essential framework for spreading out the planned economic a ctivity. Better regional balance, more even di stribution of economic power, greater economic stability, greater employment, fuller utilization of resources, greater secur ity for the workers, elimination of recurring business cycles are some other features of a planned economy. 4.3 M AIN FEA TURES OF ECONOMIC PLANNIN G WI TH R ESPECT TO B USINESS:

The past half centur y has witnessed the emer gence of a lar ge literature devoted to economic methodology. That literature explores many methodological approaches and applie s its conclusions to many schools and branches of economics. Much of the literature focuses on the fundamental theor y of mainstream economics — the theor y of the equilibria resulting from con strained r ational individual choice, but macroeconomics has recently attracted increasing interest (Backhouse??). Since 1985, there has been a jou r nal Econo mic and Philos ophy devoted specif ically to philosophy of economics, and since 1994 ther e has also been a Jo urnal o f Eco no mic Me thodology. This section will sample some of the methodological work of the past two decades. Po pperian a pp roache s K arl Popper's philosophy o f science has been influential a mong eco nomists, as among othe r scientists. Popper defends what he calls a falsificationist methodology (1968, 1969). Scientists should for mulate theor ies that are ―logically falsifiable ‖ — that is, inconsistent with some possible obser vation r eports. ―All crows are black‖ is logically falsifiable, since it is inconsistent with (and

would be falsif ied by) an ob ser vation repor t of a red crow. Popper insists on falsifiability on the grounds that unfalsifiable claims that r ule out no obser vations ar e uninfor mative. They provide no guidance concer ning what to expect. Second, Popper maintains that scientists should subject theor ies https://www.francisxavier.ac.in


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to harsh test and should be willing to reject them when they fail the tests. Third, scienti sts should regard theor ies as at be st interesting co njectures. Passing a test does not confir m a theor y or provide scientists with reason to believe it. It only justifies continuing to employ it (since it has not yet been falsified) and devoting increased effor ts to attempting to falsify it (since it has thus far sur vived 71



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE testing). Popper has a lso written in defense of what he calls ―situational logic‖ (which is basically rational choice theor y) as the correct method for the social sciences (1967, 1976). There appear to be ser ious tensions between Popper's falsif ications and his defense of situational logic, and his discussion o f situational logic has not been as influential as his falsifications. The Rhe toric o f Eco no mics One radical reaction to the difficulties of justifying the reliance on severe simplif ications is to deny that economics p asses methodological muster. Alexander Rosenber g (1992) maintains that economics can only make imprec ise gener ic predictions, and it cannot make p rogress, because it is

built around folk psychology, which is a mediocre theor y of human behavior and which (owing to the irreducibility of intentional notions) cannot be improved. Complex economic theor ies are valuable only as applied mathematics, not as empirical theor y. Since economics doe s not show the same consistent progress as the natural sciences, one cannot dismiss Rosenber g's suggestion that economics is an empir ical dead end. But his view that it has made no progress and that it does not per mit quantitative predictions is hard to accept. For example, contemporar y economists are much better at pr icing stock options than economists were even a gene ration ago. An equally radical but oppo site reaction is Deirdre McCloskey's, who denies that there are any non-tr ivial methodological standards that economics must meet (1985, 1994). In her view, the only relevant and significant c r iter ia for assessing the practices and pr oducts of a discipline are those accepted by the practitioners. Apar t from a few general standards such as honesty and a willingness to listen to cr iticisms, the only justifiable cr iter ia for a ny conversation ar e those of the participants. Economists can thus dismiss arrogant pretensions of philosophers to judge economic discourse. Whatever a group of respected eco nomists takes to be good economics is automatically good economics. Philosophical standards of empir ical success are just so much hot ai r. Those who are interested in understanding the character of economics and in contr ibuting to its improvement should eschew methodology and study instead the ―r hetor ic‖ of economics — that is, the means of argument and persuasion that succeed among economists. McCloskey's studies o f the rhetor ic o f economics have been valuable and influential (1985, esp. ch. 5–7), but much of her work consists not o f such studies but of philosophical cr itiques o f economic methodology. These are more problematic, because the position sketched in the previous paragraph is hard to defend and potentially self-defeating. It is hard to defend, because epistemological standards for good science have al ready infected the conversation o f economists. The standards of predictive success which lead one to have qualms abo ut economics are already standards that many economi sts accept. The only way to e scape these doubts is to surrender the standards that gave r ise to them. But McCloskey's position under mines any pr incipled ar gument for a change in standards. Fur thermore, as Alexander Rosenber g has ar gued (1988), it seems that economi sts would doom them selves to irrelevance if they were to surrender standards of predictive success, for it is upon such standards that policy decisions are made. McCloskey does not, in fact, want to pr eclude all cr iticisms that economi sts are sometimes persuaded when they should not be or are not persuaded when they should be. For she herself cr iticizes the(1985, bad habit economists have ofchar conf lating signifiptively icance with impor tance ch. 9).some Sometimes McCloskey acter izesstatistical r hetor ic descr as theeconomic study o f what in fact pers uades, but sometimes she characterizes it nor matively as the study o f what ought to https://www.francisxavier.ac.in


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persuade (1985, ch. 2). And if r hetoric is the study o f what ought r ationally to persuade, then it is methodology, not an alternative to methodology. Questions about whether economics is a successful empir ical science cannot be conjured away. 72



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R ealism in eco no mic me tho dology

Economic methodologist have paid little attention to debates within philosophy o f science between realists and anti-realists (van Fraassen 1980, Boyd 1984), because economic theor ies rar ely postulate the existence of unobser vable entities or properties, apart from var iants of ―ever yday unobser vables, ‖ such as beliefs and desires. Methodologists have, on the other hand, vigorously debated the goals of eco nomics, but those who ar gue that the ultimate goals are predictive (such as Milton Fr iedman) do so because of their interest in policy, not because they seek to avoid or resolve epistemological and semantic puzzles concerning references to unobser vables. Nevertheless t here a re two impor tant recent realist programs in economic methodology. The first, developed mainly by Uskali Mäki, is devoted to explor ing the var ieties o f realism implicit in the methodological statements and theor etical enterpr ises of economists (see Mäki 1990a, b, c, 2007). The second, which is espoused by Tony Lawson and his co-workers, mainly at Cambr idge Univers ity, der ives from the work of Roy Bhaskar (1978) (see Lawson 1997, Bha skar e t al . 1998, and Fleetwood 1999). In Lawson's view, one can trace many of the inadequacies of mainstream economics (of which he is a cr itic) to an insufficient concer n with ontology. In attempting to identify regular ities on the surface of the phenomena, mainstream economists ar e doomed to failure. Economic phenomena are in fact influenced by a lar ge number of different causal factors, and one can achieve scientific knowledge only of the underlying mechanisms and tendencies, whose operation can be glimpsed inter mittently and obscurely in obser vable relations. Mäki's and Lawson's programs obviously have little to do with one another, though Mäki (like Mill, Cartwright, and Hausman) shares Lawson's and Bhaskar's concer n with underlying causal mecha nisms. See also the entr y on Scientific Realism. Econo mic me tho dology a nd s ocial studies of s cience

Throughout its histor y, economics has been the subject of sociological a s well as methodological scr utiny. Many sociological discussions of economics, like Marx's critique of classical political economy, have been concer ned to identify ideological di stortions and thereby to cr iticize par ticular aspects o f economic theor y and economic policy. Since ever y political progr am finds economists who testify to its eco nomic vir tues, there is a never-ending source of mater ial for such cr itiques. For example, in the wake of the near collapse o f the inter national financial system in 2008, Amer ican economists who ar gued for auster ity wer e mostly Republicans, while those who defended efforts to increase aggregate de mand were mostly Democrats. The influence of contemporar y sociology o f science and social studies of science, coupled with the difficulties methodologists have had making sense of and rationalizing the conduct of economics, have led to a sociological turn within methodological reflection itself. Rather than showing that ther e is good evidence suppor ting developments in economic theor y or that those developments have other broadly epistemic vir tues, methodologists and historians such as D. Wade Hands (2001); Hands and Mirowski 1998 ), Philip Mirowski (2002), and E. Roy Weintraub (1991) have ar gued that these changes reflect a wide variety of non-r ational factors, from change s in funding for theoretical economics, political commitments, personal r ivalr ies, attachments to metaphors, or mathematical interests.



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4.4 INDUS TRIAL POLIC Y & FRAMEWOR K OF GOV ERN MENT CON TRAC T O VER BUSINESS: D e tailed conte mporary stud ie s

The above sur vey of approaches to the funda mental problems o f appraising economic theor y is far from complete. For example, there have been substantial e fforts to apply str ucturalist views o f scientif ic theor ies (Sneed 1971, Stegmüller 1976, 1979 ) to economics (Stegmüller et al. 1981, Hamminga 1983, Hands 1985c, Balzer and Hamminga 1989). The above di scussion does at least document the diversity and di sagreements concerning how to interpret and app raise economic theories. It is not surpr ising that there is no consensus among those wr iting on economic methodology concer ning the overall empi r ical appraisal of specific approaches in economics, including mainstream microeconomics, macroeconomics, and econometr ics. When p ractitioners cannot agr ee, it is q uestionable whether those who know more philosophy but less economics will be able to settle the matter. Since the debates continue, those who reflect on economic methodology should have a continuing part to play. Meanwhile, there ar e ma ny ot her more specific methodological questions to address, and it is a sign of the matur ity of the sub discipline that a lar ge and increasing per centage of work on economic methodology addresses more specif ic questions. There is plethora of work, as a per usal of any recent issue of the Jou rnal of Econo mic Me thodology or Econo mics and Philos ophy will confir m. Some of the range of iss ues currently under d iscussion was mentioned above in Section 2. Here is a list o f three of the many areas of current interest: 1. Although more concer ned with the content of economics than with its methodology, the recent explosion of work on feminist economics is shot through with methodological (and sociological) self-r eflection. The fact that a lar ger percentage of economists are men than is t r ue of any of the other social sciences and indeed than several of the natural sciences raises methodological questions about whether there is something pa rticular ly masculine about the discipline. Important texts are Ferber and Nelson (1993, 2003), Nelson (1995, 1996, 2001), Barker and Kuiper 2003. Since 1995, ther e has been a jour nal, Fe minist Econo mics , which p ulls together much of this work. 2. A centur y ago economists talked of their work in terms of ―principles, ‖ ―laws, ‖ and ―theor ies. ‖ Nowadays the standard intellectual tool or for m is a ―model. ‖ Is this just a change in ter minological fashion, or does the concer n with models signal a methodological shift? What are models? These questions have been di scussed by Car twr ight 1989, 1999, Godfrey Smith 2006, Grüne-Yanoff 2009, Hausman 1992, K uor ikoski and Lehtinen 2009, Mäki, ed. 1991, Mäki 2009a, 2009b, Morgan 2001, 2004, Mor gan and Morrison 1999, Rappapor t 1998, Sugden 2000, 2009, and Weisber g 2007. 3. Dur ing the past generation, exper imental work in economics has expanded rapidly. This work has many di fferent objectives (see Roth 1988 ) and appar ently holds out the prospect of br idging the gulf between economic theor y and empir ical evidence. Some o f it casts light o n the way in which methodological commitments influence the extent to which economi sts heed empir ical evidence. For example, in the case of preference reversals, discussed briefly below in Section 5.1, economists ableofattention to the imental findings and thatto they disconfir meddevoted central consider pr inciples economics. Butexper economi sts wer e gener allyconceded unwilling pay ser ious attention to the theories proposed by p sychologists that predicted the phenomena before they https://www.francisxavier.ac.in


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were observed. The reason seems to be that these psychological t heories do not have the same wide scope as the basic pr inciples of mainstream economics (Hausman 1992, chapter 13). The methodological commitments gover ning theoretical economics are much more complex and much 74



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE more specific to economics than the general r ules proposed by philo sophers such as Popper and Lakatos. The relevance of exper imentation r emains controversial. Behavioral economists are most enthusiastic, while more traditional theor ists question whether exper imental findings can be generalized to non-experimental contexts and, more generally, conce r ning the poss ibilities of lear ning from experiments (Caplin and Schotter 2008 ). For discussions of exper imental economics, see Guala (2000a, b, 2005), Hey (1991), Kagel and Roth (1995, 2008), Plott (1991), Smith (1991), Starmer (1999), Camerer (2003), and the June, 2005 spec ial issue of the Jo urnal o f Eco no mic Me thodology. Al Roth's Game Theor y, Exper imental Economics, and Market Design Page (http://kuznets.fas.harvard.edu/~aroth/alroth.html) is a particular ly useful source. 4.5 R OLE OF CHAMBERS OF COMMERCE AND CON FED ER ATI ON OF INDIAN INDUS TRI ES

Chambers of commerce plays a vital role by render ing useful services to business men and the Gover nment. Ser vices to businessmen Chambers of commerce ser ves as fr iends, philosophers and guides to the business community. Business men der ive the following advantages from chambers of commerce: (i) Businessmen get valuable information free of cost. (ii) They can expand their business activities with the help of suggestions and advice from chambers of co mmerce. (iii) C hambers of commerce creates markets for the products of their members by or ganizing fairs and exhibitions. (iv) Businessmen get a common for um at which they can di scuss problems and exchange views on matters of common interest. (v) Diff erences and di sputes among businessmen can be solved amicably and economically with the help of chambers of commerce. (vi) Members take advantage of educational and t raining facilities offered by chambe rs of commer ce. (vii) Chambers of commerce undertakes research o n behalf of their members. (viii) C hambers of commerce fosters a sense of cooperation's among bu sinessmen. Cha mbe rs of Co mmerce in In dia

In India, chambers of commerce have been or ganised at both regional and national levels. 1. R egional Cha mbers of Co mmerce (i) Indian Chamber of Co mmerce (Kolkata) (ii) Bengal C hamber of Co mmerce (Kolk ata) (iii) Indian Merchants C hamber (M umbai) (iv) Mawar i Chamber of Co mmerce (M umbai) (v) Madras Chamber of Commerce (Chennai) (vi) Punjab, Har yana and Delhi C hamber of Co mmerce (New Delhi). 2. N ational Cha mbe rs of Co mmerce

(i) Federation of Indian Chambers of Co mmerce and Industr y (FICCI) (ii) Confederation o f Indian Industr y (CII) https://www.francisxavier.ac.in


(Hi) Associated Chambers of Co mmerce and Industr y (ASSOCHAM) (iv) All India Or ganizations of Employers (AIOE)

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FICCI: The Federation o f Indian Chambers o f Co mmerce and Industr y (FICCI) were e stab lished in 1926 in New Delhi as a n apex cent ral body o f businessmen in India. It consists of both individua l and corporate members. Its membership consists of 50 c hambers of commer ce and trade associations, 200 overseas members, and 1500 associate members. Its management is vested in an executive committee. FICCI acts as a representative body o f Indian b usiness. Econo mic Planni ng i n India Introduc tio n:

Economic Planning is to make, decision with respect to Economic Planning is a, the use of resources. Ter m used to descr ibe the long term plans of government to co-ordinate and develop Economic planning in India was star ted in 1950, the economy. N ee d for Econo mic Pla nni ng

Mess Poverty And Low, Low Level of, High Rate of Growth of Population, Per Capita Income Social And Economic Problem Created By, Backward Technology, Literacy Partition O f Countr y Objec t ives of Econo mic Pla nni ng Economic Growth. Balanced Regional Development. Reduction of Economic In Equalities. Reduction of Unemployment. Modernization.

Members O f Planning Commiss ion Of India – Chair man -Dr. Manmohan Singh Member,Deputy Chair man - Shr i Montek Singh Ahluwalia,(Pr ime Minister) Secretar y - Shr i Rajeev Ratna Shah Five Year Pla ns The economy of India is based in part on planning th rough its five year plans which are developed, executed and monitored by planning commi ss ion .The tenth plan completed its terms in march 2007 and the eleventh plan i s currently underway .1. First five year plan(1951-1956)2. Second five year plan (1956-1961)3. Third five year plan (1961-1966)4. Fourth five year plan (1969-1974)5. Fifth five year plan (1974-1979)6. Sixth five year plan (1980-1985)7. Seventh five year plan(1985-1990)8. Eighth five year plan(1992-1997)9. N inth five year plan(1997-2002)10. Tenth five year p lan (2002-2007)11. Eleventh five year plan (2007-2012)

1. First five year plan(1951-1956)- The first Indian Pr ime Minister, Jawahar lal Nehr u p resented the first five- year plan to the Parliament of India o n 8 December 1951.• The plan addressed, mainly, the agr ar ian sector, including investments in dams and irrigation.• The most impor tant featur e of this phase was—active role of in and all economic sectors. after independence, India was facing ba sic • At the end of the plan pe r iod in 1956, problems deficiency of state capital lo w capacity to save. five Indian Institutes of Technology (IITs) were started as major technical institutions. https://www.francisxavier.ac.in


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2. Second five year plan(1956-61) - The second five- year plan focused on industr y, especially heavy industr y.• Hydroelectr ic power projects and five steel mills at Bhilai, Dur gapur, and Rourkela were established. Coal production was increased. More railway lines were added in the nor th east.• Atomic energy was also for med in second five year plan.• The total amount allocated under the 76



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE second five year plan in India was Rs. 4,800 crore. This amount was allocated among various sectors:• Mining and industr y• Community and agr iculture development • Power and irrigation• Social ser vices• Communications and tr ansport 3. Third five year plan (1961-66) -The third plan stressed on agr iculture and improving production of wheat, it is also shifted the focus towards the Defense industr y. • Many primar y schools were started in r ural areas. Panchayat elections were started. • State electr icity boards and state secondar y education boa rds were for med. Fourth five year plan (1969-74) - At this time Indir a Gandhi was the Pr ime Minister. The Indira Gandhi government nationalized 14 major Indian banks and the Green Revolution in India advanced agr iculture. 4. Fifth five year plan (1974-79) - Stress was laid on employment, pover ty, alleviation, and justice. The plan al so focused on self-r eliance in agr icultural production and de fense.• The Indian national highway system was introduced for the first time. Sixth five year plan(1980-85) - The sixth plan also marked the beginning of economic liberalization. This led to an increase in food pr ices and an increase in the cost of living.• Family planning was also expanded in order to prevent overpopulation. 5. Seventh five year plan(1985-90) -The Seventh Plan marked the comeback of the Cong ress Party to power.• The main objectives of the 7th five year plans were to establish growth in areas of increasing economic productivity, production o f food grains, and generating employment opportunities.• The thr ust a reas o f the 7th Five year plan have been enlisted below:• Social Justice• Using moder n technology • Agr icultural development • Full supply of food, clothing, and shelter• Increasing productivity o f small and lar ge scale farmers• Making India an Independent Economy 6. Eighth five year plan(1992-97) -Between 1990 and 1992, there were only Annual Plans.• It was the beginning of pr ivatization and liberalization in India.• Moder nization of industries was a major highlight of the Eighth Plan.• India became a member of the Wor ld Trade Or ganization o n 1 Januar y 1995.• The major objectives included, controlling population growth, poverty reduction, employment generation, str engthening the infrastructure, Institutional building, tourism management, Human Resour ce development, Involvement of Panchayat raj, Nagar Palikas, N.G.OS and Decentralization and peoples participation. 7. Ninth five year p lan(1997-2002) -The main objectives of the Ninth Five Year Plan of India are: • To develop the r ural & ag r icultural sector • To generate employment opportunities and promote poverty reduction. • To provide for the basic infrastr uctural facilities like education for all, safe dr inking water, pr imar y health ca re, transpor t, ener gy. Tenth five year plan (2002-07) • Attain 8% GDP growth pe r year. • Reduction of pover ty ratio by 5 pe rcentage points by 2007. Providing gain ful and high-quality employment at least to the addition to the labo r force Reduction in gender gaps in literacy a nd wage rates by at least 50%. 8. 11th Five Year Plan Tar get Income & ,Pover ty Accelerate growth rate of GDP from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per ,capita income by 2016-17. Reduce educated, Increase agr icultural GDP growth r ate to 4% p er year. Raise real wage rate o f unskilled wor by, unemployment to below 20 peren cent. 9. kers Education Reduce dropout rates 5%. of childr from, Incr ease elementar y school from 52.2% in 2003-04 to 20% b y 2011-12. Lower gender, literacy rate for persons o f age 7 years or more to 85%. https://www.francisxavier.ac.in


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gap in literac y to 10 pe r centage points. 10. Women and Children Ensure that at least 33 percent, o f the direct and indirect bene ficiar ies o f all gover nment schemes are ensure that all children enjoy a safe, women and girl children. childhood, without a ny comp ulsion to work. 77



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE 11. Environment Increase forest and tree cove r by 5, Attain WHO standards of air quality in all major, percentage points. Treat all urban waste water by 2011 -12 to clean river, cities by 2011 -12. Increase ene r gy efficiency by 20 pe rce ntage points b y 2016-17.,waters. 12. Conclusion Economic Planning help in mobilizingO bjective of economic, and allocating the resources in desired manner. Planning is to reduce inequality, economic growth, balanced regional Each five year plan aims at achieving certain, growth, moder nization. tar get. Five year plan constitute the steps toward the fulfillment of objectives of economic pla nning. Econo mic plan ning:

Economic planning is a mechanism for economic coordination cont rasted with the market mechanism. There are var ious types of planning procedures and ways of conducting economic planning. As a coordinating mechanism for socialism and an alter native to the market, planning is defined as a direct a llocation o f resources and is contr asted with the indirect allocation of the market. The level of centralization in deci sion-making in planning depends on the specific type of planning mechanism employed. As such, one can di stinguish between cent ralized planning and decentralized planning. An economy p r imar ily based on cent ral planning i s referred to as a planned economy. In a centrally planned economy the allocation o f resources is deter mined by a comprehensive plan of production which specifies output requirements. Planning may also take the for m of directive planning or indicative planning. Most modern economies are mixed economies incorporating var ious degrees of markets and planning. A distinction can be made between physical planning (as in pure socialism) and financial planning (as practiced by governments and pr ivate firms in capitalism). Physical planning involves economic planning and coordination c onducted in ter ms of d isaggr egated physical units; whereas financial planning involves plans for mulated in ter ms of financial units. Different for ms of economic planning have been featured in var ious models of socialism. These range from decent ralized-planning systems, which are based on collective-decision making and disaggregated information, to centralized systems of planning conducted by technical exper ts who use aggregated infor mation to for mulate plans of production. In a fully developed socialist economy, engineers and technical specialists, overseen or appointed in a democr atic manner, would coordinate the economy in ter ms of physical units without any need or use for financial- based calculation. The economy of the Soviet Union never reached this stage of development, so p lanned its economy in financial terms throughout the durat ion o f its e xistence. Conce pt of so cialist pla nni ng

The class ical conception o f socialist economic planning held by Mar xists involved an economic system where goods and ser vices were valued, demanded and produced directly for their use- value, as opposed to being produced as a by- product of the pursuit of profit by business enterpr ises. This idea of "production for use" is a fundamental aspect of a socialist economy. This involves social cont rol ove r the allocation o f the surplus product, and in its most extensive theoretical for m, calculation- in-kind in place of financial calculation. For Marxists in par ticular, planning manner. entails control o f the surplus p roduct (profit) by the associated producers in a democratic This differs from planning within the framework of capitalism, which is based on the https://www.francisxavier.ac.in


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planned accumulation of capital in order to either stabilize the bu siness cycle (when under taken by governments) or to maximize profits (when undertaken b y fir ms), as opposed to the socialist concept of planned production for use. 78



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE In such a socialist society ba sed on economic planning, the pr imar y function of the state apparatus changes from one o f political r ule over people (via the creation and en forcement o f laws) into a technical administration o f production, distribution and or ganization; that is the state would become a coordinating eco nomic e ntity rather than a mechanism of political and c lass - based control, thereby cea sing to be a state in the traditional sense.[7] Pla nni ng ve rsus Co mma nd The concept of a command economy is differentiated from the concept o f a planned economy (or economic planning ), especially by socialists and Mar xists, who liken command

economies (such as that of the for mer Soviet Union) to that of a single capitalist fir m, or ganized in a top-down administrative fashion based on bu reaucratic or ganization akin to that of a capitalist corporation. Economic analysts have ar gued that the economy of the for mer Soviet Union actually represented an admini stered or command economy as opposed to a planned economy because planning did not play an operational role in the allocation of resources amo ng productive units in the economy; in actuality, the main allocation mechanism was a system o f command-and-control. As a result, the phrase administrative command economy gained curr ency a s a more accu rate descr iptor of Soviet-type economies. D ecentralized plann ing

Decentralized economic planning is a planning process that starts at the user- level in a bottom- up flow of infor mation. As such, decentralized planning often appears as a complement to the idea of socialist self- management (most notably by libertar ian socialists and democratic socialists). The theoretical postulates for models of decentralized socialist planning stem from the [10]

thought of Kar l K autsky, Rosa Luxembour g, Nikolai Bukharin and Oskar Lange. This model involves economic decision- making based on self- gover nance from the bottom- up (by employees and consumers) without any dir ecting central authority. This often contrasts with the doctr ine of Leninists, Mar xist-Leninists and Social democrats, who advocate directive administrative planning where directives a re passed down from higher author ities (planning a gencies) to agents (enterpr ise managers), who in turn give orders to workers. Two contemporar y mode ls o f dece ntr alized planning are Participator y eco nomics, developed by the economist Michael Albert; and negotiated coordination, developed by the economi st Pat Devine. Ma terial bala nce s Material balance planning was the type of economic planning employed by Soviet-type economies. This system emer ged in a haphazard manner dur ing the collectivization dr ive under Joseph Stalin, and emphasized rapid growth and industr ialization over efficiency. Eventually this method became an established part of the Soviet conception o f "socialism" in the post-war per iod, and other Socialist states emulated it in the latter half of the 20th centur y. Material balancing

involves a planning agency (Gosplanheet in the case of them the USSR takingtar a gets sur vey of ied available inputs and raw mater ials, using a balance-s to balance with )output specif by industr y, thereby achieving a balance o f supply and demand. [11] https://www.francisxavier.ac.in


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Lange -Lerner- Taylor mo del The economic models developed in the 1920s and 1930s b y Amer ican economists Fred M. Taylor a nd Abba Lerner, and by Polish economist Oskar Lange, involved a for m of planning based 79



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE on mar ginal cost p r icing. In Lange's model, a central planning boa rd would set pr ices for producer goods through a tr ial-and-error method, adjusting until the pr ice matched the mar ginal cost, with the aim o f achieving Pareto-efficient outcomes. Although these models were often de scribed as "market socialism", they actually represented a form of "market simulation" p lanning. Pla nni ng i n ca pitalis m Intra-f irm a nd i nt ra- indust ry planning

Lar ge corpor ations use planning to allocate resources inter nally among its divisions and subsidiaries. Many modern fir ms also utilize regression analysis to measure market demand in order to adjust pr ices and to decide upon the optimal quantities of output to be supplied. Planned obsolence is often cited as a form of economic planning employed by lar ge firms to incr ease demand for futur e products b y deliberately limiting the operational lifespan of its products. The inter nal structures of corporations have been de scr ibed as centralized command economies that employ both planning and hierarchical or ganization and management. According to J. Bradford DeLong, a significant portion o f t ransactions in Western economies do not pass through anything resembling a market. Many tr ansactions ar e actually movements of value among different br anches and divisions within corporations, companies and agencies. Further more, a signif icant por tion of economic activity is planned in a centralized manner by manage rs within fir ms in the for m of production planning and marketing management wher e consumer demand is estimated, tar geted and included in the fir m's overall plan; and in the for m of production planning. In The New Industr ial State, the Amer ican economist John Kenneth Galbraith posited that lar ge fir ms manage both their pr ices a nd co nsumer demand for their products through sophisticated statistical methods. Galbraith also poi nted out that, because of the increasingly complex nature of technology and spec ialization of k nowledge, management had become incr easingly specialized and bur eaucr inter nalstrstr uctur of cor ations and companies had been traransf or med into what heatized. called The a "techno uctur e",es wher e spor pecialized groups and committees e the pr imar y decision- makers, and specialized managers, directors and financial advi sers operate under for mal bureaucratic procedures, replacing the individual entrepreneur's role. Joseph Schumpeter, an economist associated with the Austr ian school a nd Institutional school of economics, ar gued that the changing nature of economic activity – specif ically the increasing bureaucratization and specialization required in production and management – was the major reason for why capitalism would eventually evolve into socialism. The role of the businessman was increasingly bureaucratic, and specific functions within the firm required increasingly specialized knowledge which could just as easily be supplied by state functionar ies in publicly owned enterprises. In the first volume of Capital, K arl Mar x identified the process of capital accumulation as central to the law of motion of capitalism. Increased industr ial capacity from increasing retur ns to scale further socializes production. Capitalism eventually socializes labor and production to a point where the traditional notions of pr ivate ownership and commodity production become increasingly insufficient for further expanding the productive capacities of society, [14] necessitating the emer ofolled a socialist where the means of production are socially owned and the surplus valuegence is contr by theeconomy work force. Many socialists viewed these tendencies, specifically the increasing tr end toward economic https://www.francisxavier.ac.in


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planning in capitalist fir ms, as evidence of the increasing obsolence of capitalism and inapplicability of ideals like perfect competition to the economy; with the next stage of evolution being the application o f society-wide economic planning. 80



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State develo pme nt pla nni ng

State development planning or national planning refers to macroeconomic policies and financial p lanning conducted b y gove r nments to stabilize the market o r promote economic growth in market- based economies. This involves the use of monetar y policy, industr ial policy and fiscal policy to "steer" the market to ward tar geted outcomes. Industr ial policy includes gover nment taking measures "aimed at improving the com petitiveness and capab ilities o f domestic fir ms and promoting str uctural transfor mation." In contrast to socialist planning, state development planning does not r eplace the market mechanism and does not eliminate the use of money in production. It only applies to pr ivately owned and publicly owned fir ms in the strategic sectors of the economy and seek s to coordinate their activities through indirect means and market- based incentives (s uch as tax b reaks or subsidies). Econo mic plan ning in prac tice Soviet Unio n

Main ar ticles: Analysis of Soviet-type economic planning and Economy of the Soviet Union The Soviet model of economic planning is an economic system wher e decisions regar ding production and investment are embodied in a plan formulated by Gosplan (State planning agency) through the process of mater ial ba lances. Economic information, including consumer demand and enterpr ise resource requirements, are aggregated and used to balance supply (from available resource inventories) with demand (based on requirements for individual economic units and enterpr ises) through a system o f iterations. The Soviet economy ope rated in a centr alized and hierar chical manner where directives were issued to lower-level or ganizations. As a result, the Soviet economic model was o ften referred to as a command economy or an administer ed economy becau se plan directives were enforced through inducements in a vertical po wer-structure, where planning played little functional role in the allocation of resour ces. Unite d Sta te s

The United States utilized economic planning during the First Wor ld War. The Federal Gover nment supplemented the price system with centralized resource allocation and created a number of new agencies to direct important economic sectors; notably the Food Administration, Fuel Administr ation, Railroad Administration and Wa r Industr ies Board. Dur ing the Second Wor ld War, the economy exper ienced stagger ing growth under a similar system o f planning. In the postwar per iod, US gover nments utilized such measur es as the Economic Stabilization Program to directly inter vene in the economy to control pr ices, wages, e tc. in different economic sectors. From the start of the Cold War and up until the p resent day, the United States Feder al Gover nment directs a significant amou nt o f investment and funding into research a nd de velopment (R&D), often initially through the Depar tment of Defense. The gover nment perfor ms 50% of all R&D in the United States, with a dynamic state-directed public-sector developing most of the technology that later becomes the basis o f the pr ivate sector economy. As a result, Noam Chomsky has erred to thethe United States economic model as a for m o f Stateand Capitalism. laserref technology, inter net, nanotechnology, telecommunications computers,Examples with mostinclude basic research a nd do wnstream co mmercialization financed by the public sector. This includes research in https://www.francisxavier.ac.in


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other fields including healthcare and ener gy, with 75% o f most innovative dr ugs financed through the National Institutes of Health.

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East Asian Tigers The development models of the East Asian Tiger economies involved var ying degrees of economic planning and state-directed investment in a model sometimes descr ibed as "state development capitalism" or the "East Asian Model". The gover nments of Malaysia and South K orea instituted a ser ies of macroeconomic plans (First Malaysia Plan and Five-Year Plans of South K orea) to rapidly develop and industr ialize their mixed economies. The economy of Singapore was partially based on economic planning involving an active government industr ial policy and high levels of state-owned industr y in a free- market economy. Fra nce

Under dir igisme, France utilized indicative planning and established a number of stateowned enterprises in str ategic sectors o f the eco nomy. The co ncept behind indicative planning is the ear ly identification of oversupply, bo ttlenecks and shortages so that state investment behavior ca n be modif ied in a timely fashion to reduce the incidence of market disequilibr ium, with the goal of sustaining stable economic development and growth. Under this system France exper ienced its "Trente Glor ieuses" per iod of economic prosper ity. C rit icis ms

The most notable cr itique of economic planning came from Austr ian economists Fr iedr ich Hayek and Ludwig von Mises. Hayek ar gued that central planners could not possibly accrue the necessar y information to for mulate an effective plan for production beca use they a re not exposed to the rapid changes in the par ticular time and place that take place in an economy, and ar e unfamiliar with these circumstances. The process of tr ansmitting all the necessar y infor mation to planners is therefore inefficient. Proponents of de-centralized economic planning have also cr iticized central economic planning. For example, Leon Trotsky believed that cent ral planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy, and would therefore be unable to respond to local conditions quickly enough to effectively coordinate all economic activity.



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UNIT – V - COR PORA TE S OCIA L R ES PONSI BILI TY AND GOV ERNANC E Unit St ructu re :

5.0 O bjectives 5.1 Definition- Evolution- Need for CSR 5.2 Theoretical pers pectives 5.3 Corporate citizenship 5.4 Business practices 5.5 Strategies for CSR 5.6 Challenges and implementation 5.7 Evolution of corporate gover nance 5.8 Gover nance practices and regulation 5.9 Str ucture and development of boards 5.10 Role of capital market and gover nment 5.11 Gover nance ratings 5.12 Future of gover nance- innovative practices 5.13 Case studies with lessons lear nt. 5.0 Objec t ives After reading this unit youshould be able to understand: 

The meaning need for CSR.

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Its evolution and challenges

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The regulations of CSR.

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The fut ur e of C SR activitie s

5.1

D e finit ion – Evolutio n a nd nee d for CSR

Mea ning :

The heart of corporate gover nance is transparency, disclosure, accountability and integrity. It is to be borne in mind that mere legislation does not en sure good gover nance. Good gover nance flows from ethical business practices even when there is no legislation. Noble laureate Milton Fr iedman defined Corporate Gover nance as "the conduct o f b usiness in accordance with shareholders' desires, which gener ally is to make as much money as possible, while conf or ming theconcer basic ned ruleswith of thethe society embodied lawpose, and local Gover nanceto is intr insic nature,inpur integrcu itystoms. and identity of an organization with primar y focus o n the entity's relevance, continuity and fiduciar y aspects. https://www.francisxavier.ac.in


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The root of the word Gover nance is from 'gubernate', which means to steer. Corporate governance would mean to steer a n or ganization in the desired direction. The responsibility to steer lies with the board of directors/ gover ning board. Corporate or a Corporation is der ived from Latin ter m "corpus" which means a "body". Gover nance means administer ing the processes and systems 83



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE placed for satisf ying stakeholder expectation. When combined Corporate Gover nance means a set o f systems procedures, policies, practices, standards put in place by a co rporate to ensure that relationship with var ious stakeholders is maintained in transparent and honest manner. D e finit ions of Cor porate Governa nce :

1. "Corporate Gover nance is concer ned with the way corporate entities are gover ned, as distinct from the way bu siness within those companies is managed. Corporate gover nance addresses the issues facing Board of Directors, such as the interaction w ith top management and relationships with the owners and others interested in the affairs of the compa ny" Robert Ian (Bob) Tr icker (who introduced the words corporate gover nance for the first time in his book in 1984) 2. "Corporate Governance is about p romoting corporate fairness, transparency and accountability". James D. Wolfensohn (Ninth President Wor ld Bank)

OECD

Corporate gover nance str ucture specifies the distr ibution of r ights and responsibilities among different participants in the company such as board, management, shareholders and other stakeholders; and spells out the r ules and procedures for corporate decision- making. By doing this, it provides the structure through which the company's objective s ar e set along with the means of attaining these objectives as well as for monitor ing perfor mance. Cadbu ry Co mmitt ee , U.K

"(It is) the system by which companies are directed and controlled" Corporate Gover nance is a system o f structuring, operating and controlling a company with the following specific aims:— (i) Fulfilling long-ter m strategic goals of owners; (ii) Taking car e of the interests of emp loyees; (iii) A consideration for the environment and local community; (iv) Maintaining excellent r elations with customers and suppliers; (v) Proper compliance with all the applicable legal and r egulator y requirements. "Corporate gover nance deals with laws, procedures, pr actices and implicit r ules that dete r mine a company's ability to take infor med manager ial decisions vis-à-vis its claimants - in particular, its shareholders, creditors, customers, the State and employees. There is a global consensus about the objective of 'good' corporate gover nance: maximizing long-ter m shareholder value." Confederation of Indian Industr y (CII) - Desirable Corporate Gover nance Code (1998) "Strong co rporate gover nance is indispensable to resilient and vibrant capital ma rkets and is an impor tant instr ument of investor protection. It is the blood that fills the veins of transpar ent https://www.francisxavier.ac.in


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corporate disclosure and high quality accounting practices. It is the muscle that moves a viable and accessible financial reporting str ucture." Repor t of Kumar Mangalam Bir la Committee on Corporate Gover nance constituted by SEBI (1999) 84



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"Corporate Gover nance is the acceptance by management of the inalienable r ights of shareholders as the tr ue owners of the corporation a nd of their own role as t rustees on behal f of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between pe rsonal and corpor ate funds in the management of a company." Repor t of N.R. Narayana Murthy Committee on Co rporate Gover nance constituted by SEBI (2003) "Corporate Governance is the application of best management practices, compliance of law in tr ue letter and spir it and adherence to ethical standards for effective management and distr ibution of wealth and d ischar ge of social responsibility for sustainable development of all stakeholders." N EED FOR CSR:

Corporate social responsibility (CSR) promotes a vision o f business accountability to a wide range of stakeholders, besides shareholders and investors. K ey areas of co ncer n are environmental protection and the wellbeing of employees, the community and civil society in general, both now and in the future. The concept of CSR is underpinned by the idea that corporations can no longer act as isolated economic entities oper ating in detachment from broader society. Traditional views about competitiveness, sur vival a nd profitability are being swept away. Some of the dr ivers pushing business towards CSR include: 1. The shri nki ng role of governme nt

In the past, gover nments have relied on legislation and regulation to deliver social and environmental objectives in the business sector. Shr inking gover nment resources, coupled with a distr ust of regulations, has led to the e xplor ation of voluntar y and non-regulator y initiatives instead. 2. D e mands for greater dis closu re There is a growing demand for corporate disclosure from stakeholders, including customers, suppliers, employees, co mmunities, investors, and activist or ganizations. 3. Increas e d custo mer inte re st There is evidence that the ethical conduct of companies exerts a growing influence on the purchasing decisions o f customers. In a recent sur vey b y Environics Inter national, more than one in five consumers reported having either rewarded or punished companies based on thei r perceived social perfor mance. 4. Gro wing inve st or pre ssure Investors are changing the way they a ssess companies' perfor mance, and are making decisions based on criter ia that include ethical concer ns. The Social Investment For um repor ts that in the US in 1999, there was more than $2 trillion worth o f assets invested in portfolios that used screens linked to the environment and social responsibility. A separate sur vey b y Environics Inter national revealed that more than a qua rter o f share-owning Amer icans took into account ethical considerations when buying and selling stock s . (More on socially responsible investment can be found in the 'Banking and investment' sectio n of the site.) https://www.francisxavier.ac.in


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5. Co mpe titive la bor marke ts

Employees a re increasingly looking beyond paychecks and bene fits, and seeking out whose philosophies and operating practices match their own p rinciples. In order to hir e and retain skilled employees, companies are being forced to improve working condition s. 6. Supplier relatio ns As stakeholders are becoming increasingly interested in business affairs, many companies are taking steps to ensure that their partners conduct themselves in a socially responsible manner. Some are introduc ing codes of conduct for their suppliers, to ensure that other companies' po licies or practices do not tar nish their reputation. Some of the positive outcomes t hat can ar ise when b usinesses adopt a policy of social respo nsibility include: 1. Co mpa ny be ne fits:          

Improved financial perfor mance; Lower operat ing costs; Enhanced br and image and reputation; Increased sales and customer loyalty; Greater productivity and quality; More ability to attract a nd r etain employees; Reduced regulator y oversight; Access to capital; Work force diversity; Product safety and decreased liability.

2. Be ne fits to the community a nd the ge neral public:

Charitable contr ibutions; Employee volunteer programmes;  Corporate involvement in community education, employment and homelessness programmes;  Product safety and quality. 3. Environme ntal be ne fits: Greater mater ial recyclability;  Better product du rability and functionality;   Greater use of renewable resour ces; Integration o f environmental management tool s into business plans, including life-cycle  assessment and costing, environmental management standards, and eco -labelling. Nevertheless, many companies continue to over look CSR in the supply chain - for example by impor ting and retailing timber that has been illegally harvested. While gover nments can impose embar gos and penalties on offending companies, the or ganizations themselves can make a commitment to sustainability by being more dir ning in their choice of suppliers.  

The concept ofmove co rpor is now fir mly rooted need on the siness agenda. But in order to frate omsocial theor yres toponsibility concrete action, many obstacles to global be overbu come. A key challenge facing business is the need for more reliable indicators of progress in the field of https://www.francisxavier.ac.in


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CSR, along with the d issemination of CSR strategies. Tr ansparency and dialogue can help to make a business appear more tr ustwor thy, and push up the standards of ot her or ganizations at the same time.

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE N EED FOR COR PORA TE GOV ERNANC E Corporate Gover nance is integral to the existence of the company. Corporate Gover nance is needed to create a corporate culture of Tr ansparency, accountability and disclosure. It refers to compliance with all the moral & ethical values, legal framework and voluntar ily adopted practices. Corporate Perfor mance: Improved gover nance str uctures and processes help ensur e quality dec isionmaking, encourage effective success ion planning for senior management and enhance the long-ter m prosper ity of compa nies, independent of the type of company and its sources of finance. This can be linked with improved corporate perfor mance- either in ter ms of share pr ice or profitability. Enhanced Investor Trust: Investors consider corporate Gover nance as impor tant as financial perfor mance when evaluating companies for investment. Invest ors who are provided with high levels of disclosure & transparency are likely to invest openly in those companies. The consulting fir m McK insey sur veyed and deter mined that global institutional investors ar e prepared to pay a premium o f up to 40 percent for shares in companies with super ior co rporate gover nance practices. Better Access to Global Market: Good corporate gover nance systems attract investment from global investors, which subsequently leads to greater e fficiencies in the financial sector. Combating Corruption: Companies that are transparent, and have sound system that provide full disclosure of accounting and auditing procedures, allow transparency in all bu siness transactions, provide environment where corruption will certainly fade out. Co rporate Gover nance enables a corporation to compete mor e efficiently and prevent fraud and malpractices within the or ganization. Easy Finance from Institutions: Several str uctural changes like increased role o f financial intermediar ies and institutional investors, size of the enterpr ises, investment choices available to investors, increased competition, and increased risk exposure have made monitoring the use of capital mor e complex thereby increasing the need of Good Corpor ate Gover nance. Evidence indicates that well- gover ned companies receive higher market valuations. The credit wor thiness of a company can be tr usted o n the basis of corporate governance practiced in the company. Enhancing Enterpr ise Valuation: Improved management accountability and oper ational transparency fulfill investors' expectations and confidence on management and corporations, and retur n, increase the value of corporations. Reduced Risk of Corporate Cr isis and Scandals: Effective Corporate Gover nance ensures efficient r isk mitigation system in place. The transparent and accountable system that Corporate Gover nance makes the Board of a company a ware of all the r isks involved in par ticular strategy, thereby, placing various control systems to monitor the related issues. Accountab ility: Investor rmanagement elations' is essential part of good corpor ate gover nance. value Investors have investment. directly/ indir ectly entr usted of the company for the creating enhanced for their The company is hence obliged to make timely disclosures on r egular basis to all its shareholders in order to maintain https://www.francisxavier.ac.in


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good investor ‘s relation. Good Corporate Gover nance practices create the environment where Boards cannot ignore their ac countability to these stakeholders.

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5.2 THEOR ETIC AL PERS PECTIVES Cor porate Governa nce Theorie s

The following theor ies elucidate the basis of corporate gover nance: (a) Agenc y Theor y (b) Shareholder Theor y (c) Stake Holder Theor y (d) Stewardship Theor y Age ncy Theory

According to this theor y, managers act as 'Agents' of the corporation. The owners or directors set the central objectives of the corporation. Managers are responsible for carr ying out these objectives in day-to-day work of the company. Corporate Gover nance is control of management through designing the str uctures and processes. In agency theor y, the owners a re the pr incipals. But principals may not have knowledge or skill for getting the objectives executed. The pr incipal authorises the mangers to act as 'Agents' and a contract between pr incipal and agent is made. Under the contract o f agency, the agent should act in good faith. He should protect the interest of the pr incipal and should remain faithful to the goals. In moder n corporations, the shareholdings are widely spread. The management (the agent) directly or indirectly selected by the shareholders (the Pr incipals), pursue the objectives set out by the shareholders. The main thr ust o f the Agency Theor y is that the actions of the management differ from those requir ed by the shareholders to maximize their return. The pr incipals who are widely scattered may not be able to counter this in the absence of proper systems in place as regards timely disclosures, monitor ing and oversight. Corporate Gover nance puts in place such systems of oversight. Stockhol der/sharehol der Theory

According to thi s theor y, it is the corporation which is considered as the property of shareholders/ stockholders. They can dispose of this property, as they like. They want to get maximum retur n from thi s property. The owners seek a retur n on their investment and that is why they invest in a corporation. But this narrow role has been expanded into overseeing the operations of the corporations and its mangers to ensure that the corpor ation is in compliance with ethica l and legal standards set by the government. So the directors are responsible for any damage or har m done to their property i.e., the corporation. The role o f managers is to maximize the wealth o f the shareholders. They, therefore should exercise due diligence, care and avoid conflict of interest and should not violate the confidence reposed in them. The agents must be faithful to shareholders. Stake holder Theory

According to this theor y, the company is seen as an input-output model and all the interest groups which include creditors, employees, customers, suppliers, local-community and the https://www.francisxavier.ac.in


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government are to be considered. From their point o f view, a corporation ex ists for them and not the shareholders alone.

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE The different stakeholders also have a self interest. The interest of these differ ent stakeholders is at times conflicting. The managers and the corporation a re responsible to mediate between these different stakeholders interest. The stake holders have solidarity with each other. This theor y assumes that stakeholders are capable and willing to negotiate and bar gain with one another. This results in long term self interest. The role of shareholders is reduced in the corporation. But they should also work to make their interest compatible with the other stake holders. This requires integrity and managers play an impor tant role here. They are faithful agents but o f all stakeholders, not just stockholders. Ste war dshi p Theory

The word 'steward' means a person who manages another's property or estate. Here, the word is used in the sense of guardian in relation to a corporation, this theor y is value based. The managers and employees are to safeguard the resources of corporation and its property and interest when the owner is absent. They a re like a caretaker. They have to take utmost care o f the corporation. They should not use the proper ty for their selfish ends. This theor y thus makes use of the social approach to human natur e. The managers should manage the corporation as if it is their own corporation. They are not agents as such but occupy a position of stewards. The managers are motivated by the p r incipal's objective and the behavior patter n is collective, pro-or ganizational and tr ustwor thy. Thus, under this theor y, first of all values as standards are identified and for mulated. Second step is to develop training programmes that help to achieve excellence. Thirdly, moral support is important to fill any gaps in values.



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5.3 COR PORA TE CI TI ZENS HI P:

The Secur ities and Exchange Board of India (SEBI) had set up a Committee under the Chair manship of K umar Mangalam Bir la to promote and raise standards of co rporate gover nance. The Report o f the committee was the first for mal and comprehensive attempt to evolve a Code of Corporate Gover nance, in the context of pr evailing conditions of gover nance in Indian companies, as well as the state of capital markets at that time. The recommendations o f the Report, led to inclusion o f C lause 49 in the Listing Agreement in the year 2000. These recommendations, aimed at improving the standards of Corporate Gover nance, are divided into mandator y and non- mandator y recommendations. The said recommendations have been made applicable to all listed companies with the paid-up capital of Rs. 3 crores and above or net worth of Rs. 25 crores or more at any time in the histor y of the company. The ultimateresponsibility for putting the recommendations into pr actice lies directly with the Board of Directors and the management of t he company. A summary o f the R e port is re pro duce d hereunder:

The Board should have an optimum combination of Executive and Non Exec utive Directors with not less than 50 pe r cent o f the Board consisting of non-executive d irectors. In the case of Non-executive Chair man, at least one-third of the Board should consist of independent directors and in the case of an executive Chai rman, at least half of the Board should consist of independent directors. The committee agreed on the following definition of independence : •

"Independent directors are directors who apart from receiving di rector's remuneration do not have any other material pecunia r y relationship or transactions with the company, its promoters, its management or its subsidiar ies, which in the judgment of the boa rd may affect their independence of jud gment." Board meetings should be held at least four times in a year, with a maximum time gap of four months between any t wo meetings. A director should not be a member in more than 10 committees or act a s Chair man o f more than five committees across all companies in which he is a director. • Financial Institutions should appoint nominee directors on a selective basis and nominee director should have the same r esponsibility, be subject to the same discipline and be accountable to the shareholders in the same manner as a ny other dir ector of the company • Non-executive Chair man should be entitled to maintain Chair man's o ffice at the expense of the company and also allowed reimbursement of expenses incurred in performance of his duties. • Audit Committee - which a quali f ied and independent audit committee should be set up by the board of a company • The audit committee should have minimum three members, all being non -executive directors, with the major ity being independent, and with at least one director havi the chairman of •

the committeeshould be an independent ector; General Meeting to answer shareholder quer ies; • The chair man should be present atdirAnnual • The audit committee should invite such of the executives, as it considers appropr iate (and https://www.francisxavier.ac.in


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particular ly the head of the finance function) to be present at the meetings o f the committee but on occasions it may also meet without the presence of any executives of the company. Finance director and head of inter nal audit and when required, a repr esentative of the exter nal auditor should be present as invitees for the meetings of the audit committee; 90



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE • The Company Secretar y should act as the secretar y to the co mmittee. • Frequency of Meeting • The audit committee should meet at least thr ice a year. One meeting must be held before finalization of annual account s and one necessarily ever y six months. • The quor um should be either two members or one-third of the members of the audit committee, whichever is higher and there should be a minimum of two independent dir ectors. • Powers of Audit Co mmittee • To investigate any activity within its ter ms of refer ence. • To seek infor mation from any e mployee. • •

To obtain outside legal or ot her profess ional advice. To secure attendance of outsiders with relevant expertise, if it considers necessar y. • Functions of the Audit Committee • Oversight of the company's financial repor ting process and the disclosure of its financial infor mation to ensure that the financial statement is correct, sufficient and credible. • Recommending the appointment and removal o f exter nal auditor, fixation of audit fee and also approval for payment for any o ther ser vices. • Reviewing with management the annual financial statements before submission to the board, focusing primar ily on: R e munerat io n Co mmittee

Remuneration Committee should compr ise o f at least three directors, all of whom should be non- e xecutive directors, the chairman o f committee being an independent director. All the members of the remuneration committee should be present at the meeting. These r ecommendations are non mandator y. The board of directors should decide the remuneration o f non-executive di rectors. The Corporate Gover nance section o f the Annual Report should make disclosures about remuneration paid to Dir ectors in all for ms including salar y, benefits, bonuses, stock options, pension and other fixed as well as perfor mance linked incentives. • Shareholders/Investors' Grievance Committee of Directors - The Board should set up a Committee to specifically look into shar e holder issues including share transfers and redressal of shareholders' complaints. • General Body Meetings - Details o f last three AGMs should be fur nished • Disclosures - Details of non-compliance by the company including penalties and str ictures imposed by the Stock Exchanges, SEBI or any statutor y author ity on any matter related to capital markets dur ing the last three years must be di sclosed to the shareholders. • Means of co mmunication - Half- year ly repor t to be sent to each household of shareholders, details of the mode of dissemination of quarter ly results and presentations made to institutional investors to be disclosed and statement of Management Discuss ion and Analysis to be included in the repor t. • General shareholder infor mation - Var ious specified matters o f interest to be included in the Annual Report. Cer tificate on Co rporate Governance - There should be an Auditor's cer tificate on • Auditor's corporate governance in the Annual Repor t as an annexu re to the Director's Report. https://www.francisxavier.ac.in


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Companies should consolidated accounts in respect of all subsidiaries in which they hold 51 per cent or more of the capital. •

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE • Infor mation like quar terly results, presentation made by companies to analysts ma y be put on company's web-s ite or may be sent in such a for m so as to enable the stock exchange on which the company is listed to put it on its own web-s ite. • Shareholders to use the forum o f General Body Meetings for ensur ing that the company is being proper ly stewarded for maximizing the interests of the shareholders. • A board committee under the chair manship of a non-executive director should be for med to specifically look into ther edressing of shareholder complaints like transf er o f shares, non-receipt of balance sheet, non-receipt of declared dividends etc. • Half- year ly declaration o f financial perfor mance including summar y of the significant event s in last six- months, should be sent to each household of shareholders. The institut ional s ha re holders sho ul d: Take active interest in the composition of the Board of Directors Be vigilant Maintain r egular and systematic contact at senior level for e xchange of views on management, strategy, perfor mance and the quality of management. Ensure that voting intentions are translated into practice. Evaluate the corporate governance perfor mance of the company. TYPES OF BO ARD Unitary Boar d

The unitar y board, remains in full control of ever y aspect of the company's activities. It initiates action and it is r esponsible for e nsuring that the action which it has initiated is ca rried out. All the directors, whether executive or outside, share same aims and responsibilities and are on the same platfor m. Two -tie r Boards

The alter native board model to unitar y board is the two-tier board, which was developed in its pr esent for m in Ger many. A two-tier board fulf ils the same basic functions as a unitar y board, but it does so t hrough a clear separation between the tasks of monitor ing and that of management. The super visory board (Asfusichtsrat) oversees the direction o f the business and the management board (Vorstand) is responsible for the r unning of the company. The super visor y board controls the management board through appointing its members and through its statutor y r ight to have the final say in major decisions affecting the company. The str ucture r igorously separates the control function from the management function and members of the one board cannot be members of the other. This separation is enshr ined in law and the legal responsibilities of the two sets of board members are different. The super visor y board system was introduced to strengthen the cont rol of shareholders, particular ly the banks, over the companies in which they had invested. Shareholdings are more concentrated in Ger many and most q uoted companies have at least one major shareholder, often a family or another company. Banks play an impor tant par t in gover nance as investors, lenders and through the votes o f individual shar eholders for which they hold proxies. They are, therefore, well represented on super visor y boards. https://www.francisxavier.ac.in


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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE 5.5 STRATEGIES FOR COR PORA TE S OCIA L R ES PONSI BILITY: Recommendations of Report of Committee on The Financial Aspects on Co rporate Gover nance, 1992 under the chair manship of Sir Adr ian Cadbur y set up by the London Stock Exchange, the Financial Repor ting Council and accounting p rofessions to focus on the cont rol and reporting functions of boards, and on the role o f auditors. R ole of Board of D irectors

The Repor t introduced "The Code o f Best Practice " d irecting the boards of d irectors of all listed companies registered in the UK, and also encouraging as many othe r companies as poss ible aiming at compliance with the requirements. All listed companies should make a statement about thei r compliance with the Code in their repor t and accounts as well as give reasons for a ny areas o f non compliance. It is divided into four sections: 1. Board of D irectors:

(a) The board should meet regular ly, retain full and effective control o ver the company and monitor the executive management. (b) There should be a clearly accepted division o f responsibilities at the head of a compan y, which will ensure a balance o f power and author ity, such that no one individual has unfettered powers of decision. (c) W here the chair man is also the chief executive, it is essential that there should be a strong and independent element on the board, with a recognized senior member, that is, there should be a lead independent director. (d) All directors should have access to the advice and ser vices of the company secretar y, who is responsible to the Board for ensur ing that board procedures are followed and that applica ble r ules and r egulations are complied with. 2. N on-Exec utive D irectors:

(a) The non-executive d irectors should br ing an independent judgment to bear o n issues o f strategy, perfor mance, resources, including key appointments, and standards of conduct. (b) The major ity of non-executive di rectors should be independent of management and free from any business or other relationship which could mater ially interf ere with the exercise of their independent judgment, apart from their fees and shareholding. 3. Executive D irectors:

There should be full and clear d isclosure of d ir ectors' total emoluments and those of the chair man and highest-paid directors, including pension contr ibutions and stock options, in the company's annual report, including separate figures for salar y and perfor mance-related pay. 4. Fi na ncial R e port ing a nd Co ntrols:

It is the duty of the board to present a balanced and understandable assess ment of their company's position, repor of should financial statements, providing and concer fair pictur e ofsuppor financial reporting. inThe dirting ectors repor t that theforbusiness is at r ue going n, with ting assumptions or qualifications as necessar y. The board should ensure that an objective and https://www.francisxavier.ac.in


professional relationship is maintained with the auditors. R ole of Auditors 93


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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE The Report recommended for the constitution of Audit Committee with a minimum of three nonexecutive members major ity of whom shall be independent directors. The Repor t recommended that a profess ional and objective relationship between the board of directors and auditors should be maintained,so as to provide to all a true and fair view o f company's financial statements. Auditors' role is to design audit in such a manner so that it provide a reasonable assurance that the financial statements are free of mater ial misstatements. The Report recommended for rotation o f audit partners to prevent the relationships between the management a nd the a uditors becoming too comfortable. R ights & R e sponsibilities of Shareholders

The Report emphasizes on t he need for fair and accu rate reporting of a company's progress to its shareholders. The Report placed impor tance on the role of institutional investors/ shareholders and encouraged them to make greater use of their voting r ights a nd take positive interest in the board functioning. Both shareholders and boards of directors should consider how the e ffectiveness of general meetings could be increased as well a s how to strengthen the accountability of boards of directors to shareholders. D evelopme nts in India:

The initiatives taken by Gover nment in 1991, aimed at economic liberalization and globalization of the domestic economy, led India to initiate refor m process in or der to suitably respond to the develop ments taking place wor ld over. On account o f the interest generated by Cadbur y Committee Report, the Con federation o f Indian Industr y (CII), the Associated Chambers o f Commerce and Industr y (ASSOCHAM) and, the Secur ities and Exchange Board of India (SEBI) constituted Committees to r ecommend initiatives in Corporate Governance. Confe derat io n of Ind ian Indust ry (CII) - D e s irable Cor porate Governa nce: A Co de

CII took a special initiative on Corporate Gover nance, the first institution initiative in Indian Industr y. The objective was to develop and promote a code for Corporate Gover nance to be adopted and followed by Indian companies, whether in the Pr ivate Sector, the Public Sector, Banks or Financial Institutions, all o f which a re corporate entities. The final draft of the said Code was widely circulated in 1997. In Apr il 1998, the Code was released. It was called Desirable Corporate Gover nance: A Code. A br ief summar y of the Desir able Corporate Gover nance Code is reproduced her eunder : R ecomme nda tio n I

The full boar d should meet a minimum of ssix a eyear , prefhalf erably at andiscuss inter val of two months, and each meeting should have agenda item thattimes requir at least a day's ion. https://www.francisxavier.ac.in


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R ecomme nda tio n II

Any listed company with a tur nover of Rs.100 c rores and above should have profess ionally competent, independent, non-executive d irectors, who should constitute: 94



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE At least 30 per cent of the board if the C hair man of the company i s a non-executive director, At least 50 per cent of the board if the Chair man and Managing Director is the same person.

R ecomme nda tio n III

No single person should hold directorships in more than 10 listed companies. This ceiling excludes directorships in subsidiar ies (where the group has over 50 pe r cent equity stake) or associate companies (where the group has over 25 per cent but no more tha n 50 per cent equity stake). R ecomme nda tio n IV

For non-executive directors to play a mater ial role in corporate decision making and maximizing long ter m shar eholder value, they need to: • become active par ticipants in boards, not passive advisors; • have clear ly defined responsibilities within the board such as the Audit Committee; and • know how to read a balance sheet, profit and loss account, cash flow statements and financial ratios and have some knowledge of var ious company laws. This, of course, excludes those who are invited to join boards as exper ts in other fields such as science and technology. R ecomme nda tio n V

To secure better effor t from non-executive directors companies should: • Pay a commiss ion over and above the sitting fees for the use of the professional inputs. The present commission o f 1% of net profits (if the company has a managing di rector), or 3% (if there is no managing director) is sufficient. • Consider offer ing stock options, so as to relate rewards to performance. Commi ssions are rewards on current p rofits. Stock options ar e rewards contingent upon future appreciation o f corporate value. An appropriate mix of the t wo can align a non-executive di rector towards keeping an eye o n short- ter m profits as well as longer ter m shareholder value. R ecomme nda tio n VI

While re-appointing members of the board, companies should give the attendance record of the concer ned directors. If a director has not been present (absent with or without leave) for 50 per cent or more meetings, then thi s should be explicitly stated in the resolution that is put to vote. R ecomme nda tio n VII

K ey infor mation that must be repor ted to, and placed before, the board must contain: • Annual operating plans and budgets, together with up-dated long ter m plans. • Capital budgets, manpower and over head budgets. • Quarterly results for the company as a whole and its operating divisions or business segments. • Inter nal audit reports, including cases of theft and dishonesty of a mater ial nature. • Show cause, demand and prosecution notices received from revenue author ities which are consider ed net to be mater company's wor th). ially important (Mater ial natur e if any e xposure that exceeds 1 per ce nt of the • Default in payment of interest or non- payment of the pr incipal on any p ublic depo sit and/or https://www.francisxavier.ac.in


Dept Of MBA

to any secured creditor or financial institution. • Fatal or ser ious accidents, dangerous occurrences, a nd any e ffluent or po llution problems. • Defaults such as non- payment of inter-corporate deposits by or to the company, or mater ially substantial non- payment for goods sold b y the co mpany. 95



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE • Any iss ue which involves possible public or product liability claims of a substantial nature, including any judgment or order which may have either passed str ictures on the conduct o f the company, or taken an adverse view regarding a nother enterpr ise that can have negative implications for the company. • Details of any joint ventu re or collaboration a greement. • Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property. • Recr uitment and remuneration o f senior officers just below the board level, including appointment or removal of the Chief Financial Officer and the Company Secr etar y. • •

Labour problems and their proposed solutions. Quarterly details of foreign exchange exposure and the steps taken by management to limit the r isks of adverse exchange rate movement, if mater ial. R ecomme nda tio n VIII

Listed companies with either a tur nover o f over Rs.100 c rores or a paid -up capital of Rs. 20 crores should set up Audit Co mmittees within two years. • Composition: at least three members, all d rawn from a company 's non-executive directors, who should have adequate knowledge of finance, accounts and basic elements of company la w. • To be effective, the Audit Committees should have clear ly de fined Ter ms of Refer ence and its members must be willing to spend more time on the company's work vis-à-vis other nonexecutive directors. • Audit Committees should ass ist the board in fulfilling its functions relating to corporate accounting and r eporting practices, financial and accounting controls, and financial statements and proposals that accompany the public iss ue of any security - and thus provide effective super vision of the financial repor ting process. •

•

Audit Committees should per iodically interact with the statutor y auditors and the inter nal auditors to artain the quality and veracity o f the company's accounts as well as the capability of the auditors themselves. • For Audit Committees to dischar ge the ir fiduciar y responsibilities with due diligence, it must be incumbent upon management to ensure that members of the committee have full access to financial data of the company, its subsidiar y and associated companies, includ ing data on contingent liabilities, debt exposure, current liabilities, loans and investments. • By the fiscal year 1998-99, listed companies satisf ying criter ion (1) should have in place a strong inter nal a udit depar tment, or a n exter nal auditor to do internal audits. R ecomme nda tio n IX

Under "Additional Shareholder's Infor mation", listed companies should give data on: • High and low monthly aver ages of share pr ices in a major Stock Exchange wher e the company is listed for the reporting year. • Statement on value added, which is total income minus the cost of all inputs and administr ative expenses. •

Groper eaterations, detail analysis on business segments, toe 10% of tur nover, giving share in sales revenue, review of of mar kets and up futur prospects. https://www.francisxavier.ac.in


Dept Of MBA

R ecomme nda tio n X

Consolidation of Group Accounts should be op tional and subject to: • The FIs allowing companies to leverage on the basis of the group's assets, and • The Income-tax Department using the group concept in assessing corporate income-tax. 96



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE • If a company chooses to voluntar ily consolidate, it should not be necessar y to annex the accounts of its subsidiar y companie s under Section 212 o f the Companies Act. • However, if a company con solidates, then the definition of "group" should include the par ent company and its subsidiar ies (where the repor ting company o wns over 50% of voting stake). R ecomme nda tio n XI

Major Indian stock exchanges should gradually insist upon a compliance certificate, signed by the CEO and the CFO, which clearly states that: •

The management is r esponsible for the preparation, integr ity and fair presentation of the financial statements and othe r information in the Annual Repor t, and which also suggest that the company will continue in business in the course of the following year. The accounting policies and principles co nform to standard p ractice, and where they do not, full disclosure has been made of any mater ial departures. •

The board has overseen the company's system o f inter nal accounting and administrative controls systems either through its Audit Committee (for companies with a tur nover of Rs.100 crores or paid- up capital of Rs. 20 crores) or directly. •

R ecomme nda tio n XII

For all companies with paid -up capital of Rs. 20 crores or more, the quality and quantity o f disclosure that accompanies a GDR issue should be the norm for any dome stic issue. R ecomme nda tio n XIII

The Gover nment must allow far greater funding to the corporate sector a gainst the secur ity of shares and other paper. R ecomme nda tio n XIV

It would be desirable for FIs as pure creditors to re-wr ite their covenants to eliminate having nominee directors except: •

In the event o f ser ious and systematic debt default; and

In case o f the debtor company not providing six- monthly or quarter ly operational data to the concer ned FI(s). •

R ecomme nda tio n XV

If any company goes to more than one cr edit rating agency, then it must divulge in the prospectus a nd issue document the rating of all the a gencies that d id such an exercise. •

•

It is notstands enough to statetothe ratings. be given in a tabular forable mat t diff hat er shows the company relative higher andThese lowermust r anking. It makes consider ence wher to ane investor to k now whether the rating agency or agencies placed the company in the top slots or in the https://www.francisxavier.ac.in


middle or in the bottom.

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE • It is essential that we look at the quantity and quality of disclosures t hat accompany t he issue of company bond s, debentures, and fixed deposits in the USA and Br itain - if only to lear n what more can be done to inspire confidence and create an envi ronment o f transparency. Companies which are making foreign debt issues cannot have two sets o f d isclosur e nor ms: an exhaustive one for the foreigners, and a relatively minuscule one for India n investors. •

R ecomme nda tio n XVI

Companies that default o n fixed deposits should not be per mitted to: •

accept fur ther deposits and make inter-corporate loans or investments until the default is made good; and • declare dividends until the default is made good.

Gist of Coverage of CII D e s irable Cor porate Governa nce : A Co de Recommendation XVI Recommendation I Frequenc y of Board meetings Recommendation II Board Composition Recommendation III No. of directorships Recommendation IV Role, Responsibilities, Qualifications Recommendation V Directors

Recommendation VI Recommendation XV Recommendation VII Recommendation VIII Recommendation IX Recommendation X Recommendation XI Recommendation XII Recommendation XIII Recommendation XIV https://www.francisxavier.ac.in

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Non-executive


Remuneration o f nonexecutive d ir ectors Disclosure of attendance record for reappointment K ey infor mation to the Board Audit Co mmittee Disclosure on shareholder infor mation Consolidated Accounts Compliance certif icate Disclosure relating to Global Depositor y Receipts (GDR) Funding Nominee Director Disclosure of Ratings D e f a u l t o n f i x e https://www.francisxavier.ac.in

d deposits b y company 98

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE 5.6 CH ALLEN GES & IMPLEMEN TATION: Company being an a rtificial person it requir es certain natural pe rsons to represent the company at various fronts. The position of directors in their r elationship to the company is not o nly as the agents, but also tr ustees of the compa ny Executive Director: The term executive dir ector is usually used to describe a pe rson who is both a member of the board and who also has day to day responsibilities in respect of the affairs of the company. Executive directors perfor m operational and strate gic business functions such as: • Managing people • •

Looking after assets Hir ing and fir ing • Enter ing into contracts Executive directors ar e usually emplo yed by the company and paid a salar y, so are protected by employment law. Examples of executive di rectors are production director , finance director or managing dir ector or whole time director. Section 2(26) of the Companies Act, 1956 defines Managing Director as - "managing dir ector" means a director who, by vir tue of an ag reement with the company or o f a resolution passed by the company in general meeting or by its Board of directors or, by vi rtue of its memorandum or articles of association, is entrusted with [substantial powers of management] which would not otherwise be exercisable by him, and includes a dir ector occupying the position of a managing dir ector, by whatever name called. Provided that the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal o f the company to any document or to dr aw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registr ation of transf er of any share, shall not be deemed to be included within substantial powers of management: Provided fur ther that a managing director of a company shall exercise his powers subject to the Super intendence, control and di rection of its Board of directors;



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE 5.7 EVOLU TION OF COR PORA TE GOV ERNANC E Corporate Governance Developments in USA Years 1977 The Foreign Corrupt Practices Act 1979 US

Secur ities Exchange Commiss ion

1985

Treadway co mmission

1992

COSO issued Inter nal Control

2002

Sarbanes - Oxley Act

Developments

The Dodd-Fr ank Wall Street Refor m and Consumer Protection Act, 2010 Provides for specific provisions regarding establishment, maintenance a nd review o f systems of internal control. Emphasized the need of putting in place a proper control envi ronment, desirability o f constituting independent boards and its committees and objective inter nal audit function. As a consequence, the Committee of Sponsoring Or ganizations (COSO) took bir th. The Committee of Sponsor ing Organizations of the Treadway Commission (COSO) issued Inter nal Control - Integrated Framework. It is a framework "to help businesses and other entities assess a nd enhance their inter nal control systems". The Act made fundamental changes in virtually ever y aspect o f corporate gover nance in general and auditor independence, conflict of interests, corporate responsibility, enhanced financial disclosures and severe penalties for wilful de fault by managers and auditors, in par ticular. Vote on Executive Pay and Golden Parachutes: Gives shareholders a say on pay with the r ight to a non- binding (advisor y) vote on executive pay and golden pa rachutes (acquisitions). This gives shareholders a powerful opportunity to hold accountable executives of the companies they own, and a chance to disapprove where they see the kind o f misguided incentive schemes that threatened individual companies and in tur n the broader economy. 5.13 Cas e Studies with less ons learne d

Securities Exchange Commiss ion, USA, in a recent case has be gun a new era of scr utinizing liability of independent d irectors by br inging an action against independent director. In SEC v. Raval, Civil Action No. 8:10-cv-00101 (D.Neb. filed Mar.15,2010) it was alleged that Vasant Raval, former Chair man ofcer the Audit of Info Gr Inc.(now o USA, failed investigate tain "red Committee flags" surrounding theoup company 's fInf or mer CEOInc.) and had Chair man to o fsuff theiciently Board, Vinod Gupta. https://www.francisxavier.ac.in


Dept Of MBA

The SEC's complaint alleged that Vasant Raval 70, resident of Nebraska, served on the board of directors for Info Group in various positions from 2003 to 2008, including a stint as Chair man o f the Audit Committee. Dur ing this per iod, Raval allegedly tur ned a blind eye to allegations that Vinod 100



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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE Gupta directed the company to improper ly pay himself $9.5 million that he then spent on corporate jets, ser vice for his yacht, life insurance p remiums, and payment of personal credit cards. In addition, the complaint alleged that Gupta dir ected the company to enter into r elated party transactions totaling approximately $9. 3 million with entities that he controlled or with whom he was affiliated viz. Annapurna Corporation (now Everest Corporation), Aspen Leasing Services, LLC ("Aspen Leasing"). These related par ty tr ansactions were not disclosed in the company's public filings. The Commission also alleged that Raval failed to respond appropr iately to various red flags concer ning Gupta's expenses and Info's related party transactions with Gupta's entities. Acco rding to the complaint, Raval failed to take appropr iate action regarding the concer ns expressed to him by two inter nal audito rs of Infogroup Inc., that Gupta was submitting r equests for reimbursement of personal expenses. In a board meeting, Raval was tasked with investigating the propriety of the transactions. Rather than seeking assistance from out side counsel or r igorously scr utinizing the transactions, Raval began his "in depth investigation" and presented a repor t to the company's board merely in 12 days. The "Raval Report" however, omitted cr itical facts.

Despite numerous prompts by inter nal auditor, Raval failed to undertake a thorough investigation. As a result, the company allegedly failed to disclose related party transactions and mater ially understated Gupta's compensation. Although Raval did not make a ny pecuniar y benefits, he failed to dischar ge his duties and take meaningful action to fur ther investigate Gupta's misconduct and misappropr iation of company funds. The SEC char ged Raval for failing in his 'affir mative responsibilities' and thus violating the antifraud, proxy, and reporting provisions of the US Exchange Act. To settle his case, Raval consented to the entr y of a per manent injunction prohibiting future violations of the related provisions of the federal securities laws, a $50,000 civil penalty, and a five- year ban from ser ving as an officer or director of a company. Indian nario :

In Bhopal Gas Tragedy verdict, the Bhopal Trial Court on 7th June 2010 has held Keshub Mahindra reputed industr ialist, the then non executive chair man of Union Carbide India limited(UCIL), guilty and sentenced him to two years of impr isonment along with seven ot hers accused. He was char ged of attending only a few meetings in a year and took only macro view o f the company's de velopments. A non-vigilant act of non- executive chair man, accounted for death o f thousands. "Ignor ance" of the system by the di rector of t he company i s unacceptable. Role of non executive director in this case is questionable. Later he was granted bail. Lead Inde pe nde nt D irector Inter nationally, it is considered a good pr actice to designate an independent director as a lead

independent dir ectorand oradvises senior chair independent director . He coor dinates the activities other nonemployee directors man on issues ranging from the schedule of boarof d meetings to recommending retention o f advisors and consultants to the management. https://www.francisxavier.ac.in


Dept Of MBA

Acts as the pr incipal liaison bet ween the independent di rectors of the Board and the Chair man of the Board; • Develops the agenda for and pr eside at executive sessions of the Board's independent directors; •

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BUSINESS ETHICS, CORPOR ATE SOCIAL RESPONSIBILITY & GOVERNANCE • Advises the Chair man of the Board as to an appropr iate schedule for Board meetings, seeking to ensure that the independent directors can perfor m their duties responsibly while not interfering with the flow of Company ope rations; • Approves with the Chair man o f the Board the agenda for Board and Board Committee meetings and the need for special meetings of the Board; • Advises the Chair man of the Board as to the quality, quantity and timeliness o f the infor mation submitted by the Company's management that is necessar y or appropr iate for the independent directors to effectively and responsibly perform their duties; • Recommends to the Board the retention o f advisors and consultants who report directly to the Board; • Inter views, along with the chair of the Nominating and Corpor ate Gover nance Committee, all Board candidates, and make recommendations to the Nominating and Corporate Governance Committee; • Assists the Board and Company o fficers in better ensur ing compliance with and implementation o f the Gover nance Guidelines; • Serves as Chair man of the Board when the C hair man is not present; and • Serves as a liaison for co nsultation and communication with shareholders. California Public Employees' Retir ement System (CalPERS) provides that where the Chair man of the board is not an inde pendent director, and the role o f Chairman and CE O is not separate, the board should name a director as lead independent director who should have approval over infor mation flow to the board, meeting agendas, and meeting schedules to ensure a str ucture that provides an appropr iate balance between the powers o f the CEO and those o f the independent directors. Other roles of the lead independent director should include chair ing meetings of nonmanagement directors and o f independent directors, presiding over board meetings in the absence of the chair, ser ving as the principle liaison bet ween the independent di rectors and the chair, and leading the board/director e valuation process. Given these additional responsibilities, the lead independent director is expected to devote a greater a mount of time to board ser vice than the other directors. Chai rma n

The responsibility for e nsur ing that boards provide the leadership which is expected of them is that o f their chairman. Chair men, however, have no legal position; they are whoever the board elects to take the chai r at a particular meeting. Boards ar e not bound to continue with the same chair man for successive meetings. In law, all directors have broadly equal responsibilities and chair men are no more equal than any othe r board member. Chai r men are an admini strative convenience and a means of ensur ing that board meetings are proper ly conducted. Thus from a statutor y point of view there is no necess ity for a board to have a continuing chairman. The chair manship could, for example, rotate among board members. Although board chair men have no statutor y position, the choice of who is to fill that post is cr ucial to board effectiveness. If the chairman is not upto the task, it is improbable that the meeting will achieve anything butof fr ustration and is waste most precious of rds esour ces —time. Contin uity and competence Chair manship vital toofthethat contr ibution which boar make to their companies. The leaders which boards give to their companies, stems from the leaders hip https://www.francisxavier.ac.in


Dept Of MBA

which chairmen give to their boards. The Chairman's pr imar y responsibility is for leading the Board and ensur ing its effectiveness.

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The role of the Chai rma n i nclude s: 

   



  

 







setting the Board agenda, ensur ing that Directors receive accurate, timely and clear infor mation to enable them to take sound decisions, ensur ing that sufficient time is allowed for co mplex or contentious iss ues, and encouraging active engagement by all members of the Board; taking the lead in providing a comprehensive, for mal and tailored induction p rogramme for new Directors, and in addressing the development needs of individual Directors to ensure that they have the skills and knowledge to fulf ill their role on the Board and on Board Committees; evaluating annually the perfor mance of each Board member in his/her role as a Director, and ensur ing that the perfor mance of the Board as a whole and its Committees is evaluated annually. Holding meetings with the non executive Directors without the executives being p resent; ensur ing effective communication with shareholders and in particular that the company maintains contact with its pr incipal shareholders on matters relating to strategy, gover nance and Directors' remuneration. Ensur ing that the views o f shareholders are communicated to the Boa rd as a whole. As per the Institute of Directors (IOD) (UK), the following are the responsibilities of a chairman

 

The chair man'sthe pr imar y role isdirtoection ensurand e that boa rd is effective in its tasks of setting and implementing company's strthe ategy.



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The chair man is appointed by the boa rd and the position may be full- time or part time. The role is o ften combined with that of managing di rector or chief executive in smaller companies. However, the joint role is considered to be less appropr iate for public companies listed on the The main features o f the role of chair man are as follows:  Being chair man o f the board, he/she is expected to act as the co mpany's leading representative  which will involve the presentation o f the company's aims and policies to the outside wor ld;  To take the chair at general meetings and at board meetings. With regard to the latter this will  involve:  the deter mination of the order of the agenda;  ensur ing that the board r eceives proper information;  keeping tr ack of the co ntr ibution of individual di rectors and ensur ing that they are all involved in  Discussions and decision making. At all meetings the chair man should direct discuss ions towards the emer gence of a consensus view and sum up discussions so that e ver yone  understands what has been ag reed;  To take a leadingrole in deter mining the composition and str ucture of the board. This will involve  Regular reviews of the overall size of the board, the balance between executive and non Executive directors and the balance of age, exper ience and personality o f the directors. CHI EF EX ECUTIV E OFFICER ( CEO)

The Board appoints the CEO based on the cr iter ion of his capability and competence to manage the company effectively. His main responsibilities include developing and implementing high- level strategies, making major co rporate decisions, managing the over all ope rations and resources o f a company, and acting as the main point of communication between the board of directors and the corporate operations. He is involved with ever y aspect of the company's perfor mance. The CEO is suppor ted and advised by a skilled board and CEO is ultimately accountable to the board for his actions. The most important skill of a CEO is to think strategically. His key role is leading the long ter m strategy and it s implementation, it further includes: Developing implementation plan of action to meet the competition and keeping in mind the long  ter m existence of the company  Adequate control systems  Monitor ing the operating and financial outcomes against the set plan  Remedial action  Keeping the Board infor med CEO should be able to, by the vir tue of his ability, exper tise; resources and author ity keep the company prepared to a vail the benefit of any c hange whether exter nal or inter nal. Se parat io n of role of Chair ma n a nd Chief Executive Off icer

It is perceived that separating the roles of chair man and chief executive officer (CEO) increases the effectiveness of a company's board. https://www.francisxavier.ac.in


Dept Of MBA

It is the board's and chair man's job to monitor and evaluate a company's perfor mance. A CEO, on the other hand, represents the management team. If the two roles are perfor med by the same person, then it's an individual evaluating himself. When the roles are separate, a CEO is far more accountable. 104



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To prevent unfettered decision making power with a single individual, Corporate Gover nance Voluntar y Guidelines, 2009 provide for the separation o f the roles of the chair man of the Board and that of the Managing Director /CEO. ICSI Recommendations to strengthen Corporate Gover nance suggests that ther e should be clear demarcation o f the roles and responsibilities of the chairman of the board and that o f the Managing Director / CEO. The roles of Chair man and CEO should be separated to promote balance of power. The chair man is responsible for leadership of the board, ensur ing its e ffectiveness on all aspects o f its role and setting its agenda. The chair man is also responsible for ensur ing that the di rectors receive accur ate, timely and clear infor mation. The chair man should ensure effective communication with shareholders. The chair man should also facilitate the effective contr ibution o f non-executive directors in particular and ensure constr uctive relations between executive and non-executive d irectors. A clear demarcation o f the roles and responsibilities of the Chair man o f the Board and that of the Managing Director /CEO promotes balance of power. The benefits of separation o f roles o f Chairman and CEO can be: 1. Director Communication: A separate chair man provides a more effective c hannel for the board to expr ess its views on management 2. Guidance: a separate cha ir man can p rovide the CEO with guidance and feedback on his/her perfor mance 3. Shareholders' interest: The chair man can focus on shareholder interests, while the CEO manages the company 4. Gover nance: a separate chair man allows the board to more effectively fulfill its regulator y requirements 5. Long-Ter m Outlook: separ ating the position a llows the chair man to focus on the long -ter m strategy while the CEO foc uses on short-ter m profitability 6. Success ion Planning: a separ ate chair man can more effectively concent rate on co rporate succession p lans.

The chair man may be a person o utside the board? • Tr ue or False COMPAN Y SE CRETAR Y Section 2(45) of the Companies Act, 1956 de fines the ter m 'secretar y' to mean a company secretar y within the meaning of Section 2(1)(c) of the Company Secretar ies Act, 1980 and includes any other individual possessing the prescr ibed qualifications and appo inted to perfor m the duties which may be perfor med by a secretar y under the Companies Act, 1956 and any other minister ial or administrative duties. Ever y company in India

having a paidp caping italto ofappoint not lessa than r upees fcompany ive crore secr (limit 2009) shall be urequir whole-time etarincr y. eased from r upees two crore to five crore in Under Section 5 o f the Companies Act, the company secretar y has a lso been included in the categor y of the officer o f the company and shall be considered to be in default in complying with any p rovisions of the https://www.francisxavier.ac.in


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Companies Act, 1956.

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