Business Ethics & CSR Unit : 1 : Introduction to Business Ethics : • Normative ethics, Prescriptive ethics and Applied ethics ,• Ethics, Morality and Legality • Concept of Right and Duty: Business - Western and Indian Perspectives, Definition and Scope Relevance in social changes • Ethical organism and corporate code of conduct Business Ethics - Conceptual Background :• Conceptual Approaches to Business Ethics • Egoism vs Altruism • Entrepreneur and Manager - Rote and Responsibilities • Responsibilities towards stakeholders: an overview • Profit - making; An Objective with an ethical dimension

Unit 2 : Indian Perspective of Ethics :• Purusharthas: Dharma, Artha, Kama. Moksha • Concept of Dharma Ethics: A Global Perspective: • Ethics in Global Marketing & Advertising • Ethical perspective in Employment including in the international labour Organization Std • Ethics and IT: E-commerce, Privacy Codes. • Environmental Ethics: Indian and Western perspectives • Ethics and Cross- culture influences • Ethical issues and functional aspects of business

• Corporate Governance: Meaning scope & Reporting • The Agency Theory Principal - Agent Relationship

Unit 3 : Corporate governance• Role of CEO. Board and Senior Executives • Right of Investors and Shareholders • Financial Regulations and their scope in CG • Corporate governance from Cadbury committee to Narayan Murthy committee

Unit: 4 Concept of CSR • Meaning and Scope of CSR • Relevance and Significance of CSR in contemporary society • Value approach to CSR CSR: within the Organization • Labour relation

UNIT 1

EHTICS- Definition A set of principles of Right Conduct A theory or a system of moral values A code of behavior Moral Value of Human Conduct The Study of the general nature of morals & of the specific

moral choices to be made by a person. Characterized by Honesty, Fairness & Equality. Respects Dignity, Diversity and Rights of individuals & group. Characterized by Honesty, Fairness & Equality. Respects Dignity, Diversity and Rights of individuals & group. Not Acting in such a way to knowingly; directly or indirectly cause harm,

whether physical, emotional, financial or ecological; unless necessary for ones’ survival or justifiable by way of creating a more secure or agreeable end result for all parties affected.

MeaningMoral foundation on which people build

their lives.Assist in decision makingRepresents core value systemCreate a framework for determining

Rigth v/s Wrong Not clearly definedInner VoiceIntuition plays a large role

Aspects of Personal EthicsValue of othersValue of SocietyValue of SelfExample

A Judge is sworn to uphold the lawTake bribe, give biased or unfair verdict

Genesis of ethics. Ethics is a Greek word, it means Character or manners. Ethics is subjective while morality is objective. Ethics is about sense of belongingness to society of

business or Orgn. Formed with a limited vision for economic generation but should resolve conflict with society by servicing the community.

Bhorka group of Karnataka model 5% of profit for community service, education, health and SHG groups.

Invisible rules the visible world. Character is invisible force behind expressions, deed that has tremendous influence in changing and transforming the habits pattern

What is ethics to individual is known as strategy for organization..

No Corporate growth is possible with out strategy.

Lifestyle influence.4T influence on globalisation.

Technology how it influences attitude and behavior- challenges on belief system, commitment of reasoning faculty of scientist –identification of right cause for present effects. 300 years of industrial era.

Trading sector opening up- WTO agreement – how life style changed

Tradition of trust- its influence on society’s demands etc., Truth-Integrity, corporate responsibility, being accountable,

seeking truth, leads to building internal strength – truth leads to trust which is the foundation of building relationship.

many of us are Tradition bound. People should not be led by rules or blindly believe system

Reflect on views of Robert J Aumman, head of the centre for rationality at the Hebrew university Jerusalem. Worked at MIT, Nash who was instructor (1950)a noble prize winner , disciple of Shapley, propounder of game theory, says; In Nash is equilibrium, balance then Shapley is value. Rational person should not be rule minded to survive.

Blindly following rules with out reasoning leads to suicidal squad concept. Experimented on red and blue plastic flowers, sending out nectar, how bees got attuned to believing blue flowers had nectar and created rules in their minds. When blue flower disappeared, red flower brought back, bees did not approach red and died in mass. so is true with traditions, rituals –conditioning our mind with rules that has no reasoning power..

3D of ethics.UNITARIAN VIEW OF ETHICS; business is a

part of moral structure and moral ethics.SEPARATISTS VIEWS OF ETHICS; Adam

smith, Milton Friedman, says business in order to flourish should concentrate on its goals of profit maximization, it is influence by the government and market systems. Morality and ethics has no role in business. Society and law deals with ethics and morality.

INTEGRATED VIEW OF ETHICS; ethical behavior and business should be integrated in a new era called business ethics. Intersection of business and morality and ethics. Talbot parsons views are that Business and morality are interrelated and are guided by factors such government and market system and law and society. The interrelated dimensions enhance the sense of belongingness.

Integration view of ethics.

Business.Morality & ethics

BUSINESS ETHICS

Market system

GOVERNMENT LAW

SOCIETY

Ethical consciousness

Stage 6 corporate citizenship

Stage 5Stake holder concept

Stage 4 Profit maximization in the long term

Stage 3 Profit maximizationIn the short term.

Stage 2 anything for profit

Stage 1 jungle law

Ethical standardsVary between cultures

And countries.More evident

From /amongstEntrepreneurs/Corporations.

Long term profitability and Attractiveness of Orgn

Is key to competitive strategy

Both attractiveness & competitivePosition can be shaped

i.e. challenging and exciting

Ethics in business

OVERT approachExternal theft Bribery etc.,

COVERT approachInternal merger Acquisitions.

insider Trading.

Ethics dilemma.- Pricing, advertising, promotion,

Working condition, customer service, Work force reduction's ,environment

Community relations, supplier relations.Important of trust (empathy) maturity in relationship

Two domains

Ethics and moralityEthics is about field or domain of enquiry while

morality is the object of enquiry. Ethics or behavior accepted with in a group is recorded as credos– espoused value of group/Orgn. When espoused value become practiced values, then the group is said to be ethical Orgn.

Ethical theories can be classified into three subject areas;

MetaethicsNormative ethicsapplied ethics.

Normative theories-business ethics. That which guides and controls human

conduct. Sets out certain standards that determine what is right and what is wrong.

Golden principle behind this – WE SHOULD TREAT OTHERS THE SAME

WAY THAT WE WANT OTHERS TO TREAT US”

Three leading theories of Normative ethics-1. STOCK HOLDERS THEORY2. STAKE HOLDERS THEORY3. SOCIAL CONTRACT THEORY

Normative theory- continues

STOCK HOLDERS THEORY- Managers acts as agents for the stock holders. They are

empowered to manage money, advanced by stock holders and expected to follow implicitly the direction of stock holders. There exists fiduciary relationship between stock holder and managers –prevalent predominantly in some sects like family set up of business. They sacrifice ethical and moral values- based Friedman’s theory business ethics. Believes profits are independent of ethics and morality..

Normative ethics focuses with primary objection, it consists of the contention, it is wrong to spend other peoples money without their consent ,as long as it is being done to promote the public interest.

It may be applicable in democratic Govt system-politicians spending tax payers money for promote public interest not so with stockholders !!.

Normative theory - continue

STAKE HOLDERS THEORY- Management is required to have balanced consideration

of attention- to the legitimate stake holders interest.-based on the concept any stake holders can influence the survival and success of Orgn or firm.

Stake holders guiding principle is to enhance wealth. Management is responsible for financial performance

and its improvement , to take care of the interest of stakeholders, - stock holder, employees, customers, suppliers, management and local community etc,

One must remember, there is nothing like permanent friendship but only permanent interest.

Managements fundamental obligations is not to maximize firms financial success at any cost, but to ensure its survival by balancing the conflicting claims of multiple stake holders. Ensure long term stake of each stake holders. Not just have fudiciary relationship with stock holders interest promotion..

Normative theory continues-

SOCIAL CONTRACT THEORY- Business is ethically obligated to enhance the welfare of

society- reflect on BOP pyramid CKP- by satisfying consumer employee interest without violating justice-pollution issues, air and water pollution -paper industry, fertilizer industry oil companies, uranium extracting units- side effects of radio active substance on community, sound pollution,-foundry forge plants ,underground water depletion because of heavy suction of industry tapping the depleted resources, deforestation of mines impact on society.hospitals,many diagnostic centre letting out toxic substances-

Though there is not written law, there is moral pressure because of consumer awareness for sound living.

THEORY OF CORPORATE MORAL EXCELLENCEFocuses of corporate culture and ethical

behavior.Culture is integrated behavior of employees.

Culture is based on values of an orgn.and it has impact on the beahviour of its employees. Values produce sense of direction for employees and guide and control their day to day behavior.

Espoused values-as a responsible citizen for global community. Treat employees and stake holders with respect.

Value practicedIf both are aligned, that set up is said to be as

an ethical organization.

ETHICS AND STAKE HOLDER THEORY

Maximize stake holder value. Develop ethical responsible behavior of managers.

Managerial decisions should also reflect ethical responsibilities- distribution of benefit and allocations of costs in a manner that is considered right. just by the stake holders..

Judging the ethical nature of an Orgn

Three popular theories-

THEORY OF CORPORATE MORAL EXCELLENCE

ETHICS AND STAKE HOLDERS THEORYETHICS AND CORPORATE GOVERNANCE

ETHICS AND CORPORATE GOVERNANCEDeals with determination what is

‘right'," fair, prior and just" in decisions and actions made that affect stake holders. It focuses on the business relationship with employees, customers, stockholders, creditors, suppliers and member of the society in which it operates. Business is a part of activity of society..

Corporate ethics , is a a matter of leadership.

Adhere to corporate credos-code of conduct.

Development of IQ,EQ and SQ culture.

In the past primary objective of a business was profit maximization but the present perspectives on business objectives is not maximization.

It is profit maximization in long run besides fulfilling the ethics in the business. A business is regarded as social institution forming integral part of social systems .The business is viewed as subsystem to the social system.This is because any type of social system is influenced by

1. The way the business functions2. The organization of the business3. Innovations4. Transmission and diffusion of information.5. New ideas etc.

They have either direct or indirect effect on the society.SOCIAL RESPONSIBILITIES OF BUSINESS

A firm expresses its responsibility to the society by reacting in either or both of the following two ways.

6. The manner in which it carries out its own business activities7. The welfare activities it takes upon itself as an additional function

RESPONSIBILITY TO SHARE HOLDERS1.To make the shareholders feel secured by protecting

their investments2.To be transparent 3.To allow them to participate in decision making4.To ensure them good dividends

RESPONSIBILITY TO EMPLOYEES5.To offer employees fair wages6.To establish better working conditions7.To provide them fair work standards and norms.8.To provide labor welfare activities9.To educate the employees by adopting proper training

methods.10.To recognize and appreciate the work of the employees

and reward them or to promote them.11.To install grievance handling cell.12.To enable them to involve in decision making.

RESPONSIBILITY TO CONSUMERS

To improve the efficiency of the business by

a) Increasing productivity.

b) Improving quality.

c) Suroothening distribution system.

1. To offer the products at reasonable prices.

2. To provide pre-purchase and post purchase service to the consumers.

3. To facilitate research and development to meet the customer requirements.

4. To maximize imperfections in distribution systems

5. To provide sufficient and unnecessary information about the product.

RESPONSIBILITY TO COMMUNITY

6. To be pollution free and maintain ecological balance.

7. To invest more in research and development so as to improve the standard of

living of the society.

8. To develop alternative recourses thereby preventing current resources being

used from exhaustion.

9. To improve the efficiency of business operations.

5. To include in social welfare activities

6. To contribute to national effort to build up a better society

If a firm fulfills all the above mentioned responsibilities then it is said to be

following the business ethics. But in practice such an ideal business doesn’t exist.

FEW ENVIRONMENTAL CONCERNS

One important factor a business man must not neglect is his responsibility to

environment. The abundant natural resources are getting exhausted after 19th

century due to rapid industrialization.

EXAMPLES:

LAND:

The worst effected are as their cattle starve and they travel even increasing distance

for grazing due to industrialization and urbanization.

WATER:

Through people are keen in this issue by constructing dams and reservoirs the bi

products and industry waste couldn’t find a better discharge channel than this. Hence

sure measure must be take in this context to keep the water free from pollution.

DEFORESTATION:

The results of deforestation for industrialization and urbanization are vulnerable. It is

resulting in destruction of wild life, increase in price of wood, air production etc.

HABITAT:

The people who are living in forests and remote areas love their shelter and livelihood in the vent of industrialization.

HEALTH:

The business users must be conscious about the health of the society and behave responsibility for their health.

IMPORTANT ETHICAL PRICIPLES THAT A BUSINESS SHOULD FOLLOW

1. Do not deceive or cheat the customers by selling substandard or defective products by under measurement or any other means.

EXAMPLE:

Textile merchants in general clear the defective stock under the guise of discounts.

2. Do not report to hoarding, black marketing or profiteering.

EXAMPLE:

Management of theaters sell the tickets for higher prices during the initial days of release of a film starred by a crazy hero and heroine.

3. Do not destroy or distort competition.

4. Treasure sincerity and accuracy in advertising, labeling and packaging.

EXAMPLE:

Ads of automobiles in general provide false details in every aspect.

5. Do not furnish the image of competitors by unfair practices.

EXAMPLE: Publishing false information about courpetitors, bribing

the retailers etc.6. Make accurate business records so that transperancy to

the share holders can be achieved.7. Pay taxes and discharge other obligation promptly.8. Do not form castle agreements, even informal, to control

production, prices etc to the common detriment. EXAMPLE: cellular network providers will be in informal castle

agreements to control the traffic.9. Refrain from secret kick backs or pay logs to customers,

suppliers, administrators, politicians etc.10. Ensure payment of fair wages and fair treatment to the

internal customers as well as external customers and share holders.

CASES OBSERVEDIn some cases the managers come across the situation where

they have to neglect sure ethics in order to fulfill source. In those cases the managers must be keen about the level of distortion caused to the society by neglecting such ethics.

EXAMPLE: Kidney transplantation in India has become most popular

because of easy availability at low cost. The doctors run into confusion when they come across the situation where a patient’s life can be saved by disturbing the health of others.

EXAMPLE: Deforestation for industrialization around Jamshedpur contributes

a lot to the Indian economy by providing opportunities to many unemployed. But this disturbs the ecological balance in the society.

EXAMPLE: Construction of subarnarekha dam may result in growth in

the economy yet mr.Tete four XLRTtrapped the chair person of Dalmundi iron ores and saved the dwellersHOW TO IMPLEMENT BUSINESS ETHICS• Trade associations can be formed by the business users which should

bloster the efforts of running any business with ethics.

Trade association can promote business ethics in business user byEducating the members of the association and by consistent persuasion.Formulation a code of conduct for their members which should contain

code of ethics.Praising and rewarding those firms and business users who keep up the

ethics in business & by publishing.Another fact which the business user must realize is the

management and ownership must be seperated because the owners always tend for profit maximization where as the managers case for ethics as they work for fixed salaries.

A managers must be a professional who possesses systematic knowledge and skill to perform certain responsible functions with authority and who is bound by certain ethics in the use of his knowledge and skill.

A professional has to have autonomy.He/she has enormous responsibilities and shall not use his/her

knowledge skill and authority unscrupulously shall not knowingly do distribute to his/her customers.

CONCLUSIONBusiness system as a subsystem to the social system should promote ethics for improving health and wealth of the society consistently.

ETHICS-definitionsThe word ethics is derived from the

Greek word ethos meaning character and latin word mores meaning customs

To better understand ethics let us understand and contrast the definition of ethics and law

Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society.

Ethics defines what is good for the individual and for society and establishes the nature of duties that people owe to oneself and others in society

What are ethicsThe principle of conduct – professional

ethicsA system or philosophy of conductA discipline dealing with what is good and

bad- moral duty and obligationA set of moral principles or values.

Relation between ethics and law

ETHICS- g Reflection in a company’s operations of the

values and moral principles used in the communities in which they operate

g Successful markets and corporate performance are founded on a commitment to basic ethical principles aligned as much as possible to the interests of individuals, corporations and society.

g Ethical standards may be expressed in a company’s formal conduct requirements, or contained in generally stated principles that guide a company’s preferred conduct or behavior.

g Most companies have put in place a code of ethics for its employees to conduct themselves in a particular manner while doing business.

Purpose of Ethics Ethics are the guiding principles. Where the proposed business activity/

operation of the company borders on the unknown, the company needs to apply the ethics principle to decide on the project.

Ethics help make relationships mutually pleasant and productive- imbibes a sense of community among members- a sense of belongingness to society.

Code of ethics -transition

Compliance

Enforcement

Punishment

Directive

Secretive

Compliance

Enforcement

Punishment

Directive

Secretive

Integrity

Inspiration

Motivation

Educational

Open

Integrity

Inspiration

Motivation

Educational

Open

Approaches to Questions of Ethics

Utilitarian Approach Moral Rights Approach Social Justice Approach

Liberty Principle Difference Principle Distributive-Justice Principle Fairness Principle Natural-Duty Principle

Code of Business Ethics To help ensure consistence in the

application of ethical standards, an increasing number of professional associations and businesses are establishing codes of ethical conduct.

The following all have ethics codes: Chemists Funeral directors Law Enforcement Agents Hockey Players Librarians Physicians

Major Trends in Codes of Ethics 1. Increased interest in codifying business

ethics has led to both the proliferation of formal statements by companies and to their prominence among business documents.

2. Such codes used to be found solely in employee handbooks.

3. Companies are adding enforcement measures to their codes.

4. Increased attention by companies in improving employees’ training in understanding their obligations under the company’s code of ethics.

IntroductionBusinesses organized in the United States

are subject to its laws.They are also subject to the laws of other

countries in which they operate.Business persons owe a duty to act

ethically in the conduct of their affairs.Businesses owe a social responsibility not

to harm society.

Law and EthicsEthics – A set of moral principles or values

that governs the conduct of an individual or a group.

What is lawful conduct is not always ethical conduct.The law may permit something that would be

ethically wrong.

Moral Theories and Business Ethics

Ethical Relativism

Ethical Fundamentalism

Utilitarianism

Kantian EthicsRawls’s Social Justice Theory

Ethical FundamentalismEthical fundamentalism - When a person

looks to an outside source for ethical rules or commands.

Critics argue that ethical fundamentalism does not permit people to determine right and wrong for themselves.

UtilitarianismA moral theory that dictates that people

must choose the action or follow the rule that provides the greatest good to society.

This does not mean the greatest good for the greatest number of people.

Has been criticized because it is difficult to estimate the “good” that will result from different actions.

Kantian Ethics (Duty Ethics) A moral theory that says people owe moral duties that are

based on universal rules. Based on the premise that people can use reasoning to reach

ethical decisions. This theory would have people behave according to the

categorical imperative:“Do unto others as you would have them do unto you.”

Deontology’s universal rules are based on two important principles:

1. Consistency – all cases are treated alike with no exceptions.2. Reversibility – the actor must abide by the rule he or she

uses to judge the morality of someone else’s conduct. Thus, if you are going to make an exception for yourself, that

exception becomes a universal rule that applies to all others. A criticism of this theory is that it is hard to reach a consensus

as to what the universal rules should be.

Rawls’s Social Justice TheoryRawls’s social contract

A moral theory that says each person is presumed to have entered into a social contract, with all others in society, to obey moral rules that are necessary for people to live in peace and harmony.

Rawls’s Distributive Justice TheoryFairness is considered the essence of justice.The principles of justice should be chosen by persons who do not

yet know their station in society.This “veil of ignorance” would permit the fairest possible

principles to be selected. There are two major criticisms of this theory:

1. Establishing the blind “original position” for choosing moral principles is impossible in the real world.

2. Many persons in society would choose not to maximize the benefit to the least advantaged persons in society.

Ethical RelativismA moral theory that holds that individuals

must decide what is ethical based on their own feelings as to what is right or wrong.

There are no universal ethical rules to guide a person’s conduct.

If a person meets his or her own moral standard in making a decision, no one can criticize him or her for it.

A criticism of this theory is that an action usually thought to be unethical would not be unethical if the perpetrator thought it was in fact ethical.

Theories of Ethics – Summary (1 of 2)

Theory Description

Ethical fundamentalism

Persons look to an outside source or central figure for ethical guidelines.

Utilitarianism Persons choose the alternative that would provide the greatest good to society.

Kantian ethics A set of universal rules establishes ethical duties. The rules are based on reasoning and require (1) consistency in application and (2) reversibility.

Theories of Ethics – Summary (2 of 2)

Theory Description

Rawls’s social justice theory

Moral duties are based on an implied social contract. Fairness is justice. Rules are established from an original position.

Ethical relativism Individuals decide what is ethical based on their own feelings as to what is right or wrong.

The Social Responsibility of BusinessBusiness does not operate in a vacuum.Decisions made by business have far-

reaching effects on society.In the past, many business decisions were

made solely on a cost-benefit analysis.“Bottom line” impact.

The Social Responsibility of Business (continued)

Such decisions may cause negative externalities for others.

Corporations are considered to owe some degree of social responsibility for their actions.

Ethics is a function of history, culture, religion, and other factors.

Therefore, ethical standards vary from country to country.

The Caux Round Table promulgated an international ethics code called the Principles for International Business.

The Caux Round Table Principles: (continued)

Principle 1 The Responsibilities of Business Beyond Shareholders Toward Shareholders

Principle 2 The Economic and Social Impact of Business: Toward Innovation, Justice, and World Community

Principle 3 Business Behavior: Beyond the Letter of Law Toward a Spirit of Trust

Principle 4 Respect for Rules

Principle 5 Support for Multilateral Trade

Principle 6 Respect for the Environment

Principle 7 Avoidance of Illicit Operations

Theories of Social Responsibility

Maximizing Profits

Moral Minimum

Stakeholder Interest

Corporate Citizenship

Maximizing Profits

A theory of social responsibility that says a corporation owes a duty to take actions that maximize profits for shareholders.

The interests of other constituencies are not important in and of themselves.

Moral MinimumA theory of social responsibility that says a

corporation’s duty is to make a profit while avoiding harm to others.

As long as business avoids or corrects the social injury it causes, it has met its duty of social responsibility.

The legislative and judicial branches of government have established laws that enforce the moral minimum of social responsibility on corporations.e.g., Occupational safety lawse.g., Consumer protection laws for product

safety

Stakeholder InterestA theory of social responsibility that says a

corporation must consider the effects its actions have on persons other than its stockholders.

This theory is criticized because it is difficult to harmonize the conflicting interests of stakeholders.

Other Stakeholders of a Business

Customers

Employees Suppliers

Local Community

Creditors

Corporate CitizenshipA theory of responsibility that says a business has a

responsibility to do good.Business is responsible for helping to solve social

problems.Corporations owe a duty to promote the same

social goals as do individual members of society.This theory argues that corporations owe a debt to

society to make it a better place.This duty arises because of the social power

bestowed on corporations.A major criticism of this theory is that the duty of a

corporation to “do good” cannot be expanded beyond certain limits.

Theories of Social Responsibility – Summary

Theory Social Responsibility

Maximizing profits To maximize profits for stockholders.

Moral minimum To avoid causing harm and to compensate for harm caused.

Stakeholder interest To consider the interests of all stakeholders, including stockholders, employees, customers, suppliers, creditors, and local community.

Corporate citizenship To do good and solve social problems

The Corporate Social AuditCorporate audits should be extended to include the moral

health of the corporation.Corporations that conduct social audits will be more apt to

prevent unethical and illegal conduct by managers, employees, and agents.

The audit would examine how well:Employees have adhered to the company’s code of ethics; andThe corporation has met its duty of social responsibility.

Such audits would focus on the corporation’s efforts to:Promote employment opportunities for members of protected

classesWorker safetyEnvironmental protectionConsumer protection

The Corporate Social Audit (continued)

Companies should institute the following procedures when conducting a social audit:

An independent outside firm should be hired to conduct the audit.This will ensure autonomy and objectivity.

The company’s personnel should cooperate fully with the auditing firm while the audit is being conducted.Procedures for conducting the audit (continued):

The auditing firm should report its findings directly to the company’s board of directors.

The results of the audit should be reviewed by the company’s board of directors.

The Corporate Social Audit (continued)

Procedures for conducting the audit (continued):

The board of directors should determine how the company can:Better meet its duty of social responsibility;

andUse the audit to implement a program to

correct any deficiencies it finds.

United Nations Code of Conduct for Transnational Corporations

Respect for National SovereigntyAdherence to Socio-Cultural Objectives and

ValuesRespect for Human Rights and Fundamental

FreedomsAbstention from Corrupt Practices

Stakeholder Approach

According to the Stakeholder Approach: In defining or redefining the company

mission, strategic managers must recognize the legitimate rights of the firm’s claimants.

These include outside stakeholders affected by the firm’s actions.

3-62

Perceived Stakeholders

Customers Government Stockholders Employees Society

3-63

Steps to Incorporate Stakeholders:

1. Identification of stakeholders

2. Understanding stakeholders’ specific claims vis-à-vis the firm

3. Reconciliation of these claims and assignment of priorities

4. Coordination of the claims with other elements of the company mission 3-64

Dynamics of Social Responsibility

Inside vs. Outside Stakeholders

Duty to serve society plus duty to serve stockholders

Flexibility is key Firms differ along:

Competitive Position Industry Country Environmental Pressures Ecological Pressures

3-65

Inputs to the Development of Company Mission

3-66

The “4 E’s” of Marketing Strategy:

Make it easy for the consumer to be green

Empower consumers with solutions

Enlist the support of the consumer

Establish credibility with all publics and help to avoid a backlash

3-67

Stakeholders and Corporate Performance

Stakeholders are in an exchange relationship with the companyContributions: they supply the organization

with important resourcesInducements: in exchange they

expect their interests to by satisfied

Stakeholders are individuals or groups with an interest, claim, or stake in the company, what it does, and how well it performs.

Companies should pursue strategies that maximize long-run shareholder value and

must also behave in an ethical and socially responsible manner.

Stakeholder Impact Analysis Identify stakeholders most critical to survival:

Identify which stakeholdersThe stakeholders’ interests and concernsClaims stakeholders are likely to make

on the organizationStakeholders who are most important

to the organization’s perspectiveIdentify the resulting strategic challenges

Usually the most important:Customers • Employees • StockholdersCompanies must identify the most important

stakeholders and give highest priority to pursuing strategies that satisfy their needs.

Stakeholders and the EnterpriseFigure 11.1

The Unique Role of Stockholders

Risk capital – No guarantee to the stockholders that:

They will recoup their investmentOr earn a decent return

ESOPs – Employee Stock Option Plans Employees may also be shareholders

Stockholders are a company’s legal owners and the provider of risk capital, a major source of capital to operate a business.

Maximizing long-run profitability & profit growth is the route to maximizing returns to shareholders,

as well as satisfying the claims of most other stakeholder groups.

Profitability, Profit Growth and Stakeholder Claims

1. Participating in a market that is growing2. Taking market share away from competitors3. Consolidating the industry via horizontal integration4. Developing new markets through: • Diversification • Vertical Integration • International Expansion

To grow profits, companies must be doing one or more of the following:

Stockholders receive their returns as: Dividend payments Capital appreciation in market value of shares

ROIC is an excellent measure of profitability.A company generating positive ROIC is adding to

shareholders’ equity and increasing shareholder value.

Agency Theory

Principal-agent relationshipsPrincipal: person delegating authorityAgent: person to whom authority is delegated

The agency problem:Agents and principals may have different goals.Agents may pursue goals that are not in the best

interests of their principals.Agents may take advantage of information asymmetries

to maximize their interests at the expense of principals. It is difficult for principals to measure performance.Trust • On-the-job consumption • Empire building

Agency relationships arise whenever one party delegates decision-making authority or control over resources to another.

The Tradeoff Between Profitability and Revenue Growth Rates

Need to maximize long-run shareholder returns by seeking the right balance between company growth . . . and profitability and profit growth.

The Challenge for Principals

1. Shape the behavior of agents so that they act in accordance with goals set by principals

2. Reduce information asymmetry between agents and principals

3. Develop mechanisms for removing agents who do not act in accordance with goals and principals

Confronted with agency problems, the challenge for principals is to:

Principals try to deal with these challenges through a series of governance mechanisms.

Governance Mechanisms

The Board of DirectorsElected by stockholdersLegally accountableMonitors corporate

strategy decisionsAuthority to hire, fire,

and compensateEnsures accuracy of

audited financial statements

Inside directorsOutside directors

Governance mechanisms serve to limit the agency problem by aligning incentives between agents and principals and by monitoring and controlling agents.

Stock-Based Compensation• Pay-for-performance• Stock options: The right to buy company shares

at a predetermined price at some point in the future

Financial Statements• Auditors • SEC • GAAP

The Takeover Constraint• Limits strategies that ignore

shareholder interests• Corporate raiders

Governance Mechanisms Inside a Company

Strategic control systemsTo establish standards against which performance can be

measuredTo create systems for measuring and monitoring

performance To compare actual performance against targetsTo evaluate results and take corrective actions

Balanced Scorecard model approach is used to drive future performance

Employee incentivesEmployee stock options and stock ownership plansCompensation tied to attainment of superior efficiency,

quality, innovation, and responsiveness to customers

Important agency relationships also exist between levels of management within a company. Internal agency problems can be reduced by:

A Balanced Scorecard Approach

Ethics and Strategy

Ethical dilemmas occur when: There is no agreement over what the accepted principles areNone of the available alternatives seem ethically acceptable

Many accepted principles are codified into laws:Tort laws – governing product liabilityContract law – contracts and breaches of contracts Intellectual property law – protection of intellectual property Antitrust law – governing competitive behaviorSecurities law - issuing and selling securities

Behaving ethically goes beyond staying within the law

Business ethics are the accepted principles of right or wrong governing the conduct of businesspeople.

An ethical strategy is one that does not violate the accepted principles.

Ethical Issues in Strategy

Self-dealing Managers feather their nest with corporate monies Information manipulation Distort or hide information to enhance competitive or personal

situation Anticompetitive behavior Actions aimed at harming actual or potential competitors Opportunistic exploitation Of other players in the value chain in which the firm is embedded Substandard working conditions Underinvest in working conditions or pay below market wages Environmental degradation Directly or indirectly take actions that result in environmental

harm Corruption Companies pay bribes to gain access to lucrative business

contracts.

Ethical issues are due to a potential conflict between the goals of the enterprise, or the goals of the individual managers, and the rights of important stakeholders:

The Roots of Unethical Behavior

1. Personal ethics code: will have a profound influence on behavior as a businessperson

2. Do not realize they are behaving unethically: by failing to ask the right questions

3. Organization’s culture: de-emphasizes ethics and considers primarily economic consequences

4. Unrealistic performance goals: encouraging and legitimizing unethical behavior

5. Unethical leadership: that encourages and tolerates behavior that is ethically suspect

Why do some managers behave unethically?No simple answers, but some generalizations:

Philosophical Approaches to Ethics

The Friedman Doctrine Milton Friedman’s basic position is that the only social responsibility of

business is to increase profits, as long as the company stays within the law and the rules of the game without deception or fraud.

Utilitarian and Kantian Ethics The moral worth of actions is determined by its consequences – leading to the

best possible balance of good versus bad consequences. Committed to the maximization of good and the minimization of harm.

Rights Theories Recognizes that human beings have fundamental rights and privileges. Rights

establish a minimum level of morally acceptable behavior.

Justice Theories Focus on the attainment of a just distribution of economic goods and services

that is considered to be fair and equitable.

Philosophical underpinnings of business ethics that can provide managers with a moral compass to help navigate through difficult ethical issues:

Behaving Ethically

1. Favor hiring and promoting people with a well-grounded sense of personal ethics.

2. Build an organizational culture that places a high value on ethical behavior.

3. Make sure that leaders not only articulate but also act in an ethical manner.

4. Put decision-making processes in place that require people to consider the ethical dimension of business decisions.

5. Use ethics officers.

6. Put strong corporate governance processes in place.

7. Act with moral courage and encourage others to do the same.

To make sure that ethical issues are considered in business decisions, managers should:

ETHICS AND MANAGEMENT.Strategic management domainMarketing management domainOperations management domainPurchase management domainHuman resources management domainFinance domainAccounting and other domains.Ethics dilemmas at work placeEthical issues in global business.

Ethics and strategicManagement domain

Deals with leadership style –how the co.Is going to achieve the obj /mission. decisionMaking at various levels. To give equal return

to all stake holders-focuses on on vision statement.Mgmt remuneration, implement strategic changes

Makes sure CG reflect culture and values, considering impressions of

Both insider and outsider stake holders..To align stock and stake holders interest and societyPeople are not influenced by double digits figures butBy its soft culture- operate from high value centre not

Considered as mechanical centre.,

Stake holdersTheory and

Moral excellenceReflect on amitabhPI-Legal notice on

Violating cigarette smoking

Cultural relativismLobbying US and India

Political funding US/India. corruption/

courtesySacrifice of human

For god!?

Psychological andloyalty Contract

Employer and employee

MS Banga /Manwani Change in role

HLL reflect

Ethical issues in marketing.

How you conduct yourself , you infact communicate your intentions!?

Is marketing playing a responsible role in society-with respect to price, place and promotion.!!

Does Mkg.understand the interest and behavior of consumer.

Should not Mkt assess if consumer want all competition to dissolve? Will he develop confidence if consumer has no choice?!

Does Mkg allow customer interaction/good response.

Does it conduct market research to study the pattern of behavior of customers.Mkg does it check if its product is performing and reflecting the characteristics it is intended for.

Does Marketing makes unethical play with place where product is distributed? Does it exploit movements of products to exploit on demand and supply does it impose link sale for less demanded product with most demanded product?

Is organization self corrective and changes its attitude or working with change in market demand indicated by survey report on buying pattern of consumers?

Is advt made is ethical. Does it lie about the product. Fair and lovely,

does it have health policy followed for distribution.Marketing does it makes use of business

intelligence and constantly assesses the feed back study of consumer- does data mining to asses various pattern- demographic analysis of buying , target audience, gender preference etc.,

Ethics in operational

mgmt

Think beyond bottom lines.Model code 1 for product sector

Model 2 or service sectorAlcohol abuse in model 1.

theft Bhel story, gender safety recentBPO at Bngl./ dormitory rooms Wal-Mart on

$ 172 mn fining for lunch break issuePoor lighting at machine shop, reflect on MNC industry using CNC , toilet facilities,

kick backs TQM six sigma applications..

Ethics in Pur.mgmt

Accepting gifts from suppliers, inducing supplierTo hose private parties; HLL episode, deceiving supplierPostpone bill (Usha and Hyd engg ltd.)revealing secrets.

Ethics inHRM

Ethics in Finance.

Ethics in accounting

Misuse of referral scheme, Retrenchment and firing at will, discrimination

Policy like in US /gender bias, blacks are not paid In par with the same merits.

Considering age factor in judging the capabilities etc.,improper,

testing done to reject, remuneration not properWith market conditions, neighborhood. treatment as second

Class citizen

Issues in M and A, hostile take over’s-poison pillGreen mail golden parachute, people pill, sandbag

Insider trading, money laundering.Yes bank, Karvy DP parikh DP, Roopel Ben Poonchal with IDFC retail

Jet air ways issue of fraud of demat accounts –anti- Money laundering policy.ck on market intermediaries.

Enron issue, double billing, exploring on overdraft,

Secrecy in accounting, manipulating expense a/c

UNIT:2

Concept review:Dharma,Apad-

Dharma,Adharma,Swadharma,Satya,Yagna,Tapasya,

Varnashram Dharma, Chathur Ashram concept of Life

PurusharthaEnvironmental social auditGreen MarketingDeep ecologyCore conventions of ILOEnvironmental EthicsAdvertising Ethics

UNIT:3 CG

What is corporate governance?Corporate Governance is concerned with

holding the balance between economic and social goals and between individual and communal goals.

The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.

The aim is to align as nearly as possible the interests of individuals, corporations and society

- Sir Adrian Cadbury

History of Corp Gov in IndiaFollowing CII and SEBI, the Department of

Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees

In 2001-02, certain accounting standards were modified to further improve financial disclosures. These were:Disclosure of related party transactionsDisclosure of segment income: revenues,

profits and capital employed Deferred tax liabilities or assets Consolidation of accounts

Initiatives are being taken to (i) account for ESOPs, (ii) further increase disclosures, and (iii) put in place systems that can further strengthen auditors’ independence

What is corporate governance? Contd…

The primary purpose of corporate leadership is to create wealth legally and ethically.

This translates to bringing a high level of satisfaction to five constituencies -- customers, employees, investors, vendors and the society-at-large.

The raison d'être of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year.

- N R Narayana Murthy

History of Corp Gov in IndiaUnlike South-East and East Asia, the corporate

governance initiative in India was not triggered by any serious nationwide financial, banking and economic collapse

Also, unlike most OECD countries, the initiative in India was initially driven by an industry association, the Confederation of Indian Industry In December 1995, CII set up a task force to design a

voluntary code of corporate governanceThe final draft of this code was widely circulated in 1997 In April 1998, the code was released. It was called Desirable

Corporate Governance: A CodeBetween 1998 and 2000, over 25 leading companies

voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddy’s Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others

History of Corp Gov in IndiaFollowing CII’s initiative, the Securities

and Exchange Board of India (SEBI) set up a committee under Kumar Mangalam Birla to design a mandatory-cum-recommendatory code for listed companies

The Birla Committee Report was approved by SEBI in December 2000

Became mandatory for listed companies through the listing agreement, and implemented according to a rollout plan

Corporate Governance

Corporate Governance

Corporate Governance - DefinitionIs the system by which cos are directed &

controlledGoverning a co in a value based manner“Fundamental objective is the enhancement of

the long term shareholder value while at the same time protecting the interests of all other stakeholder” – SEBI

To direct & manage the business & affairs of the co with the objective of enhancing shareholder value, which includes ensuring financial viability of the business

Corporate Governance - MeaningIt is a multi – facet subject

It is a set of processes, customs, policies, laws & procedures affecting the way a co is directed, administered & controlled

Fundamental Objective of Corporate GovernanceEnhancement of Shareholder Value, keeping in view the Interests of other Stakeholders

CG a Way of Life rather than a Code

Constituents of Corp GovThe Board of Directors

Pivotal role Accountable to stakeholders Directs management

The Shareholders & StakeholdersTo participate in appointment of directorsTo hold the BoD accountable for governance

through proper disclosures

The ManagementTo act on the direction of the BoDTo provide requisite information to the BoD for

decision makingTo implement and monitor control systems

Rationale` for Disclosures An effective disclosure based regulation (DBR) implies greater responsibilities on the company directors, its management and advisers

An effective DBR promotes investor activism

Markets believe that perceived benefits outweigh perceived costs

Disclosure based Regulation – Components & types of disclosure

Disclosures Disclosuresby whom for whom

Public Listed Cos. ShareholdersIntermediaries Investors

Stock Exchanges MARKET IntermediariesMutual Funds RegulatorAnalysts & advisors

GovernmentOther stake

-holders

Disclosure Based Regulation Components & types of disclosures Initial Disclosures – Disclosures for raising

capital by companies, mutual funds in offer documents

- Public Offers- Private Placement

Continuous disclosures – financial / non-financial

Frequency of disclosure Dissemination process – electronic,

physical, centralised, dispersed Accessibility of information

Disclosure Based Regulation Initial Disclosures Continuous disclosures Corporate Governance Financial disclosures Risk based disclosures for intermediaries

Disclosures for stock exchanges

DisclosuresBoard of Directors: information that must

be supplied Annual, quarter, half year operating plans, budgets and

updates Quarterly results of company and its business segments Minutes of the audit committee and other board

committees Recruitment and remuneration of senior officers Materially important legal notices and claims, as well as

any accidents, hazards, pollution issues and labor problems

Any actual or expected default in financial obligations Details of joint ventures and collaborations Transactions involving payment towards goodwill, brand

equity and intellectual property Any materially significant sale of business and

investments Foreign currency and other risks and risk management Any regulatory non-compliance

DisclosuresDisclosures to shareholders in addition to

balance sheet, P&L and cash flow statement

Board composition (executive, non-exec, independent) Qualifications and experience of directors Number of outside directorships held by each director

(capped at director not being a member of more than 10 board-level committees, and Chairman of not more than 5)

Attendance record of directors Remuneration of directors Relationship (familial or pecuniary) with other directors Warning against insider trading, with procedures to

prevent such acts Details of grievances of shareholders, and how quickly

these were addressed Date, time and venue of annual general meeting of

shareholders

DisclosuresDisclosures to shareholders in addition to

balance sheet, P&L and cash flow statement Dates of book closure and dividend paymentDetails of shareholding patternName, address and contact details of registrars

and/or share transfer agentsDetails about the share transfer systemStock price data over the reporting year, and how

the company’s stock measured up to the indexFinancial effects of stock optionsFinancial effects of any share buybackFinancial effects of any warrants that are to be

exercisedChapter reporting corporate governance practices

DisclosuresDisclosures to shareholders in addition to

balance sheet, P&L and cash flow statement

Detailed chapter on Management Discussion and Analysis focusing on markets, operations, finances, accounts, risks, opportunities and threats, internal control systems

Consolidated financial statement, incorporating accounts of all subsidiaries (over 50% shares held by reporting company)

Details of all significant related party transactions

Detailed segment reporting (revenues, costs, operating profits and capital employed)

Deferred tax liabilities and assets and debit/credit in the P&L for the reporting year

Disclosures

(A) Basis of related party transactionsI. A statement in summary form of

transactions with related parties in the ordinary course of business shall be placed periodically before the audit committee.

II. Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee.

III. Details of material individual transactions with related parties or others, which are not on an arm’s length basis should be placed before the audit committee, together with Management’s justification for the same

Disclosures(B) Disclosure of Accounting Treatment

To disclose in the financial statements, if an accounting treatment other than prescribed in Accounting Standard has been followed alongwith explanation.

(C) Board Disclosures – Risk management

Internal and external business risks Procedures to inform Board members about

the risk assessment and minimization. Periodically reviewed

Disclosures

(D) Proceeds from public issues, rights issues, preferential issues etc.

To disclose to the Audit Committee, on use/application of funds as and when any issue is made

(E) Additional disclosures: In the Annual Report the criteria of

making payments to NEDs to be disclosed or a reference to be made that the same is available on the company’s website

number of shares and convertible instruments held by NEDs.

NEDs shall disclose their shareholding (both own or held by / for other persons on a beneficial basis) in the company in which they are proposed to be appointed as directors, prior to their appointment.

Disclosures

F) ManagementA Management Discussion and Analysis report to form part of the Annual Report.

G) ShareholdersDisclosures to shareholders in case of appointment /reappointment of directors, quarterly results and presentations made, shareholders’ grievance committee and share transfer committee, shareholding pattern-change

CEO/CFO certificationThe CEO, i.e. Managing Director and the CFO i.e. whole-time Finance Director or head of the finance function to certify to the Board that:(a) They have reviewed financial statements and the cash flow statement for the year and these statements:

(i) do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;

(ii) together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.

(b) no transactions entered into by the company during the year which are fraudulent, illegal or violative of the company’s code of conduct.

The genesis of SOX: A Corporate Tsunami

Corporate America was rocked by scandal after scandal in a very short span of time.

Enron KMart Tyco WorldCom Global Crossing

Types of DirectorsNominee- Director whose function is passive in nature.

Nominee director are subject to directors responsibilities. Nominee director appointed by an institution which has invested in or lent to the company shall be deemed to be independent directors.

Whole Time- is executive director who is in whole time employment of the company.

Independent- is a non executive director who has no material pecuniary relationship or transactions with the

company.

Responsibility of DirectorsMeaning thereofStatutory ResponsibilityFiduciary ResponsibilityStatutory Role and Responsibility

Need for familiarisation with legal aspectsRelationship with duty discharge obligations

Key IssuesResponsibilityDuty Statutory

What is “Duty”Generally speaking, duty is what we expect of othersDuty is a task we look forward to with distaste, perform

with reluctance, and brag about afterwardsThe trouble with the world is that so many people who

stand up for their rights fall down miserably on their duties

The best way to get rid of your duties is to discharge them

“Next to doing the right thing, the most important thing is to let people know you are doing the right thing” – John D. Rockfeller

“It is not enough to be ready to go where duty calls. A man should stand around where he can hear the call” – Robert Louis Stevenson

ResponsibilityResponsibility walks hand in hand with capacity

and powerResponsibility also is directly linked to one’s

duties It is easy to dodge our responsibilities, but we

cannot dodge the consequences of dodging our responsibilities

You cannot evade the responsibilities of tomorrow by evading it today

- Abraham Lincoln

Drivers of ChangeDemocratisation of ownershipLiberalisationGlobalisation of marketsTechnologyCorporate GovernanceESOPsOther influences – lenders, regulators, tax

authorities

The environment in which we work inChanging Economic TimesPressures to Perform

- Wall Street expectations- Shareholder and Board of Director expectations

Complexity and sophistication of Business Structures and Transactions- Numerous risks and challenges of reporting transactions in an easily understood manner

Complex and Voluminous Standards

The Role of a DirectorA Director is part of a collective body of Directors called the Board responsible for the superintendence, control and direction of the affairs of the Company

The Role of a DirectorIs an individual Director as a member of the Company Board equally responsible as the Company Board ?

No, unless he, the individual director, is charged with a specific responsibility

The Role of a DirectorIs the Company Board responsible for management of the Company or for the supervisory oversight of the Company ?

This depends on whether the Company has a CEO to manage the affairs of the Company on a day-to-day basis.

Director’s dutiesAct in the best interests of the companySafeguard the interests of the stakeholdersAttend Board Meetings and participate in

decisionsExercise due care and skillAvoid conflict situationsNot seek personal gains Maintain confidentialityFiduciary dutySeek opinion of experts when necessaryDischarge duties required in specific

committees of the Board

Directors’ duties●Directors are subject to various duties, both

common law and statutory. At a very fundamental level, these duties are directed at four well-defined objectives :

●to compel directors to act in accordance with the strict terms of their mandate;

● to compel them to exercise care and skill in carrying out their various functions;

Directors’ duties● to compel them to use their wide discretionary

powers in good faith and proper purpose

● and finally, to compel them to act loyally in advancing the interest of their company.”

Sarah Worthington, Corporate Governance - Remedying and Ratifying Directors’ Breaches

Directors’ DutiesWhat is a director’s duty of skill ?Directors are not required to bring any special

qualifications into their office.

Major Law Reform required in this area

Directors’ Duties What is the duty of care required for a Director ? The Supreme Court of India has held in Official

Liquidator v P.A. Tendolkar (1973) 43 Comp Cases 382 as follows:

A director may be shown to be so placed and to have been so closely and so long associated personally with the management of the Company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of the Company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to every one who examines the affairs of the Company even superficially

Directors’ DutiesWhat is the non-executive director’s duty of skill and

care ?The English Court after reviewing many cases in

Dorchester Finance Co. Ltd v Stebbing, 1989 BCLC498 (Ch D) held as follows:

A Director is to exhibit in the performance of his duties such degree of skill as may be reasonably expected from a person of his knowledge and experience

A Director is to exhibit in the performance of his duties such care as an ordinary man might be expected to take on his own behalf

A Director must act in good faith and in the best interests of the Company

These standards of duty of care and skill apply equally to non-executive Directors

Directors’ DutiesActing in good faith a valid defense for the

Directors In Re The Walt Disney Company, the US Court

in its decision decided in August 2005 upheld the rule of acting in good faith by saying that the concept of intentional dereliction of duty, a conscious disregard for one’s responsibilities, is an appropriate (although not the only), standard for determining whether fiduciaries have acted in good faith

Directors’ ResponsibilitiesPresent directorsPast directorsMembers of Audit CommitteeExplicit and implicitResponsibility for subsidiaries

Statutory Responsibilities Section 274 of the Companies Act list out disqualifications of

directors. Director should conduct himself in such a way that he does not incur such disqualification

Director should maintain absolute secrecy of confidential information

Director should not derive undue personal advantage or benefit by virtue of his position

Director should ensure that company at all times complies with statutes, rules and regulations in letter and spirit

Director with other Directors of the Board is responsible that report and recommendation of Audit Committee and Shareholders’ / Investors’ Grievance Committee receive due consideration

Director is accountable for the company practicing the highest standard of corporate governance with a underlying view of increasing the shareholders’ value

Fiduciary Duty of DirectorsDirector should not enter into engagements

in which he can have a personal interest conflicting with the interest of the company.

Director must display the utmost good faith towards the company in their dealings with it or on its behalf.

Directors’ ResponsibilitiesArthur Levitt’s views Blue Ribbon CommitteeSection 292A and Audit Committees

Section 217 (2AA)Clause 49 of Listing Agreement

Recommendation of Blue Ribbon CommitteeMember of the Audit Committee to be independent

of the company (not employees)The Audit committee to be composed exclusively of

non executive directorsThe Audit Committee to consist of at least three

member with specialist expertise in the field of finance and accounting

The Audit committee to have a written charterThe charter to be published at least every three

years in a proxy statement

Recommendation of Blue Ribbon CommitteeThe external auditors to be accountable to the

Board of Directors and particularly to the audit committee.

The external auditors to report annually on their independence from the company.

The audit committee to discuss the quality of accounting principles with the external auditors.

The audit committee to produce a report on its activities.

Quarterly financial statements (form 10-Q) to undergo a critical review by the external auditors

Section 217(2AA)Report by Board of Directors includes Directors

responsibility Statement indicating thereinIn preparation of annual accounts, applicable accounting

standard has been followed along with explanations to material departures.

That accounting policies has been selected and applied consistently and made judgment and estimates that are reasonable and prudent.

Proper and sufficient care for the maintenance of accounting records in accordance with the act for safeguarding the assets of company and for detecting and preventing fraud

Prepared annual accounts on a going concern basis

Section 274 clause (g)● such person is already a director of a public company(A) has not the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April 1999; or

(B) has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such default continues for one year or more:

Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director failed to file annual accounts and annual return or has failed to repay its deposit or interest or redeem its debentures on due date or pay dividend

Section 292AAudit committee shall consist of at least three directors

other than managing director or whole time director.Audit Committee shall have discussion with auditors

about internal control systems, the scope of audit and review half yearly and annual financial statements.

Audit committee has authority to investigate into any matter.

The recommendations of the Audit committee is binding on the Board

The chairman of the Audit Committee shall attend the annual general meeting to provide clarification on matters relating to audit

Clause 49 of Listing Agreement The non executive director on the board should not be less

than fifty percent of the Board of Directors or in the case of non executive chairman at least should comprise of independent directors

The board meeting is to be held at least four times in a year. The difference between two Board meeting should not exceed

four months The Annual Report of a company should comprise a separate

section in Corporate Governance. Non compliance of any mandatory requirement which is a part of listing agreement to be specifically highlighted with a reason for such non compliance.

The compliance of conditions of corporate governance is to be certified by auditors and the same is to be annexed with directors report and also sent to the Stock Exchange with return

Clause 49Kumarmangalam Birla committee on

corporate governance – SEBI – 1999Narayana Murthy committee on corporate

governace

DefinitionExcludes any relatives of promoters, senior

managementCooling-off Period - for any member of any

advisory firm (not just statutory auditors, but also lawyers, consultants and internal auditors)

Increased responsibilitiesEnhances the responsibilities of the board Company’s compliance with all applicable laws

to be disclosedEnhanced oversight over its subsidiaries

Board members also have to review all significant transactions entered into by any subsidiary

Review minutes of all the subsidiaries’ board meetings Sign-off on compliance with the company’s code of

conduct

Improving quality of disclosureDisclosure of directors’ shareholding in the

companyDisclosure of compensation paid to non-

executive directorsDisclosure of all related-party transactionsUse of funds raised through public issues (in

case of any use of funds for purposes other than that originally stated in the offer prospectus),

An audited statement on the deviation to be included in the annual report,

Any changes in accounting policies and practices.

LiabilityFor company debtsUltra-vires actsCriminal liability under Negotiable Instruments

ActDamages for breach of contractDirector’s responsibility statementsLiability of directors under other laws (labour,

food adulteration, essential commodities, etc.)

Some Company Law ProvisionsNon compliance of various provisions of the

ActAvoidance of provisions relieving liability of

officers – voidUnlimited liability (Section 323) –

permissibleStatutory Protection to Directors (Section

633)Directors’ Responsibility Statement

CEO / CFO responsibilitiesThe CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act, 1956 and the CFO i.e. the whole-time Finance Director or any other person heading the finance function discharging that function shall certify to the Board that:

(a) They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief :

(i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;

(ii) these statements together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.

Management certificationManagement has to certify the key financial

assertions like completeness, validity, valuation etc. underlying in the preparation of the financial statements.

Opinion of the statutory auditors is not the only criterion on which the financial statements will be evaluated.

Responsibility on the management to ensure compliance with applicable standards, laws etc. and to ensure that the financial statements give true and fair view of the affairs of the Company.

Management certificationThey accept responsibility for establishing and maintaining internal controls and that they have evaluated the effectiveness of the internal control systems of the company and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies.

Guidance for Independent Directors-The Taste and Smell TestsReputation of companyCapability to meet the requirements and

expectationsDemonstrate independenceWhether the company has adequate

controls and whether they can be relied upon

Ability to resist pressure

Guidance for Independent Directors-The Taste and Smell TestsKnowledge on current developmentsAware and abide by corporate code of

conductSeek expert helpPrepare in advance for board meetingsMaintain confidentiality

Way AheadIndependent directors here to stayBoard and audit committee procedures will

need to be revampedNeed to be more proactive at watching

over complianceIdentify and manage risksHave processes to test and evaluate

controls

UNIT:4 CSR

Challenges in corporate of CSR as stake holders?

What is the role of business in society and assuming social responsibility for the community?

What is HR role in assuming responsibility for internal and external communities and in creating ambience, internal and external and dealing with outside world? Is community a stake holder for business.?

How can it reduce absenteeism of workers – by solving water services in neighboring areas where workers stay ad around it?

Is CSR a business process? Is it in the interest of business to contribute to its growth, revenues, profits and employee retention?

Future business models must first build sensitivities and capabilities to reach the point. billions of poor have a potential to become a part of the market. 4 trillion market in India. Can corporate create potential markets for themselves by helping the poor?

Can BPO create potential work force by engaging in vocational training points

Can IT company help educate school students and that could be potential customers or employers.,.

Can there be mutual beneficial relationship between a corporate and the world around it serves.?

CSR means what?

Are corporate a SOCIAL TRANSFORMATION AGENT? (STA role) Yes. assumes CSR!

CSR means “how to sustain economic activity by co- mingling social responsibility of enterprises in their external and internal relations with business prospects.”

Operate a business in a manner that meets or exceeds ethical, legal,commercial and public expectation of the society.

Vision and mission of CSR- the corporate or company will make a model of excellence in making social commitment, environment, health and safely norms and in employees welfare and relation activities. Focus on triple bottom line concept.

Corporate look at 4 Ms- meaning, managing, monitoring, measuring the social projects done –charity with metrics.

Globalisation is the order of the day, Transnational corporation play the role of social transformation agent. But How? Next….

CSR shows concern for have not’s. Touches the 4 trillion market of BOP- customers.

UMBILICAL CONNECTIVITY AND SOCIETAL CHANGE.

A building is embedded on its foundation, and its superstructure rests on its scaffolding, a nation on society. Every business must have a social responsibility but also a means to serve their conscience as the collective conscience of the nation..

MR Raju, founder of Byraju foundations work in the rural communities in 150 villages across five districts of AP has an impact on nearly one million rural lives. Supported and funded by Satyam computer services ltd., MR Raju a nuclear scientist who during 33 years held important positions in America decided on oct 2, 1992 to move permanently with his family to his village and serve the society with his knowledge and wealth.

What do all these people symbolize? What attracts people spread across the planet to the land of their origin.?

The Minneapolis based engineer replied, “ it makes perfect business sense to manufacture electronic products in India and export them. He also want to repay the debt he owes to this land and society where his forefathers lived. NRI have to repay the debit to their motherland all of us living here also have to pay back our debt to our motherland which has nurtured us.

People of Indian origin worldwide represent four waves of migration in the past.

How CSR plays STA role! Creates a positive impact through their business interventions.

For this orgn needs to develop a “wealth distributor” above their role of “wealth creations ” in CG model.

Corporate responsibility focuses on “Business behavior” the way the business makes money rather than what it does with profit”

Focus on such models that serves CSR activity as well as business propositions.

Industry must give back to society ( like mother-earth) where it earns. We must also strengthen the soil that gives our food. grains for long term sustenance. So with corporate.

Corporate are like powerful engines – it does not operate in vacuum. It needs society for their sustenance. Focuses on triple bottom line

CG focused holistically on all stake holders, CSR is more particular of one stake holder society/community; CSR is more about business process………… .

The need of the hour- is the product, process, services, facilities sustainable in the long run? It meet the needs of the society in long run

No more CSR a wish list but a part and parcel of the course of top management to sensitive the organisations towards it.

HPCL model for CSR

Community kitchen initiative –under banner of “Rasoi ghar”. Alleviate drudgery of cooking thr fire wood etc, brings in volumes to business.

Gasoline station are addressed as “hamara pump station” and “centre for Kisan vikas kendra” target to taking fuel and provide other farm needs to the nearest point of consumption. Saves substantial cost and time of rural populace in addition to bring retail volumes.

Movement is visible as ‘corporate stewardship”

NABARD, Bank of India, BPCL

Nabard helps 101 million poor people through micro finance program, providing access to credit.

Joint liability groups(JLG)- rythu mitra program- credit access to landless farmer's agri laborers, empowers women with micro credit, micro enterprise, created special funds for water shed development, Partnering with corporate like ITC, Tata’s, M and M, ambuja cements etc, many more.

NABARD that began with a fund of rs. 4519 crores now stands at Rs 62,000 crores.

BPCL provides alternate source of energy, solar energy for street lights at villages, skill enhancement on modern farming practices, distributes smokless chulas, training for income generation projects.

Bank of India, focuses on below poverty line, adopted 101 villages .makes use of four M with NGO for various services.

New world is outsourcing would. Anything done most efficiently cost effectively can be done by someone else.. NGO have to develop new tie up with corporate to align themselves to meet the changing needs of society.. Corporate have f und of rs. 1 laks crores for CSR in India alone. Not to speak of Transnational corporation Networking of NGO and development of search engines for various relevant social projects is the need of the hour. .

4 M- CSR corporate

Many of the philanthropist activities are not monitored Or measured. Unlike Corporate CSR.

Four M of corporate social responsibility taken up By corporate has inbuilt 4 M

Meaningful, projectsManaging the projects

Monitor projectsMeasure projects

Bank of India does check NGOs how they operateEffectively and efficiency. Nearly rs 1 lak crores of fund

Available with corporate for CSR activities.

Bharat petroleum corps ltd. ICICI

Project as caring organisations! Checks whether funds for CSR is reaching out to people-through 4 M approach – Bank of India.

BPCL energizes the lives of Indians in villages in many was? How?

Excellence is a habit not an act. Excellence in CSR is exceeding the compliance regime of the regulatory frame work and constructively engaging the with stakeholders to proactively respond to their needs and expects. Palpable impact on quality of life is visible in community

In terms of education support's note works, teaching materials aids and skills, food supplements, alternate sources of energy, solar energy based street lights and lighting for village and community central skill enhancement, modern farming practices, community kitchen centre..organising lecture of family and education. And also on leadership skill.

ICICI in micro financing, credit card and ATM cards introducing in rural villages.

Corporate Citizenship, Social Responsibility, Responsiveness, and Performance

Search the WebOne of the leading organizations promoting corporate responsibility is Business for Social Responsibility : www.bsr.org.

Unit Four Objectives

Explain corporate social responsibility (CSR)

Provide business examples of CSRDifferentiate social responsibility and

responsivenessExplain corporate social performance

(CSP)Relate social performance to financial

performanceDescribe the socially conscious investing

movement

Unit 4 OutlineThe CSR ConceptArguments For and

Against Corporate Social Responsibility

Corporate Social Responsiveness

Corporate Social Performance (CSP)

Nonacademic Research on CSP

Social Performance and Financial Performance

Socially Conscious or Ethical Investing

Summary

Introduction to CSR

Search the WebOne of the leading corporations promoting corporate responsibility is Proctor and Gamble: www.pg.com/about_pg/corporate/corp_citizenship_main.jhtml

The focus in this chapter is on corporate social responsibility, which involves responsibilities outside of making a profit and the key questions for corporations include:

• Does business have a social responsibility?• If so, what is the extent and type of the responsibility?

Corporate Social Responsibility (CSR)

Preliminary definitions of CSRThe impact of a company’s actions on

societyRequires a manager to consider his acts in

terms of a whole social system, and holds him responsible for the effects of his acts anywhere in that system

Corporate Social Responsibility (CSR)

Corporate Citizenship ConceptsCorporate social responsibility –

emphasizes obligation and accountability to society

Corporate social responsiveness – emphasizes action, activity

Corporate social performance – emphasizes outcomes, results

Corporate Social Responsibility (CSR)

Business Criticism/ Social Response Cycle

Factors in the Societal Environment

Criticism of Business

Increased concern for the Social Environment

A Changed Social Contract

Business Assumption of Corporate Social Responsibility

Social Responsiveness, Social Performance, Corporate Citizenship

A More Satisfied Society

Fewer Factors Leading

to Business Criticism

Increased Expectations Leading to More Criticism

2-7

Corporate Social Responsibility (CSR)

Historical PerspectiveEconomic model – the invisible hand of the

marketplace protected societal interestLegal model – laws protected societal

interests

Corporate Social Responsibility (CSR)

Historical PerspectiveModified the economic model

PhilanthropyCommunity obligationsPaternalism Search the Web

Milton Hershey was a leading example of an individual who employed philanthropy, community obligation and paternalism To learn more about Milton Hershey and the company, school and town he built, log on to: http://www.miltonhershey.com/

Corporate Social Responsibility (CSR)

Historical PerspectiveWhat was the main motivation?

To keep government at arms length

Search the WebBusinesses are interested in CSR and one leading business organization that companies can join is Business for Social Responsibility. To learn more about BSR, visit their web site at:: http://www.bsr.org/

Corporate Social Responsibility (CSR)

Historical PerspectiveFrom the 1950’s to the present the concept of CSR has gained considerable acceptance and the meaning has been broadened to include additional components

Corporate Social Responsibility (CSR)

Evolving ViewpointsCSR considers the impact of the company’s

actions on society (Bauer)CSR requires decision makers to take

actions that protect and improve the welfare of society as a whole along with their own interests (Davis and Blomstrom)

Corporate Social Responsibility (CSR)

Evolving ViewpointsCSR mandates that the corporation has not

only economic and legal obligations, but also certain responsibilities to society that extend beyond these obligations (McGuire)

Corporate Social Responsibility (CSR)

Evolving ViewpointsCSR relates primarily to achieving

outcomes from organizational decisions concerning specific issues or problems, which by some normative standard have beneficial rather than adverse effects upon pertinent corporate stakeholders. The normative correctness of the products of corporate action have been the main focus of CSR (Epstein)

Corporate Social Responsibility (CSR)

Carroll’s Four Part DefinitionCSR encompasses the economic, legal,

ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time

Corporate Social Responsibility (CSR)

Carroll’s Four Part DefinitionUnderstanding the Four Components

Responsibility

Societal Expectati

on

Examples

Economic Required Be profitable. Maximize sales, minimize costs, etc.

Legal Required Obey laws and regulations.

Ethical Expected Do what is right, fair and just.

Discretionary(Philanthropic)

Desired/Expected

Be a good corporate citizen.

Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz

Copyright ©2003 by South-Western, a division of Thomson Learning.  All rights reserved2-16

Pyramid of CSR

Philanthropic ResponsibilitiesBe a good corporate citizen.

Ethical ResponsibilitiesBe ethical.

Legal ResponsibilitiesObey the law.

Economic ResponsibilitiesBe profitable.

Corporate Social Responsibility (CSR)

CSR in Equation Form Is the Sum of:

Economic Responsibilities (Make a profit)Legal Responsibilities (Obey the law)Ethical Responsibilities (Be ethical)Philanthropic Responsibilities (Good

corporate citizen)CSR

Corporate Social Responsibility (CSR)Stakeholder View

Stakeholder Group Addressed and Affected

CSR Component

Owners

Con-sumers

Employees

Community

Others

Economic 1 4 2 3 5

Legal 3 2 1 4 5

Ethical 4 1 2 3 5

Philanthropic

3 4 2 1 5

Corporate Social Responsibility (CSR)Arguments AgainstRestricts the free

market goal of profit maximization

Business is not equipped to handle social activities

Dilutes the primary aim of business

Increase business power

Limits the ability to compete in a global marketplace

Corporate Social Responsibility (CSR)Arguments ForAddresses social

issues business caused and allows business to be part of the solution

Protects business self-interest

Limits future government intervention

Addresses issues by using business resources and expertise

Addresses issues by being proactive

Corporate Social Responsibility (CSR)Business Responsibilities in the 21st CenturyDemonstrate a commitment to society’s

values and contribute to society’s social, environmental, and economic goals through action.

Insulate society from the negative impacts of company operations, products and services.

Share benefits of company activities with key stakeholders as well as with shareholders.

Demonstrate that the company can make more money by doing the right thing.

Corporate Social ResponsivenessEvolving Viewpoints

Ackerman and Bauer’s action viewSethi’s three stage schemaFrederick’s CSR1, CSR2, and CSR3

Epstein’s process view

Corporate Social PerformanceCarroll’s CSP model integrates economic concerns into a social performance framework

Corporate Social PerformanceExtensions and Reformulations

Wartick and Cochran’s extensionsWood’s reformulationsSwanson’s Reorientation

Corporate Social Performance

Corporate Social PerformanceNonacademic ResearchFortune's ranking of most and least

admired corporationsCouncil on Economic Priorities Corporate

Conscience AwardsBusiness Ethics Magazine AwardsWalkerInformation’s Research on the

impact of social responsibility

Corporate CitizenshipCorporate citizenship embraces all the facets of corporate social responsibility, responsiveness and performance

Social—and Financial—Performance

Good CorporateSocial Performance

Perspective 1: CSP Drives the Relationship

Good Corporate Financial Performance

Good CorporateReputation

Good CorporateFinancialPerformance

Perspective 2: CFP Drives the Relationship

Good CorporateSocial Performance

Good CorporateReputation

Good CorporateSocial Performance

Perspective 3: Interactive Relationship Among CSP, CFP, and CR

Good CorporateFinancialPerformance

Good CorporateReputation

Social and Financial PerformanceA Multiple Bottom-Line Perspective

Socially Conscious or Ethical Investing

Social screening is a technique used to screen firms for investment purposes

Selected Key TermsBusiness for Social

ResponsibilityCommunity

obligationsCorporate

CitizenshipCorporate social

responsibility Corporate social responsiveness

Corporate social performance

Economic, legal, ethical and discretionary responsibilities

PaternalismPhilanthropyPyramid of CSRSocially conscious

investing

Corporate Governance - Meaning

Figure 10.1 The principal-agent relationship: private v public sector

Principal-agent theory

Figure 10.2 Impact of inefficiency on average cost

10.13 Business ethics

Firms now recognise the importance of issues such as:

• The public’s growing interest and concern about environmental challenges ,involving pollution, the use of non-renewable resources,energy efficiency,etc. 僕leading to the so-called ‘greening of business’.

• The rights of workers and human rights in general, the development of fair pay,equal opportunities,health and safety at work,etc.

• Ethical marketing involving limitations on the selling of products such as tobacco and alcohol that may damage public health and general well-being.

Key learning points

• The traditional theory of the firm, based on the assumptions of perfect knowledge and profit-maximising behaviour, may not be readily applicable, given the complexity of markets and organisational structures today.

• Principal 紡 gent theory recognises the growth in managerial capitalism and the complexity of modern organisational structures based on a growing separation between the owners of the firm (the principals) and the firm’s senior management or directors (the agents). This theory leads to a focus on corporate governance arrangements.

• Baumol concludes that management which attempt to maximise sales revenue will tend to produce at a higher output level,set lower prices and invest more heavily in measures that boost demand than management which attempt to maximise profits.

• Williamson 痴 managerial utility maximisation model argues that managers seek to maximise their own self-interest based on the achievement of goals such as high salaries,authority over staffing, discretionary investment expenditure decisions and fringe benefits.

• Marris’s corporate growth maximisation model suggests that management seek to maximise the growth of the firm subject to an optimal dividend-to-profit retention ratio, in order to safeguard the firm from a hostile takeover bid.

• The satisficing explanation of managerial behaviour is associated with behaviouralist theory and argues that there is no single objective of the firm; instead, there are multiple goals.These emerge from the potential for conflict amongst interest groups within the firm, such that the aim will be to achieve a satisfactory performance for each of the goals without necessarily any single, maximisation objective.

Key learning points

• Business ethics is concerned with the social responsibility of management towards the firm’s major stakeholders, the environment and society in general. There is a growing belief that ethical and ‘green’ business are linked to improved business performance over time because of increased public concern for human rights and the world environment. Business ethics extends to treating all stakeholders ‘fairly’; hence the growing emphasis on health and safety issues,’good 蜘 working practices and the like in business decision-making.

Key learning points

Definitions and RelationshipsCorporate social responsibility (CSR) is

the process by which businesses negotiate their role in society

In the business world, ethics is the study of morally appropriate behaviors and decisions, examining what "should be done”

Although the two are linked in most firms, CSR activities are no guarantee of ethical behavior

Recent Evidence of CSR InterestAn Internet search turns up 15,000 plus response to “corporate citizenship”

Journals increasingly “rate” businesses (and NGOs) on socially responsive criteria:Best place to workMost admiredBest (and worst) corporate reputation

Reasons for CSR ActivitiesCSR activities are important to and even expected by the publicAnd they are easily monitored worldwide

CSR activities help organizations hire and retain the people they want

CSR activities contribute to business performance

Maximize firm’s profits to the exclusion of all else

Balance profits and social objectives

Do what it takes to make a profit; skirt the law; fly below social radar

Fight social responsibility initiatives

Comply; do what is legally required

Integrate social objectives and business goals

Lead the industry and other businesses with best practices

Do more than required; e.g. engage in philanthropic giving

Articulate social value objectives

Corporate Social Responsibility Continuum

CSR are Grounded by Opposing Objectives (Maximize Profits to Balance Profits with Social Responsibility) and so Activities Range Widely

Do what it takes to make a profit; skirt the law; fly below social radar

Fight CSR initiativesComply with legal requirementsDo more than legally required, e.g.,

philanthropyArticulate social (CSR) objectivesIntegrate social objectives and business goalsLead the industry on social objectives

Businesses CSR Activities

Philanthropygive money or time or in kind to charityIntegrative philanthropy—select beneficiaries

aligned with company interestsPhilanthropy will not enhance corporate

reputation if a company fails to live up to its philanthropic image or if consumers perceive philanthropy to be

manipulative

Integrate CSR Globally

Incorporate values to make it part of an articulated belief system

Act worldwide on those values Cause-related marketingCause-based cross sector partnerships

Engage with stakeholdersPrimary stakeholdersSecondary stakeholders

Business Ethics Development

The cultural context influences organizational ethics

Top managers also influence ethicsThe combined influence of culture and top

management influence organizational ethics and ethical behaviors

The Evolving Context for Ethics

From domestic where ethics are shared To international where ethics are not shared

when companies:Make assumptions that ethics are the sameEthical absolutism—they adapt to us Ethical relativism—we adapt to them

To global which requires an integrative approach to ethics

Emergence of a Global Business Ethic

Growing sense that responsibility for righting social wrongs belongs to all organizations

Growing business need for integrative mechanisms such as ethicsEthics reduce operating uncertaintiesVoluntary guidelines avoid government impositions

Ethical conduct is needed in an increasingly interdependent world—everyone in the same game

Companies wish to avoid problems and/or be good public citizens

Ways Companies Integrate Ethics

Top management commitment in word and deed

Company codes of ethicsSupply chain codesDevelop, monitor, enforce ethical behaviorSeek external assistance

External Assistance with Ethics

Industry or professional codesCertification programs, e.g., ISO 9000Adopt/follow global codes

Caux Round Table Principles

Reasons for Businesses to Engage in Development of a Global Code of

Business Ethics

Create the same opportunity for all businesses if there are common rules

Level the playing fieldThey are needed in an interconnected

worldThey reduce operating uncertaintiesIf businesses don’t collaborate, they may

not like what others develop

Four Challenges to a Global Ethic Global rules emerge from negotiations and

will reflect values of the strong Global rules may be viewed as an end rather

than a beginning Rules can depress innovation and creativity Rules are static but globalization is dynamic

Types of Social Responsibility Economic – the duty of managers, as

agents of the company owners, to maximize stockholder wealth

Legal – the firm’s obligations to comply with the laws that regulate business activities

Ethical – the company’s notion of right and proper business behavior.

Discretionary – voluntarily assumed by a business organization.

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CSR & Profitability Corporate social

responsibility (CSR), is the idea that business has a duty to serve society in general as well as the financial interests of stockholders.

The dynamic between CSR and success (profit) is complex. They are not mutually exclusive, and they are not prerequisites of each other.

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Factors Complicating a Cost-Benefit Analysis of CSR:

1. Some CSR activities incur no dollar costs at all. In fact, the benefits from philanthropy can be huge.

2. Socially responsible behavior does not come at a prohibitive cost.

3. Socially responsible practices may create savings, and, as a result, increase profits.

4. Proponents argues that CSR costs are more than offset in the long run by an improved company image and increased community goodwill.

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New Corporate Governance Structure

Restructuring governance structure in American corporations

Heightened role of corporate internal auditors

Auditors now routinely deal directly with top corporate officials

CEO information provided directly by the company’s chief compliance and chief accounting officers

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The New Corporate Governance Structure

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CSR’s Effect on Mission Statement

The mission statement embodies what company believes

Managers must identify all stakeholder groups and weigh their relative rights and abilities to affect the firm’s success

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Social Audit

A social audit is an attempt to measure a company’s actual social performance against its social objectives.

The social audit may be used for more than simply monitoring and evaluating firm social performance.

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Management EthicsThe Nature of Ethics in Business: Belief that managers will behave in an

ethical manner is central to CSR Ethics – the moral principles that reflect

society’s beliefs about the actions of an individual or a group that are right and wrong

Ethical standards reflect the end product of a process of defining and clarifying the nature and content of human interaction

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Satisfying Corporate Social Responsibility

Conflicting pressures on executives

The CSR Debate: centuries old

There are mutual advantages to using Collaborative Social Initiatives (CSIs)

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Continuum of Corporate Social Responsibility Commitments

Five Principles of Successful CSIs

1. Identify a Long-Term Durable Mission2. Contribute “What We Do”*

*This is the most important principle

3. Contribute Specialized Services to a Large-Scale Undertaking

4. Weigh Government’s Influence 5. Assemble and Value the Total Package of

Benefits

The Limits of CSR Strategies Some companies have embedded

social responsibility and sustainability commitments deeply in their core strategies.

Larger companies must move beyond the easy options of charitable donations but also steer clear of overreaching commitments.

CSR strategies can also run afoul of the skeptics—the speed of information on the Internet makes this an issue with serious ramifications.

The Future of CSR CSR is firmly and irreversibly part of the

corporate fabric Corporations will face growing demands

for social responsibility contributions far beyond simple cash or in-kind donations

The public’s perception of ethics in corporate America is near its all-time low

Even when groups agree on what constitutes human welfare, the means they choose to achieve it may differ