Business Ethics and Corporate Social Responsibility M.COM PDF

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University of Mumbai

2021

Dr. Shripad Joshi, Dr. Rupa Shah, Mr. Sambhaji Shivaji Shinde, Mr. Vinayak Vijay Joshi, Prof. Suhas Pednekar, Prof. Ravindra D. Kulkarni, Prof. Prakash Mahanwar, Prof. Rajashri Pandit

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This document is a syllabus for a Business Ethics and Corporate Social Responsibility course, offered at the University of Mumbai, India. It provides an overview of the course modules, including topics like business ethics, corporate governance, and corporate social responsibility practices. The document details the course outline, syllabus, objectives, and examination pattern.

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M.COM. SEMESTER - I (CBCS) BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY SUBJECT CODE : 71804 © UNIVERSITY OF MUMBAI Prof. Suhas Pednekar Vice-Chancellor, University of Mumbai, Prof. Ra...

M.COM. SEMESTER - I (CBCS) BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY SUBJECT CODE : 71804 © UNIVERSITY OF MUMBAI Prof. Suhas Pednekar Vice-Chancellor, University of Mumbai, Prof. Ravindra D. Kulkarni Prof. Prakash Mahanwar Pro Vice-Chancellor, Director, University of Mumbai, IDOL, University of Mumbai, Programme Co-ordinator : Prof. Rajashri Pandit Asst. Prof. in Economic, Incharge Head Faculty of Commerce, IDOL, University of Mumbai, Mumbai Course Co-ordinator : Mr. Sambhaji Shivaji Shinde Assistant Professor, IDOL, University of Mumbai, Mumbai Course Writer : Dr. Shripad Joshi Ghanshyamdas Saraf College of Arts & Commerce Malad (W), Mumbai - 400064 : Dr. Rupa Shah Ghanshyamdas Saraf College of Arts & Commerce Malad (W), Mumbai - 400064 : Mr. Sambhaji Shivaji Shinde Assistant Professor, IDOL, University of Mumbai, Mumbai Editor : Mr. Vinayak Vijay Joshi Assistant Professor, IDOL, University of Mumbai, Mumbai April 2021, Print - 1 Published by : Director, Institute of Distance and Open Learning , University of Mumbai, Vidyanagari, Mumbai - 400 098. DTP Composed : Ashwini Arts Vile Parle (E), Mumbai - 400 099. Printed by : CONTENTS Unit No. Title Page No. SEMESTER - I MODULE - 1 1 Introduction to Business Ethics 1 MODULE - 2 2. Indian Ethical Practices & Corporate Governance 31 MODULE - 3 3. Introduction to Corporate Social Responsibility 54 MODULE - 4 4. Areas of CSR & CSR Policy 88  I Revised Syllabus Master of Commerce (M.Com) SEMESTER - I Core Courses (CC) BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY Modules at a Glance S.N. Objectives 1. To familiarize the learners with the concept and relevance of Business Ethics in the modern era 2. To enable learners to understand the scope and complexity of Corporate Social responsibility in the global and Indian context Sr. No. Modules / Units 1. Introduction to Business Ethics  Business Ethics – Concept, Characteristics, Importance and Need for business ethics. Indian Ethos, Ethics and Values, Work Ethos,  Sources of Ethics, Concept of Corporate Ethics, code of Ethics-Guidelines for developing code of ethics, Ethics Management Programme, Ethics Committee.  Various approaches to Business Ethics - Theories of Ethics- Friedman’s Economic theory, Kant’s Deontological theory, Mill & Bentham’s Utilitarianism theory  Gandhian Approach in Management and Trusteeship, Importance and relevance of trusteeship principle in Modern Business, Gandhi’s Doctrine of Satya and Ahimsa,  Emergence of new values in Indian Industries after economic reforms of 1991 2. Indian Ethical Practices and Corporate Governance  Ethics in Marketing and Advertising, Human Resources Management, Finance and Accounting, Production, Information Technology, Copyrights and Patents  Corporate Governance: Concept, Importance, Evolution of Corporate Governance, Principles of Corporate Governance, II  Regulatory Framework of Corporate Governance in India, SEBI Guidelines and clause 49, Audit Committee, Role of Independent Directors, Protection of Stake Holders, Changing roles of corporate Boards.  Elements of Good Corporate Governance, Failure of Corporate Governance and its consequences 3. Introduction to Corporate Social Responsibility  Corporate Social Responsibility: Concept, Scope & Relevance and Importance of CSR in Contemporary Society.  Corporate philanthropy, Models for Implementation of CSR, Drivers of CSR, Prestigious awards for CSR in India.  CSR and Indian Corporations- Legal Provisions and Specification on CSR, A Score Card, Future of CSR in India.  Role of NGO’s and International Agencies in CSR, Integrating CSR into Business 4. Areas of CSR and CSR Policy  CSR towards Stakeholders-- Shareholders, Creditors and Financial Institutions, Government, Consumers, Employees and Workers, Local Community and Society.  CSR and environmental concerns.  Designing CSR Policy- Factors influencing CSR Policy, Role of HR Professionals in CSR  Global Recognitions of CSR- ISO- 14000-SA 8000 – AA 1000 – Codes formulated by UN Global Compact – UNDP, Global Reporting Initiative; major codes on CSR.  CSR and Sustainable Development  CSR through Triple Bottom Line in Business Reference Books Sharma J.P ‘ Corporate Governance, business ethics and CSR, Ane Books Pvt Ltd, New Delhi Sharma J.P. Corporate Governance and Social Responsibility of business, Ane Books Pvt ltd, New Delhi S.K.Bhatia, Business Ethics and Corporate Governance William Shaw, Business Ethics, Wordsworth Publishing Company, International Thomson Publishing Company. III Corporate Crimes and Financial Frauds, Dr. Sumit Sharma, New Delhi India R.C. Sekhar, Ethical choices in Business, Sage Publications, New Delhi Business Ethics, Andrew Crane and Dirk Matten, Oxford University Press. Business Ethics, Text and Cases, C.S.V. Murthy, Himalaya Publication House. Mallin, Christine A. Corporate Governance (Indian Edition) Oxford University press. New Delhi Blow field ,Michael and Alan Murray, Corporate Responsibility, Oxford University Press, Philip Kotler and Nancy Lee, CSR : doing the most good for Company and your cause , Wiley 2005 Beeslory, Michel and Evens, CSR , Taylor and Francis, 1978 Subhabrata Bobby Banerjee, CSR: the good, the bad and the ugly. Edward Elgar Publishing 2007 Joseph A. Petrick and John F. Quinn, Management Ethics- Integrity at work , Sage Publication , 1997 Francesco Perrini, Stefano and AntanioTencati, Developing CSR- A European Perspective , Edward Elgar. William B. Werther, Jr. David Chandler, Strategic Corporate Social Responsibility, stakeholders’ a global environment, Sage Publication, 2009. Ellington. J. (1998), Cannibals with forks: The triple bottom line of 21st Century business, New Society Publishers. Crane, A. Et al., (2008), The Oxford handbook of Corporate Social Responsibility, New York: Oxford University Press Inc.         IV Scheme of Examination: The performance of the learners will be evaluated in two components. One component will be the Internal Assessment component carrying 40% marks and the second component will be the Semester End Examination component carrying 60% marks. Internal Assessment: The Internal Assessment will consist of one class test of 40 marks for each course excluding projects. The question paper pattern will be shown as below: Question Paper Pattern (Internal Assessment) Maximum Marks: 40 marks Questions to be set: 03 Duration: 1 hours Question Particular Marks No. Q-1 Objective Questions 10 Students to answer 10 sub questions out of Marks 15 sub questions. (*Multiple choice/ True or False/ Match the columns/ Fill in the blanks) OR Objective Questions A) Sub Questions to be asked 08 and to be answered any 05 B) Sub Questions to be asked 08 and to be answered any 05 (*Multiple choice/ True or False/ Match the columns/ Fill in the blanks) Q-2 Concept based short questions 10 Students to answer 5 sub questions out of 8 Marks sub questions. Q-3 Practical problems or short questions 20 Students to answer 02 sub questions out of Marks 03 sub questions V Question Paper Pattern (Theoretical Courses) Maximum Marks: 60 Questions to be set: 04 Duration: 2 hours All Questions are Compulsory Carrying 15 Marks each. Question Particular Marks No. Q-1 Full length Question 15 Marks OR Q-1 Full length Question 15 Marks Q-2 Full length Question 15 Marks OR Full length Question 15 Marks Q-3 Full length Question 15 Marks OR Full length Question 15 Marks Q-4 Objective Question 15 Marks (Multiple Choice/ True or False/ Fill in the Blanks/ Match the Columns/ Short Questions.) OR Short Notes (Any three out off Five) 15 Marks Note : Full length question of 15 marks may be divided into two sub questions of 08 and 07 marks. VI Sr. Particular 01 Standard of Passing The learner to pass a course shall have to obtain a minimum of 40% marks in aggregate for each course where the course consists of Internal Assessment & Semester End Examination. The learner shall obtain minimum of 40% marks (i.e. 16 out of 40) in the Internal Assessment and 40% marks in Semester End Examination (i.e. 24 out of 60) separately, to pass the course and minimum of Grade E in the project component, wherever applicable to pass a particular semester. A learner will be said to have passed the course if the learner passes the Internal Assessment & Semester End Examination together. 02 Allowed to Keep Terms (ATKT) 1) A learner shall be allowed to keep term for Semester II irrespective of number of courses of failure in the semester I. 2) A learner shall be allowed to keep term for Semester III if he/she passes each of the semester I and Semester II OR a learner fails in not more than two courses of Semester I and not more than two courses of Semester II.      1 Unit-1 INTRODUCTION TO BUSINESS ETHICS Unit Structure : 1.0 Introduction to Business Ethics 1.1 Ethics 1.2 Approaches to Business Ethics 1.3 Gandhian approach of Trusteeship 1.4 Emergence of new values in Indian industries after economic reforms of 1991 1.5 Summary 1.6 Exercise 1.0 INTRODUCTION TO BUSINESS ETHICS Business Ethics – The concept came into existence in 60’s in the USA which denotes fundamental or principle values in business. When business practices and more associated with consumers then most of the consumer centric corporations in US showed concerns about business environment, social values. It directs ultimately to the welfare of the society as a whole. ETHICS The word “Ethics’ means fundamental values or moral rights. It emphasies values or character that leads to the category of the segment or group or society of the segment, or group or society as a whole. It studies what is right or wrong in leading a good Life based on certain concrete assumptions. Such assumptions are interchangeable. In reality there is a difference between ethics and morality. Morality is one of the aspects of ethics and study of ethics will enhance the outcome of morality. Morality basically consist on what is right or wrong through a process of justification or valid reasoning. So ethics follow the process of justification whereas morality gives us an idea or attempt of moral judgement. DEFINITION OF BUSINESS ETHICS a) Andrew Crave : “Busines ethics is a study of business situations, activities and decisions where issues of right and wrong are addressed.” 2 b) Robert Ginner: “Busines ethics may be defined as those principles, practices and philosophies that are concerned wih moral judgements and good conduct as they are applicable to business.” c) Krik O Hanson : “Busines ethics is the study of standards of business behaviour which promote Human Welfare and the good.” d) Investopedia : “Busines ethics is the study of proper business policies and practices regarding potentially controversial issues such as Corporate Governance, insider trading bribery, discrimination, Corporate Social responsibilities. FEATURES OF BUSINESS ETHICS a. Ethical Values b. Code of conduct c. Subjective Term d. Protection of Interest of the Stakeholders e. Respect with dignity f. Proper set-up g. Based on Principles h. Universal Applications i. Self Discipline j. Different Approach from CSR k. Different from Business Law practices a. Ethical Values :- Morality is the soul of business ethics. Modern world is more aware about the rights, duties, buying, selling process is legal awareness has increased tremendously; so business world has tried its level best to attain the welfare of the society therefore business render its activities on self conscious ‘ethical’ values. b. Code of conduct :- Morality and quality judgement are the core factors for conduct of business activities. Ethical business will lead the foundation for moral business. Self check and self control are other two parameter which will carry out company’s mission successfully. c. Subjective Term :- Ethics differs from business to business. Its perceptions are based on moral and social grounds while conducting the business. There are no concreate rules and regulations for business activities. The soul aim is to attain welfare of the society as a whole. 3 d. Protection of the Interest of the Stakeholders :- Every business should give priority to the Society’s Welfare. After attaining the interest of the society, it has social binding to protect the interest of macro environmental factors such as Stakeholders government, suppliers etc. e. Respect with dignity :- Business should not discriminate society on the grounds of income, class, creed, religion etc. Ethical business should create confidence in the society about opinions, equality etc. f. Proper set-up :- Business community is bound by social, ethical rules and regulations within the legal framework they should operate administer their business policies. The ultimate aim is to achieve the interest of the society. g. Based on Principles :- Like code of conduct, professional ethics business communities are based on legal, social, cultural, environmental principles. Once principles are laid down properly, it will be easy to pursue plans and policies of business effectively and efficiently h. Universal Applications :- Business operations in the world are more or less based on Standard Operating Procedure (SOP). Irrespective of size of business, plans, policies, legal frame work etc. are generally based on proper code of conduct; In some cases business ethics may differ from country to country because of the forces of macro environmental factors. i. Self Discipline :- Initially business system was mainly focused to the general welfare of the Stakeholders but afterwards awareness respect to social attitude, environmental aspects human relations etc. was very much inculcated among business communities. Ultimately at one point of time majority business communities started taking precautionary measures about business and concerned aspect of awareness. j. Different approach from CSR CSR is mainly associated with the functioning of administrative aspects of the enterprise whereas business ethics are mainly focusing on motivational and behavioural aspects. This goes on changing as social and environmental factors gets changed. k. Different from Business Law :- Ethics provides set of guidelines based upon value judgement and morality. As business laws stress on fair conduct of 4 business practices which is mandatory whereas practices of ethical business is optional. Apart from this ethics are abstract in general and laws are expressed and published in proper format. NEEDS AND IMPORTANCE OF BUSINESS ETHICS Need & importance of Business Ethics. Real need of business ethics is felt in recent years following are the points which will stress out need & importance of business ethics :- 1. Survival :- Business needs to follow moral values and ethics for its survival and growth. Unethical gains are for short term they are not viable or fruitful for survival. To make business prosporous, ethical values and its implementation is essentials. 2. Consumer rights :- Implementation of consumers rights itself is an ethical way of conducting the business. This gives strength of individual consumer against the powerful business. Implementation of consumer rights will get control on unethical malpractices in business such as food adulteration, malpractices on weights and measurement. 3. Welfare of the Society :- Ethical business always profect societal interest. Production of goods and services are produced delivered with the intention of social welfare, business will always protect consumer interest by taking possible efforts by producing eco friendly products. 4. Protection of S.S.I. & Cottage Industry:- In India SSI and Cottage Industry plays on active role. To safeguard the interest of SSI and cottage industries big business units should handle their business operations ethically so as to safeguards the interest of SSI & cottage industries. 5. Mutual benefits:- B. E. benefits business and society. By rendering ethical services for the society business firms gain goodwill and reputation. Society also recognises the importance of fair & ethical business practices. 6. Growth and Expansions:- B. E. encourages for growth and expansion of business. It enables for the firm to gain reputation and goodwill, trust and confidence of micro and macro environmental forces. 7. Decision making:- After adopting /accepting to implement ethical practices, it will enable the business firms to incorporate ethical values based on moral consideration for eco-social environment. It ultimately 5 leads to quality improvement and economies of scale in operation system. 8. Boosting Economy:- Ultimately incorporating ethical practices in business will lead to increment in overall productivity which inturn leads to increase in national income. Acceleration in economy will enhance more circulation of goods and services more economic fluctuations will result in positive income and its distribution. INDIAN ETHOS The Greek word “Ethos” denotes character. It characterises guiding beliefs for the community. It emphasises spirit and beliefs of the community which may vary from culture to culture of the society. It is moral ideas or attitude that particular community or society observes. It examines individual morality or ethical standards where particular society exists. Other side of the ethos speaks about expected values of standards that individuals or group must observe to attain social welfare. It is based on set of beliefs ideas attitude of individuals; so it differs from person to person. In India, in general society believes the following standards or norms of ethics. - Accepting accommodative attitude rather than conflicts. - More focus on duties rather than always asking for rights. - More dependence on self control rather than external control. - Instead of materialistic attitude there is willingness for spirituality. - Instead of ego assertion, accepting ego sublimation. - Accepting flexibility rather than static approach. - No dominance over nature, accept smooth living concepts. - Respecting elders and avoid conflicts with them. - More inputs should be given for substance rather than form. - Instead of sceptical approach adopt the concept “Trust”. FEATURES OF INDIAN ETHOS AND VALUES 1. Meaningful Living: Indian ethos strongly believes on Supreme Power. Ideology of supreme power is having different perception in the society as 6 Indian culture is having multidimensional face. Everything is interconnected with two types of truth. 1. Love 2. Sacrifice After creating the base of there truth it emerges in meaningful living. 2. Godliness of Individual: Divinity of human being is not idea or belief. It is a truth that every individual experiences. 3. Understanding Self: It is a vital concept individual has to understand self by keeping away selfishness. Person has to be focused about individual ideology, concepts and its acceptance. 4. Cosmic Consciousness: It is based on divine element of an individual. Indian ethos speaks about the element of interconnectivity which gives us an idea of universal concepts. 1. Give respect take respect. 2. Give support accept support. 5. Values: Indian ethos speaks about spiritual values. The base of such values is Indian scriptures which provide us eternal truth or knowledge. Each and every work or job is respectable one has to maintain its dignity. It also stresses on duties to be performed and responsibilities lying with it. 6. Work worthiness: Each job or work is worthy and it should be honoured by everyone. Apart from a small or big job or occupation dignity simplifies its worth. 7. Result oriented: Indian ethos focuses more on process associated work culture rather result or outcome oriented work culture. To achieve the end result should be the aim. 8. Base of Indian scriptures: Base of Indian ethos is Indian scriptures. It provides eternal. Knowledge, Dignity of work; its value is worthy and widely acceptable. No work is underestimated as per Indian ethos. 7 9. More focus on rights, duties and responsibilities: The span of Indian ethos is acceptable to all walks of Life. Right from business, educational, social, political organisations, Indian ethos emphasis on rights duties and responsibilities. With proper discipline all ethical values are applied from time to time. ETHICS & VALUES As we have seen ethics deal with the ideas of good and bad behavioural aspects. Values are standards or principles on one’s judgement are based. Values are important in every walk of life. About right or wrong behaviour values determine whereas ethics relate. Value is a belief and ethos are guideline for ideal behaviour but ethical values are prescriptive belief or idea. Values are based on belief or perceived outcomes. It gives shape for perceptions, attitudes, and actions in turn personality of individual. Difference in Ethics and Values:- Sr. Sr. Ethics Values No. No. (1) MEANING (i) It is moral code of conduct (i) Values are guidelines or which decides good or principles on which bad behaviour individuals’ value system is based. (2) JUSTIFICATION (ii) Ethics are uniform for (ii) Values differ from person entire society. to person, society, community. (3) APPROACH (iii) It restricts person or (iii) It motivates or directs to individual from doing act in a better way in the unethical things and society. directs. (4) FORMULATION (iv) Ethics are guidelines set (iv) Individual can formulate up for the organisation or his own set of values or society after thoughtful behavioural pattern. process. 8 (5) NATURE (v) It is a branch of (v) It is an embodiment of philosophical science individual standards. It is which deals with wellbeing the basis for the of the human behaviour. behaviour. (6) OUTCOME (vi) It formulates harmony in (vi) It brings harmony in society as they form a set relationship which leads o of policies, rules etc. for proper balance in day to sustainable development day life. (7) SOURCES (vii) Indian scriptures, cultural (vii) Generic sources, micro taboos, ethical laws etc. and macro environmental are the sources for ethics. forces, behaviouristic. Pattern of elders etc. are the sources for values. (8) EXAMPLES (viii) Fair deals in day to day (viii) Human values business activities, ethical judgemental aspects advertising, fair pricing which motivates individual etc. to act in right way. WORK ETHOS Meaning: It refers to the norms of the behaviour of an employee in the organisation to achieve organisational goals and objectives. It is applicable to all level of employees in the organisation. It is a set of moral approaches or principles which are acceptable to workers. It is value based on hard work and diligence. Factors / features of work ethos:- Workers in the organisation should work on the basis of common – sense and wholehearted devotion for the work which they carry out. They should work in disciplined manner which will be helpful for both organisation and workers. It increases moral inturn productivity of the organisation. It gives recognition and reward for their sincere efforts for the organisation. Loyalty and integrity: At working place employees should be loyal to the organisation. They should always take creative efforts to increase the reputation and goodwill of the organisation. This will be possible when they are self-disciplined and sense of belonging. Employees should work with integrity in the interest of the organisation. Loyalty 9 and integrity will develop the trust at every level in organisational set up. Attitude: Employees should always carry positive attitude while working in the organisation. Attitude is a tendency or way of behaviour having positive attitude will help to bring punctuality, dedication in work-life balance. Passion: Workers having enthusiastic attitude may work with passion. It brings novel ideas, concepts, principles which will help to boost up the organisation to achieve goals. Humility: It brings group cohesiveness in the organisation. Accepting drawbacks is very important because it is a basic step for positive learning. Giving appreciation for others work is also very important. Humility brings life long learning process. Equity: To have fair and just treatment every manager must adopt the principle of equity. It is totally different from equality. Justice and kindness are the pillars of equity. Equity policy can be changed depending upon the circumstances. Team spirit: Top level management must take initiative for team spirit among the subordinates. It leads to commitment, dedication, and loyalty of the organisation. It brings group cohesiveness and avoids conflicts in the organisation. Ethical administrative and personnel policies: Proper administrative and personnel policies will bring harmony in work culture ethical policies will have a positive impact especially in Recruitment and selection, placement and training, promotion and performance appraisal incentives and compensation etc. Functional area and ethical practices: Right from production till distribution ethical practices will bring sincerity, loyalty, dedication etc. which results in reputation and goodwill of the organisation. Work culture: Managers should adopt complete professionalism in decision making process to come for the right conclusion. It is essential to have proper data, its suitable analysis. 10 1.1 ETHICS So for we have seen ethics means a system of good and bad, moral and immoral, fair and unfair code of conduct within the set up of organisation. Ethics - Sources: Following are the sources of ethics:- Religion - Oldest foundation of standards of ethics. - It is testimony of divine. - It draws a line of demarcation between good and bad. It depends upon religious influence which varies from time to time. There are different segments in religion - a) orthodox b) Moderates Under the segment of orthodox degree of influence of religion is very high and vice a versa in case of moderates. Every religion speaks about ethical and unethical norms in all walks of life. Exchanging things with others for mutual benefits is seen or observed in all religions. This is known as “Principle of Reciprocity.” From childhood everyone follows religion and it is deeply rooted in the behaviour of individual. One can understand the difference between ethical and unethical. All the religions preach the need for orderly social system which mainly focuses on sense of social responsibility and sense of behaviour which helps to attain welfare of the society. 11 Every religion has its own code of conduct which gives emphasis on social responsibility, sense of behavioural understanding and welfare of the society in general. Culture:- It is another source of business ethics which every individual follows as per certain guidelines prevalent in the society. It is a set of values beliefs, expectations, attitudes, rituals, social norms etc. All members in the community learn and share it from generation to generation. Cultural taboos are different from religion to religion hence it shows distinctiveness among the groups in the society culture gives.  guidelines  shapes the behaviour  Develops the attitude of the people in the society. In organisations; it reflects values and beliefs, mission as well as goals of the organisations. It gives -  Sense of identity of to the members of the organisation.  Individual standing is based on the cultural merits of the organisation. Culture teaches us -  What is acceptable, in general for the society?  Moral code of conduct.  Sense of belonging, understanding and virtues. Law:- It is a statutory code of conduct by the statutory body say government which has to be followed by individual as well society for maintaining social interest. It guides about laws and order and human behaviour in the society as a whole. Ethical principles which the law defines are binding on the people in the society. Business organisations in India must adhere to various laws which are applicable while conducting business activities. - Partnership Act 1932 - Foreign Exchange Management Act 1999 - Indian Contract Act 1872 etc. It is expected that Business firm must follows these acts in day to day business activities. In practice we observed that many business units are engaged in unethical practices such as tax evasion, quality compromise brand piracy etc. 12 CONCEPT OF CORPORATE ETHICS Corporate ethics are also known as business ethics which examines ethical principles which are applicable in day to day business practices. It refers to application of ethical values on the part of organisation units. It involves: - Cooperate citizenship behaviour - Dependency - Concern about society - Caring approach - Good governance - Honesty, equity – Integrity - Social respect - Social Responsibility - Trustworthiness From macro level indicates various sections of the society where corporate ethics are to be fulfilled. It can be visualised by tree diagram as follows:- It refers to application of ethical values on the part of organisation units. It involves: Corporate ethics TREE DIAGRAM Employers Customers Dealers Fin. Govt. Shareholders Society Institution Agency & social Stakeholders responsibilit y - Proper - Quality - Stock - Regular - Proper - Proper - wages Production online periodic records payment of Sponsorship - Service - Right Price - Proper - Payment - Authentic dividend - Assistance conditions - After Sales Payment of loans registration supply of to weaker - Working Service - and process - Proper and section of the conditions - Specific Assistance interest. - Periodical valid reports service - Proper handling in case of - Proper tax payment from time to selection instruction need records of - time - Approval about financial Compliance - Training & production statement with SEBI Dev. - Quick - - DGFT etc. - Placement consideration Approved - about queries sets of Performance financial Appraisal records - Promotions, transfer - Career Development 13 Employers - Proper wages - Service conditions - Working conditions - Proper selection - Approval - Training & Dev. - Placement - Performance Appraisal - Promotions, transfer - Career Development Customers - Quality Production - Right Price - After Sales Service - Specific handling instruction about production - Quick consideration about queries Dealers - Stock online - Proper Payment - Assistance in case of need Fin. Institution - Regular periodic - Payment of loans and interest. - Proper records of financial statement - Approved sets of financial records Govt. Agency - Proper records - Authentic registration process - Periodical tax payment - Compliance with SEBI - DGFT etc. Shareholders & Stakeholders - Proper payment of dividend supply of - Proper and valid reports from time to time Society social responsibility - Sponsorship - Assistance to weaker section of the service CODE OF ETHICS It is set of guidelines or principles which are observed in day to day business practices. 14 It works in conjunction with company’s vision and mission. These principles are designed to help the business professionals to conduct business honesty with proper dedication and integration. Code of ethics is a set of principles of ethics which designs the outline of vision and mission. It results inculcating the value of business practices. It governs the principles and guidelines governing the behaviour of individuals and organisations in internal auditing. It gives us the guidelines about minimum requirement for conduct and behavioural aspects. Ethical codes are adopted by companies to explain the distinction between “correct” and “incorrect”. The set of documents under code of ethics is based on codes of:- - Business ethics - employees - Professional practices It is important because it clearly lines upon lay out the rules for behaviour and it provides pre-emptive instructions ‘Violations of Code of business ethics results in strict action such as termination or dismissal from the company. Generally the ethical code is broadly divided into two groups:- - Compliance based ethics - Value based code of ethics Guidelines for developing code of ethics: In general code of ethics is prepared by top level management. Top officials should understand the genuine problems faced by middle level and lower level management. So while drafting the code of ethics it is essential to have consideration towards employees in drafting code of ethics. Code of ethics may vary from organisation to organisation but in general following guidelines should be considered while drafting code of ethics. 15 Business Ethics & CSR:- Orderliness:- 1) Customization of Code of ethics:- As per the specifications of organisation code should be custom – made. In this suppose if deviations are found, then necessary charges are to be made. 2) Employee Involvement:- Officials who will be instructed or guided by the code of ethics should be actively involved in writing it. In case of wide span of an organisation each & every employee should be actively involved. This is essential because documentation should be of that worth where higher level of acceptance can be easily acquired. 3) Consultation with stakeholders:- Stakeholders such as customer’s suppliers and low community groups should be consulted before drafting code of ethics. It helps to expedite Key obligations, ideas, range of issues that might confront the organisation. 4) Careful outsourcing:- When organisation appoints consultants, it is expected that there should be value additions in respect of knowledge experience. It helps then to remove discrepancies from the organisation and then only it will represent clearly organisation’s principles, goals, objectives, vision, mission and aspiration. 5) Clarity about vision and mission:- Code of ethics should cover each & every aspect from lower level to top level management everyone should follow it seriously and sincerely. It is not to be taken lightly as it ultimately focuses on goals and objectives of the organisation. 6) Revision of code:- In due course it is essential to revise the code. As times changes it reflects different aspects connotations, principles in different ways. New issues, concept should get proper weightage in the organisation. Generally the compliance officer is monitoring the updates of the code of ethics. 16 ETHICS MANAGEMENT PROGRAMME It consists of - Plan - Policies - Procedures - Education - Training and Development Which explains the importance of organisations code of ethics. Every organisation should have best ethics management programme to ensure that workers from the organisation and understanding properly its value and comply the code of ethics so as to maintain harmony in the organisation. Apparently we find if somewhat easy but in reality the implementation of ethics programme is most difficult aspect. If its execution is done systematically it can lead to positive influence on the organisations overall performance. Involvement of customers, stakeholders is very critical for successful implementation of ethics programme group cohesiveness and positive contribution from executive management will show contribute improvement of good governance of the organisation. 17 Elements of Best Practices Ethics Programme:- Vision Statement Mission Statement Value Statement Organisational code of ethics Ethics compliance officer Ethics Committee Ethics Communication procedure Ethics Training Ethics grievance solving Measurement and rewards Monitoring programme Evaluation Ethical leadership Following is the discussion in brief for effective practices ethics programme. Vision and mission statement: Vision statement defines long-term desirable goals of the organisation. It gives guidelines for problem solving approach decision making. 18 ETHICS COMMITTEE There are no specific guidelines laid down in companies Act 2013 or listing agreements and SEBI regulations. Organisation of its own should use its discrete powers to constitute ethics committees. It is advisable that ethics committee should constitute with the independent non executive directors to ensure employees compliance with reference to code of ethics. It is always suggested that there should be stand alone committee to ensure optimise implementation so as to judge its effectiveness. Purpose of ethics committee:-  To inculcate ethical values throughout organisation.  To create awareness among directors about ethics and values of the organisation.  To inculcate seriousness among employees about administering ethics and values.  To built up constant rape or communication and demonstrations  To built reinforcement of an ethical culture. General responsibilities of Ethics Committees in nutshell:-  It frames with necessary inputs about Code of Ethics which must be adhered to by all employees.  Relating to ethical values and business practices of an organisation; effective training has to be ensured.  Effective dialogues or communication reinforces ethical values and business practices.  It is the sole responsibility of an ethical committee to ensure proper setting up of monitoring, reporting and concern accountability systems.  It creates helplines and proper mechanism to provide assistance relating to implementations of code of ethics.  It has proper assessment reports, if any deviations are observed; subsequent actions are taken in connection with violations of code of ethics, allegations of misconduct etc.  It is essential to review the effectiveness and updating effectiveness.  It acts as a liaison with stakeholders to ensure that various macro environment factors are observing code of ethics while dealing with an organisation. 19  It ensures due diligence relating to ethics prior to mergers or acquisitions.  It creates conducive environment to implement principles of ethics.  It is responsible for presenting and promoting ethical policies and practices. 1.2 APPROACHES TO BUSINESS ETHICS There are different approaches to business ethics; in different control different theories arise as problems differ from organisation to organisation they also state some ethical principles in general. ETHICAL THEORIES In general there exist two major kinds of ethical theories. 1) Deontological theories which emphasizes more in duly. 2) Teleological ethical theories which focus on consequences. (1) Deontological theories which emphasize more in duly:- Under these theories actions are judged on ethical or unethical basis and this is based on duty or intentions of a door. The reasoning of deontology is based on the rule. “Do unto others as you would have them to unto you.” Important defender of deontological ethics was Immanuel Kant who developed this theory in 1788. It includes:- - Duly without regard to human happiness - Human being as having the unique capacity for nationality. - No other animal possesses such a propensity for rationale thought. (2) Teleological ethical theories which focus on consequences:- Teleology, the word is derived from ‘Greek Language’ ‘telos’ which means ends or purposes. This theory holds that consequences of an act determine whether the act is good or bad. This is also known as consequential ethics. Business community thinks this approach from the M.B.O. (Management by Objective) point of view. It gives full considerations of stakeholders in any business decision for entire corporate structure i.e. from top lend to lower level of management. (3) Utilitarian Approach:- It is an ethics of welfare. Mr. Jeremy Bentham is considered as a founder of traditional utilitarianism Business guided by this 20 particular approach mainly focuses on behaviour and its results. It prescribes ethical standards for managers in the area of goals of the organisation. Such as profit maximisation, optimum utilisation of resources, productivity, efficiency etc. It prescribes moral worth of an action. It is correlated with happiness and satisfaction. This approach holds an evaluation of actions and policies on the basis of costs. Maximisation of utility is the fundamental feature of utilitarianism. (4) Virtue Theory:- It is very old concept since the time of Aristotle and under this theory there are variety of theories which are more concerned with how to line best life and how to be a humanitarian. According to Aristotle “Virtue is a character trait that manifests itself in habitual action.” Example: - I am a loving person means it is not simply for telling others but it is truth which can be observed in general practice. Virtues should contribute to the ideas for better life. It is one of the constituents for happiness. (5) Modern Virtue Theory:- After Kantianism and utilitarianism’s advent; virtue theory went out of favour. In 1958 Elizabeth Anscombe published her paper stating following facts - - What we ought to do is an obligation. - This obligation now should be waived out and ethics and practices should be reinstated. - ‘Ought’ needs to be emphatic and it should be therefore replaced as an act of performance in a right way and one can find out the difference between ‘Just’ and ‘Unjust’. - Virtues can’t be applied for day to day business unconditionally. - Concealment is justified and acceptable in every business organisation. - Honesty in business will not be same in other Spheres of Life. (6) Justice Theory:- Main points to be noted:- - It is also known as fairness approach. - All equals to be treated equally. Here one should note that all equals not all persons. - Justice depends on principle of equity not on consequences. - Later on John Rawls defends the conception of fairness approach. - According to him justice can not be measured on utilitarianism because it is consistent with intuitively, majority can be enjoy 21 with a particular aspect whereas minority may be deprived from this. - Each person should have an equal right to the most extensive basic liberty compatible with similar liberty for others. - Social and economic inequalities are to be rearranged on the grounds of greatest benefit and fair equality of opportunity. (7) Theory of egoism:- Main points:- - ‘I’ means ego. - It holds that good is based on pursuit of self-interest approach. - It counts, harms, benefits and rights for individual welfare. Any act which is morally correct and if it is beneficial for individual but not harming others and such benefits are counterbalance without unintentional harms that ensue. Example: - College grants scholarship for students for 3 years; then students are expected to work for college for 3 years as per requirements for college and the student’s capacity. (8) Theory of Relativism:- - It inculcates the idea of elements culture. - It considers that there are no absolute truths in ethics. - What is morally right or wrong varies from person to person. - Killing animals in a particular religion is not acceptable whereas in other religion it is acceptable and believable. FRIEDMAN’S ECONOMIC THEORY Pointuise Explanation - - Introduction - ‘Milton Friedman - an American economist whose research is based on consumption analysis monetary history and complexity of stabilization policy. - He promoted two principles. - Capitalism & - Freedom - Capitalism is connected with proper role and use of company’s profits. - Freedom is directed for moral foundation for stable society. * It is to be noted that capitalism is accepted in general without freedom approach is totally unfortunate. 22 - He stated further:- - Social responsibility of business is to increase the profits of company. - Social aspects without the element of profit should not be considered. - There is only one social responsibility is to say, engages in open and free competition without any deception or fraud. - Companies should focus effectively an activities related to company’s profit and effectively exclude charitable activities. It at all charity is concerned then legitimate activities should be done with government apex bodies - avoid deception and fraud can be done through effective implementation of monetary aspects for the society within jurisdiction of laws. It does not means that directors of the company can act in any way to follow for maximisation of profits. They have to act within ethical custom. - It excludes corporate social responsibility on ethical spending - by - - Wisely spent. - Spend wisely but it should be challenging. - Spend society’s money on yourself and give vary rare incentives to economies. - He proclaimed on Rate of Investment. - Directors of the company should always give fair and enough justice to Stakeholders investment. - Counterpoint of his theory is socio-economic school. It states that business community should oversee the operation of an economic system which fulfils the expectations of the society in general. - Conclusion of this theory:- - Shareholder’s fund should not be mis-utilised on the grounds of CSR. - Company should do best with its capacity to fulfil the socio- economic norms. - Directors can not cross the boundaries of their pursuit for maximisation of profit. 23 Kant’s Deontological Theory:- Theory in points -  Introduction:- Kant was a German philosopher who proposed duty based theory which states that what is morally right that person should perform. - One should have moral duties to one-self and others such as developing one’s talent, and fulfilling promises made to others. It provides following elements:- - Method for deriving moral rules and guidelines. - For moral values and human action, he provided justification and criteria. - He promoted Principles of Categorical Imperative: - It is nothing but an appeal to reason based on certain conditions. These conditions are:- - Act according to ethical guidelines which can become in due course universal law. - One can act as per the needs of requirement. - Treat Humanity always as means as well as an end. Utilitarianism Theory: Points are to be discussed with two angles:- 1) Jerry Bentham’s view. 2) J. S. Mill’s view. (1) J. Bentham’s approach:- - Recognition the fundamental role of pain and pleasure in human life. - approve or disapprove the action on the basis of above aspects. - equates good with pleasure and evil with pain. - Ascertainment of capacity of pleasure and pain. - Pleasure and pain are merely types of sensations they may differ on the following grounds - Extent, intensiveness, time duration, propinquity, certainty, fecundity and purity. (2) J. S. Mill’s view:- His views are based on:- - Hedonism - means - pleasure is supreme end of life and it is freedom from pain. According to him character, health, respect 24 etc. will ultimately lead to happiness. He classified hedonistic description of good and evil. - Psychological hedonism:- According to him what is implied is that we always desire only that object which is pleasant. - Logic of ethical hedonism:- - The only proof that a sound is audible is that if people will hear it. - Altruism:- It means standard of utilitarianism is not maximum pleasure but it is maximum yield. He criticised the Bentham’s approach of general happiness is an ultimate end. - Person’s happiness is good to that person and general happiness is aggregate of all people. He explains this statement with the help of Human Psychology. 1.3 GANDHIAN APPROACH OF TRUSTEESHIP Introduction Trusteeship is a socio-economic philosophy where Trustee is the holder of property in trust for others. It is an application to the law of human society. It provides means by which rich people will be trustees of ‘Trust’ which should always look after as a form of welfare of the society. Here, according to him making money should be fair and ethical but on what grounds this has been accumulated should also be taken into consideration by way of returning of wealth in certain proportion to the society. Analytical review of Trusteeship Analytical review of Trusteeship on the ground of Do’s:- - Be fair in dealing with internal and external constituents i.e. micro and macro business environmental factors. - Do protect the interest of investors, stakeholders and ultimate efforts and care should be taken to create wealth for them through legitimate means. - Be honest in financial accounting and reporting upto the mark in each and every aspect. 25 - Be act within the jurisdiction of the law in respect of operations, suggestions, modification etc. - Be active in social development process and disclose fully, actual facts as they are. - Be faithful towards, society where you operate your business. Don’ts:- - No indulgement in deception, poaching into created wealth. - No violation of rights of employees, society and pre-empt workplace harassment and safety breaches. - Do not be cruel towards animals and non-human’s in fact give caring treatment to ensure least pain to animals. - Do not make any damage in any form to the environment on the grounds of development; do seek concurrence from the affected transparent disclosures. - Do not keep and maintain silence against injustice, within your means try to make efforts to overcome them or bring it before judicial systems. Doctrine of ‘Satya’ and ‘Ahimsa’ Mahatma Gandhi’s principle of Ahimsa is based on ethics of ahimsa propounded by Lord Gautam Buddha. It gives a new outlook on life based on social, economic and political problems. It gives new orientation to the problems that face humanity today with new solutions. - presenting for acceptance is truth and Ahimsa in day to day life. Principle of Life is based on truth as per his philosophy. - The word ‘Satya’ is combination of  ‘Sat’ being and nothing exists in reality except ‘Truth’.  Truth always follows pure knowledge and it leads to bliss. - According to Mahatma Gandhiji God is an impersonal, omnipresent power. God is Truth, lone and bliss. God is an end. He can be known through truth and love.  Ahimsa :- - It is supreme kind approach and self sacrifice. It is neither denial from killing nor doing harm. It is an abstinence from causing pain through. 26 - ill words - thoughts - resentment - It is non violence in every form. - It has positive aspect with overflowing love and affection with each one. - It is based on non injury and love. - It is the basis of search of truth. The only resource for realisation of truth is Ahimsa. 1.4 EMERGENCE OF NEW VALUES IN INDIAN INDUSTRIES AFTER ECONOMIC REFORMS OF 1991 Introduction : After 1991, Industrial sector has drastically changed on account of L P G. Following one the main aspects. - Tiny and small sectoral entrepreneurship was promoted. - micro finance and self help group came into force. - Initiatives such as ‘Make in India’, ‘Start-up India’, ‘and Digital India’ came into action force. Measures introduced by Government Apart from these reforms, Government of India has introduced several measures for - - Improvement in efficiency - face the competition - curbed corruption in the industrial sector. - Emergence of new values in industries came into force. They are as under :- (1) Professionalism :- Managers or top level management adopted this concept for their day to day administration. They have adopted systematic approach in decision making and coordination and controlling through obtaining right ideas, research apt, analytical approach, right decision for the interest of the organisation. (2) Systematic personnel policies :- After 1991, Managers adopted following practices with respect to - - Recruitment and selection. - Training and Development aspect - Proper placement o - Performance Appraisal at 360 27 - Promotion based on merit at the higher levels and seniority at the lower levels. - Compensation with regards to wages, salaries and incentives etc. (3) Ethical practices in functional areas :- It is an important part for improvement in efficiency and productivity of an organisation with respect to - - Production process - Marketing aspects - Financial areas - H R Policies (4) Employee - Rewards and recognition :- Positive reinforcement was observed through this for ensuring constant improvement with quality performance. These can be in form of financial benefits such as, increment merit pay, promotion, high status and pay etc. while recognition may be in form of thanks rewards, award of merit, hosting lunch and dinner declaring best reviews etc. (5) Customer oriented :- Managers, after 1991 emphasised on their internal and external customers internal customers include - employees, whereas external customers includes macro supporters. Focus of marketing Research, R & D, etc. (6) Zero defect Approach :- Defect free approach was the prime activity of managers for most of the time Basic idea behind this is to stress for perfection in work, efficiency and increment in productivity. (7) Team Spirit :- Nowadays after 1991, synergy in team work is generally behind by managers from top to lower level all look upon on equals and communicate easily and can create synergetic partnership. (8) BPR Concept :- It is Business Process Re-engineering of practicing, rethinking and redesigning the work, culture. It is essential to achieve organisation’s vision and mission. 28 (9) Proper Administrations :- Managers, nowadays have adopted systematic approach for managing business and improving efficiency and performance of the organisation. (10) Good Governance :- Nowadays managers believe to give more emphasis on good corporate governance which involves :- - Balancing interest of company affairs. - Proper attainment in micro and macro business environmental factors. - Good practices to be incorporated for avoiding financial frauds and scams. (11) Provide Best Work Cultures :- Nowadays employees are treated as partners of the business organisations, corporations tries their level best to balance between working conditions and service conditions for their employees. It leads to satisfaction, efficiency and productivity and inturn increment of profit of organisation. Relevance of Trusteeship Principle Introduction :- Principle of Trusteeship is relevant and important for business firms for long term. After distributing reasonable profits among stakeholders; balance of profits should be utilised for productive purposes; which may be classified as follows :- (1) Corporate Image :- Corporation may lead to improve its overall efficiency and performance on this base. It can create favourable image in the minds of micro and macro business environmental factors. (2) Customer’s loyalty :- On the basis of trusteeship customers can keep trust and show confidence on such firms by - - Repeat purchases. - Repeat orders. - Recommendations to others. (3) Competitive advantage :- In the market, on the basis of trusteeship, it enables the firm to enjoy competitive advantage by having optimum utilisation of resources. To progress on high-way of profits - corporations can 29 very well go for R & D, training and development, Upgradation of techniques of productions which results in improvement in overall quality. (4) C. S. R. :- Corporate Social Responsibility enables the firm to create integrated business model. It ensures active compliance with the spirit of law, ethical standards and international norms. (5) Good Corporate Governance :- By accepting a path of trusteeship firm can show healthy signs towards corporate governance. It implies that company or firm should utilise its reserves and surplus for the interest of the society as well shareholders. (6) Growth and expansion of business :- This principle enables the organisation to expand its business activities by way of conducting R & D, marketing research etc. By doing so, companies can enter into new ventures or can expand the markets as well. (7) Employee Welfare :- Trusteeship path make progressive use of resources for its internal customers by way of providing best working conditions and service conditions. (8) Survival :- Trusteeship ensures business survival in ethical manner, such organisation can gain goodwill and reputation in long run and can gain the confidence and trust among, customers and other stakeholders. 1.5 SUMMARY This module discusses the evolution of ethics and its importance in corporate scenario. It also throws light on classical theories of ethics and trusteeship and how it is applicable to governance in corporates. Religion, culture and ancient literatures also form an evitable part of business ethics. This helps the organizations to align its decisions with the human values. The module also underlines the effects of ethical practices on fairness, employees welfare, customer welfare and society at large. 30 1.6 EXERCISE Q.1. What are features of ethics? Q.2. What are needs and importance for ethics? Q.3. What are features of Indian ethos? Q.4. Compare ethics and value. Q.5. What are the sources of ethics? Q.6. What is meaning of code of ethics? How to develop such codes? Q.7. Briefly explain ethics management programme. Q.8. Briefly explain the ethical theories. Q.9. Briefly explain the Doctrine of ‘Satya’ and ‘Ahimsa’ Q.10. State the relevance of Trusteeship principle in Business.  31 MODULE - II Unit - 2 INDIAN ETHICAL PRACTICES & CORPORATE GOVERNANCE Unit Structure : 2.0 Objectives 2.1 Introduction 2.2 Ethics in Functional areas 2.3 Corporate Governance 2.4 Regulatory Framework in India 2.5 Summary 2.6 Exercise 2.0 OBJECTIVES After studying this chapter the student will be able to:  Define the term Ethics in Marketing and Advertising  Explain the importance Ethics in Functional Areas.  Define the concept Corporate Governance  Understand the significant of Corporate Governance.  Understand the meaning and Significance of Regulatory Framework in India. 2.1 INTRODUCTION Marketing is a vital functional area of a business organisation. The success of a business largely depends on the performance of marketing departments. Marketing is about identifying the needs of the customers and satisfying their requirements. Advertising is a tool in Marketing and is used to promote goods and services to the customers. Ethics promotes honesty, fairness and maintaining values in various advertising and marketing efforts of the organisation. Business ethics is the behavior that a business adheres to in its daily dealings with the world. The ethics of a particular business can be diverse. They apply not only to how the business interacts with the world at large, but also to their one-on-one dealings with a single customer. Many businesses have gained a bad reputation just by being in business. To some people, businesses are 32 interested in making money, and that is the bottom line. Making money is not wrong in itself. It is the manner in which some businesses conduct themselves that brings up the question of ethical behaviour. Many global businesses, including most of the major brands that the public use can be seen not to think too highly of good business ethics. Many major brands have been fined millions for breaking ethical business laws. Money is the major deciding factor. If a company does not adhere to business ethics and breaks the laws, they usually end up being fined. Many companies have broken anti-trust, ethical and environmental laws and received fines worth millions. The problem is that the amount of money these companies are making outweighs the fines applied. 2.2 ETHICS IN FUNCTIONAL AREAS I) Ethical Marketing Ethical marketing is less of a marketing strategy and more of a philosophy that informs all marketing efforts. It seeks to promote honesty, fairness, and responsibility in all advertising. Ethics is a notoriously difficult subject because everyone has subjective judgments about what is “right” and what is “wrong.” For this reason, ethical marketing is not a hard and fast list of rules, but a general set of guidelines to assist companies as they evaluate new marketing strategies. American Marketing Association promotes the professional ethical norms and values for its members. Norms are established standards of conduct and values for its members.  All marketing communications share the common standard of truth.  Marketing professionals abide by the highest standard of personal ethics.  Advertising is clearly distinguished from news and entertainment content.  Marketers should be transparent about who they pay to endorse their products.  Consumers should be treated fairly based on the nature of the product and the nature of the consumer (e.g. marketing to children).  The privacy of the consumer should never be compromised.  Marketers must comply with regulations and standards established by governmental and professional organizations.  Ethics should be discussed openly and honestly during all marketing decisions. 33 II) Ethical Issues in Advertising Advertising constitutes a vital stream among the marketing functions of a business; it being a major driver of the firm's integrated promotions for pushing sales in today's highly competitive business environment. Sales and especially advertising are two areas which are directly connected to the external network of a firm. While most companies revere the pursuit of their businesses on a regular moral understanding, there are some firms which continue to follow both good and bad business practices. The issue of ethics in advertising bears great concern to all firms engaged in business worldwide, and to consumers likewise. Advertising is the medium that conveys an organization's communications about its offerings to the market available for a sale, and hence, it possesses the innate ability to influence the consumer. Ethical Issues in Advertising is a highly visible business activity and any lapse in ethical standards can often be risky for the company. Some of the common examples of ethical issues in advertising are given below: 1. Vulgarity / Obscenity used to gain consumers’ attention: Nowadays many a times, advertisements use false statements and misrepresentations about their products. They show such scenes or ads which are not very rightfully projected and should not be watched. 2. Misleading information and deception 3. Puffery 4. Racial issues 5. Controversial products (e.g. alcohol, gambling, tobacco etc.) III) Ethics in Human Resource Management Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics should be a pivotal issue for HR specialists. The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee. The issues of ethics faced by HRM include:  Discrimination issues i.e. discrimination on the bases of age, gender, race, religion, disabilities, weight etc.  Sexual harassment.  Affirmative Action.  Issues surrounding the representation of employees and the democratization of the workplace, tradeization. 34  Issues affecting the privacy of the employee: workplace surveillance, drug testing.  Issues affecting the privacy of the employer: whistle-blowing.  Issues relating to the fairness of the employment contract and the balance of power between employer and employee.  Occupational safety and health. Companies tend to shift economic risks onto the shoulders of their employees. The boom of performance - related pay systems and flexible employment contracts are indicators of these newly established forms of shifting risk. IV) Ethics in Finance and Accounting Finance and Accounting Ethics is primarily a field of business ethics. To prevent fraudulent accounting, various accounting organisations and governments have developed regulations and remedies for improved ethics among the accounting profession. Importance of Finance and Accounting Ethics: The nature of the work carried out by the accountants and auditors requires a high level of ethics. Shareholders and other users of financial statements rely heavily on the yearly financial statements of the company as they can use this information to make proper decisions on investments. Accountants serve as financial reporters and intermediaries in the capital markets and owe their primary obligation to the public interest. In the currents scenario multiple scandals were reported on by media and resulted in fraud charges and closure of companies and accounting firms. Unethical practices in Finance and Accounting The following are some of the unethical practices in finance and accounting.  Misuse of funds  Window dressing of financial statements  Insider trading  Conflicts of Interests V) ETHICS OF PRODUCTION This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk. 35  Defective, addictive and inherently dangerous products.  Ethical relations between the company and the environment include pollution, environmental ethics, and carbon emissions trading.  Ethical problems arising out of new technologies for eg. Genetically modified food.  Product testing ethics. The most systematic approach to fostering ethical behavior is to build corporate cultures that link ethical standards and business practices. VI) ETHICS IN INFORMATION TECHNOLOGY Information Technology is considered as a branch of Information and Communication Technology. It is the usage of technology which leads to ethical issues. The pace of technology can raise questions on Ethics as newer products make their way replacing the existing ones. In fact increasing advances in the technological innovations are adding up to environmental degradation such as computer screens, Keyboards, printers are already polluting the environment. All these wastes produce toxins that cannot be decomposed easily. On the other hand many technological developments have occurred. New manufacturing processes that are outsourced either are replacing the manpower there or exploiting workers by engaging them at cheaper prices. Although we cannot control technology and innovation, the better way is to adapt and change. The role of ethics in technology is of managing it rather than controlling the same. Public issues in IT are:- Plagiarism  Software Piracy  Hacking  Computer Crimes  Viruses  Job displacement  Digital Divide  Nanotechnology and IT  Netiquette  Cookies and spyware Public has not realized the critical importance of ethics to IT. Business men should take the responsibility for these decisions. They must create a working environment in which ethical dilemmas can be discussed openly and constructively. 36 VII) EHTICS IN COPYRIGHTS AND PATENTS Intellectual Property (IP) is a legal term covering various forms of valuable business assets. The three broad primary areas of IP are trademarks, copyrights and patents. Copyright refers to the legal right of the owner of intellectual property”. In simpler terms, ‘copyright is the right to copy’. This means that the original creator of a product and anyone he gives authorization to are the only ones with the exclusive right to reproduce the work. Copyright law gives creators of original material, the exclusive right to further develop them for a given amount of time, at which point the copyrighted item becomes public domain. A copyright gives the owner of a work of expression the exclusive right to: 1. Reproduce the work. 2. Distribute copies of the work to the public. 3. Display copies of the work in public. 4. Perform the work in public. 5. Create derivative works based on the original work. A copyright is collection rights which can be given away, sold, leased, or licensed. Copyright Infringement Copyright infringement is the violation, piracy or theft of a copyright holder's exclusive rights through the unauthorized use of a copyrighted material or work. It includes unauthorized use of a work or material is any unauthorized reproduction, distribution, performance, public display or transfer to a derivative work without the copyright owner's permission. An infringement occurs under all of the following three conditions:  The owner must hold a valid copyright.  The alleged infringer must be able to access the copyrighted work.  Duplication of the copyrighted work must occur beyond exceptions. If an exception does not apply, permission is requested by the person seeking to use the work.  There are three terminologies associated with copyright infringement:  Piracy: The term "piracy" has been used to refer to the unauthorized copying, distribution and selling of works in copyright.  Theft: It is an instance where a person exercises one of the exclusive rights of the copyright holder without authorization. 37  Freebooting: The term “freebooting” has been used to describe the unauthorized copying of online media, particularly videos, onto websites such as Facebook, You Tube or Twitter. 2.3 CORPORATE GOVERNANCE Corporate Governance is the basic frame work of rules, guidelines and practices through which the board of directors ensures accountability, fairness and transparency in a company's relationship with its all stakeholders i.e. investors, customers, management, employees, government and the community. 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 concept of governance has been known in both political and academic circles for a long time, referring generally to the task of running a government, or any other appropriate entity for that matter. Corporate governance is therefore the process whereby people in power direct, monitor and lead corporations, and thereby either create, modify or destroy the structures and systems under which they operate. The primary purpose of corporate leadership is to create wealth legally and ethically. Objectives of Corporate Governance  To align corporate goals of its stakeholders (society, shareholders, etc.)  Corporate governance a way of Life rather than a Code  To strengthen corporate functioning and discourage mismanagement  To achieve corporate goals by making investment in profitable investment outlets.  To specify responsibility of the B.O.D and managers in order to ensure good corporate performance. There is a global consensus about the objective of ‘good’ corporate governance: maximising long-term shareholder value.” Corporate Governance is a system of structuring, operating and controlling a company with the following specific aims:— 38 (i) Fulfilling long-term strategic goals of owners; (ii) Taking care of the interests of employees; (iii) A consideration for the environment and local community; (iv)Maintaining excellent relations with customers and suppliers; (v) Proper compliance with all the applicable legal and regulatory requirements. Evolution Of Corporate Governance Corporate ownership structure has been considered as having a strongest influence on systems of corporate governance, although many other factors affect corporate governance, including legal systems, cultural and religious traditions, political environments and economic events. All business enterprises need funding in order to grow, and it is the ways in which companies are financed which determines their ownership structures. It became clear centuries ago that individual entrepreneur and their families could not provide the finance necessary to undertake developments required to fuel economic and industrial growth. The sale of company shares in order to raise the necessary capital was an innovation that has proved a cornerstone in the development of economists worldwide. However, the road towards the type of stock market seen in the UK and US today has been long and complicated. Listed companies in their present form originate from the earliest form of corporate entity, namely the sole trader. From the middle ages, such traders were regulated by merchant guilds, which over saw a diversity of trades. The internationalization of trade, with traders venturing overseas, led gradually to regulated companies arising from the medieval guild system. Members of these early companies could trade their own shares in the company, which lead ultimately to the formation of the joint stock companies. The Fiscal Crisis of 1991 and resulting need to approach the IMF induced the Government to adopt reformative actions for economic stability through liberalisation. The momentum gathered slowly once the economy was pushed open and the liberalisation process got initiated. The CII Code The report of the Cadbury committee on the financial aspects of the government in UK had given rise to the debate of Corporate governance in India. With the help of the CII, Indian Companies both in private and public sectors, Banks and Financial sectors adopted and followed a Corporate Governance in 1997. The final Code called 'Desirable Corporate Governance Code' was released in April 1998. 39 Kumar Managalam Birla Committee, 1999 The Securities and Exchange Board of India (SEBI) in 1999 set up a Committee under Shri Kumar Managalam, member SEBI Board to promote and raise the standards of good corporate Governance. The Primary objective of the Committee was to view corporate governance from the prospective of the Investors and shareholders. Importance of Corporate Governance Corporate Governance is intended to increase the accountability of your company and avoid massive disasters before they occur. Failed energy giant Enron, and its bankrupt employees and shareholders, is a prime argument for the importance of solid Corporate Governance. Well- executed Corporate Governance should be similar to a police department’s internal affairs unit, weeding out and eliminating problems with extreme prejudice. The Need, Significance or Importance of Corporate Governance is listed below. 1. Changing Ownership Structure In recent years, the ownership structure of companies has changed a lot. Public financial institutions, mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on the management of the companies. They force the management to use corporate governance. That is, they put pressure on the management to become more efficient, transparent, accountable, etc. They also ask the management to make consumer-friendly policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance. 2. Importance of Social Responsibility Today, social responsibility is given a lot of importance. The Board of Directors has to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance 3. Growing Number of Scams In recent years, many scams, frauds and corrupt practices have taken place. Misuse and misappropriation of public money are happening every day in India and worldwide. It is happening in the stock market, banks, financial institutions, companies and government offices. In order to avoid these scams and financial irregularities, many companies have started corporate governance. 4. Indifference on the part of Shareholders In general, shareholders are inactive in the management of their companies. They only attend the Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak 40 in the meetings. Shareholders associations are not strong. Therefore, directors misuse their power for their own benefits. So, there is a need for corporate governance to protect all the stakeholders of the company. 5. Globalization Today most big companies are selling their goods in the global market. So, they have to attract foreign investor and foreign customers. They also have to follow foreign rules and regulations. All this requires corporate governance. Without Corporate governance, it is impossible to enter, survive and succeed the global market. 6. Take Over and Mergers Today, there are many takeovers and mergers in the business world. Corporate governance is required to protect the interest of all the parties during takeovers and mergers. 7. SEBI SEBI has made corporate governance compulsory for certain companies. This is done to protect the interest of the investors and other stakeholders. PRINCIPLES OF CORPORATE GOVERNANCE Corporate governance refers to all laws, regulations, codes and practices, which defines how institution is administrated and inspected, determines rights and responsibilities of different partners, attracts human and financial capital, makes institution work efficiently, provides economic value to stack holders in the long turn while respecting the values of the community it belong. For corporate governance, the management approach should be in accordance with the following principles. 1. Governance structure: All Organizations should be headed by an effective Board. Responsibilities and accountabilities within the organization should be clearly identified. 2. The structure of the board and its committees: The board should comprise independent minded directors. It should include an appropriate combination of executive directors, independent directors and non-independent non-executive directors to prevent one individual or a small group of individuals from dominating the board’s decision taking. The board should be of a size and level of diversity commensurate with the sophistication and scale of the organization. Appropriate board committees may be formed to assist the board in the effective performance of its duties. 41 3. Director appointment procedure: There should be a formal, rigorous and transparent process for the appointment, election, induction and re-election of directors. The search for board candidates should be conducted, and appointments made, on merit, against objective criteria (to include skills, knowledge, experience, and independence and with due regard for the benefits of diversity on the board, including gender). The board should ensure that a formal, rigorous and transparent procedure be in place for planning the succession of all key officeholders. 4. Directors duties, remuneration and performance: Directors should be aware of their legal duties. Directors should observe and foster high ethical standards and a strong ethical culture in their organization. Each director must be able to allocate sufficient time to discharge his or her duties effectively. Conflicts of interest should be disclosed and managed. The board is responsible for the governance of the organization’s information, information technology and information security. The board, committees and individual directors should be supplied with information in a timely manner and in an appropriate form and quality in order to perform to required standards. The board, committees and individual directors should have their performance evaluated and be held accountable to appropriate stakeholders. The board should be transparent, fair and consistent in determining the remuneration policy for directors and senior executives. 5. Risk governance and internal control: The board should be responsible for risk governance and should ensure that the organization develops and executes a comprehensive and robust system of risk management. The board should ensure the maintenance of a sound internal control system 6. Reporting and integrity: The board should present a fair, balanced and understandable assessment of the organization’s financial, environmental, and social and governance position, performance and outlook in its annual report and on its website. 7. Audit Organizations should consider having an effective and independent internal audit function that has the respect, confidence and cooperation of both the board and the management. The board should establish formal and transparent arrangements to appoint and maintain an appropriate relationship with the organization’s auditors. 42 8. Relations with shareholders and other key shareholder: The board should be responsible for ensuring that an appropriate dialogue takes place among the organization, its shareholders and other key stakeholders. The board should respect the interests of its shareholders and other key stakeholders within the context of its fundamental purpose. BENEFITS OF CORPORATE GOVERNANCE The Benefits to Shareholders  Good CORPORATE GOVERNANCE can provide the proper incentives for the board and management to pursue objectives that are in the interest of the company and shareholders, as well as facilitate effective monitoring.  Better CORPORATE GOVERNANCE can also provide Shareholders with greater security on their investment.  Better CORPORATE GOVERNANCE also ensures that shareholders are sufficiently informed on decisions concerning fundamental issues like amendments of statutes or articles of incorporation, sale of assets, etc. The Benefits to the National Economy  Empirical evidence and research conducted in recent years supports the proposition that it pays to have good CORPORATE GOVERNANCE. It was found out that more than 84% of the global institutional investors are willing to pay a premium for the shares of a well-governed company over one considered poorly governed but with a comparable financial record.  The adoption of CORPORATE GOVERNANCE principles – as good CORPORATE GOVERNANCE practice has already shown in other markets – can also play a role in increasing the corporate value of companies. Proponents of corporate governance say there is a direct correlation between good corporate governance practices and long-term shareholder value. Some of the key benefits are:  High performance Boards of Directors;  Accountable management and strong internal controls;  Increased shareholder engagement;  Better managed risk; and  Effectively monitored and measured performance. 43 RESPONSIBILITIES OF THE BOARD OF DIRECTORS  Establish corporate values and governance structures for the company;  Ensure that all legal and regulatory requirements are met and complied with fully and in a timely fashion;  Establish long-term strategic objectives for the company;  Establish clear lines of responsibility and a strong system of accountability and performance measurement;  Hire the chief executive officer, determine the compensation package, and periodically evaluate the officer’s performance;  Ensure that management has supplied the board with sufficient information for it to be fully informed and prepared to make the decisions that are its responsibility, and to be able to adequately monitor and oversee the company’s management;  Meet regularly to perform its duties;  Acquire adequate training. RULES OF CORPORATE GOVERNANCE As we have iterated, this part of the report explains our view of best corporate governance practice and the holistic approach by which we believe an organisation can ensure that a state of good corporate governance exists, or is brought into being if its existence is uncertain. It takes the view that there is an over-riding moral dimension for running a business and that the standard of governance will depend on the moral complexion of the operation. The business morality or ethic must permeate the entire operation from top to bottom and embrace all stakeholders best corporate governance practice is an integral part of good management practice also permeating the entire operation, and not an esoteric specialism addressed by auditors and shareholders. The principles of this approach are therefore framed in relation to the conventional way of looking at how a business should be properly run. Our Five Golden Rules of best corporate governance practice is: 1. Ethics: Clearly ethical practices applied to the business 2. Align Business Goals: appropriate goals, arrived at through the creation of a suitable stakeholder participation in decision making model 3. Strategic management: an effective strategy process which incorporates stakeholder value 4. Organisation: an organisation suitably structured to give effect to the good corporate governance 44 5. Reporting: reporting systems structured to provide transparency and accountability. This approach recognizes that the interests of different stakeholders carry different weight, but it does not, by any means, suggest that those with a majority interest matters and the rest don’t. On the contrary, best corporate governance practice dictates that all stakeholders should be treated with equal concern and respect. For obvious reasons, although the methodology we will propose involves taking major stakeholders into greater account when formulating strategy, it is designed to generate all round support because of the fact that every stakeholder, no matter how small, is given the opportunity to express a view, through the continuous monitoring of stakeholder perceptions. The regulatory approach to the subject would regard governance as something on its own, to do with ensuring a balance between the various interested parties in a company’s affairs, or more particularly a way of making sure that the chairman or chief executive is under control, producing transparency in reporting or curbing over-generous remuneration packages etc. The essence of success in business is:  having a clear and achievable goal  having a feasible strategy to achieve it  creating an organization appropriate to deliver  having in place a reporting system to guide progress. 2.4 REGULATORY FRAMEWORK ON CORPORATE GOVERNANCE IN INDIA Corporate Governance brought the need for the Indian companies to adopt corporate governance standards, consistent with the international policies and principles. Corporate Governance refers to practices by which organisations are controlled, directed and governed. The fundamental concern of Corporate Governance is to ensure the conditions whereby organisation’s directors and managers act in the interest of the organisation and its stakeholders and to ensure the means by which managers are held accountable to capital providers for the use of assets. To achieve the objectives of ensuring fair corporate governance, the Government of India has put in place a statutory framework. Regulatory framework on corporate governance. The legal framework relating to Corporate governance is broadly covered in the: 45 a) Indian Companies Act 1956 b) the directives issued by the security market regulator, SEBI c) regulators such as RBI and the IRDA (Insurance Regulatory Development Authority) guidelines for banking and Insurance Companies. The Indian statutory framework has, by and large, been in consonance with the international best practices of corporate governance. Broadly speaking, the corporate governance mechanism for companies in India is enumerated in the following enactments/ regulations/ guidelines/ listing agreement: 1. The Companies Act, 2013: inter alia contains provisions relating to board constitution, board meetings, board processes, independent directors, general meetings, audit committees, related party transactions, disclosure requirements in financial statements, etc. 2. Securities and Exchange Board of India (SEBI) Guidelines: SEBI is a regulatory authority having jurisdiction over listed companies and which issues regulations, rules and guidelines to companies to ensure protection of investors. 3. Standard Listing Agreement of Stock Exchanges: For companies whose shares are listed on the stock exchanges. 4. Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI): ICAI is an autonomous body, which issues accounting standards providing guidelines for disclosures of financial information. Section 129 of the New Companies Act inter alia provides that the financial statements sh

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