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BUSINESS ETHICS & CORPORATE GOVERNANCE

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AGENDA
Understanding Ethics
Managing Business Ethics Corporate Social Responsibility Complexity of Ethical Issues Ethical Leadership Evaluation of Corporate Governance Internal & External Corporate Governance mechanisms Corporate Governance Ratings
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Scams

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Values
Fundamental beliefs Principles for good, right and just Evaluate something vis--vis a Standard Integrity, Patriotism, Fairness

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Morals
Values attributing to a system of beliefs Values derived from a higher authority Religious system or political system

OCS

Understanding Ethics
Greek word ethos meaning character Right and wrong conduct Studies moral behavior and how one should act a set of concepts and principles that guide us in determining what behavior helps or harms others

OCS

Business Ethics
Study and examination of moral and social responsibility in relation to - business practices - decision-making in business

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Ethical Business Practices (1 of 2)


Investors:
Ensuring safety of their money and timely payment of interest.

Employees:
Provision of fair opportunities in promotions and training, good working environment and timely payment of salaries.

Customer:
Complete information of the service and product should be made available. Personal information of the customers should not be used for personal gain.
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Ethical Business Practices (2 of 2)


Competition:
Unscrupulous tactics, competitor bashing and wrong methods should be avoided while handling competitors.

Government:
Rules and regulations regarding taxes, duties, restrictive and monopolistic trade practices and unlawful activities like corruption and bribing should be adhered to.

Environment:
Polluting industries should ensure compliance with the government norms regarding air, water and noise pollution.
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Ethical Absolutism
Certain actions are absolutely right or wrong Consequences or intentions are irrelevant Eg. Stealing A principle which never ought to be violated

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Ethical Relativism
Differences in judgments across different people & cultures
Meta-ethics Normative ethics Applied ethics

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Three major areas in Ethics


1) Meta-ethics when people disagree, nobody is objectively right or wrong Eg. "How can we tell what is good from what is bad?

2) Normative ethics practical means of determining a moral course of action nobody is right or wrong; need to tolerate others Eg. "What should one do?"
3) Applied ethics how moral outcomes can be achieved in specific situations
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Normative Ethics
Teleological Ethics Deontological Ethics

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Teleological Ethics or Consequentialism


Ends or consequences of an act determine whether an act is good or evil A morally right act (or omission) is one that will produce a good consequence Whatever comes of our actions determines whether it was good or bad Eg. Bosss red tie does not suit him

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Deontological ethics or NonConsequentialism


Kantian Right Judges the morality of an action based on the action's adherence to rules Rules bind you to your duty Categorical Imperative true in all circumstances
Rules must be universal Rules must respect humans
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Positive & Negative Rights


Positive rights are given to you Oblige action Eg. Food, Public education Negative rights that you have, that cannot be taken away Oblige inaction Eg. Freedom of Speech, Fair trial
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Ethics of Justice
Chooses solution that seems to damage the least number of people Distributive Justice Retributive Justice Compensatory Justice

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Distributive Justice
Perceived fairness of how rewards are distributed across group members Types of Distributive Norms
Equity Equality Power Need Responsibility
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Retributive Justice
Two distinct types
Amount of punishment proportionate to amount of harm caused by the offence Amount of punishment proportionate to amount of unfair advantage gained by the wrongdoer

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Compensatory Justice
Fairness rendered an entity compensates a party who they have injured for the suffering caused Compensatory justice is limited to the extent of the loss suffered

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Ethics of Care Law & Morality


Kohlberg Model Gilligan Model

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Kohlbergs 6 stages of Moral development


LEVEL PRECONVENTIONAL STAGE STAGE I Obedience STAGE II Self-interest CHARACTERISTICS Obedience and Punishment orientation (How can I avoid punishment?) Social contract orientation

CONVENTIONAL

STAGE III Conformity


STAGE IV Law-and-order

Interpersonal Accord and Conformity (Social norms, The good boy/girl attitude)
Authority and social-order maintaining orientation (Law and Order morality) Self-interest orientation (Whats in it for me? Paying for a benefit) Universal ethical principles (Principled conscience)
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POSTCONVENTIONAL

STAGE V Human rights STAGE VI Universal Human ethics

Case Study - Heinz Dilemma


A woman was near death from a special kind of cancer. There was one drug that the doctors thought might save her. It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make, but the druggist was charging ten times what the drug cost him to produce. He paid $200 for the radium and charged $2,000 for a small dose of the drug. The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about $ 1,000, which is half of what it cost. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. But the druggist said, "No, I discovered the drug and I'm going to make money from it."

So Heinz got desperate and broke into the man's store to steal the drug for his wife.
Should Heinz have broken into the laboratory to steal the drug for his wife? Why or why not?

OCS

Heinz Dilemma - Kohlbergs stages of MD


STAGE OBEDIENCE POSSIBLE ARGUMENTS
Heinz should not steal the medicine because he would consequently be put in prison, which would mean he is a bad person. Or: Heinz should steal the medicine because it is only worth $200, not how much the druggist wanted for it. Heinz had even offered to pay for it and was not stealing anything else. Heinz should steal the medicine because he will be much happier if he saves his wife, even if he will have to serve a prison sentence. Or: Heinz should not steal the medicine because prison is an awful place, and he would probably experience anguish over a jail cell more than his wife's death. Heinz should steal the medicine because his wife expects it; he wants to be a good husband. Or: Heinz should not steal the drug because stealing is bad and he is not a criminal; he tried to do everything he could without breaking the law, you cannot blame him. Heinz should not steal the medicine because the law prohibits stealing, making it illegal. Or: Heinz should steal the drug for his wife but also take the prescribed punishment for the crime as well as paying the druggist what he is owed. Criminals cannot just run around without regard for the law; actions have consequences. Heinz should steal the medicine bcoz everyone has a right to choose life, regardless of the law. Or: Heinz should not steal the medicine because the scientist has a right to compensation. Even if his wife is sick, it does not make his actions right. Heinz should steal the medicine, because saving a human life is a more fundamental value than the property rights of another person. Or: Heinz should not steal the medicine, because others may need the medicine just as badly, and their lives are equally significant.

SELF-INTEREST

CONFORMITY

LAW-AND-ORDER

HUMAN RIGHTS

UNIVERSAL HUMAN ETHICS

Consumer Protection Act


To Promote & Protect the Rights of Consumers
the right to be protected against the marketing of goods and services which are hazardous to life and property
the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as the case may be so as to protect the consumer against unfair trade practices the right to be assured access to a variety of goods and services at competitive prices the right to be heard and to be assured that consumer's interests will receive due consideration at appropriate forums the right to seek redressal against unfair trade practices or restrictive trade practices or unscrupulous exploitation of consumers the right to consumer education
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Organization & its Employees


Rational organizations Hierarchical Political organizations Family-run businesses or SMEs Caring organizations - NGOs

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Rights & Obligations of Employees


Employees duty-bound under law of agency
Specifies Legal duties of employees (agents) Towards their employers (principals) Prohibits the agent (employees) To act in conflicts of interests with those of the principal (employer)

Rights & duties (obligations to perform) are reciprocal


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Conflicts of interests
Circumstance where an individual whose personal interest might benefit from his/her actions or influence
Egs. Unstructured Reporting lines, Nepotism, Gifts

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Code of Conduct
Reward and punishment policy Negligent and fraudulent practice Discrimination and unfair practice Wrong communication and harmful campaign

against competitors

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Ethisphere
Worlds Most Ethical (WME) Companies
Accenture, Capgemini eBay GE UPS Visa Wipro

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Organisation & natural Environment


Liveable cities And communities ENVIRONMENT
Long-term Environmental practices A better quality Of life for all Members of society

ME

SOCIETY

Business practices With low Environmental impact

Economic development Combined with sustainable Transport systems bringing Solid economic growth

Social inclusion Bringing Economic prosperity

ECONOMY
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Sustainable Development
According to the UN, sustainable development meets the needs of the present without sacrificing the ability of future generations to meet their own needs. Solutions must meet social, environmental and economic goals simultaneously to satisfy the triple bottom line
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Environmental sustainability
Our Common Future
CONSUMPTION OF RENEWABLE RESOURCES More than natures ability to replenish STATE OF ENVIRONMENT SUSTAINABILITY

Environmental degradation Not sustainable

Equal to natures ability to replenish

Environmental equilibrium

Steady state economy


Environmentally sustainable

Less than natures ability to Environmental Renewal replenish

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ENVIRONMENT (PROTECTION) ACT, 1986


"environment"
includes water, air and land and the inter- relationship which exists among and between water, air and land, and human beings, other living creatures, plants, micro-organism and property;

"environmental pollutant"
means any solid, liquid or gaseous substance present in such concentration as may be, or tend to be, injurious to environment;

"environmental pollution"
means the presence in the environment of any environmental pollutant;

"handling", in relation to any substance,


means the manufacture, processing, treatment, package, storage, transportation, use, collection, destruction, conversion, offering for sale, transfer or the like of such substance;

"hazardous substance"
means any substance or preparation which, by reason of its chemical or physico-chemical properties or handling, is liable to cause harm to human beings, other living creatures, plant, micro-organism, property or the environment;

"occupier", in relation to any factory or premises,


means a person who has, control over the affairs of the factory or the premises and includes in relation to any substance, the person in possession of the substance
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Green Marketing
Marketing of environmentally safe products Promotional activities aimed at taking advantage of the changing consumer attitudes toward a brand

OCS

What is green washing?


Disinformation disseminated by an organization so as to present an environmentally responsible public image.

Green washing, a term derived from the term whitewashing

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Green washing: firms examples


General Motors
Falsely promoted its cars as environmentally friendly.

Ads with GM SUVs in natural habitats as if they were as natural as the surrounding trees.

19

Conclusion
Educate your customers and give them an opportunity to participate. Be authentic Dont use green washing

Marketing can really be green!


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Environmental Impact Assessment (EIA)


Possible environmental impacts of a proposed project Decision makers may decided whether to proceed or not IEIA defines it as the process of identifying, predicting, evaluating and mitigating the biophysical, social and other relevant effects of development proposals prior to major decisions being taken and commitments made.
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Corporate Social Responsibility


Involves responsibilities outside of making a profit Corporate social responsibility
Obligation and accountability

Corporate social responsiveness


Action, activity

Corporate social performance


Outcomes, results
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Activities to be included in CSR Policy


Schedule VII of the bill provides for following activities to be included in CSR Policy of the companies:
Eradicating extreme hunger and poverty Promotion of education Promoting gender equality and improving maternal health Reducing child mortality and improving maternal health Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases Employment enhancing vocational skills Social business projects Contribution to the Prime Ministers National Relief Fund or any other fund set up by the central government or the state governments for socio-economic development and relief and fund for the welfare of the SCs, STs, OBCs, minorities and women
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Carolls Four part definition of CSR


Responsibility Economic Societal Expectation Required Examples Be profitable. Maximize sales, minimize cost etc. Obey laws and regulations Do what is right, just and fair Be a good corporate citizen

Legal

Required

Ethical
Discretionary (Philanthropic)

Expected
Desired / Expected
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Multiple Stakeholder theory

Edward Freeman
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Ackermans Model
PHASE I

Chief Executive will identify the social problem Company hires the staff to study the problem and suggest the solution Division managers implement the solution
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PHASE II

PHASE III

London Group Benchmarking (LGB) model


Inputs
How? Cash, time, in-kind, management costs

Outputs
Communities benefits: Numbers helped

Impacts
Community impacts: How communities are better-off

Why?

Charitable gift, Community investment, commercial initiative

Leverage: Extra funds raised

What? Cause eg. Health, people Where? Location

Business benefits: Emp. engagement, press coverage

Business impacts: How the company is better-off

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Trusteeship (Gandhism)
"Supposing I have come by a fair amount of wealth either by way of legacy, or by means of trade and industry I must know that all that wealth does not belong to me; what belongs to me is the right to an honourable livelihood, no better than that enjoyed by millions of others. The rest of my wealth belongs to the community and must be used for the welfare of the community.
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Muhammad Yunus
Bangladeshi Banker Nobel Peace Prize Micro credit & micro finance Yunus Social Business (YSB) Incubator funds

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Dow Jones Sustainability Index


Estd. in Sept 1999 Evaluates sustainability performance Largest 2,500 companies listed on DJ Global Total Stock Market Index S&P Dow Jones and RobecoSAM (Sustainability Asset Management) SEE analysis Assessing issues:
Corporate governance Risk management Branding Climate change mitigation Supply chain standards Labor practices
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Criteria & Weightings


Criteria Economic dimension: 33% Environmental dimension: 33% Social dimension: 33% Social dimension Weightings Industry criteria: 57% General criteria: 43%

Environmental dimension Environmental reporting Industry-specific criteria

Weightings in percentages 3.0 Depends on industry


Weightings in percentage

Weightings in percentages

Human-capital development
Talent attraction and retention Labor practice indicators

Economic dimension Corporate governance 6.0 Risk and crisis management 6.0

5.5
5.5 5.0

Corporate citizenship / philanthropy


Social reporting Industry-specific criteria

3.0
3.0 Depends on industry
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Codes of conduct/compliance/a 6.0 nti-corruption and bribery Industry-specific criteria

Depends on industry

Complexity of Ethical Issues

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Merger (For & Against)

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Ethical Views on
Bribery Child Labour Wages

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Values
Fundamental beliefs Principles for good, right and just Evaluate something vis--vis a Standard Integrity, Patriotism, Fairness

OCS

Morals
Values attributing to a system of beliefs Values derived from a higher authority Religious system or political system

OCS

Understanding Ethics
Greek word ethos meaning character Right and wrong conduct Studies moral behavior and how one should act a set of concepts and principles that guide us in determining what behavior helps or harms others

OCS

Business Ethics
Study and examination of moral and social responsibility in relation to - business practices - decision-making in business

OCS

Ethical Business Practices (1 of 2)


Investors:
Ensuring safety of their money and timely payment of interest.

Employees:
Provision of fair opportunities in promotions and training, good working environment and timely payment of salaries.

Customer:
Complete information of the service and product should be made available. Personal information of the customers should not be used for personal gain.
OCS

Ethical Business Practices (2 of 2)


Competition:
Unscrupulous tactics, competitor bashing and wrong methods should be avoided while handling competitors.

Government:
Rules and regulations regarding taxes, duties, restrictive and monopolistic trade practices and unlawful activities like corruption and bribing should be adhered to.

Environment:
Polluting industries should ensure compliance with the government norms regarding air, water and noise pollution.
OCS

Ethical Absolutism
Certain actions are absolutely right or wrong Consequences or intentions are irrelevant Eg. Stealing A principle which never ought to be violated

OCS

Ethical Relativism
Differences in judgments across different people & cultures
Meta-ethics Normative ethics Applied ethics

OCS

Three major areas in Ethics


1) Meta-ethics when people disagree, nobody is objectively right or wrong Eg. "How can we tell what is good from what is bad?

2) Normative ethics practical means of determining a moral course of action nobody is right or wrong; need to tolerate others Eg. "What should one do?"
3) Applied ethics how moral outcomes can be achieved in specific situations
OCS

Applied Ethics
Euthanasia Abortion Death penalty Gay / Lesbian marriage
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Normative Ethics
Teleological Ethics Deontological Ethics

OCS

Teleological Ethics or Consequentialism


Ends or consequences of an act determine whether an act is good or evil A morally right act (or omission) is one that will produce a good consequence Whatever comes of our actions determines whether it was good or bad Eg. Bosss red tie does not suit him

OCS

Deontological ethics or NonConsequentialism


Kantian Right Judges the morality of an action based on the action's adherence to rules Rules bind you to your duty Categorical Imperative true in all circumstances
Rules must be universal Rules must respect humans
OCS

Positive & Negative Rights


Positive rights are given to you Oblige action Eg. Food, Public education Negative rights that you have, that cannot be taken away Oblige inaction Eg. Freedom of Speech, Fair trial
OCS

Ethics of Justice
Chooses solution that seems to damage the least number of people Distributive Justice Retributive Justice Compensatory Justice

OCS

Distributive Justice
Perceived fairness of how rewards are distributed across group members Types of Distributive Norms
Equity Equality Power Need Responsibility
OCS

Retributive Justice
Two distinct types
Amount of punishment proportionate to amount of harm caused by the offence Amount of punishment proportionate to amount of unfair advantage gained by the wrongdoer

OCS

Compensatory Justice
Fairness rendered an entity compensates a party who they have injured for the suffering caused Compensatory justice is limited to the extent of the loss suffered

OCS

Ethics of Care Law & Morality


Kohlberg Model Gilligan Model

OCS

Kohlbergs 6 stages of Moral development


LEVEL PRECONVENTIONAL STAGE STAGE I Obedience STAGE II Self-interest CHARACTERISTICS Obedience and Punishment orientation (How can I avoid punishment?) Social contract orientation

CONVENTIONAL

STAGE III Conformity


STAGE IV Law-and-order

Interpersonal Accord and Conformity (Social norms, The good boy/girl attitude)
Authority and social-order maintaining orientation (Law and Order morality) Self-interest orientation (Whats in it for me? Paying for a benefit) Universal ethical principles (Principled conscience)
OCS

POSTCONVENTIONAL

STAGE V Human rights STAGE VI Universal Human ethics

Case Study - Heinz Dilemma


A woman was near death from a special kind of cancer. There was one drug that the doctors thought might save her. It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make, but the druggist was charging ten times what the drug cost him to produce. He paid $200 for the radium and charged $2,000 for a small dose of the drug. The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about $ 1,000, which is half of what it cost. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. But the druggist said, "No, I discovered the drug and I'm going to make money from it."

So Heinz got desperate and broke into the man's store to steal the drug for his wife.
Should Heinz have broken into the laboratory to steal the drug for his wife? Why or why not?

OCS

Heinz Dilemma - Kohlbergs stages of MD


STAGE OBEDIENCE POSSIBLE ARGUMENTS
Heinz should not steal the medicine because he would consequently be put in prison, which would mean he is a bad person. Or: Heinz should steal the medicine because it is only worth $200, not how much the druggist wanted for it. Heinz had even offered to pay for it and was not stealing anything else. Heinz should steal the medicine because he will be much happier if he saves his wife, even if he will have to serve a prison sentence. Or: Heinz should not steal the medicine because prison is an awful place, and he would probably experience anguish over a jail cell more than his wife's death. Heinz should steal the medicine because his wife expects it; he wants to be a good husband. Or: Heinz should not steal the drug because stealing is bad and he is not a criminal; he tried to do everything he could without breaking the law, you cannot blame him. Heinz should not steal the medicine because the law prohibits stealing, making it illegal. Or: Heinz should steal the drug for his wife but also take the prescribed punishment for the crime as well as paying the druggist what he is owed. Criminals cannot just run around without regard for the law; actions have consequences. Heinz should steal the medicine bcoz everyone has a right to choose life, regardless of the law. Or: Heinz should not steal the medicine because the scientist has a right to compensation. Even if his wife is sick, it does not make his actions right. Heinz should steal the medicine, because saving a human life is a more fundamental value than the property rights of another person. Or: Heinz should not steal the medicine, because others may need the medicine just as badly, and their lives are equally significant.

SELF-INTEREST

CONFORMITY

LAW-AND-ORDER

HUMAN RIGHTS

UNIVERSAL HUMAN ETHICS

Consumer Protection Act


To Promote & Protect the Rights of Consumers
the right to be protected against the marketing of goods and services which are hazardous to life and property
the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as the case may be so as to protect the consumer against unfair trade practices the right to be assured access to a variety of goods and services at competitive prices the right to be heard and to be assured that consumer's interests will receive due consideration at appropriate forums the right to seek redressal against unfair trade practices or restrictive trade practices or unscrupulous exploitation of consumers the right to consumer education
OCS

Organization & its Employees


Rational organizations Hierarchical Political organizations Family-run businesses or SMEs Caring organizations - NGOs

OCS

Rights & Obligations of Employees


Employees duty-bound under law of agency
Specifies Legal duties of employees (agents) Towards their employers (principals) Prohibits the agent (employees) To act in conflicts of interests with those of the principal (employer)

Rights & duties (obligations to perform) are reciprocal


OCS

Conflicts of interests
Circumstance where an individual whose personal interest might benefit from his/her actions or influence
Egs. Unstructured Reporting lines, Nepotism, Gifts

OCS

Code of Conduct
Reward and punishment policy Negligent and fraudulent practice Discrimination and unfair practice Wrong communication and harmful campaign

against competitors

OCS

Case Studies
Case I: Mfg realty land Case II: Forced VRS schemes Whistle blower Apparel industry Medical negligence

Theft of personal data in a BPO


Mining
OCS

Ethisphere
Worlds Most Ethical (WME) Companies
Accenture, Capgemini eBay GE UPS Visa Wipro

OCS

Organisation & natural Environment

OCS

Organisation & natural Environment


Liveable cities And communities ENVIRONMENT
Long-term Environmental practices A better quality Of life for all Members of society

ME

SOCIETY

Business practices With low Environmental impact

Economic development Combined with sustainable Transport systems bringing Solid economic growth

Social inclusion Bringing Economic prosperity

ECONOMY
OCS

Sustainable Development
According to the UN, sustainable development meets the needs of the present without sacrificing the ability of future generations to meet their own needs. Solutions must meet social, environmental and economic goals simultaneously to satisfy the triple bottom line
OCS

Environmental sustainability
Our Common Future
CONSUMPTION OF RENEWABLE RESOURCES More than natures ability to replenish STATE OF ENVIRONMENT SUSTAINABILITY

Environmental degradation Not sustainable

Equal to natures ability to replenish

Environmental equilibrium

Steady state economy


Environmentally sustainable

Less than natures ability to Environmental Renewal replenish

OCS

ENVIRONMENT (PROTECTION) ACT, 1986


"environment"
includes water, air and land and the inter- relationship which exists among and between water, air and land, and human beings, other living creatures, plants, micro-organism and property;

"environmental pollutant"
means any solid, liquid or gaseous substance present in such concentration as may be, or tend to be, injurious to environment;

"environmental pollution"
means the presence in the environment of any environmental pollutant;

"handling", in relation to any substance,


means the manufacture, processing, treatment, package, storage, transportation, use, collection, destruction, conversion, offering for sale, transfer or the like of such substance;

"hazardous substance"
means any substance or preparation which, by reason of its chemical or physico-chemical properties or handling, is liable to cause harm to human beings, other living creatures, plant, micro-organism, property or the environment;

"occupier", in relation to any factory or premises,


means a person who has, control over the affairs of the factory or the premises and includes in relation to any substance, the person in possession of the substance
OCS

Green Marketing
Marketing of environmentally safe products Promotional activities aimed at taking advantage of the changing consumer attitudes toward a brand

OCS

What is green washing?


Disinformation disseminated by an organization so as to present an environmentally responsible public image.

Green washing, a term derived from the term whitewashing

16

Green washing: firms examples


General Motors
Falsely promoted its cars as environmentally friendly.

Ads with GM SUVs in natural habitats as if they were as natural as the surrounding trees.

19

Conclusion
Educate your customers and give them an opportunity to participate. Be authentic Dont use green washing

Marketing can really be green!


20

Case Study
Environmental Sustainability initiatives at HCL Infosystems

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Ethics in Business functions


Marketing Finance Strategy HR Advertising

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Case Studies
I] Environmental Sustainability initiatives at HCL Infosystems II] Coca Cola

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Environment & social impact of projects

OCS

Environmental Impact Assessment (EIA)


Possible environmental impacts of a proposed project Decision makers may decided whether to proceed or not IEIA defines it as the process of identifying, predicting, evaluating and mitigating the biophysical, social and other relevant effects of development proposals prior to major decisions being taken and commitments made.
OCS

Mega-projects
Cost more than USD 1 billion Substantial impact on communities and environment Airport Building projects Oil and Gas Nuclear Power plant Dam and hydroelectric projects
OCS

Corporate Social Responsibility


Involves responsibilities outside of making a profit Corporate social responsibility
Obligation and accountability

Corporate social responsiveness


Action, activity

Corporate social performance


Outcomes, results
OCS

Carolls Four part definition of CSR


Responsibility Economic Societal Expectation Required Examples Be profitable. Maximize sales, minimize cost etc. Obey laws and regulations Do what is right, just and fair Be a good corporate citizen

Legal

Required

Ethical
Discretionary (Philanthropic)

Expected
Desired / Expected
OCS

Multiple Stakeholder theory

Edward Freeman
OCS

Ackermans Model
PHASE I

Chief Executive will identify the social problem Company hires the staff to study the problem and suggest the solution Division managers implement the solution
OCS

PHASE II

PHASE III

London Group Benchmarking (LGB) model


Inputs
How? Cash, time, in-kind, management costs

Outputs
Communities benefits: Numbers helped

Impacts
Community impacts: How communities are better-off

Why?

Charitable gift, Community investment, commercial initiative

Leverage: Extra funds raised

What? Cause eg. Health, people Where? Location

Business benefits: Emp. engagement, press coverage

Business impacts: How the company is better-off

OCS

Trusteeship concept of Mahatma Gandhi


To promote relationship
No life without relationship

Neighborliness in all walks of life


Life is not divided into water-tight compartments

A means of radical Social change


All should be treated equal

Change of heart
Prince and pauper

Human Dignity and clarity Mutuality and Well-being Promote Relationship


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Trusteeship concept of Mahatma Gandhi


Everything must be surrendered to God; then use only what is necessary for Gods creation. When an individual had more than his respective portion, he becomes a trustee of that portion for Gods people. Non violent way of resolving all social and economic conflicts. Does not want to destroy capitalists like Marxism, but reform it. Min n max wage limit
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Trusteeship concept of Mahatma Gandhi


Supposing I have come by a fair amount of wealth either by way of legacy, or by means of trade and industry I must know that all that wealth does not belong to me; what belongs to me is the right to an honourable livelihood, no better than that enjoyed by millions of others. The rest of my wealth belongs to the community and must be used for the welfare of the community.
OCS

Indices for CSR


OCS

Dow Jones Sustainability Group Index


Estd. in Sept. 1999 Evaluates sustainability performance of the largest 2,500 companies DJ Global Total Stock Market Index Managed by S&P DJ and RobecoSAM (Sustainable Asset Management) Base on analysis of corporate economic, environmental and social performance Issues assessed:
Corporate governance Risk management Branding Climate change mitigation Supply chain standards Labor practices
OCS

Criteria & weightings used by SAM


Criteria Economic dimension: 33% Weightings Industry criteria: 57% General criteria: 43%

Environmental dimension Environmental reporting Industry-specific criteria 3.0

Weightings in percentages Depends on industry

Environmental dimension: 33%


Social dimension: 33%

Economic dimension Corporate governance 6.0 6.0

Weightings in percentage

Social dimension Human-capital development Talent attraction and retention Labor practice indicators Corporate citizenship / philanthropy Social reporting

Weightings in percentages
5.5 5.5 5.0 3.0 3.0 Depends on industry

Risk and crisis management


Codes of conduct/compliance/a nti-corruption and bribery Industry-specific criteria

6.0

Depends on industry

Industry-specific criteria
OCS

Business of Mohammad Yunus


Bangladeshi banker, Nobel Peace Prize recepient Microcerdit and microfinance Poor entrepreneurs Yunus Social Business (YSB) Global initiatives Social Business Incubator Funds

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Prisoners Dilemma
why two individuals might not cooperate, even if it appears that it is in their best interests to do so If A and B both betray the other, each of them serves 2 years in prison If A betrays but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa) If A and B both remain silent, both of them will only serve 1 year in prison (on the lesser charge)
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Prisoner's dilemma
Competitor B Does not advertise Competitor B Does advertise Prisoner A: Loses out Prisoner B: Reaps benefit Suckers punch, Temptation

Competitor A Does not advertise

Rewards payoff

Competitor A Does advertise

Competitor A: Reaps benefit Competitor B: Loses out Temptation, Suckers punch

Punishment Payoff

T>R>P>S
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Corporate Governance
History Corporate objectives & goals Ownership pattern Issues in managing public limited firms Stewardship concept Agency model

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History
Mega American collapsing Corporate mis-governance between 1951-91

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Corporate Governance
Systems by which corporations are directed, administered or controlled

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Agency Theory
Relationship between shareholders (principal) and managers (agent) Principal hires agents to perform work Agents may not necessarily make decisions in the best interest s of the principals

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Stewardship theory
Steward protects and maximizes shareholders wealth through firms performance Unifying the role of Chairman & CEO

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Principles of Corporate Governance (OECD Committee Recommendations)


Rights and equitable treatment of shareholders:
Respect the rights of shareholders and help shareholders to exercise those rights

Interests of other stakeholders:


Recognize obligations to non-shareholder stakeholders

Role and responsibilities of the board:


Board needs sufficient relevant skills to review and challenge management performance

Integrity and ethical behavior:


Develop a code of conduct that promotes ethical and responsible decision making

Disclosure and transparency:


Disclosure and transparency in financial reporting. Disclosure of material matters to all investors
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Corporate governance models


Continental Europe: 2-tiered board
Executive Board, runs day-to-day operations Non-Executive Board, supervisory board

India
Shareholders true owners of the company Managements role as trustees

US, UK (Anglo-American model):


Unitary system, single-tiered BoD

Japan:
Multiple stakeholder model
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Internal corporate governance controls


Monitoring by the board of directors Internal control procedures and internal auditors

Balance of power
Remuneration Monitoring by large shareholders and/or monitoring by banks and other large creditors
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External corporate governance controls


Competition Debt covenants Demand for and assessment of performance information Government regulations Managerial labour market Media pressure Takeovers
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Important Indian Regulators


Advertising Standards Council of India (ASCI) Competition Commission of India (CCI) Directorate General of Civil Aviation (DGCA) Central Electricity Regulatory Commission (CERC) Institute of Chartered Accountants of India (ICAI) Insurance Regulatory and Development Authority (IRDA) Medical Council of India (MCI) Reserve Bank of India (RBI) Securities and Exchange Board of India (SEBI) Telecom Regulatory Authority of India (TRAI)
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Corporate governance collapse Early 1990s


Wallpaper group Coloroll

Asil Nadirs Polly Peck

Bank of Credit & Commerce Intl

Maxwell Group
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Cadbury report (UK, 1992)


Clear division of responsibilities at the top
Position of Chairman be separated from CEO

Majority of the Board be comprised of outside directors

Remuneration committees for Board members be made up in the majority of non-executive directors Board should appoint an Audit Committee incl. at least three non-executive directors

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Corporate governance collapse Early 2000s

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Sarbanes-Oxley Act or SOX Act (US, 2002)


1. Section 302: Disclosure Controls - A mandate that requires senior management to certify the accuracy of the reported financial statement 2. Section 303: Improper Influence on Control of Audits - unlawful to influence or manipulate audit performance 3. Section 401: Disclosures in periodic reports (off-balance sheet items)

4. Section 404: Assessment of internal control - A requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls.

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Credit Rating Agencies in India


Credit Rating Information Services of India Limited (CRISIL)
Fitch Ratings India Private Ltd.

Investment Information and Credit Rating Agency of India Limited (ICRA)


Credit Analysis & Research Ltd. (CARE) Brickwork Ratings India Private Limited SME Rating Agency of India Ltd. (SMERA)
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Corporate Governance awards


Asiamoneys annual Corporate Governance Poll 2013 votes Infosys as the best in several categories including Best Overall for Corporate Governance and Best for Investor Relations

Yes Bank receives Golden Peacock Global Business Excellence Award 2013
Indian Oil Corporation and HCL Technologies have been conferred with the Institute of Company Secretaries of Indias national award for excellence in corporate governance
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Kinds of Takeover
I. LEGAL CONTEXT Friendly or Negotiated Takeover Hostile Takeover

II. BUSINESS CONTEXT


Horizontal Takeover: Vertical takeover: Conglomerate takeover:

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Kumar Mangalam Birla Committee Report


3 key constituents:
Shareholders Board of Directors Management

Objective
enhancement of shareholder value, keeping in view the interests of other stakeholder

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Kumar Mangalam Birla Committee Report


Board of Directors
Directs, controls, lays down code of conduct, accountable Composition Independent directors Nominee Directors Chairman

Audit Committee Accounting standards and Financial Reporting


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Naresh Chandra Committee


14-member task force to review defense mgmt. Kargil Review Committee Recommendations (May 2012):
Intelligence Advisor & National Intelligence Board Prevention of Corruption Act to reassure honest officers Permanent Chairman of the Chiefs of Staff Committee National Intelligence Grid & National Counter Terrorism Centre Deputation of officers from services up to director's level in Ministry of Defense Measures to augment the flow of foreign language experts into the intelligence and security agencies, which face a severe shortage of trained linguists Promotion of synergy in civil-military functioning to ensure integration. To begin with, the deputation of armed services officers up to director level in the Ministry of Defence should be considered. Early establishment of a National Defence University (NDU) and the creation of a separate think-tank on internal security.

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Risks
Corporate Frauds Money Laundering FEMA

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Clause 49
http://www.nseindia.com/getting_listed/cont ent/clause_49.pdf

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Dr. J. J. Irani Committee Report


Dr. J. J. Irani Committee Report on Company Law, 2005 The Government of India constituted an expert committee on company law on 2 December 2004 under the chairmanship of Dr. J. J. Irani to make recommendations on (i) responses received from various stakeholders on the concept paper; (ii) issues arising from the revision of the Companies Act, 1956; (iii) bringing about compactness by reducing the size of the Act and removing redundant provisions; (iv) enabling easy and unambiguous interpretation by recasting the provisions of the law; (v) providing greater flexibility in rule making to enable timely response to ever-evolving business models; (vi) protecting the interests of the stakeholders and investors, including small investors;

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Dr. J. J. Irani Committee Report (Contd)


Independent Directors in Listed Companies
Comprise of one-third of the board

Pyramidal Structures
A co. of a subsidiary holding co. could itself be a holding co.

Power to Shareholders
Shareholder approval and disclosures regime Least legal and government intervention in co. decisions

Single Person Company Self-regulation Stringent Penalties Accounts and Audits Strong Governance Standards
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REFERENCE BOOKS Ethics in Business & Corporate Governance: Corporate Governance Principles, Mechanisms & Practice Business Ethics & Corporate Governance Business Ethics: Concepts and Cases Sixth Edition Business Ethics Managing corporate citizenship and sustainability in the age of globalisation - Second Edition Business Ethics & Corporate Governance Corporate Governance

AUTHOR / PUBLICATION S.K. Mondal ,Tata Mcgraw Hill, Edition 2010 Swamy Dr. Partha Sarathi, Biztantra 2010 Indian Text Edition An Indian Perspective A. C. Fernando Pearson Education Manuel G. Velasquez Andrew Crane, Dirk Matten - Oxford University Press IUP T .N. Satheesh Kumar - Oxford University Press, 2010

Business @ Governance & Sustainability

The Institute of Company Secretaries of India (Taxmann), 2010


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Thank You
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