Ethics, Corporate Governance & Social Responsibility

Question: Ans: Ethics are the moral principles and values that underpin human behaviour. Morals are concerned with what is 'right' or 'wrong'. Business ethics are, therefore, the moral principles that underpin business behaviour. Whether actions carried out by organizations and their employees are morally acceptable must, however, be judged in the context of the society and the times in which they operate. An ethical business is one which applies a set of moral principles to all interactions with stakeholders, such as its treatment of employees, customers, suppliers and shareholders. Being ethical means a business goes beyond merely complying with laws and regulations, but makes choices about what it is prepared to do, and what it will not. Therefore, an ethical business strategy may exclude behaviour, which is legal, but conflicts with the businesses ethical policy. Setting ethical objectives is the process by which organizations apply ethical values to their targets and the actions by which they will achieve them. These ethical values should cover all the actions of the organization from tactical to strategic. Businesses may be faced with some of the following issues, which have ethical dimensions: Should we produce in a low-cost developing economy? Should we promote products that might damage health? Should we seek to undermine our competitors? Should we pay minimum wage rates to our employees? Should we employ migrant labour to cut costs? Should we transfer our production units to countries with less strict health and safety laws? Mention the various objectives of ethics.

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What do you mean by ethical codes? How do these help business organizations?

A code of business ethics often focuses on social issues. It may set out general principles about an organization's beliefs on matters such as mission, quality, privacy, or the environment. The effectiveness of such codes of ethics depends on the extent to which management supports them with sanctions and rewards. Violations of a private organization's code of ethics usually can subject the violator to the organization's remedies (such as restraint of trade based on moral principles). The code of ethics links to and gives rise to a code of conduct for employees. Basically business ethics deal with the moral beliefs of the owners of the business towards the employees. Code of ethics focus on social issue of organization. It focuses on development of business, mission of business, plan of business development; it determines privacy, environment and great plan to deliver business at the top level.

A code of ethics is a set of principles and rules used by companies, professional organizations and individuals to govern their decision making in choosing between right and wrong. Depending on the context of a given code of ethics, penalties and/or sanctions may result from a violation. Codes of ethics are generally used in the business and professional context to assure the public that corporations and members of regulated professions are acting in a socially and professionally acceptable manner. Organizations with an established and published code of ethics have in place review processes and appeals procedures to guard against malicious or self-serving use of the code for individual benefit.

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What is the need for business ethics?

Stop business malpractices: Some unscrupulous businessmen do business malpractices by indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, etc. These business malpractices are harmful to the consumers. Business ethics help to stop these business malpractices. Improve customers' confidence: Business ethics are needed to improve the customers' confidence about the quality, quantity, price, etc. of the products. The customers have more trust and confidence in the businessmen who follow ethical rules. Survival of business: Business ethics are mandatory for the survival of business. The businessmen who do not follow it will have short-term success, but they will fail in the long run. So, it is always better to follow appropriate code of conduct to survive in the market. Safeguarding consumers' rights: The consumer has many rights such as right to health and safety, right to be informed, right to choose, right to be heard, right to redress, etc. But many businessmen do not respect and protect these rights. Business ethics are must to safeguard these rights of the consumers. Protecting employees and shareholders: Business ethics are required to protect the interest of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation through unfair trade practices. Creates good image: Business ethics create a good image for the business and businessmen. If the businessmen follow all ethical rules, then they will be fully accepted and not criticized by the society. The society will always support those businessmen who follow this necessary code of conduct. Smooth functioning: If the business follows all the business ethics, then the employees, shareholders, consumers, dealers and suppliers will all be happy. So they will give full cooperation to the business. This will result in smooth functioning of the business. Consumer satisfaction: Today, the consumer is the king of the market. Any business simply cannot survive without the consumers. Therefore, the main aim or objective of business is consumer satisfaction.

Healthy competition: The business must use business ethics while dealing with the competitors. They must have healthy competition with the competitors. They must not do cut-throat competition. Similarly, they must give equal opportunities to small-scale business. They must avoid monopoly. This is because a monopoly is harmful to the consumers.

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What are the major ethical issues that business people face?

As more organizations are finding that ethical training helps business owners run an effective workplace, the importance of understanding what ethical issues business people face has increased. Employee Behavior

From large corporations to small businesses, individuals involved in all types of business often face ethical issues stemming from employee behavior. For example, whether an employee can spend work time checking personal email accounts, how a manager deals with claims of harassment and to what extent a manager can "groom" a certain employee for a promotion are all examples of ethical issues regarding employee behavior. There are legal consequences for some unethical employee behavior. Small business owners can help to prevent ethical problems stemming from employee behavior by drafting a clear, attorney-reviewed set of standards that dictate behavior policies for employees at all levels. Employee Working Conditions

In addition to employee behavior, there are a number of ethical issues business people must consider about employee working conditions. For example, employers must be aware of the safety of their work environment and if they have compensated employees for all the time they have worked. The must also consider if they have required an employee to work an unreasonably long period of time or if they have him doing an unusually difficult task. Just like there are legal consequences for some unethical issues regarding employee behavior, there are also legal consequences for unethical working conditions. For example, an employer who requires an employee to work without pay or who creates an unsafe working environment can face legal action. Supplier/Customer Relations

In addition employees and business owners must consider the ethical issues involved with their relationships between suppliers and customers. Business owners in particular must consider whether it is ethical to do business with suppliers who have unethical practices. When dealing with customers or clients, business people must ensure that they use their information correctly, do not falsely advertise a product or service, and do not intentionally do sub-standard work.

Small Business Ethics

Although there are ethical issues like discrimination that apply to all areas of business, each business area has its own ethical concerns. For example, business people who act as consultants must ensure they are giving sound advice. In the area of small business, some major ethical issues result from hiring, firing and dealing with employees. For example, conflicts of interest may cause ethical issues in small businesses, especially if they are family run. When personal family issues interfere with business decisions, this is a conflict of interest and an ethical concern.

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What are some of the ethical problems faced by managers?

Managers need to be confident about their decisions, because they will inevitably be at odds with someone else's preferences much of the time. Discrimination

Questions of discrimination are common in the workplace, and managers are often called upon to deal with them. Historical discrimination on the basis of race, ethnic origin, gender or sexual orientation has made many individuals sensitive to these problems. Accusations or lawsuits charging discrimination are serious. They may be brought against a company as a whole or a manager as an individual. Good managers make proactive efforts to educate themselves about discrimination and make every effort to avoid discriminating against others, basing their hiring and promotion decisions solely on experience, ability and other relevant factors. Fraud

Fraud is a serious ethical breach in the workplace. A manager who is made aware of fraudulent activities within the workplace is ethically required to report this to the relevant authorities. This can be particularly awkward if the fraud is being perpetrated by the manager's employers. Becoming a whistleblower is not what most managers want to do, but it has to be done if managers are serious about maintaining and promoting an honest and fair workplace. Fraud may also be perpetrated by employees and by managers themselves. Marketing

Marketing is the practice of educating the public about the products or services offered by a business and of convincing the public of the value of these products and services. Because of the huge financial incentive that lies behind effective marketing, there is a strong motive to engage in practices that might be considered dishonest. Managers who work in a marketing environment may be asked to engage in marketing and publicity activities that aren't 100 percent transparent; for example, they might have to develop advertisements that misrepresent a product or hide its negative health effects. 4

Question: Ans:

Discuss the need for corporate governance.

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. The 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. Importance of Social Responsibility: Today, social responsibility is given a lot of importance. The Board of Directors have to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance. 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. 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 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. 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. Takeovers 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. SEBI: SEBI has made corporate governance compulsory for certain companies. This is done to protect the interest of the investors and other stakeholders.

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What are cash and incentive plans in an ethical organization?

Employees should be given fair wages related to standard of living. If fair wages are not provided, ethical practices may not prevail. The employees will take the undue advantage of poor compensation to indulge in poor work, absenteeism and other unethical practices. For equal work, there should be equal 5

pay. Inequalities in wages are not justified for the same type of job. Ethics requires incentives for better performance and higher qualifications. In any pay system, there should be fairness or equity. Incentives and rewards are a key component in any performance management system. In the present environment characterized by globalization, privatization and liberalization, the traditional incentive schemes are not suitable. Some of the non-monetary incentives are gift vouchers citation, quality award, R&D Award, Good Health Award , Long Service Award and Creative Award. Compensation management is integrated with business and human resource management strategy. Therefore, the reward systems should be integrated with overall business plan and strategy. Merit rating should be done in an ethical way. The job factors of a sales person are sales promotion, realization of outstanding, goodwill calls after sales service and investigation of complaints. All these tasks have to be taken into account in merit rating. A well-defined and designed incentive and reward systems can increase productivity. Productivity linked bonus should be designed in a most ethical way. The following precautions have to be taken into account. 1. The tendency of the labourers to speed upeverything, leading to accidents and wastage of resources has to be avoided. 2. The labourers have to give up the practice of inflating their performance. 3. The incentive schemes should not reduce the unity of the workers. The following guidelines are necessary for the ethical implementation of good incentive schemes: 1. The desired positive behaviour at all levels should be supported. 2. The policy should be clearly articulated. The recipients should know what is being rewarded and the reason for reward. 3. The scheme should be adaptable to the changing business conditions. 4. The scheme should be regularly reviewed for effectiveness and achieving the desired results.

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What are the primary benefits of CSR to a company and to the community?

Corporate social responsibility, as an objective, is like the pursuit of happiness. You don't find happiness by trying to be happy. You become happy through the indirect route: by setting goals and achieving them, by looking out for the interests of others, by appreciating and participating in the world around you. CSR is the same; although having the intention to "do the right thing" is important, a company doesn't just wake up one morning and announce, "Hereafter, we will be socially responsible!" Instead, it's the numerous actions and initiatives that, added together, allow a company to say, "We are achieving our purpose."

There are, however, three primary areas in which CSR provides clear benefits. First, there's what I call avoidance of penalties. In today's environment of almost complete transparency, it is virtually impossible to hide corporate missteps. With blogs, cell phone cameras and the 24-hour news cycle, bad news spreads quickly and the penalties for failure are almost always high. While staying out of trouble may not seem like the noblest of objectives, doing so should be a top concern for any business. Fortunately, the steps a company takes in the pursuit of becoming more socially responsibleexamining processes, establishing governance procedures, measuring progress and assessing the impact of initiativeshas the salutary effect of reducing the risk of individual or corporate errors. Secondly, people are also of critical importance. At the end of the day, in order to be successful, all you have is people. While almost everything else in the business world has become commoditized, you absolutely cannot outsource your relationships. Leadership today is really social architecture, or the ability to engage people in working together toward a common purpose. If you want to attract and retain the best workforce, if you want to get the most out of your team, if you want to build a strong corporate culture, you must have a purpose that is bigger than your product. If people truly care about what they're doing, if there are shared values across the corporate ecosystem, great things will happen. Last but not least are customers. This area tends to be the starting point for people when thinking about CSR, but I think it is the last reason you should do this. I am hopeful that over time, customers will be more discretionary with their purchases and increasingly reward companies that are more responsible socially. There are some signs that this is happening. But at the end of the day, people make purchasing decisions on aspects of functionality, convenience, value and personal experience. Clearly, CSR plays some role in your brand DNA. In some regions and some industries, it matters a lot more than in others. Therefore, it is important to understand what role CSR plays in your particular circumstance.