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What are the concepts of Business Ethics ? Elaborate.

Meaning and Ethical Principles in Business


Ethics has become a buzzword in the corporate world. The reason for this is the globalization
and the explosion in the communication in the organization. As a result, the businesses are
focusing more on the ethics part. The rules or the principles of the organization should be
maintained. Business ethics are given much importance nowadays.

Business Ethics

Ethics means the set of rules or principles that the organization should follow. While in the
business ethics refers to a code of conduct that businesses are expected to follow while doing
a business.

Through ethics, a standard is set for the organization to regulate their behaviour. This helps
them in distinguishing between the wrong and the right part of the businesses.

The ethics that are formed in the organization is not any rocket science. They are based on the
creation by a human mind. That is why ethics depend on the influence of the place, time, and
the situation.

Code of conduct is another term that is used extensively in businesses nowadays. It is a set of
rules that are considered as binding by the people working in the organization.

Business ethics compromises of all these values and principles and helps in guiding the
behaviour in the organizations. Businesses should have a balance between the needs of the
stakeholders and their desire to make profits.

While maintaining these balances, many times businesses require to do tradeoffs. To combat
such scenarios, rules and principles are formed in the organization.

This ensures that the businesses gain money without affecting the individuals or society as a
whole. The ethics involved in the businesses reflects the philosophy of that organization.

One of these policies determines the fundamentals of that organization. As a result,


businesses often have ethical principles. There is a list of ethical principles involved in the
businesses.

Ethical Principles in Businesses from an Indian Perspective

Essentially, any businesses that run in India comprises of these ethical principles.

Integrity

Whenever there is great pressure to do right instead of maximizing the profits, this principle
is tested. The executives need to demonstrate the courage and personal integrity, by doing
what-what think is right.
These are the principles, which are upright, honourable. They need to fight for their beliefs.
For these principles, they will not back down and be hypocritical or experience.

Loyalty

No ethical behaviour can be promoted without trust. And for trust, loyalty needs to be
demonstrated. The executives need to be worthy of this trust while remaining loyal to the
institutions and the person. There should be friendship in the time of adversity and support
and devotion for the duty.

They should not use or disclose personal information. This leads to confidence in the
organization. They should safeguard the ability of a professional to make an independent
decision by avoiding any kind of influence or the conflicts of interest.

So, they should remain loyal to their company and their colleagues. When they accept the
other employees, they need to provide a reasonable time to the firm and respect the
proprietary information attach with the previous firm. Thus, they should refuse to take part in
any activity that might take the undue advantage of the firm.

Honesty

The ethical executives are honest while dealing with their regular work. They also need to be
truthful and do not deliberately deceive or mislead the information to others. There should be
avoidance of the partial truths, overstatements, misrepresentations, etc. Thus, they should not
have selective omission by any means possible.

Respect and Concern

These are two necessarily different forms of behaviour in the organization. But they go in
tandem that is why they have been put under one principle. When the executive is ethical he
is compassionate, kind, and caring.

There is one golden rule which states that help those who are in need. Further, seek their
accomplishments in such a manner that the business objectives of the firm are achieved.

The executives also need to show respect towards the employee’s dignity, privacy, autonomy,
and rights. He needs to maintain the interests of all those whose decisions are at stake. They
need to be courteous and treat the person equally and rightly.

Fairness

The executives need not be just fair in all the dealings, but they also should not exercise the
wrong use of their power. They should not try to use over each or other indecent manners to
gain any sort of advantage. Also, they should not take an undue advantage of anything or
other people’s mistakes.

Fair people are inclined more towards justice and ensure that the people are equally treated.
They should be tolerant, open-minded, willing to admit their own mistakes. The executives
should also be able to change their beliefs and positions based on the situation.
Leadership

Any executive, if ethical, should be a leader to others. They should be able to handle the
responsibilities. They should be aware of the opportunities due to their position. The
executives need to be a proper role model for others.

Sample answer 2

Definition and Introduction:

Ethics tells us the way to act in a certain situation not just to achieve a particular objective but
considering everything around us. Business ethics refer to a set of professional or applied
ethics that review or study ethical or moral principles and ethical or moral problems that
appear in any business environment. Issues regarding business ethics arise when there is a
conflict between profit maximizing and the concept of social and legal responsibilities of the
business. Business firms became aware of their ethical state in the ending of 1980s and early
1990s to avoid business scandals like loan and savings crisis.

Basic Concept of Business Ethics:

The basic concepts of business ethics are involved with three different types of moral or
ethical issues. Some concepts focus on the issues covering the function of business within
the environment where the business activates i.e. political, economic, legal and other social
factors. Other concepts focus on the corporate issues, i.e. the issues pertaining to the
functioning of a certain business or company. While the other concepts focus on the
individual issues, i.e. the issues pertaining to the conduct or behaviour of individuals within a
business or company. In this discussion the following concepts will be briefly explained:

 Businesses as a "Corporate Entity”


 Business Ethics considered as “Good”
 Unethical Business Practices
 Moral Rights
 The Concept of Justice

Businesses as a "Corporate Entity":

Business corporations in most of the nations are considered legally as entities or persons, i.e.
the rights and liabilities legally applicable to persons or citizens are also applicable to
business corporations.

The eventual objective of individual ethics is developing a set of ethical standards which can
be held as acceptable after considering everything carefully in a particular situation. These
individually accepted ethical standards can also be applied to different situations such as
personal, social and even in a business. Most of the consumers agree that a business should
follow the same moral standard while interacting with an individual customer as well as
interacting with all customers locally, nationally or globally.
Business Ethics considered as "Good":

Business ethics considered as "Good" requires containing and following a norm of moral
values keeping the expectations and rights of people ahead of the profit maximization of
business. A business’s main goal is to make a profit but peoples’ rights and expectations
should not be ignored. Good business ethics is beneficial for businesses in the following three
ways:

 It Discourages the breaking of laws in business activities.


 It assists businesses to avoid steps for which the company may come under costly civil
lawsuits.
 It demotivates companies to engage in actions which can damage the image of the
company. Good business ethics helps to improve businesses profitability as following ethical
values prevents loss of revenue and company reputation.

Though moral standards are something which goes beyond the legal requirements, some of
them are ascertained by the legal system. There are various laws against fraudulence,
stealing, killing, sexual harassment, and so on.

Unethical Business Practices:

Many big companies have been fined a large amount of money for following unethical
business practices. Unethical business practices go far beyond functions breaking the law.
Many renowned companies are engaged in unethical and questionable practices without
breaking any laws. They follow practices just to increase their profits ignoring the rights of
the consumers, such as, giving less in quantity or quality, selling old or low-quality products
with free gifts, etc.

The businesses have to make a profit but not at the cost of moral or ethical values. Businesses
are ethically responsible for their activities as individuals are responsible for theirs.

Moral Rights:

Generally, a moral right refers to a person’s claim to something. When a person is entitled to
a right, he or she is able to make a decision whether or not to claim such right without
anyone’s permission. The entitlement of moral or ethical rights implies that others have
particular duties towards the person bearing the right.

Negative rights enforce duties on other people not to interfere in your activities which are
right for or important to you. For example, your right to make your own decisions or right to
express your own opinion about anything

Positive rights generate duties on others to give something to the person bearing the right.
They state that others must contribute some benefits to the bearer of the right. For example,
education, you have the right to educate yourself. If you are eligible to get yourself admitted
to a varsity to get an education on a specific subject or do a specific course, the varsity has to
provide you the benefit of education.
The Concept of Justice:

The concepts of justice are based on ethical principles that determine just means of allocating
benefits and burdens to all people of the society. The following beliefs are utilized to
distribute the benefits and burdens in a just or fair way to the people of the society.

Egalitarianism states that all human beings are equal. According to this belief, all the
benefits and burdens of the society should be circulated according to this principle:

“Every person should be given exactly equal shares of a society’s or a group’s benefits and
burdens.”

Utilitarianism states that a just society’s laws and institutions promote the best overall or
average welfare of its members. According to this belief, the greatest benefits for all, and the
society should be organized in such a way that its wealth is allocated to meet everyone’s
basic needs.

Socialist justice, states

“work burdens should be distributed according to people’s abilities, and benefits should be
distributed according to people’s needs.”

It is focuses on equal justice for everyone whether they are poor, middle class or rich.

Capitalist justice states that a person should receive the benefits proportionate to his or her
contribution to the society.

Libertarian justice states that the free market is naturally just, and that redistributive taxation
breaches the property rights of people. This belief is founded on two principles: Principle 1
(Principle of equal liberty) and Principle 2 (Difference principle) both referring how
everyone is responsible for one’s own future not regarding of what happens.

Every business person should follow the business ethics properly because studies prove that
ethically correct business becomes profitable in the long run.

Sample 3

Definition and concept of business ethics

According to HubPages Inc (2013), "Ethics" is a set of principles used to determine what is
"right" when it comes to the conduct or behaviour of an individual. This includes individuals
who are acting on behalf of a business entity. Business ethics involves the application of
moral standards to the systems and organizations through which provide good services to
customer and organizations.

According to http://www.saylor.org in the article that entitled business ethics and social,
business ethics is the application of ethical behaviour in a business context. Acting ethically
in business means more than simply obeying applicable laws and regulations: It also means
being honest, doing no harm to others, competing fairly, and declining to put your own
interests above those of your company, its owners, and its workers
According to Patil (2012), business ethics is a behavior that all businesses stick to. Also
known as corporate ethics. Business ethics concepts are concerned with three different kinds
of moral issues. Some concepts are related to issues involving the conduct of business within
the systems where business operates, including economic, political, legal and other social
systems. Other concepts are concerned with corporate issues which is involving questions
related to the conduct of a particular company. Other concepts are concerned with
examination of individual issues which is where questions are related to the behaviour and
conduct of one or more individuals within a company.

The concepts of business ethics is businesses as

 "corporate" citizens,
 "good" business ethics,
 immoral" business practices,
 what constitutes a moral "right?" and
 ideas about justice.

"Good" business ethics involves having and adhering to a code of moral conduct that places
the rights and expectations of people over and above the "profit motive" of business. Even
though it is the goal of business to make money, the manner in which profit is sought can
come under intense scrutiny if it is believed that the rights of human beings are being
compromised in the process of making money. For this reason, it can result in good business
for companies to practice good business ethics, because moral business practices, in the final
analysis, can be seen as "profitable."

According to Grublein (2012), business ethics is a set of corporate values and codes of
principles, which may be written or unwritten, by which a company evaluates its actions and
business-related decisions. As the definition goes, business ethics can be written or unwritten.
This is because most of the time, ethics business and the criteria for what is good and what is
bad is shaped by a company’s best practices and long-standing culture.

The term of ethics has many differences. It has been defined as inquiry into the nature and
grounds of morality where the term morality is taken to mean moral judgement, standards
and rules of conduct. Ethics also has been called the study and philosophy of human conduct
emphasis on determining right and wrong. Building on this definition, it can begin to develop
a concept of business of ethics. Most people would agree that high ethical standards require
both business and individuals to conform to sound moral principles. Most definition of
business ethics is reference rules, standards and moral principles regarding what is right and
what is wrong in special situations. Business ethics comprises the principles, values and
standards that guide behaviour in the world of business.

Business ethics theories


Description

The utilitarian approach

Business can utilize utilatarian approach to ensuring outcome of various situations to help the
maximum amount of stakeholders in the company. This approach focuses on using ethical
actions or morally right action that will promote the good value among a society. It is also
limiting the amount of harm to as few people as possible.

A rights ethical approach

This approach is based on the belief that all individuals have rights in life and should be
treated with respect and dignity. Morality plays important role in this because individuals
must personally use ethical behavior in order to achieve the goal Business ethics theories
often use this approach by not imposing their missions, products, or systems on consumers.

Justice as an ethical approach

This approach is where all people are treated fairly through society, regardless of race,
position, rank, class or others. Also known as the fairness approach. For example, the
employee who get awards must the good performance and e the est among the employess in
the companies. It must fit the criterion in getting awards.

The common good approach

This approach is to promote the moral or ethical principles that found in a society. Todays,
the ethical principles are different based on the country. It is based on their beliefs and
culture. So, Business owners and managers must implement these principles based on their
country culture because it easily accept and understand by society itself.

The virtue approach

The virtue approach is it difficult for businesses to implement because it is normative. These
principles or virtues seek to replace the current values if they do not bring about the most
good or best development of humanity.

Importance of Business ethics

Business ethics is very importance in business trade. There are some importance of business
ethics which is:

Stop business malpractices

When business ethics is put in the practice, it will stop the business practices. Not all
businessmen involve with business practices but there are some immoral businessman doing
business malpractices. Business malpractices is involve with unfair trade such as black
marketing, selling clone product, selling harmful product and many more that can be harmful
to customers.

Improve customers' confidence

Business ethics are very important in increasing customer confidence about the quality of
product , quantity of products, price of products, and other products that offered by company
or organization. The customers will have confidence and have a trust in doing business that
follows ethics rules. The will safe when doing business or buy the product with those
companies that follows business ethics.
Survival of business

For business survival, business ethics is compulsory. Dealers who do not follow business
ethics usually will have a short term success only. For example they have cheated the
customer at once, but the customer can remember and they will not buy the goods again from
that businessman besides tell to their friends about that cheating. So the image of that
businessman will be negative and leading to failure in the business or in the market. From
that, it is important to follow the business ethics in appropriate ways.

Safeguarding consumers' rights

Businessman must protect or respects to the consumers right. Example of consumer right is
right to choose, right to complain, right to be informed, and others. By applying good
business ethics among businessman, it will safeguard the consumers’ right.

Protecting employees and shareholders

In business ethics, it is required to protect the interest of employees, shareholders, dealers,


suppliers and many more from exploitation through unfair trade practices.

Develops good relations

In developing good relationship between business and society, business ethics is essential.
This will cause a regular supply of good quality items and services at lower prices to the
community. It will also lead to profit for the business thereby causing economic growth.

Creates good image

If a businessman follows all regulations of ethics, then the user acceptance is good. People
can accept the goods from business and will not criticized it besides support the business that
conducted by those businessman. It will create good images to society when implementing
good business ethics.

Consumer satisfaction

The consumer gives a lot contribution in the market. Without consumer, the business cannot
survive in the market. In business transaction, user or consumer satisfaction must take
seriously. When follows the business ethics, the consumer will satisfied to the services then
the business can gain lots of profit.

Healthy competition

Healthy competition will exist in business when the businessman implements business ethics
while dealing with competitor. For example, the businessman will avoid monopoly in
business when practice the business ethics.

Challenges of Business ethics


What are the concepts of Corporate Governance ? Elaborate.

Concept of Corporate Governance Defined:

Corporate governance may be defined as follows:

Corporate governance refers to the accountability of the Board of Directors to all


stakeholders of the corporation i.e. shareholders, employees, suppliers, customers and society
in general; towards giving the corporation a fair, efficient and transparent administration.

Following are cited a few popular definitions of corporate governance:

(1) “Corporate governance means that company managers its business in a manner that is
accountable and responsible to the shareholders. In a wider interpretation, corporate
governance includes company’s accountability to shareholders and other stakeholders such as
employees, suppliers, customers and local community.” – Catherwood.

(2) “Corporate governance is the system by which companies are directed and controlled.” –
The Cadbury Committee (U.K.)

Points of comment:

Certain useful comments on the concept of corporate governance are given below:

(i) Corporate governance is more than company administration. It refers to a fair, efficient
and transparent functioning of the corporate management system.

(ii)Corporate governance refers to a code of conduct; the Board of Directors must abide by;
while running the corporate enterprise.

(iii)Corporate governance refers to a set of systems, procedures and practices which ensure
that the company is managed in the best interest of all corporate stakeholders.

1. Fairness
The board of directors should treat all stakeholders fairly and equitably.

2. Independence
Each director should be independent. There should be no conflict of interest. For example, it
would not be good for a director to get involved in the sale of an asset to another company, if
he/she was a director of that other company too.

3. Honesty
The directors must protect the shareholders interests in the organisation, and should give
confidence to the shareholders that their interests are being protected.

4. Transparency
The directors should disclose material information in a timely and accurate manner.
5. Accountability
Those who control the business (i.e. directors) should be accountable to those who own the
business (i.e. shareholders)

6. Integrity
Moral and ethical issues should be considered when making decisions relevant to the
organisation.

7. Responsibility
The board of directors should ensure the organisation complies with the relevant laws where
it operates.

Need for Corporate Governance:

The need for corporate governance is highlighted by the following factors:

(i) Wide Spread of Shareholders:

Today a company has a very large number of shareholders spread all over the nation and even
the world; and a majority of shareholders being unorganised and having an indifferent
attitude towards corporate affairs. The idea of shareholders’ democracy remains confined
only to the law and the Articles of Association; which requires a practical implementation
through a code of conduct of corporate governance.

(ii) Changing Ownership Structure:

The pattern of corporate ownership has changed considerably, in the present-day-times; with
institutional investors (foreign as well Indian) and mutual funds becoming largest
shareholders in large corporate private sector. These investors have become the greatest
challenge to corporate managements, forcing the latter to abide by some established code of
corporate governance to build up its image in society.

(iii) Corporate Scams or Scandals:

Corporate scams (or frauds) in the recent years of the past have shaken public confidence in
corporate management. The event of Harshad Mehta scandal, which is perhaps, one biggest
scandal, is in the heart and mind of all, connected with corporate shareholding or otherwise
being educated and socially conscious.

The need for corporate governance is, then, imperative for reviving investors’ confidence in
the corporate sector towards the economic development of society.

(iv) Greater Expectations of Society of the Corporate Sector:

Society of today holds greater expectations of the corporate sector in terms of reasonable
price, better quality, pollution control, best utilisation of resources etc. To meet social
expectations, there is a need for a code of corporate governance, for the best management of
company in economic and social terms.
(v) Hostile Take-Overs:

Hostile take-overs of corporations witnessed in several countries, put a question mark on the
efficiency of managements of take-over companies. This factors also points out to the need
for corporate governance, in the form of an efficient code of conduct for corporate
managements.

(vi) Huge Increase in Top Management Compensation:

It has been observed in both developing and developed economies that there has been a great
increase in the monetary payments (compensation) packages of top level corporate
executives. There is no justification for exorbitant payments to top ranking managers, out of
corporate funds, which are a property of shareholders and society.

This factor necessitates corporate governance to contain the ill-practices of top managements
of companies.

(vii) Globalisation:

Desire of more and more Indian companies to get listed on international stock exchanges also
focuses on a need for corporate governance. In fact, corporate governance has become a
buzzword in the corporate sector. There is no doubt that international capital market
recognises only companies well-managed according to standard codes of corporate
governance.

Principles of Corporate Governance:

(or major issues involved in corporate governance)

The fundamental or key principles of corporate governance are described below:

(i) Transparency:

Transparency means the quality of something which enables one to understand the truth
easily. In the context of corporate governance, it implies an accurate, adequate and timely
disclosure of relevant information about the operating results etc. of the corporate enterprise
to the stakeholders.

In fact, transparency is the foundation of corporate governance; which helps to develop a


high level of public confidence in the corporate sector. For ensuring transparency in corporate
administration, a company should publish relevant information about corporate affairs in
leading newspapers, e.g., on a quarterly or half yearly or annual basis.

(ii) Accountability:

Accountability is a liability to explain the results of one’s decisions taken in the interest of
others. In the context of corporate governance, accountability implies the responsibility of the
Chairman, the Board of Directors and the chief executive for the use of company’s resources
(over which they have authority) in the best interest of company and its stakeholders.

(iii) Independence:

Good corporate governance requires independence on the part of the top management of the
corporation i.e. the Board of Directors must be strong non-partisan body; so that it can take
all corporate decisions based on business prudence. Without the top management of the
company being independent; good corporate governance is only a mere dream.

SEBI Code of Corporate Governance:

To promote good corporate governance, SEBI (Securities and Exchange Board of India)
constituted a committee on corporate governance under the chairmanship of Kumar
Mangalam Birla. On the basis of the recommendations of this committee, SEBI issued certain
guidelines on corporate governance; which are required to be incorporated in the listing
agreement between the company and the stock exchange.

An overview of SEBI guidelines on corporate governance is given below, under


appropriate heads:

(a) Board of Directors:

(i) The Board of Directors of the company shall have an optimum(ideal, perfect) combination
of executive and non-executive directors.

(ii) The number of independent directors would depend on whether the chairman is executive
or non-executive.

In case of non-executive chairman, at least, one third of the Board should comprise of
independent directors; and in case of executive chairman, at least, half of the Board should
comprise of independent directors.

The expression ‘independent directors’ means directors, who apart from receiving director’s
remuneration, do not have any other material pecuniary(economic, fiscal, money, capital)
relationship with the company.

(b) Audit Committee:

(1) The company shall form an independent audit committee whose constitution would
be as follows:
(i) It shall have minimum three members, all being non-executive directors, with the majority
of them being independent, and at least one director having financial and accounting
knowledge.

(ii)The Chairman of the committee will be an independent director.

(iii)The Chairman shall be present at the Annual General Meeting to answer shareholders’
queries.

(2) The audit committee shall have powers which should include the following:

1.To investigate any activity within its terms of reference

2.To seek information from any employee

3. To obtain outside legal or other professional advice

4. To secure attendance of outsiders with relevant expertise, if considered necessary.

(3) The role of audit committee should include the following:

(i) Overseeing of the company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.

(ii) Recommending the appointment and removal of external auditor.

(iii) Reviewing the adequacy of internal audit function

(iv) Discussing with external auditors, before the audit commences(begin,start), the nature
and scope of audit; as well as to have post-audit discussion to ascertain any area of concern.

(v) Reviewing the company’s financial and risk management policies.

(c) Remuneration of Directors:

The following disclosures on the remuneration of directors shall be made in the section
on the corporate governance of the Annual Report:

(i) All elements of remuneration package of all the directors i.e. salary, benefits, bonus, stock
options, pension etc.

(ii) Details of fixed component and performance linked incentives, along with performance
criteria.

(d) Board Procedure Some Points in this Regards are:

(i) Board meetings shall be held at least, four times a year, with a maximum gap of 4 months
between any two meetings.
(ii) A director shall not be a member of more than 10 committees or act as chairman of more
than five committees, across all companies, in which he is a director.

(e) Management:

A Management Discussion and Analysis Report should form part of the annual report to the
shareholders; containing discussion on the following matters (within the limits set by the
company’s competitive position).

(i) Opportunities and threats

(ii) Segment-wise or product-wise performance

(iii) Risks and concerns

(iv) Discussion on financial performance with respect to operational performance

(v) Material development in human resource/industrial relations front.

(f) Shareholders:

(i) In case of appointment of a new director or reappointment of a director,


shareholders must be provided with the following information:

1.A brief resume (summary) of the director

2.Nature of his expertise

3. Number of companies in which he holds the directorship and membership of committees


of the Board.

(ii) A Board Committee under the chairmanship of non-executive director shall be formed to
specifically look into the redressing of shareholders and investors’ complaints like transfer of
shares, non-receipt of Balance Sheet or declared dividends etc. This committee shall be
designated as ‘Shareholders / Investors Grievance Committee’.

(g) Report on Corporate Governance:

There shall be a separate section on corporate governance in the Annual Report of the
company, with a detailed report on corporate governance.

(h) Compliance:

The company shall obtain a certificate from the auditors of the company regarding the
compliance of conditions of corporate governance. This certificate shall be annexed with the
Directors’ Report sent to shareholders and also sent to the stock exchange.
What is Corporate Governance?

Corporate Governance refers to the way a corporation is governed. It is the technique by


which companies are directed and managed. It means carrying the business as per the
stakeholders’ desires. It is actually conducted by the board of Directors and the concerned
committees for the company’s stakeholder’s benefit. It is all about balancing individual and
societal goals, as well as, economic and social goals.

Corporate Governance is the interaction between various participants (shareholders, board


of directors, and company’s management) in shaping corporation’s performance and the way
it is proceeding towards. The relationship between the owners and the managers in an
organization must be healthy and there should be no conflict between the two. The owners
must see that individual’s actual performance is according to the standard performance.
These dimensions of corporate governance should not be overlooked.

Corporate Governance deals with the manner the providers of finance guarantee
themselves of getting a fair return on their investment. Corporate Governance clearly
distinguishes between the owners and the managers. The managers are the deciding authority.
In modern corporations, the functions/ tasks of owners and managers should be clearly
defined, rather, harmonizing.

Corporate Governance deals with determining ways to take effective strategic decisions. It
gives ultimate authority and complete responsibility to the Board of Directors. In today’s
market- oriented economy, the need for corporate governance arises. Also, efficiency as well
as globalization are significant factors urging corporate governance. Corporate Governance is
essential to develop added value to the stakeholders.

Corporate Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority as well as
minority shareholders) are safeguarded. It ensures that all shareholders fully exercise their
rights and that the organization fully recognizes their rights.

Corporate Governance has a broad scope. It includes both social and institutional aspects.
Corporate Governance encourages a trustworthy, moral, as well as ethical environment.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.


2. Strong corporate governance maintains investors’ confidence, as a result of which,
company can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is a positive impact on the share price.
5. It provides proper inducement to the owners as well as managers to achieve objectives
that are in interests of the shareholders and the organization.
6. Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
7. It helps in brand formation and development.
8. It ensures organization in managed in a manner that fits the best interests of all.
Define ethics. What is the need and relevance of Business ethics in today’s world ?

Defining ‘Ethics’

Ethics is derived from the Greek word ‘ethos’ which means a person’s fundamental
orientation toward life. Ethics may be defined as a theory of morality which attempts to
systematize moral judgments. According to Garret, “Ethics is the science of judging
specifically human ends and the relationship of means to those ends. In some way it is also
the art of controlling means so that they will serve specifically human ends.” 2Thus ethics is
the science of judging right and wrong in human relationship. It can also be termed as the
science of character of a person expressed as right of wrong conduct or action. Having the
concept of ethics, we can say that ‘Business Ethics’ is nothing but the application of Ethics in
business. The term business ethics represents a combination of two very familiar words,
namely “business” and “ethics”

Business Ethics: Meaning, Sources and


Importance
Read this article to learn about the meaning, sources and importance of business ethics.

Meaning:

The term ‘Business Ethics’ refers to the system of moral principles and rules of the conduct
applied to business. Business being a social organ shall not be conducted in a way detrimental
to the interests of the society and the business sector itself. Every profession or group frames
certain do’s and do not’s for its members. The members are given a standard in which they
are supposed to operate. These standards are influenced by the prevailing economic and
social situations. The codes of conduct are periodically reviewed to suit the changing
circumstances.

Definitions:

“Business Ethics is generally coming to know what is right or wrong in the work place and
doing what is right. This is in regard to effects of products/services and in relationship with
the stake holders.” —Cater Mcnamara

“Business ethics in short can be defined as the systematic study of ethical matters pertaining
to the business, industry or related activities, institutions and beliefs. Business ethics is the
systematic handling of values in business and industry.” —John Donaldson

There is no unanimity of opinion as to what constitutes business ethics. There are no separate
ethics of business but every individual and organ in society should abide by certain moral
orders.

Business ethics should take into consideration the following factors: :

1. A business should aim to have fair dealing with everyone dealing with it.
2. Ethics should be fixed for everyone working in the organisation at any level and their
implementation should be linked with reward- punishment system.

3. Any violation of ethics should be detected at the earliest and remedial measures taken
immediately.

4. Business ethics should be based on broad guidelines of what should be done and what
should be avoided.

5. The ethics should be based on the perception of what is right.

Sources of Business Ethic:

In every society there are three sources of business ethics-Religion, Culture and Law. The HR
manager in every organisation, thus, has to be well versed with the unique system of values
developed by these three sources.

These sources are discussed as follows:

1. Religion:

Religion is the oldest source of ethical inspiration. There are more than ethical inspirations.
1, 00,000 religions which exist across the whole world, but all of them are in agreement on
the fundamental principles. Every religion gives an expression of what is wrong and right in
business and other walks of life. The Principle of reciprocity(privileges) towards one’s fellow
beings is found in all the religions. Great religions preach the necessity for an orderly social
system and emphasize upon social responsibility with an objective to contribute to the
general welfare. With these fundamentals, every religion creates its own code of conduct.

2. Culture:

Culture is the set of important understandings that members of a community share in


common. It consists of a basic set of values, ideas, perceptions, preferences, concept of
morality, code of conduct etc. which creates distinctiveness among human groups. When we
talk about culture we typically refer to the pattern of development reflected in a society’s
pattern of knowledge, ideology, values, laws, social norms and day to day rituals. Depending
upon the pattern and stage of development, culture differs from society to society. Moreover
culture is passed from generation to generation. Culture facilitates the generation of
commitment to something larger than one’s individual self interest.

Culture encourages the members of the organisation to give priority to organizational goals
over and above their personal interests. Culture also serves as a sense making and control
mechanism that guides and shapes the attitudes and behaviour of people. Managers have to
run an industrial enterprise on the cutting edge of cultural experience. The tension that their
actions create makes the business ethically more complex.

3. Law:

The legal system of any country, guide the human behaviour in the society. Whatever, ethics
the law defines are binding on the society. The society expects the business to abide by the
law. Although it is expected that every business should be law abiding, seldom do the
businesses adhere to the rules and regulations. Law breaking in business is common eg. Tax
evasion, hoarding, adulteration, poor quality & high priced products, environment pollution
etc.

Importance of Business Ethics:

1. Corresponds to Basic Human Needs:

The basic need of every human being is that they want to be a part of the organisation which
they can respect and be proud of, because they perceive(understand, recognize, identify,
consider, apprised) it to be ethical. Everybody likes to be associated with an organisation
which the society respects as an honest and socially responsible organisation. The HR
managers have to fulfil this basic need of the employees as well as their own basic need that
they want to direct an ethical organisation. The basic needs of the employees as well as the
managers compel the organizations to be ethically oriented.

2. Credibility in the Public:

Ethical values of an organisation create credibility in the public eye. People will like to buy
the product of a company if they believe that the company is honest and is offering value for
money. The public issues of such companies are bound to be a success. Because of this
reason only the cola companies are spending huge sums of money on the advertisements
now-a-days to convince the public that their products are safe and free from pesticides of any
kind.

3. Credibility with the Employees:

When employees are convinced of the ethical values of the organisation they are working for,
they hold the organisation in high esteem. It creates common goals, values and language. The
HR manager will have credibility with the employees just because the organisation has
creditability in the eyes of the public. Perceived social uprightness and moral values can win
the employees more than any other incentive plans.

4. Better Decision Making:

Respect for ethics will force a management to take various economic, social and ethical
aspects into consideration while taking the decisions. Decision making will be better if the
decisions are in the interest of the public, employees and company’s own long term good.

5. Profitability:

Being ethical does not mean not making any profits. Every organisation has a responsibility
towards itself also i.e., to earn profits. Ethical companies are bound to be successful and more
profitable in the long run though in the short run they can lose money.

6. Protection of Society:

Ethics can protect the society in a better way than even the legal system of the country.
Where law fails, ethics always succeed. The government cannot regulate all the activities that
are harmful to the society. A HR manager, who is ethically sound, can reach out to agitated
employees, more effectively than the police.

Sample 2

Need or Importance of Business Ethics

1. Stop business malpractices : Some unscrupulous businessmen do business


malpractices by indulging in unfair trade practices like black-marketing, artificial high
pricing, adulteration, cheating in weights and measures, selling of duplicate and
harmful products, hoarding, etc. These business malpractices are harmful to the
consumers. Business ethics help to stop these business malpractices.
2. 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. They feel that such businessmen will not cheat them.
3. 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. This is because they can cheat a consumer only once. After that, the
consumer will not buy goods from that businessman. He will also tell others not to
buy from that businessman. So this will defame his image and provoke a negative
publicity. This will result in failure of the business. Therefore, if the businessmen do
not follow ethical rules, he will fail in the market. So, it is always better to follow
appropriate code of conduct to survive in the market.
4. 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.
5. 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.
6. Develops good relations : Business ethics are important to develop good and friendly
relations between business and society. This will result in a regular supply of good
quality goods and services at low prices to the society. It will also result in profits for
the businesses thereby resulting in growth of economy.
7. 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 criticised by the society. The society will always support those
businessmen who follow this necessary code of conduct.
8. 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. So, the business will grow, expand and diversify easily and quickly. It will
have more sales and more profits.
9. Consumer movement : Business ethics are gaining importance because of the growth
of the consumer movement. Today, the consumers are aware of their rights. Now they
are more organised and hence cannot be cheated easily. They take actions against
those businessmen who indulge in bad business practices. They boycott poor quality,
harmful, high-priced and counterfeit (duplicate) goods. Therefore, the only way to
survive in business is to be honest and fair.
10. 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. If the consumer is not satisfied, then there will be
no sales and thus no profits too. Consumer will be satisfied only if the business
follows all the business ethics, and hence are highly needed.
11. Importance of labour : Labour, i.e. employees or workers play a very crucial role in
the success of a business. Therefore, business must use business ethics while dealing
with the employees. The business must give them proper wages and salaries and
provide them with better working conditions. There must be good relations between
employer and employees. The employees must also be given proper welfare facilities.
12. 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.
Explain Mill and Bentham’s Utilitarianism theory in detail.

Utilitarianism (an action are right if they are useful or for the benefits of majorities)

Utilitarianism is a normative ethical theory that places the focus of right and wrong solely on
the outcomes (consequences) of choosing one action/policy over other actions/policies. As
such, it moves beyond the scope of one's own interests and takes into account the interests of
others.

Bentham's Principle of Utility: (1) Recognizes the fundamental role of pain and pleasure in
human life, (2) approves or disapproves of an action on the basis of the amount of pain or
pleasure brought about i.e, consequences, (3) equates good with pleasure and evil with pain,
and (4) asserts that pleasure and pain are capable of quantification (and hence 'measure').

In measuring pleasure and pain, Bentham introduces the following criteria: INTENSITY,
DURATION, CERTAINTY (or UNCERTAINTY), and its NEARNESS (or FARNESS). He
also includes its "fecundity" (will more of the same follow?) and its "purity" (its pleasure
won't be followed by pain & vice versa). In considering actions that affect numbers of people,
we must also account for its EXTENT.

John Stuart Mill adjusted the more hedonistic (self-indulgent, pleasure-seeking) tendencies
in Bentham's philosophy by emphasizing (1) It is not the quantity of pleasure, but the quality
of happiness that is central to utilitarianism, (2) the calculus is unreasonable -- qualities
cannot be quantified (there is a distinction between 'higher' and 'lower' pleasures), and (3)
utilitarianism refers to "the Greatest Happiness Principle" -- it seeks to promote the capability
of achieving happiness (higher pleasures) for the most amount of people (this is its "extent").

Act and Rule Utilitarianism

We can apply the principle of utility to either PARTICULAR ACTIONS or GENERAL


RULES. The former is called "act-utilitarianism" and the latter is called "rule-utilitarianism."

Act-utilitarianism -- The principle of utility is applied directly to each alternative act in a


situation of choice. The right act is then defined as the one which brings about the best results
(or the least amount of bad results).

 Criticisms of this view point to the difficulty of attaining a full knowledge and
certainly of the consequences of our actions.
 It is possible to justify immoral acts using AU: Suppose you could end a regional war
by torturing children whose fathers are enemy soldiers, thus revealing the hide outs of
the fathers.

Rule-utilitarianism -- The principle of utility is used to determine the validity of rules of


conduct (moral principles). A rule like promise-keeping is established by looking at the
consequences of a world in which people broke promises at will and a world in which
promises were binding. Right and wrong are then defined as following or breaking those
rules.

 Some criticisms of this position point out that if the Rules take into account more and
more exceptions, RU collapses into AU.
 More general criticisms of this view argue that it is possible to generate "unjust rules"
according to the principle of utility. For example, slavery in Greece might be right if it
led to an overall achievement of cultivated happiness at the expense of some
mistreated individuals.

Explain Gandhian approach and Friedman’s Economic theory.

Key Tenets of Milton Friedman's Theories

The following are some lessons that can be taken from Friedman and his economic theories.

1. Judge policies by their results, not their intentions.

In many ways, Friedman was an idealist and libertarian activist, but his economic analysis
was always grounded in practical reality. He famously told Richard Heffner, host of "The
Open Mind," in an interview: "One of the great mistakes is to judge policies and programs by
their intentions rather than their results."

Many of Friedman's most controversial positions were based on this principle. He opposed
raising the minimum wage because he felt it unintentionally harmed young and low-skilled
workers, particularly minorities. He opposed tariffs and subsidies because they
unintentionally harmed domestic consumers. His famous 1989 "Open Letter" to then-drug
czar Bill Bennett called for the decriminalization of all drugs, mostly because of the
devastating unintended effects of the drug war. This letter lost Friedman a swath of
conservative supporters, who he said failed "to recognize that the very measures you favor
are a major source of the evils you deplore."

2. Economics can be communicated to the masses.

During Friedman's landmark interviews on Phil Donahue's show in 1979 and 1980, the host
said his guest was "a man who will never be accused of making economics confusing," and
told Friedman "the nice thing about you is that when you speak, I almost always understand
you."

Friedman gave lectures on college campuses, including Stanford and NYU. He ran a 10-
series television program entitled "Free to Choose" and wrote a book with the same name,
adjusting his content for his audience.

Economist Walter Block, sometimes a friendly agitator (troublemaker, rebel) of Friedman,


memorialized his contemporary's 2006 death by writing, "Milton's valiant, witty, wise,
eloquent (expressive, articulates) and yes, I'll say it, inspirational analysis must stand out as
an example to us all."

3. "Inflation is always and everywhere a monetary phenomenon."

The most famous excerpt from Friedman's writings and speeches is, "Inflation is always and
everywhere a monetary phenomenon." He defied the intellectual climate of his era and
reasserted the quantity theory of money as a viable (practical, workable) economic tenet
(belief, principle). In a 1956 paper titled "Studies in the Quantity Theory of Money,"
Friedman found that, in the long run, increased monetary growth increases prices but does not
really affect output.

Friedman's work busted the classic Keynesian dichotomy on inflation, which asserted that
prices rose from either "cost-push" or "demand-pull" sources. It also put monetary policy on
the same level as fiscal policy.

4. Technocrats cannot control the economy.

In a 1980 Newsweek column, Milton Friedman said: "If you put the federal government in
charge of the Sahara Desert, in five years there'd be a shortage of sand."

Friedman was a vicious critic of government power and was convinced free markets operated
better on grounds of morality and efficiency. In terms of the actual economics, Friedman
rested on a few truisms and basic, incentive-based analyses. He offered that no bureaucrat
would or could spend money as wisely or as carefully as the taxpayers from whom it was
confiscated. He spoke often of regulatory capture, the phenomenon where powerful special
interests co-opt the very agencies designed to control them.

To Friedman government policy is created and carried out through force, and that force
creates unintended consequences that do not come from voluntary trade. The valuable
political power of government force creates an incentive for the wealthy and devious to
misuse it, helping generate what Friedman dubbed "government failure."

5. Government failures can be as bad, or worse, than market failures.

Friedman combined his lessons about unintended consequences and the bad incentives of
government policy.

Friedman loved pointing out government failures. He exposed how President Richard Nixon's
wage and price controls led to gasoline shortages and higher unemployment. He railed
against the Interstate Commerce Commission (ICC) and Federal Communications
Commission (FCC) for creating de facto monopolies in transportation and media. Famously,
he contended that the combination of public schooling, minimum wage laws, drug prohibition
and welfare programs had unintentionally forced many inner-city families into cycles of
crime and poverty.

This concept wraps up many of Friedman's most powerful ideas: policies have unintended
consequences; economists should focus on results, not intentions; and voluntary interactions
between consumers and businesses often produce superior results to crafted government
decrees.

Milton Friedman was a highly celebrated American economist and a strong proponent of the free
market system. Let's take a look at some of his contributions to the field of economics.
Who Was Milton Friedman?

'If you put the federal government in charge of the Sahara Desert, in five years there'd be a
shortage of sand.' So said economist Milton Friedman (1912 - 2006), one of the most
colorful and controversial characters in the history of American economics.

Friedman won the Nobel Prize for Economic Sciences in 1976. He served as an advisor to
President Ronald Reagan during the 1980s and he was highly influential in shaping American
monetary policy for several decades. In 1988, Friedman received the highest civilian award
possible, the Presidential Medal of Freedom, for his dedication and service to the country.

Free Market Theory

Friedman believed in the free market system, where the prices people pay for things are
agreed upon by the buyers and sellers with little or no control by the government. Friedman
defended his belief against critics by saying, 'A major source of objection to a free economy
is precisely that it ... gives people what they want instead of what a particular group thinks
they ought to want. Underlying most arguments against the free market is a lack of belief in
freedom itself.'

Stockholder Theory
One of Milton Friedman's more controversial theories, known as the Stockholder Theory or the
Friedman Doctrine (a belief or set of beliefs held and taught by a Church, political party, or
other group, conviction), is that a company's only social responsibility is to increase profits
for the owners (stockholders), as long as it doesn't engage in deception or fraud. Think about
that for a minute. Do you agree with Friedman? Do businesses have any moral obligation to
the general public beyond not being deceitful?

Theory of the Consumption Function

Friedman's theory of consumption states that people will make decisions on spending based
on what we think our income will be over time, what Friedman called our 'permanent
income,' and not just our current income, which may be higher. It's based on the belief that
most of us are sensible when it comes to dealing with our money. So, when we receive a little
extra money from what might be a temporary source, such as a bonus at work or a temporary
tax cut, it doesn't have a huge effect on how much money we spend in the long run. Do your
personal spending habits support Friedman’s theory?.
The Gandhian Approach to Rural Development!

In the Indian context rural development may be defined as maximising production in


agriculture and allied activities in the rural areas including development of rural industries
with emphasis on village and cottage industries.

It attaches importance to the generation of maximum possible employment opportunities in


rural areas, especially for the weaker sections of the community so as to enable them to
improve their standard of living.

Provision of certain basic amenities like drinking water, electricity, especially for the
productive purpose, link roads connecting villages to market centres and facilities for health
and education etc. figure prominently in the scheme of rural development.

Theoretically, Gandhian approach to rural development may be labelled as ‘idealist’. It


attaches supreme importance to moral values and gives primacy to moral values over material
conditions. The Gandhians believe that the source of moral values in general lies in religion
and Hindu scriptures like the Upanishads and the Gita, in particular.

The concept of ‘Rama Rajya’ is the basis of Gandhiji’s idea of an ideal social order. Gandhi
defined Rama Rajya as “sovereignty of the people based on moral authority”. He did not
view Rama as a king, and people as his subjects. In the Gandhian scheme, ‘Rama’ stood for
God or one’s own ‘inner voice’ Gandhi believed in a democratic social order in which people
are supreme. Their supremacy is, however, not absolute. It is subject to moral values.

Ideal Village:

The village is the basic unit of the Gandhian ideal social order. Gandhi succinctly (in a brief
and clearly expressed manner) pointed out, “If the village perishes (die, decay, fade,
vanish) India will perish too…. We have to make a choice between India of the villages that
is as ancient as herself and India of the cities which are a creation of foreign domination”.
Gandhi’s ideal village belongs to the Pre-British period, when Indian villages were supposed
to constitute the federation of self-governing autonomous republics.

According to Gandhiji, this federation will be brought about not by coercion (force) or
compulsion but by the voluntary offer of every village republic to join such a federation. The
work of the central authority will only be to coordinate the work of different village republics
and to supervise and manage things of common interest, as education, basic industries,
health, currency, banking etc.

The central authority will have no power to enforce its decisions on village republics except
the moral pressure or power of persuasion. The economic system and transport system
introduced by the British have destroyed the “republican’ character of the villages.

Gandhi, however, admitted that in olden times tyranny and oppression were in fact practised
by feudal chiefs. But, “odds were even”. Today the odds are heavy. It is most demoralising.”
In this way in the Gandhian scheme of things the ancient ‘republic’, an Indian village without
tyranny and exploitation serves as a model unit.
Decentralisation:

Gandhi firmly believes that village republics can be built only through decentralisation of
social and political power. In such a system decision-making power will be vested in the
Village Panchayat rather than in the State and the national capital. The representatives would
be elected by all adults for a fixed period of five years. The elected representatives would
constitute a council, called the Panchayat.

The Panchayat exercises legislative, executive and judicial functions. It would look after
education, health and sanitation of the village. It would be the Panchayats responsibility to
protect and uplift ‘untouchables’ and other poor people. Resources for Gandhian Approach to
managing village affairs would be raised from the villages.

All the conflicts and disputes would be resolved within the village. And as far as possible not
a single case is to be referred to courts outside the village. The Panchayat would play its role
in propagating the importance of moral and spiritual values among the ruralites for bringing
about rural reconstruction.

Apart from managing its own affairs the village would also be capable of defending itself
against any invasion. A non-violent peace brigade of volunteers would be organised to defend
the village. This corps would be different from the usual military formation. They would
repose the utmost faith in non-violence and God.

Self-sufficiency:

Such a decentralised polity implies a decentralised economy. It can be attained only through
self-sufficiency at the village level. The village should be self-sufficient as far as its basic
needs – food, clothing, and other necessities – are concerned. The village has to import
certain things which it cannot produce in the village. “We shall have to produce more of what
we can, in order thereby to obtain in exchange, what we are unable to produce”.

The village should produce food-crops and cotton in order to meet its requirements. Some
lands should also be earmarked for cattle and for a playground for adults and children. If
some land is still available, it should be used for growing useful cash crops like tobacco,
opium, etc. to enable the village to get in exchange things which it does not produce.

Village economy should be planned with a view to providing full employment to all the
adults of the village. Each man should be guaranteed employment to enable him to meet his
basic needs in the village itself so that he is not forced to migrate to towns. In the ultimate
analysis full employment should be linked with equality.

Physical labour occupies a central place in the Gandhian concept of the self-sufficient village.
In this respect he was highly influenced by Rus-kin and Tolstoy. According to Gandhi, each
man must do physical labour to earn his bread. Physical labour is necessary for moral
discipline and for the sound development of the mind. Intellectual labour is only for one’s
own satisfaction and one should not demand payment for it.

The needs of the body must be supplied by the body. Gandhi said, “If all laboured for their
bread then there would be enough food and enough leisure for all.” Shriman Narayan rightly
observes, “Gandhiji recognised toil to be not a curse but the joyful business of life as it has
the power to make man healthier, merrier, fitter and kindlier”.

Industrialization:

Gandhiji maintained that industrialization would help only a few and will lead to
concentration of economic power. Industrialization leads to passive or active exploitation of
the villages. It encourages competition. Large scale production requires marketing. Marketing
means profit-seeking through an exploitative mechanism.

Moreover, industrialization replaces manpower and hence it adds to unemployment. In a


country like India, where millions of labourers in the villages do not get work for even six
months in a year, industrialization will not only increase unemployment but force labourers to
migrate to urban areas. This will ruin villages.

In order to avoid such a catastrophe, village and cottage industries should be revived. They
provide employment to meet the needs of the villagers and facilitate village self-sufficiency.
Gandhians are not against machine per se if it meets two aims: self-sufficiency and full
employment. According to Gandhi, there would be no objection to villagers using even the
modern machines and tools that they could make and could afford to use. Only they should
not be used as a means of exploitation of others.

Trusteeship:

Gandhiji was not against the institution of private property. But he wanted to restrict the right
of private property to what was necessary to yield an honourable livelihood. For the excess he
prescribed the principle of trusteeship.

Gandhiji emphasized the principle of trusteeship in social and economic affairs. He firmly
believed that all social property should be held in trust. The capitalists would take care not
only of themselves but also of others. Some of their surplus wealth would be used for the rest
of the society.

The poor workers, under trusteeship, would consider the capitalists as their benefactors; and
would repose faith in their noble intentions. Gandhiji felt that if such a trusteeship were
established, the welfare of the workers would increase and the clash between the workers and
employers would be avoided. Trusteeship would help considerably “in realising a state of
equality on earth.”

Gandhiji firmly believed that land should not be owned by any individual. Land belongs to
God. Hence, individual ownership of land should be shunned. For that a landowner should be
persuaded to become a trustee of his land. He should be convinced that the land he owns does
not belong to him. Land belongs to the community and must be used for the welfare of the
community. They are merely trustees. By persuasion the heart of landowners should be
changed and they should be induced to donate their land voluntarily.

If the land owners do not oblige and continue to exploit the poor workers, the latter should
organise non-violent, non- cooperation, civil disobedience struggles against them. Gandhiji
rightly held the view that “no person can amass wealth without the cooperation, willing or
forced, of the people concerned”.
If this knowledge were to penetrate and spread amongst the poor, they would become strong
and learn how to free themselves from the crushing inequalities which have pushed them to
the verge of starvation. But the oppressed should not take recourse to violent methods. In the
Gandhian scheme of things, the principle of cooperation, love and service is most important
and violence has no place in it. Violence is against “moral values’ and civilized society is
inconceivable in the absence of moral values.

Gandhiji’s concept of development is oriented to the uplift of the common man. He preferred
village habitats to megalopolises and Swadeshi craft to imported technology for the economic
well being of the common man. He stressed the need for cottage industries in place of
gigantic industries and advocated for a decentralised economy instead of a centralised one.

He realised the need for integrated rural development and believed that education, health and
vocation should be properly integrated. He emphasised the need for education and training
which he called ‘Naitalim’ (New training) for rural reconstruction.

In fine, Gandhian approach to rural development strives to reconstruct village republics


which would be non-violent, self- governed and self-sufficient so far as the basic necessities
of ruralites are concerned. Apart from creating a new socio-economic order, it Endeavour’s to
transform man; otherwise the changes in the socio-economic order will be short-lived.

Sample 2

The below mentioned article provides an overview on Gandhian Economics:- 1.


Introduction to Gandhian Economics 2. Influences on Gandhi 3. Three Phases 4.
Assessment 5. Influence on Indian Thinkers.

Introduction to Gandhian Economics:

The economic ideas of Gandhi and his followers may collectively be called Gandhian
Economics. Gandhi himself was not a professional economist. He was a great political and
spiritual leader. But consistent with his philosophy of truth and non-violence, he gave a set of
economic ideas which are sharp in contrast against the traditional economics of the west.

Gandhi’s ideas have considerable influence on Indian thought and policy. Further, some of
his followers, normally J.C. Kumarappa have attempted in recent years to refine and restate
Gandhian economics as a counter theory to western economics and it is claimed to be more
suitable for building up a more peaceful and stable future.

Mahatma Gandhi, The Father of the Nation was born in Porbander on October2,1869. He
came from a well-to-do family and had his early education in London. He settled down as a
lawyer in South Africa, where he took part in a political movement against racial
discrimination. He had been deeply influenced by Christianity and the ideas of Tolstoy,
Ruskin and Thoreau.

So he devised the technique of non-violence as an active method of political agitation.


Coming to India in 1906, Gandhi assumed political leadership of the country. At the same
time, he developed his economic ideas as well. Gandhi continued to be the virtual guide and
the inspiration of the Indian National Congress and the political movement in India up to his
death.
Influences on Gandhi:

In his economic thought, Gandhi was greatly influenced by Ruskin’s Unto This Last. From
this book he learnt a) that the good of the individual is contained in the good of all; b) that a
lawyer’s work has the same value as the barber’s in as much as all have the same right of
earning their livelihood from their work, and that a life of labour, i.e., the life of the tiller of
the soil and the handicraftsman is the life worth-living.

Further Gandhi was inspired by the idea of Thoreau, Tolstoy and Kropotkin. Tolstoy’s
principles of simplicity, asceticism and equalitarianism became a part of Gandhi’s
philosophy. Besides Indian scriptures, Gita and Upanishads and Indian saints Kabir, Mira,
Nanak also left a deep impression on Gandhi’s mind.

Three Phases of Gandhi’s Economic Thought:

The economic ideas of Gandhiji developed in three phases:

(a) The negative phase (Upto 1919):

The negative phase up to 1919 during which he criticised the western pattern of economic
development and adopted a non-materialistic attitude which is embodied in his book Hind
Swaraj (1909).

(b) The positive phase (1919-1934):

During this phase, he presented an alternative to the western civilisation in the ideal of
Swadeshi.

(c) The constructive phase (1934-1948):

In this phase, Gandhi became more practical. He gave a constructive programme for village
regeneration and put forward the ideal of Sarvodaya.

Assessment of Gandhian Economics:

Gandhian economics is very different from traditional economics, as it has no clear cut
theory. Gandhi himself never studied any economics. He was unfamiliar with the thought of
Keynes or Marshall. He read Marx as late as 1942 during detention and his impression was
that if he had to write “The Capital”, he would probably do it in a much more simplified
manner.

It is natural that the traditional economists do not find Gandhian ideas scientific. Moreover,
there are numerous contradictions in his thought which were brought about due to the
evolution of his ideas as his personality matured. For instance, his extreme apathy to
machinery, as evident in “Hind Swaraj”, was considerably softened in his later years.

In assessing Gandhian thought, it all depends upon whether one agrees with the Gandhian
postulates or not. If the critic agrees with simplicity, non-violence, decentralisation and
ethical and moral considerations which form the basis of the Gandhian ideas, he would
probably find that entire system of Gandhian thought is very logical.
Otherwise, the traditional economist will find that Gandhian thought is extremely lacking in
coherence on such modern issues as public finance, the problems of defence and international
trade, monetary management and economic planning. In Gandhi’s economics, there is a
fundamental postulate that all countries would be organised on the non-violent pattern.
Whether such a situation is practicable or not, is quite a different matter.

The relationship between Gandhism and Socialism is interesting. Gandhi himself declared
that he was a socialist and his ideal of Sarvodaya was the traditional Indian Socialism. But
technically, Gandhi is not a socialist. He would uphold private ownership of property by
asking the capitalists to become the trustees of public property. At best, he asked them to be
enlightened capitalists and uphold the welfare of the workers at all costs.

From the Marxist point of view, Gandhian economics is reactionary in its outlook. Gandhi
refused to recognise class-struggle and the fact that history had developed from one stage to
another and, as such, must pass on to the higher stage of Socialism from the present state of
Capitalism. Like Sismondi Gandhi’s solution of the problem of capitalist society consists in
suspending material progress and technical inventions and to go back to a decentralized and
simple system of economic organisation. The Marxist charge is that Gandhi was trying to put
the clock back and as such was unconsciously extending capitalist and feudal interest. The
most outspoken critiques of Gandhian economics have come from the Indian Marxists.

Many socialist thinkers, specially J. B. Kripalani, Jai Prakash Narain and Ram Manohar
Lohia have accepted Gandhian ‘Sarvodaya’ as the ideal of Indian Socialism. They hold that
Praja Socialism is Socialism plus Gandhism and believe that Marxism was suitable to the
Western industrial nations and as such is inapplicable to Indian conditions.

The Indian variety of socialism suitable to a poor and agricultural country must necessarily
follow the non-violent and decentralized pattern of the Gandhian ‘Sarvodaya’. A
comprehensive theory of Praja Socialism has yet to be worked out, but these have been
advanced by some Praja Socialist leaders in recent articles and speeches.

Yet another controversy that has sprung up recently, is due to the ideas of J. C. Kumarappa
and Sunderlal, themselves veteran Gandhities. They hold that the points of difference
between Marxism and Gandhism are very few. Gandhism is Marxism minus violence. They
assert that the Gandhian principles of simplicity, non-violence and decentralisation of power
are actively pursued in post- Revolution China, which is evidently being built up on the basis
of the Marxian philosophy of the Chinese Communist Party.

Influence of Gandhian Economics on Indian Thinkers:

The influence of Gandhian economic ideas on Indian thinkers has not been very fundamental.
Gandhi was universally accepted as a great political leader and the Father of the Nation. But
many of his immediate followers did not see eye to eye with his economic views. Probably,
the only organised attempt to put Gandhian ideas into practice is due to the various
organisations started by Gandhi himself, the All India Charkha Sangh, the Go-Seva Sangh,
the All-India Spinners Association and the All-India Village Industries Association. Recently
Vinoba Bhave and many Socialist leaders, like Jai Prakash Narain, have taken active interest
in the Bhoodan Yagya Movement, which aims at the redistribution of land on Gandhian lines.
The influence of Gandhi’s economic ideas on Government policy has been very little. The
Planning Commission has talked about moral values, non-violence and decentralisation as
desirable characteristics of a national economic policy of India, but the Five Year Plan in
itself is hardly Gandhian in outlook.

In fact, staunch Gandhites, like Kumarappa and Sunderlal, were sharply critical of the
Government policy of reconstructing villages with foreign aid, as was being done under the
Community Development Programmes. Recent attempts by the Government to revitalise
handloom and Khadhi industry are not in the nature of the application of Gandhian theory to
economic policy. They are obviously directed by the political necessity of fighting
unemployment which looms large on the Indian horizon.

So far as traditional economists are concerned, they have accepted two ideas from
Gandhian thought:

(1) The importance of cottage industries in our rural economy and

(2) The necessity of decentralisation of the economic structure. Most economists also agree
with the Gandhian contention that the village improvement and rehabilitation of agriculture
must be the first step towards any economic improvement in this country.
Discuss the global trends in business ethics.

The future of business ethics: Hyper-transparency and other global trends

In the future, compliance officers will need to anticipate and respond to a transformation in
business ethics. Here are six trends to watch out for.

Hyper-transparency: By 2020, there will be 80 billion devices connected to the internet. As


internet access has grown, the media industry has fragmented, public debate has become less
top-down and more diffuse, and companies have had to accept that the ability to control
reputation has been greatly reduced.

This new environment raises complex and morally fraught questions around privacy,
surveillance, transparency, and freedom of expression. Companies in the future will behave
as if everything they say and do may become public, but they will expect the same from
employees. More broadly, the vast expansion of interconnectedness will transform how
companies manage and engage with their external and internal stakeholders. This will require
rethinking approaches to reputation, stakeholder engagement, and values.

Individual and Collective Empowerment: Headlines today focus on inequality, but there is
another underlying story here: the growth of the middle class. By one estimate, the world’s
middle class will increase from 1.8 billion in 2009 to 5 billion in 2030, a growth trajectory
that is concentrated in the Global South. Improved living standards and education levels will
create an unprecedented level of individual empowerment, along with new expectations from
business and governments. Individual empowerment is bolstered by collective action.

Through social media, citizens in the most distant locations can bring local issues to the
world and work with global partners to address grievances. As anti-corruption tools and
"literacy" continue to spread among populations, companies should expect to come under
greater scrutiny (critical observation or examination). Already, we see individual and
collective empowerment leading to rising public anger about corruption in countries as varied
as Brazil, India, China, Russia, Turkey, Malaysia, and Indonesia.

We can expect demands for the fulfillment of individual and societal human rights to
continue. This will lead to more powerful advocacy for social, economic, and environmental
justice, along with the creation of a more vibrant and extensive civil society. The role of the
business sector will change as expectations around its responsibilities shift. Standard but
outdated concepts that the purpose of corporations is to “drive shareholder value” may be
replaced by broader concepts of stakeholder trust and "shared value."

Demographics and Automation: The world is getting older. Today, over 60 percent of the
world’s population lives in countries in which the fertility rate is below the replacement rate.
This aging has sweeping social and economic implications, including a decline in the number
of workers available to business and an increase in local communities’ need for (and demand
for) services associated with an older population. The overall decline in the workforce will be
counterbalanced by the automation of jobs across all industries. Many jobs will be
eliminated, and there is risk of widespread societal and political disruption in a number of
areas.
It is likely that in an era of reduced employment opportunities -- and thus, reduced
contributions by business to society through job creation -- the pressure for equitable sharing
of value created by business will be intense. Companies will need to consider their role in
creating and sustaining more inclusive economies.

Organizational Culture: A consensus has emerged as to what an effective anti-corruption


compliance program looks like – its components and success factors. At the same time, it has
become clear that compliance programs don’t exist in a vacuum, and that the effectiveness of
any process is driven by the surrounding culture. The ethical challenges facing companies
today go far beyond the traditional control remit of compliance teams. In the future,
compliance and ethics functions will not just police the enforcement of existing rules, but will
be empowered, independent, and ready to meet the most pressing challenges facing
companies. Compliance officers will become agents of change, taking ownership of company
values and culture.

Supply Chain Oversight: The current approach of self-regulation in supply chains is likely to
become untenable in the face of increasing transparency and awareness. Governments may
seek a greater role in the regulation of corporate supply chains and of the expectations placed
on companies. The California Transparency in Supply Chains Act and the UK’s Modern
Slavery Act represent early moves toward the same standard. Given the immense practical
complexity that this presents for businesses, we might expect to see the emergence of an
“adequate procedures” framework analogous to the emerging global consensus on anti-
corruption compliance.

Toward Systems Thinking: Corruption has long been approached with the implicit attitude
that it is a victimless crime. This is now changing fast, as it has become impossible to ignore
the links between corruption, poverty, conflict, and human rights violations.

Compliance and ethics departments will need to incorporate into their strategies the
connections among corruption, human rights violations, and the conflicts they drive. They
must underline not just the legal ramifications (consequences, result) of corruption but its
larger impact. As more initiatives seek to bring together actors from different spheres,
companies should expect to be drawn into participating in expansive anti-corruption
networks.
What role does organizational culture play in formulating and implementing professional
ethics code ? Give examples of any two organizations.

REFER PDF downloded

Developing and implementing organisational codes of conduct


An overview of implementing and developing codes of conduct.

Codes of conduct are usually available in an organisation's website and referred to in the
annual financial statements and/or corporate responsibility reports.

There are a variety of different codes: different names, styles and content. Some are concise
and straightforward and some are more detailed and are accompanied by an ethics
programme.

Whilst codes of conduct differ across organisations, they aim to influence behaviour by
setting out the values, standards of behaviour and business practices that are expected of
employees and other stakeholders.

In order to be effective the development and the implementation of an organisational code


needs to be carefully considered. Codes should reflect the true values and behaviours that the
organisation wants to uphold rather than being a public relations exercise.

The content of an organisation's code will be influenced by the objectives of the code as well
as the organisation's strategy and culture. Codes should use plain, positive language, should
be clear and precise and widely accessible. Their implementation should be actively
monitored.

There also needs to be training and support for individuals to enable them to deal with
circumstances which may threaten the values the organisation wants to uphold.

One of the unknown factors in developing and implementing a code of conduct depends on
how individuals are likely to respond to it. An organisation needs to understand how codes
will affect individuals' decision making and behaviour.

The effectiveness of the code will depend on an individual's ability to interpret and apply the
code to a variety of situations. Codes of conduct can be characterised as either principles
based or rules based. See our dedicated section Principles versus Rules for more information.

Members in business are often called upon to be involved in developing and implementing
Codes of Conduct. Indeed, paragraph 300.5 of the ICAEW Code of Ethics states that "a
professional accountant in business is expected, therefore, to encourage an ethics-based
culture in an employing organisation that emphasises the importance that senior management
places on ethical behaviour."

Codes of conduct should be unique and appropriate to each organisation; there is no one-size
fits all code of conduct. However, the following guidance on developing and implementing
codes of conduct may provide a useful insight into how it might be achieved in your
organisation.
Example of Organizational Ethics
Organizational ethics are the principals and standards by which businesses operate, according
to Reference for Business. They are best demonstrated through acts of fairness, compassion,
integrity, honor and responsibility. The key for business owners and executives is ensuring
that all employees understand these ethics. One of the best ways to communicate
organizational ethics is by training employees on company standards.

Uniform Treatment of All Employees

One example of organizational ethics is the uniform treatment of all employees. Small
business owners should treat all employees with the same respect, regardless of their race,
religion, cultures or lifestyles. Everyone should also have equal chances for promotions. One
way to promote uniform treatment in organizations is through sensitivity training.

Some companies hold one-day seminars on various discrimination issues. They then invite
outside experts in to discuss these topics. Similarly, small company managers must also avoid
favoring one employee over others. This practice may also lead to lawsuits from disgruntled
employees. It is also counterproductive.

Corporate Social Responsibility

Small companies also have an obligation to protect the community. For example, the owner
of a small chemical company needs to communicate certain dangers to the community when
explosions or other disasters occur. The owner must also maintain certain safety standards for
protecting nearby residents from leaks that affect the water or air quality.

There are state and federal laws that protect people from unethical environmental practices.
Business owners who violate these laws may face stiff penalties. They may also be shut
down.

Financial and Business Ethics

Business owners must run clean operations with respect to finances, investing and expanding
their companies. For example, organizations must not bribe state legislators for tax credits or
special privileges. Insider trading is also prohibited. Insider trading is when managers or
executives illegally apprise investors or outside parties of privileged information affecting
publicly traded stocks, according to the Securities and Exchange Commission.

The information helps some investors achieve greater returns on their investments at the
expense of others. Executives in small companies must strive to help all shareholders earn
better returns on their money. They must also avoid collusive arrangements with other
companies to deliberately harm other competitors.

Taking Care of Employees

A small company's organizational ethics can also include taking care of employees with
mental illnesses or substance abuse problems, such as drug and alcohol dependency. Ethical
business owners help their employees overcome these types of problems when possible. They
often put them through employee advisor programs, which involves getting them the
treatment they need.

Employees may have issues that lead to these types of problems. Therefore, they deserve a
chance to explain their situations and get the help they need.

The Importance of Ethics in Organizations

Organizational ethics are the policies, procedures and culture of doing the right things in the
face of difficult and often controversial issues. Ethics topics that challenge organizations
include but aren't limited to discrimination, social responsibility and fiduciary issues. Ethics
issues and how any organization practices ethics are more important than ever because social
media readily exposes issues that might have been swept aside in previous generations.

Builds a Positive Corporate Culture

An organization devoting resources to developing policies and procedures that encourage


ethical actions builds a positive corporate culture. Team member morale improves when
employees feel protected against retaliation for personal beliefs. These policies include anti-
discriminatory rules, open door policies and equal opportunities for growth. When employees
feel good about being at work, the overall feeling in the organization is more positive. This
breeds organizational loyalty and productivity, because employees feel good about showing
up for work.

Boosts Consumer Confidence

An organization can lose consumer confidence very quickly with a few bad online reviews.
Organizations have to retain consumer loyalty through ethical practices that start with fair
and honest advertising methods and continue through the entire sales process. One area that
organizations can lose consumer confidence is failing to honor guarantees or negatively deal
with complaints. This is why consistent policies and employee training is imperative.
Companies must direct employees on how to treat customers according to its core values.

When an organization takes the time to identify what is important to consumers and its target
market, it is better able to set value statements and protocols to meet higher ethical standards.
For example, a coffee distributor that focuses on fair trade and farming sustainability, builds a
brand supporting environmental and social responsibility.

Reduces Financial Liabilities

Organizations that don't develop policies on ethical standards risk financial liabilities. The
first liability is a reduction in sales. For example, a real estate development company can lose
customer interest and sales if its development reduces the size of an animal sanctuary. This
doesn't mean a company must abandon growth. Finding an ethically responsible middle
ground is imperative to sway public opinion away from corporate greed and toward
environmental responsibility.
Minimizes Potential Lawsuits

The second area of financial liability exists with potential lawsuits. No organization is exempt
from a disgruntled employee or customer who claims discrimination. Sexual discrimination
in the workplace is costing CEOs, politicians and celebrities their livelihood because they are
not appropriately dealing with accusations and harassment claims. Organizations must
maintain policies and procedures addressing various types of harassment and discrimination.
Moreover, organizations must remain consistent in the execution of policies dealing with
accusations. This helps reduce frivolous lawsuits that could bankrupt smaller organizations.
Discuss the scope for CSR in India. What are the necessary steps to attain CSR

The International Chamber of Commerce recommends the following nine steps to attain
CSR:

1. Confirming CEO/Board commitment to prioritize responsible business conduct;


2. Stating company purpose and agree on company values;
3. Identifying key stakeholders;
4. Defining business principles and policies;
5. Establishing implementation procedures and management systems;
6. Benchmarking against selected external codes and standards;
7. Seting up internal monitoring;
8. Using language that everyone can understand; and
9. Seting pragmatic and realistic objectives.

Corporate Social Responsibility in India

CSR IN GLOBAL CONTEXT

There is no universally accepted definition for the term CSR, but to understand the meaning
of it in simple words, one might go through the definition which has been given by the
European Commission. The definition states that “CSR is the responsibility of the enterprises
for their impact on the society…Enterprises should have in place a scheme to integrate
ethical, social, environmental and consumer concerns in their business and core strategy, in
close collaboration with their stakeholders”.[3]According to the Unites National Industrial
Development Corporation (UNIDO), “Corporate social responsibility is a management
concept whereby companies integrate social and environmental concerns in their business
operations and interactions with their stakeholders”.[4]

The concept of CSR has been introduced all across the world but different countries have
different ways of application. But the common thing is that all the countries use the LBG
model to measure the real value and effect of their community investment to the society and
business.

CSR IN INDIA

Philanthropy and CSR are not a new concept for India or Indian Companies. CSR in India
has traditionally been seen as a philanthropic activity, which was more of a kind of voluntary
spend rather than a statutory obligation under any of the statutes. If we look at the Indian
heritage, there were three types of philanthropic or charitable activities which were
traditionally practised namely Dana, Dakshina and Diksha. Dakshina was one which was
given in exchange/return of something; Diksha was something thing which was given for
your own enlightenment and Dana was the purest form of charity which was done without
expecting something in return. Keeping in view of Indian Tradition, this was an activity
which was voluntarily performed by the people without any deliberation. As a consequence
of this, there is limited documentation on specific activities related to this concept. Further,
the corporates entities in India such as Tata can self-esteem themselves on more than one
hundred years of reliable business practices, including far-reaching philanthropic activities
and society involvement.[7]
India is the first country in the world to have a statutory compliance requirement on CSR
spending whereas, in other countries like UK, France, Germany etc., there have been
voluntary guidelines. The Companies Act, 2013 has instituted the idea of CSR under Sec 135
of the Companies Act, 2013, to the forefront and through its disclose-or-explain directive, is
promoting greater disclosure and transparency. The Act stipulates that companies which
meet a certain set of criteria will have to spend at least 2% of their average profits in the last
three years towards CSR activities. Schedule VII of the Act, which lists out the CSR
activities, advises communities be the focal point. On the other hand, by conversing a
company’s relationship with its stakeholders and assimilating CSR into its core operations,
the CSR rules suggest that CSR needs to go beyond communities and beyond the concept of
philanthropy. In case, entities are unable to comply with the CSR provisions under the Act,
they would be required to give explanations/reasons for not spending the amount on CSR
activities. The approach is to ‘comply or explain’. If they fail to do so, they would face
action, including a penalty.

CSR under the Companies Act 2013


CSR provisions and applicability

According to Section 135, Companies Act, 2013, the CSR provisions will be applicable to
private limited and public limited companies, as well as their holding and subsidiary
companies and foreign companies that have offices in India and meets any of the following
criteria:

1. Company must have a net worth of INR 500 crore of more in any financial year;
2. Company must have an annual turnover of INR 1,000 crores or more in any financial year;
3. Company must have a net profit of INR 5 crore or more during any financial year.[8]

Companies that meet any of the aforesaid criteria must spend at least two percent (2%) of
their average net profits made during the previous three financial years on CSR activities.

An inclusive definition of CSR

While the Companies Act used CSR as a nomenclature without actually defining it, the
notified CSR rules have defined the term “CSR” to mean and include but not limited to:

1. Projects or programs relating to activities enumerated in the Schedule; or


2. Projects or programs relating to activities undertaken by the Board in pursuance of
recommendations of the CSR Committee as per the declared CSR policy subject to the
condition that such policy covers subjects specified in the Schedule.

This inclusive definition of CSR is of importance as it permits the companies to involve in


projects or programs relating to activities enumerated under the Schedule. It also gives
flexibility to the companies by permitting them to choose their ideal CSR engagements that
are in accordance with the CSR policy.

CSR Committee and Policy

Every qualifying company will be required to constitute a Committee (CSR Committee) of


the Board of directors (“Board”) consisting of 3 or more directors, including at least one
independent director.[9] The CSR rules 2014, states that an unlisted company and a private
company which are not required to appoint an independent director shall constitute a CSR
committee without an Independent director.[10] A private company having only two directors
shall constitute its CSR committee with two such directors.[11] In the case of a foreign
company, the CSR Committee shall consist of at least two persons wherein one person shall
be Indian resident and another person shall be nominated by the foreign company.[12]

The CSR Committee shall articulate and endorse to the Board, a CSR policy which shall
specify the activity or activities to be undertaken by the company; recommend the amount of
expenditure to be incurred on the activities referred and monitor the CSR Policy of the
company.[13]The Board shall take into considerations of the suggestions made by the CSR
Committee and approve the CSR Policy of the company.[14]

Role of the board and the CSR committee:

Computation of Net profit

Every company incorporated under Companies Act will have to report its net profits accrued
during the financial year for the purpose of ascertaining the criteria stated under Section
135(1) of the Companies Act, 2013. There are a distinct set of rules governing the Indian and
Foreign Company in this aspect.

(a) Indian Company: The methodology for computation of net profit has been explicitly
provided in the CSR Rules. According to the CSR Rules for the determination of the ‘net
profit’, of a company profits made by the company from its overseas branches or dividend
income received from another Indian company have to be disregarded. Further, the 2% CSR
is to be computed as 2% of the average net profits made by the company during the last three
financial years.[15] Also, the computation of net profit is in accordance with Sec 198 of the
Companies Act, 2013 which is mainly net profit before tax.[16]

(b) Foreign Company: CSR rules states that the net profit of a foreign company incorporated
in India shall be determined in conformity with the profit and loss account and balance sheet
of a foreign company which will be formulated in accordance with Section 381(1)(a) read
with Section 198 of the Companies Act.[17]

Scope Activities under CSR

Schedule VII of Companies Act, 2013, provides a wide spectrum of activities which may be
undertaken by the body corporates in India. Apart from the specified activities, the
Government may prescribe any other activity which it thinks proper to be included within the
ambit of CSR.[18] The activities that can be done by the company to achieve its CSR
obligations include

1. eradicating extreme hunger and poverty;


2. promotion of education;
3. promoting gender equality and women empowerment
4. reducing child mortality and improving maternal health,
5. combating human immuno-deficiency virus, acquired, immune deficiency syndrome, malaria
and other diseases
6. ensuring environmental sustainability;
7. employment enhancing vocational skills;
8. social business projects;
9. contribution to the Prime Minister’s National Relief Fund or any other fund set up by the
Central Government or the State Governments for socio-economic development and relief
and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward
classes, minorities and women and
10. such other matters as may be prescribed by the government of India.[19]

General Circular No. 21/2014 of Ministry of Corporate affairs had clarified that the entries in
the Schedule VII have to be interpreted liberally so as to encapsulate the crux of the subjects
listed in the said schedule. The items enumerated in Schedule VII of the act are based on
broad concepts and expected to cover a wide range of activities. The General circular also
provides an elucidatory list of activities that can be included under CSR. In a similar manner,
CSR expenditure can be spent on many more activities which are relatable to the ones which
are enumerated under Schedule VII.[20]

The Ministry of Corporate Affairs, in order to provide clarity to the execution of CSR, has
enumerated the activities which shall not be treated as CSR activities. The following do not
constitute as activities falling under CSR:

1. Activities undertaken in pursuance of the normal course of business by the company;


2. Activities undertaken outside India;
3. Activities that are exclusively for the benefit of employees of the company and their families;
4. One-off events such as awards/ marathons/ advertisement/ charitable donations/ sponsorships
of TV programmes etc. would not be regarded as part of CSR expenditure.
5. Expenses incurred by companies for complying with any Act/ Statute of regulations (such as
Land Acquisition Act, Labour Laws etc.)
6. Contributions made either directly or indirectly to any political parties under Section 182 of
Companies Act 2013.[21]

Implementation of CSR

As per the Companies Act, 2013, the activities enumerated in Schedule VII can be executed
in the following ways:

1. It must be carried out within India, preferably at the local areas and the areas around where
the company operates.
2. It may be performed as CSR projects or activities or programs which may either be fresh or
ongoing;
3. It may be carried out with the aid of a registered trust or society, or a charitable company
functioning within India which is established by the funding company, its parent, subsidiary
or associate company; or which is not established by the funding company, its parent,
subsidiary or associate company if it has a proven track record of undertaking similar
activities for at least three years;[22] and
4. It may be conducted in association with other companies provided that each eligible company
is able to report its CSR activities individually.[23]
5. It may also use up to 5% of its CSR spending in a financial year for training its own
employees/personnel for implementing CSR activities or for developing the required
facilities/capacities of their own personnel or implementing agencies.

Reporting

It is mandatory for the companies to publish the CSR report on their company’s official
websites annually[24]. The Board of directors of the Company must prepare an annual report
on the CSR activities of the company in a separate format specified in the CSR rules. The
CSR report, inter alia, must contain a brief overview of the CSR policy, the composition of
the CSR committee, average net profit in the preceding three financial years, 2% of the
average net profit of the company, the amount of expenditure that was spent on CSR
activities and any amount which have left unspent. In the case of a foreign company, the
balance sheet failed under sub-clause (b) of Section 381(1) shall contain an annexure
regarding report on CSR. If the company fails to spend the minimum required portion of its
net profit on CSR activities, the reasons for failing to do so must be mentioned in the Board
report.

Penalty for Contravention of CSR provisions

According to Section 134(3)(O) the companies Act 2013, the board of directors need to
mandatorily disclose all the relevant information about its Company’s CSR policy and its
implementation on an annual basis. Section 134(8) of the Act states that if the company fails
to comply with the aforementioned provision, it shall be liable to pay a fine which shall not
be less than Rs. 50,000 but may extend to INR 25,00,000. Further, every defaulting officer
shall be punishable with an imprisonment for a term, not more than 3 years or with a fine
which shall not be less than INR 50,000 but may extend to INR 5,00,000 or with both. This
essentially infers that the Act penalizes a company for failure to disclose information about
its CSR policy but does not hold them liable for not undertaking CSR activities.
However, Section 450 read with Sec 451 of the Act, which deals with general penalties for
contravention of the rules and repeat offences, contains a provision for punishing a company
or its officers in case no specific punishment is provided for a particular offence. Sec 450 of
the Act states that if a company contravenes with any provisions of the Act or any rules
thereunder, the company and any defaulting officer are liable to pay a fine which may extend
to INR 10,000 and INR 1,000 per day if the contravention continues after the first fine.

According to Section 451 of the Act, where the defaulter is punished either with fine or with
imprisonment and where the identical offence is committed for the second or successive
occasions within a period of three years, then, that company and every officer thereof who is
in default shall be punishable with twice the amount of fine for such offence in addition to
any imprisonment provided for that offence.

CONCLUSION

From the above analysis, it is evident that CSR is a noble initiative wherein the corporate
entities which reap the benefits of resources available at the society helps to fill the gap of
socio-economic inequality prevalent in the country and address the problems faced by the
society at large. In most of the countries, CSR activities was a voluntary obligation by the
companies or by regulatory. India is the first country in the world to have a mandatory
statutory compliance requirement on CSR spending, which was incorporated under Section
135 of the Companies Act, 2013 and has come into effect from 1 April 2014. As a
consequence of this, various companies have taken on extensive projects addressing the
socio-economic concerns and have supplemented the government’s efforts of sustainable
development and engage the corporate world with the country’s development.

However, there are certain lacunas like; there was no tax clarity on the CSR spending,
ambiguity( uncertainity) on the computation of financial accounts of foreign companies, an
absence of clarity on the regulations of CSR vis-a-vis foreign contribution. Even though there
are certain lacunas, they should not be permitted to become an obstacle in implementing the
true spirit of CSR. Thus, the government and corporate entities must mutually work together
for an effective implementation and addressing their concerns.

SAMPLE 2

The Scope of Corporate Social Responsibility

In order to facilitate effective implementation of Corporate Social Responsibility (CSR), the


Ministry of Corporate Affairs (MCA) has released a Circular on ‘Frequently Asked
Questions’ (FAQs) with regard to CSR under Section 135 of the Companies Act 2013. The
Circular follows closely on the heels of the release of a report by the High Level Committee
set up by the MCA to suggest measures for improved monitoring of the implementation of
CSR policies in October 2015, and provides clarity on some of the topics covered in the
report. The key highlights of the Circular are:
Applicability of CSR

 Section 135 of the Companies Act, 2013 is applicable to every company registered
under the Act, and any other previous Companies Law, with a net worth of Rs 500
crore or more, or a turnover of over Rs 1,000 crore or a net profit exceeding Rs 5
crore in any financial year. The circular further explains that ‘any financial year’
implies any of the three preceding financial years.

No role for government in CSR monitoring

 The Circular emphasizes that the government has no role in monitoring CSR
activities; it lays the onus on the board of the company to ensure the quality and
efficacy of a CSR project.

 The circular states that the government has no role in appointing an appropriate
authority for approving and implementing CSR programmes of a company or in
engaging external experts in monitoring the efficacy of CSR expenditure of
companies such as for impact assessments.

Companies’ boards will decide all aspects of CSR

 The board of the company takes a call on the CSR expenditure and qualifying
activities as CSR.
 CSR projects (and any changes thereof) and their monitoring are subject to the
approval of the company’s board on recommendations of its CSR committee.
 Boards or committees are fully competent to engage third parties to have an impact
assessment of CSR programmes to validate compliance of the CSR provisions of the
law.

Current tax exemptions valid for CSR spend


No specific tax exemptions are extended to CSR expenditure. However, certain activities
such as contribution to Prime Minister’s National Relief Fund (Section 80G), scientific
research (Sections 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(2AA)), rural development projects
(Section 35AC), skill development projects (Section 35CCD), agricultural extension projects
(Section 35CCC), etc. aligned to Schedule VII already enjoy exemptions under different
sections as indicated under the Income Tax Act, 1961. Further, the Finance Act 2014 clarifies
that the CSR expenditure does not form part of business expenditure.

No carry forward for CSR spend

 The Circular provides clarification that in case of CSR spend greater than the
prescribed CSR spend (2% of average net profit of three preceding financial years),
then the excess cannot be carried forward to the subsequent years against that year’s
prescribed CSR spend.
 For any unspent amount of the prescribed CSR spend, the board can chose to carry
forward to the subsequent years, provided it is over and above that year’s prescribed
CSR spend.
CSR policy and reporting must for all qualifying companies

 The Circular confirms that the contents of the board-approved CSR Policy must be
disclosed in the board of directors’ report and on the company’s website.
 All qualifying companies must report in the format provided by the Companies (CSR
Policy) Rules, 2014 on the annual report on CSR.
 Further, a foreign company unless otherwise exempted by the central government,
should attach a report on its CSR activity as an annexure to the balance sheet
document that it submits to the Registrar of Companies every calendar year.

Investing in government schemes as CSR

 The Circular states that the objective of the CSR Law is to promote innovative ideas
and corporate’s enhanced management skills in discharging social responsibility that
results in greater efficiency and better outcomes. Therefore, CSR should not be
interpreted as a source of financing the resource gaps in government schemes.
 The board may decide to supplement government schemes should it be deemed to
qualify under the CSR provisions of the law.

Employee volunteering and in-kind donations

 The Circular states that while companies should be encouraged to involve employees
in their CSR activities, monetisation of the pro-bono services provided by employees
will not be counted towards CSR expenditure.
 Contribution in kind cannot be monetised to be shown as CSR expenditure unless the
company spends the amount as per Section 135 of the Companies Act 2013.

The Circular reiterates that those activities that benefit only the employees or their families,
one-off events, expenses towards fulfilment of regulatory statutes, contribution to political
parties, activities as part of normal course of business or those undertaken outside of India do
not qualify as CSR expenses. It also reiterates that the contribution to corpus of a trust/
society/ Section 8 companies etc. will qualify as CSR expenditure as long as the entity is
created exclusively for undertaking CSR activities or where the corpus is created exclusively
for a purpose directly relatable to a Schedule VII item

7 Steps to Effective Corporate Social Responsibility


Define your messaging. Don’t strike blindly at different goals, such as preserving
rainforests one quarter and then investing in a community project the next. Come up with
causes that resonate with your business culture, research the kind of support they need, then
pick one and stick with it. One is enough for a small business – and don’t feel pressured to
donate more funding or assistance than you can afford.
Involve your customers. If you haven’t picked a cause yet, come up with a list of
alternatives and ask your web site visitors and Facebook fans to vote on which one they
would like to see you support. Or actively seek their assistance, such as bringing old but
usable technology into your store so that you can donate them to students in underfunded
schools. Make sure you offer a potential reward, such as holding a raffle for all participants.
Create a scorecard. Make sure it features achievable and measureable goals and keep it
visible on your site, tracking your progress. Be honest about any setbacks – you want the tone
to be authentic, not promotional.
Use social media. Don’t just tell your customers what you’re doing; solicit their ideas,
experiences and concerns to get them invested in your projects. Make sure you use multiple
digital platforms – such as blogs, Facebook, Twitter, and a YouTube channel – to reach
people with different media preferences.
Partner with a third party. Forming an alliance with a non-profit will not only lend
credibility to your efforts, but let you benefit from the non-profit’s greater experience in
fundraising and philanthropy. The alliance will also offer an opportunity to blend customers
and networks.
Seek publicity. If you’ve never sought media coverage for your business before, this
might be the time to start. Send out a press release about any contests, events or fundraising
drives – and reach out to media outlets that present on green topics as they’ll be apt to give
you positive coverage.
Repurpose your CSR reports. Using charts, stories, and photos in your annual reports
and newsletters will appeal to stakeholders and shareholders alike

“Corporate Social Responsibility is a need or a gimmick”. Explain the advantages of CSR for
Indian companies.

Corporate Social Responsibility (CSR) is a relatively new term in the business sphere.
The term was first coined in the 1960s, but it is only recently that it has gained popularity
amongst businesses. In recent times, under the new mandate of the Companies Act, 2013, it is
now compulsory for businesses to contribute two percent of their profits for the betterment of
society.

The relevance of CSR :-

1. CSR and consumers: CSR has a definite positive impact on consumers. Research shows that
CSR is responsible for more than 40% of a company’s reputation. 42 percent of people based
their feelings about a company on the firm’s CSR. McKinsey also found that 95 percent of
CEOs felt that society now has higher expectations of businesses taking on social
responsibilities than five years ago. About 93 percent of people want to see more of the
products and services they use supporting worthy social/environmental causes.
2. CSR and Employees: Research has found that 88 percent of millennials chose employers
based on strong CSR values, and 86 percent would consider leaving if the company’s CSR
values no longer met their expectations. Net Impact found that 53 percent of workers thought
that “a job where I can make an impact” was important to their happiness. About 35 percent
would even take a pay cut to work for a company committed to CSR. Another study found
that the more actively a company pursues worthy environmental and social efforts, the more
engaged its employees are.
3. CSR and Community: Research has found that CSR activities that help in developing the
community’s backward and downtrodden greatly impact the way it is perceived in the
community. People feel that by buying products from such companies, they are effectively
helping society.
Analysis :-

Given the above information, it can be easily seen that companies definitely benefit from
undertaking CSR projects. So, the question arises whether they truly want to give back to
society or are they just doing it for the profits.

The distinction is a difficult one but it can be perceived by taking a closer look at the
kind of CSR activities that the company undertakes. CSR activities are demanding in nature.
They require elaborate planning, resources, workforce, planning, and infrastructure. CSR
projects are planned by roping in marketing teams, ad agencies, and strategists.

The key giveaway between the real and the marketing gimmick is the duration of the
CSR projects. Companies which are doing it just to get more sales usually launch a project
for 2-3 months a year. While companies who really want to give back to the society perceive
CSR as not just a responsibility but their duty to society. Their projects are continuous, with
no timeframe to end them. They aim at building self-sustaining projects that can serve as
hubs for serving the society. The profits from them may even be nothing, but society should
develop from them. This is the key difference between real CSR and marketing gimmicks.

The benefits from a long-term CSR plan may not be perceivable right away, but they
pay dividends in the long run. Whereas short term CSR projects may lead to an instant surge
in profits, but they do not stand the test of time.

A case in point: The Tata Conglomerate (mix, combination) is known for its CSR and
philanthropic practices. The group was engaged in it even before the term was coined.
Thriving in India and the world for almost 2 decades now, the Tata conglomerate is one of
the favorites amongst the Indian population. It has stood the test of time and thrived despite
all odds. The key to its success is the core values that the group has always followed i.e.
serving and giving back to the people of India.

Conclusion :-

CSR practices may be a marketing gimmick or charity depending on the nature and
duration of the projects adopted by the businesses. Only philanthropic and people-centric
CSR projects that stand the test of time are the ones that truly change the society as well as
positively develop the businesses. Thus, creating a win-win situation.

What CSR basically means is that a business does more for the
wellbeing of others than required in an economical (make a profit)
and legal (obey the law) sense.
Different types of CSR

 Environmental CSR: focuses on eco-issues such as climate change.


 Community based CSR: businesses work with other organizations to improve the quality of
life of the people in the local community.
 HR based CSR: projects that improve the wellbeing of the staff.
 Philanthropy: businesses donate money to a good cause, usually through a charity partner.
CSR critics

Although most companies in the world today agree that corporate social responsibility is part
of daily business practice, this idea is not shared by everyone. This is the so-called business
to business approach.

Advantages of Corporate Social Responsibility


5 reasons why should you get involved in CSR

In today’s digital, fast speed world, each business, small or big, needs to have a CSR program
in place. If CSR is not yet part of your daily business practice, you must act fast. Or else
you’ll loose the trust of the people who are important to your business.

Believe it or not but the expectations of your staff, customers and the wider community have changed.
You are no longer in control. They are.

So why CSR?

1. Satisfied employees.

Employees want to feel proud of the organization they work for. An employee with a positive
attitude towards the company, is less likely to look for a job elsewhere. It is also likely that
you will receive more job applications because people want to work for you.

More choice means a better workforce. Because of the high positive impact of CSR on
employee wellbeing and motivation, the role of HR in managing CSR projects is significant.

2. Satisfied customers

Research shows that a strong record of CSR improves customers’ attitude towards the
company. If a customer likes the company, he or she will buy more products or services and
will be less willing to change to another brand.

Relevant research:

 IBM study ‘Attaining Sustainable Growth through Corporate Social Responsibility’:


The majority of business executives believes that CSR activities are giving their firms
competitive advantage, primarily due to favorable responses from consumers.
 Better Business Journey, UK Small Business Consortium: “88% of consumers said
they were more likely to buy from a company that supports and engages in activities
to improve society.”

3. Positive PR

CSR provides the opportunity to share positive stories online and through traditional media.
Companies no longer have to waste money on expensive advertising campaigns. Instead they
generate free publicity and benefit from worth
of mouth marketing.

4. Costs reductions

Yes, you read this correctly. A CSR program doesn’t have to cost money. On the contrary. If
conducted properly a company can reduce costs through CSR.

Companies reduce costs by:

 More efficient staff hire and retention


 Implementing energy savings programs
 Managing potential risks and liabilities more effectively
 Less investment in traditional advertising

5. More business opportunities

A CSR program requires an open, outside oriented approach. The business must be in a
constant dialogue with customers, suppliers and other parties that affect the organization.
Because of continuous interaction with other parties, your business will be the first to know
about new business opportunities.

6. Long term future for your business

CSR is not something for the short term. It’s all about achieving long term results and
business continuity. Large businesses refer to: “shaping a more sustainable society”
(Vodafone 2010 report):

“ Deliver a sustainable society in which business and its stakeholders can prosper in the long
term”

How Corporations Benefit from Corporate Social Responsibility


1. Improves Public Image

Companies that demonstrate their commitment to various causes are perceived as more
philanthropic than companies whose corporate social responsibility endeavors are
nonexistent.

A corporation’s public image is at the mercy of its social responsibility programs and
how aware consumers are of these programs.

Remember, consumers feel good shopping at institutions that help the community. Clean up
your public image (and broadcast it to the world!).

Corporations can improve their public image by supporting nonprofits through


monetary donations, volunteerism, in-kind donations of products and services, and
strong partnerships.
By publicizing their efforts and letting the general public know about their philanthropy,
companies increase their chances of becoming favorable in the eyes of consumers.

Takeaway: Positive social responsibility improves a company’s public image and


relationship with consumers.

2. Increases Media Coverage

It doesn’t matter how much your company is doing to save the environment if nobody knows
about it.

Make sure you’re forming relationships with local media outlets so they’ll be more
likely to cover the stories you offer them.

How much good a company can do in its local communities, or even beyond that, is corporate
social responsibility. And the better the benefits, the better the media coverage.

On the other hand, if a corporation participates in production or activities that bring


upon negative community impacts, the media will also pick this up. Unfortunately, bad
news spreads quicker than good news.

Media visibility is only so useful in that it sheds a positive light on your organization.

Takeaway: Having a strong CSR program can increase the chances that your company
gets news coverage

3. Boosts Employee Engagement

Employees like working for a company that has a good public image and is constantly in the
media for positive reasons.

Happy employees almost always equal better output.

Nearly 60% of employees who are proud of their company’s social responsibility are engaged
at their jobs.

When companies show that they are dedicated to improving their communities through
corporate giving programs (like matching gifts and volunteer grants!), they are more
likely to attract and retain valuable, hardworking, and engaged employees.

If a corporation is philanthropically minded, job-hunting individuals are more likely to apply


and interview for available positions. Once hired, employees who are engaged will stay with
a company longer, be more productive on a daily basis, and will be more creative than
disengaged workers.

Takeaway: Corporate social responsibility helps attract and retain engaged and
productive employees.
4. Attracts & Retains Investors

Investors who are pouring money into companies want to know that their funds are being
used properly.

Not only does this mean that corporations must have sound business plans and budgets, but it
also means that they should have a strong sense of corporate social responsibility.

When companies donate money to nonprofit organizations and encourage their


employees to volunteer their time, they demonstrate to investors that they don’t just
care about profits.

Instead, they show that they have an interest in the local and global community.

Investors are more likely to be attracted to and continue to support companies that
demonstrate a commitment not only to employees and customers, but also to causes and
organizations that impact the lives of others.

Takeaway: Investors care about corporate social responsibility and so should


companies.

How Nonprofits Benefit from Corporate Social Responsibility

How Nonprofits Benefit from Corporate Social Responsibility


1. Funding Via Matching Gift Programs

Corporations that offer matching gift programs essentially double the donations that
their employees are giving to eligible nonprofits.

What more could an organization want?

Truthfully, matching gifts are a bit more complicated than that.

Each company has a different set of guidelines, deadlines, and requirements that must be met
before they’ll match an employee’s contribution to a nonprofit.

However, the opportunity to receive twice as many donations still hangs in the air for
organizations looking to benefit from corporate social responsibility programs.

Takeaway: Matching gift programs have the potential to double, and sometimes even
triple, an organization’s fundraising revenue.

2. More Volunteer Participation

Corporations that offer volunteer grants are outsourcing helping hands to eligible nonprofit
organizations.
A corporation with this kind of program might offer (for example) $250 to a nonprofit once
an employee has volunteered at least 10 hours with the organization. There are also pay-per-
hour grants that many corporations offer that pay a certain amount per hour volunteered.

This kind of socially responsible program is a win-win for every party involved. Employees
of corporations are seen volunteering and donating their time to important causes in the
community, and nonprofits are receiving free time and volunteer work, which
are essential for the success of so many nonprofits.

Takeaway: Volunteer grant programs are a crucial component of CSR that bring in
more revenue and volunteer time for nonprofits.

3. Forging Corporate Partnerships

Yet another positive impact corporate social responsibility has on nonprofit organizations is
the possibility of corporate partnerships.

These partnerships are vital to the work a corporation can do in the local community
and important to a nonprofit that may not have the resources for major marketing
campaigns.

For a nonprofit organization, a partnership with a local or national corporation puts its name
on tons of marketing materials that otherwise could not have been afforded on tight budgets.

A key benefit is that the partnership brings additional awareness to the nonprofit’s
cause.

Takeaway: CSR brings nonprofits and companies together, creating strong


partnerships between the two.

4. Varied Sources of Revenue

Nonprofits cannot solely rely on individual donations for support.

Granted, individuals make up roughly three-fourths of an organization’s total monetary


contributions, but this doesn’t mean that nonprofits should discount corporations and
businesses as viable sources of revenue.

In fact, companies with strong corporate social responsibility programs are looking for
nonprofits to be the recipient of grants, matching gift programs, and volunteer grant
programs.

CSR initiatives can help nonprofits make up that left over 25% after they’ve looked to
individual donors.

Takeaway: Corporate social responsibility programs can be another source of revenue


for nonprofits.
How Employees Benefit from Corporate Social Responsibility
1. Positive Workplace Environment

When corporations exhibit philanthropic behavior, they are more likely to provide employees
with a positive workplace. Consequently, employees feel engaged and productive when they
walk into work each day.

Instilling a strong culture of corporate social responsibility within every employee from
the top down will help to create a positive and productive environment where employees
can thrive.

Corporations that care about the lives of people outside the walls of their businesses are more
likely to create a positive environment.

Takeaway: Business environments are more enjoyable when companies engage in


corporate social responsibility.

2. Increase in Creativity

Employees who know that their employer is committed to bettering the local and global
communities feel a stronger connection to the company. Because of this close relationship
that employees share with their company, workers feel more inclined to be productive and
creative.

Employers have identified creativity as one of the most important leadership qualities
that an employee can possess. Creative employees enjoy working for companies that
they can believe in and stand behind.

By incorporating comprehensive philanthropic programs, companies can help employees


become more productive and creative.

Takeaway: Companies that maximize their social responsibility potential foster


innovative and creative employees.

3. Encourages Professional & Personal Growth

When companies have a culture of corporate social responsibility, they can easily promote
volunteerism to their employees and encourage them to donate to nonprofits.

When employees contribute their time and money to worthy causes, they develop
professionally and personally.

By helping those in need and volunteering as teams, employees learn to work better together
on important projects. Employees also experience a sense of pride when they know that they
work for a company that cares about the community and encourages them to be passionate
about worthy causes.

Takeaway: Employees are able to professionally and personally develop as a result of


corporate social responsibility.
4. Promotes Individual Philanthropy

When employees notice that the company they work for is involved in charitable endeavors,
they play follow the leader and begin to engage in their own philanthropic activities.

If a company encourages group volunteerism and matches donations to nonprofits with a


matching gift program, an employee is more likely to take advantage of those programs
and become more individually philanthropically minded.

Without the strong sense of CSR that a company should adopt, employees are less likely to
branch out themselves and serve the community with monetary donations and volunteer
efforts.

Takeaway: Employees become more philanthropically aware when they work for
companies that are socially responsible.
Describe the impact of globalization on Indian corporate and social culture. Also explain in
short international codes of business conduct.

Globalization in Business

Globalization refers to the changes in the world where we are moving away from self-
contained countries and toward a more integrated world. Globalization of business is the
change in a business from a company associated with a single country to one that operates in
multiple countries.

Impact of Globalization

Imagine for a moment that you run a business that produces digital cameras. How would
globalization impact your company?

The impact of globalization on business can be placed into two broad categories: market
globalization and production globalization.

Market globalization is the decline in barriers to selling in countries other than the home
country. This change will make it easier for your company to begin selling products
internationally, since lower tariffs keep consumer prices lower and fewer restrictions when
crossing borders makes it easier for a company to enter a foreign market. It also means that
companies must consider other cultures when developing their business strategies and
potentially adjust the product and marketing messages if they aren't appropriate in the target
country. This may not be an issue in the camera industry, but a hamburger company entering
India would definitely need to revisit their product and strategies to be successful!

Production globalization is the sourcing of materials and services from other countries to gain
advantage from price differences in different nations. For example, you might purchase
materials and components for your cameras from multiple countries and then assemble the
product in yet another international location to reduce your costs of production. This change
should lead to lower prices for consumers since products cost less to produce. It also impacts
jobs, since production may shift from one country to another, usually from more developed
countries to less developed countries with lower average wage rates.

SAMPLE 2

Globalization has been defined as the process of rapid integration of countries and
happenings through greater foreign trade and foreign investment. It is the process of
international integration arising from the interchange of world views, products, ideas and
other aspects of culture.

What are the factors aiding globalisation?

1) Technology: has reduced the speed of communication manifolds. The phenomenon of


social media in the recent world has made distance insignificant.

The integration of technology in India has transformed jobs which required specialized skills
and lacked decision-making skills to extensively-defined jobs with higher accountability that
require new skills, such as numerical, analytical, communication and interactive skills. As a
result of this, more job opportunities are created for people.

2) LPG Reforms: The 1991 reforms in India have led to greater economic liberalisation
which has in turn increased India’s interaction with the rest of the world.

3) Faster Transportation: Improved transport, making global travel easier. For example,
there has been a rapid growth in air-travel, enabling greater movement of people and goods
across the globe.

4) Rise of WTO: The formation of WTO in 1994 led to reduction in tariffs and non-tariff
barriers across the world. It also led to the increase in the free trade agreements among
various countries.

5) Improved mobility of capital: In the past few decades there has been a general reduction
in capital barriers, making it easier for capital to flow between different economies. This has
increased the ability for firms to receive finance. It has also increased the global
interconnectedness of global financial markets.

6) Rise of MNCs: Multinational corporations operating in different geographies have led to a


diffusion of best practices. MNCs source resources from around the globe and sell their
products in global markets leading to greater local interaction.

These factors have helped in economic liberalization and globalization and have facilitated
the world in becoming a “global village”. Increasing interaction between people of different
countries has led to internationalization of food habits, dress habits, lifestyle and views.

Globalization and India:

Developed countries have been trying to pursue developing countries to liberalize the trade
and allow more flexibility in business policies to provide equal opportunities to multinational
firms in their domestic market. International Monetary Fund (IMF) and World Bank
helped them in this endeavour. Liberalization began to hold its foot on barren lands of
developing countries like India by means of reduction in excise duties on electronic goods in
a fixed time frame.

Indian government did the same and liberalized the trade and investment due to the pressure
from World Trade Organization. Import duties were cut down phase-wise to allow MNC’s
operate in India on equality basis. As a result globalization has brought to India new
technologies, new products and also the economic opportunities.

Despite bureaucracy, lack of infrastructure, and an ambiguous policy framework that


adversely impact MNCs operating in India, MNCs are looking at India in a big way, and are
making huge investments to set up R&D centers in the country. India has made a lead over
other growing economies for IT, business processing, and R&D investments. There have
been both positive and negative impacts of globalization on social and cultural values in
India.
IMPACTS OF GLOBALISATION IN INDIA

Economic Impact:

1. Greater Number of Jobs: The advent of foreign companies and growth in economy has led
to job creation. However, these jobs are concentrated more in the services sector and this has
led to rapid growth of service sector creating problems for individuals with low level of
education. The last decade came to be known for its jobless growth as job creation was not
proportionate to the level of economic growth.
2. More choice to consumers: Globalisation has led to a boom in consumer products market.
We have a range of choice in selecting goods unlike the times where there were just a couple
of manufacturers.
3. Higher Disposable Incomes: People in cities working in high paying jobs have greater
income to spend on lifestyle goods. There has been an increase in the demand of products like
meat, egg, pulses, organic food as a result. It has also led to protein inflation.

Protein food inflation contributes a large part to the food inflation in India. It is evident from
the rising prices of pulses and animal proteins in the form of eggs, milk and meat.

With an improvement in standard of living and rising income level, the food habits of people
change. People tend toward taking more protein intensive foods. This shift in dietary pattern,
along with rising population results in an overwhelming demand for protein rich food, which
the supply side could not meet. Thus resulting in a demand supply mismatch thereby, causing
inflation.

In India, the Green Revolution and other technological advancements have primarily focused
on enhancing cereals productivity and pulses and oilseeds have traditionally been neglected.

 Shrinking Agricultural Sector: Agriculture now contributes only about 15% to GDP. The
international norms imposed by WTO and other multilateral organizations have reduced
government support to agriculture. Greater integration of global commodities markets leads to
constant fluctuation in prices.
 This has increased the vulnerability of Indian farmers. Farmers are also increasingly
dependent on seeds and fertilizers sold by the MNCs.
 Globalization does not have any positive impact on agriculture. On the contrary, it has few
detrimental effects as government is always willing to import food grains, sugar etc.
Whenever there is a price increase of these commodities.
 Government never thinks to pay more to farmers so that they produce more food grains but
resorts to imports. On the other hand, subsidies are declining so cost of production is
increasing. Even farms producing fertilizers have to suffer due to imports. There are also
threats like introduction of GM crops, herbicide resistant crops etc.
 Increasing Health-Care costs: Greater interconnections of the world has also led to the
increasing susceptibility to diseases. Whether it is the bird-flu virus or Ebola, the diseases
have taken a global turn, spreading far and wide. This results in greater investment in
healthcare system to fight such diseases.
 Child Labour: Despite prohibition of child labor by the Indian constitution, over 60 to a 115
million children in India work. While most rural child workers are agricultural laborers, urban
children work in manufacturing, processing, servicing and repairs. Globalization most directly
exploits an estimated 300,000 Indian children who work in India’s hand-knotted carpet
industry, which exports over $300 million worth of goods a year.
Socio-Cultural Impact on Indian Society

Nuclear families are emerging. Divorce rates are rising day by day. Men and women are
gaining equal right to education, to earn, and to speak. ‘Hi’, ‘Hello’ is used to greet people in
spite of Namaskar and Namaste. American festivals like Valentines’ day, Friendship day etc.
are spreading across India.

 Access to education: On one hand globalisation has aided in the explosion of information on
the web that has helped in greater awareness among people. It has also led to greater need for
specialisation and promotion of higher education in the country.
 On the flip side the advent of private education, coaching classes and paid study material has
created a gap between the haves and have-nots. It has become increasingly difficult for an
individual to obtain higher education.
 Growth of cities: It has been estimated that by 2050 more than 50% of India’s population
will live in cities. The boom of services sector and city centric job creation has led to
increasing rural to urban migration.
 Indian cuisine: is one of the most popular cuisines across the globe. Historically, Indian
spices and herbs were one of the most sought after trade commodities. Pizzas, burgers,
Chinese foods and other Western foods have become quite popular.
 Clothing: Traditional Indian clothes for women are the saris, suits, etc. and for men,
traditional clothes are the dhoti, kurta. Hindu married women also adorned the red bindi and
sindhur, but now, it is no more a compulsion. Rather, Indo-western clothing, the fusion of
Western and Sub continental fashion is in trend. Wearing jeans, t-shirts, mini skirts have
become common among Indian girls.
 Indian Performing Arts: The music of India includes multiples varieties of religious, folk,
popular, pop, and classical music. India’s classical music includes two distinct styles:
Carnatic and Hindustani music. It remains instrumental to the religious inspiration, cultural
expression and pure entertainment. Indian dance too has diverse folk and classical forms.
 Bharatanatyam, Kathak, Kathakali, Mohiniattam, Kuchipudi, Odissi are popular dance forms
in India. Kalarippayattu or Kalari for short is considered one of the world’s oldest martial art.
There have been many great practitioners of Indian Martial Arts including Bodhidharma who
supposedly brought Indian martial arts to China.
 The Indian Classical music has gained worldwide recognition but recently, western music is
too becoming very popular in our country. Fusing Indian music along with western music is
encouraged among musicians. More Indian dance shows are held globally. The number of
foreigners who are eager to learn Bharatanatyam is rising. Western dance forms such as Jazz,
Hip hop, Salsa, Ballet have become common among Indian youngsters.
 Nuclear Families: The increasing migration coupled with financial independence has led to
the breaking of joint families into nuclear ones. The western influence of individualism has
led to an aspirational generation of youth. Concepts of national identity, family, job and
tradition are changing rapidly and significantly.
 Old Age Vulnerability: The rise of nuclear families has reduced the social security that the
joint family provided. This has led to greater economic, health and emotional vulnerability of
old age individuals.
 Pervasive Media: There is greater access to news, music, movies, videos from around the
world. Foreign media houses have increased their presence in India. India is part of the global
launch of Hollywood movies which is very well received here. It has a psychological, social
and cultural influence on our society.
 McDonaldization: A term denoting the increasing rationalization of the routine tasks of
everyday life. It becomes manifested when a culture adopts the characteristics of a fast-food
restaurant. McDonaldization is a reconceptualization of rationalization, or moving from
traditional to rational modes of thought, and scientific management.
 Walmartization: A term referring to profound transformations in regional and global
economies through the sheer size, influence, and power of the big-box department store
WalMart. It can be seen with the rise of big businesses which have nearly killed the small
traditional businesses in our society.

Psychological Impact on Indian Society

 Development of Bicultural Identity: The first is the development of a bicultural identity or


perhaps a hybrid identity, which means that part of one’s identity is rooted in the local culture
while another part stems from an awareness of one’s relation to the global world.
 The development of global identities is no longer just a part of immigrants and ethnic
minorities. People today especially the young develop an identity that gives them a sense of
belonging to a worldwide culture, which includes an awareness of events, practices, styles
and information that are a part of the global culture. Media such as television and especially
the Internet, which allows for instant communication with any place in the world, play an
important part in developing a global identity.

A good example of bicultural identity is among the educated youth in India who despite
being integrated into the global fast paced technological world, may continue to have deep
rooted traditional Indian values with respect to their personal lives and choices such as
preference for an arranged marriage, caring for parents in their old age.

1. Growth of Self-Selected Culture: means people choose to form groups with like-minded
persons who wish to have an identity that is untainted by the global culture and its values. The
values of the global culture, which are based on individualism, free market economics, and
democracy and include freedom, of choice, individual rights, openness to change, and
tolerance of differences are part of western values. For most people worldwide, what the
global culture has to offer is appealing. One of the most vehement criticisms of globalization
is that it threatens to create one homogeneous worldwide culture in which all children grow
up wanting to be like the latest pop music star, eat Big Macs, vacation at Disney World, and
wear blue jeans, and Nikes.
2. Emerging Adulthood: The timing of transitions to adult roles such as work, marriage and
parenthood are occurring at later stages in most parts of the world as the need for preparing
for jobs in an economy that is highly technological and information based is slowly extending
from the late teens to the mid-twenties. Additionally, as the traditional hierarchies of authority
weaken and break down under the pressure of globalization, the youth are forced to develop
control over their own lives including marriage and parenthood. The spread of emerging
adulthood is related to issues of identity.
3. Consumerism: Consumerism has permeated and changed the fabric of contemporary Indian
society. Western fashions are coming to India: the traditional Indian dress is increasingly
being displaced by western dresses especially in urban areas. Media- movies and serials- set a
stage for patterns of behavior, dress codes and jargon. There is a changing need to consume
more and more of everything.

Globalisation is an age old phenomenon which has been taking place for centuries now. We
can experience it so profoundly these days because of its increased pace. The penetration of
technology and new economic structures are leading to an increased interaction between
people. As with other things there have been both positive and negative impacts on India due
to it.

Conclusion: We cannot say that the impact of globalization has been totally positive or
totally negative. It has been both. Each impact mentioned above can be seen as both positive
as well as negative. However, it becomes a point of concern when, an overwhelming impact
of globalization can be observed on the Indian culture.
Every educated Indian seems to believe that nothing in India, past or present, is to be
approved unless recognized and recommended by an appropriate authority in the West. There
is an all-pervading presence of a positive, if not worshipful, attitude towards everything in
western society and culture, past as well as present in the name of progress, reason and
science. Nothing from the West is to be rejected unless it has first been weighed and found
wanting by a Western evaluation. This should be checked, to preserve the rich culture and
diversity of India.

What are the factors facilitating globalisation

7 Factors Influencing Globalization – Discussed!

Factors influencing Globalization are as follows: (1) Historical (2) Economy (3)
Resources and Markets (4) Production Issues (5) Political (6) Industrial Organisation
(7) Technologies.

Globalisation though is basically an economic activity, is influenced by many factors.

The important factors are:

(1) Historical:

The trade routes were made over the years so that goods from one kingdom or country moved
to another. The well known silk-route from east to west is an example of historical factor.

(2) Economy:

The cost of goods and values to the end user determine the movement of goods and value
addition. The overall economics of a particular industry or trade is an important factor in
globalisation.

(3) Resources and Markets:

The natural resources like minerals, coal, oil, gas, human resources, water, etc. make an
important contribution in globalisation.

Table 16.1: India’s Strengths and Weaknesses:

Strengths Scale Rank


Stock Market

ADVERTISEMENTS: 5.42 13

Stock market is important


for new financing
5.27 16
Science and Engineering
Schools excel in basic
science and maths
Country has a large pool 6.37 1
of competent scientists
and engineers

ADVERTISEMENTS: 6.26 1

Engineering as a
profession greatly attracts
young talent 5.05 8

Labour Force ADVERTISEMENTS:

Country has first-class 1


business schools to train
managers 6.77 9

Country has an abundant 5.40 14


labour force
5.37 19
ADVERTISEMENTS:
ADVERTISEMENTS:
Rate of Law
5.56
Judiciary is independent
of the government

Compliance with court


ruling is high

Firms have recourse to


courts for challenging
government actions
Weakness

Financial Markets

Citizens prohibited from 1.60 53


investing in foreign
stocks, bonds and bank 2.74 43
accounts
2.63 50
Financial sector
sophistication is lower
than international norms

Venture capital is scarce


Public Administration
Administrative regulations 2.90 47
that constrain business are
pervasive 2.68 52

Government subsidies 2.65 43


keep old industries alive
2.27 48
Civil Service is subject to
political pressures 1.92 53

Tax evasion is rampant

Infrastructure 1.85 53

Overall infrastructure is 2.18 53


far worse than major
trading partners 2.94 53

Road infrastructure 1.94 53


constraints business
development

Port facilities are


underdeveloped

Direct dial phone service


is prohibitively expensive 2.11 52

Country suffers from 2.66 51


severe power shortage
2.29 34
Research and
Development

The business sector


spends little on R & D
2.94 51
Firms fail to
commercialise academic 2.16 53
research
2.58 49
Companies are poorly
adopted to absorbing new
technologies
2.79 48
Labour Regulations

Average workers are


unproductive
Hiring and firing practices
are severely restricted

Labour regulations
impede adjustment of
working hours to meet
changes in demand

Corruption and Bribery

Extra payment connected


with permits and licenses
are common

The mineral based industries like steel, aluminium, coal in Australia are examples. Few of
these Australian mining and metal companies are owned by European / Japanese / American
companies.

Near distance to end user or consumer also is an important factor in globalisation. The large
markets as consumer bases in Asian countries have led many European, Korean to Japanese
manufacturing conglomerates and shift their manufacturing and trading bases in Asian
countries.

That is going near the customer makes globalisation. The Table 16.1 gives the strengths and
weakness of India in global level. The details are based on expert survey on globalisation. As
may be seen from the table low on scale is lack or shortfall and hence, ranking is low.

(4) Production Issues:

Utilisation of built up capacities of production, sluggishness in domestic market and over


production makes a manufacturing company look outward and go global. The development
of overseas markets and manufacturing plants in autos, four wheelers and two wheelers is a
classical example.

(5) Political:

The political issues of a country make globalisation channelised as per political bosses. The
regional trade understandings or agreements determine the scope of globalization. Trading in
European Union and special agreement in the erstwhile Soviet block and SAARC are
examples.

(6) Industrial Organisation:

The technological development in the areas of production, product mix and firms are helping
organisations to expand their operations. The hiring of services and procurement of sub-
assemblies and components have a strong influence in the globalisation process.
(7) Technologies:

The stage of technology in a particular field gives rise to import or export of products or
services from or to the country. European countries like England and Germany exported their
chemical, electrical, mechanical plants in 50s and 60s and exports high tech (then) goods to
under developed countries. Today India is exporting computer / software related services to
advanced counties like UK, USA, etc.

Eight barriers in economic activities:

Many countries in Particular developing ones impose restrictions to globalisations by:

i. Imposing high taxes and duties for capital goods, spares and materials,

ii. Licensing restrictions,

iii. Foreign exchange restrictions,

iv. Investment restrictions,

v. Incentives and prioritisation to specific domestic industries, and

vi. Banning / restricting products of foreign origin.

vii. Procedural hassles, bureaucracy

viii. Closed mind-set

The fears of the countries in that case may be:

i. To provide local employment,

ii. To raise standard of living and GDP,

iii. To help in building up foreign exchange reserves,

iv. To channelise the resources of the country,

v. To develop new skills / markets and

vi. To mobilise capital.

Transport, communication and IT:

The technological revolution the world has witnessed in the last two decades is
overwhelming. Development has immensely influenced world trade by bridging space and
time. IT has revolutionised the way the business goes. E-money, e-banking, B2B business,
B2C business and internet have added to speed up globalisation. Buying and selling of stocks
and transfer of funds can take place now instantly.
explain in short international codes of business conduct

International Code of Ethics

The international code of ethics presented below will serve as a moral compass to aid global
organizations in business decisions. The stipulated code will serve as a standard in global
ethics to establish and regulate ethical, social, and environmental responsibilities of
companies operating in global markets. The established standard will become a useful tool in
comparing, and measuring the level of responsibility taken by global organizations. As such
organizations will be held accountable to ensure their decisions do not cause negative social
outcomes on foreign economies.

Code of ethics

1. Respect the economic and social environment of foreign markets. Carefully measure
the impact of business on:
1. The economy: The ethical organization will care about the global economy by
helping to create positive economic conditions not only for the wealthy but
also for the most vulnerable of citizens as well.
2. Social welfare: The business or institution shall take action to ensure not to
harm social welfare with the introduction of business in the foreign economy.
The organization will not take part in business that will destroy the livelihoods
of citizens, otherwise harm, or take advantage of citizens.
2. Laws and regulations:
1. Respect the rules, laws, and cultural behaviours and traditions of foreign
countries when conducting business in foreign markets.
2. Political climate: The business or institution shall understand and respect the
politics and the way that the government is governing the country in which
trade will be happening.
3. Multilateral trade: Organizations will support trade agreements between many
nations at once. Multilateral trade allows all nations involved in the agreement
equal trading treatment.
3. Respect the environment of foreign countries, and avoid business activities that would
otherwise damage it or impede it:
1. Avoid illicit operations: Do not conduct illegal business questionable in
ethical behaviour.
2. Environmental pollution: Do not conduct business in foreign countries that
one would not conduct in one’s own country for the purpose of preserving
one’s own environment at the detriment of another’s.
3. Exploitation of resources: Do not conduct business in any way that will take
natural resources and exploit and possibly cause extinction of such natural
resources.
4. Corporate Culture requires that all involved organizations understand the culture of
other countries and in unity develop guidelines that will help form a shared culture. A
corporate culture has:
1. Shared goals and values: Deciding what is good and bad for all those involved
sets a guideline of expected behaviour. Establishing goals declares what need
to be achieved and all parties can focus on attaining the desired results.
2. Learning culture: Such a culture will facilitate sharing knowledge among
teams. It will also help in reviewing the successes and failures in the
relationships as they seek change.
3. Clan control of values: A requirement for non-straightforward issues,
requiring trial and error, adaptation, and flexibility.
4. Leadership: By example, successful leaders will lead all teams in enacting the
proposed code of ethics. Followers adopt the values portrayed by their leaders
even when they are not seen as ethical.
5. Study the foreign culture to form an understanding of, and respect of the rules that
form the ethics behind cultural differences. According to Dr. Greet Hofstede there are
five dimensions that form different cultures:
1. The power distance index (PDI):

This index focuses on the degree of equality and inequality between the country’s people.
Two categories make up the PDI: The High Power and Low Power Distance. High Power
Distance refers to the inequalities of power and wealth and how much growth is allowed in
the society., a High Power Distance example is a caste system. Low Power Distance ranking
is the gap between the power of citizens’ and their wealth. The polarization gap between
wealth and power is wider in the Low Power Distance ranking system.

1. The Individualism index (IDV):

This Index focuses on how much members of the culture define themselves apart from their
group memberships. Hofstede uses two category’s in the IDV: High Individualism and Low
Individualism. High Individualism refers to people who develop and display their own
individual personalities and loosely affiliate themselves with a group’s personality. Low
Individualism refers to the high affiliation that one relates to their group’s personality.

1. The Masculinity index (MAS):

This Index focuses on the traditional value of Male and Female power, control, and
achievement. Hofstede uses two categories, Masculinity, and Low Masculinity. Masculinity
refers to a culture driven by men. Men hold all the power and control the household. Low
Masculinity refers to a culture that has equal power distribution between men and women.

1. The Uncertainty Avoidance index (UAI):

This index focuses on how hesitant the society is toward the unknown and the attempt to
minimize uncertainty. Hofstede uses two category’s, High Uncertainty Avoidance and Low
Uncertainty Avoidance. A High Uncertainty Avoidance Orientation refers to a culture whose
rules are set in place to help reduce the amount of uncertainty in the future. Low Uncertainty
Avoidance refers to a culture being more flexible to rules and guidelines, and less worried
about the future. This society also has more tolerance for a variety of opinions and lifestyle
differences.

1. The Long- Term Orientation index (LTO):

This index focuses on the society’s value on history, culture, and long- term devotion to
traditional thinking. Hofstede uses two categories, High Long-Term Orientation and Low
Long-Term Orientation. High Long-Term Orientation refers to a culture that values history,
long-term commitments and tradition. Low Long-Term Orientation refers to a culture that
does not value the past or present and has more of a focus on the future. In Low Long- Term
Orientation changes occur more frequently and commitment levels are low in traditional style
thinking.

How the proposed code is ethical

The stipulated code of ethics can be used to create an organizational goals and an
organizational vision that will help direct the business in ethical activities.

Goals define expected outcomes hence removing any doubts on what is the purpose of
working together. Such clarity does show ethics. Clan control solves problems that have “no
one best way” of handling them.(Bateman-Snell, 2007). It ensures that all involved parties
will fulfil their obligations to the best of their abilities and creates a fair environment. Leaders
play a big part in defining the culture within the organization and they will influence
employees behaviour. A good leader will empower teams to create trust and achieve goals.
The values and ethical standards of an organization will define what kind of leadership is
seen within the organization. Effective leaders will ensure that all individuals follow the
code of ethics. In addition, the stipulated code of ethics covers areas of uncertainty and
establishes a framework in which organizations reflect beyond their ability to profit from
conducting business in a foreign country but also on the impact of their presence on the
country. The code of ethics attempts to bridge the gap between what is morally right and
wrong. For example, the bullet points cover issues such as harming the livelihood of citizens,
or taking advantage of them.

Finally, the last bullet covers studying cultural differences in societies to ensure that any
business activities do not offend the culture of the country penetrated. Using Hofsted’s study
of cultures the stipulated code of ethics highlights that every global organization must take
steps to protect the individual beliefs that make a culture unique. To be ethical it is important
to gain an understanding of the cultures an organization is doing business with to ensure that
members are not disrespecting sacred beliefs and subtle differences.

What one can be learn about ethics from other cultures:

No one culture is the same as the other and what people term to be ethical or unethical has a
greater influence by their culture. Learning different ethics offer organizations a unique scope
on what is seen as important from a multinational level of doing business. Ethic
understanding is pivotal in succeeding in today’s multinational, multigenerational,
multicultural world so that a company can understand and comprehend the layered
complexion of today’s market and today’s consumer.
Conclusion

Cultural values greatly influence ethical standards as well as behaviour in business. Great
leaders will show sacrifice for values that form an international code of ethics by sending a
clear and strong message on the importance of ethics.
Explain Indian model of Corporate Governance with suitable example.

7 Important Models of Corporate Governance


This article throws light upon the seven important models of corporate governance. The
models are: 1. Canadian Model 2. UK and American Model 3. German Model 4. Italian
Model 5. France Model 6. Japanese Model 7. Indian Model.

1. Canadian Model:

Canada has a history of French and British colonisation. The industries inherited those
cultures. The cultural background in these industries affected subsequent developments. The
country has large influence of French merchantism.

In 19th century the Canadian industries were controlled by rich families. Since last five
decades wealthy Canadian families sold their stocks during stock boom periods. Canada now
resembles United States in industry structure.

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Since last four decades there is change in industries in Canada in the areas:

i. Family owned companies are on the increase

ii. Use of new technologies

iii. More entrepreneurial activities

ADVERTISEMENTS:

iv. Early entrance in initiating corporate governance

v. Diffuse ownership from earlier colonial masters.

2. UK and American Model:

Sarbanes Oxley Act:

In July 2002, the U.S. Congress passed the Sarbanes Oxley Act (SOX), particularly designed
to make US corporations more transparent and accountable to their stakeholders.

The Act seeks to re-establish investor confidence by providing good corporate governance
practice to prevent corporate scams and frauds in business corporations, to improve accuracy
and transparency in financial reporting, accounting service of listed companies, enhance
corporate responsibility and independent auditing.

ADVERTISEMENTS:

The applicability of the Act is not confined only to publicly owned US companies, but also
extends to other units registered with the Securities Exchange Commission. However, there is
a common thread running between them, i.e., that governance matters. Unless corporate
governance is integrated with strategic planning and shareholders are willing to bear the
additional required expenses, effective governance cannot be achieved.

The above events encouraged the development of the present situation where different
aspects of the Sarbanes Oxley Act are discusses, and its effects, limitations and internal
control after the act were passed and what lies beyond its compliance.

Also discussed are the varied applications of the act in areas such as IT, the fee structure of
the Big Four Accounting Firms, the mid-size accounting firms, supply chain management and
insurance.

The Anglo-American Model of industry structure and corporate governance is detailed


in Fig. 2.1:

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3. German Model:

Germany is known for industrialisation since beginning of 19th century. Germany exports
sophisticated machinery in a large way since last five decades. The industries are financed by
wealthy German families, small shareholders, banks and foreign investors. The large private
bankers who invested in industry had a bigger say in running those industries and hence
performance was not up to the mark.

Germany is considering proper steps towards corporate governance since second half of 19th
century. The company law in Germany of 1870 created dual board structure to care of small
investors and the public. The company law in 1884 made information and openness as the
key theme. The law also mandated minimum attendance at the first shareholders meeting of
any company.

World War I saw considerable changes in industries in Germany by dismantling the rich. As
on date Germany has large number of family controlled companies. The smaller companies
are controlled by banks. The proxy voting by small investors was introduced in Germany in
year 1884.

The German Model of industry and corporate governance is shown in Fig. 2.2:

4. Italian Model:

The Italian business was also controlled by family holdings. The business groups and the
families were powerful by mid of 20th century. Slowly the stock market gained importance
during the second half of the 20th century. The Italian government did not intervene in the
company management or their working.

When the Italian all the investment banks collapsed in 1931 the Fascist government in Italy
took over the industrial shares and imposed a legal separation of investment from commercial
banking. The Second World War brought a change from the government side to have a direct
role in the economy, helping the weak companies and using corporate governance to improve
these companies. This helped the economic growth of Italy particularly in capital intensive
industries.

Since World War II the industrial policy was introduced. The policy had no need for investor
protection. It led the investors to buy a government bonds and not invest in company shares.
The growth of Italian industry came from the small specialised industries which remained
unlisted in stock markets.

The small firms were controlled by families. The corporate governance was in the hands of
bureaucrats or wealthy families. The corporate governance activities and confidence in stock
markets started developing since last two decades. The Italian investors are aware of the
importance of the corporate governance and protection of the rights.

5. France Model:

The French financial system traditionally was regulated by the religion. The controlling
methods, borrowing and lending with the state constituting the main borrower. Religion had
prohibited the interest to some extent. The lending was based on mainly mortgages of real
estates. In early 19th century the French public took to hoarding gold and silver.

Coins composed measure part of money transactions in that period. The French industry was
conservative in its outlook. The business used the retained earnings of one company to build
other areas of business and companies.

The business was controlled by wealthy families who funded these business groups. The
control of the company continued from generation to generation. Stage wise the corporate
government was introduced in France along with economic development activities. This led
to wealthy families controlling corporate sector to come under the watchful guidance of the
state.

6. Japanese Model:

Japan was a deeply conservative country were the hereditary caste system was important.
Business families where at the bottom of the period i.e., beneath priests, warriors, peasants
and craftsmen. Due to lack of funds at the lowest level of the pyramid led to the stagnation of
the business.

The large population of the country needed goods and services and the importance was given
to prominent mercantile families like Mitsui and Sumitomo. The World War II brought a sea
change in the business, commerce and industry and opened the Japanese markets to the
American traders. The young Japanese started taking higher education in Europe and
America and learnt foreign technology, business management.

These led to building of new culture in industry, commerce and economic outlook in Japan.
The government also started establishing stated owned companies. These companies ended
up in losses and huge debts. To come out of the problem the government made mass
privatization of most of these companies. Many of these were sold to Mitsui and Sumitomo
families.

In the mean while Mitsubishi gained prominence. The three companies groups were called
Zaibatsu “meaning controlled by pyramids of listed corporations”. The growth of Japanese
industry is a mix of private and state capitalism. Meanwhile large companies developed in the
auto area like Nissan and Suzuki. The Suzuki company was owned by the Suzuki family.
The depression period of 1930’s brought economic stagnation and eroded the appreciation of
the Japanese public for the family companies. The family companies always kept their family
rights ahead of their shareholders and public interest. The private company resorted to short-
term gains and did not care for long-term investments or projects of long gestation.

The large companies in Japan also had their own banks. In 1945’s the American occupied and
took charge of the Japanese economy that changed the face of Japanese industry and
economy. By the beginning of 1950’s the Japanese large companies were free standing and
widely held similar to United Kingdom and United States.

The companies which were poorly governed were the targets for takeover by the large
companies. The banks controlled the large groups of industry which are called as Keiretsu.
The Keiretsu system is in place even today. The large companies also influence government
in a big way. The corporate governance has evolved in Japan since last 2 decades.

The Japanese Model of industry and corporate governance is shown in Fig. 2.3:
7. Indian Model:

East India Co. (EIC) in its trade had malpractices.

Current practice since 400 years since industrialisation in companies.

Environmental and world commercial are classic cases.

Family owned cos.

India has long history of commercial activities 2500 years old.

(a) The Managing Agency system 1850-1955

(b) The Promoter System 1956-1991

(c) The Anglo American System 1992 onwards

The Securities and Exchange Board of India (SEBI):

Established SEBI Act in Jan. 1992 gave statutory powers and introduced had 2 issues.

(a) Investor protection and

(b) Market Development.

SEBI is part of department of Company Affairs Govt. of India.

SEBI has moved from control regime to prudential regulation.

It is empowered to regulate working of stock exchanges and its players including all listed us.

SEBI is playing a key role in corporate governance in India.

These developments in U.K. had significant influence on India. Confederation of Indian


Industries (CII) appointed a National Task Force headed by Rahul Bajaj, who submitted a
‘Desirable Corporate Governance in India – a Code’ in April 1998 containing 17
recommendations.

Thereafter Securities and Exchange Board of India (SEBI) appointed a Committee under the
Chairmanship of Kumar Mangalam Birla. This committee submitted its report on 7 May
1999, Containing 19 Mandatory and 6 non-mandatory recommendations. SEBI implemented
the report by requiring the Stock Exchanges to introduce a separate clause 49 in the Listing
Agreements.

In April 2002 Ganguly Committee report was made for improving corporate governance in
Banks and Financial Institutions. The Central Government (Ministry of Finance and
Company Affairs) appointed a Committee under the Chairmanship of Mr. Naresh Chandra on
Corporate Audit and Governance. This committee submitted its report on 23 December 2002.
Finally SEBI appointed another committee on Corporate Governance under the Chairmanship
of N.R. Narayan Murthy. The committee submitted its report to SEBI on 8 Feb. 2003. SEBI
thereafter revised clause 49 of the Listing Agreement, which has come into force with effect
from 01 January 2006.

Some of the recommendations of these various committees were given legal recognition by
amending the Companies Act in 1999, 2000 and twice in 2002. With a view to gear company
law for competition with business in developed countries, the Central Government (Ministry
of Company Affairs) appointed an expert committee under the Chairmanship of Dr. Jamshed
J. Irani in December 2004.

The Committee submitted its report to the Central Government on 31 May 2005. The Central
Government had announced that the company law would be extensively revised based on Dr.
Irani’s Committee Report.

Corporate world is awaiting the changes to be made in company law. Parliament on 15 May
2006 had approved the Companies (Amendment) Bill, 2006 which envisages implementation
of a comprehensive e-governance system through the well-known MCA-21 project.

Corporate governance has once again become the focus of media/public attention in India
following the debacles of Enron, Xerox and WorldCom abroad, and Tata Finance/Ferguson,
Satyam, telecom scams by few companies and black money laundering, employed by few at
home.

With the opening of the markets post liberalisation in early 1990’s and as India get integrated
into world economy, the Indian companies can no longer afford to ignore better corporate
practices which are essential to enhance efficiency to survive international competition.

The question that comes to the minds of Indian investors now is, whether our institutions and
procedures are strong enough to ensure that such incidents will not happen again, or has the
Indian corporate sector matured enough to practice effective self-regulation? These
developments tempt us to re-evaluate the effectiveness of corporate governance structures
and systems in India.

Economic liberalisation and globalisation have brought about a manifold increase in the
foreign direct investment (FDI) and foreign institutional investment (FII) into India. More
and more Indian companies are getting themselves listed on stock exchanges abroad. Indian
companies are also tapping world financial markets for low cost funds with ADR/GDR
issues.

Companies now have to deal with newer and more demanding Indian and global shareholders
and stakeholder groups who seek greater disclosure, more transparent explanation for major
decisions, and, above all, a better return for their stake. There is, thus, an increased need for
Indian boards to ensure that the corporations are run in the best interests of these highly
demanding international stakeholders.

Initiatives by some Indian companies and the CII have brought corporate governance to a
regulatory form with the introduction of Clause-49 in the Listing Agreement of companies
with the stock exchanges from January 2000. The first to comply with the requirements of
Clause-49 were the Group-A companies, which were required to report compliance by March
31, 2001.

However, the code draws heavily from the UK’s Cadbury committee, which is based on the
assumption of a dispersed share ownership – more common in the UK – than the
concentrated and family-dominated pattern of share ownership in India. In addition in regard
to corporate governance the Indian corporate have also overhauled themselves.
What is whistle blowing ? Explain when should one resort to this practice.

Whistle Blowing: Definition, Justification and Precautions


After reading this article you will learn about:- 1. Definition of Whistle Blowing 2.
Justification of Whistle Blowing 3. Wrong Types of Whistle Blowers 4. Precautions 5.
Actions to Prevent.

Definition of Whistle Blowing:

Whistle blowing basically is done by an employee where he finds that the ethical rules are
broken knowingly or unknowingly and an imminent danger for the company, consumers or
the public. When an employee is working in an organization is part of the group where the
decisions are made and executed.

The whistle blowing needs a relook at the same work and requires breaking with the very
group that the whistle-blower viewed as critical to financial success of the group and the
company or very survival of the company. The decision of whistle blowing may involve
destabilizing one’s life and placing the entire organization under scrutiny.

The attempt of an employee or former employee of an organisation to disclose what he or she


believes to be wrong doing in or by the organisation. Whistle blowing can be internal,
external, personal, and impersonal. Whistle blowing goes against the strong bonds in Indian
companies and culture norms of showing loyalty.

A moral dilemma can occur when a loyal employee observes the employer committing or
assisting in an illegal or immoral act and must decide what to do. The whistle blowing may
not only lose his or her job but may also experience negative effect on his career and personal
life. The pressure on the whistle-blower may range from outright termination to more subtle
pressures.

The conditions in which whistle blowing is morally justified are:

1. A product or policy that will commit serious and considerable harm to the public.

2. When the employee identifies a serious threat of harm to the consumers, employees, other
stakeholder, state and things against his or her moral concern.

3. Immediate supervisor does not act, should exhaust the internal procedures and chain of
command to the board of directors. No action is taken in spite of best efforts of the employees
to remedy the situation of unethical actions.

4. The employee must have documented evidence that is convincing to a reasonable level so
that the facts can be proved to the outside public and to the test of the law.

5. Valid reasons to believe that revealing the wrongdoing to the public will result in the
changes in the organisation are necessary to remedy the situation. The chance of succeeding
must be equal to the risk and danger the employee takes to blow the whistle.
The whistle blower should take care that the action should not be simple mudslinging or
raising alarm on inaccurate or unjustifiable grounds.

The areas of special importance are:

i. Confidential information of the company to maintain its competitive edge or perform work
efficiently.

ii. Whistle blower should not involve himself in personal acquisitions or bringing down the
morale of the organisation.

iii. Accusing manager about incompetent decisions that do not involve ethical issues.

iv. Whistle blowing against violations of code of conduct of the company.

From the above it may be seen that a whistle-blower has to do his homework well and
consider the real consequences before blowing the whistle. It involves conflict between
company goals, legal, moral, personal issues. Before whistle-blowing one has to think of
what alternatives available to him and thereafter, follow proper guidelines in reporting the
wrongdoing.

Freedom of speech is a fundamental right. But how far an employee can use this against own
employer depends upon the topic of grief, knowledge and maturity of the employee.

Under what circumstances and against what type of activities can an employee below whistle
against his seniors or employer is important. Whistle blowing can be treated as questionable
loyalty or strongly worked suggestion. How to treat it depends upon the way it is presented
and the broad minded attitude of the management.

An employee will be in a moral dilemma whenever he finds that his employer is doing illegal
or immoral act and will be in confusion of future course of his action. A whistle blower risks
his job and sometime even future career. In Indian conditions there are various examples
where an employee complains to PF Commissioner or Income Tax Commissioner or Sales
Tax Commissioner for violation of act and loose the job in the process.

This brings in a situation where a whistle blower is branded as ‘unfair’ by employer but his
activities are ‘fair’ as per the law and as per his friends and family. Due to fear of losing the
job many employees avoid or delay whistle blowing. Most of them do it safely after changing
the job. This sometime could be too late to alert the authorities concerned.

Justification of Whistle Blowing:

There are certain situations when the whistle blowing can be justified.

There are:

(1) Whenever and wherever the product/service of the firm will cause considerable harm to
the public.
(2) Whenever an employee feels serious threat or harm to him or anybody he should report to
the firm.

(3) Before reporting any subject an employee should have documental evidence which should
convince on impartial observer about the necessity of whistle blowing.

(4) If an immediate boss does not care for report (whistle blowing) the employee should go
up to highest level to present his case.

(5) There is always some risk involved in whistle blowing. If the employee is fully convinced
of his good intentions and serves good cause for society he should go ahead with whistle
blowing.

The risks of whistle blowing can be ill-treatment, withdrawal of perks, transfer, difficult work
and task and lastly termination. In some countries there is protection from termination to
whistle blowers. However this only helps to retain job. The management can always harass or
trouble an employee without termination. It is difficult to work in any company by going
against the management.

Wrong Types of Whistle Blowers:

There are certain types of whistle blowers who do it on false accusations and with ill
intentions. Such employees should not be protected.

Following instances show how freedom of speech is misutilised by the whistle blowers:

(1) In case of disclosing business secrecy, inventions, future plans and some specific
specialised practices which may be confidential and of exclusive company usage.

(2) Whenever an employee remarks are irrelevant to the organisations work and product.

(3) In case of wrong accusations which cannot be proved and which are made in vengeance
only end up demoralizing the employees.

(4) When an employee is complaining against transfer, demotion or discharge when such
action is taken on the basis of routine performance appraisal.

Precautions before Whistle Blowing:

Whistle blowing has consequences of moral, legal, personal, economic, family and career
demands. It is a serious step with definite consequences.

Hence before blowing the whistle an employee should take following precautions:

i. Be clear about your intensions and likely consequences. Go ahead only if you are
convinced that the situation warrants whistle blowing.

ii. Compile documents to support your case. Do not depend upon hearsay.
iii. Allegations should be stated appropriately with documents and to be sent to the right
person/ position.

iv. Preferably take the internal route. If this does not work then try external route.

v. Whistle blowing can be done openly or anonymously. If identity is disclosed are should be
prepared to face the consequences.

vi. Decide if it is appropriate to take action immediately after sometime later or during the
service.

vii. Consult a lawyer about possible legal battle and defence mechanism.

Actions to Prevent External Whistle Blowing:

Employers should organise grievance redressal systems. This will help employees to come
forward with grievances. The committee will attend the grievance and resolve them with the
help of top management. The external whistle blowing also can be taken up by the grievance
committee.

The following action will be reduce or prevent external whistle blowing:

(1) Create an effective internal grievance system so that both present and past employees
have no reasons to complain.

(2) Appreciate employees and even adopt reward system for solving problems though
grievance redressal system.

(3) Keep special officers in each unit to study and evaluate wrong doings by various
employees.

(4) Punish with heavy fines or retrenchment of employees who indulge in unlawful and
corrupt practices.

It is always advisable to hire, train and promote morally and legally sensitive and responsive
managers who work for welfare of all the stakeholders. Whistle blowing should be a last
resort to awake the organisations.

An employee loyalty is best explained by trying to change for the better by gradual and
persuasive method rather than whistle blowing. None of the organisations can claim to be
100% ideal in all aspects of employment and organisational working. Continuous efforts
should be done in pursuit of perfection.

Empowerment of the Weakest, Unique and Balance of Power:

On few occasions management takes complex issues of managing very weak and very
talented employees:

(a) Empowering Weak Employees:


This situation calls for relocation, retraining and providing lighter or suitable work load.
However, this sounds more like a social resettlement. In commercial organisation the practice
is to force the VRS scheme or dismiss such employees. From employer point of view it is fair
to the company and concerned employee feels it unfair practice. Hence some issues are very
delicate to decide ethical or unethical.

(b) Empowerment of the Unique Employees:

Unique employees are those who are (i) talented but not qualified or (ii) talented but not
experienced. The unique category needs to be encouraged. But this is difficult to do without
creating unequal employment practices. It is fair to encourage the talent but unfair to promote
them neglecting other colleagues. Hence this is also a delicate subject to decide ethical or
unethical.

Balancing the Situation:

There is no standard formula or theory to do balancing act on above two types of


empowerment situations. The situation depends on the company, work environment and the
extent of trade union activities. Decision has to be taken based on consensus opinion between
management and the union. If no consensus is arrived at the status quo continues.
Explain environmental ethics and marketing ethics in detail.
Environmental ethics take into consideration the moral obligations human beings have concerning the
environment. Learn how environmental ethics and human values affect our ability to understand and
solve environmental problems.

The Environment

Did you notice that the world is getting smaller? I don't mean it is physically shrinking in
size, but there's no denying that in today's modern world we are more keenly aware of the
fact that an event or action that happens on one side of the globe can impact what happens on
the opposite side.

Things like the Internet, a more globalized economy, and widespread changes in climate
draw our attention to events happening around the world, and with this new awareness comes
some ethical questions regarding the responsibilities humans have with respect to the care of
the planet. In this lesson, we will discuss environmental ethics and human values and
describe how they affect our ability to deal with the environmental problems that our world
faces.

Environmental Ethics & Human Values

Environmental ethics is the philosophical discipline that considers the moral and ethical
relationship of human beings to the environment. In other words: what, if any, moral
obligation does man have to the preservation and care of the non-human world?

While ethical issues concerning the environment have been debated for centuries,
environmental ethics did not emerge as a philosophical discipline until the 1970s. Its
emergence was the result of increased awareness of how the rapidly growing world
population was impacting the environment as well as the environmental consequences that
came with the growing use of pesticides, technology, and industry.

Environmental ethics helps define man's moral and ethical obligations toward the
environment. But human values become a factor when looking at environmental ethics.
Human values are the things that are important to individuals that they then use to evaluate
actions or events. In other words, humans assign value to certain things and then use this
assigned value to make decisions about whether something is right or wrong. Human values
are unique to each individual because not everyone places the same importance on each
element of life. For example, a person living in poverty in an undeveloped country may find
it morally acceptable to cut down the forest to make room for a farm where he can grow food
for his family. However, a person in a developed country may find this action morally
unacceptable because the destruction of forests increases carbon dioxide emissions into the
atmosphere, which can negatively impact the environment.

Environmental ethics, along with human values, make for challenging philosophical debates
about man's interaction with the environment. Water and air pollution, the depletion of
natural resources, loss of biodiversity, destruction of ecosystems, and global climate change
are all part of the environmental ethics debate. And we see that within the discipline of
environmental ethics there are tough ethical decisions humans must consider.
For example: is it acceptable for poor farmers in undeveloped countries to cut down forest to
make room for farmland, even if this action harms the environment? Is it morally wrong for
humans to continue to burn fossil fuels knowing that this action leads to air pollution and
global climate changes? Is it ethically permissible for man to build a hydroelectric dam
knowing that this will disrupt the migration pattern of certain fish, leading to their extinction?
Does a mining company have a moral obligation to restore the natural environment destroyed
by their mining techniques?

Concept
The concept of environmental ethics brings out the fact that all the life forms on Earth have
the right to live. By destroying nature, we are denying the life forms this right. This act is
unjust and unethical. The food web clearly indicates that human beings, plants, animals, and
other natural resources are closely linked with each other. All of us are creations of nature
and we depend on one another and the environment. Respecting the existence of not just
other humans but also the non-human entities, and recognizing their right to live is our
primary duty. With environmental ethics, morality extends to the non-human world.

Consumption of Natural Resources


Our natural environment is not a storehouse to rob resources from. It is a reserve of resources
that are crucial to the existence of life. Their unscrupulous depletion is detrimental to our
well-being. We are cutting down forests for making our homes. Our excessive consumption
of natural resources continues. The undue use of resources is resulting in their depletion,
risking the life of our future generations. Is this ethical? This is an environmental ethics issue.

Destruction of Forests
When industrial processes lead to destruction of resources, is it not the industry's
responsibility to restore the depleted resources? Moreover, can a restored environment make
up for the original one? Mining processes disrupt the ecological balance in certain areas.
They harm the plant and animal life in those regions. Slash-and-burn techniques are used for
clearing land, that leads to the destruction of forests and woodland. The land is used for
agriculture, but is the loss of so many trees compensated for?

Environmental Pollution
Many human activities lead to environmental pollution. The rising human population is
increasing the demand for nature's resources. As the population is exceeding the carrying
capacity of our planet, animal and plant habitats are being destroyed to make space for human
habitation. Huge constructions (roads and buildings for residential and industrial use) are
being made at the cost of the environment. To allow space for these constructions, so many
trees have to lose their lives. The animals that thrive in them lose their natural habitats and
eventually their lives. However, the cutting down of trees is seldom even considered as loss
of lives. Isn't this unethical?

Harm to Animals
Due to habitat loss, animals may enter human settlements, thus posing a threat to the people
living there. In some cases, these animals are killed. Secondly, animals serve as food sources
of humans, for which they are killed. Also, animal studies cause harm to animals and even
their deaths. This destruction has led to the extinction of many animal species. The reduction
in the populations of several other animal species continues. How can we deny the animals
their right to live? How are we right in depriving them of their habitat and food? Who gave us
the right to harm them for our convenience? These are some of the ethical environmental
issues that need to be addressed.

The Inherent Value of Non-human Entities


Instrumental Value
An important point that the field of environmental ethics is concerned with, is whether non-
human beings only have an instrumental value or whether they also have an intrinsic value.
Aristotle said that "nature has made all things specifically for the sake of man", which means
non-human beings only have an instrumental value; they are meant to serve as 'instruments'
for human beings. From an anthropocentric point of view (which lays emphasis on human
beings), the use of other living elements in nature by humans is only right. Causing them
harm or destroying them is wrong only because it eventually affects human life. With this
view, cruelty to animals is wrong because it develops insensitivity, and not because animals
should not be harmed. Or the felling of trees is wrong because it eventually causes loss of
food sources for humans, and not because it is simply unethical.
Intrinsic Value
Historian Lynn White Jr. published an essay in 1967, in which he criticized Judeo-Christian
thinking as being a primary factor that led human beings to exploit the environment.
According to this line of thinking, man is supreme and the nature has been created for him,
which gives him the right to exploit it. White also criticized the Church Fathers who
maintained that God created man in his own image and gave him the right to rule every being
on Earth. According to White, this view promotes the idea that man is separate from nature
and not a part of it. This thought leads human beings to exploit nature without realizing its
intrinsic value.
A key figure in modern environmental ethics was Aldo Leopold, an American author,
scientist, environmentalist, ecologist, forester, and conservationist. His ecocentric views were
dominant in the development of modern environmental ethics. Ecocentrism deems the whole
ecosystem as important as opposed to anthropocentrism that believes humans to be the most
important in the universe. According to ecocentrism, there are no existential differences
between the human and non-human entities in nature, which means humans are not more
valuable than any other component of the environment. Humans as well as plants, animals,
and other constituents of nature have an inherent value.
Theologian and environmental philosopher Holmes Rolston III says that protection of
species is our moral responsibility as they have an intrinsic value. In his view, the loss of a
species spells disrespect to nature's process of speciation. According to him, biological
processes deserve respect. Thus, any action that translates into disregard for the
environment is unethical.
The concept of plant rights is worth discussing in this context. It is the idea of plants having
certain rights like humans and animals have. Philosopher Tom Regan argues that animals and
human beings are entitled to rights because they are 'aware' of their existence, which does not
apply to plants. Philosopher Paul Taylor is of the view that plants have intrinsic value and
that they are entitled to respect but not rights. In his 1972 paper "Should Trees Have
Standing?", Christopher D. Stone said that if corporations can be assigned rights, so should
trees.
Our Moral Responsibility
Another important point in relation to environmental ethics is of our moral responsibility to
preserve nature for our future generations. By causing environmental degradation and
depletion of resources, we are risking the lives of future generations. Is it not our duty to
leave a good environment for them to live in? Non-renewable energy resources are fast-
depleting and sadly, it isn't possible to replenish them. This means, they may not be available
for the future generations. We need to strike a balance between our needs and the availability
of resources, so that the forthcoming generations are also able to benefit from their use.

We are morally obliged to consider the needs of even the other elements of our environment.
They include not just other human beings, but also plants and animals. It is only ethical to be
fair to these elements and make a responsible use of natural resources. Environmental ethics
try to answer the question of whether human beings have any moral obligation towards the
non-human entities in nature. For the sake of development and convenience, is it morally
right to burn fuels though pollution is caused? Is it morally right to continue with
technological advances at the cost of the environment? Climate change is known to have a
negative impact on plant diversity. It is a fact that the increasing pollution levels are
hazardous for not only humans but also for plants and animals. Given this, isn't it our moral
responsibility to protect the environment? We have certain duties towards the environment.
Our approach towards other living entities should be based on strong ethical values. Even if
the human race is considered as the main constituent of the environment, animals and plants
are in no way less important. They have a right to get a fair share of resources and lead a safe
life.
Environmental Ethics and Religion
Different religions have their own theories of how the world was created and in their own
ways, encourage the ideas of protecting the environment or preserving nature because of the
association of natural elements with the Supreme Power that created them. In some religions,
certain plants or animals are worshiped considering them as sacred or symbols of a particular
deity. Nature worship is a part of many religious and spiritual practices. This goes on to say
that all religions express concern towards the environment and lay importance on its non-
human constituents.
Radical Ecology
A step further from environmental ethics is radical ecology, which says that it may not be
enough to extend ethics to non-human elements of the environment and that it is necessary to
bring changes in the way we live and function. Norwegian philosopher Arne Naess classified
environmentalism as shallow and deep. While shallow ecologists follow anthropocentrism,
deep ecologists recommend the development of a new eco-philosophy. They are of the view
that non-human elements have an intrinsic worth which is not dependent on their utility for
humans. They believe in the need to implement ways to reduce human intervention in the
non-human world that leads to the destruction of biodiversity. According to Naess, humans
should broaden their idea of 'self' to include other life forms. In his eco-philosophy,
'transpersonal ecology', Australian philosopher Warwick Fox says that the field of
environmental ethics is not limited to realizing our moral obligations towards the
environment. It is about realizing what he calls ecological consciousness. Some may think
that the principles of deep ecology are not sufficient to address environmental issues, but
advocates of this ideology believe that once a state of 'environmental consciousness' is
attained, humans will feel obligated to protect the environment.
Be it due to the scientific understanding of our environment or due to religious views that
advocate the need for environmental protection, what's most important is that human beings
realize their connection with nature.
Marketing Ethics
Definition: Marketing Ethics
Marketing ethics are the moral principles and values that need to be followed during any kind
of marketing communication. They are the general set of guidelines which can help
companies to decide on their new marketing strategies. But then it depends on one’s own
judgement of ‘right’ and ‘wrong’. Any unethical behaviour is not necessarily illegal. If a
company is making any kind of claims about their products, and are unable to live up to those
claims, it may be called as an unethical behaviour.

Marketing ethics basically promotes fairness and honesty in all their advertisements. Any
kind of false claims to the consumers, invading consumer’s privacy, stereotyping and
targeting the vulnerable audience (like children and elderly) are considered to be unethical
behaviour by the companies. Even trying to harm the competitor’s image is considered
immoral.

Ethics are still subjective and should be openly discussed by the companies while making any
marketing decisions. Companies following the marketing ethics are able to gain the trust of
the consumers and create a positive image for themselves.

What is 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

There are distinct advantages and disadvantages to ethical marketing. Unethical advertising is
often just as effective as it is unethical (See also Black Hat Marketing). And since unethical
behavior is not necessarily against the law, there are many companies who use unethical
advertising to gain a competitive advantage.

Many people buy diet pills even though they are rarely, if ever, effective. This is because
some diet pill companies use exaggerated and manipulative claims to essentially trick
customers into buying these products. If that same company committed to using ethical
advertising they would probably go out of business. However sneaky their business model
may be, it is not illegal and it is keeping their doors open.

For companies looking to improve the image of a brand and develop long-term relationships
with customers, this kind of unethical behavior can quickly lead to failure. Customers do not
want to feel manipulated by the brands they like. Companies can use ethical marketing as a
way to develop a sense of trust among their customers. If a product lives up to the claims
made in its advertising, it reflects positively on the entire company. It can make the consumer
feel like the company is invested in the quality of the products and the value they provide
customers.
It is impossible to claim that any company is completely ethical or unethical. Ethics resides in
a gray area with many fine lines and shifting boundaries. Many companies behave ethically
in one aspect of their advertising and unethically in another.

Dove soap, for instance, ran a widely seen ad campaign featuring “real” models. The ad was
meant to promote realistic body images and encourage girls to love the way they looked even
if they were not supermodels. However, other Dove ads both during and since featured
stereotypically beautiful models whose images have been altered to hide imperfections. Dove
marketed ethically in one campaign and unethically in another. This illustrates how difficult it
is to do the right thing in all circumstances. What is most important for any company that
claims to practice ethical advertising is to make it a fundamental feature of their marketing
process. With every decision they must ask themselves “will this sell” and “is this the ethical
way to sell it?”.

How is ethical marketing is plan devloperd & implemented

Ethical marketing doesn’t refer to a plan in and of itself, but offers tools for companies to
evaluate the marketing strategies they use in the past, present, and future. If a company
decides that an ethical marketing strategy can increase their profits or advance their public
image, they can take steps to revise their existing marketing (See also Public Relations
Specialist). In some cases this involves minor changes; in others it will require entirely new
ad campaigns.

Any ethical marketing effort will begin with a careful analysis of the company, its customers,
and the markets it operate within. Ethical marketing has many advantages, but few companies
would undertake an ethical marketing strategy if it reduces profits. Careful research is the
best way to predict the effects of a change in strategy. If ethical marketing proves to be cost
prohibitive, many companies will abandon the effort.

A company will then decide which features of their advertising to perform in ethical ways. As
previously mentioned, the field of ethics is notoriously abstract. What is right to one may be
wrong to another. Marketing professionals must reach an agreement about how they want to
deliver their campaigns. They might decide to focus on making honest claims, avoiding
marketing to children, or falsely criticizing competitors. A delicate balance has to be struck
between the truth of the ad and its ability to persuade the customer.

Finally, ethical marketers need to make difficult choices about how to leverage the capitol of
their ethical decisions. For most companies, the simple knowledge that they are doing the
right thing will not be enough of a motivating factor. Ethical marketing often highlights the
ethical choices a company has made in order to improve their public reputation. This can be a
powerful way to connect with customers, but it also runs the risk of seeming self
congratulatory. Any effort at ethical marketing has to balance a company’s self interest with
their social responsibility.

One company which embodies the spirit of ethical marketing is The Body Shop, a worldwide
chain of bath and body stores. Since their inception they have been committed to treating
workers fairly, avoiding animal testing, using organic products, and promoting healthy body
images. These values are often at the center of their marketing efforts. The ethical nature of
the company is highlighted as a way to differentiate themselves from their competitors in the
cosmetics industry.
Sample 2

Definition of Ethical Behavior

Have you ever been in this situation? You arrive at your favorite amusement park and rush to
ride the brand new, state-of-the-art roller coaster only to find a 3-hour wait? Are you tempted
to jump ahead in the line? What prevents you from doing so? The answer is that it is, usually,
your ethics. Ethics refers to the moral principles or values that generally govern the conduct
of an individual or a group.

They can also be viewed as a standard of behavior. The gray area of ethics occurs when one
person's standard is not the same as someone else's. Society's ethical standards are for people
to follow the rules and not cut in line. In business, ethics are very important, as companies
must follow the unwritten rules to protect employee rights, the environment, and their
customers.

Business Ethics

Business ethics determine companies' everyday conduct. They include both laws and morals,
which determine how an employee will act in the business world. Laws define the boundaries
of what is legal and are the written guidelines that must be followed in society. Morals are
the rules people develop as a result of cultural norms and values and are, traditionally, what
employees learn from their childhood, culture, education, religion, etc. They are usually
described as good or bad behavior. Would a salesperson have good morals if they pushed a
product on a customer that they knew was not going to help them solve a problem?

Three Levels of Ethical Development

Psychologist Lawrence Kohlberg famously identified three levels of ethical development


that individuals typically progress through. By looking at these stages, we can begin to talk
about whether behavior is ethical and what its motivations might be. The first level of ethical
development is called preconventional morality. This level of ethics is most childlike. The
best example would be to think of how a toddler acts during a day. They're very self-centered
and only driven by rewards or punishment, such as a lollipop or a time out. Most business
people have already moved beyond this level of ethical development...well, hopefully.

The second level of ethical development is called conventional morality, which means
behaving in accord with society's rules and expectations. This level is when a marketing
manager would be concerned with breaking a law and how it could be viewed by outsiders.
Another way to look at this is peer pressure or doing what others would do.

The last level is called postconventional morality and revolves around the idea that people
are more concerned about how they view themselves and not what others may think. Internal
pressure to behave correctly and follow a moral path is the central theme. A marketing
manager who has reached a level of postconventional morality would not just consider the
legal ramifications of a decision, but also how it could possibly hurt the environment or,
potentially, the customer.
Marketing ethics is an area of application that involves moral principles behind operation
and regulation of marketing.

Therefore it is a process through which companies generate customer interest in


products/services, create value for stakeholders and build strong customer relationships.

Importance of the same are as follows-

1. Satisfying the basic human needs- Every human wants to be in an organisation that is
fair and ethical in practice.
2. Unity- Unity within its employees and leaders as well
3. Improves decision making- All are allowed to put forward their inputs, through which
a solid decision can be taken!
4. Loyal Customers- Loyal customers is what allows a business to survive in the hardest
of times!
5. Mutual trust- Trust when built within the organisation as well as outside it increases
customers loyalty!

Sample3

ETHICS IN MARKETING
Ethics are a collection of principles of right conduct that shape the decisions people or
organizations make. Practicing ethics in marketing means deliberately applying standards of
fairness, or moral rights and wrongs, to marketing decision making, behavior, and practice in
the organization.

In a market economy, a business may be expected to act in what it believes to be its own best
interest. The purpose of marketing is to create a competitive advantage. An organization
achieves an advantage when it does a better job than its competitors at satisfying the product
and service requirements of its target markets. Those organizations that develop a
competitive advantage are able to satisfy the needs of both customers and the organization.

As our economic system has become more successful at providing for needs and wants, there
has been greater focus on organizations' adhering to ethical values rather than simply
providing products. This focus has come about for two reasons. First, when an organization
behaves ethically, customers develop more positive attitudes about the firm, its products, and
its services. When marketing practices depart from standards that society considers
acceptable, the market process becomes less efficient—sometimes it is even interrupted. Not
employing ethical marketing practices may lead to dissatisfied customers, bad publicity, a
lack of trust, lost business, or, sometimes, legal action. Thus, most organizations are very
sensitive to the needs and opinions of their customers and look for ways to protect their long-
term interests.

Second, ethical abuses frequently lead to pressure (social or government) for institutions to
assume greater responsibility for their actions. Since abuses do occur, some people believe
that questionable business practices abound. As a result, consumer interest groups,
professional associations, and self-regulatory groups exert considerable influence on
marketing. Calls for social responsibility have also subjected marketing practices to a wide
range of federal and state regulations designed to either protect consumer rights or to
stimulate trade.

The Federal Trade Commission (FTC) and other federal and state government agencies are
charged both with enforcing the laws and creating policies to limit unfair marketing practices.
Because regulation cannot be developed to cover every possible abuse, organizations and
industry groups often develop codes of ethical conduct or rules for behavior to serve as a
guide in decision making. The American Marketing Association, for example, has developed
a code of ethics (which can be viewed on its Web site at www.ama.org). Self-regulation not
only helps a firm avoid extensive government intervention; it also permits it to better respond
to changes in market conditions. An organization's long-term success and profitability
depends on this ability to respond.

UNFAIR OR DECEPTIVE MARKETING PRACTICES

Marketing practices are deceptive if customers believe they will get more value from a
product or service than they actually receive. Deception, which can take the form of a
misrepresentation, omission, or misleading practice, can occur when working with any
element of the marketing mix. Because consumers are exposed to great quantities of
information about products and firms, they often become skeptical of marketing claims and
selling messages and act to protect themselves from being deceived. Thus, when a product or
service does not provide expected value, customers will often seek a different source.

Deceptive pricing practices cause customers to believe that the price they pay for some unit
of value in a product or service is lower than it really is. The deception might take the form of
making false price comparisons, providing misleading suggested selling prices, omitting
important conditions of the sale, or making very low price offers available only when other
items are purchased as well. Promotion practices are deceptive when the seller intentionally
misstates how a product is constructed or performs, fails to disclose information regarding
pyramid sales (a sales technique in which a person is recruited into a plan and then expects to
make money by recruiting other people), or employs bait-and-switch selling techniques (a
technique in which a business offers to sell a product or service, often at a lower price, in
order to attract customers who are then encouraged to purchase a more expensive item). False
or greatly exaggerated product or service claims are also deceptive. When packages are
intentionally mislabeled as to contents, size, weight, or use information, that constitutes
deceptive packaging. Selling hazardous or defective products without disclosing the dangers,
failing to perform promised services, and not honoring warranty obligations are also
considered deception.

OFFENSIVE MATERIALS AND OBJECTIONABLE MARKETING


PRACTICES

Marketers control what they say to customers as well as and how and where they say it.
When events, television or radio programming, or publications sponsored by a marketer, in
addition to products or promotional materials, are perceived as offensive, they often create
strong negative reactions. For example, some people find advertising for all products
promoting sexual potency to be offensive. Others may be offended when a promotion
employs stereotypical images or uses sex as an appeal. This is particularly true when a
product is being marketed in other countries, where words and images may carry different
meanings than they do in the host country.

When people feel that products or appeals are offensive, they may pressure vendors to stop
carrying the product. Thus, all promotional messages must be carefully screened and tested,
and communication media, programming, and editorial content selected to match the tastes
and interests of targeted customers. Beyond the target audience, however, marketers should
understand that there are others who are not customers who might receive their appeals and
see their images and be offended.

Direct marketing is also undergoing closer examination. Objectionable practices range from
minor irritants, such as the timing and frequency of sales letters or commercials, to those that
are offensive or even illegal. Among examples of practices that may raise ethical questions
are persistent and high-pressure selling, annoying telemarketing calls, and television
commercials that are too long or run too frequently. Marketing appeals created to take
advantage of young or inexperienced consumers or senior citizens—including
advertisements, sales appeals disguised as contests, junk mail (including electronic mail), and
the use and exchange of mailing lists—may also pose ethical questions. In addition to being
subject to consumer-protection laws and regulations, the Direct Marketing Association
provides a list of voluntary ethical guidelines for companies engaged in direct marketing
(available at their Web site at www.the-dma.org).

ETHICAL PRODUCT AND DISTRIBUTION PRACTICES

Several product-related issues raise questions about ethics in marketing, most often
concerning the quality of products and services provided. Among the most frequently voiced
complaints are ones about products that are unsafe, that are of poor quality in construction or
content, that do not contain what is promoted, or that go out of style or become obsolete
before they actually need replacing. An organization that markets poor-quality or unsafe
products is taking the chance that it will develop a reputation for poor products or service. In
addition, it may be putting itself in jeopardy for product claims or legal action. Sometimes,
however, frequent changes in product features or performance, such as those that often occur
in the computer industry, make previous models of products obsolete. Such changes can be
misinterpreted as planned obsolescence.

Ethical questions may also arise in the distribution process. Because sales performance is the
most common way in which marketing representatives and sales personnel are evaluated,
performance pressures exist that may lead to ethical dilemmas. For example, pressuring
vendors to buy more than they need and pushing items that will result in higher commissions
are temptations. Exerting influence to cause vendors to reduce display space for competitors'
products, promising shipment when knowing delivery is not possible by the promised date, or
paying vendors to carry a firm's product rather than one of its competitors are also unethical.

Research is another area in which ethical issues may arise. Information gathered from
research can be important to the successful marketing of products or services. Consumers,
however, may view organizations' efforts to gather data from them as invading their privacy.
They are resistant to give out personal information that might cause them to become a
marketing target or to receive product or sales information. When data about products or
consumers are exaggerated to make a selling point, or research questions are written to obtain
a specific result, consumers are misled. Without self-imposed ethical standards in the
research process, management will likely make decisions based on inaccurate information.

DOES MARKETING OVERFOCUS ON MATERIALISM?

Consumers develop an identity in the marketplace that is shaped both by who they are and by
what they see themselves as becoming. There is evidence that the way consumers view
themselves influences their purchasing behavior. This identity is often reflected in the brands
or products they consume or the way in which they lead their lives.

The proliferation of information about products and services complicates decision making.
Sometimes consumer desires to achieve or maintain a certain lifestyle or image results in
their purchasing more than they need or can afford. Does marketing create these wants?
Clearly, appeals exist that are designed to cause people to purchase more than they need or
can afford. Unsolicited offers of credit cards with high limits or high interest rates,
advertising appeals touting the psychological benefits of conspicuous consumption, and
promotions that seek to stimulate unrecognized needs are often cited as examples of these
excesses.

SPECIAL ETHICAL ISSUES IN MARKETING TO CHILDREN

Children are an important marketing target for certain products. Because their knowledge
about products, the media, and selling strategies is usually not as well developed as that of
adults, children are likely to be more vulnerable to psychological appeals and strong images.
Thus, ethical questions sometimes arise when they are exposed to questionable marketing
tactics and messages. For example, studies linking relationships between tobacco and alcohol
marketing with youth consumption resulted in increased public pressure directly leading to
the regulation of marketing for those products.

The proliferation of direct marketing and use of the Internet to market to children also raises
ethical issues. Sometimes a few unscrupulous marketers design sites so that children are able
to bypass adult supervision or control, or sometimes they present objectionable materials to
underage consumers or pressure them to buy items or provide credit card numbers. When this
happens, it is likely that social pressure and subsequent regulation will result. Likewise,
programming for children and youth in the mass media has been under scrutiny recently.

In the United States, marketing to children is closely controlled. Federal regulations place
limits on the types of marketing that can be directed to children, and marketing activities are
monitored by the Better Business Bureau, the Federal Trade Commission, consumer and
parental groups, and the broadcast networks. These guidelines provide clear direction to
marketers.

ETHICAL ISSUES IN MARKETING TO MINORITIES

The United States is a society of ever-increasing diversity. Markets are broken into segments
in which people share some similar characteristics. Ethical issues arise when marketing
tactics are designed specifically to exploit or manipulate a minority market segment.
Offensive practices may take the form of negative or stereotypical representations of
minorities, associating the consumption of harmful or questionable products with a particular
minority segment, and demeaning portrayals of a race or group. Ethical questions may also
arise when high-pressure selling is directed at a group, when higher prices are charged for
products sold to minorities, or even when stores provide poorer service in neighborhoods
with a high population of minority customers. Such practices will likely result in a bad public
image and lost sales for the marketer.

Unlike the legal protections in place to protect children from harmful practices, there have
been few efforts to protect minority customers. When targeting minorities, firms must
evaluate whether the targeted population is susceptible to appeals because of their minority
status. The firm must assess marketing efforts to determine whether ethical behavior would
cause them to change their marketing practices.

ETHICAL ISSUES SURROUNDING THE PORTRAYAL OF WOMEN IN


MARKETING EFFORTS

As society changes, so do the images of and roles assumed by people, regardless of race, sex,
or occupation. Women have been portrayed in a variety of ways over the years. When
marketers present those images as overly conventional, formulaic, or oversimplified, people
may view them as stereotypical and offensive.

Examples of demeaning stereotypes include those in which women are presented as less
intelligent, submissive to or obsessed with men, unable to assume leadership roles or make
decisions, or skimpily dressed in order to appeal to the sexual interests of males. Harmful
stereotypes include those portraying women as obsessed with their appearance or conforming
to some ideal of size, weight, or beauty. When images are considered demeaning or harmful,
they will work to the detriment of the organization. Advertisements, in particular, should be
evaluated to be sure that the images projected are not offensive.

CONCLUSION

Because marketing decisions often require specialized knowledge, ethical issues are often
more complicated than those faced in personal life—and effective decision making requires
consistency. Because each business situation is different, and not all decisions are simple,
many organizations have embraced ethical codes of conduct and rules of professional ethics
to guide managers and employees. However, sometimes self-regulation proves insufficient to
protect the interest of customers, organizations, or society. At that point, pressures for
regulation and enactment of legislation to protect the interests of all parties in the exchange
process will likely occur.
“Advertising is one such area which needs maximum control”. Explain the statement with
reference to marketing ethics and give suitable examples.

PONTIFICAL COUNCIL FOR SOCIAL COMMUNICATIONS

ETHICS IN ADVERTISING

INTRODUCTION

1. The importance of advertising is "steadily on the increase in modern society."1 That


observation, made by this Pontifical Council a quarter century ago as part of an overview of
the state of communications, is even more true now.

Just as the media of social communication themselves have enormous influence everywhere,
so advertising, using media as its vehicle, is a pervasive, powerful force shaping attitudes and
behavior in today's world.

Especially since the Second Vatican Council, the Church has frequently addressed the
question of the media and their role and responsibilities.2 She has sought to do so in a
fundamentally positive manner, viewing the media as "gifts of God" which, in accordance
with his providential design, bring people together and "help them to cooperate with his plan
for their salvation."3

In doing so, the Church stresses the responsibility of media to contribute to the authentic,
integral development of persons and to foster the well being of society. "The information
provided by the media is at the service of the common good. Society has a right to
information based on truth, freedom, justice and solidarity."4

It is in this spirit that the Church enters into dialogue with communicators. At the same time,
she also calls attention to moral principles and norms relevant to social communications, as to
other forms of human endeavor, while criticizing policies and practices that offend against
these standards.

Here and there in the growing body of literature arising from the Church's consideration of
media, the subject of advertising is discussed.5 Now, prompted by the increasing importance
of advertising and by requests for a more extensive treatment, we turn again to this topic.

We wish to call attention to positive contributions that advertising can and does make; to note
ethical and moral problems that advertising can and does raise; to point to moral principles
that apply to this field; and, finally, to suggest certain steps for the consideration of those
professionally involved in advertising, as well as for others in the private sector, including the
churches, and for public officials.

Our reason for addressing these matters is simple. In today's society, advertising has a
profound impact on how people understand life, the world and themselves, especially in
regard to their values and their ways of choosing and behaving. These are matters about
which the Church is and must be deeply and sincerely concerned.
2. The field of advertising is extremely broad and diverse. In general terms, of course, an
advertisement is simply a public notice meant to convey information and invite patronage or
some other response. As that suggests, advertising has two basic purposes: to inform and to
persuade, and — while these purposes are distinguishable — both very often are
simultaneously present.

Advertising is not the same as marketing (the complex of commercial functions involved in
transferring goods from producers and consumers) or public relations (the systematic effort to
create a favorable public impression or ?image' of some person, group, or entity). In many
cases, though, it is a technique or instrument employed by one or both of these.

Advertising can be very simple — a local, even ?neighborhood,' phenomenon — or it can be


very complex, involving sophisticated research and multimedia campaigns that span the
globe. It differs according to its intended audience, so that, for example, advertising aimed at
children raises some technical and moral issues significantly different from those raised by
advertising aimed at competent adults.

Not only are many different media and techniques employed in advertising; advertising itself
is of several different kinds: commercial advertising for products and services; public service
advertising on behalf of various institutions, programs, and causes; and — a phenomenon of
growing importance today — political advertising in the interests of parties and candidates.
Making allowance for the differences among the different kinds and methods of advertising,
we intend what follows to be applicable to them all.

3. We disagree with the assertion that advertising simply mirrors the attitudes and values of
the surrounding culture. No doubt advertising, like the media of social communications in
general, does act as a mirror. But, also like media in general, it is a mirror that helps shape the
reality it reflects, and sometimes it presents a distorted image of reality.

Advertisers are selective about the values and attitudes to be fostered and encouraged,
promoting some while ignoring others. This selectivity gives the lie to the notion that
advertising does no more than reflect the surrounding culture. For example, the absence from
advertising of certain racial and ethnic groups in some multi-racial or multi-ethnic societies
can help to create problems of image and identity, especially among those neglected, and the
almost inevitable impression in commercial advertising that an abundance of possessions
leads to happiness and fulfillment can be both misleading and frustrating.

Advertising also has an indirect but powerful impact on society through its influence on
media. Many publications and broadcasting operations depend on advertising revenue for
survival. This often is true of religious media as well as commercial media. For their part,
advertisers naturally seek to reach audiences; and the media, striving to deliver audiences to
advertisers, must shape their content so to attract audiences of the size and demographic
composition sought. This economic dependency of media and the power it confers upon
advertisers carries with it serious responsibilities for both.
II

THE BENEFITS OF ADVERTISING

4. Enormous human and material resources are devoted to advertising. Advertising is


everywhere in today's world, so that, as Pope Paul VI remarked, "No one now can escape the
influence of advertising."6 Even people who are not themselves exposed to particular forms
of advertising confront a society, a culture — other people — affected for good or ill by
advertising messages and techniques of every sort.

Some critics view this state of affairs in unrelievedly negative terms. They condemn
advertising as a waste of time, talent and money — an essentially parasitic activity. In this
view, not only does advertising have no value of its own, but its influence is entirely harmful
and corrupting for individuals and society.

We do not agree. There is truth to the criticisms, and we shall make criticisms of our own.
But advertising also has significant potential for good, and sometimes it is realized. Here are
some of the ways that happens.

a) Economic Benefits of Advertising

5. Advertising can play an important role in the process by which an economic system guided
by moral norms and responsive to the common good contributes to human development. It is
a necessary part of the functioning of modern market economies, which today either exist or
are emerging in many parts of the world and which — provided they conform to moral
standards based upon integral human development and the common good — currently seem
to be "the most efficient instrument for utilizing resources and effectively responding to
needs" of a socio-economic kind.7

In such a system, advertising can be a useful tool for sustaining honest and ethically
responsible competition that contributes to economic growth in the service of authentic
human development. "The Church looks with favor on the growth of man's productive
capacity, and also on the ever widening network of relationships and exchanges between
persons and social groups....[F]rom this point of view she encourages advertising, which can
become a wholesome and efficacious instrument for reciprocal help among men."8

Advertising does this, among other ways, by informing people about the availability of
rationally desirable new products and services and improvements in existing ones, helping
them to make informed, prudent consumer decisions, contributing to efficiency and the
lowering of prices, and stimulating economic progress through the expansion of business and
trade. All of this can contribute to the creation of new jobs, higher incomes and a more decent
and humane way of life for all. It also helps pay for publications, programming and
productions — including those of the Church — that bring information, entertainment and
inspiration to people around the world.

b) Benefits of Political Advertising

6. "The Church values the democratic system inasmuch as it ensures the participation of
citizens in making political choices, guarantees to the governed the possibility both of
electing and holding accountable those who govern them, and of replacing them through
peaceful means when appropriate."9

Political advertising can make a contribution to democracy analogous to its contribution to


economic well being in a market system guided by moral norms. As free and responsible
media in a democratic system help to counteract tendencies toward the monopolization of
power on the part of oligarchies and special interests, so political advertising can make its
contribution by informing people about the ideas and policy proposals of parties and
candidates, including new candidates not previously known to the public.

c) Cultural Benefits of Advertising

7. Because of the impact advertising has on media that depend on it for revenue, advertisers
have an opportunity to exert a positive influence on decisions about media content. This they
do by supporting material of excellent intellectual, aesthetic and moral quality presented with
the public interest in view, and particularly by encouraging and making possible media
presentations which are oriented to minorities whose needs might otherwise go unserved.

Moreover, advertising can itself contribute to the betterment of society by uplifting and
inspiring people and motivating them to act in ways that benefit themselves and others.
Advertising can brighten lives simply by being witty, tasteful and entertaining. Some
advertisements are instances of popular art, with a vivacity and elan all their own.

d) Moral and Religious Benefits of Advertising

8. In many cases, too, benevolent social institutions, including those of a religious nature, use
advertising to communicate their messages — messages of faith, of patriotism, of tolerance,
compassion and neighborly service, of charity toward the needy, messages concerning health
and education, constructive and helpful messages that educate and motivate people in a
variety of beneficial ways.

For the Church, involvement in media-related activities, including advertising, is today a


necessary part of a comprehensive pastoral strategy.10 This includes both the Church's own
media — Catholic press and publishing, television and radio broadcasting, film and
audiovisual production, and the rest — and also her participation in secular media. The media
"can and should be instruments in the Church's program of re-evangelization and new
evangelization in the contemporary world."11 While much remains to be done, many positive
efforts of this kind already are underway. With reference to advertising itself, Pope Paul VI
once said that it is desirable that Catholic institutions "follow with constant attention the
development of the modern techniques of advertising and... know how to make opportune use
of them in order to spread the Gospel message in a manner which answers the expectations
and needs of contemporary man."12
III

THE HARM DONE BY ADVERTISING

9. There is nothing intrinsically good or intrinsically evil about advertising. It is a tool, an


instrument: it can be used well, and it can be used badly. If it can have, and sometimes does
have, beneficial results such as those just described, it also can, and often does, have a
negative, harmful impact on individuals and society.

Communio et Progressio contains this summary statement of the problem: "If harmful or
utterly useless goods are touted to the public, if false assertions are made about goods for
sale, if less than admirable human tendencies are exploited, those responsible for such
advertising harm society and forfeit their good name and credibility. More than this,
unremitting pressure to buy articles of luxury can arouse false wants that hurt both
individuals and families by making them ignore what they really need. And those forms of
advertising which, without shame, exploit the sexual instincts simply to make money or
which seek to penetrate into the subconscious recesses of the mind in a way that threatens the
freedom of the individual ... must be shunned."13

a) Economic Harms of Advertising

10. Advertising can betray its role as a source of information by misrepresentation and by
withholding relevant facts. Sometimes, too, the information function of media can be
subverted by advertisers' pressure upon publications or programs not to treat of questions that
might prove embarrassing or inconvenient.

More often, though, advertising is used not simply to inform but to persuade and motivate —
to convince people to act in certain ways: buy certain products or services, patronize certain
institutions, and the like. This is where particular abuses can occur.

The practice of "brand"-related advertising can raise serious problems. Often there are only
negligible differences among similar products of different brands, and advertising may
attempt to move people to act on the basis of irrational motives ("brand loyalty," status,
fashion, "sex appeal," etc.) instead of presenting differences in product quality and price as
bases for rational choice.

Advertising also can be, and often is, a tool of the "phenomenon of consumerism," as Pope
John Paul II delineated it when he said: "It is not wrong to want to live better; what is wrong
is a style of life which is presumed to be better when it is directed toward ?having' rather than
?being', and which wants to have more, not in order to be more but in order to spend life in
enjoyment as an end in itself."14 Sometimes advertisers speak of it as part of their task to
"create" needs for products and services — that is, to cause people to feel and act upon
cravings for items and services they do not need. "If ... a direct appeal is made to his instincts
— while ignoring in various ways the reality of the person as intelligent and free — then
consumer attitudes and life-styles can be created which are objectively improper and often
damaging to his physical and spiritual health."15

This is a serious abuse, an affront to human dignity and the common good when it occurs in
affluent societies. But the abuse is still more grave when consumerist attitudes and values are
transmitted by communications media and advertising to developing countries, where they
exacerbate socio-economic problems and harm the poor. "It is true that a judicious use of
advertising can stimulate developing countries to improve their standard of living. But
serious harm can be done them if advertising and commercial pressure become so
irresponsible that communities seeking to rise from poverty to a reasonable standard of living
are persuaded to seek this progress by satisfying wants that have been artificially created. The
result of this is that they waste their resources and neglect their real needs, and genuine
development falls behind."16

Similarly, the task of countries attempting to develop types of market economies that serve
human needs and interests after decades under centralized, state-controlled systems is made
more difficult by advertising that promotes consumerist attitudes and values offensive to
human dignity and the common good. The problem is particularly acute when, as often
happens, the dignity and welfare of society's poorer and weaker members are at stake. It is
necessary always to bear in mind that there are "goods which by their very nature cannot and
must not be bought or sold" and to avoid "an ?idolatry' of the market" that, aided and abetted
by advertising, ignores this crucial fact.17

b) Harms of Political Advertising

11. Political advertising can support and assist the working of the democratic process, but it
also can obstruct it. This happens when, for example, the costs of advertising limit political
competition to wealthy candidates or groups, or require that office-seekers compromise their
integrity and independence by over-dependence on special interests for funds.

Such obstruction of the democratic process also happens when, instead of being a vehicle for
honest expositions of candidates' views and records, political advertising seeks to distort the
views and records of opponents and unjustly attacks their reputations. It happens when
advertising appeals more to people's emotions and base instincts — to selfishness, bias and
hostility toward others, to racial and ethnic prejudice and the like — rather than to a reasoned
sense of justice and the good of all.

c) Cultural Harms of Advertising

12. Advertising also can have a corrupting influence upon culture and cultural values. We
have spoken of the economic harm that can be done to developing nations by advertising that
fosters consumerism and destructive patterns of consumption. Consider also the cultural
injury done to these nations and their peoples by advertising whose content and methods,
reflecting those prevalent in the first world, are at war with sound traditional values in
indigenous cultures. Today this kind of "domination and manipulation" via media rightly is "a
concern of developing nations in relation to developed ones," as well as a "concern of
minorities within particular nations."18

The indirect but powerful influence exerted by advertising upon the media of social
communications that depend on revenues from this source points to another sort of cultural
concern. In the competition to attract ever larger audiences and deliver them to advertisers,
communicators can find themselves tempted — in fact pressured, subtly or not so subtly — to
set aside high artistic and moral standards and lapse into superficiality, tawdriness and moral
squalor.
Communicators also can find themselves tempted to ignore the educational and social needs
of certain segments of the audience — the very young, the very old, the poor — who do not
match the demographic patterns (age, education, income, habits of buying and consuming,
etc.) of the kinds of audiences advertisers want to reach. In this way the tone and indeed the
level of moral responsibility of the communications media in general are lowered.

All too often, advertising contributes to the invidious stereotyping of particular groups that
places them at a disadvantage in relation to others. This often is true of the way advertising
treats women; and the exploitation of women, both in and by advertising, is a frequent,
deplorable abuse. "How often are they treated not as persons with an inviolable dignity but as
objects whose purpose is to satisfy others' appetite for pleasure or for power? How often is
the role of woman as wife and mother undervalued or even ridiculed? How often is the role
of women in business or professional life depicted as a masculine caricature, a denial of the
specific gifts of feminine insight, compassion, and understanding, which so greatly contribute
to the ?civilization of love'?"19

d) Moral and Religious Harms of Advertising

13. Advertising can be tasteful and in conformity with high moral standards, and occasionally
even morally uplifting, but it also can be vulgar and morally degrading. Frequently it
deliberately appeals to such motives as envy, status seeking and lust. Today, too, some
advertisers consciously seek to shock and titillate by exploiting content of a morbid, perverse,
pornographic nature.

What this Pontifical Council said several years ago about pornography and violence in the
media is no less true of certain forms of advertising:

"As reflections of the dark side of human nature marred by sin, pornography and the
exaltation of violence are age-old realities of the human condition. In the past quarter century,
however, they have taken on new dimensions and have become serious social problems. At a
time of widespread and unfortunate confusion about moral norms, the communications media
have made pornography and violence accessible to a vastly expanded audience, including
young people and even children, and a problem which at one time was confined mainly to
wealthy countries has now begun, via the communications media, to corrupt moral values in
developing nations."20

We note, too, certain special problems relating to advertising that treats of religion or pertains
to specific issues with a moral dimension.

In cases of the first sort, commercial advertisers sometimes include religious themes or use
religious images or personages to sell products. It is possible to do this in tasteful, acceptable
ways, but the practice is obnoxious and offensive when it involves exploiting religion or
treating it flippantly.

In cases of the second sort, advertising sometimes is used to promote products and inculcate
attitudes and forms of behavior contrary to moral norms. That is the case, for instance, with
the advertising of contraceptives, abortifacients and products harmful to health, and with
government-sponsored advertising campaigns for artificial birth control, so-called "safe sex",
and similar practices.
IV

SOME ETHICAL AND MORAL PRINCIPLES

14. The Second Vatican Council declared: "If the media are to be correctly employed, it is
essential that all who use them know the principles of the moral order and apply them
faithfully in this domain."21 The moral order to which this refers is the order of the law of
human nature, binding upon all because it is "written on their hearts" (Rom. 2:15) and
embodies the imperatives of authentic human fulfillment.

For Christians, moreover, the law of human nature has a deeper dimension, a richer meaning.
"Christ is the ?Beginning' who, having taken on human nature, definitively illumines it in its
constitutive elements and in its dynamism of charity towards God and neighbor."22 Here we
comprehend the deepest significance of human freedom: that it makes possible an authentic
moral response, in light of Jesus Christ, to the call "to form our conscience, to make it the
object of a continuous conversion to what is true and to what is good."23

In this context, the media of social communications have two options, and only two. Either
they help human persons to grow in their understanding and practice of what is true and
good, or they are destructive forces in conflict with human well being. That is entirely true of
advertising.

Against this background, then, we point to this fundamental principle for people engaged in
advertising: advertisers — that is, those who commission, prepare or disseminate advertising
— are morally responsible for what they seek to move people to do; and this is a
responsibility also shared by publishers, broadcasting executives, and others in the
communications world, as well as by those who give commercial or political endorsements,
to the extent that they are involved in the advertising process.

If an instance of advertising seeks to move people to choose and act rationally in morally
good ways that are of true benefit to themselves and others, persons involved in it do what is
morally good; if it seeks to move people to do evil deeds that are self-destructive and
destructive of authentic community, they do evil.

This applies also to the means and the techniques of advertising: it is morally wrong to use
manipulative, exploitative, corrupt and corrupting methods of persuasion and motivation. In
this regard, we note special problems associated with so-called indirect advertising that
attempts to move people to act in certain ways — for example, purchase particular products
— without their being fully aware that they are being swayed. The techniques involved here
include showing certain products or forms of behavior in superficially glamorous settings
associated with superficially glamorous people; in extreme cases, it may even involve the use
of subliminal messages.

Within this very general framework, we can identify several moral principles that are
particularly relevant to advertising. We shall speak briefly of three: truthfulness, the dignity
of the human person, and social responsibility.

a) Truthfulness in Advertising
15. Even today, some advertising is simply and deliberately untrue. Generally speaking,
though, the problem of truth in advertising is somewhat more subtle: it is not that advertising
says what is overtly false, but that it can distort the truth by implying things that are not so or
withholding relevant facts. As Pope John Paul II points out, on both the individual and social
levels, truth and freedom are inseparable; without truth as the basis, starting point and
criterion of discernment, judgment, choice and action, there can be no authentic exercise of
freedom.24 The Catechism of the Catholic Church, quoting the Second Vatican Council,
insists that the content of communication be "true and — within the limits set by justice and
charity — complete"; the content should, moreover, be communicated "honestly and
properly."25

To be sure, advertising, like other forms of expression, has its own conventions and forms of
stylization, and these must be taken into account when discussing truthfulness. People take
for granted some rhetorical and symbolic exaggeration in advertising; within the limits of
recognized and accepted practice, this can be allowable.

But it is a fundamental principle that advertising may not deliberately seek to deceive,
whether it does that by what it says, by what it implies, or by what it fails to say. "The proper
exercise of the right to information demands that the content of what is communicated be true
and, within the limits set by justice and charity, complete. ... Included here is the obligation to
avoid any manipulation of truth for any reason."26

b) The Dignity of the Human Person

16. There is an "imperative requirement" that advertising "respect the human person, his
rightduty to make a responsible choice, his interior freedom; all these goods would be
violated if man's lower inclinations were to be exploited, or his capacity to reflect and decide
compromised."27

These abuses are not merely hypothetical possibilities but realities in much advertising today.
Advertising can violate the dignity of the human person both through its content — what is
advertised, the manner in which it is advertised — and through the impact it seeks to make
upon its audience. We have spoken already of such things as appeals to lust, vanity, envy and
greed, and of techniques that manipulate and exploit human weakness. In such circumstances,
advertisements readily become "vehicles of a deformed outlook on life, on the family, on
religion and on morality — an outlook that does not respect the true dignity and destiny of
the human person."28

This problem is especially acute where particularly vulnerable groups or classes of persons
are concerned: children and young people, the elderly, the poor, the culturally disadvantaged.

Much advertising directed at children apparently tries to exploit their credulity and
suggestibility, in the hope that they will put pressure on their parents to buy products of no
real benefit to them. Advertising like this offends against the dignity and rights of both
children and parents; it intrudes upon the parent-child relationship and seeks to manipulate it
to its own base ends. Also, some of the comparatively little advertising directed specifically
to the elderly or culturally disadvantaged seems designed to play upon their fears so as to
persuade them to allocate some of their limited resources to goods or services of dubious
value.
c) Advertising and Social Responsibility

17. Social responsibility is such a broad concept that we can note here only a few of the many
issues and concerns relevant under this heading to the question of advertising.

The ecological issue is one. Advertising that fosters a lavish life style which wastes resources
and despoils the environment offends against important ecological concerns. "In his desire to
have and to enjoy rather than to be and grow, man consumes the resources of the earth and
his own life in an excessive and disordered way. ... Man thinks that he can make arbitrary use
of the earth, subjecting it without restraint to his will, as though it did not have its own
requisites and a prior God-given purpose, which man can indeed develop but must not
betray."29

As this suggests, something more fundamental is at issue here: authentic and integral human
development. Advertising that reduces human progress to acquiring material goods and
cultivating a lavish life style expresses a false, destructive vision of the human person
harmful to individuals and society alike.

When people fail to practice "a rigorous respect for the moral, cultural and spiritual
requirements, based on the dignity of the person and on the proper identity of each
community, beginning with the family and religious societies," then even material abundance
and the conveniences that technology makes available "will prove unsatisfying and in the end
contemptible."30 Advertisers, like people engaged in other forms of social communication,
have a serious duty to express and foster an authentic vision of human development in its
material, cultural and spiritual dimensions.31 Communication that meets this standard is,
among other things, a true expression of solidarity. Indeed, the two things — communication
and solidarity — are inseparable, because, as the Catechism of the Catholic Church points
out, solidarity is "a consequence of genuine and right communication and the free circulation
of ideas that further knowledge and respect for others."32

CONCLUSION: SOME STEPS TO TAKE

18. The indispensable guarantors of ethically correct behavior by the advertising industry are
the well formed and responsible consciences of advertising professionals themselves:
consciences sensitive to their duty not merely to serve the interests of those who commission
and finance their work but also to respect and uphold the rights and interests of their
audiences and to serve the common good.

Many women and men professionally engaged in advertising do have sensitive consciences,
high ethical standards and a strong sense of responsibility. But even for them external
pressures — from the clients who commission their work as well as from the competitive
internal dynamics of their profession — can create powerful inducements to unethical
behavior. That underlines the need for external structures and systems to support and
encourage responsible practice in advertising and to discourage the irresponsible.
19. Voluntary ethical codes are one such source of support. These already exist in a number
of places. Welcome as they are, though, they are only as effective as the willingness of
advertisers to comply strictly with them. "It is up to the directors and managers of the media
which carry advertising to make known to the public, to subscribe to and to apply the codes
of professional ethics which already have been opportunely established so as to have the
cooperation of the public in making these codes still better and in enforcing their
observance."33

We emphasize the importance of public involvement. Representatives of the public should


participate in the formulation, application and periodic updating of ethical codes. The public
representatives should include ethicists and church people, as well as representatives of
consumer groups. Individuals do well to organize themselves into such groups in order to
protect their interests in relation to commercial interests.

20. Public authorities also have a role to play. On the one hand, government should not seek
to control and dictate policy to the advertising industry, any more than to other sectors of the
communications media. On the other hand, the regulation of advertising content and practice,
already existing in many places, can and should extend beyond banning false advertising,
narrowly defined. "By promulgating laws and overseeing their application, public authorities
should ensure that ?public morality and social progress are not gravely endangered' through
misuse of the media."34

For example, government regulations should address such questions as the quantity of
advertising, especially in broadcast media, as well as the content of advertising directed at
groups particularly vulnerable to exploitation, such as children and old people. Political
advertising also seems an appropriate area for regulation: how much may be spent, how and
from whom may money for advertising be raised, etc.

21. The media of news and information should make it a point to keep the public informed
about the world of advertising. Considering advertising's social impact, it is appropriate that
media regularly review and critique the performance of advertisers, just as they do other
groups whose activities have a significant influence on society.

22. Besides using media to evangelize, the Church for her part needs to grasp the full
implications of the observation by Pope John Paul: that media comprise a central part of that
great modern "Areopagus" where ideas are shared and attitudes and values are formed. This
points to a "deeper reality" than simply using media to spread the Gospel message, important
as that is. "It is also necessary to integrate that message into the ?new culture' created by
modern communications" with its "new ways of communicating... new languages, new
techniques and a new psychology."35

In light of this insight, it is important that media education be part of pastoral planning and a
variety of pastoral and educational programs carried on by the Church, including Catholic
schools. This includes education regarding the role of advertising in today's world and its
relevance to the work of the Church. Such education should seek to prepare people to be
informed and alert in their approach to advertising as to other forms of communication. As
the Catechism of the Catholic Church points out, "the means of social communication. ... can
give rise to a certain passivity among users, making them less than vigilant consumers of
what is said or shown. Users should practice moderation and discipline in their approach to
the mass media."36
23. In the final analysis, however, where freedom of speech and communication exists, it is
largely up to advertisers themselves to ensure ethically responsible practices in their
profession. Besides avoiding abuses, advertisers should also undertake to repair the harm
sometimes done by advertising, insofar as that is possible: for example, by publishing
corrective notices, compensating injured parties, increasing the quantity of public service
advertising, and the like. This question of ?reparations' is a matter of legitimate involvement
not only by industry self-regulatory bodies and public interest groups, but also by public
authorities.

Where unethical practices have become widespread and entrenched, conscientious advertisers
may be called upon to make significant personal sacrifices to correct them. But people who
want to do what is morally right must always be ready to suffer loss and personal injury
rather than to do what is wrong. This is a duty for Christians, followers of Christ, certainly;
but not only for them. "In this witness to the absoluteness of the moral good Christians are
not alone: they are supported by the moral sense present in peoples and by the great religious
and sapiential traditions of East and West."37

We do not wish, and certainly we do not expect, to see advertising eliminated from the
contemporary world. Advertising is an important element in today's society, especially in the
functioning of a market economy, which is becoming more and more widespread.

Moreover, for the reasons and in the ways sketched here, we believe advertising can, and
often does, play a constructive role in economic growth, in the exchange of information and
ideas, and in the fostering of solidarity among individuals and groups. Yet it also can do, and
often does, grave harm to individuals and to the common good.

0In light of these reflections, therefore, we call upon advertising professionals and upon all
those involved in the process of commissioning and disseminating advertising to eliminate its
socially harmful aspects and observe high ethical standards in regard to truthfulness, human
dignity and social responsibility. In this way, they will make a special and significant
contribution to human progress and to the common good.

Explain role of HRM in creating an ethical organisation.


Ethics in Human Resource Management (HRM)

1. 1. ETHICS IN HUMAN RESOURCE MANAGEMENT (HRM)

MEANING OF HRM

HRM can be understood in simple terms as employing people, developing their resources,
utilising, maintaining and compensating their services in tune with the job and organizational
requirements with the view to contribute to the goals of the organization, individuals and the
society.

‘OR’

HRM is the process of planning, organizing, directing and controlling human activities to
achieve the organizational goal and individual goals.

MEANING OF ETHICS

Ethics are those values, which has been imbibed within an individual on reinforced
externally that help him to distinguish between right and wrong and to act accordingly. There
can be several sources of ethics like religion, organizational culture, legal obligations etc.

ETHICS IN HRM

Ethics in HRM indicates the treatment of employees with ordinary decency and
distributive justice. The ethical business contributes to the business goals as the employees
will feel motivated and they will work with efficiency and effectiveness. Ethics in HRM
basically deals with the affirmative moral obligations of the employer towards employees to
maintain equality and equity justice.

Areas of HRM

 ethics Basic human rights, civil and employment fight. (E.g. Job security,
feedback from tests);
 Safety in the workplace; Privacy; Justifiable treatment to employees. (E.g. Equity
and equal opportunity);
 Respect, fairness and honesty based process in the workplace.

Role of HR in Promoting Ethics

1. Improve recruitment and selection tests:

Follow the recruitment policy that is identification of the recruitment needs, monetary
aspects, criteria of selection and preference etc.; Follow the situational factors such as
economic factors, social factors, technological factors etc.; Selection must be in
planned manner; Avoid illegal questions.

2. Conduct ethics training:-


It is a short term process of training given to the HR of the organization to do their
work in adherence to the ethical code of conduct. The main advantages are increased
productivity, higher employee morale, less supervision, less wastage, etc.
3 Ensure that there are no pitfalls in performance appraisalPerformance
appraisal should be factual and there should not be any partiality or bias in the
attitude towards the employees.
4 Rewards and disciplinary system
5 Improve and facilitate two way communication
6 Avoid any kind of discrimination among the employees based on certain
factors like caste, colour, culture, religion, appearances etc.
7 Equal opportunities must be given to every employee for his advancement
and development.
8 Measures should be taken for employee safety while working in the
organization.

Unethical Practices of HRM

1. EMPLOYERS
Creating split in union leaders; Biased attitude in selection, transfer, promotion
etc.; Off-shoring and exploiting ‘cheap’ labour markets; Child labour; Reneging
on company pension agreements; Physical violence; Coercion; Longer and
inflexible working hours; Putting on more stress on employees for increasing the
productivity; The use of disputed and dubious practices in hiring and firing of
personnel. The perception of consumers’ about the company is based upon the
ethics of the company. Eventually, based upon the perception about the company,
the investors will affect its’ share price. Similarly, it has been suggested that poor
standards of conduct emanating from the top management affect employee
motivation and commitment to organisational goals.

2. EMPLOYEES
Some of the common problems are
 False claim of personal details like age, qualifications etc.
 Producing false certificates.
 Taking decisions as per their convenience.

3. GOVERNMENT
 Announcing the vacancies and not taking any action further.
 Functioning of government offices is not transparent and reliable.
 Selection committees will be excessively cautious of reservation
quotas and possible court cases rather than gaining through the
responsibilities.

FAIRNESS AND JUSTICE:-

As an HR Manager you are ethically responsible for promoting and fostering fairness
and justice for all employees and their organizations. Following points must be
considered to promote the fairness and justice in an organization:

1. The organization must realize the intrinsic value of its employees.


2. Treat people with dignity, respect and compassion to foster a trusting work
environment free of harassment, intimidation and unlawful discrimination.
3. Giving opportunities to the employees equally to develop their competency skills.
4. Bring in the feeling of owning the organization, within employees so that the
employees would be committed towards the organization.
5. Laying down such policies and procedure which will ensure equitable treatment for
all.
6. The individual goals on an employee must be streamlined with the organizational
goals. Individual goal of an employee should not obstruct him to achieve the
organizational goals.
7. The organization must be fair and honest to its staff. Decisions taken by the
management must be ethical and legal.
Describe the various functions of HRM which come under the scope of ethics and how can
organizations overcome unethical practices in HRM.

Human Resource Management has come to be recognized as an inherent part of management,


which is concerned with the human resources of an organization. Its objective is the
maintenance of better human relations in the organization by the development, application
and evaluation of policies, procedures and programs relating to human resources to optimize
their contribution towards the realization of organizational objectives.

Human Resource Management: Objectives

• To help the organization reach its goals.


• To ensure effective utilization and maximum development of human resources.
• To ensure respect for human beings. To identify and satisfy the needs of individuals.
• To ensure reconciliation of individual goals with those of the organization.
• To achieve and maintain high morale among employees.
• To provide the organization with well-trained and well-motivated employees.
• To increase to the fullest the employee’s job satisfaction and self-actualization.
• To develop and maintain a quality of work life.
• To be ethically and socially responsive to the needs of society.
• To develop overall personality of each employee in its multidimensional aspect.
• To enhance employee’s capabilities to perform the present job.
• To equip the employees with precision and clarity in trans¬action of business.
• To inculcate the sense of team spirit, team work and inter-team collaboration.

FUNCTIONS OF HUMAN RESOURCE MANAGEMENT:

1. Planning: Assessment of future man power requirement is done with the help of man
power inventory chart followed by the recruitment and selection process. A clean job
description is needed to lure people with the right skills for the right position. It is the
responsibility of the manager of a firm to lay down specifications of the qualities and skills
required by the workers and determining sources from where the workers are to be recruited.
Selection is done by means of written test and personal interviews.

2. Organizing: This involves proper designing of organizational structure, the inter


relationship between jobs, establishing smooth channels of communication, assignment of
authority, responsibility and creating accountability, establishing line and staff relationship
etc.

3. Directing: Issuing orders and instructions down the line and motivating the work force to
carry out those instructions satisfactorily. Positive motivation in the form of financial and
non-financial incentives, a good working environment is essential on the part of the
management.

4. Controlling: The motive is to ensure that performance of each worker coincides with the
plans or standards. Bench marking, Total quality management and Six sigma are some of the
popular concepts of standardization
Scope of Human Resource Management
Human resources are undoubtedly the key resources in an organization, the easiest and the
most difficult to manage! The objectives of the HRM span right from the manpower needs
assessment to management and retention of the same. To this effect Human resource
management is responsible for effective designing and implementation of various policies,
procedures and programs. It is all about developing and managing knowledge, skills,
creativity, aptitude and talent and using them optimally.

Human Resource Management is not just limited to manage and optimally exploit human
intellect. It also focuses on managing physical and emotional capital of employees.
Considering the intricacies involved, the scope of HRM is widening with every passing day.
It covers but is not limited to HR planning, hiring (recruitment and selection), training and
development, payroll management, rewards and recognitions, Industrial relations, grievance
handling, legal procedures etc. In other words, we can say that it’s about developing and
managing harmonious relationships at workplace and striking a balance between
organizational goals and individual goals.

The scope of HRM is extensive and far-reaching. Therefore, it is very difficult to define it
concisely. However, we may classify the same under following heads:

 HRM in Personnel Management: This is typically direct manpower management


that involves manpower planning, hiring (recruitment and selection), training and
development, induction and orientation, transfer, promotion, compensation, layoff and
retrenchment, employee productivity. The overall objective here is to ascertain
individual growth, development and effectiveness which indirectly contribute to
organizational development.

It also includes performance appraisal, developing new skills, disbursement of wages,


incentives, allowances, traveling policies and procedures and other related courses of
actions.

 HRM in Employee Welfare: This particular aspect of HRM deals with working
conditions and amenities at workplace. This includes a wide array of responsibilities
and services such as safety services, health services, welfare funds, social security and
medical services. It also covers appointment of safety officers, making the
environment worth working, eliminating workplace hazards, support by top
management, job safety, safeguarding machinery, cleanliness, proper ventilation and
lighting, sanitation, medical care, sickness benefits, employment injury benefits,
personal injury benefits, maternity benefits, unemployment benefits and family
benefits.

It also relates to supervision, employee counseling, establishing harmonious


relationships with employees, education and training. Employee welfare is about
determining employees’ real needs and fulfilling them with active participation of
both management and employees. In addition to this, it also takes care of canteen
facilities, crèches, rest and lunch rooms, housing, transport, medical assistance,
education, health and safety, recreation facilities, etc.
 HRM in Industrial Relations: Since it is a highly sensitive area, it needs careful
interactions with labor or employee unions, addressing their grievances and settling
the disputes effectively in order to maintain peace and harmony in the organization. It
is the art and science of understanding the employment (union-management)
relations, joint consultation, disciplinary procedures, solving problems with mutual
efforts, understanding human behavior and maintaining work relations, collective
bargaining and settlement of disputes.

The main aim is to safeguarding the interest of employees by securing the highest
level of understanding to the extent that does not leave a negative impact on
organization. It is about establishing, growing and promoting industrial democracy to
safeguard the interests of both employees and management.

The scope of HRM is extremely wide, thus, can not be written concisely. However, for the
sake of convenience and developing understanding about the subject, we divide it in three
categories mentioned above.

Processes in Human Resource Management


Each organization works towards the realization of one vision. The same is achieved by
formulation of certain strategies and execution of the same, which is done by the HR
department. At the base of this strategy formulation lie various processes and the
effectiveness of the former lies in the meticulous design of these processes. But what exactly
are and entails these processes? Let’s read further and explore.

The following are the various HR processes:

1. Human resource planning (Recruitment, Selecting, Hiring, Training, Induction,


Orientation, Evaluation, Promotion and Layoff).
2. Employee remuneration and Benefits Administration
3. Performance Management.
4. Employee Relations.

The efficient designing of these processes apart from other things depends upon the degree of
correspondence of each of these. This means that each process is subservient to other. You
start from Human resource Planning and there is a continual value addition at each step. To
exemplify, the PMS (performance Management System) of an organization like Infosys
would different from an organization like Walmart. Lets study each process separately.

Human Resource Planning: Generally, we consider Human Resource Planning as the


process of people forecasting. Right but incomplete! It also involves the processes of
Evaluation, Promotion and Layoff.

 Recruitment: It aims at attracting applicants that match a certain Job criteria.


 Selection: The next level of filtration. Aims at short listing candidates who are
the nearest match in terms qualifications, expertise and potential for a certain
job.
 Hiring: Deciding upon the final candidate who gets the job.
 Training and Development: Those processes that work on an employee
onboard for his skills and abilities upgradation.
Employee Remuneration and Benefits Administration: The process involves deciding
upon salaries and wages, Incentives, Fringe Benefits and Perquisites etc. Money is the prime
motivator in any job and therefore the importance of this process. Performing employees seek
raises, better salaries and bonuses.

Performance Management: It is meant to help the organization train, motivate and reward
workers. It is also meant to ensure that the organizational goals are met with efficiency. The
process not only includes the employees but can also be for a department, product, service or
customer process; all towards enhancing or adding value to them.

Nowadays there is an automated performance management system (PMS) that carries all the
information to help managers evaluate the performance of the employees and assess them
accordingly on their training and development needs.

Employee Relations: Employee retention is a nuisance with organizations especially in


industries that are hugely competitive in nature. Though there are myriad factors that
motivate an individual to stick to or leave an organization, but certainly few are under our
control.

Employee relations include Labor Law and Relations, Working Environment, Employee
heath and safety, Employee- Employee conflict management, Employee- Employee Conflict
Management, Quality of Work Life, Workers Compensation, Employee Wellness and
assistance programs, Counseling for occupational stress. All these are critical to employee
retention apart from the money which is only a hygiene factor.

All processes are integral to the survival and success of HR strategies and no single process
can work in isolation; there has to be a high level of conformity and cohesiveness between
the same.
Unethical Practices in HRM | Company Management
The employees function, involvement, loyalty, dedication, discipline and decision making
plays a very big role in success of an organisation. However great facilities, machinery and
buildings a corporate provides, it is ultimately people who have to make them workable and
achieve organisation success.

There are various methods of recruitment, selection and training employees. Despite this the
changing trends in technology, environment, competition and comparisons make it difficult
to have 100% suitable personnel for various positions. Even those who are excellent or
experts in due course of time may not have some reputation due to changes and constant need
to upgrade the skills and knowledge.

In order to survive in the competitive world the employees resort to various fair and unfair
means. Those who adopt fair means achieve slow growth. Employees following unfair
methods are likely to grow faster or loose the job, which means they are taking known risk in
chase of greed.

Human aspects and human relations are applicable anywhere and in any department. Hence
individual behaviour, group behaviour, personality, attitudes, perception, conflicts, leadership
are some of the factors which came into factor to evaluate fair-unfair, good-bad or ethical-
unethical behaviour.

This subject of evaluation should also take care of situation, the organisational work culture,
compulsions, expectations and peer pressure. Employees have feelings, likes, dislikes, joys-
sorrows, emotions and the behavioural pattern tend to change with experience.

Higher the experience level better will be the work ethics. It is newer and less experience
employees, who need to be trained, groomed and shaped for work effectiveness and ethical
values.

All types of human beings are involved in work related behaviour.

We have to attribute this (ethical and unethical) behaviour to:

(a) Employers,

(b) Employees,

(c) Government agencies,

(d) Manpower consultants and

(e) Outside sources like vendors and dealers.

Behaviour varies as per inducements, likes-dislikes, greed, wrong perceptions and bias. The
behaviour and actions are aimed to achieve the organisational objectives and mostly ethical
and fair.
However unethical or unfair kind of behaviour and action can happen in different
categories as follows:

(a) Employers:

They sometime indulge in unfair practices like one or more of the following:

(i) Creating split in union leaders by inducing regionalism, casteism or ego problems

(ii) Not caring for just demands of the Trade Union and not behaving respectfully with union
leaders.

(iii) Trying to create rift between different unions if there are more than one recognised
union.

(iv) Biased attitude in selection, transfers, promotions, and training and development
activities.

(v) Giving different treatment and facilities to different people in the same level posts.

(b) Employees:

However some common problems are as follows:

(i) False claim of age, qualifications and experience. Some even forge marks cards to claim
certain qualifications.

(ii) Producing fake certificates of SC/ST category to obtain a job in that category.

(iii) Head of personnel projecting or short listing candidates belonging to his commonly,
region or religion.

(iv) Creating transfers, openings, promotions suiting to their own kith and kin.

(v) Taking decision very slow or very fast to suit conveniences of own kith and kin.

(c) Government Agencies:

Government agencies role is reducing year after year due to lesser employments in
government sector.

However the unfair or unethical practices continue in government sector in following


manner:

(i) Announcing the vacancies and not taking any action further. Not clear about processing
dates, written tests/interview dates and selection dates. Accountability is totally lacking.

(ii) Functioning of government employment offices is not transparent, not reliable and in fact
its purpose is not well served.
(iii) Government offices and selection committees will be excessively cautious of reservation
quotas and possible court cases rather than going through the responsibilities in an
unhindered manner.

(iv) Most of the time the government selections get stalled or delayed due to situations like
question paper leakage or court cases,

(v) The government method of selections is at best suited to low paid jobs and not for senior
level posts.

(d) Manpower Consultants:

By and large manpower consultants do a good job as mostly they are hired by the private
organisations. Moreover their services are mostly for official posts and there is no statute to
follow rules of reservations.

However, here also sometimes certain unfair strategies do take places:

(i) Consultants tend to play the caste and regional game since they are free to operate the way
they like.

(ii) There is possibility between HRD managers of corporate and consultants to organise
selections as per their own plans and strategies which invariably helps kith and kin,
community and regional following.

(iii) Some consultants guide candidates to alter the bio-data to suit the corporate.

(e) Outside Sources:

The outside sources dealing with corporate are vendors, dealers, traders, customers, courier
service, statutory offices representatives, banks and financial institutes. The interaction of
these people will be more frequent, though there are many more people contacting the
corporate.

The conduct, transactions and dealings of these outsiders also influence the ethical and
unethical values and conduct of corporate employees. It is very important that outsiders
conduct themselves in such way that the values and attitudes of both sides are fair and just.
Deviation of fair attitude leads to wrong decisions, corrupt practices and damage to the
corporate reputation.

From various explanation given in (a) to (e), your will find that the role of human behaviour,
attitudes, perception and values lead to display of certain conduct by action or reaction and
this conduct be fair-unfair or ethical-unethical to observers.

Box 14.1 gives an example:


Performance Appraisal:

Performance appraisal is a method of evaluating the behaviour of employees in the work


spot. It covers both quantitative and qualitative aspects of job performance.

Performance appraisal is essential to understand and improve the employee’s performance


through HRD. In addition to salary revision, promotions and transfers it helps to develop
human resources. It indicates the level of desired performance, level of actual performance
and the gap between the two.

Following methods are used for performance appraisal:

(1) Graphic Rating Scale

(2) Ranking method

(3) Pared comparison method

(4) Forced distribution method

(5) Checklist method

(6) Critical incident method and

(7) 360° appraisal.

Different companies use different methods for different levels. There are advantages,
disadvantages in each method. However the commonly, observed wrong practices in
performance appraisal are as follows:

Rating Biases:

Since this is not easily verifiable by others given scope for bias.
The rater’s bias includes:

(a) Halo effect,

(b) The error of central tendency,

(c) The leniency and strictness biases

(d) Personal prejudice and

(e) The recency effect.

(a) Halo effect:

It is the tendency of the rater to depend excessively one trait or observation in rating all other
traits or behavioural considerations.

(b) The error of central tendency:

This is play safe method to go on giving average rating on all the traits. This they do to avoid
explanations to both seniors and juniors who may ask questions for extreme ratings.
Alternately the rater may not himself be in a position to rate accurately due to various
reasons.

(c) The leniency and strictness:

The leniency bias crops when some raters have a tendency to be liberal in their rating by
assigning higher rates consistently. Such ratings do not serve any purpose. Equally damaging
is assigning consistently low rates.

(d) Personal prejudice:

If the rater dislikes any employee or any group, he may rate them at the lower end, which
may distract the rating purpose and affect the career of their employees.

(e) The Recency effect:

Remembering the recent actions of the employee at the time of rating and rate them on the
basis of the recent actions – favourable or unfavourable – rather than on whole years
activities.

Discrimination:

Discrimination is one of the oldest unfair practices going on all over the world in both formal
and informal way of working.

Some of the glaring olden day examples of discrimination are:


(1) In India for centuries the caste system (upper caste, lower caste) has been in practice. This
was creating inequality and unfair treatment to one segment of society to another. Similarly
women were always treated as second grade citizens of the society.

(2) In USA, until 1857, black people had no legal status. Women were not allowed to vote.
Thus both low caste people and women were discriminated. It has taken centuries of struggle
to get some respectable status to women, down trodden people, tribals, aborigines and black
people in a white majority country. The deep rooted socio- cultural practice is not totally
eradicated. It is still practiced to some extent in implicit manner. Fig. 14.1 and 14.2 display
various types of discrimination.
Discriminatory practices in organisations covers unequal treatment between individuals and
groups and between men and women. The preferential or unequal treatment can be based on
gender, race, colour, religion, national origin and region within the nation. In India there are
also demarcations of minority and majority community.

The discrimination of one or more of the types explained come in the work of selection,
training, promotion, transfer, termination etc. The extent of discrimination depends upon the
attitude of the CEO or the head of the department. His training grooming and socio-cultural
values play a significant role in fair attitude and avoiding the discrimination.

Unequal pay for equal work is another dominant case of discrimination. Difference in wages
and salaries of men-women, different men of same skills is happening all over India.

Though preamble of the constitution talks of equality, justice fraternity etc., the practice of
their topics is not fully well done even after 57 years of independence. In certain
organisations the union leaders will be creating problems by bringing up various grievances.
Sometimes it becomes necessary to silence them by unusual methods as explained in box
14.2.

Reverse Discrimination:

In this process on equally qualified women or low caste person is given preference over a
upper caste man. This is to state that some such drastic steps will help to halt the
discrimination against women and low caste people.

However reverse discrimination efforts can help once a way and not all the time. It should be
utilised on a selective basis to send a clear message to employees that women and low caste
employees should be given equal opportunities.

Race:

Selecting a particular race of people represents to somehow selecting from their own group.
This is more applicable at national and international level of selections. Race represents a
broad group. Traditionally Dravids, Aryans, Mongols, Nigros, Whiles are broad races.
However, in international selection criteria the race may represent a country or continent.
It has become a common observation to have selections from the same race as that of
promoter. For example, Mr. Laxmi Mittal has large size steel plants in various parts of the
world and not in India. Majority of his directors or key personnel are Indians. Similar practice
is followed by many other promoters of foreign owned MNCs like Toyota, Hyundai, and
Honda etc. This can be branded as favoritism or biased attitude.

Disability:

Disabled persons are employed in India in public sectors and government offices due to the
rules and reservations applicable to them. However, most of the disabled people are neglected
in terms of selection and after employment.

Some of the disabled persons are quite good in their work. However, the society treats them
in an unfair manner. It requires a broad minded approach to take good care of disabled people
in selection and in employment. Such attitude can come up with employers on their own or
due to advise of religious heads and not by enforcement of law.

Employment:

Employment Issues:

In developing world the employment issues are still to get stabilized satisfactorily. The
employment, working conditions, exploitations and unfair practices still continue due to lack
of organisation amongst employees.

Some of the examples are explained hereunder:

(1) Hiring Firing:

In India many of the workers in project sites, construction works, agriculture and agro based
industries are employed very fast and are removed whenever work or season is over.

This kind of hiring-firing is causing seasonal, disguised and industrial unemployment. It is


fair to employ them and unfair to remove them abruptly. A system has to be devised to
organise the labour and utilise them on alternate work or arrange some kind of a lower level
compensation package on lean period.

(2) Dual Responsibilities of Women:

It is fair to say that women have equal opportunities in jobs and salaries. But invariably
women play a dual or triple role of job, home and children responsibilities. Hence she needs
more leave and flexible work timings. It is unfair not to give them leave whenever asked and
it is disadvantages to company to give too much leave. Hence the situation calls for a separate
consideration for women employees.

(3) Knowledge Base:

The senior and experienced employees are finding themselves at wrong end in terms of
emoluments and encouragement. This is due to fast change of technology and knowledge
base. The younger generation is quick to adapt to changes. Hence the gap is difficult to fill
and the disparity will continue till retirement of elderly employees.

(4) Reverse Mentoring:

Due to computerization and e-commerce there is a trend of younger people mentoring elderly
colleagues. This is due to fast changes in style of functioning and corresponding training
essential for sustenance in jobs.

(5) Unlimited Hours of Work:

Since last 10-15 years there is a revolution in working hours. Younger generation now works
from 10 to 14 hours/day compared to 8 hours of standard work. Even women employees
work long hours, night shifts and go alone on overseas trips to attend their project work.

The ITES and BPO companies have totally changed the limitations of salaries and work
hours in India. This has increased employment opportunities and at the same time has lead to
lots of objectionable habits in younger personnel.

(6) Talent and Compensation:

These days it is found that employees at early age of 30 to 45 years becoming CEO, MD and
Chairman of Corporate. In earlier decades it was unwritten rule to have top executives only in
the age range of 50 to 80 years.

The salary structure also has substantially changed and youngsters are getting six figures
salaries, these days. This was unheard off just two decades back. Employment issues are
dynamic and tend to change too often. The employees should be flexible to adapt to changes.
Box 14.1 is an example of flexibility by the Director (HR) of a company. Similarly box 14.3
is another example of a strategy in HRM.
Harassment:

Harassment is making difficulties to the employee to work or perform his duties. Harassment
tactics are resorted by the bosses or co-workers with ulterior motives. Harassment in a work
place is common to take revenge or to make a worker humiliation in his work place or living
areas.

Harassment may be four types:

(a) Mental,

(b) Physical,

(c) Mental and Physical, and

(d) Sexual.

Of these the first three will be for men whereas a lady employee may be given of all the four
types of harassment. Harassment methods are set in few companies as ongoing culture. It
basically starts from dark side of human moral side.

Some of the common harassment methods are:

i. Frequent change of work place, transfers

ii. Changing shifts and duties

iii. Calling for emergent work often in the evening or nights

iv. Making lewd or bad remarks

v. Calling names or abuse

vi. Making to run around in the work place without valid reason
vii. Shouting in presence of other employees

viii. Demotions or removal from service without valid base

ix. Differentiating between employees considering their caste, region or language

x. Spreading rumours

xi. Holding due payments

xii. Physical handling or physical fights.

Sexual Harassment:

All over the world governments have made rules to protect women against sexual violations.
In case of Islamic countries however there are more restrictions and a kind of unequal
treatment towards women. In developed countries women work in almost all the areas where
men work.

In poor and developing countries women work in selected areas and that too in smaller
percentages. In India only in teaching profession the women participation is quite good and
up to 40%. In all other working areas it does not exceed 20%. Sexual harassment to a person
creates ‘hostile work environment’ to that person.

Such harassment could be due to any of the following factors:

i. Unwelcome sexual advances, request for sexual favours, verbal or physical conduct of a
sexual nature.

ii. Submission to such conduct is made either explicitly or implicitly a term or condition of an
individual’s employment.

iii. Submission to or rejection of such conduct by an individual is used as the basis for
employment decisions affecting such an individual or

iv. Such conduct has the purpose or effect of unreasonably interfering with an individual’s
work performance or creating an intimidating, hostile, or offensive work environment.

v. Favouritism and giving undue excess facilities and increments may also have same kind of
implicit threat.

vi. Writings on bathroom walls, display of pornographic pictures in work place.

vii. There are rare examples where women deliberately wear exposing dress to attract
attention of male colleagues and talk with extra sweet words and too pleasant mannerisms.
Though this type also can be branded as sexual harassment, such cases are very rare and no
complaints are made. At best the boss calls such women employees and asks them to come in
proper dress code as per the local tradition and ethics.
Indian Scenario:

In India the proportion of women employees is increasing since last 10-15 years due to
growth of ITES and BPO Sector. The women employee percentage in these large scale
companies is around 30%. Moreover in BPO companies the work hours are mostly sunset to
sunrise that is throughout the night.

Such situation and more numbers have given angle scope to indulge in willing and unwilling
sexual relations. There are more and more cases of sexual harassments in MNCs. This has
also lead to more and more love marriages, short-time companionship, living-together type
arrangements which were unheard in the Indian society. These companies have slowly
changing the socio-cultural values of India.

In Indian conditions women do not complain to employer or go to courts due to fear of


creating ill-reputation for self. Most of the cases get hushed up untold. Very few cases are
facing enquiry in office or go to court.

Even in courts the case gets delayed and it is difficult to prove the harassment due to proofs,
witness’s problems. Hence law is not as effective as it should be to punish the offenders and
discourage such incidents.

Precautionary Measures:

The concept of training and development should include the conduct towards opposite sex.
So far in India the training and development programmes cover only work related activities
and improvements. The conduct part is not given any scope and it is assumed that everyone’s
conduct is good. Sometimes there is very little difference between casual talk or sexually
indicated utterance.

Hence men can use following guidelines:

i. If you are unsure of having offended, enquire her. Than better to apologies to reduce
tension.

ii. Speak to others if your behaviour with a particular woman was wrong. This will enable
you to correct yourself and save being subject of ridicule.

iii. Women’s silence should not be treated as tolerance or acceptance of your excessive
interest in her. She may be avoiding confrontation or want you know she has no interest in
you.

iv. Be part of an accepted socio-cultural system of the region you are working in. Too much
of deviations from norms will be suspected.

Sample Corporate Sexual Harassment Policy:

(1) Sexual harassment is a violation of the corporation’s EEO policy. Abuse of anyone
through sexist slurs or other objectionable conduct is offensive behaviour.
(2) Management must ensure that a credible program exists for handling sexual harassment
problems. If complaints are filed, they should receive prompt consideration without fear of
negative consequences.

(3) When a supervisor is made aware of an allegation of sexual harassment.

The following guidelines should be considered:

(a) Obtain information about the allegation through discussion with the complainant. Ask for
and document facts about what was said, what was done, when and where it occurred, and
what the complainant believes was the inappropriate behaviour. In addition, find out if any
other individuals observed the incident, or similar incidents, to the complainant’s knowledge.
This is an initial step. In no case does the supervisor handle the complaint process alone.

(b) If the complaint is from an hourly employee, a request for union representation at any
point must be handled as described in the labour agreement.

(c) The immediate supervisor or the department head and the personnel department must be
notified immediately. When a complaint is raised by, or concerns, an hourly employee, the
local labour relations representative is to be advised. When a complaint is raised by or
concerns a salaried employee, the personnel director is to be advised.

The personnel department must conduct a complete investigation of the complaint for hourly
and salaried employees. The investigation is to be handled in a professional and confidential
manner.

Privacy:

Employee’s right to privacy came to mean “to be left alone”. In other than working house an
employee is free to spend time as he likes. During working hours every employee should
have adequate space or ‘zone of privacy’.

This is to protect employees in need for peace, their dress, manners and grooming and their
personal property in the work place. For a long time the employee privacy subject was not
well understand. In last 10-15 years the technology growth has made it clearer to understand
the need for privacy protection.

Some of the court upheld privacy violations are as follows:

1. Intrusion in locker rooms and bath rooms by surveillance.

2. Publication of private matters.

3. Disclosure of medical records.

4. Appropriation of an employee’s name for commercial uses.

5. Retrieving or accessing employee e-mail, unauthorized way.

However some permissible employee privacy inquiries are:


(i) Criminal history inquiries

(ii) Credit history inquiries and

(iii) Access to medical records.

Polygraph Testing:

Polygraph and psychological tests are done by some executives to prevent and detect crime in
the work place and this is violation of employee rights.

These tests to be avoided as:

i. They are not reliable or valid and are at best indicators.

ii. Test results, to some extent can be manipulated by the operator.

iii. The tests may include irrelevant questions pertaining to a person’s privacy.

Work place Surveillance:

Employers can detect employee’s speed of work, number and length of phone calls made and
received, rests period and number of hours the machines are used. Though these factors may
be part of work study it is also true that some companies use it for surveillance.

Guidelines on privacy in work place:

i. A company should seek private information only for legitimate purposes.

ii. Seek permission of employee before using his/her name and photograph for any
commercial advertisement.

iii. If any drug abuse, necessary medical test is to be carried explain the employee about its
need and importance rather than scaring them. Convince about confidentiality and inform test
results and abuse for improvements. Such practice will get positive attitude.

Privacy subject in Indian conditions is having more of categorisation of men and women
work places, rest rooms, swimming pool timings, separate sitting rooms, waiting rooms than
anything related to surveillance or drug tests etc.

This is due to the fact that is poor and developing centers the women employees are not
treated equally and feel uncomfortable to work under women bosses. Traditionally women
too don’t feel bold enough to enjoy equal status.
Values: it’s Meaning, Characteristics, Types, Importance
Meaning:

Generally, value has been taken to mean moral ideas, general conceptions or orientations
towards the world or sometimes simply interests, attitudes, preferences, needs, sentiments
and dispositions. But sociologists use this term in a more precise sense to mean “the
generalised end which has the connotations of rightness, goodness or inherent desirability”.

These ends are regarded legitimate and binding by society. They define what is important
worthwhile and worth striving for. Sometimes, values have been interpreted to mean “such
standards by means of which the ends of action are selected”. Thus, values are collective
conceptions of what is considered good, desirable, and proper or bad, undesirable, and
improper in a culture.

According to M. Haralambos (2000), “a value is a belief that something is good and


desirable”. For R.K. Mukerjee (1949) (a pioneer Indian sociologist who initiated the study of
social values), “values are socially approved desires and goals that are internalised through
the process of conditioning, learning or socialisation and that become subjective preferences,
standards and aspirations”. A value is a shared idea about how something is ranked in terms
of desirability, worth or goodness.

Familiar examples of values are wealth, loyalty, independence, equality, justice, fraternity
and friendliness. These are generalised ends consciously pursued by or held up to individuals
as being worthwhile in themselves. It is not easy to clarify the fundamental values of a given
society because of their sheer breadth.

Characteristics:

Values may be specific, such as honouring one’s parents or owning a home or they may be
more general, such as health, love and democracy. “Truth prevails”, “love thy neighbour as
yourself, “learning is good as ends itself are a few examples of general values. Individual
achievement, individual happiness and materialism are major values of modern industrial
society.

Value systems can be different from culture to culture. One may value aggressiveness and
deplores passivity, another the reverse, and a third gives little attention to this dimension
altogether, emphasising instead the virtue of sobriety over emotionality, which may be quite
unimportant in either of the other cultures. This point has very aptly been explored and
explained by Florence Kluchkhon (1949) in her studies of five small communities (tribes) of
the American south-west. One society may value individual achievement (as in USA),
another may emphasise family unity and kin support (as in India). The values of hard work
and individual achievement are often associated with industrial capitalist societies.

The values of a culture may change, but most remain stable during one person’s lifetime.
Socially shared, intensely felt values are a fundamental part of our lives. Values are often
emotionally charged because they stand for things we believe to be worth defending. Often,
this characteristic of values brings conflict between different communities or societies or
sometimes between different persons.
Most of our basic values are learnt early in life from family, friends, neighbourhood, school,
the mass print and visual media and other sources within society. These values become part
of our personalities. They are generally shared and reinforced by those with whom we
interact.

Types:

Values can be classified into two broad categories:

(1) Individual values:

These are the values which are related with the development of human personality or
individual norms of recognition and protection of the human personality such as honesty,
loyalty, veracity and honour.

(2) Collective values:

Values connected with the solidarity of the community or collective norms of equality,
justice, solidarity and sociableness are known as collective values.

Values can also be’ categorised from the point of view their hierarchical arrangement:

(1) Intrinsic values:

These are the values which are related with goals of life. They are sometimes known as
ultimate and transcendent values. They determine the schemata of human rights and duties
and of human virtues. In the hierarchy of values, they occupy the highest place and superior
to all other values of life.

(2) Instrumental values:

These values come after the intrinsic values in the scheme of gradation of values. These
values are means to achieve goals (intrinsic values) of life. They are also known as incidental
or proximate values.

Importance and functions of values:

Values are general principles to regulate our day-to-day behaviour. They not only give
direction to our behaviour but are also ideals and objectives in themselves. Values deal not so
much with what is, but with what ought to be; in other words, they express moral impera-
tives. They are the expression of the ultimate ends, goals or purposes of social action. Our
values are the basis of our judgments about what is desirable, beautiful, proper, correct,
important, worthwhile and good as well as what is undesirable, ugly, incorrect, improper and
bad. Pioneer sociologist Durkheim emphasised the importance of values (though he used the
term ‘morals’) in controlling disruptive individual passions.

He also stressed that values enable individuals to feel that they are part of something bigger
than themselves. Modem sociologist E. Shils (1972) also makes the same point and calls ‘the
central value system’ (the main values of society) are seen as essential in creating conformity
and order. Indian sociologist R.K. Mukerjee (1949) writes: “By their nature, all human
relations and behaviour are imbedded in values.”

The main functions of values are as follows:

1. Values play an important role in the integration and fulfillment of man’s basic impulses
and desires in a stable and consistent manner appropriate for his living.

2. They are generic experiences in social action made up of both individual and social
responses and attitudes.

3. They build up societies, integrate social relations.

4. They mould the ideal dimensions of personality and range and depth of culture.

5. They influence people’s behaviour and serve as criteria for evaluating the actions of others.

6. They have a great role to play in the conduct of social life.

7. They help in creating norms to guide day-to-day behaviour.


Morals
Morals are the prevailing standards of behavior that enable people to live cooperatively in
groups. Moral refers to what societies sanction as right and acceptable.

Most people tend to act morally and follow societal guidelines. Morality often requires that
people sacrifice their own short-term interests for the benefit of society. People or entities
that are indifferent to right and wrong are considered amoral, while those who do evil acts are
considered immoral.

While some moral principles seem to transcend time and culture, such as fairness, generally
speaking, morality is not fixed. Morality describes the particular values of a specific group at
a specific point in time. Historically, morality has been closely connected to religious
traditions, but today its significance is equally important to the secular world. For example,
businesses and government agencies have codes of ethics that employees are expected to
follow.

Some philosophers make a distinction between morals and ethics. But many people use the
terms morals and ethics interchangeably when talking about personal beliefs, actions, or
principles. For example, it’s common to say, “My morals prevent me from cheating.” It’s also
common to use ethics in this sentence instead.

So, morals are the principles that guide individual conduct within society. And, while morals
may change over time, they remain the standards of behavior that we use to judge right and
wrong.

Moral values are set of principles guiding us to evaluate what is right or wrong

Moral values help shape the character and personality of individuals. Children are taught
about it through moral stories.

Moral values such as integrity, determination, loyalty, truthfulness, honesty, giving respect to
each other etc should be inherited by every individual. As stated earlier moral values help us
distinguish between what’s right and wrong, good or bad for you as well as society. So, as a
result, your decision making power improves naturally.

Respecting each other no matter what age of the person standing in front of you helps you
gain good relations at every walks of life, be it family, workplace, or society. It also helps in
finding the true purpose of your life.

Now if moral values are so fruitful to humans then why is it that there are too many people
who don’t follow such a morally right life. Why are there crimes happening in this world? Or
disbelief towards each other among citizens on this earth?

This world is a tempting place, offering quick fixes to problems we face, which eventually
brings us back to the main problem. Following moral values in life takes a lot of patience and
sacrifice but it surely helps one to analyze the problem or difficulty one faces in life and find
the solution The trick about moral values is that the results of following such a disciplined or
determined lifestyle are not at all observable in day-to-day life. But only at the difficult times
when people trust you, and keep faith in you, do you realize that your way of living is what
made them trust you today. These values will surely help you, but only in the long run, or you
can see the actual results in the long run.

So to sum it up. A person who is determined to follow a meaningful life patiently follows
moral values in his life without the fear of getting judged and hence stands out in the crowd.

What is Morality?

What would you do if you found $50,000 dollars in a bank bag on the way home from work
tonight? Would you turn it in and hope for a reward? Or would you keep it for yourself? Or
would you just keep it for 24 hours so you could roll around in it for a while before returning
it? Our answer speaks of our morality; of what we think is the right thing to do.

So what is morality? The simplest answer is that morality is the human attempt to define
what is right and wrong about our actions and thoughts, and what is good and bad about our
being who we are. But that's not really all that simple, is it? Philosophers have been
attempting to provide answers to this question for thousands of years! Perhaps if we stand
upon their shoulders and look at this question we can find some answers that will be
meaningful for us.

What is Good?

We must begin with a foundation upon which to build our understanding of morality, so let's
begin with defining what is meant by 'good.' After all, that seems to be the focal point of
understanding morality; understanding what it means to be good.

Lots of things are referred to as good. Food is good. Sleep is good. Playing games and
hanging out with friends is good. Chocolate is good! Actually, chocolate is very good. But a
list of things we personally find to be good doesn't offer much help in understanding
morality, or what it means to be good. So, we need a baseline of fundamental ideas in order
to shape our understanding of goodness. So, what is necessary for something to be considered
good? Classical ideas break it down into five different elements.

Pleasure

Without pleasure, nothing can be truly enjoyable. In order for anything to be good, we must
enjoy it. Now this doesn't simply mean, 'If it feels good do it' kind of pleasures. We have to
understand that there are long-term ramifications and that we can impact others with our
pursuit of pleasures. So, what the pleasure philosophers are speaking of is the idea of higher
pleasures and an effort to ensure long-term pleasures. Perhaps you enjoy a fine brew from the
local pub? That can certainly be a pleasure to some. But what happens if you enjoy too many
of those brews? Well, the morning after can be very unpleasant, indeed, and pleasure goes
right down the toilet, so to speak.

Happiness

We all wish to be happy. If our idea of good didn't include getting to be happy, then why in
the world would we pursue it? Happiness, like pleasure, isn't simply for the moment but
rather the search for long-term and personally meaningful happiness.

Excellence

This is a higher form of pleasure that leads to a deeper satisfaction in life. Take movies, for
example. We all have our favourites, but we can certainly acknowledge that there are some
films that are really very good. However, there are some that stand out as excellent.

Creativity

All beings need an opportunity to create, even if that which they create is another being
through procreation. Creativity is considered a necessary element within the definition of
goodness.

Harmony

Finally, we must all be able to have the chance to enjoy our pursuits of pleasure, happiness,
excellence, and creativity. Without harmony and peace, we have very little chance to
experience any of the other elements of goodness. Imagine if you were a child in a war-torn
country where each day the threat of violence was prevalent. Would you be focused on
happiness? Or would you just be focused on survival? Thus to be good, to be moral, one must
have the opportunity to pursue it.

How Do We Be Moral?

Here's where the ideas of morality get a bit more complicated. After all, we all don't agree on
what is good, so how can we agree on what is the right thing to do in order to experience
goodness? Some people, when defining 'good,' focus on personal gain, while others believe
we should all work for the betterment of all.

How we can be moral and how we understand morality is determined by many factors; the
environment in which we develop, the philosophies and perspectives we are exposed to in our
lifetimes, and our personal experiences with happiness and unhappiness and what we see as
the causes for both.
Steps to attain CSR.

1. Define your messaging. Don’t strike blindly at different goals, such as preserving
rainforests one quarter and then investing in a community project the next. Come up
with causes that resonate with your business culture, research the kind of support they
need, then pick one and stick with it. One is enough for a small business – and don’t
feel pressured to donate more funding or assistance than you can afford.
2. Involve your customers. If you haven’t picked a cause yet, come up with a list of
alternatives and ask your web site visitors and Facebook fans to vote on which one
they would like to see you support. Or actively seek their assistance, such as bringing
old but usable technology into your store so that you can donate them to students in
underfunded schools. Make sure you offer a potential reward, such as holding a raffle
for all participants.
3. Create a scorecard. Make sure it features achievable and measureable goals and
keep it visible on your site, tracking your progress. Be honest about any setbacks –
you want the tone to be authentic, not promotional.
4. Use social media. Don’t just tell your customers what you’re doing; solicit their
ideas, experiences and concerns to get them invested in your projects. Make sure you
use multiple digital platforms – such as blogs, Facebook, Twitter, and a YouTube
channel – to reach people with different media preferences.
5. Partner with a third party. Forming an alliance with a non-profit will not only lend
credibility to your efforts, but let you benefit from the non-profit’s greater experience
in fundraising and philanthropy. The alliance will also offer an opportunity to blend
customers and networks.
6. Seek publicity. If you’ve never sought media coverage for your business before, this
might be the time to start. Send out a press release about any contests, events or
fundraising drives – and reach out to media outlets that present on green topics as
they’ll be apt to give you positive coverage.
7. Repurpose your CSR reports. Using charts, stories, and photos in your annual
reports and newsletters will appeal to stakeholders and shareholders alike.
OECD Principles of Corporate Governance
The Organization of Economic Cooperation and Development released its first set of
corporate governance principles in 1999. A revised version was then released in 2004.

The principles were developed and endorsed by the ministers of OECD member countries in
order to help OECD and Non-OECD governments in their efforts to create legal and
regulatory frameworks for corporate governance in their countries.

The six OECD Principles are:

 Ensuring the basis of an effective corporate governance framework


 The rights of shareholders and key ownership functions
 The equitable treatment of shareholders
 The role of stakeholders in corporate governance
 Disclosure and transparency
 The responsibilities of the board

Ensure the basis of an effective corporate governance framework

The corporate governance framework should promote transparent and efficient markets, be
consistent with the rule of law and clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement authorities.

The rights of shareholders and key ownership functions

The corporate governance framework should protect and facilitate the exercise of
shareholders’ rights.

Basic shareholder rights should include the right to:

1. Secure methods of ownership registration;


2. Convey or transfer shares;
3. Obtain relevant and material information on the corporation on a timely and regular
basis;
4. Participate and vote in general shareholder meetings;
5. Elect and remove members of the board; and
6. Share in the profits of the corporation.

The equitable treatment of shareholders

The corporate governance framework should ensure the equitable treatment of all
shareholders, including minority and foreign shareholders. All shareholders should have the
opportunity to obtain effective redress for violation of their rights. The principles also state
that:
 All shareholders of the same series of a class should be treated equally
 Insider trading and abusive self-dealing should be prohibited
 Members of the board and key executives should be required to disclose to the board
whether they, directly, indirectly or on behalf of third parties, have a material interest
in any transaction or matter directly affecting the corporation.

The role of stakeholders in corporate governance

The corporate governance framework should recognize the rights of stakeholders established
by law or through mutual agreements and encourage active co-operation between
corporations and stakeholders in creating wealth, jobs, and the sustainability of financially
sound enterprises

Disclosure and Transparency

Disclosure and transparency should be the cornerstone of corporate governance laws and
codes. Business organizations should disclose their financial and operating results, ensuring
that their shareholders and other stakeholders understand the nature of the organization’s
operations, current state of affairs and future direction in terms of developments.

For financial reporting, most countries now require that listed companies use the International
Financial Reporting Standards (IFRS) as a reporting framework/ guideline.

The board of directors should also disclose the inherent risks and estimates used in preparing
the financial and operating results in order to give investors a clear understanding of the
board and management’s business judgment.

Benefits of Disclosure

By disclosing and making transparent corporate governance policies and structures, the
company gives stakeholders, the regulators and the public at large a glimpse of how the
company operates and the state of its finances. This increases public trust in the organization
and improves its credibility.

Public Disclosure

Most countries require, by law, that listed companies disclose their financial and operational
results on an annual, semi-annual or quarterly basis.
In case there is a material development that affects the operation of a company, this has to be
disclosed immediately so that stakeholders are given full information on the same.

Content of Disclosures

The OECD Principles of Corporate Governance recommend that disclosures include, but
should not be limited to, material information on the following:

The financial and operating results of the company

Audited financial statements showing the financial performance and the financial situation of
the company should usually include:
 The balance sheet
 Profit and loss statement
 Cash flow statement
 Notes to the financial statement

Company objectives
Besides commercial statements and objectives, public companies should ideally disclose
policies relating to business ethics, the environment and other public policy commitments.

Major share ownership and voting rights

An investor has the right to know the ownership structure of the company in which he or she
has a stake. He or she should also be made aware of his or her rights in relation to the rights
of other owners.

These disclosures make the objectives, nature and structure of ownership and shareholder
composition transparent. Various countries require companies to disclose ownership data
once a certain ownership threshold is crossed.

Remuneration policy

The remuneration policy for board and key executives should be disclosed. Executive pay is
becoming an increasingly contentious topic across the world and various governments are in
the process on instituting laws that may limit the amount of remuneration executives are
entitled to.

Information about board members, their qualifications, selection process, other company
directorships and whether they have independent status on the board should also be disclosed.

Related party transactions

The company should disclose fully any material related party transactions to the market,
either individually, or on a grouped basis, including whether they have been executed at
arms-length and on normal market terms. This is necessary as the market should know
whether a company is being run keeping in mind the interests of all its investors.

Foreseeable risk factors

Stakeholders and the market at large need to know the risk factors taken into account while
preparing financial statements and operational reports. These risk factors or material risks
may include:

 Risks specific to the industry or geographies in which the company operates


 Dependence on commodities
 Financial market risks including interest rate or currency risk
 Risk related to derivatives and off-balance sheet transactions
 Risks related to environmental liabilities
Issues regarding employees/stakeholders

In some countries, companies are required by law to disclose information on key issues
relevant to employees and other stakeholders who may be affected by the company’s
performance.

This information may include:

 Management-employee relations
 Relations with stakeholders such as creditors, suppliers and local communities

Governance structure and policies

Companies should disclose information on their governance structure and any corporate
governance policy or code such as an ethics code. The process by which this code or policy is
implemented should also be disclosed.

There are two kinds of governance systems:

 Unitary Board Comprises both executive and non-executive directors


 Two Tier Comprises two different boards:
o Management Board whose members have executive responsibilities
o Supervisory Board that is responsible for monitoring and supervising the
company management

While most national codes say that a unitary board is acceptable, it is recommended that
organizations institute the two-tier system, a best practice as it promotes a balance of power
within the leadership structure.

Disclosing Boards Composition, Role and Functions

Corporate governance best practices suggest that companies disclose the composition of the
board, specifically the balance between executive and non-executive directors. The disclosure
on board composition should also detail whether any non-executive directors have a direct or
indirect affiliation with the company.

Board Responsibilities

According to the OECD Principles on Corporate Governance, responsibilities of the board


include:

 Board members should act on a fully informed basis, in good faith, with due diligence
and care, and in the best interest of the company and the shareholders.
 Where board decisions may affect different shareholder groups differently, the board
should treat all shareholders fairly.
 The board should apply high ethical standards. It should take into account the interests
of stakeholders.
 The board should fulfil certain key functions, including maintenance, review and
monitoring of corporate strategy, effectiveness of corporate governance practices,
executive compensation and succession planning, transparent board nomination and
election process, potential conflicts of interest, integrity of accounting and financial
systems, and process of disclosure and communications.
 The board should be able to exercise objective independent judgment on corporate
affairs.
 In order to fulfil their responsibilities, board members should have access to accurate,
relevant and timely information.

Board Committees

An important disclosure by organizations is that detailing the structure of its board and
management. These structures include committees and groups which have been assigned
duties by the board and management. For example, the board may decide to form committees
overseeing the following:

 Oversight of executive remuneration


 Audit matters
 Appointments to the board
 Evaluation of management performance

When disclosing details of these committees, the board should ensure that following details
are also made available to stakeholders:

 Committee charters
 Terms of reference

Company documents outlining the duties and power of the committee and its members

Corporate Governance Policies

Written corporate governance policies ensure that organizations are run in a transparent,
ethical manner, promoting good business practices. Corporate governance policies,
formulated by the board and management and made available to all stakeholders, should
ideally address the following:

 Election of directors to the board


 The proportion of executive and non-executive directors on the board
 Disclosure of information on finance and operations
 Composition and independence of audit, nominating and compensation committees
 Executive remuneration
 Board meetings and operations
 Shareholder rights
Ethical Guidelines to Work with Earth:

Various ethicists and philosophers proposed the following ethical guidelines to work
with the earth (Miller 1996).

Ecosphere and Ecosystems:

1. We should not deplete or degrade the earth’s physical, chemical or biological capital,
which supports all life and all human economic activities.

2. We should try to understand and cooperate with rest of the nature.

3. We should work with rest of the nature to sustain the ecological integrity, biodiversity and
adaptability of the earth’s life support systems.

4. When we must alter nature to meet our needs or wants, we should choose methods that do
the least possible harm to us and other living things.

5. Before we alter nature, we should carry out an Environmental Impact Assessment to


evaluate proposed actions and discover how to inflict the minimum short – and long-term
environmental harm.

Species and Cultures:

1. Every species has a right to live or at least struggle to live. Simply because it exists.

2. We should work to preserve as much of the earth’s genetic variety as possible because it is
the raw material for all future evolution.

3. We have the right to defend ourselves against individuals of species that do us harm and to
use individuals of species to meet our vital needs but we should strive not to cause premature
extinction of any wild species.

4. The best way to protect species and individuals of species is to protect the ecosystem in
which they live and to help restore those we have degraded.

5. No human culture should become extinct because of our actions.

Individual Responsibility:

1. We should not inflict unnecessary suffering or pain on any animal we raise or hunt for food
or use for scientific or other purposes.

2. We should use no more of the earth’s resources than we need and not waste such
resources.

3. We should leave the earth as good as—or better—than we found it.


4. We should work with the earth to help heal ecological wounds we have inflicted

Prestigious awards for CSR


India’s environment policy.

Environmental Policies are the sum total of the values to which a person or a group of
persons or institutions social, legal and governmental – consider as important in their
relationships with one another. Environmental policies have to be formulated in the credible
of social morals and values. Let us know more about the Environmental Policies in India.

Environmental Policies

The goals of the Environmental Policies may be formulated in several ways – to protect
human health, ensure the viability of wildlife, preservation of historic monuments, stopping
further degradation of the environment etc.

The policy is the overall environmental intention and direction forming the backbone and
skeletal framework, from which all other environmental components are hung including
environmental management systems, audits, assessments, and reports.

Environmental Policy – Pre Stockholm Period (Prior To 1972)

In the early years of Independence, there was no precise environmental policy and not many
attempts were made to frame any specific policy or law for the protection of the environment.
This period had more stress on the development of infrastructure with little concern for
environmental issues. Various environmental concerns like sewage disposal, sanitation,
public health etc., were dealt with different ministries of government. However, the concern
for environmental protection was reflected in the national planning process and forest policy.

In February 1972 a National Committee on Environmental Planning and Co-ordination


(NCEPC) was established in the Department of Science and Technology. This was the apex
advisory body in all the matters pertaining to environmental protection and improvement.
The committee was assisted by Department of Science and Technology and an Office of the
Environmental Planning and Co-ordination (OEPC) was set up under the direction of the
Chairman of the committee.

Environmental Policy – Post Stockholm Period (After 1972)

For the first time, the importance of preserving the quality of life and promoting the
environment along with development was stressed in the fourth Five Year Plan (1969 to
1974) with a chapter on the long-term perspective. However, it was only diming the fifth
(1974-79) and sixth (1980-85) five-year plans, concerns that were expressed in the fourth
plan were made into a concrete one by initiating several programmes.

Fifth Five Year Plan

The fifth five-year plan (1974-79) stressed the need to have a close association with National
Committee on Environmental Planning and Co-ordination with all major industrial decisions
so that environmental goals are fully taken into account. It also stressed that in the process
and pursuit of development there should not be any reduction in the quality of life and the
link was very much stressed between developmental planning and environmental
management.

Sixth Five Year Plan

In the sixth five year plan (1980-85) an entire chapter on ‘Environment and Development’
was included which emphasizes sound environmental and ecological principles in land use
agriculture, forestry, wildlife, water, air, marine environment, minerals, fisheries, renewable
energy sources, energy and human settlements. It provided guidance on environmental
concerns to administrators and resource managers in formulating and implementing
programmes and lay down an institutional structure for environmental management in the
Central and State Governments.

Tiwari Committee (1980)

The Government of India set up a committee in January 1980 under the Chairmanship of
Shri. N.D. Tiwari, then Deputy Chairman of the Planning Commission to review the existing
environmental legislation and recommend legislative measures and administrative machinery
for environmental protection. The committee stressed the need for the proper management of
the country’s natural resources of land, forest and water in order to conserve the nation’s
ecological bases.

National Environment Policy, 2006

The National Conservation Strategy and Policy Statement on Environment and Development,
1992 was one of the first attempts of the Government of India to develop a policy framework
for environmental protection. The National Forest Policy, 1988 and the Policy Statement for
Abatement of Pollution, 1992 are some other policy frameworks that advocate effective
environmental management at the national level.

However, a need was felt to bring together the guiding principles of all these documents and
develop a comprehensive national environmental policy. Consequently, the National
Environment Policy was put together after widespread consultation and was approved by the
Union Cabinet on 18th May 2006. The National Environment Policy, 2006 (NEP, 2006) does
not displace earlier policies but builds upon them.

Objectives of the National Environment Policy, 2006

Following are the objectives that were kept in mind while framing the National Environment
Policy, 2006 by MoEF, Government of India.

1. Conservation of Critical Environmental Resources – To protect and conserve critical


ecological systems and resources, and invaluable natural and man-made heritage, which are
essential for life-support, livelihoods, economic growth, and a broad conception of human
well-being.

2. Intergenerational Equity – To ensure judicious use of environmental resources to meet the


needs and aspirations of the present and future generations.
3. Integration of Environmental Concerns in Economic and Social Development – To
integrate environmental concerns into policies, plans, programmes and projects for economic
and social development.

4. Efficiency in Environmental Resource Use – To ensure efficient use of environmental


resources in the sense of the reduction in their use per unit of economic output, to minimize
adverse environmental impacts.

5. Environmental Governance – To apply the principles of good governance (transparency,


rationality, accountability, reduction in time and costs, participation, and regulatory
independence) to the management and regulation of the use of environmental resources.

6. Enhancement of Resources for Environmental Conservation – To ensure higher resource


flows, comprising finance, technology, management skills, traditional knowledge and social
capital for environmental conservation through mutually beneficial multi stakeholder
partnerships between local communities, public agencies, the academic and research
community, investors, and multilateral and bilateral development partners.

What is Whistle blowing?


Whistle blowing definition

Whistle blowing is the act of drawing public attention, or the attention of an authority figure,
to perceived wrongdoing, misconduct, unethical activity within public, private or third-sector
organisations. Corruption, fraud, bullying, health and safety violation, cover-ups and
discrimination are common activities highlighted by whistleblowers.

Whistleblowers often face reprisals from their employer, who may suffer reputational damage
as a result of the whistle being blown, or from colleagues who may have been involved in the
illicit activities. In some cases reprisals become so severe that they turn into persecution. In
some cases reprisals come from legal channels, particularly if the whistle has been blown for
illegitimate reasons.

Protection of whistleblowers is an important focus for the legal system, as is incentivising


whistle blowing when there are many reasons stopping employees from doing so. In the UK,
the Public Interest Disclosure Act 1998 is the basis of legal protection of whistle blowers.
Previously disclosures had to be in the public interest, but new legislation enacted in late June
2013 changed this so that disclosures had to be in ‘good faith.’

All employers should adopt a whistle blowing policy that encourages employees to draw
attention to wrongdoing or risky behaviour. In the case of legal action being taken against a
company as a result of internal wrongdoing, having and promoting a strong whistle blowing
policy may act in part as a legal defence.
Whistle Blowing
Definition: When a former or the existing employee of the organization raise his voice
against the unethical activities being carried out within the organization is called as whistle
blowing and the person who raise his voice is called as a whistle blower.

The misconduct can be in the form of fraud, corruption, violation of company rules and
policies, all done to impose a threat to public interest. The whistle blowing is done to
safeguard the interest of the society and the general public for whom the organization is
functioning.

The companies should motivate their employees to raise an alarm in case they find any
violation of rules and procedures and do intimate about any possible harm to the interest of
the organization and the society.

Types of Whistle Blowing

1. Internal Whistle Blowing: An employee informs about the misconduct to his


officers or seniors holding positions in the same organization.
2. External Whistle Blowing: Here, the employee informs about the misconduct to any
third person who is not a member of an organization, such as a lawyer or any other
legal body.

Most often, the employees fear to raise a voice against the illegal activity being carried out in
the organization because of following reasons:
 Threat to life
 Lost jobs and careers
 Lost friendships
 Resentment among workers
 Breach of trust and loyalty

Thus, in order to provide protection to the whistle blowers, the Whistle Blower Protection
Bill is passed in 2011 by Lok Sabha.

Now, the question comes in the mind that which offenses are considered valid for whistle
blowing and for which the protection is offered by the law. Following are the acts for which
the voice can be raised and are law protected:

1. Fraud
2. Health and safety in danger
3. Damage to the environment
4. Violation of company laws
5. Embezzlement of funds
6. Breach of law and justice

Note: The personal grievances such as workplace harassment, discrimination, bullying, etc. is
not covered under the whistle blowing law unless it is in the public interest.