SHORT NOTES

BUSINESS ETHICS
 BUSINESS ETHICS

• To study business situations, • Based on these studies, to

decisions, activities and create Moral principles and
declare them as right or Societal standards defining
wrong right and wrong
• Study the "Values a • To Apply Ethical standards,
company upholds" Legal Standards,
throughout its operations Regulations, Set of rules
and principles in businesses

Kala Dera Case:

Unsustainable business
Business practices by Coca cola
Ethics resulting in rapid declining
water table. Resulting the
company to pay $2.5
Billion annually for water
conservation.
Ethics &
Laws Morals

Creates Good Decisions

Difference between Law and business ethics:

Relationship between Law and business ethics:

Laws Ethics

ü Set of rules and regulations ü Set of standards society places

created to govern. on itself to guide people.
ü Universal ü Acts as choice, no legal
ü Act as obligations, else punishment
punished ü Defines an ideal human
ü What we must and must not character.
do.
 LAW ETHICS
Systematic body of rules to Guides about basic human conduct
govern
Rules and regulations Guidelines

Violation of law is not There is no punishment

permissible which may result for violation of ethics
in punishments
Intent to maintain social order Help people decide what is
and right or wrong
peace
Binding No binding nature

Static in nature Flexible

Not necessarily highest standard Considered highest standard of

of conduct conduct
It reflects "letter and spirit" It reflects "nature of spirit"

Law holds accountability Ethics holds responsibility

Well defined and objective Not well defined and subjective

Balance between law and

ethics

Law is a means to achieve an end.

It is not an end in itself

Ethics Guide Legal Action

Example- Littering in public areas

has no specific law but it is Ethical Law
to keep public spaces clean.
Based on the fundamental end of
cleanliness and respect towards
nature, laws and regulations can be
Ethics
created by legal bodies, creating an
ethical and a legal behavior
amongst people 3
 Relationship between business ethics and law-

v Business ethics covers both laws Example-

and ethical conduct. Medical Testing on Animals:
v It begins where law ends and v Acceptable as per pure
where there is no consensus to business sense
be right or wrong. v Acceptable as per the
v Business ethics helps in making Law
decisions in Grey areas where v Unacceptable as per
the law is silent, values are Ethics of equal respect
conflicting or absent to all life and living
beings

Importance of business ethics-

Survival, growth and brand loyalty

§ Shareholders trust an ethical org.

more
§ Following ethical standards ensures
survive in the long term
§ It achieves market credibility by
making brand loyalty
§ E.g. TATA as a trusted brand

Building long term relations

§ Ethical standards help in

developing long term relations
with employees, investors, clients
& Stockholders
§ Builds a reputation of "socially
responsible organization".
§ E.g. Wipro’s relations with
employees.
4
Providing competitive advantage

§ Value creating strategies are difficult

to imitate, providing a competitive
advantage

Increased productivity & teamwork

§ Ethical practices contribute towards

high productivity, better teamwork-
stronger organization
§ E.g., Mr. Ratan Tata and Mr. Narayan
Krishnamurthy building ethical and
positive practices in their businesses

Benefits of adopting ethics in business

q Quality of Decision Making Improves- Decisions taken by

considering ethical issues add more value to society. Quality of
decisions is thus better.
q Example- Harvard case study on 26/11 Attack- TAJ employees
did not leave their position for safety of their guests and
customers. The decision was not made to increase market value
of Taj Hotels, but to fulfill its duty of a responsible organization

q Ethical business ---> loyal customers ---> More consistent

business growth & Profits

q Creates goodwill in the market for being ethical and upright in

difficult times

q Ethical Business ---> more credibility with the public 5

 Arguments Opposing Ethics
in Business

According to proponents of free market,

Financial interest is the first & only priority

Pursuit of profit ensures social benefit

Ethical decisions are time consuming at

times, slowing down decision making

Ethical Principles in Business

Honesty

Morale of Transparenc
Employees y

Ethical principles
in business Trustwort
Reputatio
n hy

Confidentia Law
lity abiding
6
 Ethical Dilemma
(problematic decision due
to competing interests)

What would
you do?

Thought experiment: Trolley problem

q Consider a trolley barreling down

railway track, with two alternative
tracks having 5 people tied on first
track and 1 person on second track.
If you have a lever to switch trolley
to different set of tracks, you are
left with 2 options-
1. Do nothing and let 5 people get
killed under the trolley
2. Pull the liver to divert the trolley
and take the life of 1 person

Ethical dilemma is a problem in decision making where a choice is to be

made from two equally undesirable alternatives

The situation contains two conflicting moral requirements, and every

available choice could be wrong or unacceptable option.

Neither of choices available could be absolutely acceptable from ethical

perspective.

Conflict between alternatives no matter what a person does, some ethical

principle will be compromised.

E.g., Suraj, a Branch manager of a bank selects a poor and needy

candidate from applicants for vacant position and compromises on Merit.
(Merit versus empathy)
7
 Decisive (must make a (Objectivity) Different
choice from alternatives) courses to choose from

Conditions required
for situation to be
called an "Ethical
dilemma"

Some ethical principle is No Absolute/perfect

compromised solution

Ethical dilemmas in business

q Business dilemma exists when organizational decision

maker faces ethical dilemma, and decision of his/her
choice may impact stakeholders and profitability of
business.
q Choice of decision may impact either one or more
stakeholders i.e. reducing salt in processed foods is
healthy but goes against sales and profits. Companies
like Coca cola face the dilemma of health vs sales

Acting in prudence, with objectivity is the way to take a

better decision.

ü Johnson & Johnson CEO James burke faced ethical dilemma in

1982, after a criminal added a poison cyanide to bottles of
Tylenol in Chicago. Sales of company dropped with this news
out in open.
ü In his response, Burke decided to pull Tylenol from all shelves
worldwide citing customer safety as company’s highest
priority. J&J recalled and destroyed 32 million bottles of
Tylenol valued at 250 million in todays dollars.
ü Burke’s decision helped company regain the trust of its
customers, and product sales rebounded within a year
ü Prompted by the Tylenol murders, Johnson & Johnson became
a leader in developing tamper-resistant packaging and
government instituted stricter regulations.
8
 Reasons behind Ethical
Dilemmas

Failure of Conflict of Organizational Conflict of

personal personal Goals versus personal beliefs
character & organization Social Goals versus
E.g., Ashneer al values e.g., DuPont organizational
Grover removed e.g., An animal Chemical practices
from all activist working industry e.g., Dilemma
positions from in an MNC produced Teflon arising where
BharatPay for faces dilemma which led to teacher has to
misappropriatio when the new cancerous either complete
n of funds. project involves pollutant his syllabus or
leather bags as effluent in teach his
On the other product involvi West-Virginia students in
hand, Lal ng animal and surrounding depth and with
Bahadur shastri killing for regions (Organiz conceptual
sent his leather ational values clarity
resignation as compromising
Railway sustainability)
minister after
train accident
in 1956

How to resolve Ethical dilemma?

Analyze Repercussions/ Consequences of action

Consequences on living beings- Identify the

Stakeholders /Beneficiaries

Who is Harmed and who benefits from the decision

Nature of benefits or harms

9
 Analyze the action

After options are clear, Concentrate on action

Proposed actions to be aligned with ethical and moral principles

The analysis should involve making the most sensible choice which acts
as a least problematic solution

Taking a decision

All factors considered (Step 1 above)

Analyze the choices available (Step 2 above)

Taking rational decision

Ethical decision making in business

Conflict of interest among stakeholders

Complicated decision Equally bad alternatives and choices

Stalemate situation

Example- Tech companies like Facebook realize the inherent addictive side-effects of
social media. Ethical decision making would involve getting rid of those side-effects
for the user, but business expansion would demand even more addiction among users.
The employees may demand more ethical practices whereas shareholders might
demand more profitable practices.

10
 Some tests to follow for
solving Ethical dilemma in
business ethics

Family test; Utilitarian test;

Explaining your decision Maximizing greatest amount
or choice to your family of good for greatest
and their response? amount of people

Newspaper Test; Mentor Test; Honesty Test;

How would you feel If someone you admire Asking oneself honestly
reading about the and idolize were making and checking if it breaks
decision taken on the the decision what any accepted moral
front page of local would they do? principles of telling the
newspaper? truth

Legal Test; Conscience Test;

Does ethical choice Taking ethical decision in
follow rule of law and good conscience and
company policies, trusting your gut feeling
practices and values

11
 Factors influencing Ethical decision making

• Some cultures believe in taking individualistic decisions in ethical

dilemmas, some believe in taking decisions by consulting the entire
group
Cultural • Some cultures justify short term decisions devoid of ethics, some
factors cultures focus on long term decisions considering ethical implications

• Factors such as promoter’s ethics, investor’s ethics, and stakeholder’s

ethics influence ethical decision making
Organizational • The challenge is to follow "core values" in decision making while
culture and striving for "aspirational values" I.e., values that an organization
values wants to follow for long term success

• People often take decisions based on opinions of others in the

environment.
• Society constantly shapes our values, beliefs, opinions etc.
Social factors • We tend to justify unethical decisions based on acceptability by
society

• Personal characteristics do affect ethical decision making

• Personal values such as integrity, trust, honesty, justice, equity etc
Personal
have a significant role in ethical decision making.
factors

• Demographic characteristics like gender, age, education also influence

ethical decision-making process
• In some situations, the Youth is more Ethical while in others, the Youth
Demographic is more Practical and unethical. Demographics affects ethical nature of
factors a decision, depending on the ethical dilemma involved

• The cognitive process of deciding what is right or what is wrong is termed as

Psychological psychological factors that affect ethical decision making
factors

12
 Organizational Structure & Business Ethics

Org Structure & Business

Ethics:
“An organization’s structure is
important to the study of
business ethics because various
roles and job descriptions that
comprise
that structure may create
opportunities for unethical
behavior.

O.C.
Ferrell

Organizational structure

Centralized Decentralized

Centralized Structure & Ethical Implications

Centralized structure is characterized by concentration of power

at the top-
1) Little scope for delegation of authority
2) Formal rules, policies, procedures with systematic control system
3) Very bureaucratic, rigid and time consuming
4) Formal & impersonal
5) Well defined division of labor
6) Quick implementation due to concentration of power 13
Higher probability of unethical
practices due to lack of interaction
in hierarchy (decision makers at
top and employees at bottom)

Lack of upward communication due

to which the people at the top
never come to know about the
unethical activities going on at the
lower levels

Communication gap leads to

unethical practices and employees
taking part in unethical activities
e.g., taking bribes , running sweat
shops etc.

Top level bosses have no knowledge

of such unethical practices at
bottom level

Promotes shifting the blame

amongst employees

Unwillingness among lower/

bottom employees to imbibe ethical
culture, unless ethical culture is
put into a communication flow.

14
 Decentralized Structure & Ethical Implications

Decentralized organization structure focuses on-

1. Delegation of authority
2. Individual responsibility where the responsibility is held at
the lower levels of Management.
3. Flexible, adjustable and ready for adaptability
4. Relatively slow implementation
5. Quick response to change in internal and external
environment
6. Unethical behavior by employees promptly comes to notice
due to grapevines (informal interpersonal communication)

Promotes unethical behavior among organizational members

because there are independent profit centers which make their
own decisions and sometimes these units deviate from
organizational objectives and serve their individual interests

v Decentralized structures run on employee empowerment but

if the employees misinterpret their power then this may
lead to immoral acts
v There can be unnecessary pressure on lower-level
employees, resulting in unethical behavior
v Ethical dilemmas can be resolved through informal
discussions 15
 Case study-
Decentralization

Conclusion-
q Unethical practices are possible in both centralized and
decentralized org.
q Centralized org- Longer time for the unethical cultural rooting
& its elimination
q Decentralized org- Minor unethical aberrations may come & go
without rooting & sprawling in decentralized organizations
q Centralized and decentralized both require different
procedures and practices to instill ethical culture in employees

16
 Ethical leadership

q Promoting moral behavior

q Promoting appropriate conduct at workplace through personal actions
and interpersonal relations
q Ethical leadership percolates ethical culture in the entire organization

Believes in conflict resolution

Qualities of Ethical leader

Setting ethical goals

Developing ethical programs

Settlement of ethical dilemmas

Setting ethics committee

Creating code of ethics

Creates code of values

Respect everyone
Qualities of Ethical leader

Leads by example

Communicates openly

Respect freedom of others

Policy of justice and fairness

Visionary

Strategic and critical thinking 17

Examples:

• E.g. Adi Godrej and his • E.g., Bernie Madoff

contribution to build an acting as a leader but
empire when Indian running a ponzi scheme
economy was not worth billions of dollars,
liberalized. His risking lives of his
philanthropy and vision employees and investors.
has made brand Godrej Justifying his acts when
as people’s favorite. caught.

Good leadership Bad leadership

Social audit is the

method of understanding,
Social Audit – measuring, reporting
How to measure & improving organization's
whether an social & ethical performance
organization is
ethical or not??? Assessing how well a company
is discharging its social
obligations

Define values and

objectives of
organization

Identify
Publish results indicators of
Social performance
Audit
Cycle

Collect data
Evaluate data qualitative and
quantitative
18
 Need / importance of Social Audit:

v Social audit brings a larger perspective than organization-

impacting society and people of local community
v No organization can exploit the resources available to it
v Org. cannot use any anti-social means to earn its profits
v Social audit has become essential to curb anti-social and anti-
environment actions of organizations

Areas covered in Social Audit

Clarity on Ethical Issues-

ü Social Audit helps us determine what is right and what is
wrong
ü Example- Unethical conduct like price discrimination, unfair
trade practices, cheating customers etc.

Equal opportunities-
ü Merit based appointment
ü Equity of treatment in employment
ü Fair justice system in case of any grievance

Quality of Work Life-

ü Employees need Freedom, growth, flexibility & employee
assistance programs to maintain a healthy quality of work life.
Social Audit measures the level of focus and efforts made in
QWL

Environment Protection:

ü Whether a company works towards environment protection or not

ü Sustainable processes followed
ü Prevent and protect is better than repair and repent
19
 Advantages of Social Audit-

q Improves public image of the company

q Makes company aware of its social works
q Practical effectiveness of different types of social Programs
q Utilization of data & information provided by social audit in
its budgeting & project evaluation.

Indian Scenario of Social audit-

Ø Not mandatory for private

companies
Ø Department of public
enterprises has now made
social reporting compulsory for
public enterprises

Employees & Ethics:

q Employees' main duty is to work towards the goals of the firm

q Avoid any activities affecting the organization negatively
q To ignore organization's goals is also unethical for an employee
q Goals that serve self-interests of employee is also unethical

20
 Employees may engage in the
following Unethical activities

Commercial bribes-
q Something of value that is given or offered to an employee by
a person outside the employee’s company
q Example- Receiving a Bribe to award a contract of your
company to a third party

Gifts-
q Accepting gifts may or may not be ethical
q Ethics of accepting gifts depends on-
1. Value of gift
2. Purpose of gift
3. Circumstances under which the gift was given
4. Company policies on gift
q Accepting small gifts without asking for gifts is not
unethical, if there is no return favor for the gifts

Insider trading-
q Buying or selling of a company’s stock based on inside
information about the company which is not available to the
public outside the company
q Example- Rajat Gupta was convicted in 2014 under insider
trading and fraud. Lack of ethical practices can cause
profiteering and illegal trading

Theft:
q Using company resources by employees for their own benefits
is a form of theft as they are using or taking property of
another without consent of its rightful owner

21
 Moral obligations of employers
towards employees

Ø Two-way relationship between employees & employers

Ø Employee – follow codes of conduct, avoid unethical practices
Ø Employer -- Fair wages, safe working conditions, no
discrimination

Fair wages & compensation- No Workplace discrimination

Employers should give fair
compensation depending upon-
1. Capacity of firm to pay
2. Risks, skills & demands of
the job.
3. Minimum wage laws
4. Cost of living
5. Wages in the same
industry
Adequate Working
conditions-
ü Right to healthy & safe
working conditions has
been one of the very
first ethical concern
for employees
ü Inform workers about
workplace risks
ü Compensate & ensures
workers for assuming
risk
ü Preferential treatment on
the
grounds of characteristics
like race, gender, age,
religion, nationality,
disability other than their
merit.
ü E.g. Abercrombie & fitch
lost a lawsuit filed by a
female employee of its
London flagship store who
wore an arm prosthesis. she
covered it by wearing a
cardigan. She was removed
from working on the shop
floor as her dress style
got violated
Right to privacy-
ü Fundamental right to
privacy consists of
Employee’s ability to
control private
information, using and
sharing information

Physical Social Informationa Psychologic

22
Privacy Privacy l Privacy al Privacy
 How to create an ethical organization?

1. Role of Corporate Culture-

ü Corporate culture is a set of values,
beliefs, goals, norms, and ways of
solving problems.
ü Each firm tries to develop its own
corporate culture based on the
values the founders want
to transmit
ü E.g. Azim Premji, founder &
chairman of Wipro technologies
emphasizes a great deal on the
integrity of employees & ensures
that it pervades every sphere and
work in the organization. He even
spends a considerable amount of
time along with his team to recruit
senior executives whom he
considers men of integrity through
their thoughts & deeds.

2. Role of Corporate Governance-

ü It refers to combination of laws, rules, regulations,

procedures & voluntary practices
ü Code of best conduct, policies, procedures
ü It Governs the behavior of individuals of corporation
ü It Prevents fraud, malpractices etc.
ü Corporate Governance is based on integrity, honesty,
transparency, full financial disclosures

23
Other influences in creating an ethical organization-

1. Governments & regulators who provide guidelines & penalties

2. Human resource management (HRM) department of a company
plays a pivotal role in training, communication with workers, &
its manner of enforcing discipline in the organization
3. Human resource management plays pivotal role in training,
communication with employees and enforcing discipline.

3. Ethics Committee:

ü Ethics committee ensures successful merger of business ethics

with the daily work behavior & attitude of management
ü Board level ethics committee monitors ethicality of business
decisions

Roles performed by Ethics committee:

Regular advice on ethical dilemmas and issues

Develop ethical standards

Formulate ethics policy

Training is based on the code of ethics

Ensuring that measures are taken to reinforce & modernize ethical

culture

Take note of Ethical issues involved in board level policy & strategy
decisions

Verifying report & managing subsequent action on breaches of

ethical policy or allegations.

24
 Impartial and
Neutral &
Non-
independent
partisanship

Independent Understands
power to Organizational
settle an values ,vision,
issue & culture

Qualities of Ethics member committee

Duties of an Ethical & Compliance Officer –

ü Develop an internal reporting system
ü Adherence to code of ethics & code of conduct
ü Developing effective ethics training program
ü Develop an ethical manual
ü Watch on potential wrongdoings in organization
ü Supervise ethical process and communication procedure
ü Recommend staff training, evaluations of compliance
systems, appropriate
ü funding and staffing etc.
ü Supervise whether company follows ethical conduct, govt.
regulations, auditing etc.

25
 Ethical training-

ü To aid employees to
understand ethical issues
and how to deal with them
ü Empower employees to
handle ethical situations

Benefits of ethics training program-

Awareness-raising training

Enhance capability to Analyze ethical dilemmas

Function-specific Ethical Training

Apply corporate values in
Enhancement of their skills
everyday decisions

Strengthening communication of corporate values

Awareness of Importance of employees in maintaining an ethical

culture

Imbibing ethical culture

Sinking ethicality in conscience Reduce potential for misconduct

26
 Code of Ethics – How to behave at the workplace?

Codes of conduct

Essential for maintaining discipline

Acceptable or unacceptable behavior at the workplace

Acceptable range of behavior, actions & decisions for an organization
& its member is formally mentioned & declared

Issuing formal code of conduct, appointing ethics officers, instituting

training programs in ethics

Advantages of Code of Ethics-

ü Eliminate uncertainty about ethical
standards
ü Certain activities can damage the
reputation of the company
ü Addresses issues like conflict of
interest, competition, privacy of
information, gift giving, & receiving
political contribution for business
ü Provides guidance to both
employees & managers on how to
implement & practice business
ethics in the workplace

Code of ethics specifies many things for the employees like dress code,
rules,
regulations regarding punctuality, insider trading , gifts , bribes ,
whistle-blower policy in the organization.

27
 Code of ethics types

Compliance based
Value-based codes- ethics- Professional codes-
Emphasizes Clear cut rules and Ethical standards of
responsible conduct regulations professional groups

Guidelines for Successful Code of Ethics

Monitor & review regulations-

Review laws & regulations to which

the organization must adhere.
28
Define ethical traits-
Identify each departmental traits
that represent highly ethical
organization

Conduct SWOT analysis

Strength-Weakness-Opportunities-
threats

Seek stakeholder’s expectations

Seek stakeholder’s expectations

Determine important values-

Responsibility: Accountability, pursuit of excellence

Justice & fairness: procedural fairness, impartiality, consistency, equity,

equality, due process

Civic virtue & citizenship- Law abiding, community service, protection of the
environment.

Trustworthiness: honesty, integrity, promise keeping, loyalty

Caring: Compassion, consideration, giving, sharing, kindness, loving

Respect: Autonomy, privacy, dignity, courtesy, tolerance, acceptance

29
Compose code of ethics

Invite feedback

Communicate the code of ethics

Modernize constantly-
Review, Revise and modernize
the code

Reviewing the code each year

Successful Ethics Policy

Requirements

Supported with enthusiasm by top management

Explicitly described

Practically applicable

Monitored by top management

Penalties & consequences for non-compliance

Remain neutral & impartial

Starbucks
ü Starbucks is committed to 100% sustainably sourced
coffee, and uses a system called C.A.F.E. (Coffee and
Farmer Equity Practices) in order to optimize its
sustainable sourcing.
ü There are four ideas at the heart of Starbucks’ C.A.F.E.
sourcing system: quality, economic transparency, social
30
responsibility, and environmental leadership.
 Corporate social responsibility –
Extension of Business Ethics

An Ethical business tries to balance between economic objectives and

social objectives

It has obligations towards the society where it exists & operates, to

people and environment

Business ethics establish moral grounds and corporate social

responsibility focuses on a corporation’s social & environmental
contribution

Corporate social responsibility focuses on a corporation’s social &

environmental contribution.

Ethical business means being just & fair to all stakeholders

Employees who are treated ethically will be more likely to behave

ethically in dealing with customers & business associates

CSR endeavors of any company should not be driven by legal compliance,

they should rather emerge from the ethics of the company

CSR should be designed on firm ethical ground or long-term ethical

perspective

Organization must inculcate ethics in its culture for actual implementation

because CSR on paper & not in spirit is of no use.

31
 Introduction and evolution of CSR

1953- Father of CSR 1960- Keith Davis

Howard R. Bowen, “What Iron law of Responsibility
responsibilities to society may
businessman be reasonably
expected to assume ?”

1971- Committee for economic 1967- Clarence C. Walton

development Corporate Social
“Business function by public responsibilities
consent and should serve needs
of society”

1972- Prof. Wallich discussed 1974- Keith Davis moving

elements of the exercise of CSR beyond the law in CSR

1985, Wartrick and Cochran 1974-Archie B. Carroll

Corporate Social performance Managers to engage in CSR
model and in 1984- discussed
constituent parts of CSR

Obey Law

1991,
Archie
Good Corporate Carroll Be Ethical
Citizen “CSR
pyramid 32
 Evolution Of Corporate Social Responsibility in India

ü The history of CSR in India

runs parallel to the historical
development of India.
ü CSR has evolved in phases like
community engagement,
socially responsible production,
and socially responsible
employee relations.

1 Phase (1850-1914)-
Philanthropy and charity
during industrialization

2nd Phase (1914-1960)

Tool for social
development

3rd Phase (1960-1990)

CSR under aegis of mixed
economy

4th phase ( 1990s

onwards)
CSR in globalized world

33
 Meaning of Corporate Social
Responsibility (CSR)

The real meaning of CSR of a company should be undertaking all actions as would
maximize the probability of its long-term survival & sustained growth

CSR is service to society-

ü It is duty of company to undertake CSR

activities because company and society are
mutually exclusive
ü Corporations cannot act as isolated
economies with indifferent attitudes
towards society
ü Companies should serve the society to
return at least some part of what they
have gained

CSR is balancing act in satisfying the

company’s stakeholders-

ü Balancing act in satisfying company’s

stakeholders with the desire to act
ethically & contribute to the economic
development & quality of life of
workforce, environment, community,
society at large
ü Satisfies direct and indirect stakeholders

CSR reliance on long term sustainable growth-

ü It is in interest of all direct stakeholders that

the company should have long term
sustainable growth
ü Overall benefits to every stakeholder including
society, environment leading to ripple effect
of development 34
 Business case for CSR within
a company-

Human resources-

ü CSR can be important to recruitment & retention

ü Potentials recruits are increasingly likely to ask about firm’s CSR
policy during an interview & having a comprehensive policy
ü CSR can help to build a feel-good atmosphere among existing staff
ü Employees can become involved through payroll giving, fundraising
activities or community volunteering.

Risk management-

ü Managing risk is a central part of many corporate strategies

ü Reputations that take decades to build up can be ruined in hours due to any
unethical and corrupt incidences.
ü Such events can draw unwanted attention from regulators, courts,
governments, and media.

Brand differentiation-

ü Spending on CSR will determine a company’s brand reputation

ü innovative & meaningful CSR initiatives are likely to better
withstand economic depression than those ignoring social
responsibility

License to operate-

ü Avoid interferences in their business through taxation & other

regulations.
ü Taking substantive voluntary steps, they can persuade governments
&
ü wider public that they are taking current issues like health,
safety, diversity, or the environment seriously
ü Firms seeking to justify eye catching profits & high levels of
boardroom pay
ü Being good corporate citizens with respect to labor standards &
impacts on the environment 35
Diverting attention-

ü Existing reputational problems due to their core business activities

may engage in high profile CSR programs
ü E.g. Biggest popular brand Marlboro the Altria group company in 90s
was finding it difficult to face the inconvenient queries raised by the
public in the meetings & thus followed heavy expenditure by
company on philanthropy, research & public welfare. Their actions
were admired & appreciated which finally led to the increase of
company share prices.

Social responsibility & Indian corporations-

Infosys through its Infosys foundation provide

assistance to social development , art , culture
,schools , libraries , higher
education etc.

Tata group has been training local communities

in water harvesting , storage & recycling

Britannia industries promote sports , especially

tennis

ITC is socially active in rural development

especially in areas of agriculture

Wipro technologies are involved on spreading

quality primary education through its azim
premji foundation

MRF tyre industries promote sports activities

especially cricket

36
CSR should be as tool to give a cleaner reputation and socially responsible identity to
companies to bring long-term positive social transition.

It should not be seen just as strategy to clean sins of pollution and facelift companies
image

Investors of the future will be demanding greater transparency in disclosure of both

financial & non-financial information to better understand companies

With current perception of CSR and in view of increasing expectation of stakeholders

on transparency it is imperative that managers of tomorrow will bw ethical team
players

Companies Act 2013 & CSR Rules

Applicability-

Every company having net worth of

INR 500 Crores or more.

Turnover of INR 1000 Crores or more

Net profit of INR 5 Crores or more

during any financial year

Shall constitute a Corporate Social

Responsibility Committee of the Board
consisting of three or more directors,
out of which at least one director
shall be an independent director.

Composition of CSR committee is required to be disclosed in the board’s

report prepared under the act.

These companies must earmark 2% of their net profit of the

preceding 3 years on CSR activities. If they fail to do so, they must
report the reasons of the same. 37
 What can be done?

A suitable strategy based on barriers & drivers of change needs to be

developed

Industry associations will play a critical role in sharing experiences of

corporates & rewarding best practices.

There is a need to incorporate public policies that are being developed

globally
into the Indian CSR norms

International agencies have a role to play in the cross-country sharing

experience

38