Mba Sem - I 201 Business Ethics & CSR: For Private Circulation Only

201- Business Ethics & CSR Compiled by- Ms.
Mamata Dahad
For Private Circulation Only
Khandesh College Education Society’s

Institute of Management & Research, Jalgaon
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MBA Sem - I 201 Business Ethics & CSR
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201- Business Ethics & CSR Compiled by- Ms. Mamata Dahad
North Maharashtra University, Jalgaon

(NAAC Reaccredited ‘A’ Grade University)
FACULTY OF COMMERCE & MANAGEMENT
New Syllabus: M.B.A. w.e.f. AY 2017-18
SEMESTER: I
Paper: 201: Business Ethics and CSR
60 + 40 Pattern: External Marks 60 +Internal Marks 40 = Maximum Total Marks: 100

Required Lectures: 60 hours
Course Description:
• The course provides introduction to Business ethics and CSR concepts, which includes
understanding social issues, Ethics framework, Professional ethics and corporate social
responsibility.
Course Objectives:
• To provide fundamental knowledge about Business ethics and CSR
• To create strong foundation for further studies in the field of Ethics and CSR
• To prepare students to play an active part in corporate governance.
Course Outcomes: On successful completion of the course, the students will be able to
1. Define Social issues, emergence of Business Ethics and CSR concepts (Remember)
2. Explain Culture, Hofstede Dimensions of Cultural Differences (Understand)
3. Explain Personal Values and Ethical Decision Making (Apply)
4. Illustrate Professional Ethics, Corporate Social Responsibility (Analyse)
5. Assess Unethical Behavior in Organizations (Evaluate)
6. Describe Issues in Corporate Governance (Understand)
Unit – I Social Issues (6)
1.1 Concept, Characteristic and Causes of Social Problems
1.2 Social Issues in corporate environment: Casteism, Corruption, Black money, Sexual
Harassment at Workplace & their impact on Society
Unit – II Business Ethics (8)
2.1. Values, norms & beliefs,
2.2. Concept of Ethics, Ethics & law
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2.3. Culture, Cultural differences, Hofstede Dimensions of Cultural Differences, cultural

discrimination
2.4. Morality: Characteristics of moral standards, Kohlbergs’s model of cognitive moral
development, Moral Theories
Unit – III Ethical Decision Making (8)
3.1. Factors affecting Business Ethics, Applied Ethics, Code of Ethics vs code of conduct
vs code of practice
3.2. Understanding Personal Values and Ethical Decision Making
3.3. Ethical D/M Process, Ethical consistency, Ethical Dilemma
Unit – IV Professional Ethics and Corporate Social Responsibility (10)
4.1. Ethics in Marketing, Ethics in HRM, Ethics in Finance & Accounting, Ethics in
Information Technology
4.2. Concept, Definition & Scope of Corporate Social Responsibility, Business ethics and
CSR.
4.3. Criterion for Determining the Social Responsibility of Business, Areas of Social
Responsibility
4.4. Corporate social responsiveness, Corporate Social performance. CSR as
organizational Brand building effort. Post covid CSR opportunities
Unit – V Framework for rating CSR & Unethical Behaviour in Organizations (8)
5.1 CSR Activity planning & Execution, Understanding CSR Ratings, Framework for
rating CSR
5.2 Global Rating Initiatives (GRI), ISO 26000
5.3 Understanding Unethical Behaviour, CSR law under companies act 2013
5.4 Individual Factors, and organisational factors Contributing to Unethical Behaviour
Unit – VI Corporate Governance (8)
6.1 Meaning & definition of Corporate Governance,
6.2 Principles of Corporate Governance
6.3 ‘Good’ Corporate Governance 6.4 Corporate Governance Practices in India
References
1. Corporate Social Responsibility – Madhumita Chatterjee – Oxford University Press
2. Ethics in Business & corporate governance: Mandal – Tata McGraw Hill
3. Business Ethics and Corporate Governance, 2/e -Fernando- Pearson
4. Business Ethics – Crane, Matten – Oxford University Press
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5. Corporate Governance: Principal Policies & Practices by Fernando, Pearson

Education
Unit – I Social Issues (6)

1.2 Social Issues in corporate environment: Casteism, Corruption, Black money,
Sexual Harassment at Workplace & their impact on Society
A social issue is a problem that influences many citizens within a society. It is a group
of common problem in present-day society and one that many people strive to solve. It
is often the consequence of factors extending beyond an individual's control. Social
issues are the source of a conflicting opinion on the grounds of what is perceived as
morally correct or incorrect personal life or interpersonal social life decisions. Social
issues are distinguished from economic issues; however, some issues (such as
immigration) have both social and economic aspects. There are also issues that do not
fall into either category, such as warfare.
There can be disagreements about what social issues are worth solving, or which should
take precedence. Different individuals and different societies have different
perceptions.
In Rights of Man and Common Sense, Thomas Paine addresses the individual's duty to
"allow the same rights to others as we allow ourselves." The failure to do so causes the
creation of a social issue.
A distinct but related meaning of the term "social issue" refers to topics of national
political interest, over which the public is deeply divided and which are the subject of
intense partisan advocacy, debate, and voting. In this case "social issue" does not
necessarily refer to an ill to be solved, but rather a topic to be discussed.
The objective component is this: For any condition or behavior to be considered a

social problem, it must have negative consequences for large numbers of people, as
each chapter of this book discusses. How do we know if a social problem has negative
consequences? Reasonable people can and do disagree on whether such consequences
exist and, if so, on their extent and seriousness, but ordinarily a body of data
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accumulates—from work by academic researchers, government agencies, and other

sources—that strongly points to extensive and serious consequences.
India suffers from a host of social issues ranging from poverty to gendered violence.
Further, it studies six important social issues namely poverty, unemployment, illiteracy,
the caste system, gendered violence and communalism by analysing their causes and
the specific measures adopted to combat them.
Definition of Social Problem
• According to Fuller and Myers, a social problem is “a condition which is defined

by a considerable number of persons as a deviation from some social norms which
they cherish”.
• According to Merton and Nisbet define social problem as “a way of behavior that
is regarded by a substantial part of society as being in violation of one or more
generally accepted or approved norms”.
• According to Carr, “a social problem exists whenever we become conscious of a

difficulty, a gap between our preference and the reality”.
Nature of social problems
• Disintegrative: social problems, directly or indirectly disintegrate the social

system. Social problems cause dissatisfaction, suffering and misery. It seriously
affects the values of the society. It is always disintegrating and disorganizing. It is
pathological. It is harmful for society.
• Multiple causes: The social problems have no single or simple cause. Each
problem has a complex history and is usually not due to one but to many causes.
War, poverty, unemployment or crimes do not offer a single or simple explanation
of their occurrence. Sometimes one problem is so interwoven with other problems
that it cannot be solved apart from them.
• Inter-connected: social problems are inter-connected due to which these become

serious. For example, unemployment, poverty and crime are inter-connected.
• Many remedies: Hence the solution of the complex social problem requires
various multi-sided remedies.
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• Relative concept: Social problem is a relative concept. What we call a social

problem in our society may not be a problem in other societies. Similarly, a social
problem today may not be a problem tomorrow.
• Functional value: Social problem, though disintegrative, has functional value

since its cure leads to social problem and social development.
Significance of social problem:
1. Study of social problems is a part of the science of sociology:
• Sociology is a social science which claims to study the entire social

phenomena.
• It is the only social science which throws light on the different facets of social
life.
• Social problems constitute an inseparable part of society or social life.
• It is therefore mandatory for sociology to make a scientific study of social

problems.
• Thus, sociology follows its own ways and means of studying social problems
such as poverty, unemployment, over-population, crime, juvenile delinquency,
family disorganization, corruption, illiteracy, communal riots, terrorism,
extremism, violence against women, and so on.
2. Study of social problems as the historical responsibility of sociology:
• Study of social problems is very much associated with the origin and
emergence of sociology.
• In fact, the serious social problem such as poverty, unemployment, exploitation

of labourers, women and children, child labour, slums, uncontrolled migration
towards city, urban crowding, lack of basic amenities in cities, increasing crime
rate etc., that cropped up due to the outbreak of industrial revolution, disturbed
the minds of social thinkers such as Auguste Comte, Herbert Spencer, Karl
Marx, and other.
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• These thinkers later on strongly advocated the need to establish a separate

science of society. Comte especially believed that such a science would be able
to find solutions to many of the social problems of the day.
• Thus, historically also sociology has an obligation to study social problems for
which purpose it was originally established.
3. Social pathology as a specialized branch to study social problems:
• Sociology in its attempts to study social problems systematically, scientifically,

and in their entirety established a new branch known as “social pathology.”
• It was Ginsberg who strongly recommended the need for establishing a separate
branch of sociology and called it “social pathology”.
• According to Durkheim, the task of social pathology is to study the abnormal or

pathological conditions of society. Durkheim who founded two other branches of
sociology namely: “sociology of crime” and “sociology of morals”, expressed the
view that the incidences of suicide are nothing but the social consequences of the
pathological conditions of society.
4. Study of problems is absolutely necessary for finding solutions:
• A pathological society is like an individual with ill health.
• No doctor will administer treatment without examining the disease of the patient.
this is equally true to society.
• Unless the social problems are properly studied, their causes are traced out, their
nature is known, it is not possible to deal effectively with them and to find
befitting solutions to them.
• Thus, study of social problems assumes importance in sociology. sociologists

also consider it as their social responsibility to study these problems and
recommend appropriate solutions for them.
5. The very existence of social problems indicates the internal deficiency of the
society on the one hand, and the failure of its social policies, on the other:
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• Thus, if a society is suffering from various social problems, on that basis it can
be said that it has some serious internal deficiencies which need immediate
correction or repair.
• In the Indian context, the nation has been suffering from a series of problems
such as over population, poverty, unemployment, illiteracy, violence against
women, corruption etc.,
• This state of affairs reflect that many of the socio-economic plans, programs, and
policies of India have failed to bring about the expected results.
• It also alerts the administration to find out the mistakes and to take proper action
to save the Indian society from a social collapse.
6. Social problems indicate that cultural values are changing and getting violated
or eroded:
• Cultural values normally decide or interpret what is good and what is bad, what
is desirable and what is undesirable, what is sublime and what is ugly and so on.
• It is a sociological fact of general observation that whenever cultural values are

continuously violated or eroded, social problems of some kind or the other, will
crop up.
• This is true in the case of Indian society also.
7. Social problems demand quick relief, if progress and development are to be

achieved:
• Desire for progress is found in all societies. If this desire is to be materialized,

the problems that are haunting the society are to be tackled efficiently and
immediately.
• Progress and development of India become meaningful only when poverty,

unemployment, overpopulation, corruption, illiteracy and other problems are
contained and all the people are provided with the basic necessities of life.
• Sociological studies have been of great help to those planners and

administrators who are generally interested in the progress and prosperity of
India.
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Characteristics of social problems
• Social problems arise by being collectively defined as objectionable by many

members of the community. Thus, adverse conditions not defined by the
community as reprehensible are not considered as social problems.
• Social problems change when the concerned behavioral patterns are interpreted
differently.
• Mass media like newspapers, television, radio, magazines, movies, play an

important role in creating awareness about the scope and urgency of social
problems.
• Social problems have to be viewed in the context of society’s values and

institutions.
• Social problems need to be analyzed in terms of the influences upon them by

group processes and social relationships.
• Since social problems vary historically, contemporary social problems are the
society’s concern, that is, the problem of refugee settlement in India in 1947-48
was different from the problem of settling refugees from Assam in 1968, or the
Tamils from Sri Lanka in 1988-89, or the Indians from Kuwait and Iraq in
September 1990.
Causes of social problems
1. Social change leads to social problems:
• All social changes do not cause problems. Those social changes which are
ordinary in nature and do not cause any problems of adjustments for the people
to carry on with their day-to-day activities rarely trigger social problems.
• But when problems of adjustment are created by social change, social problems
may creep in.
• For examples, attempts by the government to introduce educational change

through a new educational policy which is basically defective, may lead to
problems such as student unrest and educated unemployment. A sudden
military revolt may push a nation towards political instability and social
insecurity.
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2. Cultural lag causing social problems:
• W. F. Ogburn who introduced the concept of ‘cultural lag’ states that changes
are quick to take place in the material culture. These, in turn, stimulate changes
in the non-material culture. But the non-material culture may be slow to
respond giving rise to a gap or a lag between the material and non-material
cultures. This lag is called the ‘cultural lag’. This lag or cultural lag may lead to
problems of adjustment and also to social problems.
• For example, the process of deforestation is taking place faster to cater to the
needs of the growing paper industry, house construction,, making furniture, etc.
(Material culture). But the art of conservation of forest (non-material culture)
does not keep pace with these industrial developments. The result is the
problem of the environmental population.
3. Natural disasters:
• Nature has been bountiful to man no doubt. But man often becomes a victim of
its wrath.
• Floods, famines, cyclones, earthquakes, volcanic eruptions, tsunami, outburst

of contagious diseases, etc. represent the furious faces of nature.
• Almost every year, lakhs of people in the world become the victims of these
extremes of nature. Man’s attempts to control nature and its forces have not
been complete and can never become so. Somewhere at some time some people
or the other will have to pay a great price in the form of facing the wrath of
nature.
• For example, Bhuj of Gujarat in 2000, and a terrific cyclone that proved to be
disastrous in Orissa in 1999, the gigantic “tsunami” waves of 26-12-2004
causing the death of more than 2.5 lakh people and damaging the property
worth thousands of crores of rupees in India, Srilanka, Maldives, Indonesia,
Africa. The flood havocs at Uttarakhand in 2013, and Jammu and Kashmir in
2014, etc.
• Natural calamities like these not only disturb the normal course of social life of
the people but also create serious social problems.
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4. Political and social dangers:
• Nature is not the only source causing danger to man’s life; man himself creates
conditions that often prove to be not only harmful but even dangerous.
• Like political revolution, revolts, communal riots, racial conflicts, terrorism,

ethnic clashes, mass movements, military rebellion, arson and loots, bomb
explosions, etc., disturb even the society which has a well-established
organization.
• For example, the Godra incident at Gujarat that triggered after the burning alive
of 58 persons (Ram Sevakas) in a railway compartment in the year 2002.
5. Biological causes:
Serious ups-and-downs in populations, population explosion, great imbalance in the

composition of the population, the spread of diseases, lack of supply of nutritious
food and such other biological factors disturb the social balance in the society.
6. Psychological causes:
• Man’s mental tendencies, temperament, his own inherited qualities influence

his behavior and activities.
• Sometimes, these aspects of man may disturb him in making adjustments with
the changing times.
• Mental qualities such as instincts, imitation, suggestibility, hatredness,

prejudice, anger, jealousy, competitiveness, aggressiveness, hysterical nature,
etc., do have their own positive and negative impact on human behaviour and
activities. These activities ultimately decide how efficiently or inefficiently
they face social challenges or cope with the disturbing social conditions.
7. Technological inventions:
• Technology has its own limitations. It has brought both good and bad results
for man.
• As Ogburn stated, technology widens the gap between the material and non-
material parts of culture. Men are becoming more materialistic and less
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traditional. Men are devoted more to quantity than to quality, to measurement

than to appreciation.
• Human beings by the use of machines have become less human, more passive
and more mechanical. There has been a movement towards individualism and
hedonism (pleasure – seekers) which has its own adverse effects on society.
• For example, due to technological advancement cities have given

encouragement to social problems such as slums, crimes, prostitution,
environmental pollution, gambling, drug addiction, etc.
8. Radical changes in social values:
• Social values play a vital role in maintaining social equilibrium, but these
values themselves are subject to change.
• There is a close affinity between social values and social relationships.
• Hence, when social values change social relationships also get changed.
Younger generation is in a better position to adjust itself with the changing
values, whereas the older generation finds it difficult to do so.
• This situation often leads to a gap between the generations. This ‘generation
gap’ gives rise to clashes and conflicts between the parents and children,
students and teachers, and the old and the new.
9. Laxity of social control:
• Social organization is possible because of the successful functioning of social

control.
• But rigidity and failure on the part of the means of social control to adjust
themselves to the changing times make them to become less effective.
• Thus, folkways, Mores, Customs, Religion, Law, Values and such other
means of social control have become weak.
• A reduction in the effectiveness of the means of social control naturally leads

to an increase in the instances of crimes, violence, exploitation, terrorism,
cheating, etc.
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1.2 Social Issues in corporate environment: Casteism, Corruption, Black money,

An individual problem is one that affects only a particular individual or group. On the
other hand, public issues are those faced by society as a whole. A social issue is when a
situation is deemed less than the social ideal. It must result in unfavourable
circumstances that can only be handled collectively. India has undergone many changes
in the last decades. Social change brings with it a new set of circumstances wherein an
otherwise overlooked issue might be given importance. For example, the population
explosion in India was not viewed as a serious issue until the 1950s. It is also important
to note that any problem only becomes a social issue when enough number of people
find it undesirable. Sati was not deemed a social issue until Raja Ram Mohan Roy
criticized the practice and a considerable number of people started supporting him.
Unemployment
Unemployment has often been described as the most significant social issue in society.
This is because an individual is dependent on their work for both their livelihood and
their status. Sociologically, unemployment is defined as the inability to find
remunerative work in the face of both potential and desire to earn.
The Indian government has recognized the issue of unemployment within the country.
They have taken many steps in the form of employment generation schemes. The
MGNREGA scheme mentioned previously is one major measure. Unemployment
cannot be solved by making India more labour-intensive which has been suggested in
the past. Instead, the focus should be on educating the youth and making them
employable within the upcoming service sector.
Illiteracy
As mentioned in the previous section, illiteracy is a major barrier to development since

it results in unskilled labor. According to the Census Commission of India, literacy
refers to any person who can read and write with understanding in a recognized Indian
language. The 2011 census revealed that the literacy rate of India was around 74% with
many regional variations and gender disparities. All over India, Kerala has the highest
literacy rate and Bihar the lowest.
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Caste System
The Indian caste system is based on the cultural features of hierarchy, pollution and
purity. It subscribes to the doctrines of Karma and Dharma. The Indian government
introduced the category of Scheduled Castes (SCs) to the constitution in 1935.
Currently, SCs constitute around 16% of the Indian population. The main issues faced
by Dalits are those of untouchability, exploitation, exclusion from religious and
educational institutions and social discrimination.
Gendered Violence
Women have always been victims of exploitation and violence within the Indian
subcontinent. Violence against women consists of criminal, domestic and social
violence.
Criminal violence consists of rape, murder, female foeticide and abduction. Domestic
violence includes wife battering, dowry deaths and sexual violence. Social violence
comprises eve-teasing, inheritance laws favouring men etc.
Communalism
Communalism refers to attempts to overemphasize the importance of religious identity

and stimulate communal violence between different religious groups. Within India,
tensions between Hindus, Muslims and Sikhs have been present since the India-
Pakistan partition. Muslims, Sikhs and other religious minorities are protected by the
Indian constitution under provisions for justice, tolerance, equality and freedom.
Despite these provisions, communal violence has been a part of India since
independence.
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• Corruption in simple terms may be described as “an act of bribery”. It has also been
described as “the use of public power for private gain in a way that constitutes a
breach of law or a deviation from the norms of society”. Corruption is present in the
society in several forms. Of these the major ones are: bribery (money offered in cash
or kind or gift as inducement to procure illegal or dishonest action in favour of the
giver), nepotism (undue favour from holder of patronage to relatives),
misappropriation (using others money for one’s own use), patronage (wrong
support/encouragement given by patron and thus misusing the position), and
favouritism (unduly preferring one to other).
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Black money:
• The portion of a country's income tied to black money affects the economic growth
of the country. Black money causes financial leakage, as unreported income that is
not taxed causes the government to lose revenue. In addition, these funds rarely
enter the banking system.
• Black money is tax-evaded income. It can be earned both through legal and illegal
means. Its legitimate source is that the income-earners do not reveal their whole
income for tax purposes. For example, government doctors earning money by
private practice even when they get non-practising allowance; teachers earning
money through tuitions, examinations and book royalty and not including it in
income-tax returns; advocates charging much higher fee than shown in their account
books, and so forth.
Terrorism:
Terrorism, the calculated use of violence to create a general climate of fear in

a population and thereby to bring about a particular political objective. Terrorism has
been practiced by political organizations with both rightist and leftist objectives, by
nationalistic and religious groups, by revolutionaries, and even by state institutions
such as armies, intelligence services, and police.
Casteism:
Casteism is considered as a social problem as it disturbs the sound governmental

politics and democracy and paves the way for mutual group conflicts. Casteism is
manifested in the form of clashes between various castes for higher share in the socio-
economic privileges and power.
• Sexual harassment can affect everyone because it creates an environment that

makes it harder for employees to succeed. The possible effects of sexual
harassment in the workplace include:
• Emotional and Physical Issues
• Professional and Financial Problems
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• Decreased Company Productivity
Effects of Sexual Harassment in the Workplace
Sexual harassment is not just a little locker-room talk, a compliment, “innocent”

flirting, or an invitation to share a cup of coffee. Workplace harassment is a
discriminatory pattern of behavior that creates a hostile work environment based on a
protected class. It may involve verbal abuse, an abuse of power, sexual quid pro quo,
and assault such as unwanted groping. Harassment in the workplace has negative
effects on all workers, including decreased performance, low morale, and increased
turnover
Effects of Sexual Harassment
Sexual harassment can affect everyone because it creates an environment that makes it
harder for employees to succeed. The possible effects of sexual harassment in the
workplace include:
Emotional and Physical Issues Victims of sexual harassment often suffer emotional
and psychological harm, including stress, depression, and anxiety. They often
experience decreased confidence and self-esteem. Physical health problems may arise
such as loss of sleep and appetite, weight fluctuations, nausea, and headaches.
Professional and Financial Problems Sexual harassment can also wreak havoc on a
victim’s job performance and career trajectory. Fear and decreased confidence can
cause some people to withdraw from the workplace and disengage from co-workers.
They are more likely to be tardy, absent, distracted, and neglect duties. If victims of
sexual harassment report the harassment, they may suffer advancement setbacks such
as being passed over for promotions, being left out of keys meetings, retaliation, and
being labeled a troublemaker. Financial problems like lost wages and unpaid leave are
also possible.
Decreased Company Productivity Sexual harassment is also damaging to an

organization. When a workplace is infected with discrimination and harassment,
everyone suffers. The hostility created by harassment causes absenteeism, low morale,
gossip, animosity, stress, and anxiety among staff. Low productivity is more common
in environments with high rates of sexual harassment. Victims and witnesses of sexual
harassments are more likely to quit, leading to high employee turnover and related
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hiring and training cost increases. A toxic environment will also make recruiting top
talent more difficult.
Unit – II Business Ethics (8)

2.1. Values, norms & beliefs,
2.3. Culture, Cultural differences, Hofstede Dimensions of Cultural Differences,
cultural discrimination
2.4. Morality: Characteristics of moral standards, Kohlbergs’s model of cognitive
moral development, Moral Theories
2.1. Values, norms & beliefs
Values and Beliefs
The first, and perhaps most crucial, elements of culture we will discuss are its values
and beliefs. Values are a culture’s standard for discerning what is good and just in
society. Values are deeply embedded and critical for transmitting and teaching a
culture’s beliefs. Beliefs are the tenets or convictions that people hold to be true.
Individuals in a society have specific beliefs, but they also share collective values. To
illustrate the difference, Indians commonly believe in the American Dream—that
anyone who works hard enough will be successful and wealthy in US. Underlying this
belief is the American value that wealth is good and important.
Norms refers to behaviour and attitudes which are considered normal, while values are
those things that people consider important to them.
Values comprise of ideas which are preferred, described in other words, what is good,
right, wise or beneficial. Values are generally expressed in terms of ‘should’. Values
are implanted early in a person’s life and once they are fixed, serve as a guide in
choosing behaviour and in forming attitudes.
They become part of superego. Values change through day-to-day behaviour,
regulated by norms. Values are developed and reinforced and do not develop
spontaneously. Values are re-learned, e.g., in group work sessions members re-learn
the desirable values, viz., riches of others should be treated as mud, other’s wife
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should be seen as mother, and the like. Social work has its own values which are
embedded in democratic values.
Norms mean any rule or standard that defines appropriate and acceptable behaviour,
what people should or should not do, think or feel in any given situation. Norms seen
as expression of values are standards of behaviour shared by a larger segment of
society.
Norms are formally expressed through law. Informal norms are expressed through
social customs or folkways and mores. Breaking of folkways may not be seriously
taken by the society but defying the mores invariably invokes social sanction against
the violators. Norms can be studied by observing the behaviour of a certain group of
individuals in a society and knowing how others respond to that behaviour. A person
who violates norms beyond a certain limit is labelled as ‘abnormal’.
Beliefs are ideas about the nature of social world, supernatural reality, a person or an
object which one believes to be true and acts accordingly. Beliefs may be based on
facts or may be without factual evidence. According to Ellis (1973), beliefs generate
emotions. To cite an example, when Mr. B. abuses Mr. A, he (Mr. A) gets angry or sad
with Mr. B. because he believes that this abuse has lowered his prestige, status, etc.
Sadness/anger is the result of the belief about being abused and not of the event
(abusing). Individual beliefs play very important role in the behaviour of a person,
therefore, caseworker should try to tackle and manage these beliefs.

Ethics and laws are found in virtually all spheres of society. They govern actions of
individuals around the world on a daily basis. They often work hand-in-hand to
ensure that citizens act in a certain manner, and likewise coordinate efforts to protect
the health, safety and welfare of the public. Though law often embodies ethical
principles, law and ethics are not co-extensive. Based on society’s ethics, laws are
created and enforced by governments to mediate our relationships with each other,
and to protect its citizens. While laws carry with them a punishment for violations,
ethics do not. Essentially, laws enforce the behaviors we are expected to follow,
while ethics suggest what we ought to follow, and help us explore options to improve
our decision-making.
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Ethical decision-making comes from within a person’s moral sense and desire to
preserve self-respect. Laws are codifications of certain ethical values meant to help
regulate society, and also impact decision-making. Driving carefully, for example,
because you don’t want to hurt someone is making a decision based on ethics.
Driving carefully and within the speed limit because you see a police car behind you
suggests your fear of breaking the law and being punished for it.
2.3. Culture, Cultural differences, Hofstede Dimensions of Cultural Differences,

cultural discrimination
What Is Culture?
Simply put, culture may be defined as “the collective programming of the mind which
distinguishes the members of one human group from another; the interactive aggregate
of common characteristics that influences a human group’s response to its
environment.”
It is the unique characteristics of a people. As such, culture is:
 Something that is shared by all or most of the members of a society.

 Something that older members of a society attempt to pass along to younger
members.
 Something that shapes our view of the world.
The concept of culture represents an easy way to understand a people, albeit on a

superficial level. Thus, we refer to the Chinese culture or the American culture. This is
not to say that every member within a culture behaves in exactly the same way. On the
contrary, every culture has diversity, but members of a certain culture tend to exhibit
similar behavioral patterns that reflect where and how they grew up. A knowledge of a
culture’s patterns should help us deal with its members.
Culture affects the workplace because it affects what we do and how we behave.
cultural variations influence our values, which in turn affect attitudes and, ultimately,
behaviors. For instance, a culture that is characterized by hard work (e.g., the Korean
culture discussed above) would exhibit a value or ethic of hard work. This work ethic
would be reflected in positive attitudes toward work and the workplace; people would
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feel that hard work is satisfying and beneficial—they might feel committed to their
employer and they might feel shame if they do not work long hours. This, in turn,
would lead to actual high levels of work. This behavior, then, would serve to reinforce
the culture and its value, and so on.
There are several ways to distinguish different cultures from one another. Kluckhohn
and Strodtbeck have identified six dimensions that are helpful in understanding such
differences.
These are as follows:
1. How people view humanity. Are people basically good, or are they evil? Can
most people be trusted or not? Are most people honest? What is the true nature
of humankind?
2. How people see nature. What is the proper relationship between people and the
environment? Should people be in harmony with nature, or should they attempt
to control or harness nature?
3. How people approach interpersonal relationships. Should one stress
individualism or membership in a group? Is the person more or less important
than the group? What is the “pecking order” in a society? Is it based on
seniority or on wealth and power?
4. How people view activity and achievement. Which is a more worthy goal:
activity (getting somewhere) or simply being (staying where one is)?
5. How people view time. Should one focus on the past, the present, or the future?
Some cultures are said to be living in the past, whereas others are looking to
the future.
6. How people view space. How should physical space be used in our lives?
Should we live communally or separately? Should important people be
physically separated from others? Should important meetings be held privately
or in public?
Hofstede's cultural dimensions’ theory is a framework for cross-cultural

communication, developed by Geert Hofstede. It shows the effects of a society's
culture on the values of its members, and how these values relate to behaviour, using
a structure derived from factor analysis
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Hofstede developed his original model as a result of using factor analysis to examine
the results of a worldwide survey of employee values by IBM between 1967 and
1973. It has been refined since. The original theory proposed four dimensions along
which cultural values could be analyzed: individualism-collectivism; uncertainty
avoidance; power distance (strength of social hierarchy) and masculinity-femininity
(task orientation versus person-orientation). Independent research in Hong Kong led
Hofstede to add a fifth dimension, long-term orientation, to cover aspects of values
not discussed in the original paradigm. In 2010, Hofstede added a sixth dimension,
indulgence versus self-restraint.
Power distance index (PDI): The power distance index is defined as "the extent to
which the less powerful members of organizations and institutions (like the family)
accept and expect that power is distributed unequally". In this dimension, inequality
and power is perceived from the followers, or the lower strata. A higher degree of the
Index indicates that hierarchy is clearly established and executed in society, without
doubt or reason. A lower degree of the Index signifies that people question authority
and attempt to distribute power
Individualism vs. collectivism (IDV): This index explores the "degree to which
people in a society are integrated into groups". Individualistic societies have loose
ties that often only relate an individual to his/her immediate family. They emphasize
the "I" versus the "we". Its counterpart, collectivism, describes a society in which
tightly integrated relationships tie extended families and others into in-groups. These
ingroups are laced with undoubted loyalty and support each other when a conflict
arises with another in-group.
Uncertainty avoidance (UAI): The uncertainty avoidance index is defined as "a

society's tolerance for ambiguity", in which people embrace or avert an event of
something unexpected, unknown, or away from the status quo. Societies that score a
high degree in this index opt for stiff codes of behaviour, guidelines, laws, and
generally rely on absolute truth, or the belief that one lone truth dictates everything
and people know what it is. A lower degree in this index shows more acceptance of
differing thoughts or ideas. Society tends to impose fewer regulations, ambiguity is
more accustomed to, and the environment is more free-flowing
Masculinity vs. femininity (MAS): In this dimension, masculinity is defined as

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"a preference in society for achievement, heroism, assertiveness and material rewards
for success". Its counterpart represents "a preference for cooperation, modesty, caring
for the weak and quality of life". Women in the respective societies tend to display
different values. In feminine societies, they share modest and caring views equally
with men. In more masculine societies, women are somewhat assertive and
competitive, but notably less than men. In other words, they still recognize a gap
between male and female values. This dimension is frequently viewed as taboo in
highly masculine societies
Long-term orientation vs. short-term orientation (LTO): This dimension

associates the connection of the past with the current and future actions/challenges. A
lower degree of this index (short-term) indicates that traditions are honored and kept,
while steadfastness is valued. Societies with a high degree in this index (long-term)
view adaptation and circumstantial, pragmatic problem-solving as a necessity. A poor
country that is short-term oriented usually has little to no economic development,
while long-term oriented countries continue to develop to a level of prosperity
Indulgence vs. restraint (IND): This dimension refers to the degree of freedom that
societal norms give to citizens in fulfilling their human desires. Indulgence is
defined as "a society that allows relatively free gratification of basic and natural
human desires related to enjoying life and having fun". Its counterpart is defined as "a
society that controls gratification of needs and regulates it by means of strict social
norms".
Cultural Discrimination: is a concept that has been applied to prejudices and

discrimination based on cultural differences between ethnic or racial groups. This
includes the idea that some cultures are superior to others, and that various cultures
are fundamentally incompatible and should not co-exist in the same society or state.
In this it differs from biological or scientific racism, meaning prejudices and
discrimination rooted in perceived biological differences between ethnic or racial
groups.
2.4. Morality: Characteristics of moral standards, Kohlberg’s model of cognitive

moral development, Moral Theories
Morality (from Latin: moralitas, lit. 'Manner, character, proper behaviour') is the
differentiation of intentions, decisions and actions between those that are
25
distinguished as proper and those that are improper. Morality can be a body of
standards or principles derived from a code of conduct from a particular philosophy,
religion or culture, or it can derive from a standard that a person believes should be
universal. Morality may also be specifically synonymous with "goodness" or
"rightness".
What are Values?
According to the dictionary, values are “things that have an intrinsic worth in
usefulness or importance to the possessor,” or “principles, standards, or qualities
considered worthwhile or desirable.” However, it is important to note that, although
we may tend to think of a value as something good, virtually all values are morally
relative – neutral, really – until they are qualified by asking, “How is it good?” or
“Good to whom?” The “good” can sometimes be just a matter of opinion or taste, or
driven by culture, religion, habit, circumstance, or environment, etc. Again, almost
all values are relative. The exception, of course, is the value of life. Life is a
universal, objective value. We might take this point for granted, but we all have the
life value, or we would not be alive. Life is also a dual value – we value our own life
and the lives of others.
What are Morals?
Moral values are relative values that protect life and are respectful of the dual life
value of self and others. The great moral values, such as truth, freedom, charity, etc.,
have one thing in common. When they are functioning correctly, they are life
protecting or life enhancing for all. But they are still relative values. Our relative
moral values must be constantly examined to make sure that they are always
performing their life protecting mission. Even the Marine Corps core values of
“honour, courage and commitment” require examination in this context. Courage can
become foolish martyrdom, commitment can become irrational fanaticism, honour
can become self-righteousness, conceit, and disrespect for others. Our enemies have
their own standard of honor, they have courage, and they are surely committed. What
sets us apart?
Respect for the universal life value sets us apart from our enemies.
Characteristics of Moral Standards:
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1. Involved with serious injuries or benefits.
2. Not established by Law or Legislature.
3. Should be preferred to other values including self-interest.
4. Based on impartial considerations
5. Associated with special emotions and vocabulary
Kohlberg’s model of cognitive moral development,
Kohlberg’s stages of moral development
The framework of Kohlberg’s theory consists of six stages arranged sequentially in

successive tiers of complexity. He organized his six stages into three general levels of
moral development.
Kohlberg identified three levels of moral reasoning: pre-conventional, conventional,

and post-conventional. Each level is associated with increasingly complex stages of
moral development.
Level 1: Pre-conventional
Throughout the pre-conventional level, a child’s sense of morality is externally

controlled. Children accept and believe the rules of authority figures, such as parents
and teachers. A child with pre-conventional morality has not yet adopted or
internalized society’s conventions regarding what is right or wrong, but instead

focuses largely on external consequences that certain actions may bring.
Stage 1: Obedience-and-Punishment Orientation
Stage 1 focuses on the child’s desire to obey rules and avoid being punished. For
example, an action is perceived as morally wrong because the perpetrator is punished;
the worse the punishment for the act is, the more “bad” the act is perceived to be.
Stage 2: Instrumental Orientation
Stage 2 expresses the “what’s in it for me?” position, in which right behavior is
defined by whatever the individual believes to be in their best interest. Stage two
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reasoning shows a limited interest in the needs of others, only to the point where it
might further the individual’s own interests. As a result, concern for others is not
based on loyalty or intrinsic respect, but rather a “you scratch my back, and I’ll
scratch yours” mentality. An example would be when a child is asked by his parents
to do a chore. The child asks “what’s in it for me?” and the parents offer the child an
incentive by giving him an allowance.
Level 2: Conventional
Throughout the conventional level, a child’s sense of morality is tied to personal and
societal relationships. Children continue to accept the rules of authority figures, but
this is now due to their belief that this is necessary to ensure positive relationships
and societal order. Adherence to rules and conventions is somewhat rigid during
these stages, and a rule’s appropriateness or fairness is seldom questioned.
Stage 3: Good Boy, Nice Girl Orientation
In stage 3, children want the approval of others and act in ways to avoid disapproval.
Emphasis is placed on good behaviour and people being “nice” to others.
Stage 4: Law-and-Order Orientation
In stage 4, the child blindly accepts rules and convention because of their importance
in maintaining a functioning society. Rules are seen as being the same for everyone,
and obeying rules by doing what one is “supposed” to do is seen as valuable and
important. Moral reasoning in stage four is beyond the need for individual approval
exhibited in stage three. If one person violates a law, perhaps everyone would—thus
there is an obligation and a duty to uphold laws and rules. Most active members of
society remain at stage four, where morality is still predominantly dictated by an
outside force.
Level 3: Post-conventional
Throughout the post-conventional level, a person’s sense of morality is defined in

terms of more abstract principles and values. People now believe that some laws are
unjust and should be changed or eliminated. This level is marked by a growing
realization that individuals are separate entities from society and that individuals may
28
disobey rules inconsistent with their own principles. Post-conventional moralists live
by their own ethical principles—principles that typically include such basic human
rights as life, liberty, and justice—and view rules as useful but changeable
mechanisms, rather than absolute dictates that must be obeyed without question.
Because post-conventional individuals elevate their own moral evaluation of a
situation over social conventions, their behavior, especially at stage six, can
sometimes be confused with that of those at the pre-conventional level. Some
theorists have speculated that many people may never reach this level of abstract
moral reasoning.
Stage 5: Social-Contract Orientation
In stage 5, the world is viewed as holding different opinions, rights, and values. Such
perspectives should be mutually respected as unique to each person or community.
Laws are regarded as social contracts rather than rigid edicts. Those that do not
promote the general welfare should be changed when necessary to meet the greatest
good for the greatest number of people. This is achieved through majority decision
and inevitable compromise. Democratic government is theoretically based on stage
five reasoning.
Stage 6: Universal-Ethical-Principal Orientation
In stage 6, moral reasoning is based on abstract reasoning using universal ethical

principles. Generally, the chosen principles are abstract rather than concrete and
focus on ideas such as equality, dignity, or respect. Laws are valid only insofar as
they are grounded in justice, and a commitment to justice carries with it an obligation
to disobey unjust laws. People choose the ethical principles they want to follow, and
if they violate those principles, they feel guilty. In this way, the individual acts
because it is morally right to do so (and not because he or she wants to avoid
punishment), it is in their best interest, it is expected, it is legal, or it is previously
agreed upon. Although Kohlberg insisted that stage six exists, he found it difficult to
identify individuals who consistently operated at that level.
Critiques of Kohlberg’s Theory
Kohlberg has been criticized for his assertion that women seem to be deficient in their
moral reasoning abilities when compared to men. Carol Gilligan (1982), a research
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assistant of Kohlberg, criticized her former mentor’s theory because it was based so
narrowly on research using white, upper-class men and boys. She argued that women
are not deficient in their moral reasoning and instead proposed that males and females
reason differently: girls and women focus more on staying connected and maintaining
interpersonal relationships.
Kohlberg’s theory has been criticized for emphasizing justice to the exclusion of
other values, with the result that it may not adequately address the arguments of those
who value other moral aspects of actions. Similarly, critics argue that Kohlberg’s
stages are culturally biased—that the highest stages in particular reflect a westernized
ideal of justice based on individualistic thought. This is biased against those that live
in nonWestern societies that place less emphasis on individualism.
Another criticism of Kohlberg’s theory is that people frequently demonstrate

significant inconsistency in their moral judgments. This often occurs in moral
dilemmas involving drinking and driving or business situations where participants
have been shown to reason at a lower developmental stage, typically using more self-
interest driven reasoning (i.e., stage two) than authority and social order obedience
driven reasoning (i.e., stage four). Critics argue that Kohlberg’s theory cannot
account for such inconsistencies.
Unit – III Ethical Decision Making (8)

3.1. Factors affecting Business Ethics, Applied Ethics, Code of Ethics vs code of
conduct vs code of practice
3.1. Factors affecting Business Ethics, Applied Ethics, Code of Ethics vs code of
conduct vs code of practice
30
Business leaders today are well aware of the ethical issues and hence they want to
improve the ethical standards of the business. Self-regulation is, of course, better and
produce impressive results. Besides, there are also a number of factors, which
significantly influence the managers to take ethical decisions.
1. Personal Code of Ethics
A man’s personal code of ethics that is what one considers moral is the foremost
responsible factor influencing his behavior.
2. Legislation
It is already stated that the Government will intervene and enact laws only when the
businessmen become too unethical and selfish and totally ignore their responsibility
to the society. No society can tolerate such misbehavior continuously. It will certainly
exert pressure on the Government and the Government consequently has no other
alternative to prohibit such unhealthy behavior of the businessmen.
3. Government Rules and Regulations
Laws support Government regulations regarding the working conditions, product

safety, statutory warning etc. These provide some guidelines to the business
managers in determining what are acceptable or recognized standards and practices.
4. Ethical Code of the Company
When a company grows larger, its standard of ethical conduct tends to rise. Any
unethical behavior or conduct on the part of the company shall endanger its
established reputation, public image and goodwill. Hence, most companies are very
cautious in this respect. They issue specific guidelines to their subordinates regarding
the dealings of the company.
5. Social Pressures
Social forces and pressures have considerable influence on ethics in business. If a

company supplies sub-standard products and get involved in unethical conducts, the
consumers will become indifferent towards the company. Such refusals shall exert a
pressure on the company to act honestly and adhere strictly to the business ethics.
Sometimes, the society itself may turn against a company.
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6. Ethical Climate of the Industry
Modern industry today is working in a more and more competitive atmosphere.

Hence only those firms, which strictly adhere to the ethical code, can retain its
position unaffected in its line of business. When other firms, in the same industry are
strictly adhering to the ethical standards, the firm in question should also perform up
to the level of others. If the company’s performance is below than other companies,
in the same industry, it cannot survive in the field in the long run.
Applied Ethics, Code of Ethics vs code of conduct vs code of practice
Code of Ethics and Code of Conduct are the standards that a group must adhere to, so
as to remain the member of the organisation. The primary difference between code of
ethics and code of conduct is that code of ethics is a set of principles which influence
the judgment while the code of conduct is a set of guidelines that influence
employee’s actions.
Basis for Code of Ethics Code of Conduct
Compariso
n
Meaning An aspirational A directional document

document, issued by the containing specific
board of directors practices and behavior, that
containing core ethical are followed or restricted
values, principles and under the organization is
ideals of the organization Code of Conduct.
is Code of Ethics.
Nature General Specific
Scope Wide Narrow
Governs Decision making Actions
Length Short Comparatively longer
Disclosure Publicly disclosed. Employees

only
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Focused on Values or principles Compliance and rules
Definition of Code of Ethics
Code of Ethics is a document issued by the top-level management, which consist of a

set of principles, designed to guide the members of the organisation to carry out
business honestly and with integrity. It describes the core values of the organisation
that guides the decision-making. It provides ethical standards which are to be
followed by the members. It sets out general guidelines to assist individuals to apply
their judgment, concerning a suitable behaviour in a given situation.
Code of ethics helps members in understanding what is right or wrong. The codes are
disclosed publicly and hence addressed to the interested parties to know the way the
company does business. Violation of the code of ethics by any member may result in
termination or dismissal from the organisation.
Definition of Code of Conduct
Code of Conduct is a document that expresses the practices and behaviour of a

person, required or restricted as a condition for becoming a member of the
organisation or profession. The code sets out the actual rules, so it lays down the do’s
and doesn’t s of an employee. The members are responsible for its adherence and
held accountable for its violation.
Every organisation has its code of conduct issued by the Board of Directors (BOD)
that determines the social norms, regulations and responsibilities. It is in the form of
written statement; that contains rules for behaviour, which are supposed to be
followed by the employees of the company. The document directs and guides the
employees in various matters.
Key Differences Between Code of Ethics and Code of Conduct
The major differences between code of ethics and code of conduct are described
in the given below points:
1. Code of Ethics is an aspirational document, issued by the board of directors

containing core ethical values, principles and ideals of the organisation. Code of
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Conduct is a directional document containing specific practices and behaviour,

that are followed or restricted under the organisation.
2. Code of Ethics is general is general in nature, whereas code of conduct is specific.
3. Code of Conduct are originated from the code of ethics, and it converts the rules
into specific guidelines, that must be followed by the members of the
organisation.
4. Lengthwise, code of ethics is a shorter document than a code of conduct.
5. Code of Ethics regulates the judgment of the organisation while a code of conduct
regulates the actions.
6. Code of Ethics is publicly available, i.e. anyone can access it. Conversely, Code
of Conduct is addressed to employees only.
7. Code of Ethics focuses on values or principles. On the other hand, Code of

Conduct is focused on compliance and rules.
Code of Practice:
A code of practice is a set of written rules which explains how people working in a
particular profession should behave. The auctioneers are violating a code of practice
by dealing in stolen goods. A code of practice provides detailed information on
specific work tasks to help you achieve the standards required under the work health
and safety (WHS) laws.
These do not replace the WHS laws, but codes of practice can help make
understanding what you have to do a little easier.
Understanding Decision Making
Decision making refers to making choices among alternative courses of action—

which may also include inaction. Emotional intelligence is required in the form of
relationship management when making decisions in groups.
Individuals throughout organizations use the information they gather to make a wide
range of decisions. These decisions may affect the lives of others and change the
course of an organization
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Because many decisions involve an ethical component, one of the most important
considerations in management is whether the decisions you are making as an
employee or manager are ethical. Here are some basic questions you can ask yourself
to assess the ethics of a decision.
• Is this decision fair?
• Will I feel better or worse about myself after I make this decision?
• Does this decision break any organizational rules?
• Does this decision break any laws?
• How would I feel if this decision was broadcast on the news?
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To discuss personal values and decision making, we need to be clear about what we
mean. I've already given a definition of decision making.
36
The dictionary definition of value is 'A principle, standard, or quality considered

worthwhile or desirable.'
Values are a major motivating force for people because they categorize how people
attach meaning, worth and importance to things. When a person's values are
matched, they feel complete and satisfied. If values are not met, there is a sense of
dissatisfaction, unease or incongruity. This is something to bear in mind during
persuasion and negotiation.
Examples of values are health, pleasure, recognition, safety, integrity, achievement

and honesty. These are all quite subjective terms, which means that they may mean
different things to different people. Or even different things to the same person at
different times.
How are they related?
So how are personal values and decision making related? Our personal values very
much determine our goals and outcomes in life. The goals we choose are the outer
expression of our personal values. And decision making is similarly based upon our
core values. For a start, even choosing your goals is a decision!
A person's values will determine how they perceive any particular situation.
Someone who values 'safety' will approach a situation checking for safety versus
danger. A person who values 'excitement' will have a different perspective on the
same situation and will be expecting to have different kinds of experiences.
So you understand how personal values and decision making drive each other.
The values determine the outcomes we set and our decisions are made to achieve
them. The decision making is organized to ensure the personal values are matched.
How can we use them?
So how can we benefit from this interaction between personal values and decision
making? Well firstly, if you want to know what your personal values are, you only
need to think about some of the decisions you have made. What was important to you
at the time? What other factors did you consider? Of all these factors, which was
most important? Least important?
37
Sometimes it's easier for other people to point out to you what they think your values
are. It may be helpful to you to ask others about your personal values and decision
making. Why? Because when you know what you're personal values are, your
decision making becomes infinitely easier.
A 7-STep Guide to Ethical Decision-Making
The following is a summary of: Seven-step guide to ethical decision-making
1. State the problem For example, "there's something about this decision that makes
me uncomfortable" or "do I have a conflict of interest?".
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2. Check the facts Many problems disappear upon closer examination of the situation,
while others change radically. For example, persons involved, laws, professional
codes, other practical constraints
3. Identify relevant factors (internal and external).
4. Develop a list of options Be imaginative, try to avoid "dilemma"; not "yes" or" no"
but whom to go to, what to say.
5. Test the options. Use some of the following tests:
 harm test: Does this option do less harm than the alternatives?
 publicity test: Would I want my choice of this option published in the
newspaper?
 defensibility test: Could I defend my choice of this option before a
congressional committee or committee of peers?
 reversibility test: Would I still think this option was a good choice if I were
adversely affected by it?
 colleague test: What do my colleagues say when I describe my problem and
suggest this option as my solution?
 professional test: What might my profession's governing body for ethics say
about this option?
 organization test: What does my company's ethics officer or legal counsel say
about this?
6. Make a choice based on steps 1-5.
7. Review steps 1-6. How can you reduce the likelihood that you will need to make a
similar decision again?
 Are there any cautions you can take as an individual (and announce your
policy on question, job change, etc.)?
 Is there any way to have more support next time? o Is there any way to change
the organization (for example, suggest policy change at next departmental
meeting)?
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Ethical consistency, Ethical Dilemma
Consistency—the absence of contradictions—has sometimes been called the

hallmark of ethics. Ethics is supposed to provide us with a guide for moral living, and
to do so it must be rational, and to be rational it must be free of contradictions. If a
person said, "Open the window but don't open the window," we would be at loss as to
what to do; the command is contradictory and thus irrational. In the same way, if our
ethical principles and practices lack consistency, we, as rational people, will find
ourselves at a loss as to what we ought to do and divided about how we ought to live.
Ethics requires consistency in the sense that our moral standards, actions, and values
should not be contradictory. Examining our lives to uncover inconsistencies and then
modifying our moral standards and behaviors so that they are consistent is an
important part of moral development. Consistency in our lives also implies an inner
integrity. It may be the case that a person's inner desires are allowed to conflict with
each other. For example, a desire to be courageous or honest may be contradicted by
a desire to avoid the inconvenience or pain that courage or honesty often requires.
Allowing such a conflict is self-defeating because these desires are contradictory. To
achieve consistency, we must work to shape our desires to produce a kind of internal
harmony.
So central is consistency to ethics that some moralists have held that it is the whole of
ethics. They have argued that if people consistently treat all human beings the same,
they will always act ethically. Ethical behavior, they argue, is simply a matter of
being consistent by extending to all persons the same respect and consideration that
we claim for ourselves.
Ethical dilemmas are situations in which there is a difficult choice to be made

between two or more options, neither of which resolves the situation in a manner that
is consistent with accepted ethical guidelines. When faced with an ethical dilemma, a
person is faced with having to select an option that doesn’t align with an established
code of ethics or societal norms, such as codes of law and religious teachings, or with
their internal moral perceptions of right and wrong.
EXAMPLE:
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Life or Death Impact
Consider a situation in which a group of people are enjoying an outdoor adventure

together. One person gets stuck in the only way in or out of an enclosed space, such
as a cave. Water starts rising in the cave due to high tide or heavy rainfall. Everyone
will perish if the person isn’t removed from the entrance. There is no way of
removing the person who is stuck so that the individual will survive.
• The group has to make an extremely difficult decision. Do they take an extreme
action that will cost one member of the group her life? Or, do they do nothing,
knowing that chances are good that none of them will survive if that choice of
action is taken.
• Who would be responsible for making such a decision? Is it different if the

person who is stuck offers to sacrifice herself versus members of the group
suggesting that she be eliminated?
• What are the consequences of facing such an extreme moral dilemma? It is
commonly accepted that killing a person is wrong, but what about when it’s done
to save others?
• What might the consequences be for the survivors if the group chose to kill the
person who is stuck so they might survive? Would there be legal consequences?
What about guilt?
This is one of the most extreme moral dilemma examples, as well as an ethical
dilemma. The choice is between actively causing one person’s death or allowing
people (including oneself) to die. Someone following a utilitarian approach to ethics
would likely choose to eliminate the person who is stuck, as this philosophy is based
on choosing actions that result in the greatest good for the greatest number of people.
Someone who focuses primarily on the sanctity of each individual life, however,
would not consider harming the person who is stuck to be a viable option.
Unit – IV Professional Ethics and Corporate Social Responsibility (10)

4.1. Ethics in Marketing, Ethics in HRM, Ethics in Finance & Accounting, Ethics in
Information Technology
41
4.2. Concept, Definition & Scope of Corporate Social Responsibility, Business ethics
and CSR.
4.3. Criterion for Determining the Social Responsibility of Business, Areas of Social
Responsibility
4.4. Corporate social responsiveness, Corporate Social performance. CSR as
organizational Brand building effort. Post Covid CSR opportunities
4. 1. Ethics in Marketing, Ethics in HRM, Ethics in Finance &
Accounting
Ethics in Marketing
Product issue is that it may be harmful and fail to disclose information about product.
Pricing issues emerge when competitors making same product jointly to determine
the price and manufacturers force retailers to charge high prices. Company set low
price to eliminate competitors. Promotion issues are associated with deceptive
advertising when the consumer is led to believe something which is not true. There is
an exaggerated claim of a product's superiority statements that may not be literally
true. There are some distribution issues like Slotting allowances in which fee paid by
manufacturer to retailer in exchange of keeping their product in their shelves. Grey
market goods where foreign made products imported into countries by distributors
that are not authorized.
42
One of the major functions of marketing is the process of communicating the

products or services to the prospective customers. Every firm attempts to market their
products, service in an efficient and effective way. Advertising is an area which
would need rigid laws and code of conduct when it comes to the style, content and
delivery aspects. The ethical standards has been utilized entirely by marketing experts
but when it comes to actual decision making, it is observed that very less indication in
regards to the adoption of ethical principles is seen. One of the areas where it applies
to a larger extent is Ambush marketing which is an effort by a company to relate its
own brand to a sponsored activity without acquiring official rights.
Ethics in HRM
The following are some of the major ethical challenges an organization faces in
ethical management −
Harming Some While Benefitting Others
HR managers do much of the screening while the hiring process is still on. By its very
nature, screening leaves some people out and permits others to move forward. In
short, the ones left out will be affected by not getting the job, no matter how much
they need it.
HR managers can neglect the emotionalism of such situations by adhering strictly to

the skill sets and other needs of the position, but there will always be a gray area
where HR managers may scale how much each applicant wants and needs the job.
Equal Opportunity
The HR managers must regularly monitor the company's hiring practices to make
sure there is no discrimination in the hiring process based on ethnicity, sexual
orientation,
race, religion and disability. However, simply abiding with Equal Employment
Opportunity Commission (EEOC) guidelines does not guarantee ethical behaviour.
For example, if an HR manager recommends a candidate in order to fill a quota, that
decision is unethical, because it will remove other applicants that may be more
qualified.
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Privacy
Privacy is always a sensitive matter for an HR manager. Though a company culture

may be friendly and open and motivates employees to freely discuss personal details
and lifestyles, the HR manager has an ethical obligation to keep such matters private.
This specifically comes into play when the competing company calls for a reference
on an employee. To remain ethical, HR managers must abide with the job-related
details and leave out knowledge of an employee's personal life.
Compensation and Skills
HR managers can suggest compensation. While these recommendations may be based

on a salary range for each position, ethical dilemmas arise when it comes to
compensating employees differently for the same skills.
For example, a highly sought-after executive may be able to negotiate a higher salary
than someone who has been with the company for several years. This can become an
ethical problem when the lower-paid employee learns of the discrepancy and
questions whether it is based on characteristics such as gender and race.
Human resources departments must handle a host of ethical and legal issues from the
regulations of the EEOC to the principles and practices of organizations such as the
Human Resource Management Institute.
Labor Costs
HR must cope with conflicting needs to keep labor costs as low as possible and to
invite fair wages. Ethics come into action when HR must select between outsourcing
labor to countries with lower wages and harsh living conditions and paying
competitive wages.
While there is nothing illegal about outsourcing labor, this issue has the potential to
build a public relations problem if consumers object to using underpaid workers to
save money.
Opportunity for New Skills
If the HR department selects who gets training, it can run into ethical issues. As
training is a chance for development and broadened opportunities, employees who are
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left out of training may debate that they are not being given equal opportunities in the
workplace.
Fair Hiring and Justified Termination
Hiring and termination decisions must be made without regard to ethnicity, race,
gender, sexual preference or religious beliefs. HR must take precautions to eliminate
any bias from the hiring and firing process by making sure such actions adhere to
strict business criteria.
Fair Working Conditions
Companies are basically expected to provide fair working conditions for their
employees in the business environment, but being answerable for employee treatment
typically means higher labour costs and resource utilization.
Fair pay and benefits for work are more obvious factors of a fair workplace. Another
important factor is provision of a non-discriminatory work environment, which again
may have costs engaged for diversity management and training.
By now it’s pretty clear that while working in an organization, we come across people
with different backgrounds, cultural beliefs and we need to respect their beliefs. In
case an employee feels left out due to some problem, it may not work in the favour of
the organization.
Ethics in Finance and Accounts:
The purpose of financial accounting ethics is to ensure that certified public

accountants (CPAs) conduct their duties objectively and with integrity. Financial
accounting ethics form the basis for legal and regulatory requirements and include
issues related to maintaining public trust. Professional organizations such as the
American Institute of Certified Public Accountants (AICPA) and the Institute of
Management Accountants (IMA) have codes of ethical conduct to which their
members must adhere.
Maintaining Public Faith

In the wake of the numerous accounting scandals in the early 2000s, transparency
regarding a company's accounting methods and practices has become increasingly
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important to the general public. A company that provides a clear explanation of the
accounting methods used to prepare its financial statements appears to be more
ethical and trustworthy than companies that do not provide such information. Often,
the more ethical and trustworthy a company appears, the more likely it is to attract
new investors.
Avoiding Regulatory Investigations and Sanctions
If a company's financial reports contain suspicious accounting methods, it can lead to

a regulatory investigation such as a Securities and Exchange Commission (SEC)
investigation or an IRS audit. If regulatory bodies find any accounting malfeasance
on the part of the company and/or on the part of the accountant, they can levy costly
fines or sanctions against the company and the CPA could lose his license. An
example of corporate malfeasance is if the company failed to report all of its earned
income. Accounting malfeasance can include actions such as the accountant
knowingly using false information provided by the company or accepting cash or
other incentives outside of his regular pay to prepare the company's financial
statements; for instance, if the accountant knew the company was not reporting all of
its income but prepared the financial statements anyway and accepted cash or other
incentives to do so.
Avoiding Stock Price Volatility
When companies are accused of, or under investigation for, unethical accounting
practices, investors begin selling off their shares in an attempt to avoid a total loss on
the investment. This leads to a decline in the price per share. However, as some
investors are selling their shares, market speculators and high-risk investors may be
purchasing the shares at the lower price, causing a temporary increase in share price.
Constant share price volatility can lead to investor panic and induce a large selloff of
the company's shares, driving the share price down. If the price per share drops low
enough for a long enough time, the company is delisted from its respective stock
exchange, its credit rating can go down and it will have a difficult time obtaining the
money it needs to continue operation. Banks and other creditors to which the
company owes money may call in their loans. If the company cannot obtain the
funding to pay its creditors, bankruptcy and corporate collapse could follow.
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Ethics in Information Technology

Some of the major ethical issues faced by Information Technology (IT) are:
1. Personal Privacy:
It is an important aspect of ethical issues in information technology. IT facilitates the

users having their own hardware, operating system and software tools to access the
servers that are connected to each other and to the users by a network. Due to the
distribution of the network on a large scale, data or information transfer in a big
amount takes place which leads to the hidden chances of disclosing information and
violating the privacy of any individuals or a group. It is a major challenge for IT
society and organizations to maintain the privacy and integrity of data. Accidental
disclosure to inappropriate individuals and provisions to protect the accuracy of data
also comes in the privacy issue.
2. Patents:
It is more difficult to deal with these types of ethical issues. A patent can preserve the
unique and secret aspect of an idea. Obtaining a patent is very difficult as compared
with obtaining a copyright. A thorough disclosure is required with the software. The
patent holder has to reveal the full details of a program to a proficient programmer for
building a program.
3. Copyright:
The information security specialists are to be familiar with necessary concept of the
copyright law. Copyright law works as a very powerful legal tool in protecting
computer software, both before a security breach and surely after a security breach.
This type of breach could be the mishandling and misuse of data, computer programs,
documentation and similar material. In many countries, copyright legislation is
amended or revised to provide explicit laws to protect computer programs.
4. Trade Secrets:
Trade secrets is also a significant ethical issue in information technology. A trade
secret secures something of value and usefulness. This law protects the private
aspects of ideas which is known only to the discover or his confidants. Once
disclosed, trade secret is lost as such and is only protected by the law for trade secrets.
The application of trade secret law is very broad in the computer range, where even a
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slight head start in the advancement of software or hardware can provide a significant
competitive influence.
5. Piracy:
Piracy is an activity in which the creation of illegal copy of the software is made. It is
entirely up to the owner of the software as to whether or not users can make backup
copies of their software. As laws made for copyright protection are evolving, also
legislation that would stop unauthorized duplication of software is in consideration.
The software industry is prepared to do encounter against software piracy. The courts
are dealing with an increasing number of actions concerning the protection of
software.
Ethics in Production
Ethics in production is a subset of business ethic that is meant to ensure that the
production function or activities are not damaging to the consumer or the
society. Like other ethics there is a certain code of conduct or standards to be
followed, however ensuring that the ethics are complied with is often difficult.
All the production functions are governed by production ethics but there are certain
that are severely harmful or deleterious which need to be monitored continuously.
The following are worth mentioning:
1. There are ethical problems arising out of use of new technologies that are
deleterious to health, safety and environment. Technological advancements like
genetically modified food, radiations from mobile phones, medical equipment etc
are less problems are more of dilemmas.
2. Defective services and products or products those are innately deleterious like
alcohol, tobacco, fast motor vehicles, warfare, chemical manufacturing etc.
3. Animal testing and their rights or use of economically or socially deprived people
for testing or experimentation is another area of production ethics.
4. Ethics of transactions between the organization and the environment that lead to
pollution, global warming, increase in water toxicity and diminishing natural
resources.
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4.2. Concept, Definition & Scope of Corporate Social Responsibility, Business

ethics and CSR
Corporate Social Responsibility (CSR) is an evolving concept that is yet to command a
standard definition.
With an understanding that businesses have a key role of job and wealth creation in a
society, CSR is generally understood to be the way an organization achieves a balance
between economic, environmental, and social imperatives while addressing the
expectations of shareholders and stakeholders.
According to Bowen (1953), CSR is defined as ‘the obligation of businessmen to

pursue those policies, to make those decisions or to follow those lines of action which
are desirable in terms of objectives and values of society’.
It is a concept whereby companies voluntarily integrate social and environmental

concerns in their business operation CSR denotes the way the companies integrate the
general, social, environmental and economic concerns of the society into their own
values, strategies and operations in a transparent and accountable manner and thereby
contribute to the creation of wealth and improvement in the standard of living of the
society at large.
The World Business Council for Sustainable Development has described CSR as the
business contribution to sustainable economic development and includes commitment and
activities pertaining to the following topics:
(a) Health and safety

(b) Environmental concerns
(c) Community development
(d) Human rights in relation to labour
(e) Customer satisfaction and fair competition
(f) Accountability and transparency in financial reporting
(g) Maintaining relationship with suppliers
Social responsibility objectives need to be built into corporate strategy of business rather than
merely be statements of good intentions. The concept of CSR extends beyond notions embodied
in current law and it introduces new dimensions and new problems. There is no generally
accepted concept of social responsibility of business enterprises.
Scope of Corporate Social Responsibility:

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Ernst and Ernst (1978) identified six areas in which corporate social objectives may be
found:
1. Environment: This area involves the environmental aspects of production, covering

pollution control in the conduct of business operations, prevention or repair of damage to
the environment resulting from processing of natural resources and the conservation of
natural resources.
Corporate social objectives are to be found in the abatement of the negative external
social effects of industrial production, and adopting more efficient technologies to
minimize the use of irreplaceable resources and the production of waste.
2. Energy: This area covers conservation of energy in the conduct of business operations
and increasing the energy efficiency of the company’s products.
3. Fair Business Practices: This area concerns the relationship of the company to special
interest groups.
In particular, it deals with:
i. Employment of minorities
ii. Advancement of minorities
iii. Employment of women
iv. Employment of other special interest groups
v. Support for minority businesses
vi. Socially responsible practices abroad.
4. Human Resources: This area concerns the impact of organizational activities on the
people who constitute the human resources of the organization.
These activities include:
i. Recruiting practices
ii. Training programs i
iii. Experience building -job rotation
iv. Job enrichment
v. Wage and salary levels

vi. Fringe benefit plans
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vii. Congruence of employee and organizational goals

viii. Mutual trust and confidence
ix. Job security, stability of workforce, layoff and recall practices
x. Transfer and promotion
policies
xi. Occupational health
5. Community Development: This area involves community activities, health-related

activities, education and the arts and other community activity disclosures.
6. Products: This area concerns the qualitative aspects of the products, for example their
utility, life- durability, safety and serviceability, as well as their effect on pollution.
Moreover, it includes customer satisfaction, truthfulness in advertising, completeness
and clarity of labelling and packaging. Many of these considerations are important
already from a marketing point of view. It is clear, however, that the social
responsibility aspect of the product contribution extends beyond what is advantageous
from a marketing angle.
4.2. Corporate Social Responsibility and the Law
Corporate Social Responsibility (CSR) can be defined as a Company’s sense of

responsibility towards the community and environment (both ecological and social) in
which it operates. Companies can fulfil this responsibility through waste and pollution
reduction processes, by contributing educational and social programs, by being
environmentally friendly and by undertaking activities of similar nature. CSR is not
charity or mere donations. CSR is a way of conducting business, by which corporate
entities visibly contribute to the social good. Socially responsible companies do not limit
themselves to using resources to engage in activities that increase only their profits. They
use CSR to integrate economic, environmental and social objectives with the company’s
operations and growth. CSR is said to increase reputation of a company’s brand among its
customers and society.
The Companies Act, 2013 has formulated Section 135, Companies (Corporate Social
Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for
Companies to fulfil their CSR. This article aims to analyse these provisions (including all
the amendments therein).
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Applicability of CSR Provisions:
On every Company including its holding or subsidiary having:
• Net worth of Rs. 500 Crore or more, or
• Turnover of Rs. 1000 crore or more, or
• Net Profit of Rs. 5 crore or more
during the immediately preceding financial year
A foreign company having its branch office or project office in India, which fulfils the criteria
specified above
However, if a company ceases to meet the above criteria for 3 consecutive financial years then it
is not required to comply with CSR Provisions till such time it meets the specified criteria.
CSR Committee: Every Company on which CSR is applicable is required to constitute a CSR
Committee of the Board:
• Consisting of 3 or more directors, out of which at least one director shall be an

independent director. However, if a company is not required to appoint an independent
director, then it shall have in 2 or more directors in the Committee.
• Consisting of 2 directors in case of a private company having only two directors on its
Board
• Consisting of at least 2 persons in case of a foreign Company of which one person shall
be its authorised person resident in India and another nominated by the foreign company
Functions of CSR Committee:
The CSR Committee shall—
• Formulate and recommend to the Board, a CSR Policy which shall indicate the activities
to be undertaken by the Company
• Recommend the amount of expenditure to be incurred on the activities referred to in

clause
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Monitor the CSR Policy of the company from time to time
• Institute a transparent monitoring mechanism for implementation of the CSR projects or

programs or activities undertaken by the company.
Responsibility of Board of Directors (BoD):
The BoD of every company on which CSR is applicable shall:
• after considering the recommendations made by the CSR Committee, approve the CSR
Policy for the Company and disclose contents of such Policy in Board report.
• ensure that the activities as are included in CSR Policy of the company are undertaken
by the Company
• shall disclose the composition of the CSR Committee in Board Report
• ensure that the company spends, in every financial year, at least 2% of the average net
profits of the company made during the 3 immediately preceding financial years, in
pursuance of its CSR Policy. The CSR projects/programs/activities undertaken in India
only shall amount to CSR Expenditure.
Note: The Company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for CSR activities and shall specify the reasons
for not spending whole of earmarked amount (if it fails to spend some) in Board Report.
CSR Policy
The CSR Policy of the company shall, inter-alia, include the following namely :-
A list of CSR projects or programs which a company plans to undertake specifying modalities
of execution of such project or programs and implementation schedules for the same
• Monitoring process of such projects or programs
• A clause specifying that the surplus arising out of the CSR projects or programs or
activities shall not form part of the business profit of the company.
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CSR Activities
• The CSR activities shall be undertaken by the company, as per its CSR Policy, excluding
activities undertaken in pursuance of its normal course of business.
• The BoD may decide to undertake its CSR activities approved by the CSR Committee,
through
• a section 8 company or a registered trust or a registered society, established by the

company, either singly or alongwith any other company, or
• a section 8 company or a registered trust or a registered society, established by the

Central Government or State Government or any entity established under an Act of
Parliament or a State legislature
• a section 8 company or a registered trust or a registered society, other than those

specified in clauses (a) and (b) above, having an established track record of 3 years in
undertaking similar programs or projects;
• collaboration with other companies, for undertaking projects or programs or CSR

activities in such a manner that the CSR Committees of respective companies are in a
position to report separately on such projects or programs.
• The CSR projects or programs or activities not to be considered as CSR Activities:
• Expenses for the benefit of only the employees of the company and their families
• Contribution of any amount directly or indirectly to any political party
Display of CSR Activities on its Website
The BoD shall disclose contents of CSR policy in its report and the same shall be displayed on
the company’s website, if any.
Other Important Points:
• The balance sheet of a foreign company to be filed under section 381(1)(b) of the Act
shall contain an Annexure regarding report on CSR.
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• The Board of Directors shall ensure that activities included by a company in its CSR
Policy are related to the areas or subjects specified in Schedule VII (given below) of the
Act.
Schedule 7
Activities which may be included by companies in their Corporate Social Responsibility

Policies relating to:
• Eradicating hunger, poverty and malnutrition,promoting health care including preventive

health care and sanitation including contribution to the Swach Bharat Kosh set-up by the
Central Government for the promotion of sanitation and making available safe drinking
water.
• Promoting education, including special education and employment enhancing vocation

skills especially among children, women, elderly and the differently abled and livelihood
enhancement projects.
• Promoting gender equality, empowering women, setting up homes and hostels for
women and orphans; setting up old age homes, day care centres and such other facilities
for senior citizens and measures for reducing inequalities faced by socially and
economically backward groups.
• Ensuring environmental sustainability, ecological balance, protection of flora and fauna,

animal welfare, agroforestry, conservation of natural resources and maintaining quality
of soil, air and waterincluding contribution to the Clean Ganga Fund set-up by the
Central Government for rejuvenation of river Ganga.
• Protection of national heritage, art and culture including restoration of buildings and
sites of historical importance and works of art; setting up public libraries; promotion and
development of traditional art and handicrafts;
• Measures for the benefit of armed forces veterans, war widows and their dependents;
• Training to promote rural sports, nationally recognised sports, paralympic sports and
olympic sports
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• Contribution to the Prime Minister’s national relief fund or any other fund set up by the
central govt. for socio economic development and relief and welfare of the schedule
caste, tribes, other backward classes, minorities and women;
• Contributions or funds provided to technology incubators located within academic

institutions which are approved by the central govt.  Rural development projects
• Slum area development.
4.3. Corporate Social Responsiveness
Corporate social responsiveness refers to how business organizations and their agents actively
interact with and manage their environments. In contrast, corporate social responsibility
accentuates the moral obligations that business has to society. Responsive ness and
responsibility can be viewed on a means-end continuum in that responsiveness can be shaped or
triggered by public expectations of business responsibilities. Generally speaking, these
responsibilities are implied by the terms of the social contract, which legitimizes business as an
institution with the expectation that it serve the greater good by generating commerce while
adhering to society's laws and ethical norms. From this perspective, corporations are in a
dynamic relationship with society of which responsiveness is key.
4.4. Corporate Social Performance
Corporate social performance (CSP) refers to the principles, practices, and outcomes of
businesses’ relationships with people, organizations, institutions, communities, societies, and
the earth, in terms of the deliberate actions of businesses toward these stakeholders as well as
the unintended externalities of business activity. The development of the CSP concept,
beginning in the 1950s and 1960s, is important for understanding how CSP is related to other
core topics and concepts in business and society/business ethics. As the CSP concept was
refined, an earlier term, corporate social responsibility (CSR), was incorporated as one element
of CSP, in particular, the ethical and/or structural principles of social responsibility, or business
engagement with others.
4.5. Diverging Views on Social Responsibility (Arguments for & against)

CSR: Ethical Argument
Although many discussions around CSR assume an ethical component, the precise relationship
between ethics and CSR is often left unspecified. The main question is: “Can a socially
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responsible company be unethical?” In essence, responsibility is one of the core five elements
of ethics:
• honest
• respect
• fairness
• compassion
• responsibility
Ethics requires all five. Therefore, a corporation can have a strong sense of responsibility
without necessarily being honest.
CSR is an argument based on two forms of ethical reasoning—consequentialist (utilitarian) and

categorical (Kantian). Consequentialist reasoning justifies action in terms of the outcomes
generated (the greatest good for the greatest number of people), while categorical reasoning
justifies action in terms of the principles by which that action is carried out (the application of
core ethical principles, regardless of the outcomes they generate).
At a more practical level, these two ethical perspectives become realized in social norms which
have been accepted by the organization, the industry, the profession, or society as necessary for
the proper functioning of business. They are codified with the organization in the form of a code
of conduct or code of ethics, which then acts as a point of reference or guide in determining
“whether a company is acting ethically according to the conventional standards.”
The violation of a society’s ethical principles regarding issues of social justice, human rights,
and environmental stewardship is deemed to be ethically wrong and socially irresponsible.This
premise is the foundation of the “social contract,” which is based on societal expectations that
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bind firms because compliance is directly related to a social license to operate. Remaining
within
these implicit ethical boundaries is directly related to the firm’s societal legitimacy and long-
term viability.
Arguments for CSR: Moral Argument
CSR is an argument of moral reasoning that reflects the relationship between a company and the
society within which it operates. It assumes businesses recognize that for-profit entities do not
exist in a vacuum and that their ability to operate and achieve ongoing success comes as much
from societal resources (e.g., infrastructure, rule of law) and consent (e.g., social contract) as
from factors that are internal to the firm. CSR emerges from the interaction and interdependence
between for-profits and society. It is shaped by individual and societal standards of morality,
ethics, and values that define contemporary views of human rights and social justice. Thus, to
what extent does a business have an obligation to re-pay the debt it owes society for its
continued business success?
On the one hand, it can be argued that business success depends on the society that provides the
infrastructure, employees, consumers, and other elements that are central to success. On the
other hand, if a business must fully reflect societal costs, it may not be able to compete—
especially with firms in other societies that may be able to externalize their costs (such as
dumping unfiltered pollution into local waterways).
Arguments for CSR: Rational Argument
CSR is a rational argument that focuses on the benefits to performance of avoiding external
constraints. Adopting the path of least resistance with regard to issues of concern makes
common and business sense. In today’s globalized world, where individuals and organizations
are empowered to enact change, CSR represents a means of anticipating and reflecting societal
concerns to minimize operational and financial sanctions.
The loss of moral legitimacy can lead to the countervailing power of social activism, restrictive
legislation, or other constraints on the firm’s freedom to pursue its economic and other interests.
Violations of ethical and discretionary standards are not just inappropriate; they present a
rational argument for CSR. Because societal sanctions—such as laws, fines, prohibitions,
boycotts, or social activism—impact the firm’s strategic goals, efforts to comply with societal
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expectations are rational, regardless of moral arguments. Where compliance with moral
expectations is based on highly subjective values, the rational argument rests on sanction
avoidance.
Ultimately, the Iron Law of Social Responsibility suggests that in a free society discretionary
abuse of societal responsibilities leads, eventually, to mandated solutions. That is, in a
democratic society, power is taken away from those who abuse it.
Arguments for CSR: Economic Argument
CSR is an argument of economic self-interest for businesses. CSR adds value because it allows
companies to reflect the needs and concerns of their various stakeholder groups. By doing so,
the firm is more likely to create greater value and, as a result, retain the loyalty of those
stakeholders. Simply put, CSR is a way of matching corporate operations with stakeholder
values and expectations that are constantly evolving.
Summing the moral and rational arguments for CSR leads to an economic argument. To
incorporate CSR into operations offers a potential point of differentiation and competitive
market advantage upon which future success can be built, besides avoiding moral, legal, and
other sanctions. This perspective argues that social contribution can be profitable and can
increase competitive advantage, supporting CSR. In summary, the economic argument contains
all the factors explaining why CSR is of strategic importance for businesses today.
4.6. ISO 26000
ISO 26000 is defined as the international standard developed to help organizations effectively
assess and address social responsibilities that are relevant and significant to their mission and
vision; operations and processes; customers, employees, communities, and other stakeholders;
and environmental impact.
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ISO 26000 at a Glance
• Is intended as guidance, not for certification
• Presents a comprehensive documentation of social responsibilities including core

subjects and issues related to those subjects
• Was published in 2010 by the International Organization for Standardization (ISO), a

specialized international agency for standardization composed of the national standards
bodies of more than 160 countries
• Was written by a unique multi-sectoral group representing governments;

nongovernmental organizations (NGOs); industry; consumer groups; labor; and
academic, consulting, and other organizations around the world
• More than 400 experts and 200 observers from 99 countries and 42 international
organizations contributed to the development effort
• Last reviewed for possible revision in 2014
The ISO 26000 standard provides guidance on:

• Recognizing social responsibility and engaging stakeholders
• Ways to integrate socially responsible behavior into the organization
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• The seven key underlying principles of social responsibility:
1. Accountability
2. Transparency
3. Ethical behaviour
4. Respect for stakeholder interests
5. Respect for the rule of law
6. Respect for international norms of behaviour
7. Respect for human rights
The seven core subjects and issues pertaining to social responsibility:
1. Organizational governance
2. Human rights
3. Labour practices
4. The environment
5. Fair operating practices
6. Consumer issues
7. Community involvement and
development
In addition to providing definitions and information to help organizations understand and
address social responsibility, ISO 26000-2010 emphasizes the importance of results and
improvements in performance on social responsibility.
Who should use ISO 26000?
Organizations in the private, public, and nonprofit sectors, whether large or small, and whether
operating in developed or developing countries, use ISO 26000. All of the core subjects of
social responsibility are relevant in some way to every organization.
Since the core subjects cover a number of issues, organizations will benefit when they identify
which issues are most relevant and significant for them through examination of their own
considerations and dialogue with stakeholders.
What does ISO 26000 accomplish?
ISO 26000 aims to:
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• Assist organizations in addressing their social responsibilities while respecting cultural,

societal, environmental, and legal differences and economic development conditions
• Provide practical guidance related to making social responsibility operational
• Assist with identifying and engaging with stakeholders and enhancing credibility of
reports and claims made about social responsibility
• Emphasize performance results and improvement
• Increase confidence and satisfaction in organizations among their customers and other
stakeholders
• Achieve consistency with existing documents, international treaties and conventions, and
existing ISO standards
• Promote common terminology in the social responsibility field
• Broaden awareness of social responsibility
This standard is not intended to reduce government’s authority to address the social
responsibility of organizations.
How to get started with ISO 26000
ASQ is the only place to get ASQ/ANSI/ISO 26000-2010, the American National Standards
Institute version of ISO 26000:2010.
Purchase the e-standard or ask about a site license for posting an electronic version to your
Local Area Network or Intranet.
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Core subjects of social responsibility
The ISO 26000 standard defines the core subjects of social responsibility. Core subjects
comprise a number of issues, but it is each organization's responsibility to identify issues
are relevant and significant to their stakeholders and/or need to be addressed.
The seven core subjects are explained in Clause 6 of the ISO 26000 standard. They are
listed below, along with their sub clause numbers.
Core subject: Organizational governance, sub clause 6.2
Decisions are to be made in consideration of the expectations of society. Accountability,

transparency, ethics, and stakeholders should be factors in the organization’s decision-
making process.
Core subject: Human rights, sub clause 6.3
All humans have the right to fair treatment and the elimination of discrimination, torture,
and exploitation.
• 6.3.3 Due diligence
• 6.3.4 Human rights risk situations
• 6.3.5 Avoidance of complicity
• 6.3.6 Resolving grievances
• 6.3.7 Discrimination and vulnerable groups
• 6.3.8 Civil and political rights
• 6.3.9 Economic, social, and cultural rights
• 6.3.10 Fundamental principles and rights at work
Core subject: Labour practices, sub clause 6.4
Those working on behalf of the organization are not a commodity. The goal is to prevent unfair
competition based on exploitation and abuse.
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• 6.4.3 Employment and employment relationships
• 6.4.4 Conditions of work and social protection
• 6.4.5 Social dialogue
• 6.4.6 Health and safety at work
• 6.4.7 Human development and training in the workplace
Core subject: Environment, sub clause 6.5
The organization has a responsibility to reduce and eliminate unsustainable volumes and
patterns of production and consumption and to ensure that resource consumption per person
becomes sustainable.
• 6.5.3 Prevention of pollution
• 6.5.4 Sustainable resource use
• 6.5.5 Climate change mitigation and adaptation
• 6.5.6 Protection of the environment, biodiversity, and restoration of natural habitats
Core subject: Fair operating practices, sub clause 6.6
Building systems of fair competition, preventing corruption, encouraging fair competition, and
promoting the reliability of fair business practices help to build sustainable social systems.
• 6.6.3 Anti-corruption
• 6.6.4 Responsible political involvement
• 6.6.5 Fair competition
• 6.6.6 Promoting social responsibility in the value chain
• 6.6.7 Respect for property rights
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Core subject: Consumer issues, sub clause 6.7
The promotion of just, sustainable, and equitable economic and social development with respect
to consumer health, safety, and access is the organization’s responsibility.
• 6.7.3 Fair marketing, factual, and unbiased information and fair contractual practices
• 6.7.4 Protecting consumers' health and safety
• 6.7.5 Sustainable consumption
• 6.7.6 Consumer service, support, and complaint and dispute resolution
• 6.7.7 Consumer data protection and privacy
• 6.7.8 Access to essential services
• 6.7.9 Education and awareness
Core subject: Community involvement and development, sub clause 6.8
The organization should be involved with creating sustainable social structures where
increasing levels of education and well-being can exist.
• 6.8.3 Community involvement

• 6.8.4 Education and culture
• 6.8.5 Employment creation and skills development
• 6.8.6 Technology development and access
• 6.8.7 Wealth and income creation
• 6.8.8 Health
• 6.8.9 Social investment
4.7. Criterion for Determining the Social Responsibility of Business
In 2010, the International Organization for Standardization (ISO) published an international

standard, ISO 26000, to help organizations assess and address their social responsibilities. ISO
26000-2010: Guidance on Social Responsibility defines social responsibility as:
The responsibility of an organization for the impacts of its decisions and activities on society
and the environment, through transparent and ethical behaviour that:
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• Contributes to sustainable development, including health and the welfare of society
• Takes into account the expectations of stakeholders
• Is in compliance with applicable laws and consistent with international norms of

behaviour
• Is integrated throughout the organization and practiced in its relationships
Organizations can achieve sustainability by paying careful attention to their impact on society
and the environment. Behaving in a transparent, ethical manner ensures an approach that helps
protect the long-term success of society and the environment.
Another tenet of social responsibility is the triple bottom line, also known as "people, planet,
and profit." This is the belief that achieving profit does not require harm to the planet or the
exploitation of people. Organizations can profit while also taking care of the planet and people.
The Business Case for Social Responsibility and Quality
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4.8. Areas of Social Responsibility of Business

ISO 26000-2010: Guidance on Social Responsibility identifies seven core social
responsibility subjects:
1. Organizational governance
2. Human rights
3. Labor practices
4. Environment
5. Fair operating practices
6. Consumer issues
7. Community involvement and development
In addition to the core subjects, ISO 26000 also defines seven key principles of socially
responsible behavior:
1. Accountability
2. Transparency
3. Ethical behavior
4. Respect for stakeholder interests
5. Respect for the rule of law
6. Respect for international norms of behavior
7. Respect for human rights
4.9. Social Responsibility & Indian Corporations
India is the first country in the world to make corporate social responsibility (CSR) mandatory,
following an amendment to the Companies Act, 2013 in April 2014. Businesses can invest their
profits in areas such as education, poverty, gender equality, and hunger as part of any CSR
compliance.
Amid the COVID-19 (coronavirus) outbreak, the Ministry of Corporate Affairs has notified that
companies’ expenditure to fight the pandemic will be considered valid under CSR activities.
Funds may be spent on various activities related to COVID-19 such as promotion of healthcare
including preventive healthcare and sanitation, and disaster management.
The amendment notified in the Companies Act, 2013 requires companies with a net worth of
INR 5 billion (US$70 million) or more, or an annual turnover of INR 10 billion (US$140
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million) or more, or net profit of INR 50 million (US$699,125) or more, to spend 2 percent of
their average net profits of three years on CSR.
Prior to that, the CSR clause was voluntary for companies, though it was mandatory to disclose
their CSR spending to shareholders. CSR includes but is not limited to the following:
• Projects related to activities specified in the Companies Act; or
• Projects related to activities taken by the company board as recommended by the CSR
Committee, provided those activities cover items listed in the Companies Act.
Businesses must note that the expenses towards CSR are not eligible for deduction in the
computation of taxable income. The government, however, is considering a re-evaluation of this
provision, as well as other CSR provisions recently introduced under the Companies
(Amendment) Act, 2019 (“the Act”).
The methodology of CSR
CSR is the procedure for assessing an organization’s impact on society and evaluating their
responsibilities. It begins with an assessment of the following aspects of each business:
• Customers
• Suppliers
• Environment
• Communities and,
• Employees
The most effective CSR plans ensure that while organizations comply with legislation, their
investments also respect the growth and development of marginalized communities and the
environment. CSR should also be sustainable – involving activities that an organization can
uphold without negatively affecting their business goals.
Organizations in India have been quite sensible in taking up CSR initiatives and integrating
them into their business processes.
It has become progressively projected in the Indian corporate setting because organizations have
recognized that besides growing their businesses, it is also important to shape responsible and
supportable relationships with the community at large.
Companies now have specific departments and teams that develop specific policies, strategies,
and goals for their CSR programs and set separate budgets to support them.
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Most of the time, these programs are based on well-defined social beliefs or are carefully
aligned with the companies’ business domain.
CSR trends in India
Since the applicability of mandatory CSR provision in 2014, CSR spending by corporate India
has increased significantly. In 2018, companies spent 47 percent higher as compared to the
amount in 2014-15, contributing US$1 billion to CSR initiatives, according to a survey.
Examples of CSR in India
Tata Group
The Tata Group conglomerate in India carries out various CSR projects, most of which are
community improvement and poverty alleviation programs. Through self-help groups, it has
engaged in women empowerment activities, income generation, rural community development,
and other social welfare programs. In the field of education, the Tata Group provides
scholarships and endowments for numerous institutions.
The group also engages in healthcare projects, such as the facilitation of child education,
immunization, and creation of awareness of AIDS. Other areas include economic empowerment
through agriculture programs, environment protection, providing sports scholarships, and
infrastructure development, such as hospitals, research centres, educational institutions, sports
academy, and cultural centres.
Ultratech Cement
Ultratech Cement, India’s biggest cement company is involved in social work across 407
villages in the country aiming to create sustainability and self-reliance. Its CSR activities focus
on healthcare and family welfare programs, education, infrastructure, environment, social
welfare, and sustainable livelihood.
The company has organized medical camps, immunization programs, sanitization programs,
school enrolment, plantation drives, water conservation programs, industrial training, and
organic farming programs.
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Mahindra & Mahindra
Indian automobile manufacturer Mahindra & Mahindra (M&M) established the K. C. Mahindra
Education Trust in 1954, followed by Mahindra Foundation in 1969 with the purpose of
promoting education. The company primarily focuses on education programs to assist
economically and socially disadvantaged communities.
Its CSR programs invest in scholarships and grants, livelihood training, healthcare for remote
areas, water conservation, and disaster relief programs. M&M runs programs such as Nanhi
Kali focusing on education for girls, Mahindra Pride Schools for industrial training, and Lifeline
Express for healthcare services in remote areas.
ITC Group
ITC Group, a conglomerate with business interests across hotels, FMCG, agriculture, IT, and
packaging sectors has been focusing on creating sustainable livelihood and environment
protection programs. The company has been able to generate sustainable livelihood
opportunities for six million people through its CSR activities.
Their e-Choupal program, which aims to connect rural farmers through the internet for
procuring agriculture products, covers 40,000 villages and over four million farmers. It’s social
and farm forestry program assists farmers in converting wasteland to pulpwood plantations.
Social empowerment programs through micro-enterprises or loans have created sustainable
livelihoods for over 40,000 rural women.
Unit – V Framework for rating CSR & Unethical Behaviour in Organizations (8)
5.1 CSR Activity planning & Execution, Understanding CSR Ratings, Framework for
rating CSR
5.3 Understanding Unethical Behaviour, CSR law under companies act 2013
5.4 Individual Factors, and organisational factors Contributing to Unethical Behaviour
5.1 CSR Activity planning & Execution, Understanding CSR Ratings, Framework
for rating CSR
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Understanding CSR Ratings
Corporate Social Responsibility refers to organizations identifying and addressing their

environmental, social and governance impacts on stakeholders, e.g. any party impacted
by the organization’s decisions and actions. Among the stakeholders are the
shareholders and investors. Indeed, the success of their investments depend on how the
company acts, in economic but also social spheres. Indeed, a non-existent or unhealthy
CSR management leads to risks that can affect the investors’ decisions. As a result,
investors have been increasingly paying attention to companies’ CSR management and
performance. This is called Socially Responsible Investment, or SRI.
Socially Responsible Investment (SRI): importance of ratings and indexes
To make their investment decision, investors need to know the sustainability

performance of companies. To receive insights, they purchase the research of extra-
financial or rating agencies. Such agencies rate the CSR performance of stock-listed
companies based on the public information they disclose and according to
methodologies that are based on the international standards. With such information,
investors can take decisions. They use various strategies, including the best-in-class.
Best-in-class strategy leads to various indexes like DJSI, FTSE4Good Index Series,
MSCI ESG Indexes and other.
A CSR assessment is an evaluation of how well a company has integrated the principles
of CSR into their business. An assessment program is a first step into an ongoing
monitoring process. The objective of the assessment is to get a clear picture of your
Corporate Social Responsibility practices (i.e. environment, social, ethics, supply chain).
The assessment results will enable you to understand how your company is positioned,
but you can also use the assessment results to communicate your CSR commitment to
your stakeholders.
The first step is to gather, analyse and examine all relevant and important information
about the company’s services, products, activities and decision making processes where
the company currently stands in relation to its activities and locate points to apply CSR.
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A proper CSR assessment should provide the following information about the company
assessed in respect to four themes.

The Global Reporting Initiative (known as GRI) is an international independent
standards organization that helps businesses, governments and other organizations
understand and communicate their impacts on issues such as climate change, human
rights and corruption.
Under increasing pressure from different stakeholder groups – such as governments,
consumers and investors – to be more transparent about their environmental, economic
and social impacts, many companies publish a sustainability report, also known as a
corporate social responsibility (CSR) or environmental, social and governance (ESG)
report. GRI’s framework for sustainability reporting helps companies identify, gather
and report this information in a clear and comparable manner. First launched in 2000,
GRI’s sustainability reporting framework is now the most widely used by multinational
organizations, governments, small and medium enterprises (SMEs), NGOs and industry
groups in more than 90 countries. In 2017, 63 percent of the largest 100 companies
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(N100), and 75 percent of the Global Fortune 250 (G250) reported applying the GRI
reporting framework.
The most recent of GRI’s reporting frameworks are the GRI Standards, launched in
October 2016. Developed by the Global Sustainability Standards Board (GSSB), the
GRI Standards are the first global standards for sustainability reporting and are a free
public good. In contrast to the earlier reporting frameworks, the GRI Standards have a
modular structure, making them easier to update and adapt.
Standards for guidelines
The GRI framework aims to enable third parties to assess environmental impact from
the activities of the company and its supply chain. The standardized reporting guidelines
concerning the environment are contained within the GRI Indicator Protocol Set. The
performance indicators (PI) includes criteria on energy, biodiversity and emissions.
There are 30 environmental indicators ranging from EN1 (materials used by weight) to
EN30 (total environmental expenditures by type of investment).
The 3.1 guideline was updated by the materiality-based 4.0 guideline in 2014, resulting
in some commentary regarding comparability.
5.3 Understanding Unethical Behaviour, CSR law under companies’ act 2013
. Understanding Unethical Behavior
Unethical behavior is an action that falls outside of what is considered morally right or
proper for a person, a profession or an industry. Individuals can behave unethically, as
can businesses, professionals and politicians.
Unethical Behavior among Individuals
• Lying to your spouse about how much money you spent.
• Lying to your parents about where you were for the evening.
• Stealing money from the petty cash drawer at work.
• Lying on your resume in order to get a job.
• Talking about a friend behind his back.
• Taking credit for work you did not do.
• Cheating on a school paper by copying it off the Internet.
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• Taking Rs 20.00 out of your friend's wallet when he is sleeping.
• Using your position of power at work to sexually harass someone.
• Selling a house and not disclosing known defects to the buyers.
• Selling a car and lying about the vehicle's accident history.
Unethical Behaviour among Businesses
• Dumping pollutants into the water supply rather than cleaning up the pollution
properly.
• Releasing toxins into the air in levels above what is permitted by the Environmental
Protection Agency.
• Coercing an injured worker not to report a work injury to workers' compensation by
threatening him with the loss of a job or benefits.
• Refusing to give an employee a final paycheck for hours worked after the employee
leaves the company.
• Not paying an employee for all of the hours worked.
• Incorrectly classifying an employee as an independent contractor and not as an

employee in order to reduce payroll taxes and avoid purchasing unemployment and
workers' compensation insurance.
• Engaging in price fixing to force smaller competitors out of business.
• Using bait and switch or false advertising tactics to lure customers in or convince
them to buy a product.
• Rolling back the odometer on a vehicle that is for sale.
• Refusing to honor a warranty claim on a defective product.
Unethical Behavior by Professionals
• Doctors, dentists and lawyers dating their clients.
• Not telling a patient his true diagnosis because the physician didn't know the
details of the diagnosis.
• A dentist preforms unnecessary procedures on a patient in order to receive the
insurance payment.
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• Using a patient as a teaching tool for students for long periods of time without the
permission of the patient or patient's family.
• A lawyer will not return money or provide a which was being held for a client.
• A lawyer represents parties on both sides of a legal transaction.
Unethical Behavior among Politicians and the Government
• Using the Internal Revenue Service (IRS) to target groups that you do not like by
auditing those groups or refusing to give them tax exempt status.
• Obtaining private tax information about your political opponents from the Internal
Revenue Service and using that information in a campaign.
• Knowingly telling lies about your own political position or about the political
position of your opponent just to get elected.
• Accepting excess campaign contributions that violate campaign finance laws.
• Using money that was donated to your campaign for personal, non-approved
expenses.
• Using your position of power to coerce lobbyists into buying expensive gifts for you
and for your wife.
• Secretly spying on U.S. citizens in violation of the Fourth Amendment and lying
about the spying that is going on.
• Using your position of power to close traffic lanes in order to intentionally create a
traffic jam that affects residents of a city because residents in that city are not likely
to vote for you in an election.
These are just some of the many different examples of unethical behavior that could
occur.
5.4 Individual Factors, and organisational factors Contributing to Unethical
Behaviour
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Individual Factors Contributing to Unethical Behavior
Many individual factors affect a person's ethical behavior at work, such as knowledge,
values, personal goals, morals and personality. The more information that you have
about a subject, the better chance you will make an informed, ethical decision.
For example, what if you had to decide whether to approve building a new company
store? What if you did not have the knowledge that the store would disturb an
endangered species nest? Without the appropriate knowledge, you could be choosing an
unethical path. Values are an individual's judgment or standard of behavior. They are
another individual factor that affects ethical behavior. To some people, acting in an
improper way is just a part of doing business. Would you feel that it is ethical to make
up lies about your competitor just to win a contract? Some people's standard of behavior
will feel that lying for a business financial win is not unethical.
Morals are another individual characteristic that can affect an individual's ethics. 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 you have good morals if
you pushed a product on a customer that you knew was not going to help solve a
problem?
Many ethical work situations will also be affected by a person's goals. Which
characteristics do you feel are worthy to aspire to? Is financial gain ranked ahead of
good character or integrity? If your personal goals are about acquiring wealth no matter
what the consequence, then you might act unethical in the future.
Lastly, an employee's personality plays an important factor in determining ethical
behavior. Do you enjoy risk or do you prefer the safe route? Individuals who prefer to
take risks tend to have a higher chance of unethical conduct at work. For example, if you
are willing to risk dumping chemicals into a nearby water supply to launch a profitable
drug, then your riskiness could end up creating health issues in local citizens for the sake
of financial gain.
Organizational Factors Contributing to Unethical Behavior
Unethical behavior in the workplace doesn’t have to be rampant or extravagant to be costly.

Corporate scandals that culminate with the arrests of nefarious executives may garner the
headlines. But the cumulative damages caused by the seemingly small indiscretions that
employees and managers commit every day are just as bad.
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Almost half of the 120 million workers in the United States have acknowledged witnessing
ethical misconduct. Whether it’s a common infraction like misusing company time, mistreating
others, lying, stealing or violating company internet policies, unethical behavior in the
workplace is widespread. These are the causes.
No Code of Ethics
Employees are more likely to do wrong if they don’t know what’s right. Without a code of
ethics, they may be unscrupulous. A code of ethics is a proactive approach to addressing
unethical behavior. It establishes an organization’s values and sets boundaries for adhering to
those values. Everyone is accountable.
Fear of Reprisal
When explaining why they don’t report ethical misconduct that they witness, people often say it
is because they worry about the ramifications. They don’t want to damage their career or incur
the wrath of the offender. Or, sometimes, they let the infraction go because they don’t know
how to report it or they feel that their report may be ignored.
Impact of Peer Influence
If everyone is doing it, it must be right. Or is it? What’s to stop someone from padding their
expense report when their co-workers do it but don’t get caught? Too often people lapse into the
bad behavior of others. People behave unethically because they tend to perceive questionable
behaviors exhibited by people who are similar to them — like their co-workers — to be more
acceptable than those exhibited by people who they perceive as dissimilar, researchers say.
Going Down a Slippery Slope
Misconduct starts small, such as the exaggeration of a mileage report. But the longer it goes
unchecked, the worse the offenses become. The few extra dollars that came from the mileage
report may eventually be dwarfed by larger falsified expenses or perhaps even outright
embezzlement. People who are faced with growing opportunities to behave unethically are more
likely to rationalize their misconduct because unethical behavior becomes habit.
Setting a Bad Example
Ethical behavior starts at the top. Employees emulate their leaders, and the most significant
factor in ethical leadership is personal character. Corporate leaders who employees view as
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demonstrating personal character are more likely to be perceived as setting a strong tone,
researchers say. If employees see the boss knocking off early every day, they may do likewise.
Ignoring the small stuff will not necessarily lead to the type of scandals that make the news. But
ethical misconduct could prove costly if it is not stopped. Identifying these causes of unethical
behavior in the workplace could prevent problems and minimize damages.
Unit – VI Corporate Governance (8)
6.1 Meaning & definition of Corporate Governance,

6.2 Principles of Corporate Governance
6.3 ‘Good’ Corporate Governance
6.4 Corporate Governance Practices in India
6.1. Meaning & definition of 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.
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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.
6.2. Principles of Corporate Governance
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Concept of corporate governance

Corporate governance is understood as the set of policies, culture and internal
regulations that guide the management of a company, with the purpose of making it
more transparent and efficient.
Basically, the goal of corporate governance in companies is to optimize their
management and grant more transparency to the decisions made by the management
team. This enables
the business’ employees, customers, investors, and financial institutions to understand

them more easily.
Fundamental principles of corporate governance
The clarity in the decision-making process and the increased reliability of the company
are based on some fundamental principles. Keep reading and get to know each one of
them.
Transparency
The first and probably most important principle is transparency. This is because, if it is
not adopted correctly, other attitudes will hardly achieve the planned success.
Basically, it is important that companies that are interested in adopting corporate
governance create channels to impart information about their decisions, activities and
results, whether successful or not.
By having this attitude, the company is able to keep its employees informed, which
increases the feeling of engagement.
Another promising result of transparency is that, since clients and investors may easily
get information about a company, they feel more secure in doing business with it, or
making contributions.
Equality
When we speak of good management practices, we refer to operational strategies that

benefit, equally, all partners and investors of the company. For this reason, one of the
fundamental principles of corporate governance is equity among shareholders.
If it is not properly performed, the business’ image may be tarnished, which jeopardizes
its relationship with partners, investors, financial Institutions, and even with customers.
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In addition, bad practices in this area can lead to lawsuits, which would further
undermine the company’s reputation.
Because of this, it is critical that the decisions made by the business management benefit
its members as a whole.
Social responsibility
There are a growing number of managers who understand the importance of their
company regarding social issues and are adopting policies aligned with them. It is
important to emphasize that this process should begin internally, creating an
environment that is appropriate for the company’s employees to perform their duties.
By taking on their role as a socially responsible company, the companies in question, in
addition to improving the society in which they are included, benefit from their
improved image, which reflects positively in their relationship with customers.
Accountability
Although all the principles cited so far are very important, their effects will be limited if
the information concerning them is not properly disclosed. In this context,
accountability, the last principle to be mentioned, shows its importance.
Directly related to transparency, accountability is nothing more than the process of
disclosure of all practices and results, referring to aforementioned principles, by the
company’s channels.
Lastly, it is important to emphasize that, in order to maintain the principle of
transparency; the disclosed information must be completely true, regardless of whether
it is positive or negative.
6.3. Issues in Corporate Governance
In the last decade, the frequency of corporate frauds and governance failures that have
dotted the global corporate map have witnessed comparably vigorous efforts of
improving corporate governance practices. India has liberalised the regulatory fabric of
the country to align its corporate governance norms with those of developed countries.
And yet, achieving good governance and ensuring results of such governance practices
continue to remain one of the top priorities of stakeholders even today.
Set out below are top ten issues affecting corporate governance practices in India.
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1. Getting the Board Right
Enough has been said on board and its role as the cornerstone for good corporate
governance. To this end, the law requires a healthy mix of executive and non-executive
directors and appointment of at least one-woman director for diversity. There is no
doubt that a capable, diverse and active board would, to large extent, improve
governance standards of a company. The challenge lies in ingraining governance in
corporate cultures so that there is improving compliance "in spirit". Most companies' in
India tend to only comply on paper; board appointments are still by way of "word of
mouth" or fellow board member recommendations. It is common for friends and family
of promoters (a uniquely Indian term for founders and controlling shareholders) and
management to be appointed
as board members. Innovative solutions are the need of the hour - for instance, rating
board diversity and governance practices and publishing such results or using
performance evaluation as a minimum benchmark for director appointment.
2. Performance Evaluation of Directors
Although performance evaluation of directors has been part of the existing legal
framework in India, it caught the regulator's attention recently. In January 2017, SEBI,
India's capital markets regulator, released a 'Guidance Note on Board Evaluation'. This
note elaborated on different aspects of performance evaluation by laying down the
means to identify objectives, different criteria and method of evaluation. For
performance evaluation to achieve the desired results on governance practices, there is
often a call for results of such evaluation are made public. Having said that, evaluation is
always a sensitive subject and public disclosures may run counter-productive. In a peer
review situation, to avoid public scrutiny, negative feedback may not be shared. To
negate this behaviour, the role of independent directors in performance evaluation is
key.
3. True Independence of Directors
Independent directors' appointment was supposed to be the biggest corporate governance

reform. However, 15 years down the line, independent directors have hardly been able
to make the desired impact. The regulator on its part has, time and again, made the
norms tighter: introduced comprehensive definition of independent directors, defined a
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role of the audit committee, etc. However, most Indian promoters design a tick-the-box
way out of the regulatory requirements. The independence of such promoter appointed
independent directors is questionable as it is unlikely that they will stand-up for minority
interests against the promoter. Despite all the governance reforms, the regulator is still
found wanting. Perhaps, the focus needs to shift to limiting promoter's powers in matters
relating to in independent directors.
4. Removal of Independent Directors
While independent directors have been generally criticised for playing a passive role on
the board, instances of independent directors not siding with promoter decisions have
not been taken well - they were removed from their position by promoters. Under law,
an independent director can be easily removed by promoters or majority shareholders.
This inherent conflict has a direct impact on independence. In fact, earlier this year, even
SEBI's International Advisory Board proposed an increase in transparency with regard
to appointment and removal of directors. To protect independent directors from vendetta
action and confer upon them greater freedom of action, it is imperative to provide for
additional checks in the process of their removal - for instance, requiring approval of
majority of public shareholders.
5. Accountability to Stakeholders
Empowerment of independent directors has to be supplemented with greater duties for,

and accountability of directors. In this regard, Indian company law, revamped in 2013,
mandates that directors owe duties not only towards the company and shareholders but
also towards the employees, community and for the protection of environment.
Although these general duties have been imposed on all directors, directors including
independent directors have been complacent due to lack of enforcement action. To
increase accountability, it may be a good idea to require the entire board to be present at
general meetings to give stakeholders an opportunity to interact with the board and pose
questions.
6. Executive Compensation
Executive compensation is a contentious issue especially when subject to shareholder

accountability. Companies have to offer competitive compensation to attract talent.
However, such executive compensation needs to stand the test of stakeholders' scrutiny.
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Presently, under Indian law, the nomination and remuneration committee (a committee
of the board comprising of a majority of independent directors) is required to frame a
policy on remuneration of key employees. Also, the annual remuneration paid to key
executives is required to be made public. Is this enough? To retain and nurture a
trustworthy relationship between the shareholders and the executive, companies may
consider framing remuneration policies which are transparent and require shareholders'
approval.
7. Founders' Control and Succession Planning
In India, founders' ability to control the affairs of the company has the potential of
derailing the entire corporate governance system. Unlike developed economies, in India,
identity of the founder and the company is often merged. The founders, irrespective of
their legal position, continue to exercise significant influence over the key business
decisions of companies and fail to acknowledge the need for succession planning. From
a governance and business continuity perspective, it is best if founders chalk out a
succession plan and implement it. Family owned Indian companies suffer an inherent
inhibition to let go of control. The best way to tackle with this is widen the shareholder
base - as PE and other institutional investors pump in capital, founders are forced to
think about a succession plan and step away with dignity.
8. Risk Management
Today, large businesses are exposed to real-time monitoring by business media and
national media houses. Given that the board is only playing an oversight role on the
affairs of a company, framing and implementing a risk management policy is necessary.
In this context, Indian company law requires the board to include a statement in its
report to the shareholders indicating development and implementation of risk
management policy for the company. The independent directors are mandated to assess
the risk management systems of the company. For a governance model to be effective, a
robust risk management policy which spells out key guiding principles and practices for
mitigating risks in day-to-day activities is imperative.
9. Privacy and Data Protection
As a key aspect of risk management, privacy and data protection is an important

governance issue. In this era of digitalization, a sound understanding of the
fundamentals of cyber security must be expected from every director. Good governance
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will be only achieved if executives are able to engage and understand the specialists in
their firm. The board must assess the potential risk of handling data and take steps to
ensure such data is protected from potential misuse. The board must invest a reasonable
amount of time and money in order ensure the goal of data protection is achieved.
10. Board's Approach to Corporate Social Responsibility (CSR)
India is one of the few countries which has legislated on CSR. Companies meeting
specified thresholds are required to constitute a CSR committee from within the board.
This committee then frames a CSR policy and recommends spending on CSR activities
based on such policy. Companies are required to spend at least 2% of the average net
profits of last three financial years. For companies who fail to meet the CSR spend, the
boards of such companies are required to disclose reasons for such failure in the board's
report. During the last year, companies which failed to comply received notices from the
ministry of corporate affairs asking for reasons why they did not incur CSR spend and in
some cases questioning the reasons disclosed for not spending. In these circumstances,
increased effort and seriousness by the board towards CSR is necessary. CSR projects
should be managed by board with as much interest and vigor as any other business
project of the company.
6.4. Professionalization of Corporate Governance
Leadership An effective board should head every company and be responsible for the
long-term success of the company.
There should be a clear division of responsibilities at the head of the
company between the running of the board and the executive responsibility
for the running of the company’s business. No one individual should have
powers of decision.
The chairperson is responsible for leading the board and ensuring its
effectiveness.
As part of their role as members of the board, non-executive directors
should challenge and help develop strategy proposals.
Effectiveness The board and its committees should have the appropriate balance of
skills, experience, independence, and knowledge of the company to help
them with their duties and responsibilities.
85
There should be a formal, rigorous, and transparent procedure for the

appointment of new directors to the board.
All directors should be able to allocate sufficient time to the company to
meet their responsibilities.
All directors should receive instruction on joining the board and should
regularly update and refresh their skills and knowledge.
The chairperson should supply the board with timely information in a form
and of a quality that enables it to discharge its duties.
The board should undertake a formal and rigorous annual evaluation of its
own performance and that of its committees and individual directors.
All directors should be submitted for re-election at regular intervals and be

subject to continued satisfactory performance.
Accountability The board should present a fair, balanced, and understandable assessment
of the company’s position and prospects.
The board is responsible for determining the nature and extent of the
principal risks it is willing to take in achieving its strategic objectives. The
board should maintain sound risk management and internal control
systems.
The board should establish formal and transparent arrangements for
considering how they should apply the corporate reporting, risk
management, and internal control principles and for maintaining an
appropriate relationship with the company’s auditors.

Remuneration Executive directors’ remuneration should be designed to promote the
longterm success of the company. Performance-related elements should be
transparent, stretching, and rigorously applied.
There should be a formal and transparent procedure for developing policy
on executive remuneration and for fixing the remuneration packages of
individual directors. No director should be involved in deciding his or her
own remuneration.
Shareholder There should be a dialogue with shareholders based on the mutual
Relations understanding of objectives. The board as a whole has responsibility for
ensuring that a satisfactory dialogue with shareholders takes place.
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The board should use general meetings to communicate with investors and
encourage their participation.
6.3. ‘Good’ Corporate Governance
What Are the Characteristics of Good Corporate Governance?
Having good ethics seems like shorthand for what most people consider the appropriate
characteristics of good corporate governance. Company leaders should promote these
principles through their business management and their commitment. This responsibility
is less about making perfect or correct decisions and more about using the best possible
process for making decisions. Here are the outcomes of good corporate governance that
shareholders want to see:
• Ensuring that there is a managerial commitment to applying the principles of
openness, accountability, responsibility, independence, fairness, and prudence
• Dedication to improving your company’s performance, efficiency, and service to
stakeholders
• Finding ways to attract investors’ interest and trust
• Fulfilling shareholders’ interest in improved values and dividends
• Protecting the company from political intervention and lawsuits
In reality, to achieve these outcomes, you want a board to exhibit the same
characteristics as you would expect from anyone with whom you do business.
These characteristics include the following:
• Accountability
• Transparency
• Lawfulness
• Responsiveness
• Equitability and inclusiveness
• Effectiveness and efficiency
• Participation
• Discipline
• Fairness
• Social responsibility
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There are several systemic problems in corporate governance that can detract from the
valuable work and best intentions of good corporate governance policies. These
include the following:
• Not enough active and objective board involvement
• Not enough accountability to shareholders
• Demand for information from shareholders before the board is ready
• Monitoring costs that can be high when answering shareholder’s queries
• The supply of imperfect accounting information
In fact, it is difficult to discuss good corporate governance without discussing the
discipline’s problems, issues, and hot topics. For example, in October 2012, sweeping
changes went into effect for the U.K.’s Corporate Governance Code via their Financial
Reporting Council. In that same year, Japan had their Olympus scandal, and the U.S.
had their JPMorgan Chase scandal (resulting in a loss of $6 billion). In 2015, there were
several dominant corporate scandals: Volkswagen had an emissions scandal, FIFA was
in the news for taking bribes, Toshiba had creative accounting, Valeant had an extra
company listed that inflated their sales numbers, and Turing’s CEO defrauded his
investors (in addition to price gouging on life-saving medicines). These are just a few of
the big accounting scandals that corporate governance laws can take lessons from in
order to do better and assure investors. Here are some other hot topics that are in
constant rotation in the world of corporate governance:
• Executive pay
• The separation of CEO and chairman of the board roles
• Power asymmetry
• Information asymmetry
• The interests of shareholders as residual owners
• The role of owner management
• The theory of separation of powers
• The division of corporate pie among stakeholders
• A long-term fiduciary focus
• Shareholder influence and engagement
• Strategy, risk, and performance
• Director elections
• Board compensation and diversity
• Board leadership structure
88
• Succession planning
• Corporate responsibility
• Compliance program effectiveness
• Corporate political contributions
• Activist investors
• Litigation and protectionism
• Clear messaging from boards
• Reputation risk for companies
• Digital disruption
• Human resource needs
• Communication with shareholders
• Reporting standards
• The creation of value for shareholders
• Proxy advisors
• The limits of oversight
• The rebuilding of trust
• The framing of a corporate governance structure
• What to invest in corporate governance development
89
6.4. Corporate Governance Practices in India
Corporate Governance Framework in India
The Indian framework on Corporate Governance has been vastly in sync with the international
standards. Broadly, it can be described in the following:
1. The Companies Acts 2013 has provisions concerning Independent Directors, Board
Constitution, General meetings, Board meetings, Board processes, Related Party
Transactions, Audit Committees, etc.
2. SEBI (Securities and Exchange Board of India) Guidelines ensure the protection of
investors and have mandated the companies to adhere to the best practices mentioned in
the guidelines.
3. Accounting Standards issued by the ICAI (Institute of Chartered Accountants of

India) wherein the ICAI is an autonomous body and issues accounting standards. The
90
disclosure of financial statements is also made mandatory by the ICAI backed by the
Companies Act 2013, Sec. 129.
4. Standard Listing Agreement of Stock Exchanges applies to the companies whose

shares are listed on various stock exchanges.
5. Secretarial Standards Issued by the ICSI (Institute of Company Secretaries of India)

issues standards on ‘Meetings of the board of Directors’, General Meetings’, etc.. The
companies Act 2013 empowers this autonomous body to provide standards which each
and every company is required to adhere to so that they are not punished under the
Companies Act itself.
In the last decade, corporate fraud and governance failure is occurring frequently which is why
we require good corporate governance in the country. India provides proper norms and laws
aligned with international requirements to govern a corporate. Some of the important reasons
are discussed below which raised the need for corporate governance in India.
1. A corporate has a lot of shareholders with different attitudes towards corporate affairs,
corporate governance protects the shareholder democracy by implementing it through its
code of conduct.
2. Large corporate investors are becoming a challenge to the management of the company
because they are influencing the decision of the company. Corporate governance set the
code to deal with such situations.
3. Corporate governance is necessary to build public confidence in the corporation which

was shaken due to numerous corporate fraud in recent years. It is important for reviving
the confidence of investors.
4. Society having greater expectations from corporate, they expect that corporates take care
of the environment, pollution, quality of goods and services, sustainable development
etc. code to conduct corporate is important to fulfil all these expectations. Takeovers of
the corporate entity created lots of problems in the past. It affects the right of various
stakeholders in the company. This factor also pushes the need of corporate governance
in the country.
91
5. Globalization made the communication and transport between countries easy and
frequent, so many Indian companies are listed with international stock exchange which
also triggers the need for corporate governance in India.
6. The huge flow of international capital in Indian companies are also affecting the
management of Indian Corporates which require a code of corporate conduct.
End of Syllabus:
Note & Disclaimer:
The content is extracted from various free internet sources. The study content is prepared
for the reference of MBA I year students of KCES’s Institute of Management & Research,
and for private circulation only.
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201- Business Ethics & CSR Compiled by- Ms.

For Private Circulation Only

Khandesh College Education Society’s

MBA Sem - I 201 Business Ethics & CSR

! Now Success is in yours Hands…..

Ms. Mamata Dahad

Institute disowns any responsibility for copy right infringement.

Notes not for sale. Only for private use.

North Maharashtra University, Jalgaon

60 + 40 Pattern: External Marks 60 +Internal Marks 40 = Maximum Total Marks: 100

2.3. Culture, Cultural differences, Hofstede Dimensions of Cultural Differences, cultural

5. Corporate Governance: Principal Policies & Practices by Fernando, Pearson

Unit – I Social Issues (6)

The objective component is this: For any condition or behavior to be considered a

accumulates—from work by academic researchers, government agencies, and other

Definition of Social Problem

• According to Fuller and Myers, a social problem is “a condition which is defined

• According to Carr, “a social problem exists whenever we become conscious of a

Nature of social problems

• Disintegrative: social problems, directly or indirectly disintegrate the social

• Inter-connected: social problems are inter-connected due to which these become

• Relative concept: Social problem is a relative concept. What we call a social

• Functional value: Social problem, though disintegrative, has functional value

Significance of social problem:

1. Study of social problems is a part of the science of sociology:

• Sociology is a social science which claims to study the entire social

• Social problems constitute an inseparable part of society or social life.

• It is therefore mandatory for sociology to make a scientific study of social

2. Study of social problems as the historical responsibility of sociology:

• In fact, the serious social problem such as poverty, unemployment, exploitation

• These thinkers later on strongly advocated the need to establish a separate

3. Social pathology as a specialized branch to study social problems:

• Sociology in its attempts to study social problems systematically, scientifically,

• According to Durkheim, the task of social pathology is to study the abnormal or

4. Study of problems is absolutely necessary for finding solutions:

• A pathological society is like an individual with ill health.

• Thus, study of social problems assumes importance in sociology. sociologists

• It is a sociological fact of general observation that whenever cultural values are

• This is true in the case of Indian society also.

7. Social problems demand quick relief, if progress and development are to be

• Desire for progress is found in all societies. If this desire is to be materialized,

• Progress and development of India become meaningful only when poverty,

• Sociological studies have been of great help to those planners and

Characteristics of social problems

• Social problems arise by being collectively defined as objectionable by many

• Mass media like newspapers, television, radio, magazines, movies, play an

• Social problems have to be viewed in the context of society’s values and

• Social problems need to be analyzed in terms of the influences upon them by

Causes of social problems

1. Social change leads to social problems:

• For examples, attempts by the government to introduce educational change

2. Cultural lag causing social problems:

• Floods, famines, cyclones, earthquakes, volcanic eruptions, tsunami, outburst

4. Political and social dangers:

• Like political revolution, revolts, communal riots, racial conflicts, terrorism,

Serious ups-and-downs in populations, population explosion, great imbalance in the

• Man’s mental tendencies, temperament, his own inherited qualities influence

• Mental qualities such as instincts, imitation, suggestibility, hatredness,