5 - Iimm - Business Ethics & CSR (PGDMM-PGDSCM&L)

BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY
About IIMM
“Indian Institute of Materials Management (IIMM)” with its headquarters at Navi Mumbai, is a
Professional Body of Materials Management classified under Engineering & Technology Group under
Apprenticeship Act 1961 and is recognised by ISTE, MHRD.
Through its wide network of 52 branches and 19 chapters having around 9500 members drawn
from public and private sectors, IIMM is dedicated to the promotion of the profession of Materials
Management through its multifarious activities including Educational Programs approved by AICTE
(Post Graduate Diploma in Materials Management and Post Graduate Diploma in Supply Chain
Management & Logistics), Seminars, National Conferences, Regional Conferences, Workshops,
In-house training programs, Consultancy & Research Programs.
To have an effective global interaction, Institute is a charter member of International Federation of

Purchasing and Supply Management (IFPSM), Atlanta (USA) which has its roots in over 44 member
countries.
In furtherance of its objectives, IIMM, brings out a monthly journal, “Materials Management Review”
comprising of latest Articles and Research Papers in the field of Materials, Logistics, Purchase,
Inventory, Supply Chain Management and latest Technological Innovations like Artificial Intelligence,
Block Chain, Cloud Computing and Internet of Things.
The Institute has its Centre for Research in Materials Management (CRIMM) at Kolkata, which
is engaged in promotion of research activities in collaboration with industries for furthering the
advancement of the profession of Materials and Supply Chain Management.
The Institute is dedicated for the Societal & Environmental considerations through Sustainable
Procurement, Green Purchasing and Life Cycle Consideration which are part of our course curriculum.
The aim & objective of the Institution is to update & upgrade the skills & knowledge of professionals
so as to ensure inclusive and sustainable development.
BUSINESS ETHICS AND

CORPORATE SOCIAL RESPONSIBILITY
Indian Institute of Materials Management

Plot No. 102 & 104, Sector -15,
Institutional Area, CBD Belapur, Navi Mumbai – 400614
Ph. 0222 757 1022/0222 756 5592,
E-mail: iimmedu@iimm.co.in, Website: iimm.org
Business Ethics and Corporate
Social Responsibility
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© Copyright 2019 Publisher
ISBN: 978-93-88934-14-5
This book may not be duplicated in any way without the express written consent of the
publisher, except in the form of brief excerpts or quotations for the purposes of review.
The information contained herein is for the personal use of the reader and may not be
incorporated in any commercial programs, other books, databases, or any kind of software
without written consent of the publisher. Making copies of this book or any portion,
for any purpose other than your own is a violation of copyright laws. The author and
publisher have used their best efforts in preparing this book and believe that the content is
reliable and correct to the best of their knowledge. The publisher makes no representation
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or warranties with respect to the accuracy or completeness of the contents of this book.
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Table of Contents
Chapter 1:
Chapter 2:
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Introduction to Business Ethics.......................................................................1
Ethos, Values, Norms, Beliefs and Standards.............................................19

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Chapter 3: Historical Background of Management in India........................................33
Chapter 4: Importance of Values in Management.........................................................45

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Chapter 5: Managing Ethical Dilemma...........................................................................63
Chapter 6: Ancient Indian Concept of Karma and its Applications

in Management................................................................................................77
Chapter 7: Corporate Governance...................................................................................91
Chapter 8: Sustainable Development and Corporate Social Responsibility............109
Chapter 9: CSR Strategy – Development and Implementation.................................127
Chapter 10: Measuring, Monitoring and Reporting CSR Activities...........................141
Chapter 11: Government, United Nations and Voluntary Codes in CSR..................161
Chapter 12: Public Procurement, Ethics and Legal Framework for CSR
in India............................................................................................................177
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Introduction to Business Ethics
Table of Contents
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1.1 Introduction
1.2 Concept of Ethics
1.2.1 Theories of Ethics
Self Assessment Questions
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1.3 Business Ethics

1.3.1 Importance of Ethics in Business
1.3.2 Ethical Principles and Practices in Business
1.3.3 Myths and Ambiguities related to Business Ethics
1.4 Management and Ethics
1.4.1 Ethical Decision-Making and Resolving Business Problems
1.4.2 Ethical Reasoning, Moral Worth and Moral Obligation
1.4.3 Moral Rights and Duties
1.4.4 Ethical Leadership
1.5 Code of Ethics for Managers
1.6 Developing an Ethical Organisational Culture
1.7 The 4-V Model of Ethical Leadership
Table of Contents
1.8 Summary
1.9 Key Words
1.10 Case Study
1.11 Exercise
1.12 Answers for Self Assessment Questions
1.13 Suggested Books and e-References
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Learning Objectives Notes
After studying this chapter, you will be able to:

Describe the concept of ethics
Explain the importance of ethics in business
Examine the relationship between management and ethics
Explain the meaning of ethical leadership
Describe the code of ethics for managers
1.1 Introduction
Ethics refers to a set of moral beliefs and principles that govern the behaviour and
activities of a group or an individual in a society. The word ‘ethics’ is taken from
the Greek word ethos which means character, manner, culture and mindset. In the
words of Peter F. Drucker, ethics deals with right actions of individuals.
Business ethics relates to the code of conduct regarding what is right and what
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is wrong. It is also associated with principles and standards of moral duty and
obligation. Business ethics relates to a set of principles or norms that govern the
conduct of business at an individual level or at the organisational level. Business
ethics guides managers in taking day-to-day business decisions. These decisions are
taken by considering ethical issues specific to business activities and situations. All
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the members of an organisation are given a set of standards, also called the code of
conduct, which they must observe in their daily work activities. This code of conduct
is influenced by the prevailing economic and social situations and is periodically
reviewed to suit the changing circumstances and technologies.
Business ethics can be defined in many different ways. A couple of its definitions are
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given as follows:
In the words of Rogene A. Buchholz, business ethics refers to right or wrong behaviour
in business decisions.
According to Andrew Crane, business ethics is the study of business situations,
activities and decisions, where issues of right and wrong are addressed.
Business ethics are often influenced by the decisions of the society connected with
business organisations or other groups who relate with the business activities.
In this chapter, you will study the concept of ethics and its applications in business.
The chapter also sheds light on the relationship between management and ethics.
Further, it describes the meaning of ethical leadership and the code of ethics for
managers.
1.2 CONCEPT OF ETHICS

Ethics is a branch of philosophy that advocates what is right and wrong. In practical
sense, ethics resolves issues of human morality by differentiating between right and 3
wrong or between virtuous and immoral.
Business Ethics and Corporate Social Responsibility
Notes The main features of ethics can be summarised as follows:

It is concerned with human behaviour.
It monitors and assesses whether a certain decision taken by a person is morally
correct or not.
It establishes moral standards, norms and code of conduct for various situations.
It can be used to judge the behaviour of humans or organisations.
It lays out the standard code for moral behaviour.
1.2.1 Theories of Ethics

The systematic analysis of moral standards with the purpose of justifying the way
in which they are understood, interpreted and applied on moral issues is known as
ethics. Ethics is a set of moral standards that aligns behaviours within an organisation
and the social framework. Ethical theories guide the process of decision-making
because these theories represent the views and opinions from individuals seeking
guidance while they make decisions. These theories are classified into three general
subject areas:
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1. Meta-ethics: This is the branch of ethics that seeks to understand the nature of
ethical behaviour, characteristics, statements and judgements. It is concerned with
the nature of ethics and the theoretical meaning of ethical principles and morality
regarding what is good or bad and right or wrong. It is generally concerned with
ethics being relative or the conducts of human behaviour.
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2. Normative ethics: This deals with norms, values or standards on how one should
act. It is mainly concerned with the content on the theory of moral judgements in
terms of defining and determining the moral course of action on the basis of what is
right or wrong and good or bad. The normative theories generally seek to provide
guidelines for determining a specific course of moral action. The main assumption
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in normative ethics is that every moral conduct has a certain fixed criterion, which
could be a single rule or a set of principles. These ethics can be broadly divided
into three theories as follows:
i. Virtue theories: These theories stress the need of having a good mentality and
habits and do not lay much stress on the concept of learning.
ii. Duty theories: Duty theories, also known as deontological theories, are based
on specific objectives of morality, and on specific, functional principles of obli-
gation. The word ‘deon’, is a Greek word and it means ‘duty’, which refers to
an obligation or the essence of duty.
iii. Consequentialist theories: According to these theories, we first distinguish
between the good and bad consequences of an action. Secondly, we determine
whether the total good consequences outweigh the total bad consequences. If
the good consequences are greater, then the action is morally proper. It is nat-
ural for us to understand our moral values by taking into account the result of
our behaviour and actions.
3. Applied ethics: This art of ethics attempts to deal with the specific domain of
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human action and to define standards and norms for discussing issues that might
arise within those areas. It deals with the philosophical investigation, from a moral
viewpoint, of particular issues in private and public life, which are matters of Notes
moral judgement.
Therefore, ethics lays out well-defined standards that impose responsibility to
ensure that human beings refrain from any misconduct, which could be harmful to
the self as well as to the society.
Absolutism vs. Relativism

Absolutism lays out fixed norms and standards for all the people. It is the process of
taking normative ethical decisions based on objective rules. The main characteristics
of absolutism are:
It maintains that some things are always right and some things are always wrong.
The process of absolutism allows moral rules to be evaluated critically so that in
all fairness, the people are treated in the same manner since the rules are the same
for everyone.
Absolute rules are universal in all cultures and situations. It means that if the rules
are honest and principled, then there is no need to have different rules for different
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people. For example, according to this viewpoint, the acts of murder and stealing
are considered totally wrong, irrespective of their circumstances or results.
Relativism, on the other hand, has different viewpoints which are as follows:
It considers moral values as totally relative to different societies and situations.
Therefore, the correctness of the action can depend on factors like religion or
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culture in which it takes place.
Relativist moral theories normally consider the consequences of moral actions
when deciding if they are right or wrong. The theory states that there are no
absolute truths; the truth is relative to the subject and can vary from one person to
another and from one society to another.
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Relativist moral theories depend on the notion that everyone should be tolerant
of the beliefs of others and their views. These theories imply that every situation
is different and, therefore, there is a need to have different moral rules for people
according to their culture.
It allows for diverse views that are present in the world today and does not see
things as only black and white. The relativist approach allows for acceptance
between different people with the belief that moral views are the result of ways
of life and opinions which vary from culture to culture or from person to person,
depending on the circumstances.
Absolutism and relativism are opposite approaches to ethics and morality. Absolutists
are very definite about their views and they believe that some things are absolutely
right or absolutely wrong, no matter what the circumstances are. Relativists, on the
other hand, believe that under certain situations and circumstances, only certain
things might be morally acceptable.
Teleological Theory
The teleological theory is based on the contention that right or wrong actions are 5
based on circumstances and the goodness or badness of their consequences. The term
Notes ‘teleology’ is taken from the Greek word ‘telos’, which means ‘goal’ or ‘end’. Hence,
teleology is the study of purpose or goals and is also termed as consequentialist ethics.
According to the teleological interpretation, the actions, when taken away from their
consequences, become morally neutral. The three types of teleological theories are
shown in Figure 1:
Teleological
Theories
Ethical Egoism Utilitarianism Eudaemonism
Figure 1: Teleological Theories
The three types of teleological theories are explained as follows:

Ethical egoism: According to ethical egoism, an action is good as long as it results
in maximisation of the person’s self-interest as defined by him, even if it is at the

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expense of others. The ethical egoism talks of morally promoting one’s own good.
At times, keeping aside self-interest could also be morally right.
Utilitarianism: According to the Utilitarianism theory, an action is good if it results
in maximum satisfaction of the large number of people who are linked with it and
would get affected by the action.
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Eudaemonism: According to eudaemonism, an action is good if it results in
fulfilling the goals and takes care of the welfare of human beings. If the actions
tend to take care of the needs of the people and give them happiness, then it is
considered as being useful and productive.
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Deontological Theory
Deontological ethics is mainly dependent on the action being right or wrong and
it does not focus on the outcome of the action. According to the deontological
theories, people adhere to their obligations and duties when engaged in decision-
making involving ethics. This means that a person will follow his sense of duty or
commitment to an individual or society since he believes that committing his duty
is ethically right.
The three kinds of deontological theories are shown in Figure 2:
Deontological
Theories
Negative and Positive Social Contract Social Justice

Rights Theories Theories Theories
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Figure 2: Deontological Theories
The three types of deontological theories are explained as follows: Notes
1. Negative and positive rights theories: In the negative rights theory, an action is
right if it protects the individual from harm or unjustifiable interference from other
people or the government while exercising his right. On the other hand, according
to the positive rights theory, an action is right if it provides an individual with
anything that he needs to exist.
2. Social contract theories: According to the social contract theories, people make a
commitment with each other to follow the moral and political obligations towards
the society in which they live.
3. Social justice theories: The social justice theories believe that the action will be
considered right if it confirms the fairness in the distributive, retributive and
compensatory aspects of cost and rewards.
Kohlberg’s Model of Cognitive Moral Development (CMD)

Kohlberg’s theory of cognitive moral development states that individuals go through
three levels of moral thinking that build individuals’ cognitive development. The
three levels of moral thinking include pre-conventional, conventional and post-
conventional levels.
Level 1: Pre-conventional
zz
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These three levels include six stages of moral development as follows:
During the pre-conventional level, children believe that following the rules
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made by their parents and teachers is important and must be followed. Their
reasoning of morality is controlled externally.
zz During Stage 1 (obedience/punishment orientation), the children obey their
parents and teachers due to the fear of being punished.
zz During Stage 2 (self-interest), children follow the set of rules due to their own
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interests and their behaviour is dependent on what others can do for them.
Level 2: Conventional
Throughout the conventional level, children continue to adhere to the rules of
the authority and the fairness of those rules is not questioned by them. But the
emphasis is more on the concept of a relationship with others than on their own
interest. They follow the rules set by the parents and others to be accepted in
society.
zz During Stage 3 (good boy, nice girl orientation), children want to be accepted
in the society. They want to be good and win the acceptance and approval of
the other people within society.
zz During Stage 4 (law-and-order orientation), children accept rules and their
importance in maintaining a functional society.
Level 3: Post-conventional
In the post-conventional level, the sense of morality is based on abstract principles
and beliefs. People also start to disobey rules that are inconsistent with their own 7
principles.
Notes zz During Stage 5 (social-contract orientation), the people value the will of the
majority and the well-being of the society.
zz During Stage 6 (universal ethical principal orientation), a person’s reasoning
is based on his own ethical beliefs and principles. In this stage, moral reasoning
is dependent upon universal principles of looking at people or groups being
affected by one’s decisions.
S elf A ssessment Q uestions
1. Organisations that are guided by ethics and values are ________ in the long
run.
2. The organisation that has a work culture based on moral values is not respected
in society. (True/False)
1.3 BUSINESS ETHICS

Ethics is based on moral values and beliefs that govern the behaviour and action of
people. The same situation of governing the action of people also applies to business.
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Business ethics relates to a set of standards that are made to differentiate between
the right and wrong in terms of different business practices and policies. There are
many unethical practices and issues, like bribery, monopoly, trading, discrimination,
child labour, etc., which need to be handled effectively keeping in mind the ethical
standards. According to Raymond C. Baumhart, the ethics of business is the ethics of
responsibility. The businessman must promise that he will not harm knowingly.
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Every business should follow certain basic principles and set up a code of conduct.
These principles should set the tone for a business so that the consumers are able
to get quality goods within reasonable prices. Unfair practices in business are
controlled with these ethical standards which are beneficial for their employees in
terms of good working conditions, fair wages, absence of exploitation of workers,
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no malpractices, etc.
In the words of Kirk O. Hanson, a renowned ethics expert, business ethics is the study
of the standards of business behaviour, which promote human welfare and the good.
Apart from employees, business ethics relate to different social groups connected
with a business, like consumers, stakeholders, traders, investors, etc. Some of the
important features of business ethics are as follows:
Code of conduct: Business ethics constitute a code of conduct which must be
followed. It spells out what needs to be done and what does not need to be done.
Every business must adhere to this code of conduct.
Moral and social values: Business ethics is a set of moral and social principles
which need to be adhered to for carrying out any business. Every business should
follow these set standards and norms.
Protection to social groups: Business ethics helps protect different groups of
the society connected with a business, like traders, consumers, stakeholders and
8 employees from being exploited or cheated in the name of business.
Fair and ethical behaviour: Business ethics is the basic framework which lays out Notes
the foundation for conducting business in a fair and ethical manner. It lays out the
legal, economic, social, cultural and other limits on which a business must operate.
Voluntary nature: Business ethics cannot be enforced. These are voluntary
practices and should be followed by every business.
Education and guidance: Every person involved in a business must be aware of
the moral and ethical principles for carrying out its activities. There should be
a system of training to guide the businessmen and to educate them in terms of
business ethics.
Relative term: Business ethics is relative and may vary across different countries
and different types of businesses.
New concept: Developed countries are better at complying with business ethics
than undeveloped countries. Now, every country has started following the code
of business ethics.
1.3.1 IMPORTANCE OF ETHICS IN BUSINESS

It is important for every business to be fair and beneficial to the society. Therefore,
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business organisations need to adhere to ethics and the rule of law. It is necessary
for them to follow fair practices and compete fairly to benefit employees, consumers
and society.
Business ethics is important for organisations because of the following reasons:

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Fair and ethical work culture: Every human being must practise a fair, honest and
ethical behaviour and should receive similar kind of behaviour. Everyone wants to
work in an environment which is fair and ethical in its practices.
Organisational credibility: The organisation that includes a work culture based on
moral values is well respected in society. It speaks of proper social responsibility
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initiatives along with good corporate culture. This belief is accepted all over the
world irrespective of the organisation or business.
Binding people: An organisation driven by values is preferred by employees. The
values help bind employees and the management amicably.
Improves decision-making: The decisions taken by the employees and the
management are driven by ethics and values. Ethical business organisations are
well respected in the industry, even by their competitors.
Profitable in the long run: Organisations that follow moral values and ethics tend
to gain in the long run as they are well respected in the industry for their values,
ethics, norms and policies.
Safeguarding public interest: Normally, it is seen that ethics triumphs over the
law in safeguarding public interests. Sometimes, the court of law is unable to
safeguard the society and the environment. With the changing technology, there
are new regulations and newer threats and issues which need to be handled.
Therefore, it is seen that when the law fails, it is the process of ethics that tries to
create a sense of right and wrong in organisations. It is the ethics that safeguards
the interests of the people of the society and it is universally followed all over 9
the world.
Notes 1.3.2 Ethical Principles and Practices in Business

The moral and ethical principles are a set of standards that are followed across the
world and are universal in nature. They define the right and wrong behaviour that
should be followed by everyone. These principles guide decision-making and also
lay out the criteria by which the decisions would be judged by others. The trust
and credibility of any business depends upon how people look at it and judge it.
Business organisations following unethical practices may face failure in the long
run. To follow ethical principles and practices in business, organisations must:
Be honest and clear in all actions and communications

Maintain personal integrity
Fulfil commitments and keep promises
Follow universally accepted ethical principles
Be fair and just in all dealings
Show compassion and concern for others

Abide by the law
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Treat everyone with respect
Demonstrate honour and ethics

Pursue excellence
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Be responsible and accountable
Protect and build a good reputation and morale
1.3.3 Myths and Ambiguities Related to Business Ethics

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There are many myths that are connected to business ethics. Business ethics at the
workplace relates to an alignment between values and norms of the organisation
and how it uses them. These values and norms are used in the day-to-day activities
and operations by employees in accordance with the established organisational
policies. Some of the myths surrounding business ethics are as follows:
Business ethics has more to do with religion than management.

Ethics cannot be controlled or managed.
Employees who are hired are already ethical, so they do not need more teachings
on business ethics.
Business ethics is practised by academicians and philosophers.
Some people feel that business ethics is not needed and is only superfluous.
Being ethical means not breaking the law.
Unethical behaviour in business is only due to a few wrong people.
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To manage ethics in the workplace does not have much relevance. Notes
Being socially responsible and following business ethics is the same thing.
Every business needs a culture which is ethical and which reflects on the employees
working in the system. To have a successful business, it is necessary to follow the
code of ethics.

3. Ethics is a subject of social ______ that is related to moral principles and social
values.
a. art
b. literature
c. science
d. philosophy
4. Business ethics is the basic ________ which lays out the foundation for
conducting business properly.
1.4 Management and Ethics M

Management and ethics go hand in hand and are connected to activities and
relationships within an organisation. As explained before, ethics is a set of beliefs
and principles that affect the behaviour of employees; decides what is right or
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wrong, good or bad in a certain business situation; and lays out the standard code of
conduct for both managers and employees.
1.4.1 Ethical Decision-Making and Resolving Business

Problems
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Solving problems and taking decisions involve skills that are important for
conducting both business and social activities. Ethical decision-making is required
by the management and the leadership for problem-solving in an organisation.
The seven-step process for solving problems and making ethical decisions is
explained as follows:
1. Identify the problem: Decision-makers try to identify the nature of the problem.
2. Gather information: Decision-makers gather total information that pertains to the
problematic situation.
3. Find the right solution and action: Once the problem is identified, decision-
makers look for the right solution for the problem.
4. Analyse and compare the courses of action: Decision-makers analyse and compare
the different courses of action with their respective advantages and disadvantages.
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Notes 5. Select the best course of action: After analysing all the options, decision-makers
select the best possible course of action.
6. Make a plan: Decision-makers make a plan on how to do, when to do, where to do
and who would do.
7. Implement the plan: In this step, the final plan is put into action.
1.4.2 Ethical Reasoning, Moral Worth and Moral Obligation

Ethical reasoning comes in the form of rules that guide our behaviour during
different social situations. Ethical reasoning brings in logic and moral theories to
analyse certain specific situations. An action is considered morally worthy if it is
done for the right and moral reasons. Therefore, the moral worth of an action should
not be determined on the basis of producing good end results or preventing bad
ones.
An important aspect of moral philosophy is to establish the right moral reasons for
performing an action and to analyse if these actions are right. The other task is to
praise a person or blame him as a result of his actions. It is important to understand
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the relationship between the moral worth of action and the action being right or
wrong.
Philosopher W.D. Ross claimed that a wrong action can be morally worthy or good, and a
right one can be morally unworthy or bad. This means that there is a difference between
being morally right and solely complying with moral standards. The moral principle
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or theory that a person adheres to is solely based on his emotions and not on logic.
1.4.3 Moral Rights and Duties

Ethics lays the foundation of being right or wrong. It determines the duties, rights,
freedom and responsibility of people in the society. Right and wrong are the moral
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concepts of being good. The term ‘right’ comes from the Latin word ‘rectus’ which
means ‘straight’ or ‘according to rule’.
A right is a manner to justify an act through a legal or moral foundation. People in

society have different rights which are legal, fundamental, moral and spiritual in
nature. Ethical behaviour determines the need to respect these rights of every person
in the society. It is the duty of each person to respect the rights of other people also.
Duties are directly connected to the acceptance of rights and are considered as moral
obligations. Therefore, rights and duties are based upon the same moral standards or
law and relations. The rights of the people in society are for their own good and for
the good of society. Rights and duties are connected to each other. Every person has
rights which need to be used responsibly and other people have the moral obligation
of respecting those rights in the society. Examples of different rights are right to live,
right to freedom, right to education, etc.
1.4.4 Ethical Leadership

12 Effective leaders influence people within the organisation to behave in a certain
manner and be able to perform their tasks and complete them. They should be able
to develop changes in the values and empower people to be self-sufficient to meet Notes
the objectives of the organisation. Since these leaders are in a position of power, they
must focus on leveraging this power in their decision-making. They must be able to
influence others with their actions and leadership qualities.
According to business ethicist, Linda Treviño, ethical leadership is a combination of

being a moral person and being a moral manager. It is important for leaders to be able
to demonstrate effective leadership so that they bring in a level of integrity which
encourages a level of trust for people to follow their vision of ethical values, beliefs
and decisions.

5. It is the responsibility of managers to be socially and ethically responsible.
(True/False)
6. It is the duty of every person to _______ the rights of other people.
1.5 Code of Ethics for Managers
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Every manager in the industry must follow a code of conduct. It is important for the
managers to demonstrate a sense of integrity and lay stress on fairness and ethics.
The code of ethics is not only beneficial for workers, but they also benefit the public
image of the company. It is important for the manager of an organisation as a leader
to follow the norms:
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Honesty: Managers in every industry must be honest in their dealings while
accomplishing their goals. They need to know and follow the laws of the
government, and must be honest about different aspects, such as production and
profit, at all times.
Accountability: Good managers should be accountable for their actions and should
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expect their workers to take responsibility for their actions and performance.
Integrity: Managers must perform their jobs with a high level of integrity and
should be consistent in their decision-making and resolving issues.
Respect: Managers should be responsible for their behaviour and must demonstrate
acceptable behaviour in the workplace.
Empathy: Managers should show concern for the total well-being of all the people
working for them in the organisation.
Flexibility: Good managers should be patient and help those in need of assistance.
They should guide their workers on how the jobs need to be performed in the
best possible manner. They should monitor the work of employees and offer
suggestions for further improvement.
7. Managers in every industry must follow ethics and be _________ in their
dealings while accomplishing their goals.
8. Not all managers are responsible for their behaviour and must demonstrate 13
acceptable behaviour in the workplace. (True/False)
Notes 1.6 Developing an Ethical Organisational Culture

It is important to have an organisational culture that emphasises ethical behaviour
and develops standards of behaviour that can be included in the code of ethics.
The tone set by demonstrating ethical leadership by managers determines how
employees must respond to ethical challenges. When managers are perceived as
trustworthy, trust of the employees increases and the employees begin to identify
themselves with the values of the organisation. Following points are important for
developing an ethical organisational culture:
Become a role model: The culture and ethical behaviour in a company starts from
the top management. Employees of the company follow the culture and norms
that they see and that are acceptable in the workplace.
Communicate values and norms: Ethical ambiguities can be brought down
by creating and communicating the ethical values and norms of the organisation.
These should be communicated so that employees can follow and adhere to ethical
values.
Set up ethics training: It is necessary to set up ethical training programs, seminars

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and workshops to reinforce the organisation’s standards of conduct to clarify what
practices are important and what are not permissible.
Reward ethical behaviour: It is important for an organisation to reward ethical
behaviours and to punish unethical ones.
Provide protective mechanisms: Organisations should make processes and
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communicate the same to their employees, wherein they can discuss ethical issues
and can communicate any unethical behaviour they see without any fear of being
reprimanded.
Provide corrective feedback: It is important to provide corrective feedback for
unethical behaviour.
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9. The tone set by demonstrating the ethical leadership by managers determines
how employees respond to ethical _____________.
a. activity b. leadership
c. behaviour d. challenges
10. Organisations should provide mechanisms for employees to discuss ethical
issues and report unethical behaviour without the fear of being reprimanded.
(True/False)
1.7 The 4-V Model of Ethical Leadership

Dr. Bill Grace believed in the process of ethical leadership and business ethics. He
created the 4-V Model of Ethical Leadership. This model links the internal values
and beliefs with the external actions and behaviour for promoting the common
14 good. The main purpose of leadership is to guide people with a vision and help the
members of society to fulfil their needs and dreams. Figure 3 shows the 4-V Model Notes
of Ethical Leadership:
Values
Ser
l
wa
vic
ne
e
Re
Virtue
Voice Vision
Polis
Figure 3: The 4-V Model of Ethical Leadership

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The main points of the 4-V Model are as follows:
Values: For ethical leadership, it is important for the leader to understand the core
values and commitment within himself as an individual.
Vision: Leaders must have a vision and goals, and the ability to fulfil their goals in
a manner that must meet all the objectives of ethical behaviour.
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Voice: Ethical leaders must be able to articulate their vision to others in a genuine
way that motivates them into action.
Virtue: Ethical leaders strive to do what is right and good. They practise virtuous
behaviour by introspecting and asking questions such as “How are my values,
vision and voice are in alignment with the overall organisational goals?”.
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According to Dr. Grace, the three main elements important for the development of
ethical leadership are:
1. Service: The process of putting actions into service according to the set vision
indicates that our values are being tested with the service to others.
2. Polis: The word ‘polis’ is a Greek word, which means ‘politics’ in English. When
we speak out our vision in public places, it refers to being engaged in politics.
3. Renewal: Ethical leaders should voice their values in their workplace in different
ways to motivate people to act accordingly. It is important for them to relook at
their actions regularly to check whether they are in harmony with their vision and
values.
11 Ethical leadership begins with an understanding of and commitment to a
leader’s core _________.
12 Ethical leaders strive to do what is right and good. (True/False) 15
Notes A ctivit y
Make a group and visit an organisation. Observe the working culture and the
behaviour of the employees and the management. Note down the observations
and co-relate them with the following:
Role of ethics in an organisational culture
Leadership traits of managers
1.8 Summary
Business ethics relates to the code of conduct on what is right or wrong.
Ethical theories guide the process of decision-making.
The teleological theory is based on the contention of what is right or wrong action
based on circumstances.
Deontological ethics is mainly dependent on the action being right or wrong. It
does not focus on the outcome of the action.

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Business ethics refers to a set of standards that are made to differentiate between
the right and wrong in terms of different business practices and policies.
There are many myths that are connected to business ethics.
Business ethics at the workplace relates to an alignment between the values and
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norms of an organisation.
Management and ethics go hand in hand and are connected to activities and
relationships within an organisation.
Ethical leadership is guided by ethical values and beliefs.
All the managers in an organisation must follow a code of conduct. It is important
II

for them to demonstrate a sense of integrity and lay stress on fairness and ethics.
The 4-V Model of Ethical Leadership is a framework that links internal values and
beliefs with the external actions and behaviour for promoting the common good.
1.9 Key Words

Ethics: The moral principles that govern the behaviour of an individual during an
activity.
Code of conduct: A set of rules defining social norms, responsibilities, religious
rules and activities for an individual.
Morality: The principles concerning the difference between right and wrong or
good and bad behaviour.
Ethical issues: A problem or situation that requires a person or organisation to
choose between alternatives that must be analysed and evaluated as being ethical
or unethical.
16 Ethical leadership: The leadership that involves respect for ethical beliefs and
values, and rights of others in addition to being fair.
1.10 CASE STUDY: IMPLEMENTATION OF THE TATA CODE OF CONDUCT Notes
AT TATA STEEL
Tata Iron and Steel Company Ltd. (TISCO), also commonly known as Tata Steel,
is a century-old company. Mr. Jamshedji Tata was a visionary and established the
company in 1907. Located in India, it is Asia’s largest integrated private sector steel
company. From the start, the company has always focussed on customer satisfaction,
operational excellence, employee welfare, organisational leadership, social
responsibilities and citizenship. Being consistent with its values and principles, the
company is one of the most respected companies in the country. It is known for its
ethical and dynamic practices and competitive achievements. The use of the name
‘Tata’ has always been associated with trust. The mission statement of the Tata group
is improving the quality of life in the communities it serves.
According to Tata, our heritage of returning to society what we earn evokes trust among
consumers, employees, shareholders and the community. This heritage will be continuously
enriched by formalising high standards of behaviour expected from employees and companies.
The code of conduct associated with the values and principles that govern the
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company (and Tata group) were formulated in 1998. This code of conduct was
made to guide each employee on the values, ethics, and business principles that
are expected from them. The implementation of these principles of the Tata code of
conduct was important for every autonomous group of companies to be associated
with ‘Tata’ as a brand. The main purpose of the company was to make a successful
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implementation of this code of conduct for Tata Steel. For implementing the
code of conduct, the company created a new position of ‘ethics counsellor’ at the
top management level. The ethics counsellor was asked to report on the day-to-
day functioning of the Managing Director of the company. However, he directly
reported to the group headquarters. There were ethics coordinators who reported
directly to the ethics counsellor regarding ethics. Every year, a number of awareness
II
programs and seminars were organised by the ethics coordinators in consultation

with the ethics counsellor to ensure better involvement of employees in the ethical
awareness program. These programs were also organised for other stakeholders like
suppliers and dealers of the company. After having succeeded in creating awareness
about ethical practices among their employees, almost 15 awareness programs were
organised for the families of the executives. This made the family members feel
proud and happy that one of them was part of a ‘value-based’ organisation.
Source: www.vikalpa.com
Questions
1. What actions were taken to implement the code of conduct?
(Hint: Hiring of ethical counsellors and coordinators)
2. What were the activities undertaken by Tata Steel to involve its employees in the
ethical awareness programs?
(Hint: Organised workshops, seminars and awareness programs) 17
Notes 1.11 Exercise

1. What is business ethics? Explain the principles of business ethics.
2. Explain the relationship between management and ethics.
3. Explain this statement: Ethical leadership is guided by ethical values and beliefs.
4. Discuss the 4-V Model of Ethical Leadership.

Topic Q. No Answer
Concept of Ethics 1. profitable
2. False
Business Ethics 3. c. science
4. framework
Management and Ethics 5. True
6. respect
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Code of Ethics for Managers
Developing an Ethical Organisational Culture
The 4-V Model of Ethical Leadership

7.
8.
9.
10.
11.
honest
False
d.
False
challenges
values
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12. True
1.13 Suggested Books and E-References
Suggested Books
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Ferrell, O. C., Fraedrich, J. & Linda Ferrell, L., 2012. Business Ethics: Ethical Decision-
Making and Cases. 9th ed., Cengage Learning
Mathur, U.C., Corporate Governance and Business Ethics: Text and Cases. New Delhi:
Macmillan Publishers India Ltd., 2005.
E-References
Managementhelp.org. (2019). Business Ethics and Social Responsibility. [online]
Available at: https://managementhelp.org/businessethics/index.htm [Accessed 24
Feb. 2019].
18
r
te
2
ap
h
C
Ethos, Values, Norms, Beliefs and
Standards
Table of Contents
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2.1 Introduction
2.2 Concept of Ethos
2.2.1 Ethos vs. Ethics
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2.3 Management Lessons Based on Indian Traditions and Culture

2.4 Values, Norms, Beliefs and Standards
2.5 Summary
2.6 Key Words
2.7 Case Study
2.8 Exercise
Notes Learning Objectives

Explain the concept of ethos
Differentiate between ‘ethos’ and ‘ethics’
List and explain the management lessons derived from Indian traditions and
culture
Describe the meaning of values, norms, beliefs and standards
2.1 INTRODUCTION
In the previous chapter, you studied about business ethics, their importance, and the
relationship between management and ethics. The chapter also discussed the need
of developing and maintaining an ethical culture in an organisational set-up.
Ethics is a branch of philosophy. The study of ethics is related to the relative concepts
of right and wrong. Ethics of individuals or entities helps them in deciding between
good and bad. The beliefs, ideas and attitudes that are held dear and practised by a
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group of people or community are known as ethos.
India is considered as a pious land with an extended history. During the course of
thousands of years, various texts and scriptures have been developed by the then
economists, sages, rulers and wise people. Scriptures and epics, such as Upanishads,
Vedas, Mahabharata, Ramayana, etc., carry a large amount of knowledge which (has
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been in past and) can be analysed to extract or derive important lessons that can
find application in management. Values, beliefs, norms and standards are certain
other concepts which need to be studied alone and linked to the concept of ethos
and ethics.
In this chapter, you will study five different concepts, namely ethos, values, norms,
beliefs and standards. You will also learn about the difference between the terms,
II
‘ethos’ and ‘ethics’. Most importantly, you will learn about the management lessons
that have been learnt from Indian traditional scriptures and culture.
2.2 CONCEPT OF ETHOS

Ethos is a Greek word which means ‘character’. This word is used in reference to
the guiding beliefs and ideals that are associated with individuals, communities,
countries or ideologies.
Aristotle, in his pioneering work on the means of persuasion described that a writer
may persuade his audience by using three types of rhetorical appeals, namely ethos,
pathos (emotion) and logos (logic). Ethos is one of these three Aristotelian appeals.
Ethos refers to those appeals that influence the ethical reasons due to which the
audience may believe the arguments put forward by the author. Ethos is considered
to be involved when a writer or a speaker constructs his arguments based on the
ethics or his credibility.
For example, ethos is said to be involved if an ex-serviceman of the Indian Army

20 puts forward the need for upgrading the training standards used for training new
soldiers or advises that the government should provide the Army with advanced
weapons because the rival countries have already acquired them.
Ethos, Values, Norms, Beliefs and Standards
Indian Ethos Notes

Indian Ethos of Management (IEM) comprises a set of values and practices that
the Indian culture can contribute to service, leadership and management. These
values and practices are originated from Sanatana Dharma and are influenced by
different elements of Indian philosophy. As per IEM, a peaceful personality helps
in drawing out solutions from inside. In the organisational context, such direction
inside managers helps them look at the perceived problem in an imaginative way. It
prompts a more rational and complete understanding. The remarkable thoughts and
considerations of IEM uncovered in India’s old sacred writings are:
Atmano Mokshartham Jagat Hitaya Cha: All work is an open door for doing well
to the world and, thus, gaining materially and spiritually in our lives.
Archet Dana Manabhyam: Worship individuals with material things as well as by
demonstrating admiration to their enterprising divinity within.
Tesham Sukhm Tesham Shanti Shaswati: Infinite happiness and infinite peace
come to them who see the Divine in all beings.
Paraspar Devo Bhava: Regard the other individual as a perfect being. Every one
of us has a similar awareness; however, our packages and containers are unique.

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Atmana Vindyate Viryam: Strength and motivation for excelling in work originates
from the Divine, God inside, through prayer, spiritual reading and unselfish work.
Yogah Karmashu Kaushalam, Samatvam Yoga Uchyate: He who works with
quiet and even mind accomplishes the most.
Yadishi Bhavana Yasya Siddhi Bhavati Tadrishi: As we think, so we succeed, so
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we progress towards becoming. Attention to means guarantee the end.
Parasparam Bhavatantah Shreyah Param Bhavapsyathah: By mutual cooperation,
regard and fellow felling, every one of us appreciates the highest good both
material and spiritual.
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2.2.1 ETHOS VS. ETHICS

The word ‘ethics’ is derived from the Greek word ‘ethos’. In contemporary times,
ethics has two different connotations. First, ethics has been developed as a separate
field of study and, second, ethics is used to refer to a behavioural pattern.
Ethics has been developed as a full-fledged subject and a branch of philosophy.

Ethics is concerned with the human character and morals. Ethics defines the moral
principles which suggest what is right and what is wrong. Ethics refers to behavioural
patterns and defines which behaviour is ethical and which behaviour is not.
The major points of difference between ethos and ethics are listed in Table 1 as
follows:
Table 1: Difference between Ethos and Ethics
S. No. Ethos Ethics

1. Ethos is a set of beliefs and ideals Ethics refers to a set of standards that
that are associated with individuals, have been developed as a result of human
communities, countries or ideologies reasoning and experience.
and are developed over a long-period of 21
time.
Notes S. No. Ethos Ethics

2. Ethos is generally derived from culture. Ethics is usually derived from experience
and historical scriptures such as Shastras.
3. Ethos is specific to a culture or region. Ethics is a universal application.
4. Ethos is a noun and it refers to character Ethics is a noun and refers to a set of
or fundamental values of individuals, principles that define which behaviours
cultures or country. are right and which ones are wrong.
Ethics is also used as an adjective which
relates to morals.
The relation between ethics and ethos has two implications as follows:
1. Ethics presupposes an ethos: Ethics reflects upon or is derived from the attitudes,
beliefs and values from which the moral or ethical outlook of individuals or
communities or nations has been shaped.
2. Ethics transcends ethos: While reflecting upon the already developed attitudes,
beliefs and values, the individuals, communities or nations may clarify, justify or
criticise one or more aspects of ethos that have been inherited by them.
M S elf A ssessment Q uestions

1. Ethics, when used as an adjective, relates to _____________ .
2. List the three Aristotelian appeals.
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2.3 MANAGEMENT LESSONS BASED ON INDIAN TRADITIONS AND
CULTURE
Our country India is a land of diversity having an elaborate history. People of India
have been living together peacefully despite the fact that they follow various religions,
belong to varied cultures, speak different languages and dialects, hold different
II
beliefs and come from different social and economic backgrounds. India holds a
treasure in the form of old scriptures which include wide philosophical traditions
of Ancient India. These scriptures have been analysed by various management
experts and they believe that these scriptures can serve as a guide to effective ethical
management and business practices.
In modern times, there exists a cut-throat competition among businesses and all the
businesses seem to be driven by profit motive only. In such an environment, the
scriptures and other ancient texts of Indian subcontinent serve as an excellent source
to guide individuals, professionals and businesses on ethics and management.
Klaus K. Klostermaier is a prominent researcher, famous for his research related

to Hinduism. According to Klostermaier, India has been famous for its wisdom
and thoughts since time immemorial. He also stated that the ancient Persians, Greeks
and Romans were eager to learn from its sages and philosophers. When, in the eighteenth
century, the first translations of some Upanishads and the Bhagavad Gita became available
to the West, European philosophers rhapsodised about the profundity and beauty of these
writings. Here they encountered a fusion of philosophy and religion, deep wisdom and a
22 concern with the ultimate that had no parallel in either contemporary Western philosophy or
Western religion. Indian philosophy is highly sophisticated and very technical and surpasses Notes
both in volume and subtlety.
Another researcher and Anglo-Welsh philologist, Sir William Jones, stated that while
reviewing Hindu literature, people would usually come across the notion of infinity.
There are numerous ancient Indian texts and scriptures which carry a wealth of
knowledge. However, some of the most famous scriptures include Vedas, Upanishads
and Puranas, and epics such as Ramayana, Mahabharata and Bhagavad Gita.
Hindu literature is divided into two categories, namely Sruti and Smriti. Sruti refers
to the heard literature, whereas Smriti refers to the remembered or traditional
literature.
The Mahabharata is classified as Smriti. Many scholars consider Bhagavad Gita as

Smriti literature, whereas others regard it as Sruti.
Teachings from various scriptures can be applied in modern day businesses. Let
us now discuss the teachings of two major scriptures namely, The Mahabharata
and the Bhagavad Gita and how these teachings can be applied in businesses in the
upcoming text.
Business Lessons Learnt from the Mahabharata

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Mahabharata is a major epic of ancient India. Mahabharata is made of two Sanskrit
words– Maha meaning ‘great’ and bharata meaning ‘India’. It is the longest epic of
the world. It consists of over 100,000 stanzas. The Mahabharata describes the story
of power struggle between two sets of cousins, the Pandavas and the Kauravas. It
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offers great lessons of life that can be implemented in the real world also.
This epic describes numerous characters and situations. If analysed properly, the
text can help in understanding human actions and psychology. The lessons that the
business professionals and businesses can learn from the Mahabharata are shown in
Figure 1 as follows:
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Building Strategies
Encouraging Women
Forming Alliances
Giving Preference to Team Goals Rather than Individual Motives
Maintaining Team Spirit
Showing Commitment
Showing Leadership Quality and Delegationof Responsibilities
Figure 1: Lessons Learnt from the Mahabharata

23
Notes The lessons mentioned in Figure 1 are explained as follows:

Building strategies: From the Mahabharata, it can be learnt that in order to win
any battle, it is important to formulate an effective strategy. Similarly, businesses
must formulate effective strategies to achieve business goals and objectives. The
strategies must be made keeping in mind various limitations and constraints of
the business.
Encouraging women: It can be observed that Pandavas often involved women
in their decision-making exercises, whereas the Kauravas did not do so. There
were several important female characters, such as Kunti, Draupadi, Hidimba and
Subhadra on the side of Pandavas. Businesses today are also encouraging women
to take part in economic activities of the nation. In the past century, the world has
seen the emergence of various women entrepreneurs.
Forming alliances: In business, the managers must concentrate on forming
strategic alliances with customers, suppliers, stockists, dealers, government, etc.
It is important to form strategic alliances so that the partners in the alliance can
support each other and expand each other’s business.

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Giving preference to team goals rather than individual motives: In the epic of
Mahabharata, all the Kauravas had individual motives, whereas all the Pandavas
had the same motive and that they worked towards achieving those common
goals. In business also, the team or the organisational goals always supersede the
personal or individual goals.
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Maintaining team spirit: The war of Mahabharata was won by Pandavas despite
the fact that they were a very few in numbers and Kauravas were greater. This
was made possible because all the Pandavas were fighting as a team and not as
individuals. In businesses also, there are times when the organisations require
contribution of a team to achieve certain goals. The organisation cannot be
successful if its members have conflicts on a continuous basis.
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Showing commitment: Each organisational member must be committed towards

achieving the overall organisational goals even at the cost of individual goals. The
level of commitment of Pandavas was far greater than that of the Kauravas.
Showing leadership quality and delegation of responsibilities: The Kauravas
were led by a single leader, Duryodhana, who was overseeing all the activities
related to the war. On the other hand, Pandavas decided to designate the
responsibilities of directing different operations to different generals. Similarly, an
organisation must clearly demarcate different job areas and assign managers for
each job area.
Business Lessons Learnt from the Bhagavad Gita

The Bhagavad Gita (Song of the Lord), simply called the Gita, is a part of the
Mahabharata. The Gita is a 700 verse-long scripture and it contains 18 chapters. It
appears in Bhishma Parva (sixth of the 18 subdivisions of the Mahabharata).
The Gita narrates the dialogue that takes place between Krishna and Arjuna in the
24 battlefield of Kurukshetra.
According to the Gita, self-controlled actions performed with knowledge and Notes
detachment leads to success. It has been narrated that before the final battle of
Kurukshetra, Arjuna was in a dilemma whether it would be ethical to fight with
and kill the people who happen to be his relatives and friends. To clear the doubts
of Arjuna, Lord Krishna answered his questions on the nature of the universe, the
method to attain God and the meaning of duty.
The Gita, if read carefully, can serve as a source of motivation and can be used by
modern-day managers to create progressive and highly stable organisations. Lessons
of the Gita that have found use by businesses are explained as follows:
Notion of time: In Mahabharata, Lord Krishna described that time is eternal and
follows a cycle. Usually, the managers may have a tendency of concentrating on
the completion of short-term goals. At times, managers also lose sight of their
long-term plans. When managers understand the notion of time, they would try
to create a balance between the short-term and the long-term goals.
Performance metrics and assessment: Today, most managers use duality
while assessing the performance of employees. It means that all the work done
by employees is classified as being good or bad, right or wrong, desirable or
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undesirable, performer or non-performer, positive or negative, etc. As a result,
managers form positive expectations and start forming positive expectations
only. Such unrealistic expectations lead to stress. Stress usually hampers the work
performance of managers. In the Gita, it is explained that individuals should
develop a sense of equanimity as it would lead to one having a calm and complete
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personality.
E xhibit
MANAGEMENT LESSONS FROM THE SRI GURU GRANTH SAHIB
The holy book of Sikhs, Sri Guru Granth Sahib, gives a universal message,
II
seeking the welfare of all human beings of the earth. It promotes integration,
brotherhood, co-existence and peace, and also emphasises the importance of
human values. According to Guru Nanak, Life without virtue runs to waste. The
main message of Sri Guru Granth Sahib includes:
All people of the world are equal
Women are equal
Speak and live truthfully
Practise humanity, kindness, compassion and love
The management values provided by Sri Guru Granth Sahib are value of integrity,
value of compassion, value of equity, value of tolerance, value of selflessness
and value of stewardship. According to Sri Guru Granth Sahib, Salvation of an
individual lies not only in his faith, but also in his character and his keenness to do
‘good’. The wisdom of Sri Guru Granth Sahib has the capability of transforming
the ordinary management to a management full of virtues and values.
25
Notes S elf A ssessment Q uestions

3. Lessons of the Gita that have found use in businesses include _____ and ______.
4. In the Gita, it is explained that individuals should develop a sense of ______ as
it would lead to one having a calm and complete personality.
a. poise b. equity
c. equanimity d. None of these
2.4 VALUES, NORMS, BELIEFS AND STANDARDS

No organisation can operate in isolation. The organisation has to manage various
individuals and entities which may be internal or external to it. Internally, the
organisation needs to manage its human resources. Externally, it has to manage
and take care of its customers, suppliers, government and regulatory agencies and
society at large.
All organisations work in an environment. The overall environment of an organisation

comprises its internal environment and the external environment.
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All business organisations want to partner, deal and communicate with individuals
or entities that are based on sound empirical values, have pre-established norms,
a sound belief system and established standards. Therefore, an organisation can
achieve success only if it imbibes positive values, norms, beliefs and standards.
Having stated that, it becomes imperative to describe the values, norms, beliefs and
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standards.
Values can be defined as the ideals, moral ideas or universal conceptions that
ultimately drive the behaviour of an individual or an organisation. Values can also
be defined as the interests, attitudes, inclinations, requirements, emotions and character
of individuals.
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In 1949, R.K. Mukherjee, an Indian sociologist defined values as socially approved

desires and goals that are internalised through the process of conditioning, learning or
socialisation, and that become subjective preferences, norms and aspirations.
In 2000, M. Haralambos defined value as a belief that something is good and

desirable.
Values are the deep-seated beliefs of a person or social group. Values guide the actions
and decisions of people. Values also decide the kind of relationship that individuals
maintain amongst themselves. Values help individuals to differentiate between:
Good and bad
Superior and inferior
Attractive and unattractive
Proper and improper
26 Wanted and unwanted

Appropriate and inappropriate
An individual imbibes an understanding of values from sources, such as family Notes

(parents, elders, siblings), school (co-students and teachers) and society at large.
Some of the values that are considered desirable in any society include patience,
faithfulness, self-determination, fairness, justice, respect, tolerance, compassion, etc.
Just like individuals imbibe a set of values over their lifetime and their decisions are
guided by these values, businesses are also guided by a set of values they hold dear.
These are termed as corporate values. Values guide and inspire the organisation’s
employees to achieve the organisational goals and objectives. Some of the most
important corporate values are as follows:
Accountability
Commitment to customers
Cordial relationships
Fairness
Innovation
Integrity

Quality of life
Responsiveness
Safety
Stewardship
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Teamwork
Transparency
Trust
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Norms refer to the set of behaviours, thoughts or values that are considered as
righteous by a group of people or a particular section of society. Within a social
group, the norms influence the members. In general, every society has two types
of norms. Formal norms are those that are written down and documented. There
are legal, social and religious norms that are established in every society. Any
non-adherence to such formal norms invokes penalty, outrage or punishment. For
example, in the Indian society, it is a legal norm that no person can take the life of
himself (suicide) or of others (murder). If any person deviates from this norm (say,
by murdering a person), then strict action as per law is initiated against the doer.
On the other hand, informal norm refers to those sets of behaviours, thoughts or
values that have been established as norms in the society, but they are not explicitly
written or documented anywhere. For example, it is a social norm that if there exists
a queue at any counter, then the people get into the queue in a First Come First
Served (FCFS) basis. Breaking or cutting through the queue is not considered right.
Beliefs include the set of assumptions and feelings that individuals hold towards
other individuals or events. Beliefs of individuals affect the manner in which they
act under different circumstances. Just like values, individuals start forming beliefs 27
Notes early in their life. Psychological factors have a direct impact on the belief system of
individuals.
In general, Standard refers to that level or degree of a specific parameter that is

considered as normal or acceptable. Standards can be set for different parameters
and they may or may not be measurable. At times, standards may be documented
and at other times, they may not be documented. For example, a university may
establish that the students obtaining 33% marks in a subject would be declared as
pass, whereas students scoring less than 33% marks would be declared as failed.
Just as standards are created in a society, standards are also created for business
organisations. Organisations establish standards on the basis of ethics which, in
turn, promote values such as fairness and honesty.
Organisations all over the world usually have legal or regulatory requirements
to follow certain standards regarding various aspects of a business. For example,
banks need to follow BASEL III rules. They have to follow professional standards of
auditing set up by the International Standards on Auditing (ISA) while performing
financial audits. Manufacturing organisations also need to adhere to the ISI standards
for the production of different items. In addition to following various international
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standards, organisations or industries may also establish certain standards that must
be complied with within an organisation or by the members of that industry. Ethical
standards created by organisations for themselves include valuing customers, taking
care of employees, no bribery, delivering quality products and services, etc.

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5. List at least two corporate values.
6. Beliefs of individuals affect the manner in which they act under different
circumstances. (True/False)
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A ctivit y
Describe the ways in which the marketing department of a service organisation
can conduct its operations in an ethical manner.
2.5 SUMMARY
Ethos is a Greek word which means ‘character’. This word is used in reference to
the guiding beliefs and ideals that are associated with individuals, communities,
countries or ideologies.
Ethos is one of these three Aristotelian appeals, viz., ethos, pathos (emotion) and
logos (logic).
Ethics is concerned with human character and morals.
Hindu literature is divided into two categories, namely Sruti and Smriti. Sruti refers
to the heard literature, whereas Smriti refers to the remembered or traditional
literature.
28 The Mahabharata is classified as Smriti. Many scholars consider Bhagavad Gita as
Smriti literature, whereas others regard it as Sruti.
Business lessons learnt from the Mahabharata include: Notes

zz Building strategies
zz Encouraging women
zz Forming alliances
zz Giving preference to team goals rather than individual motives
zz Maintaining team spirit
zz Showing commitment
zz Showing leadership quality
Gita, if read carefully, can serve as a source of motivation and can be used by
modern-day managers to create progressive and highly stable organisations.
Values can be defined as the ideals, moral ideas or universal conceptions that
ultimately drive the behaviour of an individual or an organisation.
An individual imbibes an understanding of values from sources, such as family
(parents, elders, siblings), school (co-students and teachers) and society at large.

goals and objectives. M
Values guide and inspire an organisation’s employees to achieve the organisational
Important corporate values include accountability, commitment to customers,

cordial relationships, fairness, innovation, etc.
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Norms refer to the set of behaviours, thoughts or values that are considered as
righteous by a group of people or a particular section of society.
Beliefs include the set of assumptions and feelings that individuals hold towards
other individuals or events.
Standard refers to that level or degree of a specific parameter that is considered as
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normal or acceptable.
2.6 KEY WORDS

Equanimity: A state of calmness and composure.
Scripture: The written works of any religion that are considered as pious and
sacred.
Behavioural pattern: The way in which an individual or object behaves.
Dialect: The type of language that is specific to a particular region or a group of
people.
2.7 CASE STUDY: USING CORPORATE VALUES FOR ACHIEVING

COMPETITIVE ADVANTAGE
Whole Foods Market Inc. is an American organisation which operates a chain of
supermarkets. It sells products free from artificial colours, flavours, preservatives,
and sweeteners. Whole Foods is the sole grocer in USA that is certified by United 29
Notes States Department of Agriculture (USDA). It is headquartered in Texas, USA. John

Mackey is its present CEO.
Source: https://www.today.com/money/cheapism-25-things-are-cheaper-whole-foods-2D79503107
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Whole Foods Market has been growing its business of quality food and endeavours
to set the standards of excellence for food retailers. It has modelled its business in
a manner that standards have been set for all the aspects of the organisation. The
mission/purpose statement of the organisation is as follows: Our purpose is to nourish
people and the planet. We’re a purpose-driven company that aims to set the standards of
excellence for food retailers. Quality is a state of mind at Whole Foods Market.
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The organisation has determined for itself a set of six core values that give an idea of
what is truly important for an organisation. These six core values include:
1. Selling the highest-quality natural food and organic food
2. Satisfying and delighting customers
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3. Promoting the growth and happiness of team members

4. Establishing win-win partnerships with suppliers
5. Creating profits and prosperity
6. Caring for the community and the environment
In order to implement its core values, Whole Foods has created a “Declaration of
Interdependence”. According to this declaration of interdependence, Whole Foods
Market is a dynamic leader in the business of quality food and it also aims to set high
standards of excellence for food retailers. The organisation has adopted the mantra of
“quality is a state of mind”. This mantra guides all the employees of Whole Foods to
ensure adherence to the organisation’s core values in performing all their activities,
such as in selling food, hiring employees and interacting with the customers.
Whole Foods implements its core values in action by practising the following:
Product excellence: Organisation states that it acts as a buying agent for its
30 customers and not as a selling agent for its manufacturers. Whole Foods also
ensures that it offers to its customers the highest-quality natural and organic Notes
products available.
Customer experience: Whole Foods focusses on providing extraordinary customer
service, education, meaningful value at competitive prices, retail innovation, and
inviting store environments to its customers.
Employee involvement: Whole Foods empowers its employees by providing
innovative work environment and creating self-directed teams. In addition, Whole
Foods gives importance to transparency in information.
Success: Organisation emphasises on profits and growth, and on creating wealth
for its shareholders.
Sustainable outcomes: Whole Foods believes in sustainable business practices. As
a result, it cares for the environment and invests in local communities.
Win-win supplier partnerships: Whole Foods has created strategic partnerships
with its suppliers. These suppliers are also committed to achieve excellence and
fulfil their social responsibilities.
Ongoing education: Whole Foods continually educates all its internal and external

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stakeholders with respect to healthy eating patterns and practices.
The adherence shown by Whole Foods with its core values has reaped positive
outcomes. In one of his interviews, John Mackey stated, “We walk our talk when it
comes to our core values. Our primary goal is to satisfy and delight our customers. Through
constant experimentation and innovation, we are redefining the retail food marketplace and
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further differentiating our shopping experience from other food retailers. We continue to
expand and adapt our product offering in ways that speak to our core customers and to our
authenticity and leadership role within natural and organic products.”
Some other easily noticeable results include:

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Successful business model

Benefits accrued to all stakeholders
Higher sales growth
Increase in the number of stores
Increase in store sales
Increased sales per square foot
Source: http://dmresourcecenter.com/unit-5/core-values/
Questions
1. List the values Whole Foods has adopted specifically for its employees.
(Hint: Promoting the growth and happiness of team members.)
2. What does the “quality is a state of mind” mantra imply for the organisation?
(Hint: The stated mantra guides all the employees of Whole Foods to ensure 31
adherence to organisation’s core values while performing all their activities.)
Notes 2.8 EXERCISE

1. Describe the concept of ethos in detail.
2. Differentiate between ethos and ethics.
3. List and explain the lessons learnt from the following two scriptures and how
these can be applied in management.
a. Mahabharata
b. Gita
4. Describe the terms: ‘values’, ‘norms’, ‘beliefs’ and ‘standards’.
2.9 ANSWERS FOR SELF ASSESSMENT QUESTIONS

Topic Q. No. Answer
Concept of Ethos 1. morals
2. ethos, pathos and logos
Traditions and Culture

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Management Lessons Based on Indian
Values, Norms, Beliefs and Standards

3.
4.
5.
6.
notion of time, performance metrics;
assessment
c. equanimity
Stewardship and innovation
True
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2.10 SUGGESTED BOOKS AND E-REFERENCES
SUGGESTED BOOKS
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Khandelwal, N. (2011). Indian Ethos and Values for Managers. Mumbai: Himalaya
Publishing House.
Ghosh, P. (1991). Indian Ethos in Management. Bombay: Somaiya Institute of
Management Studies & Research.
E-REFERENCES
The concept of ethos and the structure of persuasion. (2019). Retrieved from https://
www.tandfonline.com/doi/abs/10.1080/03637756609375487?journalCode=rcmm19
(2019). Retrieved from https://moodle.sbu.edu/pluginfile.php/92544/course/
overviewfiles/Clare%20304%20Ethics%20and%20Ethos.docx?forcedownload=1
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Historical Background of Management
in India
Table of Contents
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3.1 Introduction
3.2 Purushartha–The Purpose of Human Life
3.2.1 Dharma
3.2.2 Artha
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3.2.3 Kama
3.2.4 Moksha
3.3 Production, Distribution and Consumption
3.4 Difference between Indian and Western Styles of Management
3.5 Summary
3.6 Key Words
3.7 Case Study
3.8 Exercise

Describe the four Purusharthas—Dharma, Artha, Kama and Moksha
Discuss the management concept in the Indian context
State the difference between Indian and Western styles of management
3.1 INTRODUCTION
We all know that India has undergone a long period of colonisation, which has
adversely affected its economy, wealth, and development in many ways. Even after
facing such hardships, India is now slowly making its mark in the world economy
and trade. With the emergence of globalisation, liberalisation and privatisation, the
Indian economy is on the way to make its mark in the field of trade and commerce,
and is giving a tough competition to most of the developed nations.
Indian trade economy has always captured the interest of traders. The ancient Indian
religious texts articulate various moral and ethical methods to attain the goals of
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human life. The four Purusharthas, mentioned in Indian scriptures, help provide a
direction and vision to human life, and encourage to lead a life full of motives and
aims.
This chapter will provide you with insight into the Indian concepts that offer not
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only the guidelines for managing businesses, but also state the objectives of living a
fulfilling life.
3.2 PURUSHARTHA—THE PURPOSE OF HUMAN LIFE

Purushartha is one of the vital concepts of Hinduism. As per the ancient sagas, the
II
goals of humanity are termed as Purusharthas. The word ‘Purushartha’ is made

up of two terms, ‘Purusha’ and ‘Artha’. ‘Purusha’ is defined as an individual or
a person and ‘Artha’ means the objective of human pursuit. Purusharthas are the
guiding principles for human fulfilment and depict the aim of human life. They
provide motivation and encouragement to live a balanced and fulfilled life. They
also facilitate efficient decision-making, provide meaning to spiritual practice and
show the most righteous way to achieve the goals of life.
Figure 1 displays the four Purusharthas which state the characteristics and goals of
the Supreme Self and God:
Dharma Artha Kama Moksha
• Righteousness • Wealth • Desire • Liberation

• Duty
Figure 1: Four Purusharthas

34
Historical Background of Management in India
As a human being is called the reflection of God, so it is considered a legitimate quest Notes
of man to attain these four Purusharthas. These Purusharthas are not autonomous
and should not be seen alone. An amalgamation of these four Purusharthas can
help in attaining a higher status in life. One can understand the concept of ‘self’ by
adjusting and meeting all these four Purusharthas. In order to achieve a fulfilled
life, all the four Purusharthas need to be studied together; otherwise, it might make
an individual’s life awkward and does not allow him/her to achieve a balanced and
fulfilled life.
As an individual advances through the development of his/her spirit, he/she finds

that his initial goals ultimately get replaced with other advanced goals. For example,
the desire to earn wealth may decrease and disappear with age and the individual
may aim for higher pursuits of self-actualisation, liberation or enlightenment.
In the next section, we will discuss the four Purusharthas—Dharma, Artha, Kama
and Moksha – in detail.
3.2.1 DHARMA
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Dharma plays a pivotal role in Hinduism as it is believed to help an individual
achieve inner Moksha. It is the first Purushartha that brings stability and order
to one’s life. It creates an urge to do right things. A proper balance needs to be
established in the four Purusharthas. In the absence of Dharma, Artha and Kama
cannot achieve any balance and meaning. Hence, it is important to follow the path
of Dharma.
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According to the Bhagavad Gita, the greatest dereliction of Dharma is to desert the
helpless in their time of need. Dharma is the path of truth and integrity. It motivates
an individual to perform correct actions, provides a true purpose in life and offers
an ethical base to live a meaningful life. Dharma inculcates consciousness in the
thoughts of an individual, awakening him/her to perform actions with compassion
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and sensitivity towards others’ needs. Dharma is a way of understanding the concept
of divine and foster a sense of motivation in an individual to know who he/she really
is and what is his/her duty in order to live a meaningful life. Dharma ensures that an
individual interacts with the society by following the paths of virtue, integrity and
selfless motives.
As per Vedanta, you can discover your Dharma by studying sacred teachings from the
examples of highly evolved people, reflecting on and following what satisfies your heart, and
listening to your deepest inner feelings.
3.2.2 ARTHA
Artha guides the path of Moksha. It helps an individual to live in a material world
without getting attached to anything. It offers a sense of security and comfort by
rejecting the beliefs of world’s material possessions. It helps an individual live a life
of peace and harmony. It motivates an individual to remain content with the things
he or she owns. Artha is the art of living in a world of possessions without being
greedy. It provides a sense of knowledge about things that are really valuable not 35
in terms of material assets, but for the internal peace and self-actualisation. Artha
Notes delineates a way of achieving a satisfying life and the means to achieve it can be
friendship, love, knowledge, virtue, career, talent, skills and good health. Different
individuals have different needs and Artha helps every individual live a satisfying
life by fulfilling his needs in a rational manner.
Dharma, Kama and Artha are correlated. Living a life in a materialistic world might
violate the moral responsibility of Dharma and create threats in the journey of
attaining Moksha. Hence, it is very crucial to remain content with what one owns.
According to Vedanta, one should:

discover a way so that money runs after you and not vice versa
do work that is compatible to one’s nature and capabilities
do work that serves society
do work you really love
trust in the infinite organising power of the Universe
3.2.3 KAMA
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The behaviour of an individual is majorly derived by the desire of enjoyment and
pleasure. Kama is associated not only with the sensual pleasure, but also related
to the love for art, music, beauty, affection, fellowship and kindness. Living a life
without art, desire and enjoyment is considered as hollow and empty. As it is a well-
acknowledged fact that excess of everything is not good, so excessive Kama results
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in overindulgence, greed, addiction and sloth. Kama delineates the right balance
of delight and enjoyment aligned with Dharma and Artha. It is equally important
to ask whether the pleasures are ethically aligned with the purpose of life or not.
Striking the right balance between Artha and Kama helps an individual live a life of
delight, satisfaction and morality.
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As per the Upanishads, as is your desire, so is your will; as is your will, so is your deed;
as is your deed, so is your destiny; and you are what your deep driving desire is.
Following are the main objectives of Kama:

To discover and learn about the object
To develop emotional connection
To learn the process of enjoyment
To experience the feeling of well-being
3.2.4 MOKSHA
Moksha is the final liberation that can be achieved by following the path of Dharma
and maintaining a balance between Artha, Kama and Moksha. Moksha can be defined
as the attainment of liberation and freedom from the cycle of birth and death. It is the
emancipation from ignorance. Moksha is the path of consciousness of the oneness of
the supreme self. It is the ultimate realisation of self, creativity and understanding.
36
According to Vedanta, liberation comes to those who know Brahman as that which is the Notes
origin and end of all things, the universal principle behind, and at source of everything that
exists, and the consciousness that pervades everything and everyone.
Moksha removes any and all kinds of disillusions. The Upanishads describe the
liberated individual as one who treats others with respect (regardless of how others treat
him/her); returns anger with soft and kind words; doesn’t expect praise from others; never
injures or harms any life form; is as comfortable being alone as in the presence of others; and
is humble of clear and steady mind, straightforward, compassionate, and patient.
Moksha offers a sense of self-knowledge and self-discipline. It is the attainment of

life which is lived with ease, inner purity, knowledge and logic. Moksha unravels
the mystery of the Supreme Self. As the poet Rumi says, the whole Universe exists
within us, ask all from yourself. Similarly, in the words of Lao Tzu, knowing others is
wisdom, knowing yourself is enlightenment.

1. Without Dharma, Artha and Kama cannot be balanced. (True/False)
2. Which of the following Purusharthas is defined as the path of truth and
c. Kama
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integrity that guides an individual to perform actions in a correct way?
a. Dharma b. Artha
d. Moksha
3. ______________ denotes the final liberation from worldly pursuits.
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3.3 PRODUCTION, DISTRIBUTION AND CONSUMPTION
In order to understand the concept of management, it is crucial to know the
implication of ethics in production, distribution and consumption as these business
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functions have been the main focus of economies since ancient times:
Production: It refers to the process of converting raw material into the desired
output with the help of the available technology.
Distribution or exchange: It refers to the movement of products and services
through space and time. It is important to consider social and technological
constraints in the distribution or exchange processes.
Consumption: It refers to the process of using products and services in order to
derive satisfaction. The act of consumption is subject to both consumers’ resource
constraints and social considerations.
It is important to evaluate the business operations and functions in terms of moral
obligations. Let us now discuss ethical issues faced in production, distribution and
consumption in detail.
Production-related Ethical Issues

Ethical norms and values for the production process are set by the society. It is
important to follow these norms and values in order to ensure that the production
37
Notes capacity or activities do not harm the stakeholder, buyers or the general public.
For example, Coco-Cola had to shut down its bottling operations production in a
village named Kala Dera near Jaipur the reason being that the production process
was using excessive amounts of ground water, which resulted in a rapid decline
in the level of groundwater. The production process was held responsible for the
worsening water condition in the nearby areas. Such examples depict the reality of
business continuity without any concern about its impact on the society and other
stakeholders. Using unethical practices affects the society negatively.
One of the major objectives of a production process is low-operating cost so as to

reduce the overall cost incurred by the organisation. Most organisations achieve
this objective at the cost of quality by using unethical practices. Poor processes are
facilitated in order to reduce the cost of production. Following are some measures
organisations must take against unethical production practices:
Establish a code of conduct: A written code of conduct needs to be followed in
order to ensure that all the managers and employees are aware about the conduct
expected from them. Proper measures should be taken to avoid child labour and
forced labour. Discrimination on the basis of caste, colour or gender should not be

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present in the organisation.
Develop safe and hygienic working conditions: One of the most important ethical
practices to be followed is to provide a clean and safe working condition in the
production department. The process of production involves various activities and
it should be ensured that the designing of the series of activities should be done in
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a way which fosters a safe and healthy workplace. Proper ventilation, lightening
and safety measures should be installed within the production facility.
Emphasise on environmental sustainability: Some standard guidelines need to
be fulfilled with regard to environmental laws and regulations. It is advisable to
take all appropriate measures to decrease the amount of ill-effects on environment.
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It is also crucial to follow all specifications and guidelines set up in the production
process.
Assure total quality practices: It is the duty of an organisation to maintain the
quality of its product and services in order to satisfy its customer base. Any
deviation in the promised quality and the delivered quality is a serious ethical
issue. Any kind of error or omission during the production process affects the
quality of the product. Therefore, it is advisable to maintain quality guidelines in
order to produce what is promised.
Double-check the supplier’s background: Suppliers play an integral role in the
overall production process. An organisation buys raw material to be used in the
production process from suppliers. Therefore, the final output depends largely
on the quality of the input provided by suppliers. Every organisation should
ensure that raw materials received are of good quality and standards. Hence, it is
important to double-check the background of suppliers.
Assure safety of the product: Manufacturing any kind of hazardous products
is not permitted. Such production processes are performed only with specified
38 licensing and authority. Therefore, any organisation producing such harmful
products is committing a severe unethical practice. Therefore, it is important to
maintain product safety standards irrespective of the product type, industry or Notes
sector.
Distribution-related Ethical Issues

Certain unethical practices such as black marketing and hoarding products lead to
increased prices and mislead the buyers. These activities are a result of conspiracy
hatched by distributors, wholesalers and other participants of the supply chain.
Following are some ethical issues related to distribution:

Artificial scarcity: It is a human-made scarcity which is generated out of greed and
selfishness. An artificial scarcity is created by distributors by amassing resources
or products in order to gain abnormal profit in the market. Distributors do not
float products in the market intentionally in order to get abnormal profit when
demand reaches a peak. Artificial scarcity leads to an increase in demand of goods,
which ultimately results in increased prices for the stored products.
Monopoly market: It refers to the act of creating monopoly in the market by
following unethical trade practices, such as forcing competitors to stay out of the
business.
Consumption-related Ethical Issues

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Ethics play an integral role in sustainable consumption. So, an organisation, while
following fair trade practices in production and distribution of a product or service,
should also place emphasis on sustainable consumption. Sustainable consumption
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places more focus on the needs and consumption of everyone by fostering ethical
criteria in consumer behaviour. It places more emphasis on general welfare of the
society.
The consumption pattern of consumers depends upon their needs and purchasing
power. Some goods are necessity goods, which are vital for continued survival,
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such as food and clothes. On the other hand, some goods add value and comfort
in life, like refrigerator or air-conditioner. Although this concept of sustainable
consumption is often neglected, but it has been recommended by many academicians
that ethical concerns of consumers affect their purchase behaviour and consumption
pattern. Hence, it is important to understand different ethical concerns of consumers
regarding business practices. Today, consumers are more informed and conscious
about the environment concerns and their consequences. For example, using plastic
bags has been banned in India due to its severe harmful effects on environment.

4. In order to create an artificial market, distributors do not release products in
the market till their demand reaches a peak. (True/False)
5. Which of the following is an ethical issue of production function?
a. Artificial scarcity
b. Monopoly market
c. Unsafe working conditions
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d. None of these
Notes A ctivit y
Research on the Internet and study one Indian organisation which has faced
severe repercussions because of following unethical practices in order to reduce
production cost.
3.4 DIFFERENCE BETWEEN INDIAN AND WESTERN STYLES OF

MANAGEMENT
The main aim of management is to manage business operations effectively and
efficiently. However, the style of management adopted by Indian and western
managers varies. Table 1 delineates some basic differences between them:
Table 1: Indian vs. Western Management
Indian Management Western Management

Personal relationships are prioritised in the Professional relationships are prioritised in
Indian style of management. the western style of management.
Family plays a pivotal role in decision- Western style of management is guided by
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making. They recommend various safe
solutions and guidance to foster stability in
life.
It is a perfect intermingling of materialism
and spiritualism.
It facilitates the idea of giving selflessly.
the individualistic approach. Family members
do not play a major role in decision-making
as they don’t believe in interference.
It prefers materialistic approach and
possessions in its methodology.
Its emphasis is on give-and-take relationship.
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Selfishness is avoided. Nothing is being done as a favour or help.
The focus is on both profit and social welfare. The ultimate goal is profit-maximisation.
It is the duty of the manager to create a They fulfil social obligations just for the sake
balance between both. of stakeholders.
Importance is given to means which help in More importance is given to the ends as
achieving ends by following moral paths. It compared to the means. According to the
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is the duty of managers to take care of the modern style of management, ethics can
means by which they earn profits. take a backseat as long as an organisation is
achieving its objectives.
Human beings, divine entity and other The concept of inter-relation between
objects are correlated. It is important for God, human being and other objects is
every individual to pay attention to all not facilitated under the modern style of
animated and lifeless forms as these are the management.
crucial part of the Supreme Consciousness.
Nature is considered as our mother. The concern of environmental protection is
Respecting nature and protecting present only for one’s own sake and survival.
environment is a crucial concern in this type
of management.

6. Which one of the following styles of management has the ultimate aim of
profit maximisation?
a. Indian Management b. Western Management
c. Both a and b d. None of these
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Notes
7. Which of the following is the perfect intermingling of materialism and
spiritualism?
a. Indian Management b. Western Management
c. Both a and b d. None of these
8. Emphasis on professional relations more than personal relations applies to the
modern style of management. (True/False)
3.5 SUMMARY
The four Purusharthas denote the purpose of life in order to achieve fulfilment:
zz Dhrama: The right way of living
zz Artha: Achieving material comfort to live with ease
zz Kama: Bringing pleasures and delight to life
zz Moksha: Final liberation

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Some ethical issues related to distribution are:
Artificial scarcity: It is a human-made scarcity which is generated out of
greed and selfishness. An artificial scarcity is created by distributors by
amassing resources or products in order to gain abnormal profit in the market.
Distributors do not float products in the market intentionally in order to get
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abnormal profit when demand reaches a peak. Artificial scarcity leads to an
increase in the demand of goods, which ultimately results in the increased
prices for the stored products.
zz Monopoly market: It refers to the act of creating monopoly in the market by
following unethical trade practices, such as forcing competitors to stay out of
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the business.
Personal relationships are prioritised in the Indian style of management, whereas,
professional relationships are prioritised in the western style of management.
In the Indian style of management, importance is given to means which help in
achieving ends by following moral paths. It is the duty of managers to take care
of the means by which they earn profits. On the other hand, in the western style
of management, more importance is given to the ends as compared to the means.
According to the modern style of management, ethics can take a backseat as long
as an organisation is achieving its objectives.
3.6 KEY WORDS

Stakeholders: Any individual, organisation or party that gets affected by the
actions of an organisation, its objectives and goals.
Materialistic: Someone who is money-oriented and is concerned only about
material possessions.
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Management: The art and science of getting things done from others.
Notes Sustainable Consumption: The act of using goods and services in a manner to
reduce or eliminate any ill-effect on environment.
Hinduism: It is the oldest religion of India that states the customs and practices to
live a meaningful life.
3.7 CASE STUDY: ETHICAL FAILURE OF XYZ Automobile

MANUFACTURING Company
XYZ automobile manufacturing company is an American MNC that is headquartered
in Chicago. Established in 1913, it designs, manufactures, promotes and supplies
automobiles and their parts in various other countries. The company has faced
severe loss due to a legal court case as it is alleged to sell cars with faulty ignition
engines. The installation of faulty ignition switches led to the failure of the car
engine. The organisation did not perform any correction measures even after various
complaints received from customers. It was a major fault committed by engineering
and designing teams. They did not consider the issues and take actions for making
repairs in any sold car in order to avoid additional cost of production.
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Later, various other problems were encountered, such as failure of critical systems
of the car, like braking and deployment of airbags. The organisation was fined US$
30 million by the US government. All its products were recalled from the market and
huge financial losses were faced by the organisation.
Mr. Cannes, the current CEO of XYZ, was informed about the scandal before he
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was appointed for the current position in December 2014. The company recalled
1.6 million defective vehicles in February 2015, which grew to 2.6 million
subsequently, to repair the faulty ignition switches. Attorney Mr. Waters, who
is responsible for the company’s compensation fund, revealed that their ignition
switches caused 124 deaths and 275 injuries. XYZ set aside US$ 625 million, out of
which each family which lost a member would receive at least US$ 1 million.
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Later, the company followed various precautions and developed a program in

order to find errors at the designing stage only. The objective of implementing
such a program is to motivate the workforce to come forward and inform about the
problems rather than staying silent.
QUESTIONS
1. Do you think covering up ethical issues is the right way of saving costs?
(Hint: No. The aftermaths of such cover-ups are often disastrous for both the
organisation and the consumers.)
2. What corrective measures should have been followed by the company in order to
avoid such a situation and heavy losses?
(Hint: Various quality tests and product safety standards have to be followed.)
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3.8 EXERCISE Notes
1. Define four types of Purusharthas.

2. Describe the importance of Purusharthas in living a meaningful life.
3. Explain the concepts of production, distribution and consumption in detail.
4. State the differences between the Indian and western styles of management.

Topic Q. No. Answer
Purushartha–The Purpose of Human 1. True
Life
2. a. Dharma
3. Moksha
Production, Distribution and 4. True
Consumption
5. c. Unsafe working conditions
Difference Between Indian and
Western Styles of Management
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6.
7.
8.
b.
a.
True
Western Management
Indian Management
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SUGGESTED BOOKS
Weiss, J. W. (2009). Business Ethics: A Stakeholder and Issues Management Approach
With Cases (5 ed.). Mason, OH: South-Western Cengage Learning.
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Mark Aakhus & Michael Bzdak - 2012 – Business and Professional Ethics Journal 31
(2):231-246.
Sandra B. Rosenthal; Rogene A. Buchholz (2000). Rethinking Business Ethics: A
Pragmatic Approach, Oxford University Press
E-REFERENCES
Purusharthas in Hinduism. (2018). Retrieved from https://www.hinduwebsite.
com/hinduism/h_aims.asp
Western managers vs Eastern managers: difference in management style. (2018).
Retrieved from https://accountlearning.com/western-managers-vs-eastern-
managers-difference-in-management-style/
What is Purushartha? - Definition from Yogapedia. (2018). Retrieved from https://
www.yogapedia.com/definition/5586/purushartha
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Importance of Values in Management
Table of Contents
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4.1 Introduction
4.2 Values
4.2.1 Importance of Values
4.2.2 Types of Values
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4.2.3 Relation between Ancient Indian Literature and Values

4.2.4 Business Ethics and Values
4.2.5 Establishment of Values
4.3 Value-Based Management
4.3.1 Elements of VBM
4.3.2 Advantages of VBM
4.4 How Values Impact Different Stakeholders
4.5 Role of Values in Global Business Management
4.5.1 Trans-Cultural Human Values
4.5.2 Secular and Spiritual Values
Table of Contents
4.6 Relationship between Value System of an Organisation and its Work
Culture
4.7 Summary
4.8 Key Words
4.9 Case Study
4.10 Exercise
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Explain the values and their significance
Discuss the concept of value-based management
State how values impact different stakeholders
Outline the importance of values in global business management
Relate the value system of an organisation with its work culture
4.1 INTRODUCTION
In the previous chapter, you have studied about the historical background of
management in India, wherein the concept of ‘Purushartha’ was introduced. In this
chapter, let us study the significance of values in management.
In the context of business, values refer to standards of conduct that an organisation

expects from each member within it to follow. The top management of the
come from examples set by their seniors.

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organisation strives to establish corporate culture which is based on certain values.
However, these values are not instilled into employees on their own; rather they
Values should be the core of every business as they reflect what the business
stands for, its philosophy and the reason for its existence. Values drive business,
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management and employees in the right direction.
In this chapter, you will study about the meaning of values. Further, the chapter
will explain you the concept of value-based management. Thereafter, you will be
familiarised with how values impact different stakeholders. Towards the end, the
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chapter will introduce the role of values in global business management, and the
relationship between value system of an organisation and its work culture.
4.2 VALUES
Values refer to the degree of determining what actions are best to do or what way is
best to live. In other words, values are all about describing the significance of different
actions. They influence the ethical behaviour of an individual through actions.
Consider the desires of a person in the Indian society today:

He/she wants to have a stable, well-paid job by the age of 25.
He/she wants to have a respectable status in society.
He/she wants to start a family by the age of 28, with a suitable life partner.
He/she wants to provide good education and secure future for children.
These are some goals that every individual in the Indian society wants to achieve.
These goals or desires signify their aspirations, preferences or standards that they
47
want to set up in their lives. Such goals or desires are called values.
Notes No one teaches these values. They are naturally established depending on how the
society ranks something in terms of desirability, worth or goodness. As individuals,
we are conditioned to work to achieving these things/goals to gain social approval.
In a nutshell, values are goals that are valued by someone. They impact our behaviour,
moral conduct and attitude.
4.2.1 IMPORTANCE OF VALUES

An individual’s behaviour is formed by what he/she values. Thus, values denote the
goals, purpose or ultimate end of the individual’s social action. For instance, since
childhood, we have been taught that honesty is the best policy. But, when we grow
up, we tend to realise that it is not sometimes practical to be truthful. Being truthful
always depends on circumstances one is into and the goals that he/she values. The
following points explain the significance of values:
They integrate and fulfil the basic desires of an individual in a stable and consistent
manner.
They shape the responses and attitudes of an individual in society.

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They integrate social relationships and help build society.
They shape the personality and culture of an individual.
They serve as the criteria for assessing the behaviour of others in the society.
They help create common norms.
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Businesses are the same. Each business is created on the basis of some foundational
values. These values influence decisions within the organisation and serve as
guidelines to shape the future of an organisation.
4.2.2 TYPES OF VALUES

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In a community, humans live together and establish values shared by other members
on what is good or bad and right or wrong. These values largely influence the behaviour
and attitude of individuals in a community including their neighbourhood, place of
work and other public areas. There are three major values in business, which are
listed in Figure 1:
Spiritual Values
Spiritual Managerial Values
Professional Managerial Values
Figure 1: Major Values in Business
48 Let us discuss these values in detail.

Spiritual Values Notes

Spiritual values refer to non-material aspects in the lives of individuals. The values
help an individual work better and positively. Following are the types of spiritual
values:
Harmony: Effective performance at work depends on coordination and good
relationships among individuals. However, this depends on the level of spiritual
consciousness of individuals to solve conflicts, clashes, competition and
disagreements with their colleagues.
Truthfulness: Truth is always considered to be an expression of divinity and
spirituality or something that is real. An individual who remains truthful in every
circumstance gets elevated to a higher level of spiritual consciousness. In the
context of business, being true in thoughts, words and his/her actions is the direct
path for an individual to be successful.
Self-giving: Generally, people keep the notion that if they help somebody, they
will also get help in return whenever needed. In case the same is not reciprocated,
people feel disheartened and start developing a grudge against each other.

and do not expect much from others.
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However, people with high spiritual values generally have a self-giving attitude
Faith: According to Sri Aurobindo, faith is the knowledge of the soul which the mind
does not possess. Faith is required in every aspect of individuals. For example,
if an individual wants to achieve something, he/she needs to have faith in his/
her abilities. However, the level of faith depends on the past experiences and
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willingness of people to trust others. A person who trusts others is able to develop
cordial relations at the workplace.
Spiritual Managerial Values

Since managers are the ones who motivate employees to work towards organisational
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goals, they need to possess some spiritual values to perform efficiently. These values
are as follows:
Trust in the potential of every individual
Work is worship
Excellence at work
Cooperation and teamwork
Business is sacred
Self-introspection
Decision-making in silence
Professional Managerial Values

In an organisation, managers need to possess some values to support their team
members towards the accomplishment of organisational goals and objectives.
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Notes Some of these professional managerial values and qualities of a manager are
discussed as follows:
Encourage others: A manager having professional values focusses on enhancing
the skills and abilities of individuals. He/she recognises the potential of individuals
and motivates them to make best use of it. This, in turn, helps in accomplishing
organisational goals and objectives.
Creativity: An ideal manager must be creative and should be able to drive creativity
in others too. Being creative means that a manager is able to generate innovative
ideas and inspires his/her team to become more creative.
Intuitiveness: Intuition refers to an individual’s ability to understand a situation to
be taken place in future instinctively. Individuals attain intuitiveness after having
professional experience of many years. Being intuitive helps managers recognise
what kind of events may take place in the near future with a great degree of
certainty.
Knowledge: A business requires quick decision-making on a day-to-day basis.
However, informed decision-making depends on how strong knowledge base
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managers have. Decisions based on knowledge have very less chances of being
wrong.
Commitment: A good manager always remains focussed and committed towards
achieving his/her goals. Such a manager holds a vision as to how he/she wants to
see his/her team and work towards making his/her team’s efforts a success.
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4.2.3 RELATION BETWEEN ANCIENT INDIAN LITERATURE AND VALUES
Indian literature is a collection of different literatures of the subcontinent with
diverse linguistic manifestations. Literatures written in different languages and
recognised by Sahitya Akademi are part of Indian literature. Irrespective of the
language, Indian literature is considered to be closely linked with the value system
II
of individuals.
The major objective of Indian literature is to build the spirit of nationalism. In the
19th century, most of the Indian writing introduced the idea of national identity.
This is evident from the time of the freedom struggle of India when the nationalism
emerged in the minds of the Indian people (from different regions, castes and tribes)
and they united and succeeded in the abolition of the foreign rulers from the soil of
India.
Another feature of Indian literature is to inculcate spiritualism in the minds of the

Indian people. The dominant note in the Indian mind has been spiritual, intuitive
and psychic. Therefore, Indian literature is sometimes called spiritual. However,
it does not mean that the Indian literature is religion-centric, rather it unites the
ultimate with the temporal.
Another concept prevalent in the Indian literature is about it being idealistic in

nature. Indian literature discerns the idea that good will always win over the evil.
50
An ideal man always fights against injustice for the preservation of human virtues. Notes
This optimism prevails in Indian literature even in the darkness of the present age.
4.2.4 BUSINESS ETHICS AND VALUES

Business ethics is a set of ethics that examine ethical principles and problems that
may occur in a business environment. Ethical behaviour in business can lead to a
number of benefits for an organisation. An organisation with ethical practices would
be able to win the trust of customers; retain employees and attract investors. This
will, in turn, lead to increased sales and profits; reduced labour turnover; increased
productivity; availability of a pool of efficient employees, etc. In contrast, unethical
behaviour can adversely affect the reputation of an organisation in the market. Thus,
strict adherence to ethics is important for an organisation to maintain long-term
business prospects.
Ethical behaviour in business is possible if an organisation imbibes positive values

in its work environment. Values are the premise for the conduct and behaviour of
employees and members. Thus, business ethics and values are closely related to each
other. Let us discuss some ethical business values that are universally accepted for
conducting business in next sections.
Honesty and Integrity M

Honesty and integrity are two related concepts. However, there is a subtle difference
between these two. Honesty refers to a quality of an individual of being true under
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any circumstance. On the other hand, integrity is an ability of an individual to always
do right irrespective of the results. A person of high integrity would always be honest
having strong morals. Integrity is not only a value in itself; rather it guarantees the
inculcation of other values in an individual.
Trust
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A business does not run in vacuum and there has to be coordination between various
stakeholders, such as employees, customers, suppliers and government agencies for
its success. An organisation can win the trust of stakeholders if it runs its business
on ethical foundations and social norms.
Fairness
In the context of business, fairness refers to an ability of managers to treat employees
equally without any biasness. The degree to which fairness exists in an organisation
can be estimated from parameters, such as employee performance and rate of
absenteeism and attrition.
Respect
Every business requires coordination of various stakeholders, such as employees,
suppliers and customers to be successful. This can be possible if differences between
the viewpoints of stakeholders are respected and conflicts are resolved effectively.
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Notes Ethical businesses treat their employees, customers and other stakeholders with
respect, value autonomy and protect the interests of individuals irrespective of their
gender, caste, creed, race or origin.
4.2.5 ESTABLISHMENT OF VALUES

Values are established through learning and experiences with people and institutions.
Parents, for instance, have tremendous impact on their children’s values. A parent’s
response to everyday events exhibits to a child what is good and bad, acceptable and
unacceptable and important and unimportant. Values are also taught and reinforced
in schools, religious organisations and social groups. As we grow and develop, each
source of influence contributes to our definition of what is important in life. Cultural
moves have also influenced the formation of values. Basic convictions of what is
good or bad are derived from one’s own culture.

1. ______________ refer to non-material aspects in the lives of individuals.
2. Managers need to possess some values to support their team members towards
a. Intuition
c. Commitment
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the accomplishment of organisational goals and objectives. (True/False)
3. Which of the following refers to an individual’s ability to understand a
situation to be taken place in future instinctively?
b. Creativity
d. Knowledge
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4. An organisation can win the trust of stakeholders if it runs its business on
______________ and social norms.
4.3 VALUE-BASED MANAGEMENT

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Each organisation is based on certain foundational values and philosophy of

its founders to create maximum value for the organisation, particularly for
shareholders. This type of management is called value-based management (VBM).
VBM is an approach to run a business based on a certain set of values. It ensures that
performance targets of organisations are aligned with:
Corporate mission
Corporate strategy
Corporate governance practices
Corporate culture
Corporate communication
Decision processes
Performance management and reward processes
VBM focusses on maintaining an ownership culture in an organisation. Here,
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ownership culture refers to a culture wherein employees perform activities and
tasks that are usually not a part of their assigned work responsibilities. In addition, Notes
VBM focusses on maximising the value of a business organisation and empowering
employees by providing them an opportunity to participate in the growth of the
organisation. Employees in a VBM environment are able to make better decisions,
become more disciplined and get involved in team work.
4.3.1 ELEMENTS OF VBM

There are three elements of a VBM system, which are:
Creating value: An organisation must aim to create value for its stakeholders.
Managing value: An organisation must manage its business based on corporate
governance, change management, communication and leadership.
Measuring value: An organisation must establish as to what kind of value addition
has been done.
4.3.2 ADVANTAGES OF VBM

Some benefits of VBM are as follows:

stakeholders M
Alignment of interests of managers (top) with those of shareholders and
Balance of short-term, middle-term and long-term trade-offs

Better correspondence and communication among investors, analysts and
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stakeholders
Better decision-making
Better management of complexity, uncertainty and risk
Clear internal communication about strategy
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Corporate transparency
Effective targets for compensation
Efficient allocation of resources
Prevention against stock undervaluation and takeovers
Setting up of clear management needs
Smooth dealing with globalised and deregulated capital markets
Utilisation of stocks for mergers and acquisitions
A ctivit y
Research on the internet and find out one Indian organisation which has faced
an ethical dilemma and in order to solve that dilemma, the organisation has
used the unethical practice. List down the consequences that the organisation
has faced because of following unethical practices.
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5. An organisation must manage its business based on corporate governance,
change management, communication and leadership. (True/False)
6. ____________ ensures that performance targets of organisations are aligned
with corporate mission.
4.4 HOW VALUES IMPACT DIFFERENT STAKEHOLDERS

Stakeholders are a group of people or party or community or any individual that
gets affected by business operations. It is the ethical obligation of every organisation
to protect the interest of its stakeholders. Stakeholders play a pivotal role in every
organisation as actions and objectives of an organisation directly or indirectly
influence the stakeholders.
Traditionally, stakeholders were termed as the owner of a company as shareholders

were considered as a major part of stakeholders. However, today, stakeholders
include customers, employees of the organisation, suppliers and society as well. It
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is the duty of every organisation to create value for its shareholders. So, the group
of stakeholders in one way or the other help an organisation convert inputs into the
desired output. There are two types of stakeholders defined as:
I. Internal stakeholder: Internal stakeholder is comprised of any individual or group
of people working within an organisation or possess a major share in the profit of
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an organisation that gets directly affected by the business operations. For example,
employee of the organisation, management, shareholders, etc.
II. External stakeholder: Any individual or group of people that indirectly get
affected by the business operations is termed as external stakeholder. For example,
customers, suppliers and competitors.
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There are various sets of values that an organisation should possess for its various
stakeholders. Table 1 displays the set of stakeholders’ values:
Table 1: Stakeholders’ Values
Stakeholders Values
Owners/shareholders Better profit
Employees High pay rates, more job security, fair compensation, respect
Customers High quality, customer care and ethical products
Suppliers Equitable business opportunities
Creditors Credit score, new contracts and liquidity
Community Jobs, involvement, environmental protection, ethics
Government Taxation, legislation, low unemployment and truthful reporting
54 Trade Unions Good quality of work, staff protection and jobs

S elf A ssessment Q uestions Notes

7. Shareholders of the company would be interested in better profit value. (True/
False)
8. Any individual or group of people that indirectly get affected by the business
operations is termed as _______________________.
9. Which one of the following is known as a stakeholder?
a. Customer
b. Employees
c. Stakeholders
d. All of these
4.5 ROLE OF VALUES IN GLOBAL BUSINESS MANAGEMENT

Ethical values solve the dilemma of what is right or wrong. Ethical values help
an organisation follow a correct path of truth and integrity. Ethical values are

Code and compliance
Social outreach
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comprised of trust, respect, honest communication and diversity. Following are the
three categories of ethical values in business:
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Destiny and values
A set of ethical values in business operations can by developed through the following
process (Figure 2):
Maintaining a good
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Developing a set of Training employees balance between

core values on values innovation/flexibility
and policy creation
Figure 2: Process of Ethics Creation
Let’s now discuss each step:

1. Developing a set of core values: Every organisation should formulate a set of core
values which should include honesty, mutual respect dignity, and responsibility.
It is important to align business policies and decisions with a set of core values.
Even international organisations must foster ethical values that negate the impact
of cross-cultural differences. It is important that top leadership support should be
provided to everyone in order to maintain a set of values within the organisation.
2. Training employees on values: Developing a core set of values is not enough. It is
equally important to communicate and train the employees about the core set of
values and understand their importance. Every organisation can follow an ethical
55
code of conduct and policies by training and guiding its employees about ethical
Notes values. Timely actions must be taken in case of any violation or breach of duty of
performing ethical values.
3. Maintaining a good balance between innovation/flexibility and policy creation:
It is always advisable to create policies that are flexible and innovative enough to
propagate ethical values among employees. Ethical values help in making right
professional decisions. It is important for employees to communicate organisation’s
perspectives on ethics in case of any conflict of interest.
The main aim of facilitating ethical values within the organisation is to tackle
diversity and cultural differences. There is no uniform way to deal with cross cultural
differences. However, one should understand the perspectives of others and deal
with cultural differences by following the organisational ethics.
4.5.1 TRANS-CULTURAL HUMAN VALUES

With the emergence of multinational corporations, it is utmost important to study
trans-cultural human values. When an individual starts working in an international
organisation, it becomes important for him to perceive, evaluate and solve business
problems in international context only. It is crucial to possess trans-cultural
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competence. The cross-cultural values which enable an individual to understand
differences among various cultures in order to make informed decision accordingly
are termed as trans-cultural human value. Such values foster a balance between
corporate culture and managerial practices so as to perform business process
successfully.
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There are various threats that can arise during trans-cultural communication.
Following cross-cultural differences are barriers to trans-cultural communication
which include:
Lack of trust: In this case, an individual doubts the actions and motives of a person
from a different culture due to lack of information or trust.
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Fear: In this case, a person inculcates fears and hesitation in dealing with any other
person who belongs to a different culture. With time, people become acquainted
with what transformed their fear into dislike.
Dislike: In this case, an individual inculcates a sense of dislike towards anyone who
behaves or communicates differently from the norms. For example, an introvert
might dislike an extrovert person because people who are introvert generally tend
to be less vocal and expressive than extrovert and, thus, may appear weak and
insincere to him/her.
Generally, people never cross these barriers of fear, dislike and distrust until and
unless they are not pressurised to move forward to the next stage. The next stage is
comprised of the following values:
Acceptance: With time and experience, people start sharing their fears and establish
good relationships and trust level as they accept the cultural differences positively.
Respect: When people from different cultures start opening up with others, they
56 start acknowledging and admiring their mutual qualities.
Trust: People start trusting each other, when they spend sufficient quality time Notes
together, which ultimately reduces the distrust and fear.
Like: When people from different cultures start liking each other and start
celebrating each other’s human qualities instead of dislike or distrust. This stage
of cultural amalgamation unites them rather than their differences.
4.5.2 SECULAR AND SPIRITUAL VALUES

Various famous personalities have described secular spirituality in different context.
Following are some of the widely accepted definitions of secular spirituality:
Peter Van der Veer: The promotion of community, creating solidarity, through
universal truth, is an important aspect of secular spirituality. This ‘universal truth’
can be experienced through a secular or non-religious view of the world without
the need for a ‘higher power’ concept.
Robert C. Solomon (American philosophy professor): Spirituality coexists
with religion and is not incompatible with or opposed to science or the scientific
outlook. Naturalised spirituality is spirituality without the need for the ‘other

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world’. Spirituality is one of philosophy’s objectives, perhaps the ultimate goal.
Cornel W du Toit (Head of the Research Institute for Theology and Religion at
the University of South Africa): Secular spirituality is unique in that it adapts so
well to contemporary world views and is, therefore, compatible with other modern
beliefs and lifestyles, and builds communities through shared experiences of awe.
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It has been acknowledged by now that spirituality played a huge role in evolution
of values in our society. Spirituality and religion go hand-in-hand. Eastern religions
like Hinduism, Buddhism, Jainism and Sikhism are based on Vedas. While, on the
other hand, Judaism and Islam are based on Abrahamic values.
Recently, you must have heard a new term in this context—secular spiritual values.
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Spiritual ideology formulated a foundational base for Secular spiritual values but
these values do not include religious context. The focus is not placed on the devotee
and divine relationship, instead personal development is the centre of attention in
such values. These values facilitate positive relationship with the ‘self’, others and
environment.

10. Secular spiritual values are based on spiritual ideology without any religious
context. (True/False)
11. The cross-cultural values which enable an individual to understand differences
among various cultures in order to make informed decision accordingly are
termed as __________.
12. Which one of the following is the second step of ethics creation process?
a. Developing a set of core values
b. Maintaining a good balance between innovation/flexibility and policy
creation 57
Notes
c. Training employees on values
d. None of these
13. Ram does not gel up with his colleagues because of his hesitation of being
rejected as he belongs to a different culture and speaks a different language.
What type of barrier is Ram facing?
a. Distrust
b. Fear
c. Dislike
d. Both a and b
14. Trans-cultural competence is the process through which an individual
perceives, evaluates and solves business problems in the international context.
(True/False)
4.6 RELATIONSHIP BETWEEN VALUE SYSTEM OF AN ORGANISATION
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AND ITS WORK CULTURE
Work culture plays an integral role in establishing and maintaining value system of
an organisation. A good work culture helps an employee feel valued and informed,
which ultimately aids in motivation. Hence, it is crucial to set up a good value system
at the workplace.
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Advantages of having a good value system:
Values provide a foundational stone to an organisation. Formulating a set of core
values is one of the stepping stones on which a company will start its functioning.
It aids in formulating a code of conduct that shapes the behaviour of managers
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and employees.
Values facilitate a peaceful and collaborative work environment within the
organisation. Every employee is motivated to help each other and work in the best
interest of an organisation.
Values facilitate positive work performance. Good value system boost productivity
and foster happiness among employees. When employees behave negatively, it
affects the overall performance of the organisation.
Value-based system places much emphasis on interpersonal relationship by
following proper code of conduct and maintaining a friendly work environment.
It helps in building positive interpersonal behaviour.
Value system plays a crucial role in an organisation in order to manage the
behaviour of employees and management in an orderly manner, which also
negates the chances of chaos, ill-defined goals, etc. It helps in bringing clarity in
the roles and responsibilities of employees.
Value system helps in maintaining discipline among employees which shapes
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the culture of an organisation. It fosters organisational growth by fulfilling the
objectives and goals on time. An organisation can remain agile, flexible and sharp Notes
by establishing a good value system.
Possessing good set of ethical values makes an organisation attain a distinguished
image in the market, which ultimately leads to competitive advantage, i.e., an edge
over its competitors.
A good career management system for employees is not a challenging task if an
organisation possesses a good value system.
Hence, a good workplace and value system help an organisation maintain its position
in the market for a long-run.

15. A good value system is necessary to facilitate technological advancements.
(True/False)
16. Which of the following is an advantage of a good value system in a workplace?
a. Discipline b. Organisational Growth
c. Competitive edge d. All of these

4.7 SUMMARY M
Values refer to the degree of determining what actions are best to do or what way
is best to live.
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An individual’s behaviour is formed by what he/she values; thus, values denote
the goals, purpose or ultimate end of the individual’s social action.
There are three major values in business namely spiritual values, spiritual
managerial values and professional managerial values.
II
Indian literature is a collection of different literatures of the sub-continent with

diverse linguistic manifestations.
Irrespective of the language, Indian literature is considered to be closely linked
with the value system of individuals.
The major objective of Indian literature is to build the spirit of nationalism.
Another feature of Indian literature is to inculcate spiritualism in the minds of the
Indian people.
Another concept prevalent in Indian literature is about it being idealistic in nature.
Some ethical business values that are universally accepted for conducting business
are honesty and integrity, trust, fairness and respect.
Each organisation is based on certain foundational values and philosophy of
its founders to create maximum value for the organisation, particularly for
shareholders. This type of management is called value-based management (VBM).
VBM is an approach to run a business based on a certain set of values.
59
Notes Stakeholders play a pivotal role in every organisation as actions and objectives of
an organisation directly or indirectly influence the stakeholders. There are two
types of stakeholders: internal stakeholders and external stakeholders.
Ethical values solve the dilemma of what is right or wrong. Ethical values help
an organisation follow a correct path of truth and integrity. Ethical values are
comprised of trust, respect, honest communication and diversity.
The cross-cultural values which enable an individual to understand differences
among various cultures in order to make informed decision accordingly are
termed as trans-cultural human values.
Spiritual ideology formulated a foundational base for Secular spiritual values
but these values do not include religious context. The focus is not placed on the
devotee and divine relationship instead personal development is the centre of
attention in such values
Good work culture plays an integral role in establishing and maintaining value
system of an organisation. Good work culture helps an organisation attract new
talent from the market. It aids in organisational growth in the long run. It delineates
the roles and responsibilities of every employee.

4.8 KEY WORDS M
Value: A standard of behaviour based on the importance or worth of something.
Stakeholder: A person with a direct or indirect interest in a business.
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Value-based management: A type of management where managers act on a
company’s founding philosophy to create or expand value for the organisation.
Trade Union: A union or an organisation which protects the integrity of trade and
common interest of workers and trade.
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Shareholders: Someone who has invested in an organisation. He/she has a profit-

sharing right and decision-making role in an organisation.
4.9 CASE STUDY: A DILEMMA OF PROTECTING REPUTATION OR

FOLLOWING ETHICAL CODE OF CONDUCT
A project to create a flyover was started in Delhi. A senior engineer was answerable
for this project and he was responsible for the design, construction and positioning
of the flyover pillars. The deadline of the project was around the corner when one of
the junior engineers identified a major flaw in the designing of the pillars. The senior
manager was informed about the error and he rushed to the site for inspection. As
per his observation, there was a crack found in the pillar, which could cause a major
accident.
Initially, the senior engineer ignored the warning of his junior by indicating that the
crack was too minor to cause any damage. However, he had given a second thought
to this major error and examined the drawings once again. Then, he realised that the
fear of junior engineer was rightly caused and such an error on their part can cause
60 collapse of pillar in future, which would result in a major mishap.
However, he was facing a dilemma of meeting the deadline in a few days and any Notes
delay in the project might cause embarrassment to his department and also if he
accepts any error on his behalf, it would result in reputational damage. Secondly, if
any mishap occurred in future, he would be held responsible for it and all the legal,
criminal and financial repercussions would be borne by him only. Now, either he
has to meet the deadline or he has to follow the ethical code of conduct.
Questions
1. What corrective measures can the senior engineer take to solve this dilemma?
(Hint: He should intimate this error to his company and take the responsibility to
correct the damage.)
2. What legal proceedings can be faced by the senior engineer in case of any major
accident?
(Hint: He might face criminal prosecution because he was aware about the error
at the time of construction and he would have taken corrective measures to avoid
such accident.)
4.10 EXERCISE
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1. Discuss the concept of values. List out a few points to describe the importance of
values.
2. Explain the various types of values.
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3. Describe the process of establishing values.
4. Explain the elements and advantages of Value-based Management.
5. Discuss the impact of values on the different stakeholders.
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6. Examine the relationship between value system of an organisation and its work
culture.

Topic Q. No. Answer
Values 1. Spiritual values
2. True
3. a. Intuition
4. ethical foundations
Value-based Management 5. True
6. VBM
How Values Impact Different 7. True
Stakeholders?
8. external shareholders
9. d. All of these
Role of Values in Global 10. True
Business Management 61
Notes Topic Q. No. Answer

11. trans-cultural competence
12. c. Training employees on values
13. d. Both a and b
14. True
Relationship between Value 15. False
System of an Organisation and
its Work Culture
16. d. All of these
SUGGESTED BOOKS
Satsangi, A., & Sharma, S. (2009). Encyclopaedia of Indian Ethos and Values in
Management. New Delhi, India: Anmol Publications.
Sharma, G. (2001). Management and the Indian Ethos. New Delhi: Rupa & Co.
E-REFERENCES

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Stakeholders, Value and Risks. (2019). Retrieved from http://johngreijmans.com/
blog/2014/07/26/stakeholders-value-and-risks/
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What is Organizational Culture? Why Values? and What Does Warren Buffet Have
To Do With It? | Recruit better. Hire better. | Streamline Your Talent Assessment
with DeGarmo. (2019). Retrieved from http://www.degarmo.com/what-is-
organizational-culture-why-values-and-what-does-warren-buffet-have-to-do-
with-it
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Managing Ethical Dilemma
Table of Contents
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5.1 Introduction
5.2 Meaning of Ethical Dilemma
5.2.1 Managing Ethical Dilemma
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5.3 Ethical Dilemma Related to Different Business Functions

5.3.1 Finance
5.3.2 Marketing
5.3.3 Human Resource Management
5.3.4 International Business
5.4 Summary
5.5 Key Words
5.6 Case Study
5.7 Exercise

Explain the meaning of ethical dilemma
Describe the ways to manage ethical dilemma
Describe the ethical dilemma related to finance
Describe the ethical dilemma related to marketing
Describe the ethical dilemma related to human resource management
Describe the ethical dilemma related to international business
5.1 INTRODUCTION
In the previous chapter, you have studied the concept of values in management.
Further, you studied about the relationship between the business ethics and values.
This chapter discusses about the management of ethical dilemma and how ethical
dilemma affects the different business functions.
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An ethical dilemma is a composite situation a person faces in which a decision
must be taken about the adequate action to be taken. A dilemma may arise from the
conflict between the good and the bad or between the right and the wrong of the
consequences of the actions. When there are two or more ethical principles which
could lead to an equally good or equally bad outcome, it gives rise to the situation
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of an ethical dilemma.
Several methods have been developed and discussed in the chapter to manage ethical
dilemmas. For managing the issue of ethical dilemmas, a business professional has
to first outline the situation and identify the core values. Developing an accountable
system, preparing an alternative and monitoring the consequences would also play
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a major role in managing ethical dilemma.
In this chapter, you will study about ethical dilemma as it relates to business. You
will also learn about the ethical dilemma related to different business functions, such
as finance, marketing, human resource management and international business.
5.2 MEANING OF ETHICAL DILEMMA

An organisation, in spite of operating ethically, may face a number of complex
situations called ethical dilemmas. A business professional often comes across the
ethical dilemmas that arise out of conflicting interests while making certain business
decisions. Ethical dilemma is a situation when a decision-maker needs to choose
between two alternatives, both of which are equally right and justifiable. Selecting
any alternative would result in some consequences to the stakeholders.
Various management experts have provided different definitions of ethical dilemma.

Some of these are as follows:
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According to Doug Wallace, a dilemma occurs if one has to make a choice among following Notes
alternatives:
Significant value conflict among different interests
Alternatives are equally justifiable
Consequences on stakeholders
According to Rushworth Kidder, in ethical dilemma, the toughest choices are right vs.
right.
The conceptual aspects of ethical dilemma are related to the complexity of decision-
making arising out of a moral situation when a choice is to be made between two
different unfavourable options, neither of which is preferable. The complexity arises
out of the situational conflict in which obeying one person or situation would result
in disobeying another person or situation. An ethical dilemma may arise due to:
Failure of an individual’s character
Difference between personal values and social standards

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Conflict between personal values and organisational goals
Ethical dilemmas can be referred to as the complex situations that involve conflict of
moral interests while choosing from the available alternatives. An individual in an
ethical dilemma may have a number of questions in his/her mind. Some of them are:
What should I do?
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What is right and ethical?
What will be the consequences of my actions and decisions?
What kind of damage or benefit will result from the chosen way?
Would I be individually accountable if something goes wrong?
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Who will protect me in case of any legal complications?

In the case of an ethical dilemma, various alternatives are developed for taking
a particular decision. In such a case, there may be confusion regarding the best
decision. To overcome this confusion, suggestions are taken from the stakeholders.
The alternative that is accepted by the majority is finally selected.
A business professional can deal with a situation of ethical dilemma by applying:

Principled thinking resulting into ethical reasoning
Moral creativity to argue with stakeholders
Negotiating skills to articulate with stakeholders claiming unethical interests
Self-moral values’ identification to set the standards of ethical and unethical
Characteristics of Ethical Dilemma

Ethical dilemmas are one of the common occurrences in business enterprises. They
occur when a professional or manager needs to make a choice between a morally
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Notes upright choice and an organisational goal. An ethical dilemma is a moral dilemma
that results in a debatable decision-making process, arising out of a choice between
two moral principles, each of which is right. Some of the characteristics of ethical
dilemma are as follows:
Choice between equally confusing and disagreeable situations; no choice is right
or wrong
Choices come with consequences to the individual, relationships and society
Involves conflict between individual and professional or societal values
Unavailability of data to support the decision
Cannot be solved but can be resolved
Indecisive outcomes
Availability of limited resources to handle the confusing situation
5.2.1 MANAGING ETHICAL DILEMMA

Most of the business professionals face ethical dilemmas at work. These dilemmas
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are a result of conflicting and competing interests, pressure to achieve targets and
cultural differences. Many business professionals and leaders feel that they were not
prepared to tackle the dilemmas and felt bounded to take decisions that they may
regret later. There are various challenges and contradictions which impact the ability
of a professional to act ethically. A business professional can manage a situation of
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ethical dilemma by:
Understanding the long-term interest of the organisation
Working on his/her emotional intelligence
Increasing his/her awareness about the organisation and its culture
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Focussing on long-term sustainable success

Focussing on meritocracy in promotion and payments
Collecting regular feedback how employees feel about the organisation
Focussing on building a strong and diverse personal network
Showing greater empathy towards colleagues
Speaking your mind and remaining true to your own personal values
Improving the ethical climate in the organisation
It is a challenge to manage ethical dilemmas. Renowned ethicist R. Kidder provided
a step-by-step process to sort out this problem. Let us discuss each of these steps in
detail:
1. Recognise the problem: This is the first step in the process of managing an ethical
dilemma. It strives to accept that there is a problem that requires attention and
needs help to address moral questions.
66 2. Determine the actor: The next step after recognising the problem is to determine
who would address the problem. For example, one may be concerned about the ill
treatment to its employees by the employer; however, he/she cannot take any steps Notes
if he/she is not a part of the said workforce or, in any way, related to the business.
3. Gather relevant facts: Every action of a decision-maker needs to be backed by
adequate information about the problem in hand. Concentrating on details is very
important in the process of managing ethical dilemmas. For example, while taking
a decision whether to suspend an employee for a financial fraud in a company, the
disciplinary action committee would hear from the fellow employees, reporting
officers and other stakeholders. The committee would also check the past record
of the employee and length of his/her service to the company before deciding on a
course of action.
4. Test for right vs. wrong issues: Three tests are provided by Kidder to decide right
vs. wrong issues. These are:
zz Stench test: If a choice made by a decision-maker gives him/her unpleasant
feelings, then it would be a weak one.
zz Front page test: If the decision-maker realises that publishing his/her decision in
the front page of tomorrow’s newspaper would make him/her feel unpleasant,
then such a decision is a poor one too.
zz
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Mom test: Finally, if the decision would damage the moral code of a person
for whom the decision-maker cares a lot, then such a decision is poor and need
not be taken.
5. Test for right vs. right values: According to Kidder, there can be many
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circumstances where two right values are in conflict with one another. Therefore,
it becomes essential for the decision-maker to determine if there is a right vs. right
value in conflict. The following are the right vs. right value conflicts:
zz Truth-telling versus loyalty to others and institutions: Often in organisational
context, people are faced with situations whether to tell the truth or to blow
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whistle about the misdeeds of a fellow employee. Telling truth may threaten
one’s loyalty to a person or to an organisation. As per Kidder, truth-telling
versus loyalty is the most common scenario.
zz Short-term benefits versus long-term negative consequences: Sometimes
seeking short-term benefits might lead to long-term negative consequences.
For example, giving a heavy pay increment to employees might lead to the loss
of a business in the long run.
zz Justice versus mercy: Sometimes being just and considering cases with an even
mind might compromise on the values of love and concern.
zz Personal needs versus the needs of the community: Sometimes the innate
desire to satisfy one’s personal need might negatively impact the needs of a
community at large.
6. Apply ethical standards: After the conduction of tests, one needs to apply the
most appropriate ethical standards and principles. Some of the principles may be
as follows:
zz Utilitarianism 67
zz The rights approach
Notes zz The fairness or justice approach

zz The virtue approach
zz The common good approach
zz The issue contingent approach
7. Look for a third way: Decision-makers facing an ethical dilemma are often faced
with two alternatives. However, Kidder supports looking for a third way. He
says that sometimes conflicting values can be resolved through negotiations and
cooperation. For example, the Camp David peace accord was the result of such
negotiations. Egypt insisted that Israel should return the seized land on the West
Bank. However, Israel confronted as this land was a buffer zone that ensured
security to Israel. Egypt then pledged not to attack Israel in future, which resulted
in the land being returned to Egyptian territory.
8. Make the decision: This is the point where one needs to make a decision after
analysing all the aspects of the conflict at hand and showcase the leadership skills.
9. Revisit and reflect on the decision: The last point in the list of Kidder is to learn
from the choices one has made during an ethical dilemma and apply the lessons to
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some other problem in the future.
1. To overcome the situation of ethical dilemma, suggestions should be taken
from the ______________.
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2. Which of the following is not a correct method to deal with a situation of
ethical dilemma?
a. Company profit should be the first priority
b. Moral creativity to argue with the stakeholders
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c. Negotiating skills to articulate with the stakeholders

d. Self-moral values identification
5.3 ETHICAL DILEMMA RELATED TO DIFFERENT BUSINESS

FUNCTIONS
An organisation can be considered as a structure created by combining various
departments or functions, such as Financial, HR, Marketing department, etc. The
personnel working in each department may face different types of ethical dilemmas.
Let us explore the kinds of ethical dilemma faced by various functional departments
in organisations.
5.3.1 FINANCE
Organisations face various issues of ethical dilemmas, such as fabricated statement
of accounts and other financial records. Practice of ethics in finance and accounting
ensures the moral decisions regarding the preparation, presentation and revelation
68 of financial information. It is necessary for the finance and accounting professionals
to conduct themselves ethically to achieve individual, organisational and societal Notes

objectives all at the same time.
During the past few years, several national and international accounting scandals
have occurred that put a serious question mark on the accountability of finance
and accounting professionals. Several organisations, such as Enron, Tyco, Global
Crossing, Quest, Xerox, Adelphia, etc., were involved in unethical practices by using
wrong and manipulative accounting information.
The principal-agent relationship is an arrangement between two parties, in which

one acts as the agent for the other and carries out the transactions on behalf of the
other. Irregularities in the conceptual framework of financial theories and extensive
use of the principal-agent association in financial transactions have given rise to
ethical conflicts and ethical dilemmas.
The principal-agent relationship has gained popularity in the modern financial

and economic conditions. This is because people generally have limited knowledge
and time to carry out financial services on their own. From the management of
retirement benefits, to investment in markets, to protection against risks through
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insurance and savings; everything is managed by the principal-agent framework.
This overdependence (by principal) on the agency services and lack of proper
information to monitor agent behaviour on one hand and selfish human behaviour
(of the agent), on the other hand, have given rise to ethical conflicts and problems in
the finance arena.
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Let us discuss some of the causes of ethical dilemmas in finance:
Conflict of Interest
The ethical dilemmas in finance mainly relate to conflict of interest. A few examples
are as follows:
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Pressure from management to manipulate financial statements

Accommodate financial fraud perpetrated by a relative or friend
Pressure from clients to manipulate financial statements
Accommodate unqualified audit report
Pressure from Management

Pressure from management to support wrong balance sheet.
Management wants to see a healthy balance sheet, high income reports and good
cash balances.
Accountants may unethically alter the company’s financial records. They may
manipulate numbers to create a false positive impression of the organisation.
Self-centredness
Where a person stands to profit from a falsified activity or transaction
Where the person would get a bonus, promotion, etc., if the company is seen to be 69
doing good
Notes Human Emotions

An accounts or finance practitioner may be reluctant to report any financial
violations of the organisation as it may lead to negative situation for himself.
No one wants to be the reason for an employee losing his/her job as a result of
adverse report.
The course of action that can be adopted in case of ethical dilemma in finance are as
follows:
Stay focussed on the facts of the issue and put aside emotions
Analyse the consequences of your decision
Identify the ethical issues and company policy related to it
Always prefer the supplier who will advance a line of credit rather than a non-
credit-worthy company
Always adhere to the professional code of conduct
Your main concern should be the long-term goal of the company.
5.3.2 MARKETING
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Ethical issues in marketing include moral and ethical principles and problems
arising in the marketing environment. Carrying out ethical marketing practices is
very important for an organisation because any unethical action of an organisation’s
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part may damage the image of the organisation in the market. Ethical issues in
marketing include negative aspects, such as false claiming of product features and
unfair competitive strategies.
For example, in 2010, Dannon advertised its Activia brand of yogurt as being clinically
and scientifically proven to boost human immune system and aid in digestion. The
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advertisement featuring actress Jamie Lee Curtis claimed that the yogurt had special
bacteria. Due to this additional quality, it was sold at 30% higher prices than other
similar products. The advertisement was reported and investigated in which it was
found that the claims of the company were unproven. Advertisements containing
such flawed statements to promote a product are considered deceptive and factually
inaccurate.
In case of ethical dilemma, marketing professionals may introspect and find answers
to the following questions:
How far can you go in stealth marketing?
Can you sell customer information?
Should you recall a flawed product?
Whether the product comparisons are fair and factual or not?
Ethical dilemmas in marketing are related to the following issues:
Product-related: These issues occur when marketers face ethical issues related to
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products, such as features, value, usage and associated risks. This happens when
marketers are not sure about the quality of the product. Product-related ethical Notes
issues may also relate to:
zz Packaging and labelling practices
zz Maintaining quality standards for products
zz Product safety
Promotion-related: Promotion of products through mass media can promote the
image of a brand or an organisation if used properly. It helps in promoting products
and other offerings, which are produced and distributed to a large audience. It is,
therefore, important not to overlook social, ethical and legal aspects of promoting
a product or service through mass media. For instance, the Indian law prohibits
the advertisements that promote the usage of cigarettes and alcoholic drinks. Any
advertisement that shows magical or supernatural ways to cure any illness or
disease is not permitted either. Misleading advertising and sales promotion stunts
are major unethical practices followed at product/service promotional level.
Price-related: If marketing professionals indulge in unethical marketing practices,
they may lose customers forever. Marketing professionals are very particular about
5.3.3
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price fixing. Bid rigging, deceptive pricing, unfair pricing, price discrimination,
price skimming and dumping of products should be avoided to overcome the
issue of the ethical dilemma in marketing.
HUMAN RESOURCE MANAGEMENT

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Ethical issues faced by HR personnel include unfair compensation, inequitable
performance appraisal and discrimination of employees on the basis of age, gender,
religion or disability. These factors lead to employee dissatisfaction and may
negatively affect the employee motivation and organisational performance. Some
of the causes which create the situation of ethical dilemma for HR personnel are as
follows:
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Organisational transformation
Behaviour of policy-making persons
Role conflicts
Precision in reporting
Favouritism by organisation’s management
It is unethical to make distinction among individuals on the basis of caste, colour, sex
and creed while selecting them for jobs. Such discrimination is generally based on
personal perceptions of the recruiter. For example, a recruiter may be more inclined
to select a candidate who belongs to the community to which he/she belongs. It is a
serious unethical practice related to HRM as the selection should rather be done on
the basis of skills, performance, education, experience and knowledge. Such unethical
practices affect the productivity and quality of tasks within an organisation.
Moral codes, experience and individual perspective of an HR personnel play a major

role in dealing with the situation of ethical dilemma. An HR person must always 71
Notes ensure that his/her decision reflects on a full range of potential solutions and their
possible consequences.
Ethical dilemmas exist in performing various functions of human resource

management. Some of these are explained below:
Performance appraisal: Performance appraisal is the process of evaluating
the performance of employees in relation to the set objectives and standards.
Performance appraisal assesses the worth of an employee for an organisation.
Ethical dilemmas exist in this area too. As the process of appraisal is carried out
through observation and judgement (superfluous reporting of traits, underrating
on the basis of caste, religion or community), there are chances that the assessor
makes an error doing injustice to the employee. Therefore, it should be ensured
that the decision regarding assessment is honest and trustworthy.
Employee turnover: Employee turnover occurs when employees switch their
present jobs for better career growth and higher prospects. Traditionally, both
employers and employees valued a long tenure association, as they believed that
with long-term association, employees developed their skills and knowledge,
which eventually paid rich dividends to the organisation. However, this scenario
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has changed with the changes in the technology and systems. Now, employees are
in constant search for better-paying jobs and career growth. Organisations also
pay better to such candidates and do not mind if someone quits. This may create
an ethical dilemma for the HR Manager as he/she would be faced with questions
from the existing employees if a new employee in the similar role is paid better.
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5.3.4 INTERNATIONAL BUSINESS
There are various ethical issues recognised in international business, some of which
are fundamental sources of ethical dilemmas. Let us now discuss the sources of
ethical dilemmas in international business.
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One of the most important ethical dilemmas that international managers face is
that of corruption, which includes paying bribes to government officers, different
political parties, influential persons, in the absence of which it becomes difficult for
the organisations to carry out their international business. The amount of money that
the organisations have to pay as bribe could otherwise be used for other important
organisational tasks.
For example, it was reported that Lockheed Martin Corporation, an American global
aerospace, defense, security and advanced technologies company, had paid bribe to
Japanese politician and businessman.
Apart from corruption, multinational organisations also suffer as a result of

industrial reconnaissance. It means that many organisations obtain information
about the competitors’ or rivals’ activities through unethical means.
Multinational organisations work in different countries and they create different

policies with respect to different HR functions, such as recruitment, promotion and
72 remuneration for each country or region. It means that they behave differently with
the employees in different countries.
A lot of organisations deliberately hide certain product information from its Notes
consumers. For example, McDonald’s, world’s leading fast food chain, faces
the allegation that it promotes a diet of fast food which is a major contributor to
escalating rates of obesity. It has also been accused of misleading consumers about
the health-related aspects of its products.
In relation to multinational organisations, it can be stated that if they continue to

behave ethically, they may not yield the desired results initially, but in the long-
run, ethical practices would surely lead them to success. On the contrary, while
unethical practices may bring in immediate benefits for the organisation, it would
most probably lead to losses in the long-run.
Most of the dilemmas faced by multinational organisations can be solved if they

adopt the practice of respecting basic human rights and local culture.

3. Practice of ethics in finance and accounting ensures the moral decisions
regarding the preparation, presentation and revelation of financial statements.
(True/False)
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4. Indian law prohibits the advertisements that promote the usage of _______.
A ctivit y
List and explain the different dilemmas that the production department of an
organisation can face.
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5.4 SUMMARY
Ethical dilemmas are complex situations that involve conflict of moral interests
while choosing from the available alternatives.
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Ethical dilemmas are the result of conflicting and competing interests and pressure
to achieve targets and cultural differences.
Practice of ethics in finance and accounting ensures moral decisions regarding the
preparation, presentation and revelation of financial information.
Ethical dilemmas in marketing are usually related to:
zz Product-related issues
zz Promotion-related issues
zz Price-related issues
Ethical issues faced by HR personnel include unfair compensation, inequitable
performance appraisal and discrimination of employees on the basis of age,
gender, religion or disability.
Fundamental sources of ethical dilemmas in international business include corrupt
business practices, industrial reconnaissance, etc.
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Notes 5.5 KEY WORDS

Stakeholders: An individual, group or association that has interest or concern in
an organisation. Stakeholders can influence or be influenced by the association’s
activities, objectives and policies.
Emotional intelligence: A capacity to comprehend the manner in which
individuals feel and respond and to utilise this ability to make great decisions and
to evade or take care of issues.
Financial statements: A report provided by an organisation for its shareholders and
investors that indicates details of its financial situation and includes documents,
such as the profit and loss account and balance sheet.
Stealth marketing: A marketing strategy that involves marketing a brand or
product to a person in such a way that they do not realise that they are being
marketed to.
Bid rigging: An illicit conduct by organisations that are competing for work in
which they make a secret understanding (for example, to expand their costs or to
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share the work all together) so that all the conspiring parties gain monetarily.
5.6 CASE STUDY: ETHICAL DILEMMAS FACED BY KENTUCKY FRIED

CHICKEN (KFC)
KFC is a well-known and very popular restaurant chain that specialises in chicken
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delicacies. KFC boasts of having a chain of over 21,000 KFC outlets in more than 130
countries around the world. The KFC operates mainly through franchising models.
KFC was established by Colonel Harland Sanders in 1952.
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Source: https://www.bubblestranslation.com/wp-content/uploads/The-KFC-Export-Strategy-China.jpg
With the improvement in the infrastructure, lifestyle and standard of living,

individuals are now concerned about what they consume and they want to avoid
unhealthy food. This consumer attitude is a problem for KFC because KFC utilises oil
which contains trans-unsaturated fats. Trans-unsaturated fats increase cholesterol
levels and may also cause coronary diseases. As a result of such claims, public and
74 health organisations started demanding that KFC should use better and healthy
cooking oils.
In China, KFC prepares its new item called New Orleans Roasted Wing with the Notes
help of oil containing trans-fats along with Sudan Red. Sudan Red is a dye used for
colouring solvents, oils, waxes, petroleum products, and shoes and floor polishes.
It cannot be used safely in food articles as it is known to increase the risk of cancer.
China’s well-being service discovered this practice of KFC and stopped KFC from
utilising the Sudan Red. Such conduct on part of KFC was unethical and impact
brought a bad name to it, for example, negative media reports.
KFC could have refrained from using Sudan Red as it was ethically and morally
wrong. It had the responsibility of protecting the health of its consumers. KFC
understood the gravity of the situation and stopped utilising Sudan Red and oils
containing trans-fats.
In order to deal with this kind of ethical dilemma, KFC issued a media statement of
regret for utilising oil containing trans-unsaturated fats and Sudan Red. Additionally,
KFC guaranteed to never utilise the oils which contain trans-unsaturated fats and
Sudan Red. It also guaranteed an exhaustive examination concerning the issue. The
firm dropped its supersizing alternatives and put a scope of new sound choices on
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the menu, including plates of mixed greens and barbecued chicken flatbreads, etc.
KFC frequently joins public service in China. KFC contributes funds of 15.8 million
through the China Charity Federation, Chinese Red Cross Foundation and China
Foundation for Poverty Alleviation. Apart from donating money, KFC also supplies
some basic products, such as cleaned water, bread, sunshade, gauze masks, etc.
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Kentucky Fried Chicken also contributes for social benefits; for instance, media
reports and increase in brand awareness. Conduct of KFC has left a positive
impression on Chinese people and the Government. Brand name reputation of KFC
has improved.
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For KFC, business ethics are now an extremely important business subject. Dilemma
and problems related to business ethics usually receive high levels of consideration
from all quarters.
In a word, it tends to be said that business ethics is critical to a business association.

It can help a business association effectively win the appreciation of customers. KFC
assures that its food items are safe and healthy.
Source: https://www.ukessays.com/essays/business-strategy/ethical-dilemmas-faced-by-organisations.php
Questions
1. How does KFC deal with the issue of ethical dilemma?
(Hint: KFC issued a media statement of regret for utilising unhealthy oil.)
2. What is the best ethical practice followed by KFC in China?
(Hint: KFC frequently joins public service in China.)
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Notes 5.7 EXERCISE

1. Describe the issue of ethical dilemma in a business organisation.
2. Describe the situation of ethical dilemma in human resource management.
3. What are the fundamental sources of ethical dilemma in international business?
4. Describe the methods to deal with ethical dilemma.

Topic Q. No. Answer
Meaning of Ethical Dilemma 1. stakeholders
2. a. C
ompany profit should be the first
priority
Ethical Dilemma Related to Different 3. True
Business Functions
4. cigarettes and alcoholic drinks
SUGGESTED BOOKS

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Carroll, A., & Buchholtz, A. (2006). Business and society. New York: Thomson South
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Western.
Garsten, C., & Hernes, T. (2009). Ethical dilemmas in management. London: Routledge.
E-REFERENCES
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(2019). Retrieved from https://www.sciencedirect.com/science/article/pii/

S2212567112001955
Business Ethics and Corporate Governance, Second Edition. (2019). Retrieved
from https://www.oreilly.com/library/view/business-ethics-and/9789332511255/
xhtml/c10s2.xhtml
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Ancient Indian Concept of Karma and
its Applications in Management
Table of Contents
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6.1 Introduction
6.2 Concept of Karma and its Relevance with Business
6.2.1 Managers and Karma
6.2.2 Nishkam Karma
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6.3 Laws of Karma
6.4 Ethical and Value-based Leadership
6.5 Business of a Hindu Undivided Family (HUF)
6.5.1 Leadership Styles of Karta
6.6 Corporate Karma Leadership
6.7 Summary
6.8 Key Words
6.9 Case Study
6.10 Exercise

Relate the concept of Karma with business
Explain the Laws of Karma
Discuss ethical and value-based leadership
Describe the business of a Hindu Undivided Family (HUF)
Explain corporate Karma leadership
6.1 INTRODUCTION
In the previous chapter, you have studied the meaning of ethical dilemma and how to
manage it. Ethics in business is related to carrying out fair and transparent business
practices. The concepts of ‘Ethics’ and ‘Karma’ are closely related in business. The
concept of Karma began from Hinduism and evolved into many religions. Over the
years, it has acquired massive popularity, even in the West, to define the chain of
cause and effect.
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Karma means an action that we do, through our body, speech or mind. We all create
Karma every second of the day, and our Karma affects us every second. A popular
perception of Karma is something one did in his/her previous life that seals the fate
in this life. However, Karma is much beyond that. It is an action, not a result.
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According to the law of Karma, our thoughts, words and actions lead to a chain
of cause and effect. An individual experiences the effects of everything he/she
does. If not right away or in this lifetime, then in some other way, but we definitely
experience the consequences of our actions. There are several people who reject
the significance of Karma, due to their religious affinity, attitude to technology
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development or plain ignorance. It is important to understand that this is not just

an eastern custom fantasised by certain yogis or the Buddha. The basic premise of
Karma is that virtuous actions lead to happiness and non-virtuous actions generate
suffering.
Despite our beliefs, we all agree that all living beings suffer. Getting happiness and
comfort is a non-ending pursuit of life. Whatever a person’s status in society, he/she
tends to suffer from a reason sometime in life. The reason may be financial, family-
related or ill-health. The main point is that it causes suffering to an individual.
Buddha asked why this suffering existed in the first place. His answer was Karma.
Whatever one experiences in life, it is due to Karma he has gained. If we do not
respect Karma, then we are bound to suffer in ignorance.
In this chapter, you will study about the relevance of Karma with business. Further,
the chapter explains the Laws of Karma. Thereafter, you will be familiarised with
the concept of ethical and value-based leadership. Towards the end, the chapter will
discuss the concept of Hindu Undivided Family (HUF) and the corporate karma
leadership in detail.
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Ancient Indian Concept of Karma and its Applications in Management
6.2 CONCEPT OF KARMA AND ITS RELEVANCE WITH BUSINESS Notes
In literal terms, Karma refers to the cosmic law of cause and effect. In other words, it
refers to a principle according to which any intentional action, whether by thought or
speech, of an individual in the past or present influences his/her future. In the world
of business, the concept of Karma is related to corporate integrity. It means that a
business organisation must inculcate a set of values to achieve its objectives. These
ethical values include honesty, transparency and ethical stewardship in business
dealings of an organisation. By incorporating such values in their business practices,
organisations are able to build trust of customers and achieve long-term value. On
the contrary, organisations that fail to imbibe ethical values and get involved in
malpractices are destined to run into sufferings in the end. For instance, recently, the
Supreme Court is taking a strict disciplinary action against real-estate firms involved
in misusing customers’ funds and not delivering flats on time. On spiritual grounds,
their bad Karma has brought them to this state. Therefore, it can be said whatever
an organisation/individual does in the present shares a karmic relationship with
the results faced in future. Only those businesses that uphold integrity and honesty
in their corporate dealings can ensure their long-term survival. It may seem that
6.2.1 MANAGERS AND KARMA

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people who indulge in wrongful dealings are able to escape the law, but sooner or
later, the law of Karma will catch up with them.
Generally, an organisation creates various policies, frameworks and procedures in

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order to achieve its business objectives. However, the organisation cannot achieve its
objectives without the enthusiasm of managers. The main job of managers is to enable
an organisation achieve its business objectives, thereby boosting investor value. In a
nutshell, it can be said managers perform business Karma to achieve organisational
objectives. As per the Western philosophy, business managers must demonstrate the
following behaviours to work efficiently towards the accomplishment of business
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goals:
High supervisory control
High level of competitiveness
Unemotional approach to goal achievement
Emphasis on winning at all costs
6.2.2 NISHKAM KARMA

‘Nishkam’ means desireless, while ‘Karma’ means action. Thus, Nishkam Karma is
the desireless or selfless action performed. Nishkam Karma constitutes the central
theme of Karma Yoga, the path of selfless action. As per the law of Karma, an
individual who exhibits Nishkam Karma achieves the highest state of enlightenment.
The concept of Nishkam Karma has come from Bhagavad Gita, where Lord Krishna
teaches Arjuna to fight without any desire for results. This is because the desire for
results leads a fear of failure in the minds of individuals, which can make them give
up at the first instance and not to take any action. 79
Notes The concept of Nishkam Karma has great relevance with the business world. It
suggests that work should not be a burden; rather, it should act as a liberating force
for individuals. This is because when individuals work diligently without being
attached to the results, it liberates them from unnecessary stress and burden. By
implementing the concept of Nishkam Karma, managers can accept challenges in
work whole-heartedly, which, in turn, can boost productivity and excellence.

1. In the world of business, Karma is related to _________.
2. Nishkam Karma constitutes the central theme of Karma Yoga, the path of
selfless action. (True/False)
A ctivit y
The following are other three classes of Karma according to their inborn
characteristics or gunas:
Sakam Karma (self-focused activity)

Tāmasika
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Akarma (inaction)
Find information on these classes and their relevance with business practices.
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6.3 LAWS OF KARMA
There are 12 essential laws of Karma that can transform an individual’s life. Let us
discuss these laws in detail:
1. The Great Law: According to this law, an individual’s thoughts, words and actions
have consequences. Therefore, this law is also called the law of cause and effect.
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To achieve peace, love, harmony and prosperity, one must act accordingly. For
example, if you desire for true friends in your life, you must be a true friend. The
Great Law states that you get what you put in.
2. The Law of Creation: This law focusses upon taking actions to be successful. An
individual cannot simply sail through life and expect things to fall into place.
According to this law, leaving things to mere chance is nothing but wishful
thinking.
3. The Law of Humility: This law emphasises one cannot change one’s path unless
one changes something about oneself. In other words, the law states that one must
confront and accept uncomfortable truth about one’s behaviour in order to seek
true joy.
4. The Law of Growth: The law states that the people one meets and the places one
inhabits are entirely one’s choice. Also, the law states that one is responsible for
change and cannot expect circumstances to change.
80
5. The Law of Responsibility: This law focusses on taking ownership of one’s life— Notes
where one is right now, where one wants to be and what one needs to do to get
there. In other words, one must be an instrument of the change one wishes to seek.
6. The Law of Connection: This law states that the universe is a patchwork of
interconnected energy. Thus, one must be aware of minute details of one’s life for
things to fall into place.
7. The Law of Focus: The law states that one can focus on only one thing at a time and
a divided mind is more susceptible to negative thoughts like greed and selfishness.
8. The Law of Giving and Hospitality: According to this law, one’s beliefs must
translate into actions. For example, if you claim to be a true friend, then at some
point in your life, you will be called to demonstrate this trait. Therefore, one’s
action will only help in one’s journey of self-discovery.
9. The Law of Here and Now: According to this law, Nirvana or enlightenment exists
on the earth in impermanent moments; therefore, one must exist in the present
and appreciate it.
10. The Law of Change: According to this law, history keeps on repeating itself unless
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one institutes the change one wishes to see.
11. The Law of Patience and Reward: This law states that one must accept the hardship
whole-heartedly believing that the goal will definitely arrive, no matter at its own
time and place.
12. The Law of Significance and Inspiration: According to this law, you get what you
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put. So, if you put in love and energy into something, you will get a similar result.
3. According to which law of Karma must one’s beliefs translate into actions?
a. The Law of Giving and Hospitality
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b. The Law of Here and Now

c. The Law of Change
d. The Great Law
4. An individual can simply sail through life and expect things to fall into place.
(True/False)
6.4 ETHICAL AND VALUE-BASED LEADERSHIP

Values refer to basic core beliefs that impact one’s decisions, while ethics are implicit
rules that lead to the establishment of principles of good conduct. When one’s value
system drives good and bad conduct, they are known as ethical values. Value-based
leadership is a style of leadership that is exhibited by staying true to one’s values
and beliefs but, at the same time, being flexible in one’s principles. However, the
underlying values, beliefs or principles of these leaders remain the same. In an
organisation, the value-based leadership is exhibited by identifying one’s personal
81
Notes values and aligning these personal values with organisational values. This alignment
is reflected in one’s organisation’s mission, vision, strategy, performance measures,
incentive programmes and procedures. The following are two benefits of value-
based leadership:
Fewer conflicts: According to value-based leadership, the core principles of
managers and workers are not different and they are the same. As a result, there
will be fewer instances of conflicts.
Better results: The productivity of an organisation increases when managers and
workers work with the same set of values and mindsets. This will lead to more
profitability, better sustainability and increased business integrity.
5. Values refer to basic core beliefs that impact one’s decisions, while ethics are
implicit rules that lead to the establishment of principles of good conduct.
(True/False)
6. Value-based leadership is exhibited by identifying one’s personal values and
aligning these personal values with ______________.
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6.5 BUSINESS OF A HINDU UNDIVIDED FAMILY (HUF)
The joint Hindu family business is a unique type of business organisation in India.
Also, it is one of the oldest forms of business in the country. The joint Hindu family
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business is controlled under the Hindu law, instead of the Partnership Act, 1956.
According to the law, “When two or more families agree to live and work together,
throw their resources and labour with joint stock and share profits and losses
together, then this family is known as a composite family.”
The joint Hindu family does not have any separate or distinct legal entity from that
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of its members. A person can acquire membership only by birth or after getting
married to a male person who is already a member of the family. This family business
is managed by a person known as ‘Karta’ or manager. His primary responsibility is
to take decisions in consultation with other family members. However, he has the
final say in the end. He has unlimited liability in the family business, while the
liability of other members is limited to their shares in the business. Following are the
main characteristics of the joint Hindu family business:
Ownership: As mentioned earlier, the joint Hindu family business is managed
under the Hindu law. There are two schools of the Hindu law, namely Dayabhaga
and Mitakshara.
Management: The Karta/manager is responsible for controlling and managing all
the affairs of the family. He is the seniormost male member of the family. The Karta
works in consultation with other family members; however, he has the final say.
All the members of the HUF have confidence in Karta. Only he is entitled to deal
with outsiders. Other members of the family can deal with outsiders only after the
permission of Karta.
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Membership: A person can become a member of the joint Hindu family business Notes
by birth or by marriage to a male member of the family. A male child becomes
a member of the family business as soon as he is born. Membership requires no
consent or agreement.
Liability: The Karta holds unlimited liability in the business and his separate
property is equally attachable to the business. An amount of debt can be recovered
from his separate property. The liability of other members is limited to their shares
in the business.
Continuity: If the Karta dies, the responsibility of the business is transferred to
another male senior member of the family.
Existence: The business is not affected by the death, lunacy or insolvency of any
family member (unlike the Partnership Act, 1956). The family carries on with the
business.
Rule for minors: Unlike partnership, a minor is also a partner in the joint Hindu
family business. In partnership, a minor cannot become a partner, though he may
be admitted to the benefit of partnership.

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Dissolution: The joint Hindu family business can be dissolved only at the will of
all members of the family. Any single member does not have the right to dissolve
the business.
There are certain advantages and disadvantages of the joint Hindu family business.
Some of them are given in Table 1:
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Table 1: Advantages and Disadvantages of Joint Hindu Family Business
Advantages Disadvantages
A joint family business is easy to start, and Membership is limited only to family
thus, requires no legal formalities, such as members and no outsiders are allowed. In
registration or agreement. this case, it can become difficult in a situation
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when members are less and business

activities to be performed are more.
There is efficient management of business A family-owned business is generally of
activities because they are centralised in the a small scale because of limited sources
hands of Karta. of capital. This is because resources are
restricted only to one family.
As the Karta takes all decisions, secrecy can There are high chances that there are limited
be maintained. This means ideas are not managerial skills as the Karta may not have
disclosed before they are actualised and sufficient managerial ability to manage the
presented in the market. business. Also, due to the limited scale of
operations and financial resources, it can
be difficult for the Karta to hire expertise in
purchasing, production and marketing.
There is always quick decision-making as The separate property of Karta is equally
the Karta has the sole responsibility of taking attached to the business; therefore, there
business decisions. The Karta may or may not is unlimited liability of the Karta. This can
consult with anyone while taking decisions. hamper the growth of the business.
This enables him to take prompt decisions.
83
Notes Advantages Disadvantages

As the Karta spends money with great As no other family member can interfere with
caution, there are no over-expenses. his decisions, the Karta can make misuse of
his power.
More credit facilities, as the Karta has
unlimited liability and can also raise credit
from other family members.
More autonomy in selection of business, as
the Karta does not depend on others for his
decisions.
6.5.1 LEADERSHIP STYLES OF KARTA

Traditionally, India has been a patriarchal society. The concept of Karta finds its
roots from this ‘Patriarch’ concept of ancient family units. His power is supreme and
absolute. Figure 1 shows the powers of Karta:
Power over Income and Expenditure
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Power to Manage Joint Family Business
Power to Contract Debt for Family Purposes

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Power to Enter into Contracts
Power to Refer to Arbitration on any Maer

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Involving the Interest of the Family
Power to Enter into a Compromise on any

Maer Relating to the Family
Power to give Discharge to a Debt due to Family
Power to Acknowledge Debts or make a Part

Payment of it to Extend the Period of Limitation
Power to Represent in a Suit
Power of Alienation of the Family Property
84
Figure 1: Powers of Karta
The Karta is not a dictator. Rather his position is extremely sensitive and he must Notes
consult all family members about his decisions. He needs to maintain a delicate
balance between his rights and duties.
The following are the duties of the Karta:

Duty to render accounts of other members regarding income from the family
property and expenditure thereon
Duty to realise the debt due to the family
Duty to spend the family funds reasonably only for the family’s purposes
Duty to start a new business only with the consent of other members of the family
Under an HUF system, it is the responsibility of the Karta to provide food, shelter,
clothing, etc., to all its members. He has four major responsibilities, which are shown
in Figure 2:
Maintenance of Family Members
Marriage of Family Members
Division of Property
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Representation to Outsiders
Figure 2: Responsibilities of Karta
Let’s discuss these responsibilities of the Karta:

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Maintenance: Each member of the joint family has the inherent right to
maintenance. The Karta is responsible to provide for their maintenance. In case
the Karta excludes a member from getting maintenance, a legal action can be taken
against the Karta for both non-maintenance and the arrears of maintenance.
Marriage: The Karta is responsible for each unmarried member’s marriage,
especially the marriage of daughters since it qualifies as a sacred duty in the Hindu
law. He can take the expense of the marriage out of the joint family property. If he
uses external sources to meet the expenses, then they must be reimbursed from the
joint family funds.
Division of property: The Karta is responsible for the actual division of property,
provided the family members express a desire to divide the property. The Karta
must divide property among members according to their shares. It should be
noted here that any partition brings the joint family status to an end.
Representation: For any individual or entity including the Government, HUF is
represented solely by its Karta. Therefore, he is responsible for various duties,
such as paying taxes and all other dues on time. 85

7. A business run by an HUF is controlled under the Hindu law instead of ______.
8. Under an HUF system, it is the responsibility of the Karta to provide food,
shelter, clothing, etc., to all its members. (True/False)
9. Which of the following statements is not correct about the duties of the Karta?
a. Duty to render accounts of other members regarding income from the
family property and expenditure thereon
b. Duty to realise the debt due to the family
c. Duty to spend the family funds unreasonably only for the family’s purposes
d. Duty to start a new business only with the consent of other members of the
family
6.6 CORPORATE KARMA LEADERSHIP

A business can be successful if it has a combination of both efficient managers
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and leaders. Managers and leaders are often confused with each other and are
considered to be the same, but that is not the case. There are certain characteristics
that are common to managers and leaders both. It must be remembered that not all
managers are leaders. However, all leaders are managers. People follow leaders, but
they work for managers.
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An organisation is effective only if it has a good set of managers and leaders who
share Karmic values to accomplish their tasks. Karma is a real-life practical lab where
managers and leaders can exhibit their best ability to create an environment of constant
interaction and influence and motivate others to achieve organisational goals.
Karma inspires leaders and managers to treat people fairly, be honest in their
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dealings, tell the truth (however hard it may be) and treat everyone with respect and
kindness. The cosmic law of Karma will pay them equitably and their business will
prosper for a long period.
There may be some people who dismiss the impact of Karma on business. However,
Karma states that when you dwell on negative thoughts, you create your own path
to self-destruction. Karma’s message that doing good will accumulate benefits now
and in the future, while doing bad makes things worse is just what many of today’s
narcissistic and arrogant leaders need to understand.
Table 2 shows how leaders and managers can generate good business Karma in their
separate but effective ways:
Table 2: Leaders vs. Managers
Leaders Managers
Good Karmic leaders express values to Good Karmic managers appraise employees fairly,
employees and appreciate those who effectively and compassionately based on their
reflect correct values. performance. They evaluate their employees’
86 performance regularly and fairly, and encourage
performance improvement.
Leaders Managers Notes

Good Karmic leaders inspire employees Good Karmic managers motivate employees to
in the organisation. They do so by accomplish goals within deadlines and with a
making the result so appealing that specific quality level.
others are willing and eager to commit
to them.
Good Karmic leaders keep on improving Good Karmic leaders strengthen team
themselves. By doing so, they impel engagement to encourage team members to work
others to their own self-improvement. with increased rigour to achieve organisational
goals.

10. While the two inherently share many features, they differ in that not all
managers are leaders, but all leaders are managers. (True/False)
11. Karma states that when you dwell on negative thoughts, you create your own
path to __________.
6.7 SUMMARY

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In literal terms, Karma refers to the cosmic law of cause and effect. In other words,
it refers to a principle according to which any intentional action, whether by
thought or speech, of an individual in the past or present influences his/her future.
In the world of business, the concept of Karma is related to corporate integrity.
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The main job of managers is to enable organisations achieve their business
objectives, thereby boosting investor value. In a nutshell, it can be said managers
perform business Karma to achieve organisational objectives.
‘Nishkam’ means desireless, while ‘Karma’ means action. Thus, Nishkam Karma is
the desireless or selfless action performed. Nishkam Karma constitutes the central
II
theme of Karma Yoga, the path of selfless action.

The concept of Nishkam Karma has great relevance with the business world. It
suggests that work should not be a burden; rather, it should act as a liberating
force for individuals.
There are 12 essential laws of Karma that can transform an individual’s life, namely
the Great Law, the Law of Creation, the Law of Humility, the Law of Growth,
the Law of Responsibility, the Law of Connection, the Law of Focus, the Law of
Giving and Hospitality, the Law of Here and Now, the Law of Change, the Law of
Patience and Reward, and the Law of Significance and Inspiration.
Values refer to basic core beliefs that impact one’s decisions, while ethics are
implicit rules that lead to the establishment of principles of good conduct.
Value-based leadership is a style of leadership that is exhibited by staying true to
one’s values and beliefs but, at the same time, being flexible in one’s principles.
The two benefits of value-based leadership are fewer conflicts and better results.
The joint Hindu family business is a unique type of business organisation in India.
Also, it is one of the oldest forms of business in the country. The joint Hindu family 87
business is controlled under the Hindu law instead of the Partnership Act, 1956.
Notes The main characteristics of the joint Hindu family business include ownership,
management, membership, liability, continuity, existence, rule for minors and
dissolution. This family business is managed by a person known as ‘Karta’ or
manager.
The Karta is not a dictator, rather his position is extremely sensitive and he must
consult all family members about his decisions. He needs to maintain a delicate
balance between his rights and duties.
The responsibilities of the Karta include maintenance of members, marriage of
family members, division of property and representation to outside parties.
A business can be successful if it has a combination of both efficient managers
and leaders. Karma inspires leaders and managers to treat people fairly, be honest
in their dealings, tell the truth (however hard it may be) and treat everyone with
respect and kindness.
6.8 KEY WORDS

Karma: An action, work or deed based on the spiritual principle of cause and effect

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Joint Hindu family business: A type of organisation in which all the members
of Hindu Undivided Family (HUF) manage and control the business with the
direction of head of the family
Karta: The manager of a HUF who is the sole representative of the family for all
outsider matters
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Corporate leadership: A style of leadership that comprises effective leaders and
managers who work in tandem to run a company, so that it can deliver value to its
stakeholders and achieve its business objectives
6.9 CASE STUDY: KARMIC DUTY OF A TRUE FRIEND

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Dinesh Sharma has been working in a real estate company for 15 years. A few years
ago, a person named Mohan Desai joined his team as an assistant construction
manager. Dinesh and Mohan became best friends and both shared common interests
and their families too hit off very well with each other.
Everything was going well when to Dinesh’s surprise he found that Mohan had been
given a termination letter by the company and was asked to leave immediately. On
enquiry, Dinesh found that the reasons for his immediate removal were low-quality
work, frequent leaves of absence and arriving drunk at the site. After Mohan’s
departure, Dinesh discussed the matter with his former colleagues and found that
the issues were indeed true.
A few days later, Mohan contacted Dinesh. He had given an interview in another
organisation and had given Dinesh’s name as a reference. Since he is the sole bread-
earner of his family, he desperately needed a job. He wanted Dinesh to give him
a good recommendation and not refer to his drinking problem. He gave him the
guarantee that he has controlled the problem.
88 He also asked Dinesh to mention to the new organisation that Mohan had left his
organisation to address a family medical emergency, and that the organisation was
satisfied with his work. Although Dinesh liked Mohan and trusted that he was a Notes
decent worker when sober, he really doubted Mohan’s word that he had conquered
his drinking problem. So, he was in a dilemma.
Questions
1. What should Dinesh advise to Mohan?
(Hint: Dinesh should have told Mohan that before giving his name as a reference,
he ought to have discussed with him first. He should have also informed Mohan
that under no circumstances, he would lie about the facts under which he was
fired when asked specifically. However, he would also tell the new employer
that he was a decent worker and needed compassion and help from the society
to conquer his habit, that he had a family to support, and should be given a fair
chance. As a Samaritan and true friend, he should support Mohan to conquer his
drinking problem and ride over the rough times.)
2. What should Dinesh do if Mohan were terminated due to theft?
(Hint: If Mohan was kleptomaniac, then Dinesh should not have recommended
6.10 EXERCISE M
him, unless he had joined an institution to rid himself of that habit.)
1. What do you understand by the term ‘Karma’?

2. Explain the relevance of Karma with business.
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3. Discuss Nishkam Karma in detail.
4. Write short notes on the following:
zz The Law of Giving and Hospitality
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zz The Law of Responsibility

5. Discuss the concept of ethical and value-based leadership.
6. List the characteristics of HUF.
7. Discuss the corporate Karma leadership.

Topic Q. No. Answer
Concept of Karma and its Relevance with 1. corporate integrity
Business
2. True
Laws of Karma 3. a. The Law of Giving and Hospitality
4. False
Ethical and Value-Based Leadership 5. True
6. organisational values
Business of a Hindu Undivided Family 7. Partnership Act, 1956
(HUF)
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Notes Topic Q. No. Answer

8. True
9. c. D
uty to spend the family funds
unreasonably only for the family’s
purposes
Corporate Karma Leadership 10. True
11. self-destruction

SUGGESTED BOOKS
Mary T. Browne (2013), The Power of Karma
Christina M. Anastasia (2002), Karma & the Art of Business
Du Plessis, P., Strydom, J., & Jooste, C. (2012). Marketing Management. Cape Town:
Juta.
E-REFERENCES
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Do You Have These 7 Important Leadership Qualities?. (2019). Retrieved from
https://medium.com/the-mission/do-you-have-these-7-important-leadership-
qualities-a77751422c5f
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Hindu Undivided Family (HUF): Features, Advantages, Disadvantages etc.
(2019). Retrieved from https://www.toppr.com/guides/business-studies/forms-of-
business-organisations/joint-hindu-family-business/
You, 1. (2019). 12 Laws of Karma: The Advanced Guide | Depression Alliance.
Retrieved from https://www.depressionalliance.org/12-laws-of-karma/
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Karma Sutra: Understanding the concept of ‘nishkama karma’. (2019). Retrieved

from https://indianexpress.com/article/lifestyle/life-style/karma-sutra-nishkama-
karma-2923264/
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te
7
ap
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Corporate Governance
Table of Contents
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7.1 Introduction
7.2 Concept of Corporate Governance
7.2.1 Objectives of Corporate Governance
7.2.2 Evolution of Corporate Governance
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7.2.3 Dimensions of Corporate Governance

7.2.4 Principles of Corporate Governance
7.2.5 Corporate Governance as a Systematic Process
7.3 Corporate Governance Models
7.4 Corporate Governance Theories
7.5 Relation between Corporate Governance and Ethics
7.6 Corporate Culture
7.7 Summary
7.8 Key Words
7.9 Case Study
Table of Contents
7.10 Exercise
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Explain the meaning of corporate governance
Describe the principles of corporate governance
Explain the theories and models of corporate governance
Outline the objectives of corporate governance
Establish the relationship between corporate governance and ethics
7.1 INTRODUCTION
In the previous chapter, you were introduced to the ancient concept of Karma and
its several applications related to business management. This chapter focusses on
the relationship between business ethics and corporate governance.
The chapter begins by explaining the origin, meaning, concept and objectives of
corporate governance. Every organisation has to hold certain principles of honesty,
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transparency, ethics and integrity in its various dealings with the stakeholders, such as
shareholders, management and employees. The framework of corporate governance
consists of a set of policies, procedures and internal control systems, which form the
basis of the company’s operations and dealings with the stakeholders. Corporate
governance is defined as the accountability of the board of directors of a company
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to all the stakeholders including shareholders, customers, employees, suppliers and
social communities. The accountability is with respect to giving a fair, transparent
and efficient administration of the company’s affairs. The chapter also highlights the
dimensions and principles of the corporate governance structure.
The later parts of the chapter discuss the models and theories of corporate governance.
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There are a number of theories and models of corporate governance which address
the challenges, structure and key rationale behind a particular corporate system (as
observed by a specific country or community).
7.2 CONCEPT OF CORPORATE GOVERNANCE

Corporate governance refers to a set of techniques that are used to direct, supervise
and operate the corporate machinery. Corporate governance means a system of
rules, regulations and processes which helps a company in directing and controlling
its functioning.
A good system of corporate governance creates transparency in all rules and

regulations through which the interests of shareholders, directors, management and
executives are aligned. For many companies, it is not sufficient to merely earn good
profit; it is also necessary to demonstrate good governance and gain confidence of
the society through ethical behaviour, environmental awareness and good corporate
governance framework. Bad governance can create some doubts on a company’s
integrity, reliability of financial statements and obligations to its shareholders.
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Notes According to Gabrielle O’Donovan, corporate governance is an internal system

encompassing policies, processes and people, which serve the needs of shareholders and other
stakeholders, by directing and controlling management activities with good business savvy,
objectivity, accountability and integrity. Sound corporate governance is reliant on external
marketplace commitment and legislation, plus a healthy board culture which safeguards
policies and processes.
The Securities and Exchange Board of India (SEBI) defines corporate governance
as the acceptance by management of the inalienable rights of shareholders as the true owners
of the corporation and of their own role as trustees on behalf of the shareholders. It is about
commitment to values, about ethical business conduct and about making a distinction
between personal and corporate funds in the management of a company.
7.2.1 OBJECTIVES OF CORPORATE GOVERNANCE

Corporate governance is a combination of processes, mechanisms, rules and
procedures through which the affairs of a company are directed and controlled.
Corporate governance is essential because it focusses on building a long-term value
for shareholders. An effective system of corporate governance is needed to gain the
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trust and confidence of domestic and foreign investors. This system is required to
curb or minimise corporate failure, corporate malice and unethical behaviour present
in organisations. Corporate scandals, such as misuse of organisational financial
resources for personal benefits or not following the code of conduct, damage the
goodwill of an organisation.
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Good corporate governance is responsible for the growth and development of
organisations. Amidst increasing competition, liberalisation and globalisation, an
organisation is required to retain the trust of stakeholders as well as attract new
ones. The objectives and goals of corporate governance are as follows:
Increasing shareholders’ wealth: The most important motive of corporate
governance is protection of the long-term interests of the shareholders of the
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company. The companies with a good structure of corporate governance are

perceived as good investment options for shareholders because of the high market
valuation premiums attached to the share capital of these companies.
Creating competitive advantage: It refers to building a core competency that
works as an edge over the rivals of a particular organisation. The organisation
gains competitive advantage when it supports value creation and has a strong
corporate governance structure in place.
Adhering to legal compliance: It refers to adhering to the laws and regulations as
per the legal framework of a country. Compliance to laws enables an organisation
to survive in the long term and build a good code of conduct. Moreover, adherence
to laws also helps in protecting the rights of investors.
Preventing frauds and malpractices: It refers to preventing misconduct and
fraudulent practices so as to create a sound and trustworthy corporate environment.
Small frauds can lead to big financial crisis; therefore, such frauds should be
prevented in the beginning itself with the help of effective corporate governance.
94 Bringing in transparency and full disclosure: It refers to meeting the investor’s
expectations by creating an open information system that aims at bringing
accountability and transparency in all organisational operations. This also leads to Notes
value enhancement and facilitates effective implementation of corporate standards.
7.2.2 EVOLUTION OF CORPORATE GOVERNANCE

In the 19th century, the corporate governance system was implemented in
organisations in a narrow sense. The traditional perspective or narrow approach
of corporate governance primarily paid whole attention to the segregation of
ownership and control. However, after some time, with an increase in competition,
the need was felt to broaden the perspective of corporate governance. The broader
perspective of corporate governance includes a large spectrum of issues, such as
business ethics, corporate social responsibility, corporate strategy and sustainable
economic development. These issues necessitate effective implementation of proper
practices of corporate governance. Corporate governance ensures balancing the
interests of the insider and outsider stakeholders. Here, insider stakeholders include
employees and management, whereas outsider stakeholders include customers,
investors and government. The broader perspective brought about radical changes
in the way organisations perceived corporate governance. Now, organisations not
only focus on their stakeholders’ interest, but also take care of the overall welfare of
organisation and its surroundings. M

the society. Thus, corporate governance has evolved as an all-encompassing system
of desirable corporate behaviour that facilitates sustainable development of an
Indian organisations became interested in corporate governance around 1983.

During this time, Indian corporates witnessed various scandals. Many people
M
who had invested in corporate funds had to suffer irreparable damages and losses
because of financial scams and fraudulent management practices. Changing business
environment and global market competition also called for corporate governance.
Proper planning and management, compliance with laws, and good relations with
stakeholders are imperative for an organisation to grow and prosper in international
markets. In India, effective implementation of corporate governance started in 1997
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with a voluntary code that was designed by the Confederation of Indian Industry
(CII). In addition, SEBI set up a committee headed by Kumar Mangalam Birla to
enforce international codes of corporate governance for companies listed on a
stock exchange. Tremendous change was brought about in the Indian corporate
environment due to increased competition in the Indian market in the 1990s.
A few renowned organisations, such as Infosys and Wipro developed sound
governance policies and took up Corporate Social Responsibility (CSR) to set up a
benchmark of corporate governance practices for other companies.
7.2.3 DIMENSIONS OF CORPORATE GOVERNANCE

Corporate governance defines those systems, processes and mechanisms through
which business organisations are directed and controlled. The structure of corporate
governance is used for fixing the distribution of roles and responsibilities among
directors, managers, auditors, executives and other participants; for defining
procedures and rules for corporate decision-making, and for eliminating conflicts of
interest among management and stakeholders.
Corporate governance is a set of rules that directs, regulates, governs and controls
95
business organisations. These rules are basically the guidelines to run organisations
Notes and operate businesses. Corporate governance aims at adding value to the business
of an organisation, which leads to numerous benefits (such as profit and wealth
maximisation) for the organisation and its various stakeholders, such as suppliers,
employees and customers. There are two main dimensions of corporate governance,
namely internal corporate governance and external corporate governance. These are
explained as follows:
Internal corporate governance: This involves the controlling mechanism
among various players within an organisation, such as board of directors, top
management like CEO and MD, and shareholders. It aims at ensuring methodical
strategy implementation, optimum management of risks, efficient processes and
regulatory compliance within the organisation.
External corporate governance: This comprises the forces that impact an
organisation from outside, such as legal entities, government, industry norms,
regulatory authorities, market, service providers (auditors, consultants and
financial institutions) and media. It plays a key role in ensuring appropriate
corporate governance practices and mechanism in the organisation.
7.2.4

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PRINCIPLES OF CORPORATE GOVERNANCE
The key principles of corporate governance include the following:
Rights of shareholders: The organisations should ensure equitable or fair treatment
and respect the rights of all shareholders. This can be done by ensuring that the
shareholders are encouraged to participate in the meetings and are communicated
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such business information that is easily accessible and understandable.
Interests of all stakeholders: In addition to shareholders, the corporate entity
must ensure that it effectively recognises its legitimate obligations towards all
stakeholders.
Ethical behaviour and integrity: A code of conduct should be developed by the
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organisation to ensure ethical decision-making and responsible actions by its
managers, executives and directors.
Disclosure and transparency: The roles, responsibilities and actions of the
organisation’s management and the board of directors should be clarified and
made available to all shareholders/investors. The integrity and reliability of the
organisation’s financial reporting should be verified; and proper and timely
disclosure of all material items used in the business of the organisation should be
made.
Roles and responsibilities of board of directors: The organisation must ensure
that its board of directors has a sufficient number of members; the directors have
appropriate level of commitment to perform their duties; there is a proper mix of
executive and non-executive directors, and the key managerial personnel possess
appropriate skills necessary for meeting day-to-day challenges.
The principles of corporate governance must be properly aligned to resolve the
following corporate issues:
96
Preparation of the financial statements of the organisation
Independence of the organisation’s auditors and oversight of effective internal Notes

control system
Overview of the compensation mechanism for senior executives and top-level
managers
Manner of nomination of individuals as the directors of the board
Management of risk
Formulation and implementation of dividend policies
Utilisation of available resources by directors and managers for carrying out
business activities
7.2.5 CORPORATE GOVERNANCE AS A SYSTEMATIC PROCESS

Corporate governance can be viewed as a comprehensive process that helps
companies in enhancing their wealth-generating capacity by using managerial
activities, like direction and control. It specifically puts in place a company’s
rules, regulations, polices and controls which dictate the company’s corporate
behaviour. As large organisations use a substantial number of societal resources,
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corporate governance must ensure proper utilisation of these resources in order
to meet the requirements and expectations of all stakeholders. Thus, there is a
need for structured corporate governance, based on strong ethics and principles.
The corporate governance structure is primarily based on two core principles, which
are as follows:
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The administrative and decision-making freedom to the management to take the
organisation forward without any unnecessary limitations.
The managerial freedom must have effective accountability of performing
individual duties.
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Since corporate governance gives a full-fledged framework for the achievement of

organisational objectives, therefore, every sphere of management is encompassed
in corporate governance, beginning from action plans, to internal control systems,
to performance measurement mechanisms and to adequate disclosure of corporate
results (financial and non-financial). The systematic process of corporate governance
must incorporate structured and well-defined roles of the organisation, which also
include the role of every individual associated with the organisation, especially at
the middle, senior and higher levels of management. Well-defined roles based on
core principles further elucidate the philosophy of the organisation. The corporate
governance philosophy includes transparency, empowerment and accountability,
which are explained as follows:
Transparency: This means clarity of policies and procedures of an organisation to
the associated stakeholders to whom it owns the responsibility, such as customer
(or client), supplier (or service provider), regulatory authorities, government and
society. Thus, transparency must ensure proper disclosure of the organisation’s
policies and procedures without jeopardising the key strategies of the organisation.
Empowerment: This can be defined as a process to unleash creativity and 97
innovation throughout the organisation by encouraging decision-making at
Notes various levels of hierarchy in order to realise the actual potential of its employees.
Empowerment helps both the employees and the organisation grow and succeed.
Accountability: There is a direct relationship between power and accountability.
A high level of power comes with a high level of accountability. Thus, it is of
paramount importance for an organisation to allow access of relevant information
and policies and procedures by all the employees. Appropriate transparency and
empowerment enhance the accountability and responsibility of the employees.

1. Bad corporate governance can lead to doubts on a company’s integrity,
reliability and obligations to its shareholders. (True/False)
2. Corporate governance defines those systems, processes and mechanisms
through which business organisations are directed and ____________.
7.3 CORPORATE GOVERNANCE MODELS

Large organisations are run through a systematic process of corporate governance.
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Various models of corporate governance are applied across the world. These models
differ on the basis of factors, laws and regulations specific to each country. Some
popular models of corporate governance are depicted in Figure 1 below:
Models of Corporate
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Governance
Anglo-American Japanese German Indian

Model Model Model Model
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Figure 1: Models of Corporate Governance
Let us discuss each model of corporate governance:

Anglo-American model: Being a shareholder-oriented model, the Anglo-
American model highlights the fundamentals of corporate governance practices
in America, Britain, Canada, Australia and other countries following the common
wealth law. In this model, the three sides of the triangular corporate governance
structure comprise individual or institutional shareholders, board of directors,
and management. The rights of shareholders are recognised as they are entitled to
elect the board of directors. The members of the board, in turn, have the authority
to give directions to the management. The important features of the Anglo-
American model are as follows:
zz Provides equal ownership of the organisation to both institutional and
individual shareholders.
98 zz Separates the ownership and management functions. Companies are operated

by professional managers having negligible stake in ownership.
zz Makes directors and managers interdependent. Notes

zz Makes disclosure norms concise and comprehensive.
zz Penalises insider trading and frames strict rules against the manipulation of
the organisational code of conduct.
zz Protects the interests of small shareholders.
Japanese model: This model of corporate governance is called the business
network model. It considers financial institutions as an important part of corporate
governance. The important features of the Japanese model are as follows:
zz Major portions of capital are raised through financial institutions and banks.
zz Since the stake of banks and financial institutions is very high, they work
closely with the company’s management and elect the board of directors and
the president of the company.
zz Includes a president in the model and assigns him the function of consulting
both the supervisory and executive boards.
zz The executive management works as a consultant for the organisation’s

zz
president.
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Outlines the importance of lending banks.
German model: This model is also known as the Two-tier Board model and the
Continental European model. It has been adopted by the organisations in Germany,
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Holland and France. This model holds that workers are a key stakeholder in an
organisation and should be given authority to participate in the organisation’s
management. The German model of corporate governance comprises two boards,
namely Supervisory Board and Management Board.
The important features of the German model are as follows:
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zz It follows a societal orientation approach. The employees of an organisation

have a voting right to elect the Board of Directors.
zz One-third or half of the Supervisory Board is elected by the employees and
labour unions of the organisation from among their representatives. The other
half is elected by the shareholders.
zz The Supervisory Board appoints, monitors and supervises the Management
Board which comprises executive managers. The Management Board is
responsible for managing organisational affairs. The Supervisory Board also
has the right to reconstitute or dismiss the Management Board.
Indian model: The Indian corporate houses are governed by the Companies Act,
1956. In India, the corporate governance model is a mixture of German model
and Anglo-American model. There are three main types of organisations in India,
namely public sector undertakings, private companies and public companies.
Each type of organisation has a distinct pattern of shareholding and management.
The legal corporate governance system of India is based on the recommendations
of three committees: Kumar Mangalam Birla Committee, Narayana Murthy
99
Committee and Naresh Chandra Committee. The Indian corporate governance
Notes model is influenced by the corporate governance practices prevailing worldwide.

The Indian model depicts the external and internal organisational environments,
which influence organisational functioning. The model also shows the output of
corporate governance in the form of investor protection, ethics, long-term value
for shareholders, and transparency as well as accountability.

3. Under the Japanese model, what are the major sources of raising capital?
4. The corporate governance model of India is a mixture of the German and
_____________ models.
7.4 CORPORATE GOVERNANCE THEORIES

The organisation can act as a separate entity distinct from its members. However, the
members of the organisation give it a form or structure on the basis of their strategic
thinking and business plans. There are some basic theories, such as stakeholder
theory, stewardship theory, resource dependency theory, transaction cost theory
and agency theory, which address the challenges posed by corporate governance
Stakeholder Theory M
from time to time. Some important theories are explained in the next subsections.
The main objective of stakeholder theory is to highlight the accountability of

management towards a large number of stakeholders of a business entity. The
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stakeholder theory was developed in the 1930s. It supports the view that an
organisation should maximise stakeholders’ benefits and follow an ethical code of
conduct. This theory has been developed on the basis of various theories, including
the social contract theory, communitarian ethics and ethics of care. Various
stakeholders that a business entity is responsible to are as follows:
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Investors
Customers
Employees
Competitors
Government
Community
Suppliers
Political groups
Trade associations
Many problems arise while enforcing the stakeholder theory in an organisation.
These problems relate to identification of true stakeholders and determination of
shareholders’ benefits. An organisation has many stakeholders. Therefore, some
management experts have suggested dividing stakeholders into primary and
100 secondary shareholders. Primary shareholders refer to those shareholders who
directly purchase shares from the organisation, whereas secondary shareholders
purchase shares from the stock exchange. The stakeholder theory focusses on Notes
decision-making by managers in the interest of all stakeholders. The theory assumes
that the interest sets of various stakeholders have an intrinsic value and they do not
dominate one another.
Stewardship Theory
This theory suggests that stewards are responsible for protecting and maximising
the wealth of shareholders through a firm’s performance. A steward is a manager
or company executive who works for shareholders, protects their interests, and
maximises the company’s profits for their benefits. The stewardship theory removes
the possible conflicts between managers and shareholders that have been presumed
by the agency theory. It supports the view that managers are considerate about their
personal reputation and value their integrity. There is a high demand for managers
who have a strong sense of commitment for their personal reputation. Consequently,
managers with high ethical and moral values are offered higher remuneration as
compared to the other managers. Stewards feel motivated and satisfied when the
organisation succeeds in achieving its goals. The stewardship theory holds that
executives perform their tasks diligently and act autonomously so that the returns

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of shareholders are maximised. This theory focusses on the trustworthiness of
managers and is based on the following points:
Motivating managers to ensure that they not only look after personal goals, but
also align personal goals with organisational objectives.
Controlling managers excessively can actually demotivate them. So, it is important
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to ensure that the control measures do not hamper the productivity of managers.
Agency Theory
This theory explains the relationship between the shareholders of the company (i.e.,
principals) and the directors/managers of the company (i.e., agents). The work of
II
running the company is delegated by the principals to the directors and managers
of the company, who act as agents. The agents are expected to perform and make
rational decisions in the best interests of the shareholders (i.e., principals). The
agency theory is built upon the presumption that the interests of the managers often
clash or are divergent from those of the shareholders.
The shareholders select the managers, who are called agents, for long-term wealth
maximisation and smooth functioning of the organisation. However, the managers
may focus on their personal benefits and short-term profit maximisation rather
than long-term wealth maximisation of the organisation. This conflict of interest
between the managers and the shareholders gives rise to a problem, known as the
agency problem. The role of corporate governance comes into picture for addressing
the agency problem by bringing transparency and aligning the objectives of the
organisation with those of its associated parties.
Rewards and punishments may be brought into practice by companies to correct the
priorities of their agents. The agency problem can be solved by providing incentives,
personal recognition, and monetary and non-monetary rewards to managers to 101
motivate them to achieve wealth maximisation. In addition, the organisation tries to
Notes establish a link between executive remuneration and shareholder benefits to address
the agency problem.
It is not possible for an organisation to completely eradicate the conflict of interest

between shareholders and managers. However, this conflict of interest can be
minimised by implementing the following effective corporate governance practices:
Correct full disclosures: It implies that all documents pertaining to the financial
and operational framework of a company should represent its true and fair picture
to its shareholders and investors.
Effective board of directors: It refers to an efficient board of directors that should
be independent and neutral enough to deal with managers as well as shareholders.
The board should also ensure proper implementation of legal regulations. The
directors are responsible for the rights of shareholders. Therefore, they should aim
towards long-term value maximisation.
5. Under the agency theory of corporate governance, the directors or managers
of the company act as ______________.
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6. Under the agency theory of corporate governance, the shareholders of the
company act as _____________.
A ctivit y
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Are there any other theories which govern the principles of corporate governance?
If yes, briefly explain how such theories attempt to foster the promotion of
corporate governance practices in an organisation.
7.5 RELATION BETWEEN CORPORATE GOVERNANCE AND ETHICS

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Every organisation deals with many stakeholders, such as shareholders, employees,

customers, vendors and communities. For attaining a healthy growth rate, an
organisation needs to build healthy relations with all these stakeholders. For
instance, an organisation ensures payment of decent dividend to its shareholders,
good working conditions for its employees, reliable products for its consumers and
responsible relations with the community. There is an enhanced level of awareness
among stakeholders and consumers which leads to the detection of unethical
practices in the organisation. Such practices may include financial frauds, tax evasion
attempts, giving bad quality of products and services, indifferent or negligent
attitude towards environmental concerns, and hazardous working conditions in the
factories.
Business ethics incorporate the application of fair and ethical rules or principles
for solving various business dilemmas and deciding what is right or wrong in a
business perspective. Business ethics is a system of moral principles applied in a
business environment. It has the following purposes:
102 Providing tools to individuals so that they can deal with moral complexity in
business
Ensuring that business decisions cover ethical framework Notes

Evaluating ethical implications before taking any decisions
Nowadays, investors make sure that the organisation in which they invest is
managed properly and has a proper corporate governance structure. Organisations
consider corporate governance as an important control mechanism. This mechanism
makes the optimum use of human, financial and physical resources of organisations.
Thus, organisations focus to ingrain ethics into their culture and concentrate on
implementing appropriate corporate governance practices. Corporate governance
ensures that best management practices are applied, laws are truly complied with,
and ethical standards are adhered to, so that there is efficient management, proper
discharge of social responsibilities and sustainable development of all stakeholders.
Corporate governance represents various frameworks that are associated with the
functioning of an organisation. It includes moral framework, ethical framework and
value framework. To survive in the market in the long run by creating reputation and
strong goodwill, an organisation needs to develop a systematic approach towards
corporate governance. Corporate governance elaborates the corporate pursuit of
economic objectives related to a number of wider ethical and societal considerations.
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It can be understood as an application of best management practices associated with
the compliance of law in true spirit and adherence to ethical framework.

7. Business ethics is a system of moral principles applied in a business
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environment. (True/False)
8. For attaining a healthy growth rate, an organisation needs to build healthy
relations with all _______________.
7.6 Corporate Culture

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All organisations irrespective of their size have a culture. The values, beliefs, attitudes
and behaviours espoused by employees, which they exhibit and use in their daily
work lives, constitute the corporate culture.
The type of culture that exists in an organisation, determines how the employees
describe the organisation they work for and how they view themselves as a part of
the organisation. The corporate culture of an organisation also affects the decisions,
actions and the performance of the organisation.
The major determinants of the corporate culture include:

Organisational goals and strategies
Organisational structure
Organisation’s approach towards labour laws and implementation
Organisation’s attitude towards customers, investors and other stakeholders
On the basis of type of values, beliefs and attitudes held by an organisation’s 103
employees, the organisation can be said to possess an unhealthy or a healthy
Notes culture. Unhealthy corporate cultures are characterised by employees who behave
as individuals and perform their duties only in return of their salary and other
benefits. An unhealthy corporate culture also exists when the management engages
in favouritism. In contrast, a healthy corporate culture exists when the management
values each employee as an asset, irrespective of the job duties, fulfilled by them.
Such fair behaviour ensures that all the employees work as a team to meet the
organisational objectives and at the same time, they also fulfil their own personal
needs. Healthy corporate culture is characterised by the following:
Employee retention
Reputation enhancement
Productivity enhancement
Quality enhancement/maintenance
Respect and fairness
Trust and integrity
Adaptability

Employee engagement
Accountability M
According to an article published in the Harvard Business Review, written by John
Coleman, there are six components of a good and strong corporate culture. These six
components include: vision, values, practices, people, narrative and place.
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In general, there are four types of corporate cultures as shown in Figure 2:
Clan Culture
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Adhocrcy Culture
Market Culture
Hierarchy Culture
Figure 2: Four Types of Corporate Cultures
Let us now briefly discuss the four types of corporate cultures.
A corporate culture is said to be clan culture when there exists a friendly and
collaborative environment in the organisation. In such a culture, the employees
share strong bonds and are loyal towards their organisation.
In an adhocracy culture, the leaders assume the role of inspirational innovators who
are willing to take risks. On similar lines, the employees are also willing to take
104 chances. There exists an agile environment in the organisation. Innovation is valued
in such organisations. Technology companies exhibit adhocracy culture.
In an organisation having market culture, there exists a highly competitive Notes

environment and the employees compete among themselves. The main aim of
employees and organisations in such a culture is to make maximum possible profits.
Sales oriented organisations such as insurance sales exhibits market culture.
In a hierarchy culture, maximum value is attached to following processes and

procedures. There exists certain established and proven methods of doing business
and the organisations concentrate on doing the things as per the established processes.
Most of the government undertakings organisations have hierarchy culture.

9. In what type of corporate culture, there is a possibility of existence of
bureaucracy?
10. ___________ and ___________ are two characteristics of a healthy corporate
culture. (List any two characteristics.)
7.7 SUMMARY

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Corporate governance means a system of rules, regulations and processes which
help a company in directing and controlling its functioning.
A good system of corporate governance creates transparency in all rules and
regulations through which the interests of shareholders, directors, management
and executives are aligned.
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The objectives and goals of corporate governance are: increasing shareholders’
wealth, creating competitive advantage, adhering to legal compliance, preventing
frauds and malpractices, and bringing in transparency and full disclosure.
Corporate governance is a set of rules that directs, regulates, governs and controls
business organisations. These rules are basically the guidelines to run organisations
II
and operate businesses.

The principles of corporate governance include rights of shareholders, broad
interests of all stakeholders, integrity and ethical behaviour, adequate disclosure
and transparency, and roles and responsibilities of Board of Directors.
The main models of corporate governance are Anglo-American model, Japanese
model, German model and Indian model.
The theories of corporate governance include stakeholder theory, stewardship
theory and agency theory.
Corporate governance represents various frameworks that are associated with the
functioning of an organisation. It includes moral framework, ethical framework
and the value framework.
On the basis of type of values, beliefs and attitudes held by an organisation’s
employees, the organisation can be said to possess an unhealthy or a healthy
culture.
The four types of corporate cultures are clan culture, adhocracy culture, market 105
culture and hierarchy culture.
Notes 7.8 KEY WORDS

Malpractices: These refer to improper, negligent and unprofessional behaviour of
a company’s representatives in execution and disclosure of financial operations.
Directors: The persons who control, manage and supervise the functions or
particular areas of a business.
Agents: The persons whose actions are determined on the basis of the needs and
priorities of other persons (on whose behalf they act).
Stakeholders: The individuals, corporates or institutions having a direct or indirect
interest in the operations of a business.
7.9 CASE STUDY: SATYAM COMPUTERS SCANDAL

Satyam Computer Services Limited was one of the pioneers in the business area
of computers and information technology services all over India. It received many
awards for its innovation, fast-growing business and governance.
From the period 2003–2008, Satyam achieved great success and had recorded a
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stupendous sales revenue of $467 million. However, the company encountered a
major fraud in 2009, which ruined the company and its entire business. The global
and Indian business community was shocked when the director of the company,
Mr. Ramalinga Raju, wrote a confession letter to all stakeholders, government
regulators and the Securities and Exchange Board of India (SEBI) stating that the
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accounts of the company were manipulated and carried huge irregularities.
On scrutiny, many irregularities were found in Satyam’s account books disclosing

discrepancies between actual balances and reported fake balances in its financial
statements. The company had shown fake bank balances of thousands of crores together
with fake deposits, recorded understatement of liabilities, made overstatement of
II
quarterly revenues, done unauthorised appropriation from the money transferred

to fake salary accounts, etc. The auditing firm, PricewaterhouseCoopers, also failed
to detect any financial scam in its books. This reflected badly on the integrity of
the auditing firm. Besides the auditing firm, SEBI, independent directors, the
audit committee and other investors’ communities also failed to detect the fraud
and provide a truthful image of the company, despite having access to all financial
information. Greed for money, success and power compelled Satyam’s director to
indulge in the illegal manipulation of the company accounts. The company failed in
fulfilling its duty of loyalty and true disclosure to its shareholders. It was a case of
sheer failure of corporate governance in India.
Source: http://www.srjis.com/pages/pdfFiles/147367354829.%20ARPIT%20KHURANA.pdf
QUESTIONS
1. What do you understand by the concept of corporate governance?
(Hint: Refer to Section 7.2: Concept of Corporate Governance)
106 2. How does Satyam’s scandal represent a failure of corporate governance in India?
(Hint: The failure of corporate governance was evident from the following facts:
zz Non-presentation of the true and fair view of the financial state of affairs of the
company in the financial statements
zz Inactive role of directors and managers in the auditing process
zz Failure of the audit committee in figuring out misrepresentation of account
books
zz Wrong certification of truthfulness and fairness of financial statements by
CEO, Mr. Ramalinga Raju)
7.10 EXERCISE
1. Define the meaning of corporate governance and explain its relevance for a
business organisation.
2. Explain the models of corporate governance in brief.
3. Enumerate the principles of corporate governance.
4. What objectives are served by a good system of corporate governance?
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5. Discuss the theories of corporate governance.
6. List and explain the four types of corporate cultures.

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Topic Q. No. Answer
Concept of Corporate Governance 1. True
2. controlled
Corporate Governance Models 3. Banks and financial institutions
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4. Anglo-American
Corporate Governance Theories 5. agents
6. principals
Relation between Corporate 7. True
Governance and Ethics
8. stakeholders
Corporate Culture 9. Hierarchy culture
10. Employee retention and quality
enhancement/maintenance

SUGGESTED BOOKS
Dine, J. (2006). The Governance of Corporate Groups. Cambridge: Cambridge
University Press.
Phillips, R. (2003). Stakeholder Theory and Organizational Ethics. San Francisco:
Berrett-Koehler.
Notes E-REFERENCES
Corporate Governance Objectives. (2019). Retrieved from https://bizfluent.com/
list-6762393-corporate-governance-objectives.html
Corporate Ethics and Governance. (2019). Retrieved from https://www.rand.org/
well-being/justice-policy/portfolios/corporate-ethics.html
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108
r
te
8
ap
h
C
Sustainable Development and Corporate
Social Responsibility
Table of Contents
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8.1 Introduction
8.2 Concept of Sustainable Development
8.2.1 Business Organisations and Sustainable Development
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8.3 Concept of Corporate Social Responsibility (CSR)

8.3.1 Carroll’s CSR Pyramid
8.4 Using CSR to Gain Competitive Advantage
8.5 Stakeholders and Shareholders
8.6 Driving Forces for CSR in India
8.7 Obstacles in Implementation of CSR
8.8 Corporate Social Responsibility and Corporate Governance
8.9 Summary
8.10 Key Words
8.11 Case Study
Table of Contents
8.12 Exercise
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Sustainable Development and Corporate Social Responsibility

Explain the meaning of sustainable development and the need for businesses to
take part in it
Define corporate social responsibility
Discuss the driving forces of CSR in India
Enumerate the obstacles in CSR implementation
Describe the relationship between corporate social responsibility and corporate
governance
8.1 INTRODUCTION
In the previous chapter, you have studied about the concept, objectives, theories
and models of corporate governance. This chapter discusses the meaning and
importance of sustainable development. Sustainable development is the principle
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of meeting goals of human and natural development while finding out the ways
to do things in a better manner, and to satisfy both present and future needs. It
seeks to preserve and conserve the resources for future generation by minimising
the externalities of environmental degradation. Organisations should adopt the
principles of sustainable development in their business operations to ensure the
long-term stability of the environment and economy as a whole. Companies are
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required to integrate the concerns of economic, social and environmental factors in
their decision-making processes.
The chapter also addresses the concept of corporate social responsibility. Corporate
social responsibility (CSR) is a conceptual framework which has become dominant
in reporting practices of businesses. Organisations have their specific policies of
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CSR and produce annual reports on the efforts made by them towards CSR. CSR
measures the relationship between corporations and the local societies in which they
operate or reside. It comprises all actions taken by an organisation to uphold the
values and principles of sustainable development. In addition, the chapter describes
the uses of CSR initiatives for gaining competitive advantage, driving forces of CSR
in India and the obstacles in successful implementation of CSR by organisations.
8.2 CONCEPT OF SUSTAINABLE DEVELOPMENT

Sustainable development refers to meeting the diversified needs of people in
different communities, creating social cohesion and maintaining equal opportunities
to ensure a strong and healthy society. In other words, it can be said that sustainable
development focusses on finding out ways of doing things which do not affect the
quality of people’s life.
Sustainable development is defined as a kind of development which satisfies the

needs of the present (current generations) without compromising or hampering
the ability of future generations to satisfy their own needs. Sustainability is a term 111
Notes that is used to describe an economy that is in equilibrium with the basic ecological
support systems. Usually, the term ‘sustainable development’ is understood
as development that is done keeping environmental issues in mind. However,
sustainable development means equilibrium between environmental sustainability,
economic sustainability and socio-political sustainability.
Sustainable development is achieved by ensuring that organisations’ production

processes work in alignment with preservation of natural resources and ecosystems,
thereby leading to the improvement in lifestyles and well-being of the entire society.
Figure 1 depicts the concept of sustainable development:
Lifestyle
improvement Preservation of
and well-being natural resources
and ecosystems
M Figure 1: Sustainable Development
Sustainable development has three components, namely economic growth,

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environmental stewardship and social inclusion. Now, countries and organisations
are recognising the importance of conserving natural resources and investing in
sustainable development. For example, many people now prefer cycling instead
of driving as it saves them money in addition to improving their overall health.
Businesses are also finding better and energy-efficient ways of doing production
and business.
II
There are three major goals of sustainable development which are as follows:
Minimising the depletion of natural resources while undertaking new developments
Undertaking development that can be sustained without causing harm to the
environment
Making provisions for modifying the existing development plans or projects so
that they can be made environment-friendly
8.2.1 BUSINESS ORGANISATIONS AND SUSTAINABLE DEVELOPMENT

Businesses play a critical role in sustainable development of the societies, countries
and the world. The role of businesses is increasingly important for sustainable
development and it is in the interest of businesses to become more sustainable
economically, socially and environmentally.
Sustainable development takes into account all types of dimensions of globalisation,

112 i.e., social, economic and environmental factors. Social development is an important
contribution made by responsible corporates. The role of businesses in sustainable
development has been evaluated by many schools of thought on multiple occasions. Notes
It has been reiterated by business leaders across the world that a balance between
the corporate efficiency goals and social effectiveness goals is required to be drawn.
Technical and economic efficiency is one of those metrics which if obtained leads
to win-win situations. This can be seen as the role of private sector which has
contributed to the reduction of poverty across the world in the past.
Essentially speaking, business organisations are focussed around economic activities.

However, it cannot operate in an isolated economically oriented environment. It
interacts with social, political and technological entities during its operations and,
consequentially, the environment is shaped by the complex interaction of these
forces.
Corporations aim at value creation for their investors, employees and customers
but this cannot be done at the cost of environment. Hence, the developmental role
remains integral to its way of functioning. As it may not always be possible for
the government to take initiative and engage in sustainable development activities,
it needs the support of structured entities like corporates, to plan and execute
sustainable development initiatives. Thus, the issues of sustainable development and
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poverty can only be addressed by developing collaborations between governments,
corporates and other social elements.
Let us discuss what enforces businesses to take part in sustainable development:

Business activities are intertwined with various priorities and issues of
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sustainable development: Businesses usually have a direct relation with various
environmental and social issues. These issues include climate change, biodiversity,
fresh water, coastal zones, chemical risks, desertification, etc. Therefore, it becomes
the duty of the organisations to ensure development in a manner that is in harmony
with the nature.
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Business’ interest: It is in the interest of business to be environmentally sustainable.

Financial drivers: Insurance and financing organisations deal in a better way with
organisations that follow sustainable practices in getting finances and insurance
easily.
New opportunities: Organisations that follow sustainable development practices
may also lead to the generation of new markets, new technologies and new
partnerships.
Good management practice: It is considered to be a good management practice
to follow cleaner and ecologically efficient techniques of production that reduce
waste, emissions and discharges.
Government policy: The governments of countries are increasingly making it
mandatory for all the organisations to indulge in activities and developments that
are sustainable.
Public opinion: Organisations that conduct their activities in a manner that is
considered to be sustainable are viewed as doing the right thing and held in high
regard. This helps these organisations make or create a positive public opinion. 113
Notes Some considerations kept in mind by companies while following the path of
sustainable development are as follows:
Stepping back from normal businesses and finding out ways to work with nature
Reducing the environmental impact of production processes and saving energy
and resources
Reducing the material and energy use and implementing use of renewable energy
resources
Reducing or eliminating hazardous wastage generation
Designing projects to eliminate air pollutants to minimise the chances of
environmental degradation
Reducing dependency on synthetic chemicals and other unnatural substances
Development and use of new technologies for conservation of resources
1. Sustainable development takes care of the needs of which of the following?
c. None of these
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a. Present generations b. Future generations
d. Both a and b
2. Businesses cannot operate in an isolated economically oriented environment.
(True/False)
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8.3 CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
Corporate social responsibility (CSR) is also known as corporate sustainability or
corporate citizenship. It is a self-regulating business model which enables businesses
to be socially accountable to themselves, their stakeholders and the society at large.
II
Through CSR, a company becomes conscious of the impact of its business operations
on all aspects of environmental, social and economic concerns. A company engaged
in CSR activities ensures that its normal day-to-day business operations are not
having any negative effects on the society and environment, rather they enhance the
considerations of the society and environment.
CSR is a management concept according to which it is the responsibility of

corporations/businesses to function within the society to contribute towards the
development of the society. The development could be in terms of economic, social
and/or environmental development which creates a positive impact on the society.
Thus, you can say that CSR is an ethical behaviour of an organisation towards society.
The concept of CSR advocates that organisations must fulfil their responsibility of
helping the society in which they operate.
CSR studies the relationship between organisations and societies, and answers the
rising concerns on ethical issues in businesses. It involves engaging directly with local
communities, identifying their needs and integrating those needs with corporate
114 goals and strategic intent. CSR includes protecting the interests of stakeholders and
constituent groups of a society that get affected with the organisation’s operations.
The stakeholder group involves consumers, employees, suppliers, creditors, Notes

regulating authorities, local communities and natural environment.
According to Archie B. Carroll, one of the most respected CSR academics, CSR is
defined as the social responsibility of business encompassing the economic, legal, ethical
and discretionary expectations that society has of organisations at a given point in time.
CSR covers a number of concerns that may vary across organisations at different
points in time. Recently, ethics and corporate governance have been of growing
concern to practitioners of CSR. The major CSR concerns are as follows:
Social equity
Gender balance
Human rights
Good governance
Anti-corruption measures
Environmental management

Stakeholder engagement M
Eco-friendly and responsible sourcing
Labour standards and working conditions

Employee and community relations
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CSR is often considered to be a concept that is both a means and an end. It acts as
a means by forming an integral part of an organisation’s strategy through defining
the way the organisation should deliver its products and services to markets. It
also acts as an end as it provides the way of validating its actions in the society by
bringing stakeholder concerns to the forefront. It ultimately defines the success of
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an organisation, which is directly related to the organisation’s ability to incorporate

stakeholder concerns into its business model.
8.3.1 CARROLL’S CSR PYRAMID

CSR includes protecting the interests of stakeholders and constituent groups of
a society that get affected with the organisation’s operations. Therefore, it is of
utmost importance for every organisation to address the concerns of stakeholder
groups and consider their interests in a strategic outlook. To help organisations take
these decisions and adjust the internal strategic planning process to increase their
long-term viability, Archie B. Carroll, has presented a conceptual framework in a
pyramidal form.
Carroll’s CSR Pyramid is a simple framework which provides an insight as to

how organisations must meet their social and ethical responsibilities. It is based
on the foundation that profit maximisation is the fundamental responsibility
of every business. Besides profit maximisation (economic responsibility), other
responsibilities are legal, ethical and philanthropic/discretionary responsibilities.
Economic responsibility is the most important one and philanthropic responsibility
115
is the last to be addressed by a company.
Notes The Carroll’s Pyramid of CSR is shown in Figure 2:
Philanthropic
Responsibility
Ethical Responsibility
Legal Responsibility
Economic Responsibility

M Figure 2: Carroll’s Framework of CSR
The four types of responsibilities are explained as follows:

Economic responsibility: This is the foundation upon which all other
responsibilities rely. It is concerned with the responsibility of a business to provide
shareholders a reasonable return on their investments, offer safe and fairly paid
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jobs to employees, and produce good-quality products and services to customers
at a fair price.
Legal responsibility: This signifies obeying the law. Laws represent the society’s
codification of acceptable and unacceptable practices. The legal responsibility
states that businesses should abide by the law and act as per the rules of the society.
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Legal responsibilities demand organisations to:

zz perform in alignment with the expectations of government and law
zz work in coherence with various federal, state and local regulations
zz act as law-abiding corporate citizens
zz provide goods and services that meet minimal legal requirements
Ethical responsibility: This relates to the obligation to do what is right, fair, just
and equitable. It consists of what is generally expected by the society irrespective of
legal expectations. Ethical responsibilities are not always imposed by law, but they
are expected from organisations by the public and governments. The following
are the expectations from organisations while performing ethical responsibilities:
zz To perform consistently with societal norms
zz To recognise and respect new or evolving ethical/moral norms adopted by
society
116 zz To prevent ethical norms from being compromised to achieve business goals
Philanthropic responsibility: This relates to becoming a good corporate citizen Notes

and contributing towards improvement of quality of life. These are organisations’
voluntary or discretionary activities. To fulfil their perceived philanthropic
responsibilities, organisations engage in various activities, such as giving gifts
of monetary resources, making product and service donations, volunteering by
employees and management for social cause, engaging in community development
efforts, etc.
3. The concept of CSR advocates that organisations must fulfil their responsibility
of helping the _____________ in which they operate.
4. Which is the most fundamental responsibility of organisations as per Carroll’s
CSR framework?
8.4 USING CSR TO GAIN COMPETITIVE ADVANTAGE

A company having competitive advantage stands out to its customers and holds a
greater favourable position than other companies in the same industry. A properly

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implemented CSR concept helps an organisation in gaining a competitive advantage
in the industry in terms of the following benefits:
Enhanced access to capital and markets: An organisation needs to manage its
social and environmental impacts to improve access to capital and markets. In
today’s dynamic environment, financial institutions, apart from the conventional
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financial aspects of profitability and liquidity, look to invest in organisations that
are socially responsible and take social, environmental and ethical considerations
into account. This is because an organisation practising CSR is considered less
risky. An organisation that is not practising CSR activities runs a risk of ruining its
brand, losing shareholders’ money and crisis management. Thus, in order to have
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easy access to capital and new markets, organisations require taking CSR activities
seriously.
Operational cost savings: CSR activities can help in reducing business costs and
increasing operational efficiencies through streamlining sustainability and energy
savings. A number of environment-focussed operations explain the ways to reduce
waste and recycle materials. These eco-efficiencies can offer both economic and
environmental benefits by reducing energy consumption and implementing new
cost-efficient maintenance strategies.
Enhanced customer loyalty: Just like employees, customers also like to be associated
with a brand, which has a good image and reputation. Customers are well aware of
various social, environmental and ethical issues prevailing in the society. They like
and admire organisations that fulfil their social and environmental responsibilities
and follow ethical business practices. If customers admire an organisation, they
are likely to buy more products/services of that organisation on frequent basis.
Moreover, they also spread good word-of-mouth about the organisation, which
leads to attract more customers.
117
Notes Better decision-making processes: An organisation that follows CSR practices

tends to involve in fair decision-making process. Decision-making is an important
element in business as every business decision not only affects the organisation’s
shareholders, but also its stakeholders, such as community and environment. When
organisations think from social responsibility’s point of view, they take decisions
ethically, which benefits all the stakeholders and results in the betterment of the
society.
Increased sales and profits: Engaging in CSR activities helps an organisation
earn respect in the marketplace. This ultimately results in higher sales, improved
employee and customer loyalty, and hire and retain better human resources.
Moreover, CSR activities focus on sustainability issues that not only lower costs,
but also improve operational efficiencies. All these lead to increased sales and
profits for an organisation.
Improved productivity and quality: CSR initiatives focus on well-being of
employees, thereby motivating them to a great extent. Increased level of motivation
helps in the ease of hiring quality staff, employee retention and commitment,
which ultimately leads to increased productivity and quality level.

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Efficient human resource base: CSR initiatives often result in positive association
of employees with their organisations. If an employee is satisfied with an
organisation, it is less likely that he/she would look for a job elsewhere. This helps
in attracting and retaining talented and efficient employees. Companies having
a positive public image are able to attract more job seekers. More hiring choices
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ultimately lead to building better and efficient workforce.
Improved brand image and reputation: Following CSR practices establish
an organisation’s reputation as a responsible and sustainable entity. It also
improves the organisation’s ability in terms of being more effective in managing
its communications and marketing to support existing customers, attracts new
customers and increases market share. Thus, engaging in CSR activities often
II
helps an organisation in improving brand image and reputation.

5. CSR initiatives rarely help in attracting and retaining talented and efficient
employees in an organisation. (True/False)
8.5 STAKEHOLDERS AND SHAREHOLDERS

A stakeholder is a person or a group of persons whose interest is directly or indirectly
affected by a company’s actions or business activities. On the other hand, a person
who legally owns one or more shares of stock in a public or private corporation
is called a shareholder. Further, a shareholder may also be classified as equity
shareholder or a preference shareholder. The concept of shareholder is narrower
as compared to that of a stakeholder. A shareholder is also a stakeholder, but a
stakeholder may or may not be a shareholder.
118 Shareholders are also considered as the owners of the business as they pay a price
for the company’s share. On the contrary, stakeholders are not the owners of the
business, but they deal with the business. A stakeholder can influence and be Notes
influenced by the activities of the organisation. They are the interested parties who
help the organisation to exist. In the absence of stakeholders, the organisation will
not be able to survive for a long time.
In the traditional model of governance, a business used to be accountable only to

the shareholders. However, nowadays, this scenario is changing. This is so because
many businesses are now of the opinion that other than shareholders, other entities
are also affected by the business; for example, customers, lenders, suppliers and
employees to whom the business is answerable.
The major differences between stakeholders and shareholders are explained in

Table 1:
Table 1: Stakeholders and Shareholders
Shareholders Stakeholders
Owners of businesses Interested parties of businesses
They represent a subset of stakeholders They represent the superset (wider scope)
(narrower scope)
a company
Only companies which are limited by

shares (holding a share capital) can have
shareholders
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Persons who own the shares/securities of Persons who have a direct or indirect stake in the
company and who are influenced by the policies
and objectives of the company
Every company, whether having a share capital or
not, has a number of stakeholders. For example,
sole proprietorship firm, partnership firm, non-
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profit organisations, government companies, etc.
Include equity shareholders and Include customers, competitors, suppliers,
preference shareholders government authorities, society, creditors,
debentureholders, etc.
They are interested in higher dividends, They are interested in the overall better
higher market value of shares and higher performance, liquidity and profitability of the
II
return of their investment. company.

6. ‘Stakeholders’ is a wider term than ‘shareholders’. (True/False)
8.6 DRIVING FORCES FOR CSR IN INDIA

India has become the first country in the world to make CSR an obligatory activity
for all businesses flourishing in India. In India, the CSR investment activities
are regulated by Section 135(1) of the Companies Act, 2003. The Act requires all
companies to invest in every financial year, at least 2% of average net profits derived
in the preceding block of three years, in CSR activities. The companies to whom
this Section applies include companies whose net worth is `500 crores or more,
or turnover is `1000 crores or more, or net profit is `5 crores or more during the
financial year. The Companies Act, 2013 also requires setting up of a CSR committee
for planning and strategising the CSR activities of a company.
119
Notes The growing recognition of CSR in India suggests that the benefits of running a
strong CSR program are becoming more tangible among corporates. Donating
money to charities, improving energy efficiency and/or waste management are some
CSR activities that positively impact the bottom line, either directly through lower
utility bills or indirectly through tax relief. All these benefits are working as key
drivers for promoting CSR in the current Indian scenario. Let us discuss some major
contemporary drivers for investing in CSR practices in India:
Tax relief: Under Section 80G of the Income Tax Act, 1961, certain tax deductions
are allowed when companies make expenditures on CSR activities. For example,
when donations are made to the Government for family planning, etc., a deduction
of 100% expenditure is allowed. Similarly, for donations made to the government
for other charitable purposes or for housing accommodation, improvement of cities
or villages, the deduction is allowed up to 50% of expenditure. Also, in respect of
donations made to certain funds, such as Prime Minister’s National Relief Fund,
National Illness Assistance Fund, State Government Fund for medical relief to the
poor, etc., a deduction of 100% CSR expenditure is allowed from the gross total
income of companies.

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Communities as suppliers: Several new and innovative CSR strategies are
increasingly becoming relevant wherein the companies hire certain communities
as their suppliers in the supply chain process. This results in enhancing the
livelihood of such communities by providing them income, while simultaneously
giving the corporates a secure and additional supply chain.
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Enhancement of corporate reputation: One of the most traditional benefits of
investing in effective CSR activities is that it portrays a positive image of companies
in front of the society and improves their brand value.
Meet customer demand: Customers nowadays are more aware of their
surroundings and prefer to associate themselves with organisations that have
II
visible and well-established CSR practices. Such demands by customers motivate

organisations to participate actively in CSR practices and reap multiple revenue
opportunities.
Manage risk and cost: Organisations that are engaged in CSR practices send a
message to stakeholders that they are committed to meet stakeholder demands.
Such organisations attract potential lenders and investors as the positive
positioning helps them to appear less risky. When an organisation engages in
improving environmental issues, such as reducing pollution and improving waste
management, it ultimately leads to better financial performance through increased
revenues and lower costs.
Recruit and retain talented employees: Organisations with a reputation of
being positive places to work can attract talented employees. It becomes easier
for an organisation participating in CSR activities to recruit and retain capable
employees. It is also seen that employees working in such organisations tend to be
more committed to the organisation and have greater job satisfaction. Employee
engagement can lead to both growth opportunities and cost savings.
120
S elf A ssessment Q uestions Notes

7. Indian companies are required to invest into CSR activities at least _________
of average net profits derived in the preceding block of three years.
8. The Companies Act, 2013 has made CSR an obligatory activity for all businesses.
(True/False)
8.7 OBSTACLES IN IMPLEMENTATION OF CSR

The execution of CSR activities is affected by many internal and external factors
peculiar to a business organisation. Corporate social responsibility is an important
strategic business practice. It is also considered to be a mechanism for corporate self-
regulation as it is integrated into an organisation’s business model. CSR as a concept
is quite significant specifically when its positive effects are highlighted. However,
assuming social responsibility has never been easy for organisations as they need to
invest a sizable portion of their earnings for CSR activities. The problems faced by
organisations in implementation of CSR activities are as follows:

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Lack of consensus: Many times, there is a lack of consensus among organisations
regarding CSR activities, which results in duplication of activities by organisations
in the areas of their intervention. Consequently, competitive spirit takes
place among organisations implementing CSR practices rather than building
collaborative approaches on social issues. Moreover, the management of some
companies is unwilling to invest its capital in CSR initiatives.
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Non-availability of regulatory organisations: In remote and rural areas, there is
non-availability of well-organised, non-governmental organisations which can
recognise needs of the community and work along with organisations to ensure
successful implementation of CSR activities.
Lack of resources: A common barrier in the implementation of CSR is the
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unavailability of resources, such as human capital, finances, knowledge and
expertise. Large amount of resources is required for the effective implementation
of CSR activities. However, lack of budgets may restrict organisations in indulging
in CSR activities.
Narrow perception towards CSR initiatives: Most CSR-implementing authorities
usually focus on donation-based CSR rather than undertaking comprehensive
social activities. They have a narrow vision because they are unable to decide
whether or not they should participate in such events.
Non-availability of CSR guidelines: There are no clearly defined guidelines
related to CSR programs of organisations. In India, the government has fixed that
the size and scale of CSR activities depend on the profit and business profile of an
organisation.
Lack of community participation: Organisations do not make serious efforts in
spreading awareness about CSR practices. Such absence of communication leads
to lack of interest or non-participation of local communities in CSR activities. This
can act as a hurdle in the implementation of CSR activities. 121
Notes Visibility factor: Most organisations undertake CSR initiatives in order to gain
positive publicity and branding for its products. This often leads to a practice
of conducting event-based CSR programs which may divert the real purpose of
implementing CSR activities. CSR in such cases is only used to gain visibility.
Therefore, designing and implementing CSR initiatives that focus on addressing
actual social causes becomes important.
9. A common barrier in the implementation of CSR is the unavailability of
_____________.
A ctivit y
After understanding the bottlenecks in the implementation of CSR activities in
business organisations, provide a few corrective measures which can help to
overcome these barriers and satisfy the needs of both, i.e., the community and
the organisations.
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8.8 CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE
GOVERNANCE
Corporate Social Responsibility (CSR) has evolved from basic standards of business
ethics. It comprises honesty and transparency. According to Hopkins (2007), CSR
is defined as continuing commitment by business to behave ethically and contribute to
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economic development while improving the quality of life of the workforce and their families,
as well as of the local community and society at large.
Corporate governance is traditionally defined as a mechanism used by an organisation

to ensure that organisational functioning is optimised to produce the best financial
results for shareholders. The top management develops and oversees the governing
II
systems that facilitate the application of various rules and regulations pertaining to
the corporate governance mechanism.
Corporate governance and corporate social responsibility are two different business
concepts. However, their association is becoming much familiar due to increased
focus of corporate houses on balancing business profits with ethically responsible
operations. There has been an ongoing debate on the involvement of other
stakeholders’ interests within the corporate governance system. Some companies
still consider the maximisation of shareholders as their main agenda, whereas others
believe that a balanced approach towards the corporate and societal issues provides
them long-term viability and proves as a competitive advantage.
While corporate governance is related to maximisation of profits and protection of

interests of those who have invested capital in the firm, CSR is concerned with certain
social activities which are beneficial for the external stakeholders, but may not be
fruitful for the shareholders. That is, socially responsive behaviour of organisations
may result in raising external stakeholders’ confidence (society and customers) at
122 the expense of wealth maximisation of shareholders.
Gradually, corporate social responsibility is getting infused into the practices of Notes
corporate governance adopted by companies. It can be said that corporate social
responsibility is a subset of the widest system of corporate governance. While
corporate social responsibility includes voluntary acts done by a company’s
management, the framework of corporate governance is regulated through rules,
laws and regulations to be followed by a company’s management. Both of them focus
on ethical activities and responsibility of an organisation towards its stakeholders
and the environment. They result in the creation of a better image of the organisation
in front of the society and stakeholders.
The outcome of the common convergence of corporate governance and corporate

social responsibility is not easy to measure for a corporate house. According
to Forbes Magazine, company leaders should not expect to see tangible profits from
responsible behaviour. Instead, companies should include responsible behaviour in its
corporate governance to do the right thing and to experience long-term indirect benefits of
better community relations and the avoidance of public backlash.

10. Corporate social responsibility is getting infused into the practices of corporate

8.9 SUMMARY
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governance adopted by companies. (True/False)
Sustainable development refers to meeting the diversified needs of people in

M
different communities, creating social cohesion and maintaining equal opportunity
to ensure a strong and healthy society. In other words, it can be said that sustainable
development focusses on finding out ways of doing things which do not hamper
the quality of people’s life.
Essentially speaking, business organisations are focussed around economic
II
activities. However, it cannot operate in an isolated economically oriented

environment. It interacts with social, political and technological entities during
its operations and consequentially the environment is shaped by the complex
interaction of these forces.
CSR is a management concept according to which it is the responsibility of
corporations/businesses to function within the society to contribute towards the
development of the society. The development could be in terms of economic, social
and/or environmental development which creates a positive impact on the society.
In India, the CSR investment activities are regulated by Section 135(1) of the
Companies Act, 2003. The Act requires all companies to invest in every financial
year, at least 2% of average net profits derived in the preceding block of three
years, in CSR activities. Some major contemporary drivers for investing in CSR
practices in India are tax relief, engaging communities as suppliers, enhancement
of corporate reputation, meeting customer demand, managing risk and cost, and
recruiting talented employees.
A properly implemented CSR concept helps an organisation in gaining a competitive 123
advantage in the industry in terms of benefits such as enhanced access to capital
Notes and markets, operational cost savings, enhanced customer loyalty, better decision-
making processes, increased sales and profits, improved productivity and quality,
efficient human resource base and improved brand image and reputation.
Some obstacles in the implementation of CSR activities are lack of consensus,
non-availability of regulatory organisations, lack of resources, narrow perception
towards CSR initiatives, non-availability of CSR guidelines, lack of community
participation and visibility factor.
It can be said that corporate social responsibility is a subset of the widest system
of corporate governance. While corporate social responsibility includes voluntary
acts done by a company’s management, the framework of corporate governance
is regulated through rules, laws and regulations to be followed by a company’s
management. Both of them focus on ethical activities and responsibility of an
organisation towards its stakeholders and the environment.
8.10 KEY WORDS

Competitive Advantage: It refers to a condition, situation or circumstance which
puts a company in a superior position than others.

certain level. M
Sustainable: A change which is capable of being balanced and maintained at a
Philanthropic: It means seeking to work towards the promotion and welfare of

other and the society as a whole.
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Governance: It refers to the act of controlling or ruling the activities of an
organisation.
8.11 CASE STUDY: STEPS FOR CSR INITIATIVES IN WALMART

Walmart Supercentres is one of the leading business retailers offering a range of
II
general merchandise and groceries. It is regarded as the largest private sector

retailer in the United States. While striving to work for the benefits of society
and the immediate environment, Walmart encountered various bottlenecks in the
implementation of its CSR activities. Research states that many social and legal
challenges have paved way for the development of its CSR-specific code of conduct
and annual reports. Once in 2005, a news advertising agency brought to public that
Walmart was employing child labour at two of its factories in Bangladesh. In the
production of products for export to Canada, Walmart had employed children aged
between 10 and 14 years to work in its factories for little amounts of money.
Immediately, after this media conflict, Walmart terminated all contracts with such
suppliers in Bangladesh who used child labour in their supply work. However,
this was not solving the purpose completely. Suppliers were still able to hide
such child abuses and subcontract work to other factories which could escape the
inspection of factory auditors. Nevertheless, Walmart ceased its business with the
two factories and developed its Standard Code of Conduct for suppliers. The Code
of Conduct consisted of some basic quality standards to be followed by the suppliers
124 including non-employment of child labour. If any single underage worker was
found in any of its factories, Walmart used to immediately cease its business with
the concerned supplier. The Code of Conduct also provided for non-discrimination Notes
between workers on the basis of gender, pay scale, etc. The efforts made by Walmart
towards CSR were highly appreciated and similar codes of conduct were developed
by other companies in the nearby countries.
Source: https://www.utrechtlawreview.org/articles/10.18352/ulr.205/galley/203/download/
QUESTIONS
1. What do you understand by an obligation of a company towards CSR?
(Hint: Refer to Section 8.3: Concept of Corporate Social Responsibility)
2. What do you think are some of the benefits which Walmart would have experienced
after taking CSR initiatives?
(Hint: Refer to Section 8.4: Using CSR To Gain Competitive Advantage)
8.12 EXERCISE
1. Define sustainable development and explain the need for business organisations
to work towards sustainable development.
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2. What do you understand by the term ‘corporate social responsibility’?
3. How does Carroll’s CSR pyramid address the concept of corporate social
responsibility?
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4. Describe some benefits offered by CSR to companies for gaining competitive
advantage.
5. Discuss some of the driving forces that necessitate implementation of CSR in India.
6. Briefly describe the obstacles in the implementation of CSR activities.
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Topic Q. No. Answer
Concept of Sustainable Development 1. d. Both a and b
2. True
Concept of Corporate Social Responsibility 3. society
(CSR)
4. Economic responsibility
Using CSR to Gain Competitive Advantage 5. False
Stakeholders and Shareholders 6. True
Driving Forces for CSR in India 7. 2%
8. True
Obstacles in Implementation of CSR 9. resources
Corporate Social Responsibility and 10. True
125
Notes 8.14 SUGGESTED BOOKS AND E-REFERENCES

SUGGESTED BOOKS
Farmer, R., & Hogue, W. (1985). Corporate Social Responsibility. Lexington, Mass.:
Lexington Books.
Redclift, M. (2005). Sustainable Development. London: Routledge.
E-REFERENCES
Benefits of Sustainable Development. (2019). Retrieved from http://www.
globacorp.net/benefits-of-sustainable-development.html
Driving Forces. (2019). Retrieved from https://corporatesocialresponsibility4.
weebly.com/driving-forces.html
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CSR Strategy – Development and
Implementation
Table of Contents
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9.1 Introduction
9.2 CSR Strategy Development
9.2.1 Buy-in of the Management
9.2.2 Analyse Competitors’ CSR Activities
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9.2.3 Summarise the Proposed CSR Actions

9.2.4 Prepare a Business Case for Implementing CSR
9.3 CSR Implementation
9.4 Summary
9.5 Key Words
9.6 Case Study
9.7 Exercise

Briefly describe the steps in CSR strategy development
Discuss the process of CSR implementation
Outline the importance of analysing competitors’ CSR activities
Discuss how companies summarise their proposed CSR actions
Identify various areas of CSR implementation
9.1 INTRODUCTION
In the previous chapter, you have been taught about the concept of sustainable
development and corporate social responsibility (CSR). This chapter discusses the
process of development of CSR strategy and implementation. It is very important
for organisations to develop and implement a well-structured corporate social
responsibility program which is thoughtfully analysed and planned. Care has to be
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taken before undertaking CSR strategy development as it also means gaining the
trust and respect of society and customers. Firstly, the focus area of the company
has to be clearly defined because scattered social responsibility interests will not
yield the desired results. In addition, the social causes identified must be properly
aligned with the objectives of the company. The next most important factor is the
determination of expected costs and budgets of the proposed CSR initiatives. The
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company has to decide whether it will conduct in-house CSR activities or partner
with a non-profit organisation serving the desired social/ethical causes. This chapter
discusses in detail all the steps required for successful CSR strategy implementation.
Only those organisations which engage their employees in the process become
successful in the development and implementation of their CSR activities. Proper
II
trainings should be imparted by organisations from time to time so as to develop

skills of employees to ensure their active participation. Employees should also be
encouraged to provide their valuable feedback on CSR initiatives.
CSR initiatives are undertaken for the benefits of the proposed beneficiaries,
employees and the company as a whole. Lastly, the information of CSR programs has
to be shared through proper channels with all the stakeholders and society. Social
efforts and CSR activities undertaken by a company during an implementation year
can have positive or negative impacts on the stakeholders.
9.2 CSR STRATEGY DEVELOPMENT

Organisations are concerned about drafting a CSR program which not only addresses
the business values of companies, but also effectively takes into account the social,
environmental and humanitarian challenges.
Any business approach requires the formulation of a well-researched strategy that

works as a guideline in its implementation and also serves as a tool for monitoring
128
the progress. The same stands true for CSR approach and, therefore, an organisation
CSR Strategy – Development and Implementation
needs to carefully develop a CSR strategy taking inputs from all levels of the Notes
organisation. A properly formed CSR strategy helps in ensuring that an organisation
shapes, maintains and constantly reinforces its identity, marketplace, stakeholder
relationships and contribution to the society. Most importantly, a CSR strategy
works as a framework for a coherent business approach which forms its basis on
issues that concern the organisation’s stakeholders.
Different organisations may adopt different methods to develop their CSR strategies.
However, the basis on which the CSR strategy will be formed (organisational
values and principles) will be the same for all the organisations regardless of their
domain. A good CSR strategy will be developed under the guidance of those who
might provide assistance, and build on the organisation’s strengths and address the
weaknesses. Moreover, the basic steps that are followed in the process of developing
a CSR strategy would remain the same.
In India, as per the requirements of Section 135 of the Companies Act, 2013, the
first step towards the incorporation of a CSR program into the corporate structure
of an organisation is the establishment of a CSR Committee. A CSR Committee
elected by the Board of Directors is responsible for the preparation of a detailed CSR
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plan including the amount of expenditure to be incurred on CSR, the various types
of initiatives to be undertaken, the roles and duties of various individuals of the
organisation, and the details of CSR reporting and monitoring framework.
A CSR strategy should be such that it excludes a company’s normal business

operations and provides a list of projects that the company wants to execute in the
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year of CSR implementation. An effective CSR strategy should take into account the
following parameters:
The target group, i.e., the people, stakeholders’ group and community likely to be
affected by CSR
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The geography, i.e., the locations where the CSR initiative are to be undertaken
The issues and sectors, i.e., particular development areas to be focussed by the
company, for example, health, livelihood, education, environment, etc.
9.2.1 BUY-IN OF THE MANAGEMENT

While deciding about the CSR initiatives, given the investment criteria and resources,
a company can choose out of two options:
Direct project execution or self-execution with the help of an in-house CSR
leadership team/department
Outsourcing or making grants to an independent CSR implementation partner
Grant-making may be chosen if the independent implementation partners (for
example, NGOs) are easily available in the target location serving for the purpose
and objectives which the company wants to pursue. However, many companies are
creating in-house CSR development teams which provide them the flexibility to
customise a CSR project according to company’s needs and objectives. A separate
team works towards deciding the skills, job works, budgetary and cost structures 129
Notes of CSR projects to be undertaken during the implementation year. A self-governed

CSR team offers the advantage of exercising high level of control over the day-to-
day activities, results and efficiencies of CSR projects, as compared to grant-making
with implementation partners.
The personal engagement of senior managers, Chief Executive Officers (CEOs) and
employees at all levels is usually vital for the success of any CSR initiative. The first
step in the process of formulation of a CSR strategy requires the CSR leadership
team to report back to senior management or board of directors about the outcome
of a CSR assessment and the ways to move ahead. A CSR assessment may provide
the following indications:
The areas of operation susceptible to external criticism
The real opportunities for synergies or new products
The loopholes in current decision making on CSR issues
The CSR issues that are of major concern to the key stakeholders
For the success of any CSR program, it is important that the CSR leadership team
managers.
9.2.2
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continues to build support among employees, and communicate their roles in the
implementation of the CSR strategy while also following the directions of the senior
ANALYSE COMPETITORS’ CSR ACTIVITIES

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For developing the framework of CSR strategies, it is imperative for organisations
to study and evaluate good CSR practices being adopted by other companies
presently and in the past. The impacts and achievements of such CSR initiatives can
provide valuable information about the viability of the proposed CSR activity of the
organisation. This can be done by studying the publicly available information on
local development and national development scenarios.
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Every organisation is capable of developing a CSR strategy with the proper

involvement of its employees and senior managers. However, it is still valuable to
base the firm’s CSR approach drawing on the experience and expertise of others.
There are three useful sources of information that the leadership team can use to
develop the CSR strategy:
The CSR approach of other organisations
Industry associations
CSR-specialist organisations
The CSR leadership team needs to assess the CSR strategies and approach other
organisations (both domestic and international) and evaluate the similarities and
differences in the CSR approaches. It can, then, adopt the strategies that drive
positive social, economic, and environmental impact. The leadership team may
also evaluate and compare the vision, values and policy statements of primary
competitors, along with their codes, CSR-related product lines, and the programs
130 or philanthropic associations that they are part of. Evaluating the benefits, costs,
consequences, resource allocations, or any alteration of current CSR policies may Notes
also provide helpful information to the leadership team to bring about necessary
changes in the existing CSR strategy.
9.2.3 SUMMARISE THE PROPOSED CSR ACTIONS

The next step in the process of developing a CSR strategy would be to use the
conclusions drawn by the leadership team and create a matrix of proposed CSR
actions, bearing environmental, social and economic impact. The leadership team
can plot existing and proposed CSR activities, processes, products and impacts on
the matrix, setting them against the organisation’s current business operations to
find out how well they complement each other.
The series of projects to be implemented by the CSR strategy of the company should
be clearly defined. All projects to be undertaken should be defined in terms of their
definite beginnings, ends, expected outcomes, expected environmental impacts,
associated budgets and costs, etc. CSR projects may relate to a short duration of a
few months or long duration of multiple years. It is important to summarise CSR
actions because monitorable targets, defined activities, and budgets are more likely
Details
Social Activity
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to lead to the systematic implementation of CSR initiatives and successful results.
An example of proposed CSR matrix is shown in Table 1:
Table 1: A Sample of Proposed CSR Matrix
Environmental Activity Economic Activity

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Current Proposed Current Proposed Current Proposed
Processes
Products and
Services
Beneficiaries
Impacts
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Outcomes
Responsibility
Centre
Cost and
Budget
The CSR matrix must incorporate certain details as to objectives of each project,
beneficiaries of each project, expected outcomes of each project, expected impact on
the beneficiaries, assumptions of each project, detailed activities to be undertaken
in each project, estimation of budgetary constraints, scheme of funding the budget
requirements, monitoring and evaluation methodologies, etc.
9.2.4 PREPARE A BUSINESS CASE FOR IMPLEMENTING CSR

The CSR leadership team can combine the outcome of its research, inputs from
senior managers and employees, and brainstorming sessions to develop a business
case for potential initiatives that will ensure the successful implementation
of the organisation’s CSR strategy. The business case should be in line with the 131
organisation’s business objectives, skill sets and core competencies.
Notes It should focus on a number of elements, some of which are as follows:

Opportunities for cost reductions
Major challenges for the organisation
Broader changes that the organisation might need to make
Risks or threats each proposition poses
The outcome of each proposed action for new development
Possible leverage points (on which considerable CSR success can be achieved)
Areas in which an organisation could potentially gain a competitive edge
Areas in which stakeholders exhibit major concerns
Short- and long-term objectives
Estimated costs of implementing each proposed action
Expected benefits
The framework for implementing an effective CSR is explained in Figure 1:
2. Sustainable
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1. Aligned with business objectives
Effective
Brand visibility
Social capital
Partnerships
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3. Compliance with the provision of
CSR Business
Companies Bill, 2012
opportunities
4. Result-oriented Relationships
Nation-buiding
5. Scalable
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Figure 1: Effective CSR Framework
Source: (2019). Retrieved from https://www.ey.com/Publication/vwLUAssets/EY-Government-and-Public-

Sector-Corporate-Social-Responsibility-in-India/$File/EY-Corporate-Social-Responsibility-in-India.pdf
For enabling an effective CSR framework, the process should begin with a thorough
assessment of existing processes/approaches defined for meeting the expectations
of CSR, alignment of CSR strategies to the vision and objectives of the company,
inclusion of transparent and risk mitigation tools in CSR implementation, and
effective communication of all policies and approaches to those involved in the
execution of CSR. Moreover, CSR should be result-oriented and should focus on
the achievement of intended outcomes. CSR projects should be assessed for their
intended impacts on some identified factors to ensure maximum utilisation.
There is no single CSR business case that would meet the requirements of improving
the outcome of an organisation’s CSR approach. Over the years, researchers have
developed several business cases that can be grouped based on various approaches,
issues addressed, and underlying assumptions about how value can be created and
132 defined for CSR.
The common consideration points in the important areas concerning the CSR Notes
approach of an organisation include the following:
Improved relationships with stakeholders
Involving the local community to generate positive impact on communities
Improving relationships with local authorities
Understanding the wider impact of the business operations
Raising capital through socially responsible investing (SRI)
Attracting and retaining top talent
Increasing efficiencies by reducing resource use, waste and emissions
Managing risk by complying with regulatory requirements
Improving financial performance by selling environment-friendly products
Building a reputation of a responsible business
Increasing customer loyalty

Reducing regulatory oversight
Improving government relationships

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Creating a positive impact on the society and environment

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1. The establishment of a CSR Committee in business organisations is mandated
by virtue of which Section of the Companies Act, 2013?
2. A CSR strategy should exclude a company’s normal business operations.
(True/False)
3. CSR initiatives undertaken by an organisation may take the form of direct in-
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house project execution or _______________.

4. Before developing CSR strategies, organisations need to study and evaluate
good CSR practices being adopted by other companies presently and in the
past. (True/False)
9.3 CSR IMPLEMENTATION

Every organisation is at a different level of accomplishment when it comes to
implementing CSR. Organisations develop their CSR strategies in line with their
mission, vision, culture, environment, risk profile and operating conditions.
Organisations may base their CSR initiatives on customer, employee, community
and environmental activities. To engage in CSR activities proactively, an organisation
must integrate the CSR strategy with its overall business strategy. It should align its
decision making, management processes and business operations with CSR in an
incremental or comprehensive manner.
133
Notes An organisation can implement the CSR strategy using a familiar model known
as ‘Plan, Do, Check and Improve’. This is a generic framework that has built-in
flexibility so that it can be adopted by any organisation. An ideal CSR implementation
framework integrates economic, social and environmental decision making. It
involves various stakeholders, such as the board of directors, front-line officials,
supply chain partners, etc. CSR is intimately connected with effective corporate
governance. Table 2 presents the generic implementation framework of CSR:
Table 2: Generic Implementation Framework
When?
What? (Task
(Conceptual How? (Checkpoints on the journey)
delineation)
phase)
Plan 1. onduct a CSR
C zz Assemble a CSR leadership team
assessment zz Develop a working definition of CSR
zz Identify legal requirements
zz Review corporate documents, processes and
activities, and internal capacity
Identify and engage key stakeholders
2.
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Develop a CSR
strategy
zz
zz
zz
zz
Build support with CEO, senior management
and employees
Research what others are doing, and assess the
value of recognised CSR instruments
Prepare a matrix of proposed CSR actions
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zz Develop ideas for proceeding and the business
case for them
zz Decide on direction, approach, boundaries and
focus areas
Do 3. evelop CSR
D zz Do a scan of CSR commitments
commitments Hold discussions with major stakeholders
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zz
zz Create a working group to develop the

commitments
zz Prepare a preliminary draft
zz Consult with affected stakeholders
4. Implement CSR zz Develop an integrated CSR decision-making
commitments structure
zz Prepare and implement a CSR business plan
zz Set measurable targets and identify
performance measures
zz Engage employees and others to whom CSR
commitments apply
zz Design and conduct CSR training
zz Establish mechanisms for addressing
problematic behaviour
zz Create internal and external communication
plans
134 zz Make commitments public
When? Notes
What? (Task
(Conceptual How? (Checkpoints on the journey)
delineation)
phase)
Check 5. Assure and report zz Measure and assure performance
on progress zz Engage stakeholders
zz Report on performance, internally and
externally
Improve 6. E
valuate and zz Evaluate performance
improve zz Identify opportunities for improvement
zz Engage stakeholders
Cross-check: One cycle completed Return to plan and start the next cycle
Source: (2019). Retrieved from https://www.iisd.org/pdf/2007/csr_guide.pdf
In this section, we will discuss the steps undertaken for implementing CSR
commitments (step 4 of the process). CSR commitments are policies or mechanisms
that an organisation formulates to indicate what the organisation plans to do to
address its social and environmental impact. CSR commitments are based on the
CSR assessment and strategy and are developed when the organisation moves from

values.
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planning to action. The benefits of CSR commitments are as follows:
They ensure that the organisation’s CSR strategy is integrated with its business
They help in integrating the organisation’s business strategy, objectives and goals.
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They work as guidelines for employees.
They communicate the organisation’s CSR approach to its various stakeholders.
Although every firm is different and approaches CSR implementation in a different
manner, the general steps which must be followed in the CSR implementation remain
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the same. The process should include activities, such as integrating CSR objectives
and decision making with the goals and strategies of the organisation, developing
and implementing CSR business plans by the key personnel of CSR decision-making
structure, setting of measurable targets and performance measures for CSR activities,
engaging all employees to whom the implementation is applicable, conducting CSR
trainings to make people aware about the processes and requirements, detecting
and correcting activities which are contrary to CSR principles, communicating CSR
activities and performance reports to internal and external individuals through
annual reports or newsletters, and making CSR commitments public.
The purpose of forming CSR commitments for any firm is to have a medium to
communicate the nature and direction of the organisation’s social and environmental
activities. It helps the public and other stakeholders to gauge how the firm will
react in a particular situation. CSR commitments provide an understanding to the
stakeholders about what can be expected from the organisation. By articulating these
expectations through their CSR commitments, an organisation minimises the chances
of misunderstandings in future. Therefore, it can be said that CSR commitments
improve the quality of the involvement an organisation has with its stakeholders. 135
CSR implementation involves implementing the CSR strategy of the organisation
Notes which involves carrying out processes, practices and activities and making day-
to-day decisions in a manner that the CSR commitments of the organisation are
fulfilled. It is often said that making CSR commitments is equivalent to ‘talking the
talk’ and CSR implementation is ‘walking the walk’.
For any business organisation, it is important to live up to its CSR targets. If a

business is unable to fulfil its CSR commitments, it may lead to dissatisfaction
among employees, shareholders, customers, business partners and the community.
Moreover, while preparing a complete business case for CSR, it is imperative for
companies to link and schedule the disbursement of funds with each planned CSR
activity to be undertaken in the implementation period. The project budget should
be broken appropriately based upon the sizes of budgets so as to ensure that there is
neither insufficiency of funds for CSR implementation nor excess of funds.
Each organisation is different, and approaches and implements CSR in different

ways.
Areas of CSR Implementation
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Different organisations may direct their CSR activities in a number of areas, such
as organisational governance, human rights, labour reform, environment, fair
operating practices, consumer welfare, community development, etc. However,
every organisation needs to outline the scope of its social responsibility, identify
issues of concern and set its priorities with respect to the CSR goals. Seven core areas
of CSR implementation which interest most organisations are:
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Organisational governance: It implies the way a business makes and deploys
strategic decisions. All decision-making processes need to be structured taking
into consideration the CSR principles.
Human rights: Businesses should provide support to human rights when
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collaborating with stakeholders and implementing their operations. If a business

partner is known to be violating human rights, it is a case of human rights
infringement. As the business owner, you should terminate relationships with
such a partner.
Fair operating practices: It focusses on ethical conduct practices. These include
anti-corruption policies, responsible political involvement, fair competition
environment, social responsibility promotion and respect for intellectual and
physical property.
Consumer issues: It focusses on the business responsibility to minimise risks
when using your products and services. Your customers must be aware of how
to use products and services. The marketing information cannot be misleading or
unclear. You must not hide any information about your business partners.
Labour practices: CSR activities of an organisation must focus on providing
training to employees to increase their efficiency. These practices should also focus
on the features, such as employee’s health and safety, salary, working hours, etc.
Overall, the employee-focussed CSR activities must include policies which could
136
improve the working conditions of employees.
Environment: Some environmental principles include taking responsibility for Notes

environmental impacts caused due to business activities, taking a precautionary
approach to minimise the impact on environment, making provisions for
environmental risk management and bearing the cost of pollution caused due to
your business activities.
Community involvement and development: As a business, you must acknowledge
the importance of communities, which include the places of your branches, home
base, suppliers’ locations and subsidiaries. You can contribute to the development
of these communities by creating more employment, promoting arts and culture,
diversifying your economic activities and investing socially.
In each core area, main aspects covered by CSR approach include the economic,
health and safety and value addition to products and services. Each core area deals
with a range of dynamic issues related to the evolution of social, environmental and
economic concerns in the world, which form the basis for social responsibility. In
addition to these, organisations also consider different ways in which the general
public gets affected through each core area of CSR implementation.
An organisation must identify and address all relevant issues related to the core areas
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of CSR implementation. However, there is no fixed order in which an organisation
should address the core areas. The order of priority will depend on the nature of the
organisation and its background. An organisation should have a holistic approach
to address all the core areas, which means that all the core issues and concerns must
be considered keeping in mind their interdependence, rather than concentrating on
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one issue at a time. Organisations should be aware that efforts to address one issue
may involve a trade-off with other issues. A certain improvement in the direction of
a specific issue should not create hurdles in the way of achieving improvement in
another issue, such as adversely impact the life cycle of an organisation’s products
or services, its stakeholders or the value chain. Some of the key advantages of
addressing the seven core areas and integrating social responsibility within its
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decisions and activities are as follows:

Improving the competitiveness of the organisation
Improving the organisation’s relationship with its stakeholders
Increasing employee retention and participation
Improving employee safety and health
Achieving greater productivity and resource efficiency
Improving the fairness of trade, fair competition, and minimising corruption
Minimising consumer conflicts related with quality of products or services
Inspiring informed decision making based on an improved understanding of the
expectations of society
Improving the organisation’s risk management strategies
Enhancing the reputation of the organisation
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Promoting innovation

5. Organisations develop their CSR strategies in line with mission, vision, culture,
environment, risk profile and operating conditions. (True/False)
6. An organisation can implement the CSR strategy using the model of ‘Plan, Do,
Check and ____________’.
9.4 SUMMARY
A properly formed CSR strategy helps in ensuring that an organisation shapes,
maintains and constantly reinforces its identity, marketplace, stakeholder
relationships and contribution to the society. Most importantly, a CSR strategy
works as a framework for a coherent business approach which forms its basis on
issues that concern organisation’s stakeholders.
The CSR committee elected by the Board of Directors is responsible for the
preparation of a detailed CSR plan including the amount of expenditure to be
incurred on CSR, the various types of initiatives to be undertaken, the roles and
duties of various individuals of the organisation, and the details of CSR reporting
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and monitoring framework.
There are three useful sources of information that the leadership team can use to
develop the CSR strategy, which includes the CSR approach of other organisations,
industry associations and CSR-specialist organisations.
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While deciding about the CSR initiatives, given the investment criteria and
resources, a company can choose out of two options: direct project execution or
self-execution with the help of an in-house CSR leadership team/department, or
outsourcing or making grants to an independent CSR implementation partner.
Every organisation is capable of developing a CSR strategy with the proper
II
involvement of its employees and senior managers. However, it is still valuable to

base the firm’s CSR approach drawing on the experience and expertise of others.
The CSR matrix must incorporate certain details as to objectives of each project,
beneficiaries of each project, expected outcomes of each project, expected impact on
the beneficiaries, assumptions of each project, detailed activities to be undertaken
in each project, estimation of budgetary constraints, scheme of funding the budget
requirements, monitoring and evaluation methodologies, etc.
CSR commitments are policies or mechanisms that an organisation formulates to
indicate what the organisation plans to do to address its social and environmental
impact. CSR commitments are based on the CSR assessment and strategy and are
developed when the organisation moves from planning to action.
An organisation can implement the CSR strategy using a familiar model known
as ‘Plan, Do, Check and Improve’. This is a generic framework that has built-in
flexibility so that it can be adopted by any organisation. An ideal CSR implementation
framework integrates economic, social and environmental decision making.
Different organisations may direct their CSR activities in a number of areas, such
138 as organisational governance, human rights, labour reform, environment, fair
operating practices, consumer welfare, community development, etc.
9.5 KEY WORDS Notes
CSR Matrix: A detailed enclosure of all the elements of the CSR strategy, their
impacts on social environment and assessment of performed activities.
Implementation partner: An organisation which works towards the achievement
of social/communal/environmental goals that are aligned with the company’s CSR
objectives.
Strategy: It is a holistic approach (integrated with the core business activities) to
address the social and environmental impacts of business operations.
Beneficiary: A person or group of persons (generally of a community) likely to be
benefited from the CSR initiatives of a company.
9.6 CASE STUDY: CSR IMPLEMENTATION AT STARBUCKS COFFEE

Starbucks Corporation is a leading American coffee-house chain having its business
operations spread across multiple locations worldwide. It has more than 20 thousand
coffee stores in around 60 countries. Since the initiation of its coffee business in
1971, the company has been actively concerned about the issues of social and ethical
environment. M
responsibilities. The main objective of Starbucks Coffee is to deliver a product which
is not only beneficial for the company and its customers, but also beneficial for the
The company has joined hands with an implementation partner named Ethos Water.
Ethos Water ensures the availability of clean drinkable water to over a billion of
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people who do not have access to it. Starbucks gains a competitive advantage over
other coffee companies as it is well known for giving back quality to the society.
The pillars on which Starbucks’ CSR initiatives are based are environment, ethical
sourcing and community. The environment pillar stands strong as the company is
committed to conserving and recycling of energy and water while also working on
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strategies to address climate changes. The ethical sourcing pillar holds strength with
the way that Starbucks purchases its products. The company purchases its coffee,
tea, cocoa and other substances from farmers and suppliers who meet certain defined
ethical standards of production.
Similarly, Starbucks initiates for communal benefits too. The community stores
developed by Starbucks are partnered with local non-profit organisations. Such
non-profit organisations work to satisfy the needs of the communities in which
they are located. Starbucks follows a strategy of donating a fixed amount on every
transaction to the non-profit organisations. Starbucks also focusses on diversity
at workplace and employs people from different backgrounds. The company also
provides community-centric trainings to youth in the nearby locations.
Source: https://www.starbucks.com/responsibility/global-report
QUESTIONS
1. In which areas does Starbucks CSR implementation take place?
(Hint: Ethical operating practices, Environment, Community involvement and 139
development)
Notes 2. Highlight the steps to be followed by companies (like Starbucks) for developing an
effective CSR strategy.
(Hint: Refer to Section 9.3: CSR Implementation)
9.7 EXERCISE
1. What are the steps in CSR strategy development?
2. Briefly describe the process of CSR implementation.
3. Explain the importance of analysing competitors’ CSR activities while drafting
CSR strategies.
4. Enumerate various areas of CSR implementation.
5. Explain how organisations summarise the proposed CSR actions during the
implementation period.

Topic
CSR Strategy Development
M Q. No.
1.
2.
3.
4.
Section 135
True
grant-making
True
Answer
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CSR Implementation 5. True
6. Improve

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SUGGESTED BOOKS
Paetzold, K. (2010). Corporate Social Responsibility (CSR). Hamburg: Diplomica-
Verlag.
Caulfield, K., Reid, R., Lothe, B., Friedman, A., Hart, N., & Pober, J. et al.
(2014). Driving Corporate Social Responsibility. [Boston, MA]: Aspatore.
E-REFERENCES
Worldwide, E. (2019). How to implement CSR in your company? Here are five key
steps... Retrieved from http://www.emg-csr.com/how-to-implement-csr/
Strategic Corporate Social Responsibility. (2019). Retrieved from https://
onstrategyhq.com/resources/strategic-corporate-social-responsibility/
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Measuring, Monitoring and Reporting
CSR Activities
Table of Contents
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10.1 Introduction
10.2 Importance of Measuring and Monitoring CSR Activities
10.3 Guiding Principles of CSR
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10.4 Measuring CSR and its Impact on Sustainable Development
10.4.1 CSR Performance Measurement System
10.5 Monitoring CSR Activities
10.6 Creating CSR Reports
10.6.1 Importance of CSR Reporting
10.7 Elements of a CSR Report
10.7.1 Format of CSR Reporting
10.8 CSR Reporting Team
10.9 Summary
10.10 Key Words
Table of Contents
10.11 Case Study
10.12 Exercise
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Measuring, Monitoring and Reporting CSR Activities

Discuss the importance of measuring and monitoring CSR projects
Outline the guiding principles of CSR
Explain the objectives of CSR monitoring
Determine the elements of CSR reports
Discuss the standard of various frameworks for the creation of CSR reports
Describe the format of a CSR report
10.1 INTRODUCTION
In the previous chapter, you were introduced to the concept of development and
implementation of CSR strategy. Every CSR strategy should be integrated with
the organisation’s business strategy so as to measure the social and environmental
impacts of business operations. This chapter explains the need, objectives, process
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of impact measurement and monitoring of CSR activities.
After planning, designing and implementing CSR policies aimed at the achievement
of social, economic and environmental objectives, the companies should devise a
holistic and systematic mechanism for monitoring and reporting CSR activities.
Methods must be established to monitor CSR projects from time to time. The main
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objective of the monitoring process is to locate the slippages from the estimated
course of CSR action and determining any corrective steps needed to bridge the gaps
between present CSR action and estimated CSR action. The impacts of CSR projects
undertaken by a company on the society at large are to be properly measured to
ensure that the company is able to meet its responsibilities towards the stakeholders.
II
This chapter also discusses the various frameworks and standards for the creation of
CSR reports and disclosure of CSR information to the stakeholders. In this section,
the elements of CSR reports are explained, as provided by the Global Reporting
Initiative (GRI) framework followed by companies worldwide. Further, the format
of the CSR report as contained in the provisions of the Companies Act, 2013 is
discussed. Indian companies which fulfil certain criteria are required to present
a mandatory CSR report along with the Board’s Report, specifying the details of
present and proposed CSR projects undertaken by them.
10.2 IMPORTANCE OF MEASURING AND MONITORING CSR ACTIVITIES

Most companies find it difficult to measure the impact of their CSR initiatives.
Some of the advantages like improved reputation and customer loyalty cannot be
quantified easily, which makes it difficult to analyse the importance of CSR activities.
However, it is extremely important to measure them, as it allows you to:
enhance the decision-making process as you make a progress towards more CSR
programs 143
Notes reveal the importance of your initiatives to your customers and stakeholders
align your tasks with the organisation goals; for example, develop employee skills
or decrease employee turnover
Instead of concentrating only on profit, many of the progressive organisations
measure what is known as Triple Bottom Line. These 3Ps allow organisations to
measure their performance in the below-mentioned areas:
People who focus on the community development and faithfulness to fair labour
practices
Planet that focusses on the environmental impact and the integration of
maintainable environmental practices
Profit is defined as the economic value that is created by the organisation after the
deduction of all input costs, including the capital cost
Through small focus groups, conversations and social media polling, one can
understand what is more important to the internal and external stakeholders. These
stakeholders include community members, employees, customers, suppliers and
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non-profit members. Organisations should take time to learn their goals, motivations
and needs. One can then develop a program that serves their interests. Businesses
can be smarter in selecting the metrics, stories and data, and selecting to report on
the metrics which their stakeholders value the most.
Thus, measuring and monitoring of CSR activities serve the following purposes:
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It helps to find out the slippages or deviations from the proposed CSR activities
and determines the need for any corrective action.
It provides an opportunity to learn from experience that what went well and what
did not. Such learning experiences can be applied in the upcoming CSR projects.
II
The measurements of CSR activities have to be mandatorily reported under the

report of Board of Directors as per the provisions of the Companies Act, 2013.
Measuring the outcome and impacts of CSR projects undertaken by the company
provides an overview of whether and to what extent the company is able to meet
the needs of its stakeholders and sustainable development.
1. ____________ helps find out the slippages from the proposed CSR activities
and determines the need for any corrective action.
10.3 GUIDING PRINCIPLES OF CSR

Many frameworks exist that aim to provide a comprehensive set of objectives and
goals for various dimensions of sustainability like people, environment, safety,
society, etc. These frameworks can be used as the foundation on which CSR programs
can be planned, built, measured and evaluated. The widely accepted international
144 framework in this regard is the UN Global Compact Management Model. The model
envisages a continuous improvement model that has the following phases: Assess, Notes
Define, Implement, Measure, Communicate and Commit. The model is based on the
premise that corporate sustainability should originate from the company’s value
system, and a principle-based approach to doing business. The 10 principles provided
by the UN Global Compact Model are obtained from several conventions, such as
ILO’s Declaration on Fundamental Principles and Rights at Work, the Universal
Declaration of Human Rights, etc. The broad areas covered by these principles are
discussed in Table 1:
Table 1: Broad areas of UN Global Compact Model Principles
zz Human rights (support and respect the protection of international human rights and ensure that
business is not complicit with human rights abuses)
zz Labour rights (uphold the freedom of association and effective recognition of the right to collective
bargaining, elimination of all forms of forced and compulsory labour, effective abolition of child
labour and elimination of description in respect of employment and occupation)
zz Environment (support a precautionary approach to environmental challenges, undertake initiatives
to promote greater environmental responsibility and encourage the development of environment-
friendly technology)
Governance (work against corruption in all forms, including bribery and extortion).
zz
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Source: (2019). Retrieved from https://www.pwc.in/assets/pdfs/publications/
2013/handbook-on-corporate-social-responsibility-in-india.pdf
Apart from the UN Global Compact Model, there are several other important and
globally recognised frameworks and guidelines which can also be used as the
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foundation for planning and implementing CSR programs, and for their measurement
and monitoring. These are:
The UN Guiding Principles on Business and Human Rights
National Voluntary Guidelines (NVG)
II
ILO’s tripartite declaration of principles on multinational enterprises and social

policy
OECD Guidelines on multinational enterprises
AA100 series of standards issued by the Institute of Social and Ethical Accountability
SA8000 standards issued by Social Accountability International (SAI)
ISO 26000
OECD CSR Policy Tool
The Social Return on Investments (SROI) Network
The London Benchmarking Group (LBG) Model
2. The widely accepted international framework which defines CSR principles is
the UN Global ______________ Model.
145
Notes 10.4 MEASURING CSR AND ITS IMPACT ON SUSTAINABLE

DEVELOPMENT
Business enterprises hold responsibility for the impact of their operations on society
as a whole. Therefore, they need to have an internal process for integrating social,
environmental and economic concerns with their business operations and strategies
so as to meet the demands of sustainable development and needs of all stakeholders.
The companies should select appropriate measurement methods and techniques for
assessing the impacts of development projects and CSR activities undertaken by the
company on its beneficiaries.
10.4.1 CSR PERFORMANCE MEASUREMENT SYSTEM

One of the most significant steps to be undertaken for successful CSR implementation
is to measure the outcome and impacts of various CSR projects undertaken. Different
companies follow different approaches for monitoring and measuring CSR programs.
However, the reporting requirements for CSR programs under several standards
and legal compliance requirements do mandate adoption of suitable measurement
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and reporting systems with relevant metrics.
Companies have to decide on proper key variables, Key Performance Indicators

(KPIs) and metrics to measure and evaluate their CSR programs. At present, there
are no universal and common KPIs that can measure the effectiveness of different
corporates. These KPIs and metrics depend on individual projects as the nature of
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the projects can be varied.
Once CSR Framework with guiding principles is chosen and CSR policies are framed,
corporates should establish the CSR performance measurement systems through the
identification of KPIs and Metrics, and establishment of procedures for tracking,
monitoring and evaluation. The measurement of CSR programs should focus on the
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following primary objectives:

Monitor and control budget allocated to CSR
Track the progress of the projects through identified metrics
Review and evaluate the results with respect to target goals established
Highlight the slippage, if any
Identify and implement corrective actions required, where applicable
Report the progress periodically
Learn from experience
For measuring the CSR performance, key performance variables, relevant metrics and
target values should be selected/designed as a part of the planning phase itself of CSR
projects. The metrics can also be derived from established reporting frameworks like
GRI (Global Reporting Initiative) and/or can be built by the company in accordance
with its own requirements so that the necessary information required to support the
146 management of CSR programs is always available. These KPIs should be established
in all three dimensions, viz., social, economic and environment areas.
Another important and unique aspect of monitoring and measuring CSR projects Notes
is that the impact of the CSR projects takes long time to manifest. For example,
the results of a CSR program on child education can be measured in short term
through metrics like increased enrolment, retention of students on a monthly basis,
etc. However, the real impact can be ascertained only by measuring literacy and
learning levels, which may take up to a year or more to measure. Separate tools,
methodologies and frameworks can be adopted for measuring impact of social
programs which may also require the empanelling of external agencies which are
specialist in respective areas. The measurement methodology may involve selecting
samples, conducting surveys, having focus group discussions and interviews, etc.,
and using statistical methods.

3. Key Performance Indicators (KPIs) for measuring CSR performance should be
established in three dimensions, viz., social, economic and environment areas.
(True/False)
10.5 MONITORING CSR ACTIVITIES

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Monitoring is the process of systematic reviewing and verification of the predefined
outputs, together with the process through which these results have been obtained,
in order to obtain valid and relevant information on work-in-progress on an ongoing
basis. Monitoring provides data on CSR activities and allows the verification of
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progress of projects and their effectiveness. It helps in highlighting the slippages
through the process of CSR development and implementation, so that corrective
actions may be taken if needed. Monitoring enables to identify what worked and
what did not work for particular CSR projects.
The objectives of CSR monitoring are:

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To ensure proper standards and frameworks are used for establishing the CSR
objectives & goals and that appropriate measurement metrics are used
To manage CSR programs in accordance with the established rules and policies
To track the progress of the project through identified metrics and to review,
evaluate and report the results periodically
To ensure compliance with internal and external regulations
To facilitate proper support and guidance for projects in accordance with the pace
of progress
To ensure that best practices are used in executing and monitoring projects
To ensure that CSR goals and performance targets are met as the projects progress
over a period of time
To ensure that processes are benchmarked, shared and communicated
To align CSR performance systems with operational management systems
147
Notes Monitoring is done by obtaining relevant reports of the progress of each CSR project,
studying and evaluating them, identifying any gaps of performance, holding
discussions within the CSR team, and agreeing on any corrective actions, if required.

4. Monitoring provides data on CSR activities and allows the verification of
progress of projects and their effectiveness. (True/False)
10.6 CREATING CSR REPORTS

CSR reports are valuable to different stakeholders of an organisation, like investors,
communities, NGOs, regulators, employees, suppliers and managers. The CSR
reports can satisfy the needs of various stakeholders as discussed below:
Purchasing needs: Purchasers of companies’ products and services, including
suppliers and governmental agencies associated with the organisation, can
assess how the CSR record of company compares with that of competitors and
the kind of CSR standards internally maintained and externally demanded by the

organisation.
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Community activity needs: NGOs that are interested in partnering with CSR
activities of corporates can obtain the required information about the CSR activities
of a company through the CSR reports.
Academic needs: CSR reports can also provide information to academics and
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researchers involved in the field of CSR on key social and environmental concerns,
its measurements and management by leading corporates.
Investment needs: CSR reports are valuable to the financial community. Through
information provided in CSR reports, financial analysts gain insights on social and
environmental products with growth opportunities and the way organisations are
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managing the CSR risks like social and environmental risks faced by companies
and the management approach adopted by companies for tackling these risks.
Engagement needs: CSR reports can help community activists and NGOs that
want to engage the corporates on social and environmental concerns. CSR
reports provide information on the CSR policies and practices on key social and
environmental issues.
Management needs: Internal stakeholders like senior management personnel and
policy-makers of the company can gain focussed insights on CSR issues that are of
strategic importance.
All leading companies, across the world, have already started voluntary CSR
reporting in the wider context of sustainability, which requires performance of the
company in all the three dimensions of economic, social and environmental aspects.
The widely followed principles framework is the UN Global Compact Management
Model and UN Sustainable Development Goals. Another most widely followed
reporting framework is the Global Reporting Initiative (GRI). These two mostly
determine the content of the CSR reporting.
148
CSR reporting in India is more focussed on ‘what is done after profit is made’ in Notes
terms of social projects which may be unrelated to core businesses. CSR reporting
in cases like that of India does not necessarily focus on sustainability initiatives in
all three dimensions. Similarly, in some countries, the legal requirements for CSR
reporting may focus only on environmental or human rights regulations. Hence, the
content of CSR reporting, in terms of mandatory legal requirements, depends on the
legal provisions of the particular country.
India is the first country in the world that required mandatory CSR investments (most
of the developed countries require mandatory reporting but not investments). The
Companies Act, 2013 also requires mandatory CSR reporting. The legal provisions
with respect to CSR in India are:
Companies with a net worth of ` 500 crores or turnover of ` 1000 crores or net
profit of ` 5 crores have to spend 2% of their profits on CSR activities.
Companies must establish a CSR committee comprising minimum three board
members, out of which at least one is an independent member.
CSR committee shall be responsible for developing and recommending to

CSR performance. M
the board a CSR policy that identifies the CSR activities to be undertaken in
compliance with the Act, implementation schedules and monitoring of company’s
CSR committee shall recommend the budget for those CSR activities and evaluate
the company’s efforts.
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The obligation to fund CSR activities is coupled with a mandatory reporting
requirement.
The annual report of the board must provide information on how the company
is complying with the Companies Act, including the composition of the CSR
committee, an outline of CSR policy and information on the projects/programs to
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be undertaken.
If the required 2% of average net profits have not been spent on CSR projects, the
annual report should provide an explanation.
The CSR policy should be made available online through the company’s website.
There is another reporting requirement in India, which is mandated by the Securities
and Exchange Board of India (SEBI). This is known as Business Responsibility
Reporting (BRR). BRR is in conformity with the National Voluntary Guidelines
(NVG) relating to economic, social and environmental responsibilities of businesses
as notified by the Ministry of Corporate Affairs. The top 100 listed companies are
mandatorily required to disclose their BRRs in the annual reports and provide
their performance details in respect of the nine principles given by NVG. The nine
principles given by NVG encourage businesses to report about significant aspects of
business operations/sustainability and their environmental, social and governance
initiatives.
149
Notes The nine principles of NVG are given in Table 2:
Table 2: Nine Principles of NVG
Principle 1: Businesses should conduct and govern themselves with ethics, transparency, and
accountability.
Principle 2: Businesses should provide goods and services that are safe and contribute to
sustainability throughout their life cycle.
Principle 3: Businesses should promote the well-being of all employees.
Principle 4: Businesses should respect the interests of, and be responsive towards, all
stakeholders, especially those who are disadvantaged, vulnerable and marginalised.
Principle 5: Businesses should respect and promote human rights.
Principle 6: Businesses should respect, protect and make efforts to restore the environment.
Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do
so in a responsible manner.
Principle 8: Businesses should support inclusive growth and equitable development.
Principle 9: Businesses should engage with and provide value to their customers and
consumers in a responsible manner.
10.6.1
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Source: (2019). Retrieved from https://assets.kpmg/content/dam/kpmg/in/pdf/2017/07/Business-
IMPORTANCE OF CSR REPORTING

Responsibility-Reporting.pdf
Reporting is the most crucial element of the CSR process. Communication and
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reporting of CSR initiatives close the gap between the organisation’s intention and
its achievements in the field of environmental sustainability and social or economic
improvement. CSR reporting can be used as a key and strategic tool for engaging with
stakeholders. CSR reports can help in building a positive image of the organisation
and are critical for its competition, survival and success. Following are the benefits
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of CSR reporting:
CSR reporting can encourage companies to examine the alignment between their
CSR strategy, their mission and overall corporate strategy to ensure that they are
on the pathway to strategic CSR.
CSR reporting can help companies measure the true costs of their operations,
realise the cost of their externalities, understand the financial impact of their CSR
and improve their overall sustainability, financially and non-financially.
As per legitimacy theory, CSR reports can help corporates achieve legitimacy
through the fulfilment of their social responsibility. The legitimacy theory explains
that when corporate management responds to the expectations of the community,
governments and other stakeholders, the corporate gains more legitimacy, trust
and a social license to operate.
CSR reporting can help create a culture of trust, transparency and accountability.
Effective CSR communication can improve the corporate brand image and social
reputation, and can also create corporate goodwill.
150 Good disclosure of non-financial information enables investors to contribute to a
more efficient allocation of capital and better achieve long-term investment goals.
It can improve internal decision making and reduce costs. Organisations that Notes
produce social and environmental reports develop better internal control
systems, improve their decision making and reduce costs, resulting in continuous
improvements.
Surveys indicate that companies find improvement in business performance and
innovation as one of the primary benefits of CSR reporting.
The process of CSR reporting is found to be a powerful internal communication tool.
CSR reporting can improve internal awareness and can act as a useful repository
of information for all employees to use in their work and in their communication
with external stakeholders including investors and analysts.
CSR can enhance competitive advantage of a company in the market. CSR requires
companies to review their core operations across their value chain and work with
a broader set of stakeholders to achieve financial and social value over the long
term.
5. India is the ___________ country in the world that required mandatory CSR
committee?
a. Three
b. Four
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investments to be made by corporates.
6. What is the minimum number of board members required to constitute a CSR
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c. Two
d. Five
7. CSR reports can help corporates achieve legitimacy through the fulfilment of
their social responsibilities. (True/False)
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10.7 ELEMENTS OF A CSR REPORT

GRI framework is the most important framework to understand the generic content
of a full-scale Sustainability/CSR reporting. The GRI framework is the reporting
framework followed by most of the leading global corporates around the world for
publishing their sustainability report, and it is also the most comprehensive of all
reporting frameworks. GRI framework is not mandatory as it is an independent
standard-setting organisation. The organisations are free to decide on the content
of their CSR/Sustainability reporting unless otherwise specifically mandated by
legal requirements. The GRI framework was earlier published as G3 guidelines
followed by G4 guidelines which are still in force. However, the G4 guidelines were
superseded with the publishing of the new ‘GRI standards’ which will come into
force from July 2018. In this chapter, we are focussing on GRI (as G4 is superseded)
standards.
There are two types of disclosures as per GRI guidelines: general standard
disclosures and specific standard disclosures. The GRI general standard disclosures
are some disclosures to be applied in case of all organisations engaged in making
151
sustainability reports.
Notes The general standard disclosures are:

Strategy and analysis – to provide a strategic view of company’s sustainability
Organisational profile – to contain the characteristics of the company
Report profile – to provide basic information about the sustainability report
Governance – to describe governance structure of the organisation
Ethics and integrity – to indicate the values, norms and principles of the organisation
Stakeholder engagement – to indicate the involvement of the stakeholders during
sustainability process
Identified material aspects and boundaries – to identify and report some specific
material aspects
The GRI-specific standard disclosures provide some GRI aspects (which are regarded
as material aspects by an organisation) to be disclosed in CSR reports. These material
GRI aspects are related to an organisation’s CSR activities having significant impacts
on society, economy and environment. The organisations choose these material
aspects on the basis of applying GRI principles for defining report content. Table 3
Categories
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shows the various categories of GRI aspects to be reported by companies in their
CSR-reporting framework:
Table 3: Categories and Aspects in GRI Guidelines
Sub-categories Aspects
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Economic NA zz Economic Performance
zz Market Presence
zz Indirect Economic Impacts
zz Procurement Practices
Environmental NA zz Materials
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zz Energy
zz Water
zz Biodiversity
zz Emissions
zz Effluents and Waste
zz Products and Services Compliance
zz Transport Overall
zz Supplier Environmental Assessment
zz Environmental Grievance Mechanisms
Social Labour Practices zz Employment
and Decent Work zz Labour/Management Relations
zz Occupational Health and Safety
zz Training and Education
zz Diversity and Equal Opportunity
zz Equal Remuneration for Women and Men
152 zz Supplier Assessment for Labour Practices
zz Grievance Mechanisms
Categories Sub-categories Aspects Notes

Human Rights zz Investment
zz Non-discrimination, Freedom of Association and
Collective Bargaining
zz Child Labour
zz Forced or Compulsory Labour
zz Security Practices
zz Indigenous Rights Assessment
zz Supplier Human Rights Assessment
zz Human Rights
zz Grievance Mechanisms
Society zz Local Communities
zz Anti-corruption
zz Public Policy
zz Anti-competitive Behaviour
zz Compliance
Product
Responsibility
zz
zz
zz
zz
zz
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Supplier Assessment for Impacts on Society
Grievance Mechanisms for Impacts on Society
Customer Health and Safety
Product and Service
Labelling
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zz Marketing
zz Communications
zz Customer Privacy
zz Compliance
Source: (2019). Retrieved from https://www.globalreporting.org/resourcelibrary/grig4-part1-reporting-
II
principles-and-standard-disclosures.pdf
The GRI framework sets boundary of the content of the sustainability report using
the following three dimensions: Reporting principles, General disclosures and
Management approach. The reporting principles define the report content and the
reporting quality. The reporting principles for report content help organisations
decide which content to include in the report. This depends on organisation’s
activities, impacts and the substantive expectations and interests of its stakeholders.
There are four principles recommended by GRI with respect to what to report. These
are as follows:
Stakeholder inclusiveness: This principle requires organisations to identify its
stakeholders and explain how it has responded to their reasonable expectations
and interests.
Sustainability context: This principle requires the organisation to present its
performance in the wider context of sustainability. It focusses on how companies
contribute or aim to contribute towards the improvement of economic, social and
environmental conditions.
153
Notes Materiality: This principle requires the organisation to identify CSR issues of
material importance. These are issues at the threshold for influencing the economic
decisions of the users of the CSR report.
Completeness: This principle demands that the coverage of content should be
sufficient enough to enable stakeholders to assess the performance of reporting
organisation during the reporting period.
In India, as per Section 134(3)(o) of the Companies Act, 2013, all companies having
net worth of ` 500 crores or more, net profit of ` 5 crores or more, or turnover of ` 100
crores or more, are required to disclose their CSR activities in the report of Board
of Directors. The format of this mandatory CSR report to be given by companies is
explained in the subsequent sections.
10.7.1 FORMAT OF CSR REPORTING

CSR communication and CSR reporting are different terms. CSR communication
refers to achieving one of the important objectives of CSR which is to raise
corporate image and reputation and to engage the stakeholders. CSR reporting,
while addressing the same objective, may also have to meet the formal demands
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of stakeholders and legal requirements. CSR communication can be done through
social media, especially through online platform. These could be periodical
communication meant to disseminate major news pertaining to CSR activities of the
company and its achievements through PR messages, media interactions and social
media and through the dedicated section on the company’s websites. These CSR
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communications may take the form of printed reports, brochures, leaflets, slides,
presentations, podcasts or video clips, etc., using either some standard formats or
through tailor-made formats meant for respective stakeholders.
Researchers point out that this communication can be unidirectional, bidirectional,

symmetrical or reticular. The annual reports are unidirectional forms of
II
communication where the company is the sender while the stakeholders are passive
receivers. The bi-directional communication allows stakeholders to respond to the
messages communicated. This could be through allowing stakeholders to provide
their views and comments in the sustainability section of the website.
In India, the Companies (Corporate Social Responsibility) Rules, 2014 provide

for the format to be followed by companies while disclosing their CSR activities
annually. The annual report on CSR initiatives is to be presented as part of Board’s
Report (Report of the Board of Directors) in the format prescribed by the Ministry of
Corporate Affairs (MCA).
The format of disclosure prescribed is as follows:
Annual Report on CSR Activities

1. An outline of CSR policies of the company comprising proposed CSR projects to
be undertaken during the implementation year. This section also covers a Web link
to the company’s CSR policies and programs.
154 2. Composition and members of CSR Committee
3. Average net profit or loss for the preceding three financial years Notes
4. Amount of prescribed CSR expenses, i.e., 2% of average net profit for the preceding
three financial years
5. Details of CSR expenditure incurred during the year:
zz Total expenditure to be spent
zz Any amount unspent
zz The manner in which expenditure is incurred is shown in Figure 1:
S. No. CSR Sector Projects or Amount Amount Cumulative Amount

project or in programme: outlay spent on expenditure spent:
activity which (i) Local area (Budget) project or up to the Direct or
identified the or other project- or programs: date of through
project (ii) Specify the programme- Sub-head: reporting implementing
is State or wise 1. Direct agencies*
covered District where expenditure
the projects or on project or
programmes programme;
were 2. Overhead
undertaken
Total
*Give details of implementing agncies
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Figure 1: Manner in which CSR Expenditure is Incurred
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6. In case the company has not succeeded to spend the prescribed expenditure as
specified in point 3, the company is required to mention reasons therefor in the
Board’s Report.
7. The CSR Committee has to render a responsibility statement to ensure that
monitoring and implementation of CSR policies have been done in accordance
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with company’s policies and objectives as shown in Figure 2:
Sd/- (Chief Executive Officer Sd/- (Chairman, CSR Sd/- [Person specified under
or Managing Director or Committee) clause (d) of sub-section (1)
Director) of Section 380 of the Act]
(wherever applicable)
Figure 2: Responsibility Statement
Source: (2019). Retrieved from http://www.mca.gov.in/Ministry/pdf/

CompaniesActNotification2_2014.pdf
Alternatively, the format may be decided by the reporting framework chosen.

For example, the GRI framework provides requirements and guidance as to how
the CSR reporting is done. Similarly, the Integrated Reporting (IR) framework of
IIRC also provides a reporting format and structure which requires presentation
of information through five capitals, viz., financial capital, manufactured capital,
human capital, intellectual capital, natural capital and social capital.
155

8. Which reporting framework is followed by most of the leading global
corporates for publishing their sustainability reports and is also the most
comprehensive one?
9. Composition and members of _______ have to be mentioned in the CSR report.
10. In India, the format of CSR report to be included in Board’s Report is prescribed
by whom?
A ctivit y
Search on the Internet about the mandatory CSR reporting requirements of
companies in India. Are there any penalties under the Companies Act, 2013, if
the Indian companies do not abide by the CSR reporting formats and regulations
prescribed under the Act?
10.8 CSR REPORTING TEAM
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The CSR/sustainability reporting efforts are managed by different departments
in different companies, viz., teams from separate CSR/sustainability department,
corporate communications department, public affairs department, investor relations
department, legal department, etc. A CSR team dedicatedly works towards meeting
the sustainability and corporate social responsibility efforts made by an organisation.
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The CSR goals and objectives, specific job descriptions, reporting methods, and
roles and responsibilities of various individuals in the organisation are fixed by a
CSR team. A separate CSR team demonstrates commitment towards CSR goals and
increases the relative importance of CSR program.
A full-fledged CSR reporting may require a separate department or a team consisting

II
of professionals from several cross-functional areas of the organisation. Such cross-

functional teams can ensure that the viewpoints of all relevant corporate functions,
regions and business units can contribute to shaping the CSR report. Cross-functional
and cross-regional teams are especially important for addressing sustainability issues
like product stewardship and supplier sustainability. Most of the leading companies
have separate sustainability departments handling CSR activities and reporting.

11. Most of the leading companies have separate sustainability departments
handling CSR activities and reporting. (True/False)
10.9 SUMMARY
Measuring and monitoring of CSR activities help find out any slippages or deviations
from the proposed CSR activities and determine the need for any corrective action.
It provides an opportunity to learn from experience that what went well and what
did not. Such learning experiences can be applied in the upcoming CSR projects.
156
The 10 CSR principles provided by the UN Global Compact Model are obtained Notes
from several conventions, such as ILO’s Declaration on Fundamental Principles
and Rights at Work, the Universal Declaration of Human Rights, etc. The broad
areas covered by these principles are human rights, labour rights, environment
and governance.
The companies should select appropriate measurement methods and techniques
for assessing the impacts of development projects and CSR activities undertaken
by the company on its beneficiaries.
Companies have to decide on proper key variables, Key Performance Indicators
(KPIs) and metrics to measure and evaluate their CSR programs. At present, there
are no universal and common KPIs that can measure the effectiveness of different
corporates. These KPIs and metrics depend on individual projects as the nature of
the projects can be varied.
Monitoring is the process of systematic reviewing and verification of the pre-
defined outputs, together with the process through which these results have been
obtained, in order to obtain valid and relevant information on work-in-progress
on an ongoing basis. Monitoring provides data on CSR activities and allows the

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verification of progress of projects and their effectiveness.
India is the first country in the world that required mandatory CSR investments
(most of the developed countries require mandatory reporting but not investments).
The Companies Act, 2013 also requires mandatory CSR reporting.
Companies with a net worth of ` 500 crores or Turnover of ` 1000 crores or net
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profit of ` 5 crores have to spend 2% of their profits on CSR activities. Companies
must establish a CSR committee comprising minimum three board members, out
of which at least one is an independent member.
CSR reporting can encourage companies to examine the alignment between their
CSR strategy, their mission and overall corporate strategy to ensure that they are
II
on the pathway to strategic CSR. CSR reporting can help companies measure the
true costs of their operations, realise the cost of their externalities, understand the
financial impact of their CSR and improve their overall sustainability, financially
and non-financially.
Global Reporting Initiative (GRI) is the reporting framework followed by most of
the leading global corporates around the world for publishing their sustainability
report, and it is also the most comprehensive of all the reporting frameworks. GRI
framework is not mandatory as it is an independent standard-setting organisation.
The organisations are free to decide on the content of their CSR/Sustainability
reporting unless otherwise specifically mandated by legal requirements.
In India, the Companies (Corporate Social Responsibility) Rules, 2014 provide
for the format to be followed by companies while disclosing their CSR activities
annually. The annual report on CSR initiatives is to be presented as part of Board’s
Report (Report of the Board of Directors) in the format prescribed by the Ministry
of Corporate Affairs (MCA).
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Notes 10.10 KEY WORDS

Net Profit: It refers to the amount of profits and gains of a business entity, after
accounting for all costs and taxes, earned from running its business operations
during a financial year.
Board’s Report: It is a document prepared by the company’s Board of Directors
and issued to the stakeholders, comprising the state of corporate, accounting and
financial affairs of the company.
Key Performance Indicator (KPI): It refers to a material CSR parameter, such as
the percentage of employee satisfaction, and number of factory injuries, against
which the performance and achievement of targets are measured.
CSR Committee: It refers to a group of board members who are responsible for
the overview, formulation, control and regulation of CSR expenditure and CSR
projects of a company.
10.11 CASE STUDY: CSR REPORTING BY LITE LIMITED

Lite Limited, an Indian company, located in Bangalore, is engaged in manufacturing
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and selling of automobile accessories and parts. The company has its operations
spread across multiple locations in India. The share capital of Lite Limited is derived
from equity shareholders and is listed on the National Stock Exchange. During the
financial year 2017–18, the annual turnover of Lite Limited was ` 2,152 crores. The
company actively participates in various social programs catered to meeting the
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needs of poor communities located in underdeveloped regions. For meeting the
objectives of its CSR objectives, Lite Limited joins hands with other implementation
partners (NGOs) working towards social concerns of poverty in the nearby locations
of the company’s headquarters.
During the last three financial years, the net profits earned by Lite Limited were:
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Financial year 2016–17: Net profit of ` 5.6 crores

In the financial year 2017–18, the CSR expenditure incurred by the company amounted
to ` 9,01,000 (while 2% of average net profit of the preceding three financial years
being 2% of ` 4.6 crores, i.e., ` 9,20,000). Lite Limited followed the requirements of
CSR reporting prescribed under the Companies Act, 2013. The annual report on CSR
initiatives was presented as part of the Board’s Report annexed to the annual report
of the company for the financial year 2017–18. The company’s website provides a
link to the social initiatives undertaken by the company. Moreover, the annual report
provides a detailed outline of CSR policies and proposed CSR activities, details
of CSR committee, average net profit, total prescribed CSR expenditure, and the
amount spent and unspent on CSR. Lite Limited is very much satisfied with the kind
of CSR disclosures made in its annual report.
158
QUESTIONS Notes
1. What is the format of CSR reporting to be followed by companies in India?

(Hint: Refer to Section 10.7.1: Format of CSR Reporting)
2. Has Lite Limited completely followed the reporting guidelines prescribed under
the India laws?
(Hint: Lite Limited has failed to comply with the provisions of the Indian laws
which may attract penalties. This is because it fails to mention the reasons for
its inability to spend the prescribed CSR expenditure. CSR expenditure incurred
by the company is less than 2% of the average net profit for the preceding three
financial years.)
10.12 EXERCISE
1. Briefly explain the need and importance of impact measurement and monitoring
of CSR activities.
2. What are the guiding principles of CSR?
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3. Enumerate the objectives of monitoring CSR activities.
4. Why is CSR reporting necessary for organisations undertaking CSR activities?
5. Briefly discuss the elements of a CSR report and outline the format of CSR report
as prescribed by the Companies Act, 2013.
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Topic Q. No. Answer
Importance of Measuring and Monitoring 1. CSR monitoring
CSR Activities
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Guiding Principles of CSR 2. Compact Management

Measuring CSR and its Impact on 3. True
Sustainable Development
Monitoring CSR Activities 4. True
Creating CSR Reports 5. first
6. a. Three
7. True
Elements of a CSR Report 8. GRI framework
9. CSR Committee
10. Ministry of Corporate Affairs
CSR Reporting Team 11. True
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Notes 10.14 SUGGESTED BOOKS AND E-REFERENCES

SUGGESTED BOOKS
Crowther, D., & Rayman-Bacchus, L. Perspectives on Corporate Social
Responsibility.
Berg, M., & Gunnthórsson, F. (2005). The Purpose of CSR Reporting.
Brown, M. (2013). Why report on corporate social responsibility? Oxford: Oxford
Brookes University.
E-REFERENCES
CSR & Sustainability Reports. (2019). Retrieved from http://www.csrwire.com/
reports
India CSR Outlook Report 2018. (2019). Retrieved from https://csrbox.org/India_
CSR_report_India-CSR-Outlook-Report-2018_47
India’s CSR reporting survey 2018. (2019). Retrieved from https://home.kpmg/in/

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en/home/insights/2019/01/csr-reporting-sustainability-development-goals.html
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11
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Government, United Nations and
Voluntary Codes in CSR
Table of Contents
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11.1 Introduction
11.2 Government’s Impact on CSR Activities
11.3 United Nations and Sustainable Development
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11.4 Voluntary Codes in CSR
11.5 Summary
11.6 Key Words
11.7 Case Study
11.8 Exercise

Discuss the impact of government on the Corporate Social Responsibility (CSR)
activities
Examine the role of United Nations in framing guidelines for sustainable
development
Explain the relevance of voluntary codes in CSR
11.1 INTRODUCTION
In the previous chapter, you studied about the various aspects related to the
Corporate Social Responsibility (CSR). The chapter discussed how to measure and
monitor the CSR activities. The chapter also introduced you to the principles that
guide the CSR initiatives. The later sections of the chapter talked about the role of
CSR activities in achieving sustainable development.
A few decades back, the CSR was considered as the sole duty of the government.
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Various individuals and organisations started advocating that sustainable
development cannot be achieved alone by the government. The need was felt for
organisations’ involvement in achieving the overall CSR goals of the government.
Freidman advocated that the organisations must only be concerned with achieving
their profit goals and it was the duty of the government to cater to the social and
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economic objectives. Various international bodies, such as the United Nations,
Organisation for Economic Co-operation and Development (OECD) have framed
different sets of principles or codes that define how organisations, specifically the
multinational organisations, can achieve their profit and CSR-oriented objectives
and, at the same time, ensure sustainable development.
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In this chapter, you will study some more concepts related to the CSR and sustainable
development. The concepts covered in this chapter include the impact of government
on CSR activities and United Nations guidelines for sustainable development. Lastly,
the chapter discusses the voluntary codes in CSR.
11.2 GOVERNMENT’S IMPACT ON CSR ACTIVITIES

Earlier, organisations used to regard CSR as an optional and non-essential activity.
However, with the passage of time, the countries and organisations have woken up
to the requirement of incorporating CSR in their business operations. Almost all
the countries have made provisions for organisations with respect to CSR activities.
Certain countries have made it mandatory for organisations to indulge in CSR
activities, whereas some countries have created voluntary rules for carrying out CSR
activities.
India has made it mandatory for organisations to invest in CSR initiatives and
activities. Various organisations in developed countries have started undertaking CSR
162 activities primarily due to two reasons – first, due to the pressure and expectations
Government, United Nations and Voluntary Codes in CSR
of the internal and external stakeholders; and second, due to the benefits associated Notes
with the CSR activities.
In countries where CSR is a voluntary practice, it is a generally held belief that it

is not the responsibility of the organisation to undertake CSR as it is not required
by law. However, if organisations undertake CSR activities in such countries, it is a
result of free will and concern for the society.
When organisations present their CSR reports as a legal requirement or otherwise,

it becomes difficult to judge whether the organisation has undertaken CSR activities
sufficiently. In addition, it also becomes difficult to estimate whether these initiatives
address the immediate concerns of the society or not. In order to ensure that all the
internal and external stakeholders are satisfied with the organisation’s CSR activities,
they get their CSR reports audited as per the international auditing standards.
Organisations that undertake CSR activities voluntarily are usually well aware of the
benefits associated with sustainable growth. Such practices help the organisation in
building the image of a responsible and social corporate citizen, and it engages all
the stakeholders as well.
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When organisations practise CSR out of free will, it can be assumed that they must
have assessed the impacts or benefits related to sustainable growth. As far as CSR is
concerned, the government of any country plays a significant role. The government
of any country affects the decision of organisations to adopt CSR practices. The CSR
and the governance systems overlap. The government of any country is involved in
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undertaking various social and economic activities that are meant for the society. It
has been recognised that CSR is no more the sole responsibility of the government.
The organisations must also fulfil their responsibilities towards the society from
which it derives its various resources.
Let us explore the role of government in CSR and various other viewpoints.
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According to Freidman doctrine (given by Milton Freidman), the only responsibility

of a business is to increase its business and profits and it is the responsibility of the
government to ensure the achievement of social and environmental objectives. This
doctrine also states that when organisations focus on maximising the shareholder’s
wealth, some of the social and environmental goals of the society are addressed
automatically. For example, when an organisation expands its business, it generates
employment which is one of the major social concerns. It also helps in promoting the
social well-being of the people. According to Freidman, apart from the above-stated
roles, the organisations have no role to play in CSR and it is the responsibility of the
government to address the social and economic goals of the society.
Some of the economists have expressed a view that is contrary to Freidman’s.

According to this contrary view, CSR in itself is a management model which
promotes sustainable development and is structured, taking into consideration the
environmental and social concerns. This view also suggests that it is in the interest
of the organisations themselves to act as responsible corporate citizens and to take
care of the present and future needs of the society. Therefore, the organisations are
163
now increasingly incorporating CSR into their corporate strategies. This has also led
Notes to the practice of integrated reporting. Increasingly, more and more organisations
are accepting the view contrary to Freidman’s view because of various reasons as
follows:
Growing influence of multinational organisations: During the last few decades,
multinational organisations have grown in number as well as in their importance.
Multinational organisations have expanded exponentially and have gained power
and influence even greater than the influence of governments. In practice, there
is no control mechanism using which such multinational organisations can be
controlled.
Stakeholder pressures: In various instances, it has been observed that organisations
have adopted CSR not because they deem it as their moral and social duty, but
because of the pressure and expectations of the external and internal stakeholders’
such as the NGOs, the human rights activists, labour organisations, employees
and employee unions.
Sustainability movement: Organisations have realised the importance of
sustainable growth as a result of environmental concerns. In addition, unequal
development between the developed and developing countries has also led to this
realisation.
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In the past few decades, some of the multinational organisations have grown so
huge that their revenues at times exceed the total budget of certain small nations. For
example, in 2019, the Government of Zimbabwe, in its national budget, has allocated
an amount of US$ 547 million to its Ministry of Defence. In contrast, the net income
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of the Reliance Group of India stood at US$ 5 billion in 2018. With respect to such
enormous organisations, it is held that they can very well help the governments in
performance of the social and economic duties. It has been realised that such big
organisations can take up some of the roles of the government. In this regard, it
is only logical to expect that the power and influence, traditionally enjoyed by the
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government would be reduced and, at the same time, the power and influence of
these multinational organisations would be increased.
Due to their very nature of being present in various geographical and cultural
locations, it was believed that they will be neutral in their approach and will help in
spreading the right values and policies. However, over time, this view has proved
to be untrue.
One of the reasons due to which CSR activities are now considered as a responsibility
of organisations was governance deficit. The very origin of CSR policies around
1960s lies in the practice of racial discrimination in the USA. It was realised that
if the organisations did not adopt CSR practices voluntarily, the government will
have to make legal provisions for CSR which would impact the managerial decision
making of the corporates. This was considered as an era of CSR movement and it led
to the development of organisations such as Business in the Community, based in
the U.K. Similarly, many such similar organisations developed in various parts of the
world. All these developments along with globalisation led to a condition where it
became necessary to properly distribute the CSR activities between the government
164 and the organisations. The formal recognition of Corporate Social Responsibility
advocated that there must be collaboration among various stakeholders with respect
to the CSR, specifically between the corporations and governments. Therefore, CSR Notes
was adopted as a management approach by organisations, whereas government
developed policies for corporate governance and CSR.
When governments develop CSR as a policy tool, they must also provide an
environment in which the organisations can fulfil its CSR responsibilities. The
governments can create a positive CSR environment by devising rules and
regulations, making legal provisions and by declaring incentives.
The governments can promote the CSR policies by using the following drivers:
Governments can involve organisations’ management to address the social and
environmental problems in their countries.
Governments can promote CSR by ensuring that the organisations are driven by
sustainable growth objectives and control the negative impact made by them on
the society and environment.
Governments can create a level of playing field for all organisations by using
policy and regulatory measures.

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Government can make up for its governance deficit by taking help of organisations
who voluntarily undertake CSR activities.
Governments can enter into Public-Private Partnerships (PPPs) to achieve CSR
and profit goals both at the same time.
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CSR Policies in Different Countries
Different countries have established different CSR policies. The CSR policies are
established by the governments of different countries based on factors, such as social,
economic and environmental conditions of the respective countries. In addition,
political and institutional structure, political processes, social structure, cultural
values, social attitude towards government, attitude of organisations towards
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voluntariness, role of businesses, role and positions of NGOs of the country and
historical traditions are also some other factors. It is because of these factors that we
do not have a single policy of CSR that can be used in various countries. The CSR
policies have been established and have evolved with time.
Different policies that differ in their level of detail are used in different countries
because there are certain countries where the organisations themselves realise their
CSR responsibilities and the government does not require making strict provisions.
An example of such a country is USA. On the contrary, there are certain countries
which have developed a strict and detailed CSR framework because the organisations
are not proactive and need regulation with respect to CSR.
When the organisations need to be regulated to ensure adherence to CSR, the

governments of the countries can undertake the following measures as follows:
Creating soft law: This calls for creating non-regulatory interventions. Soft laws
such as the guidelines created under the UN Global Compact Management
model and OECD policy guidelines for Multinational Enterprises can be created
165
for CSR. Governments may also develop policy plans and codes for CSR, public
Notes procurement, corporate governance, implementation of international conventions

and principles, guidelines for CSR reporting, export credit regulations, etc.
Increasing awareness: Governments can create regulations and display to the
organisations how they can perform their CSR responsibilities effectively. The
governments may also offer various incentives to the organisations that motivate
the organisations to undertake CSR activities. For example, incentives may
include tax exemptions for CSR investments, incentives for social or philanthropic
initiatives, award schemes that increase the visibility of CSR activities, training and
capacity-building for SMEs and provision of funding for research on developing
environmentally conscious products.
Mandating: Mandating instruments are used to set and enforce a minimum set of
standards for business performance in CSR policy areas, like human rights, anti-
corruption and environmental protection, stock exchange regulations, penalty
provision for non-compliance, etc. Though CSR is still seen as voluntary by many,
a number of governments have implemented mandatory measures that oblige
companies to report on their CSR-related business activities.
Partnering: Governments may enter into public-private partnerships aimed at
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combining the expertise, competencies, and resources of the public sector and other
organisations. The governments can create partnerships and act as an initiator,
moderator and facilitator. Strategic partnerships can be developed to deal with
specific issues, such as poverty reduction, child labour, and access to health, safety
and security, educational infrastructure, etc.
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A few examples of CSR policies developed by different countries are shown in
Table 1:
Table 1: CSR Policies in Different Countries
Country Instrument Public Agency Description

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Brazil Regional Office of the CGU officials are tasked with meeting
Workshops: Comptroller representatives in business, associations,
‘Talk to General (CGU) and confederations in order to foster the
enterprises’ implementation of integrity measures
Germany CSR Worldwide Federal Foreign An information portal was created in
Office cooperation with partners from the public
sector and business sector with a goal to
promote corporate responsibility among
German companies investing abroad
UK Toolkit, guides UK Foreign and Three tools were developed to promote the
and virtual Commonwealth protection of human rights in the course of
maps to Offices business activities.
promote human
rights
US Strategic US Department The Occupational Safety and Health
Partnerships of Labour Administration (OSHA) provides
Program opportunities to partner with employees,
employers, professionals, and trade
or labour associations with the aim to
166 encourage efforts to prevent serious
workplace hazards.
CSR Government Interventions Notes

Government may develop CSR policies specifically aimed at human rights, poverty,
environment, health, safety, social equality, etc. The actual focus of CSR policy area
in each country depends on the specific issues faced by it. The government should
develop interventions with respect to CSR using a combination of the following:
Corporate governance: In the past decade, the organisations and the governments
have felt the need for corporate transparency and accountability as a result of
economic downturns, corporate frauds, financial crisis and declining business
ethics. Socially responsible organisations must practise good corporate governance
and business ethics.
Reporting and disclosures: Organisations must maintain proactive and honest
communications with all stakeholders in order to ensure transparency and
accountability.
Community involvement and development: Organisations operating in
undeveloped countries having scarce resources and weak infrastructure should
collaborate with the government to bolster socio-economic development.

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Responsible management and sustainable production: The governments adopt
methods like technical advisory services, state-led audits, capacity-building, multi-
stakeholder-driven codes of conduct and CSR/Eco-label certification procedures
to promote responsible management and production. Governments also provide
incentives to organisations that produce goods and services in an environment-
friendly manner. Whenever necessary, the organisations develop regulations with
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respect to social or environmental concerns, such as fixing limits of CO2 emissions
and ozone depletion, and prohibiting tobacco industries.
Responsible consumption: Consumers are now concerned with environmental
degradation, and environmental and social footprints of products purchased for
their consumption. To ensure responsible consumption, government has established
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fair trade regulations and institute certification schemes aimed at eco-labelling and
environmental certification. Governments also develop policies to increase the
demand for eco-friendly and socially acceptable products.
The government can also develop policies in order to support international CSR
efforts by undertaking the following actions:
Formalising the CSR policy for multinational organisations
Developing the CSR policy with respect to Foreign Direct Investment (FDI)
Creating the guidelines and policies for international supply chains
Encouraging and supporting the policies for socially responsible international
investments
Establishing the reporting regulations for CSR
Establishing the regulations regarding social, environmental and ethical impacts
of global businesses
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Laying down the responsibility standards of MNCs

1. When the organisations need to be regulated to ensure adherence to CSR, the
governments of the countries can undertake measures, such as ______ and
_______.
2. According to some economists, CSR in itself is a management model which
promotes sustainable development and is structured taking into consideration
the profit concerns of organisations. (True/False)
11.3 UNITED NATIONS AND SUSTAINABLE DEVELOPMENT

The main objectives of the United Nations include gaining international cooperation
for solving economic, social, cultural or humanitarian problems. It also endeavours
to promote and encourage human rights. In addition, UN has also been taking
several initiatives for ensuring sustainable development. In the past, UN adopted the
Millennium Development Goals (MDGs) for eradicating extreme poverty. Currently,
the UN has now adopted the ambitious 2030 agenda for Sustainable Development.
In the year 2015, the UN adopted a universal global climate agreement to deal
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with the problem of climate change. In the same year, UN launched its sustainable
development portal. UN’s sustainable development plan also includes plans to end
extreme poverty, fight inequality and injustice, and protect the planet. UN has set
an agenda for 2030, which includes 17 sustainable development goals. It is expected
that all forms of poverty, injustice and climate change issues would have been dealt
with by 2030. The UNGC has been aiming to achieve these global goals by helping
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local businesses. The 17 SDGs established by UN are as follows:
1. No poverty: The UN aims to end poverty in all its forms everywhere by 2030.
2. No hunger: The UN aims to end hunger and achieve food security for all. It also
wants to improve nutrition level and promote sustainable agriculture.
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3. Achieve good health and well-being: The UN wants to ensure healthy living and
promote well-being for all at all ages.
4. Quality education: The UN wants to ensure inclusive and equitable quality
education for all and promote the lifelong learning opportunities for all.
5. Gender equality: The UN aims at achieving gender equality and empowering all
women and girls.
6. Clean water and sanitation: The UN endeavours to make available potable water
and sanitation for all in addition to sustainable water management.
7. Affordable and clean energy: One of the UN’s SDGs is to ensure access to
affordable, reliable and sustainable energy for all.
8. Sustainable economic growth: The UN promotes inclusive and sustainable
economic growth, such as generation of employment for all.
9. Industry, innovation and infrastructure: UN asserts that countries must build
resilient infrastructure, promote inclusive and sustainable industrialisation and
foster innovation.
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10. Reduced inequalities: The UN also endeavours to reduce inequality within and Notes
among countries.
11. Sustainable cities and communities: Developing new cities or transforming the
existing cities and human settlements to ensure that they are safe and sustainable.
12. Responsible consumption and production: The UN wants to ensure sustainable
consumption and production patterns.
13. Climate action: There is an urgent need to combat climate change and its impacts.
14. Life below water: Countries must try to conserve and sustainably use its oceans,
seas and marine resources.
15. Life on land: Earth has been witnessing various dramatic changes, such as
degrading terrestrial ecosystems, decreasing forest cover, desertification, land
degradation and biodiversity loss. All the countries must aim at reversing or
minimising such effects by practising sustainable development measures.
16. Peace, justice and strong institutions: Countries must promote peaceful and
inclusive societies for sustainable development. Justice must be ensured for all
people by building effective, accountable and inclusive institutions at all levels.
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17. Partnerships for goals: In order to achieve sustainable development, all the
countries and multinational organisations must chalk out strategic alliances.
The seriousness of UN towards achieving sustainable development can be gauged
from the fact that it has created a separate division for promoting sustainable
development known as Division for Sustainable Development (DSD). It is the
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responsibility of DSD to provide leadership and act as a catalyst for promoting
the 17 Sustainable Development Goals (SDGs) in addition to implementing other
internationally agreed-upon development goals.
The DSD also serves as the Secretariat for the High-level political forum on Sustainable
Development. This high-level forum is a platform for follow-up and review of the
2030 agenda for Sustainable Development.
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There are six core functions of the DSD which are as follows:
1. To support the UN inter-governmental processes on sustainable development.
2. To analyse and develop policies with respect to sustainable development practices.
3. To develop capacity at the request of member states.
4. To facilitate inter-agency coordination.
5. To facilitate stakeholder engagement, partnerships, communication and outreach.
6. To facilitate knowledge management.
3. UN has adopted the ambitious 2030 agenda for _________.
4. Principle ___ of the UNGC suggests that all forms of forced and compulsory
labour must be eliminated.
a. 4 b. 6
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c. 8 d. 10
Notes 11.4 VOLUNTARY CODES IN CSR

Apart from the United Nations, there are various organisations that have been
established for supporting the sustainable development practices. These organisations
have been developed voluntarily. Let us now discuss some of these organisations
and the work that they have done with respect to CSR as follows:
OECD Guidelines
The Organisation for Economic Co-operation and Development (OECD) has
developed guidelines for multinational organisations. These guidelines are
basically a set of recommendations addressed by the governments to multinational
organisations operating in countries that have adopted these OECD Guidelines.
The OECD Guidelines include non-binding principles and standards for carrying
out business in a responsible manner, wherein adherence to applicable laws and
internationally recognised standards is ensured. These guidelines are a collection of
CSR recommendations that are followed in countries which invest heavily in other
countries and which are home to some of the largest multinational organisations
in the world. The aim of these guidelines is to encourage positive contributions by
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enterprises to economic, environmental and social progress worldwide. The OECD
Guidelines have been agreed upon by a number of nations; therefore, it is multilateral
in nature. The major components of OECD Guidelines are as follows:
General policies which the multinational organisations should follow
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Disclosure requirements
Requirements pertaining to the human rights
Policies with respect to the employment and industrial relation, environment
Policies related to the bribery, consumer interests, science and technology,
competition and taxation
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The general policies under OECD Guidelines lay out that the companies should
contribute to the economic, environmental and social progress. The organisations
must operate in a manner that respects human rights, encourages capacity-building,
encourages human capital formation and abstains from local political activities.
ILO Conventions
According to the International Labour Organisation (ILO), CSR is a way in which
organisations take into consideration the impact of their operations on society. In
addition, under CSR, the organisations also ensure that its principles and values are
followed in their own internal methods and processes and in their interaction with
other stakeholders. As per the ILO, CSR is a voluntary initiative and is an integral
part of the organisational culture. CSR is a systematic and continuous initiative and
not an occasional one. CSR is considered as an essential practice to ensure sustainable
development and not as a voluntary effort that is done to aid the other governmental
CSR initiatives.
170 The ILO has an important role to play in CSR because ILO mainly works in respect of
labour laws and standards and social dialogue which are also important aspects of
the CSR. The ILO helps to initiate and promote dialogue (with respect to labour laws Notes
and standards) among various stakeholders, such as the governments, employees/
employee unions and the organisations. ILO also provides assistance and tools that
help organisations in better understanding the significance of managing labour laws
and standards in the context of CSR.
The ILO has identified eight conventions that are considered as fundamental
principles and rights at work. They are:
1. Freedom of Association and Protection of the Right to Organise Convention, 1948
2. Right to Organise and Collective Bargaining Convention, 1949
3. Forced Labour Convention, 1930
4. Abolition of Forced Labour Convention, 1957
5. Minimum Age Convention, 1973
6. The Worst Forms of Child Labour Convention, 1999
7. Equal Remuneration Convention, 1951
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8. Discrimination (Employment and Occupation) Convention, 1958 (No. 111)
The Conventions are treaties that are signed by a number of countries which resolve
to adopt the principles and guidelines laid down in the conventions. When the ILO
conventions are ratified by governments, they become binding on the governments
which must implement the conventions by passing the required legislations.
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Apart from the above-stated eight conventions, the ILO has also designated four
other conventions as ‘priority’ instruments. It means that all the member states are
encouraged to ratify these conventions which would help improve the international
labour standards system. These include Labour Inspection Convention, the
Employment Policy Convention, the Labour Inspection (Agriculture) Convention
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and the Tripartite Consultation (International Labour Standards) Convention.
UN Draft Principles for Behaviour of Transnational Corporations

In 1973, a working group of the UN Subcommittee on Human Rights developed
a set of principles that must be adopted by Transnational Corporations (TNCs).
The principles were internationally binding upon the organisations. The UN Draft
principles are related to subjects, such as non-discrimination, war crimes, worker’s
rights, environmental protection, consumer protection and TNCs’ responsibilities
under International Law.
These draft principles were drafted to ensure that the TNCs should not abuse their
power in political and economic sphere. These UN draft principles are now defunct.
Leadership in Energy and Environmental Design

Leadership in Energy and Environmental Design (LEED) is the one of the most
widely used green building certification program and rating system in the world. It
is a framework that can be used to create healthy, highly efficient and cost-optimal
171
green buildings. LEED has been developed by the US Green Building Council
Notes (USGBC). USGBC is one of the eight national councils that helped found the World
Green Building Council.
A LEED certification means that buildings have been built in a sustainable manner.
Now, LEED is being adopted as an international standard for the design, construction
and operation of high-performance structures.
Dow Jones Sustainability Indices

Dow Jones Sustainability Indices (DJSI) was launched in 1990. DJSI is a collection of
the global sustainability benchmark indices which evaluate the stock performance
of world’s leading companies in terms of the economic, environmental and social
criteria. The DJSI has been created jointly by the S&P Dow Jones Indices and
RobecoSAM.
The DJSI are benchmarks for investors who invest in socially responsible
organisations. It is also an effective engagement platform for the investors who want
to promote organisations that want to pursue sustainable business.
The DJSI indices are a collection of individual indices, namely the DJSI World, DJSI
M
North America, DJSI Europe, DJSI Asia-Pacific, DJSI Emerging Markets, DJSI Korea,
DJSI Australia and DJSI Chile.
For an organisation to be included in any of the DJSI indices, there is a transparent and
rule-based selection process which takes into consideration the Total Sustainability
Scores achieved by the organisations in the RobecoSAM Corporate Sustainability
M
Assessment (CSA). 10% of the most sustainable market caps from each industry
are selected on the basis of their sustainability scores to be included in the DJSI.
As an example, the DJSI World Index is composed of top 10% of the largest 2,500
companies in the S&P Global BMI.
Another sustainability index similar to DJSI is the FTSE4GOOD. This index measures
II
the performance of companies that demonstrate the strong environmental, social

and governance practices. Investors can refer to this index to invest in sustainable
products.
Coalition of Environmentally Responsible EconomieS

Coalition of Environmentally Responsible EconomieS (CERES) is a coalition of
investors, public pension trustees, foundations, labour unions, and environmental,
religious, and public interest groups. This non-profit coalition has been formed
to achieve corporate environmental stewardship. CERES has developed a ten-
point environmental code of conduct for corporations. CERES Guidelines help
organisations in legitimising their activities by representing them as ecologically
responsible.
The ten points covered under the CERES code include the following:
1. Protection of biosphere
2. Sustainable use of natural resources
172
3. Reduction and disposal of wastes
4. Energy conservation Notes

5. Risk reduction
6. Safe products and services
7. Environmental restoration
8. Informing the public
9. Management of commitment
10. Audits and reports
5. Which two entities have jointly created the DJSI?
6. List any two points covered under the CERES code.
A ctivit y
List the ten organisations of India which have launched sustainable and
environment-friendly products.
11.5 SUMMARY

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India has made it mandatory for organisations to invest in CSR initiatives and
activities.
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Organisations that undertake CSR activities voluntarily are usually well aware of
the benefits associated with sustainable growth.
According to Freidman doctrine (given by Milton Freidman), the only responsibility
of a business is to increase its business and profits and it is the responsibility of
the government to ensure the achievement of social and environmental objectives.
II
Some of the economists have expressed a view that is contrary to Freidman’s.

According to this contrary view, CSR in itself is a management model which
promotes sustainable development and is structured taking into consideration the
environmental and social concerns.
Different countries have established different CSR policies. The CSR policies
established by the governments of different countries are based on factors, such as
social, economic and environmental conditions of the respective countries.
UN has also been taking several initiatives for ensuring sustainable development. In
the past, UN adopted the Millennium Development Goals (MDGs) for eradicating
extreme poverty. Currently, the UN has now adopted the ambitious 2030 agenda
for the Sustainable Development.
The 17 SDGs established by UN are as follows:
1. No poverty
2. No hunger
3. Achieve good health and well-being
173
Notes 4. Quality education

5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Sustainable economic growth
9. Industry, innovation and infrastructure
10. Reduced inequalities
11. Sustainable cities and communities
12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice and strong institutions
17. Partnerships for goals

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Apart from the United Nations, there are various organisations that have been
established for supporting the sustainable development practices. For example,
the Organisation for Economic Co-operation and Development (OECD) has
developed guidelines for multinational organisations.
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The ILO has an important role to play in CSR because ILO mainly works in respect
of labour laws and standards.
11.6 KEY WORDS

Corporate citizen: A term used to describe an organisational or business entity.
II
Corporate strategy: A strategy that is devised by an organisation’s management to

achieve certain organisational objectives.
Regulatory measures: The measures that are laid out by various regulatory
authorities.
Public-Private Partnership (PPP): A strategic alliance between government
organisations and private organisations.
11.7 CASE STUDY: PEOPLE’S CSR EXPECTATIONS FROM

ORGANISATIONS
In February 2019, a survey-based research study was carried out by Clutch, a
leading B2B research, ratings and reviews organisation. The Clutch’s Survey had
420 respondents who were U.S. consumers and had made purchases in the last six
months. The study found that most of the people associate the CSR with the food,
technology and fashion industries. According to the study, approximately 70% of the
people who were surveyed expect the food industries to commit to CSR. Similarly,
174
62%, 70% and 65% of the people surveyed expected the restaurants, technology Notes
companies and fashion industries to undertake CSR initiatives, respectively. The
CSR expectations of the consumers are based on the fact that these are the industries
which produce daily-use items required by people.
Therefore, these industries have a greater role to play in the CSR.
Source: https://www.socialfix.com/socialfix-recognized-by-clutch/
The consumers internally consume the food that is provided to them by the food
industries, wear what the garment and fashion industries provide and use the
technology offered by the technology industries. These three industries specifically
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impact the well-being of people, domestic and international communities. Therefore,
it is natural for the consumers to demand a greater share of CSR for these industries.
As an example, the technology consumers expect that the technology providers

ensure their privacy and data protection. According to Clutch’s report, 72% of the
consumers expect that the technology-based organisations concentrate on ensuring
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data protection and their privacy.
According to APN.com’s CEO, Michael Gargiulo, businesses must ensure protection

of their consumer’s data and improve their security measures. It is also required that
these organisations inform their customers regarding any possible security breach.
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The study also suggested that the people want the food industries and restaurants to
address the concerns of food security.
The consumers, approximately 58%, expect that the fashion industry procures its
materials in an ethically sound manner.
Source: https://www.finchannel.com/csr/77018-people-expect-all-industries-to-demonstrate-corporate-social-
responsibility-but-especially-the-tech-food-and-fashion-industries
Questions
1. What do consumers expect from the technology industries?
(Hint: Data protection and privacy.)
2. Why do consumers want the food, fashion and technology industries to assume
greater responsibility of the CSR?
(Hint: The CSR expectations of the consumers are based on the fact that these are
the industries which produce daily-use items required by people.)
175
Notes 11.8 EXERCISE

1. Discuss the role of governments in establishing the CSR policies.
2. Examine the role of the United Nations in achieving Sustainable Development.
3. Describe the OECD’s CSR Guidelines.
4. Outline the relevance of Dow Jones Sustainability Indices.
Topic Q. No. Answer

Government’s Impact on CSR Activities 1. creating soft law and increasing
awareness
2. False
United Nations and Sustainable 3. sustainable development
Development
4. a. 4
Voluntary Codes in CSR
M 5.
6.
S&P Dow Jones Indices and
RobecoSAM
Protection of biosphere and risk
reduction
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SUGGESTED BOOKS
Haerens, M., & Zott, L. (2014). Corporate Social Responsibility. Detroit: Greenhaven
II
Press.
Publishing, O., & Organisation for Economic Co-operation and Development.
(2001). Corporate Social Responsibility. Paris: Organisation for Economic Co-
operation and Development.
E-REFERENCES
Corporate Social Responsibility (CSR). (2019). Retrieved from https://www.ilo.org/
empent/Informationresources/WCMS_101253/lang--en/index.htm
FINANCIAL, T. (2019). People Expect All Industries to Demonstrate Corporate
Social Responsibility, But Especially the Tech, Food, and Fashion Industries.
Retrieved from https://www.finchannel.com/csr/77018-people-expect-all-
industries-to-demonstrate-corporate-social-responsibility-but-especially-the-
tech-food-and-fashion-industries
176
r
te
12
ap
h
C
Public Procurement, Ethics and Legal
Framework for CSR in India
Table of Contents
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M
12.1 Introduction
12.2 Legal Framework for CSR in India
12.2.1 Clause 135 of the Companies Act, 2013
12.2.2 Companies (CSR Policy) Rules, 2014
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12.3 Concept of Public Procurement
12.4 Transparency International’s Integrity Pact on Public Procurements
12.5 Summary
12.6 Key Words
12.7 Case Study
12.8 Exercise

Explain the legal framework for CSR in India
Discuss the concept of public procurement
Describe Integrity Pact on public procurement by Transparency International
12.1 INTRODUCTION
In the previous chapter, you have studied the impact of government on CSR activities,
United Nation’s Sustainable Development Goals and voluntary codes in CSR. In this
chapter, let us discuss the role of ethics in public procurement and legal framework
of CSR practices in India.
In India, CSR was traditionally seen as a philanthropic activity. Therefore, CSR

activities were performed but not deliberated. As a result, only limited documentation
on specific activities related to this concept is available. The inclusion of CSR in the
Companies Act, 2013 is an attempt to supplement the government’s efforts of equal
M
distribution of benefits of growth and align the corporate world with the country’s
development agenda. The Companies Act, 2013 introduced the idea of CSR and
emphasised that organisations must fulfil their social responsibilities towards
communities.
Public procurement is a process of purchase of goods and services by governments

M
and state-owned organisations. However, the public procurement process can
be successful if it is based on ethical principles, such as fairness, integrity and
transparency.
In this chapter, you will study about the legal framework of CSR practices in India.
Also, the chapter explains the significance of public procurement. Towards the
II
end, the chapter discusses Integrity Pact on Public Procurement by Transparency

International.
12.2 LEGAL FRAMEWORK FOR CSR IN INDIA

In India, CSR practices are the result of the Companies Act, 2013. India is among those
countries in the world that have a dedicated CSR Act. The Ministry of Corporate
Affairs and the Ministry of Home Affairs, the Government of India formulate
various policies, acts, rules, amendments, notification and guidelines from time to
time, which govern CSR practices in India. The two most important documents that
provide the legal framework to CSR in India are listed in Figure 1:
Section 135 of the Companies Act, 2013
The Companies (Corporate Social Responsibility Policy) Rules, 2014
178
Figure 1: Documents Providing Legal Framework to CSR in India
Public Procurement, Ethics and Legal Framework for CSR in India
Let us discuss these two documents in detail in the upcoming sections. Notes
E xhibit
OTHER PROVISIONS FOR CSR PRACTICES IN INDIA
Schedule VII of the Companies Act, 2013
According to Schedule VII of the Companies Act, 2013, a company may take up
CSR activities. The list of activities is as follows:
Eradicating extreme hunger and poverty
Promoting education
Promoting gender equality and empowering women
Reducing child mortality and improving maternal health
Combating human immunodeficiency virus, acquired immunodeficiency
syndrome, malaria and other diseases
Ensuring environmental sustainability

Enhancing vocational skills
Promoting social business projects M
Contributing to the Prime Minister’s National Relief Fund or any other fund set
up by the Central Government or the State Governments for socio-economic
development for the welfare of the Scheduled Castes, the Scheduled Tribes,
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other backward classes, minorities, women, etc.
Amendment to CSR Rules, 2016
Amendment to CSR Rules, 2016 came into effect in May 2016. These rules enlist
and describe corporate social responsibility, CSR activities, CSR committees, CSR
II
policy, CSR expenditure and CSR reporting. On 23rd May, 2016, the Ministry
of Corporate Affairs (MCA) released a notification regarding the Companies
(Corporate Social Responsibility Policy) Amendment Rules, 2016, effective from
23rd May, 2016. According to the amended CSR Rules, companies can undertake
CSR activities through an S.8 company, a registered trust or a registered society.
However, if the company decides to undertake the CSR activities through an S.8
company or a registered trust or a registered society, then the company, trust or
society must have an established track record of undertaking similar programs
for three years. The company must also specify the projects and programs to be
undertaken, the method of utilisation of funds, and the procedure to monitor
and report mechanisms.
12.2.1 CLAUSE 135 OF THE COMPANIES ACT, 2013

According to Section 135 (1), every company having a net worth of rupees five hundred
crores or more, or a turnover of rupees one thousand crores or more or a net profit of
rupees five crores or more during any financial year shall constitute a Corporate Social
179
Notes Responsibility Committee of the Board consisting of three or more directors, out of which at
least one director shall be an independent director.
Section 135 (2) states that the report prepared by the Board should clearly disclose
the composition of the CSR Committee.
As per Section 135 (3), the CSR Committee of the company would be responsible
for formulating and recommending a CSR Policy to the Board, which shall indicate
activities to be undertaken by the company as specified in Schedule VII of the Act.
Section 135 (4) states that the Board of every company referred to in sub-section (1)
is responsible for approving the CSR Policy for the company, disclosing contents of
such policy in its report and also placing it on the company’s website. The Board
should also ensure that activities mentioned in the CSR Policy of the company are
undertaken.
Section 135 (5) also mandates that in each financial year, a company must spend at
least 2% of its average net profit made during three years immediately preceding the
financial years towards CSR projects and programs.
M E xhibit
LEGAL PROVISIONS FOR CSR INVESTMENTS IN INDIA
India is the first country in the world that required mandatory CSR investments
(most of the developed countries require mandatory reporting but not
investments). The Companies Act, 2013 also requires mandatory CSR reporting.
M
The legal provisions with respect to CSR in India are:
Companies with a net worth of INR 500 crores or turnover of INR 1000 crores
or net profit of INR 5 crores have to spend 2% of their profits on CSR activities.
Companies must establish a CSR committee comprising at least three board
II
members and an independent member.

The CSR committee shall be responsible for developing and recommending
to the board a CSR Policy that identifies the CSR activities to be undertaken
in compliance with the Act, implementation schedules and monitoring of
company’s CSR performance.
The CSR committee shall recommend the budget for the proposed CSR
activities and evaluate the company’s efforts.
The obligation to fund CSR activities is coupled with a mandatory reporting
requirement. The annual report of the board must provide information
on how the company is complying with the Companies Act, including the
composition of the CSR committee, an outline of CSR Policy and information
on the projects/programs to be undertaken.
If the required 2% of average net profit has not been spent on CSR projects, the
annual report should provide an explanation.
The CSR Policy should be made available online through the company’s
180 website.
12.2.2 COMPANIES (CSR POLICY) RULES, 2014 Notes
The Companies (Corporate Social Responsibility Policy) Rules, 2014 came into
practice on 1st April, 2014. Clause 3 of the Companies Rules, 2014 mandates that
companies that fulfil the criteria specified in sub-section (l) of Section 135 and have
their branch office or project office in India should implement CSR. According to
Companies (CSR Policy) Rules, 2014, the CSR committee of every company which fulfils
the criteria specified in sub-section (l) of Section 135 is supposed to register a foundation/
institution for undertaking the CSR activities, either under the Trust Act, Societies Act or
the Companies Act.
Some highlights of the rules are as follows:
Programs benefitting only the company employees are not considered as CSR
activities. Hence, the companies must be careful in choosing programs or activities
according to Schedule VII.
Moneys spent on the capacity-building of staff under the CSR banner cannot
exceed 5% of the expenditure.

schedule VII purview. M
The CSR expenditure shall include all expenditures including contribution to the
corpus, or projects related to CSR, but caution should be made to fall within the
Contributions made to any political party cannot amount to the CSR activity.
The Companies Rules, 2014 also gives provision for more than two companies
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to collaborate and undertake CSR programs. The Board’s report of the company
from the financial year 2014 shall include an annual report on CSR. In case of a
foreign company, the balance sheet shall contain an annexure regarding the
report on CSR.
The CSR report contained within the annual report of an organisation includes the
II
following:
A brief outline of the company’s CSR Policy, including the overview of projects or
programs proposed to be undertaken and a reference to the web-link to the CSR
Policy and projects
The composition of the CSR Committee
The average net profit of the company for the last three financial years
The prescribed CSR expenditure
The details of money spent on CSR during the financial year
The unspent amount, if any, with reasons
The manner in which the amount is spent during the financial year
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Notes The format of CSR report, as mentioned in the rules, is presented in Table 1:
Table 1: Format of CSR Report

Sector in Cumulative
CSR Program- Amount spent:
which Amount spent expenditure
S. project or Projects or wise Direct or through
the on projects or up to the
No. activity programs budget implementing
project is programs reporting
identified outlay agency
covered period
1.
2.
3.
Source: https://www.nmdc.co.in/CSR/33.pdf

1. In India, CSR practices are the result of the Companies Act, 2013. India has a
dedicated CSR Act. (True/False)
2. The two most important documents that provide the legal framework to CSR
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in India are Clause 135 of the Companies Act, 2013 and ________________.
12.3 CONCEPT OF PUBLIC PROCUREMENT

Public procurement is the process of timely and economical granting of government
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and public service contracts to qualified contractors, suppliers, and service providers
for the supply of goods, work and services. Its two primary objectives are to:
Support government operations
Provide public services
II
Public procurement differs from private sector procurement in significant ways, as

shown in Table 1:
Table 1: Public Procurement vs. Private Procurement
Public Procurement Private Procurement

Focusses on social benefit Focusses on profit-making
Funded from taxes and/or grants and loans Funded by owners or shareholders of the
obtained by the government company
Governed by the public procurement legal Governed by the company policy
framework, rules, and principles
Procurement process open to public scrutiny Procurement process closed to public
scrutiny (shareholders might ask for reviews
of the procurement process)
Public procurement practitioners are public Private procurement practitioners answer
servants and accountable to the general only to management
182 public for their actions
There are three main entities in the public procurement process: Notes
Actors: They are also known as procurement practitioners. Actors play an active
role in the procurement process and ensure the accomplishment of their goals.
They must gain the trust of stakeholders and comply with the procurement process
and its principles.
Stakeholders: They play a passive role in the procurement process, but are
benefitted from its results. Here, actors are also stakeholders because they derive
benefits from the use of public goods and services.
Beneficiaries: They are all the inhabitants of the country. They use public goods
and services in the form of a transport system, public utilities, educational system,
and medical services.
Public procurement is directed by the procurement legal framework, which is
sanctioned by the judicial system of a particular country. It establishes the rules,
policies, principles, procedures, manuals, standards, and guidelines for managing
public procurement. Its principles establish a code of conduct for public practitioners.
These principles include:

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Transparency: The public procurement process information must be accessible to
all stakeholders and the public at large, unless there are valid and legal reasons to
keep certain information confidential, e.g., proprietary information of companies/
individuals participating in the solicitation process and certain defence-related
procurements.
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Integrity: Bidders and all other stakeholders must be able to rely on the information
provided in the solicitation documents, clearly understand the requirements, and
determine if they qualify for the process. Public procurement practitioners must
display personal and professional integrity at all times.
Economy: Public funds must be managed with due diligence. Practitioners must
II
avoid fraud, and wastage and abuse of public resources.

Openness: All the qualified individuals and organisations should have access to
public procurement requirements. Evaluation of offers should be kept confidential
until results. The results (except defence procurement) should be published and
made available on relevant websites.
Fairness: Decision making should be unbiased. The decision-makers must consider
all the offers on the basis of their compliance with the solicitation requirements.
A contract should be awarded to only that supplier, contractor or service provider
whose offer best responds to the requirements in terms of technical ability and
price.
Competition: All eligible organisations should be allowed to participate in the
process. The requirements should be widely distributed to ensure a good market
response.
Accountability: People who are, in any way, involved with the public procurement
process must be held responsible for their actions and decisions.
183
Notes With the overhaul in the UN Model Law of Public Procurement and the introduction
of several policy documents, public procurement is no more an activity focussed on
procuring goods at the minimum possible cost. It has become a strategic development
tool which ensures that governments and businesses:
Do business responsibly
Take a leadership position in the community
Consider CSR issues relevant to their business operations
Are transparent about their actions in these areas
In this regard, governments must mandate the minimum standards for business
performance and incentivise companies to engage with the CSR agenda or to drive
social improvements.

3. Which feature applies to public procurement process?
a. Supports shareholders’ interest
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b. Focusses on social benefit
c. Profit-centric
d. Closed to public scrutiny
4. All inhabitants of a country are _________ of the procurement process.
M
a. beneficiaries
b. actors
c. shareholders
d. practitioners
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5. According to the new UN Model Law of Public Procurement, governments

and businesses must consider CSR issues relevant to their business operations.
(True/False)
12.4 TRANSPARENCY INTERNATIONAL’S INTEGRITY PACT ON PUBLIC

PROCUREMENTS
Corruption during public procurement processes is a common norm. In the EU
alone, corrupt bidding processes raise the public sector contract-awarding costs by
$5 billion every year. Despite so many anti-corruption laws, corruption still persists.
Therefore, there was a need to develop a mechanism that increases compliance with
the law. Consequently, Transparency International, which is a Germany-based global
civil society organisation, developed an Integrity Pact (IP) to facilitate governments,
companies, and civil society to fight against corruption in public procurement.
Under the process of the IP, the government or government authority and all the
bidders for a public sector contract agree on the rights and obligations to the effect
that:
184
Neither side will pay, offer, demand or accept bribes
Bidders will not collude with competitors to gain the contract Notes
Bidders will not bribe representatives of the authority during the contract-awarding
process
An external independent system monitors the IP implementation process and
ensures that all parties maintain their commitments under the IP.
The main objectives of IP are:

To establish a level-playing field for bidders and, thus, prevent bribing and
corruption in the bidding process
To enable governments to reduce the cost and misleading effects of corruption in
public procurement
To enable governments to collect and mobilise public support for public
procurement programs
To develop confidence and trust in public decision-making
To empower public officials to fight corruption

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To empower civil society to maintain the integrity of public procurement processes
To increase the impact and effectiveness of resources when national funds are used
In a nutshell, IP enables businesses to comply with anti-corruption laws by levelling
the playing field and assuring bidders that all are acting under the same conditions.
The presence of a monitor ensures that everybody keeps his IP commitments. IP
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also contributes to increased access to information and accountability. It ensures
proper implementation of procedures and, thus, helps develop trust in the law and
government bodies.
Since its conception in the 1990s, IP has been successfully used in several countries
II
and legal settings. There are four critical elements for the successful design, set-up,
and implementation of IP:
Political will of the authority: The government/government agency must be ready
to make the maximum possible use of IP to reduce corruption and strengthen
honesty and integrity in public procurement.
Right basics: There should be maximum transparency at every step in the contract-
awarding process, from inviting tenders to awarding the contract. All the public
procurement process information should be accessible to the general public. This
information includes:
zz Design and justification of contracting
zz Bidding procedures
zz Bid evaluation
zz Contracting
zz Contract execution and supervision
185
Notes External independent monitoring system: This monitor will verify that the
obligations in the IP are satisfied. The monitor will verify that all the parties
exercise the functions agreed to in the IP with respect to the tender process and
contract execution.
Multi-stakeholder involvement: The public procurement process involves
multiple stakeholders: public sector, private sector, and civil society. The civil
society supports the government to implement IP by providing expertise,
legitimacy, credibility, and independence. The appropriate involvement of
potential and actual bidders will ensure ownership and responsibility.
6. Which entity has developed an Integrity Pact for public procurement?
a. Amnesty International
b. International Labour Office
c. United Nations
d. Transparency International
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7. The IP is a mandatory requirement for international bidders in public
procurement process. (True/False)
8. The IP enables businesses to comply with anti-corruption laws and assures
them of a level-playing field by the presence of a _______.
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12.5 SUMMARY
In India, CSR practices are the result of the Companies Act, 2013. India has a
dedicated CSR Act.
The Ministry of Corporate Affairs and the Ministry of Home Affairs, the Government
II
of India formulates various policies, acts, rules, amendments, notification and

guidelines from time to time which govern CSR practices in India.
The two most important documents that provide the legal framework to CSR in
India are Clause 135 of the Companies Act, 2013 and Companies (CSR Policy)
Rules, 2014.
According to Section 135 (1), every company having a net worth of rupees five hundred
crores or more, or a turnover of rupees one thousand crores or more or a net profit of
rupees five crores or more during any financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directors, out of which
at least one director shall be an independent director.
Clause 3 of the Companies Rules, 2014 mandates that companies that fulfil the
criteria specified in sub-section (l) of Section 135 and have their branch office or
project office in India should implement CSR.
Public procurement is the process of suitable and economical granting of
government and public service contracts to qualified contractors, suppliers, and
186 service providers for the supply of goods, work, and services.
Public procurement processes aim to support government operations and provide Notes
public services. They should also ensure that governments and businesses consider
CSR issues relevant to their operations.
To curb corruption in public procurement, Transparency International has
developed an Integrity Pact (IP) to facilitate governments, companies, and civil
society.
IP consists of a process where a government/government agency (the authority)
and all bidders for a public sector contract agree on rights and obligations to the
effect that:
zz Neither side will pay, offer, demand, or accept bribes
zz Bidders will not collude with competitors to gain the contract
zz Bidders will not bribe representatives of the authority during the contract-
awarding process
12.6 KEY WORDS

Procurement: An act of obtaining something.

M
Bid: An offer for something, particularly at an auction.
Bidder: A person/organisation making an offer for something.
Tender: A process where governments/government agencies invite bids for
projects that must be submitted within a specified date.
M
12.7 CASE STUDY: LIGHTING PROCUREMENT FOR LONDON’S
UNDERGROUND NETWORK
The London Underground is a public transit network that is used by millions of
commuters daily to transport within London and nearby areas. It is managed by
II
Transport for London (TfL) which oversees the maintenance of the network’s 11 lines
and 270 stations. Till 2014, a substantial cost used to be spent on the maintenance of
fluorescent lights, which were installed in the London Underground stations.
With the intention to reduce whole lifecycle costs (WLC) in lighting, TfL proposed
to find new cost-saving lighting solutions for the stations. In this project, TfL
sought support from an organisation called Procurement of Lighting Innovation
and Technology in Europe (PRO-LITE). PRO-LITE is an European Union (EU)
organisation and it funded the TfL’s new lighting project.
Pre-Procurement Process
TfL and PRO-LITE surveyed different new lighting technologies available across
Europe. They also studied various procurement processes employed, the processes
used to develop performance-based technical specifications, and procurement
documents used for bidding. They also assessed differences in WLC for the same
product if it is installed in different locations across the underground network.
Their analysis revealed that the majority of the cost would be saved by reducing 187
long-term labour costs instead of short-term material costs or energy costs. Since
Notes long-term savings in costs would outweigh any additional upfront costs of LED
solutions, the TfL management was convinced that investing in LED lighting would
be a feasible solution. This solution would have generated 50% savings in total costs.
Procurement Process
The procurement process was divided into three stages:
1. Pre-qualification stage: During this stage, TfL clarified its requirements to the
potential suppliers of LED lighting solutions. A group of manufacturers was
selected on the basis of their capability to meet TfL’s requirements.
2. Bid solicitation and evaluation: Invitations to bid were sent out to the selected
manufacturers. In their bid, each manufacturer provided technical information
on their products. This information helped TfL to compare WLC of the offered
solutions. The products with the highest scores were invited to stage three of the
procurement processes.
3. In-site testing: The few manufacturers, who were selected from the previous two
stages, were asked to submit samples to validate their technical claims and the
WLC modelling. Only those manufacturers whose samples met TfL’s technical
Technical Specifications
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specifications and standards were awarded the contract.
TfL’s technical specifications indicated the minimum requirements acceptable for

lighting products, including luminaries and lamps. These requirements included:
M
Their design should be modular to enable quick replacement of components.
Their design should maintain International Protection (IP) rating throughout their
life cycle.
At 50,000 hours, the lamp’s Abrupt Failure Value (AFV) shall be less than or equal
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to 10%.
For all reported lumen values, the reported failure fraction should be B50 (the
rated average life of products) or 50%.
The lamps and luminaries should provide L70 performance for at least 50,000
hours. This means that they should produce 70% of the initial light output for at
least 50,000 hours.
The lamps and luminaries should provide L90 performance for at least 6,000 hours.
TfL also revised the London Underground Lighting Standard called S1066. According
to S1066, lighting systems shall:
Be safe and designed to minimise energy use
Enable both passengers and staff to perform all necessary tasks effectively
Meet the requirements of the visually and sensory impaired
Provide a welcoming ambience
188
TfL also required that the lighting system is designed to optimise WLC, under the Notes
following assumptions:
Years of operation: 25 years
Discount factor: 3.5%
Electricity cost rate: £0.10 (approximately €0.12) per kWh
Carbon dioxide (CO2) emitted per kWh of electricity used: 490 g
CO2 valued at £3 (approximately €3.52) per tonne and increasing at 2% compounded
Contract-Award Criteria
During the third phase of the procurement process, products which met TfL’s
standards of WLC were selected and assessed on the following factors:
Strength and durability
Ease of access to components
Ease to dismantle and reassemble, and integrity after reassembly

Ease to replace parts/components
Ease to clean
Ease to install and remove/uninstall
Ability to accommodate wiring
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Ease to switch on and off
During the TfL procurement process, over £25,000 (approximately €29,500) worth of
products were submitted for evaluation.
Contract Performance Clause

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The TfL’s contract included a ‘product refresh’ clause. According to this clause,
manufacturers who continually innovated and produced products that lower WLC
and environment impact would be given an incentive. Those manufacturers will be
preferred by TfL for any contract in future.
Results
The market research built confidence among senior management to invest in new
LED technology. TfL announced a contract worth £8 million (€10 million) for the
8-year-long supply of LED lamps and luminaries across the London Underground
stations. Over 50 suppliers responded in the pre-qualification stage. Out of those,
30 suppliers were sent invitations to bid. Finally, samples of 120 products were
requested for the hands-on assessment. In June 2016, TfL awarded 8-year-long
contracts to 13 manufacturers to supply 45 products, which met TfL’s lighting
requirements.
By awarding contracts to 13 manufacturers, TfL has incentivised them to compete

within the contract. Manufacturers know that TfL has other options if they lowered 189
their standards. Therefore, they will continue to innovate to reduce WLC.
Notes Through this procurement process, TfL hopes to reduce the number of lighting
products used across the London Underground from 500 to 45-50 (90% savings).
This will create economies of scale for TfL. For example, based on the calculated
savings for the ticket hall of the London Underground Charing Cross Station, the
new LED products will save 25% in WLC, including 75% on maintenance costs.
In terms of duration, TfL estimates that the procurement process will now take less
than a year, as they now know how to plan and execute it effectively.
This project was supported by a grant of €2 million from PRO-LITE. Approximately,

one-quarter of the grant was used by TfL.
Source: http://www.procuraplus.org/fileadmin/user_upload/Procura__case_studies/Procuraplus_case_study_
Transport_for_London.pdf
QUESTIONS
1. Why did TfL conduct the pre-procurement process?
(Hint: To collect information on different innovative lighting technologies, to
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gather information on the various procurement processes in the marketplace, etc.)
2. What procurement process was followed by TfL?
(Hint: Pre-qualification, bid solicitation and bid evaluation stages)
12.8 EXERCISE
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1. Discuss the legal framework for CSR in India.
2. What is public procurement? How does it differ from private procurement?
3. What are the three main entities in public procurement?
4. List the principles that govern the public procurement process.
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5. How has public procurement developed with respect to CSR initiatives?

6. What is the Integrity Pact on public procurement? Who established it and why?
7. What are the main objectives of the Integrity Pact?
8. What are the essential elements for successful execution of the Integrity Pact?

Topic Q. No. Answer
Legal Framework for CSR in India 1. True
2. the Companies (Corporate Social
Responsibility Policy) Rules, 2014
Concept of Public Procurement 3. b. Focusses on social benefit
4. a. beneficiaries
5. True
Transparency International’s Integrity 6. d. Transparency International
190 Pact on Public Procurement
Topic Q. No. Answer Notes

7. False
8. monitor

SUGGESTED BOOKS
Agarwal SK. (2008). Corporate Social Responsibility in India. Response Books.
Carroll, A., & Buchholtz, A. (2015). Business & Society: Ethics, Sustainability, and
Stakeholder Management (9th Ed.). Cengage Learning.
Katamba D. (2012). Principles of Corporate Social Responsibility (CSR): A Guide for
Students and Practicing Managers in Developing and Emerging Countries; Strategic
Book Publishing & Rights Agency, LLC.
Ravichandran K.S. (2016). Corporate Social Responsibility – Emerging Opportunities
and Challenges in India. Lexis Nexis.
E-REFERENCES

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What is CSR? | UNIDO. (2018). Unido.org. Retrieved from https://www.unido.org/
our-focus/advancing-economic-competitiveness/competitive-trade-capacities-
and-corporate-responsibility/corporate-social-responsibility-market-integration/
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whatcsr
Handbook on Corporate Social Responsibility in India. (2013) (pp.27-28). Gurgaon.
Retrieved from https://www.pwc.in/assets/pdfs/publications/2013/handbook-on-
corporate-social-responsibility-in-india.pdf
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191
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BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY
About IIMM
“Indian Institute of Materials Management (IIMM)” with its headquarters at Navi Mumbai, is a
Professional Body of Materials Management classified under Engineering & Technology Group under
Apprenticeship Act 1961 and is recognised by ISTE, MHRD.
Through its wide network of 52 branches and 19 chapters having around 9500 members drawn
from public and private sectors, IIMM is dedicated to the promotion of the profession of Materials
Management through its multifarious activities including Educational Programs approved by AICTE
(Post Graduate Diploma in Materials Management and Post Graduate Diploma in Supply Chain
Management & Logistics), Seminars, National Conferences, Regional Conferences, Workshops,
In-house training programs, Consultancy & Research Programs.
To have an effective global interaction, Institute is a charter member of International Federation of

Purchasing and Supply Management (IFPSM), Atlanta (USA) which has its roots in over 44 member
countries.
In furtherance of its objectives, IIMM, brings out a monthly journal, “Materials Management Review”
comprising of latest Articles and Research Papers in the field of Materials, Logistics, Purchase,
Inventory, Supply Chain Management and latest Technological Innovations like Artificial Intelligence,
Block Chain, Cloud Computing and Internet of Things.
The Institute has its Centre for Research in Materials Management (CRIMM) at Kolkata, which
is engaged in promotion of research activities in collaboration with industries for furthering the
advancement of the profession of Materials and Supply Chain Management.
The Institute is dedicated for the Societal & Environmental considerations through Sustainable
Procurement, Green Purchasing and Life Cycle Consideration which are part of our course curriculum.
The aim & objective of the Institution is to update & upgrade the skills & knowledge of professionals
so as to ensure inclusive and sustainable development.
BUSINESS ETHICS AND

CORPORATE SOCIAL RESPONSIBILITY
Indian Institute of Materials Management

Plot No. 102 & 104, Sector -15,
Institutional Area, CBD Belapur, Navi Mumbai – 400614
Ph. 0222 757 1022/0222 756 5592,
E-mail: iimmedu@iimm.co.in, Website: iimm.org

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BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY

To have an effective global interaction, Institute is a charter member of International Federation of

BUSINESS ETHICS AND

Indian Institute of Materials Management

Ethos, Values, Norms, Beliefs and Standards.............................................19

Chapter 4: Importance of Values in Management.........................................................45

Chapter 5: Managing Ethical Dilemma...........................................................................63

Chapter 6: Ancient Indian Concept of Karma and its Applications

Chapter 7: Corporate Governance...................................................................................91

Chapter 8: Sustainable Development and Corporate Social Responsibility............109

Chapter 9: CSR Strategy – Development and Implementation.................................127

Chapter 10: Measuring, Monitoring and Reporting CSR Activities...........................141

Chapter 11: Government, United Nations and Voluntary Codes in CSR..................161

1.3 Business Ethics

Learning Objectives Notes

After studying this chapter, you will be able to:

1.2 CONCEPT OF ETHICS

Notes The main features of ethics can be summarised as follows:

1.2.1 Theories of Ethics

Absolutism vs. Relativism

Ethical Egoism Utilitarianism Eudaemonism

Figure 1: Teleological Theories

The three types of teleological theories are explained as follows:

The three kinds of deontological theories are shown in Figure 2:

Negative and Positive Social Contract Social Justice

The three types of deontological theories are explained as follows: Notes

Kohlberg’s Model of Cognitive Moral Development (CMD)

1.3 BUSINESS ETHICS

1.3.1 IMPORTANCE OF ETHICS IN BUSINESS

Business ethics is important for organisations because of the following reasons:

Notes 1.3.2 Ethical Principles and Practices in Business

 Be honest and clear in all actions and communications

Demonstrate honour and ethics

1.3.3 Myths and Ambiguities Related to Business Ethics

 Business ethics has more to do with religion than management.

S elf A ssessment Q uestions

1.4 Management and Ethics M

1.4.1 Ethical Decision-Making and Resolving Business

1.4.2 Ethical Reasoning, Moral Worth and Moral Obligation

1.4.3 Moral Rights and Duties

A right is a manner to justify an act through a legal or moral foundation. People in

1.4.4 Ethical Leadership

According to business ethicist, Linda Treviño, ethical leadership is a combination of

S elf A ssessment Q uestions

1.5 Code of Ethics for Managers

Notes 1.6 Developing an Ethical Organisational Culture

S elf A ssessment Q uestions

1.7 The 4-V Model of Ethical Leadership

Figure 3: The 4-V Model of Ethical Leadership

1.9 Key Words

1.10 CASE STUDY: IMPLEMENTATION OF THE TATA CODE OF CONDUCT Notes

programs and seminars were organised by the ethics coordinators in consultation

Notes 1.11 Exercise

1.12 Answers for Self Assessment Questions

Developing an Ethical Organisational Culture

The 4-V Model of Ethical Leadership

1.13 Suggested Books and E-References

2.3 Management Lessons Based on Indian Traditions and Culture

Chapter 6: Ancient Indian Concept of Karma and its Applications

Be honest and clear in all actions and communications

Business ethics has more to do with religion than management.

Showing commitment: Each organisational member must be committed towards

26 Wanted and unwanted

Business lessons learnt from the Mahabharata include: Notes

Successful business model