Business Environment and Ethics

Model 1
Q.1 List down Principles of professional Ethics and explain them.

A professional is one who is engaged in a specified activity as one’s paid occupation.

Example: Doctor, advocate, professor, scientist or a business manager.

Basic principles to be followed by a professional.

1. Impartiality (Objectivity): Professionals must remain unbiased and fair in their decisions and actions. For example, a judge should base rulings solely on
evidence and law, without personal biases.

2. Openness (Full Disclosure): Full and transparent communication is essential. For instance, a financial advisor should disclose all relevant information about
investment options to clients, ensuring informed decision-making.

3. Confidentiality (Trust): Professionals must respect and protect confidential information. A doctor, for instance, should safeguard patient records and ensure
sensitive medical details are not disclosed without proper authorization.

4. Due Diligence/Duty of Care: Professionals are obligated to perform their duties diligently and with care. A scientist conducting research, for example, should
follow rigorous methodologies to ensure the validity and reliability of results.

5. Fidelity to Professional Responsibilities: Professionals should adhere to the ethical standards and responsibilities of their profession. A business manager, for
instance, should prioritize the interests of the company and stakeholder’s over personal gain.

6. Avoiding Potential or Apparent Conflict of Interest: Professionals must steer clear of situations where personal interests may compromise their professional
judgment. An attorney avoiding a case involving a close relative to maintain impartiality is an example.

Q.2 Describe in detail the Code of conduct and Ethics for Managers with 6 ethical values.

1. Integrity: Managers must uphold honesty and ethical principles. For instance, refusing bribes, even if it affects personal gain, demonstrates commitment to
integrity, fostering trust among stakeholders.

2. Impartiality: Fair and unbiased decision-making is crucial. A manager treating all team members equally, regardless of personal preferences, ensures a work
environment based on merit and fairness.

3. Responsiveness to the Public Interest: Managers should prioritize actions that benefit the broader community. For example, a city manager implementing
policies to improve public services reflects a commitment to the well-being of residents.
4. Accountability: Managers must take responsibility for their decisions and actions. Acknowledging mistakes, such as a project delay, and implementing
corrective measures, demonstrates accountability and builds trust with stakeholders.

5. Honesty: Truthfulness is essential in managerial communication. Admitting challenges in a project's progress rather than hiding them exemplifies honesty,
fostering a culture of openness and trust within the team.

6. Transparency: Openness in communication is vital. Sharing information about decision-making processes and company policies, for instance, enhances
transparency, enabling employees to understand and align with organizational values.

Q.3 List 10 reasons why businesses should act ethically.

Reasons why businesses should act ethically:

1. To protect its own interest.

2. To protect the interests of the business community as a whole.

3. To keep its commitment to society to act ethically.

4. To meet stakeholder expectations.

5. To prevent harm to the general public.

6. To build trust with key stakeholder groups.

7. To protect themselves from abuse of unethical employees and competitors.

8. To protect their own reputation.

9. To protect their own employees.

10. To create an environment in which employees can act in ways consistent with their values.

Q.4 Describe briefly concept of Moral Reasoning and explain it with example.

Concept of Moral Reasoning: Moral reasoning is the cognitive process through which individuals assess and judge behaviors, institutions, or policies based on
moral standards. It involves understanding what moral standards dictate and evaluating evidence to determine if a particular entity aligns with or violates these
standards.

Components of Moral Reasoning:

1. Understanding Moral Standards: Individuals must grasp the ethical principles that guide their judgments, such as fairness, equality, or justice.
 2. Evidence or Information: Moral reasoning relies on factual information about a person, policy, institution, or behavior to assess its alignment with moral
standards.

Examples of Moral Reasoning:

 Moral Standard: "A society is unjust if it does not treat minorities equal to whites."

 Factual Information: "In American society, 41% of Negroes fall below the poverty line compared with 12% of Whites."

 Moral Judgement: "American society is unjust."

Q.5 Describe the concept of Moral responsibility and explain it with example.

Concept of Moral Responsibility:

1. Definition: Moral responsibility involves judging the extent to which a person deserves blame or punishment for wrongful actions or injuries.

2. Determining Factors:

- Knowledge and Freedom: Responsibility is tied to knowingly and freely performed or omitted actions.

- Foreseen Injurious Effects: Liability for acts with anticipated harm.

3. Excusing Conditions:

- Ignorance: Complete removal of responsibility when a person lacks knowledge.

- Inability: External or internal circumstances hindering control over actions.

4. Mitigating Factors: Circumstances that reduce moral responsibility without entirely eliminating it.

Example:

The case of Film Recovery Systems executives held morally responsible for knowingly and freely maintaining a hazardous workplace leading to an employee's
death illustrates moral responsibility, involving knowledge, freedom, and foreseen harm.

Q.6 What are Ethical Dilemmas? Explain with diagram.

  An ethical dilemma is a moral situation in which a choice has to be made between 2 equally undesirable alternatives.

 Dilemmas may arise out of various sources of behavior or attitude.

 It may arise out of failure of personal character, conflict of personal values and organizational goals, organizational goals versus social values.

 A business dilemma exists when an organizational decision maker faces a choice between 2 or more options that will have impact on – (I) the
organizations profitability and competitiveness and (ii) its stakeholders.

Module 2
Q.7 Explain how ethical dilemmas in business affect the stakeholders with diagram.

 Ethical dilemmas in business can be best explained by the triangle shown in figure in next slide with the stakeholders as its vertices.

 Stakeholders in this case are classified into shareholders, employees and society.

 Shareholders are the real owners of the company and they expect a decent return on their investments (ROI).

 Corporations have to repay them for the opportunity costs they have incurred in investing in their firm.

 They have to be compensated through dividends, bonus shares etc.

Q.8 Describe Walton’s 6 models of Business conduct.

The austere model: Emphasis on ownership interest and profit objectives.

2. The household model: Emphasizes employee jobs, benefits and paternalism

3. The vendor model: Consumer interests, tastes and rights dominate the organization.

4. The investment model: Focuses on long-term profits and survival. Recognition to social investments along with economic ones.

5. The civic model: Its slogan is ‘corporate citizenship’.

6. The creative model: Building own creative ideas into actions, resulting in new contributions for a better quality of life.

Q.9 Define Corporate Social Responsibility. Explain in detail Corporate Social Responsibility with broad aspect of Responsibility.

The world Business Council for Sustainable Development (WBCSD) defined CSR as ‘the continuing commitment of business to behave ethically and contribute to
economic development while improving the quality of life of their workforce and their families as well as of the local community, and society at large.’

 Corporate Social Responsibility encompasses a corporation's commitment to ethical conduct, sustainable practices, and positive contributions to society.
 Clarkson (1995) emphasizes the challenge in defining CSR, Corporate Social Performance (CSP), and Corporate Social Responsiveness. He notes that
corporations interact with specific stakeholders, not society at large, complicating the understanding of 'social' in business activities.
 William Frederick (1994) introduces Corporate Social Responsiveness, highlighting a corporation's ability to address social pressures. The historical lens
reveals three approaches in the victor-victim relationship: domination, exploitation, and oppression, relevant to businesses.

The relationship between victor and victim.

 Q.10 Explain importance of corporate social responsibility in corporate governance.
 The requirement from corporates has moved beyond just getting shareholder value.
 Socially responsible companies are lauded for their involvement in the welfare of all the stakeholders, the community, and the environment.
 There is general acceptance that the government alone cannot manage the multifarious needs of the modern globalized society.
 Public-private partnerships have to be the order of the day to balance the interest of stakeholders with the profit requirements of the shareholders.
 Many countries have created company laws, which incorporate CSR as a formal duty of the company.
 For example, the companies act of 2006 of the UK formally includes CSR as a responsibility to be undertaken by companies.
 In India, the Narayana Murthy Committee also recommends CSR as an integral part of corporate governance.

Module 3
Q.11 List down theories of corporate governance and explain any two.

 The following theories try to resolve the problem of separation of ownership and control:

1. Agency theory 2. Stewardship theory 3. Shareholder versus stakeholder theory 4. Transaction cost theory 5. Sociological theory

1. Agency Theory: Focuses on the principal-agent relationship in corporations, where managers (agents) act on behalf of shareholders (principals). The theory
explores conflicts of interest and mechanisms, like incentives, to align agent behavior with shareholder interests.

2. Stewardship Theory: Posits that managers act as stewards, inherently motivated to prioritize shareholder interests. Trust and mutual goals reduce the need for
extensive monitoring, fostering responsible decision-making.

3. Shareholder versus Stakeholder Theory: Examines whether corporations should primarily serve shareholder interests or balance multiple stakeholders'
concerns, such as employees, customers, and the community.

4. Transaction Cost Theory: Analyzes the costs associated with coordinating economic activities within firms versus in the open market. It explores how
organizational structures minimize transaction costs for efficient operations.

5. Sociological Theory: Considers social factors influencing corporate behavior. It explores the impact of social norms, values, and external pressures on
managerial decisions and corporate governance structures.
Q.12 explain in detail combined code.

Combined Code (1998)

The Combined Code integrates Cadbury, Greenbury, and Hampel reports, providing guidance for companies and institutional investors. It operates on a 'comply
or explain' basis. Regarding internal controls, it mandates the board to maintain effective control systems, conducting annual reviews and reporting to
shareholders. The Turnbull Report offers guidance for this review.

Combined Code (2003)

The revised Combined Code (July 2003) incorporates Higgs and Smith reviews, focusing on avoiding 'undue reliance' on specific individuals. It clarifies chairman
and senior independent director roles, emphasizing leadership, communication, and introduces a 'formal and rigorous annual evaluation' of board, committees,
and directors' performance.

Combined Code (2006)

The June 2006 update to the Combined Code introduced three key changes: allowing the company chairman to serve on the remuneration committee if deemed
independent, introducing a 'vote withheld' option on proxy forms, and recommending the publication of proxy details from general meetings on company
websites.

Q.13 Write a short note on Financial Reporting Council.

The Financial Reporting Council (FRC) has 5 operating bodies:

1. The Accounting Standards Board (ASB)

2. The Auditing Practices Board (APB)

3. The Professional Oversight Board for Accountancy (POBA)

4. The Financial Reporting Review Panel (FRRP), and

5. The Accountancy Investigation and Discipline Board (AIDB).

 In march 2004, the FRC set up a new committee to lead its work on corporate governance.

 Overall the FRC is responsible for promoting high standards of corporate governance.

It aims to do so by:

1. Maintaining an effective Combined Code on Corporate Governance and promoting its widespread application;

2. Ensuring that related guidance , such as that on Internal control, is current and relevant;
3. Influencing EU and global corporate governance developments;

4. Helping to promote boardroom professionalism and diversity;

5. Encouraging constructive interaction between company boards and institutional shareholders.

Q. 14 Explain international Corporate Governance Network.

1. Formation and Membership:

- Established in 1995, the ICGN comprises major institutional investors, companies, academics, and others with an interest in global corporate governance
development.

2. Objective:

- Aims to foster international dialogue on corporate governance issues, promoting best practices and standards globally.

3. Principles Revision:

- In response to the OECD Principles revision in 2004, the ICGN reviewed its global corporate governance principles and published updated principles in 2005.

4. Additional Principles:

- Building on the OECD Principles, the ICGN identified additional principles of specific concern to its members, addressing key corporate governance issues.

5. Coverage Areas:

- ICGN principles cover eight crucial areas, including corporate objectives, disclosure, audit, shareholders' rights, corporate boards, remuneration policies,
corporate citizenship, and governance implementation.

Q. 15 Describe Roles, duties and responsibilities of board of directors.

1. Strategic Decision-Making:

- The board of directors is responsible for setting the company's strategic direction. They engage in high-level decision-making, approving major business
strategies, and ensuring alignment with the organization's mission and goals.

2. Oversight and Governance:

- Boards oversee the company's operations, ensuring compliance with laws and regulations. They establish governance frameworks, including internal controls
and risk management systems, to safeguard shareholder interests.
3. Appointment and Oversight of Executives:

- Boards appoint, evaluate, and, if necessary, replace top executives, including the CEO. They monitor executive performance, ensuring leadership aligns with
the company's long-term objectives and ethical standards.

4. Financial Oversight:

- Boards review financial reports, budgets, and financial policies, ensuring the company's fiscal health. They also engage in risk assessment, overseeing financial
practices to maintain transparency and accountability.

5. Stakeholder Representation:

- Boards represent the interests of stakeholders, including shareholders, employees, and the broader community. They act as a link between management and
shareholders, considering diverse perspectives to make decisions that benefit the organization and its stakeholders.

Q.16 Explain in detail key elements of directors’ compensation.

Base Salary Bonus, Stock options, Restricted share plans, Pension, Benefits (Car, healthcare)

1. Base Salary:

- Fixed compensation paid regularly to directors as part of their overall remuneration for their role and responsibilities.

2. Bonus:

- Variable performance-based pay awarded for achieving predetermined targets or exceptional contributions.

3. Stock Options:

- Grants directors the option to purchase company shares at a predetermined price, aligning their interests with shareholders.

4. Restricted Share Plans:

- Allocates company shares with restrictions, ensuring directors meet specified conditions before fully owning or selling them.

5. Pension:

- Retirement benefit provided to directors, often a percentage of their salary, contributing to their long-term financial security.

6. Benefits (Car, Healthcare):

- Additional perks provided to directors, such as company cars or healthcare coverage, enhancing their overall compensation package.

Module 4
Q.17 Explain Caux Round Table Principles for International Ethical Business.

 Caux Principles for International Ethical Business:

 Towards Worldwide Business:

1. The responsibilities of business are beyond shareholders and towards stakeholders

2. Economic and social impact of business to world community

3. Beyond the law and towards a spirit of trust

4. Respect for rules

5. Support for multinational trade

6. Respect for environment

7. Avoidance of illicit operations, for example, bribery, money laundering, support for terrorists, drug trafficking

8. Provide highest quality of products, services, etc., at reasonable prices

9. Remedy customer dissatisfaction

10. Health and safety of customer and quality of his or her life not impaired by the work.

11. Ensure human dignity in goods or service offered

12. Respect the integrity and culture of customers

Employees:

13. Work conditions to be fair and improved consistently

14. Health and dignity of worker to be borne in mind

15. Open in dealings, share all but classified information

16. Listen to and, where possible, act on employee suggestions, ideas, requests and complaints

17. In the event of conflicts, engage in good faith negotiation where possible, act on employee suggestions, ideas, requests and complaints and not legal wrangle.

18. No discrimination on any ground

19. Put the principles of ergonomics in practice

20. Update the skills and knowledge of employees

21. Sensitive problems of employees to be tackled amicably

Owners/Investors:

22. Fair and competitive return on capital by efficient management

23. Disclose all relevant information except those in the classified list

24. Conserve, protect and increase owner’s assets

25. Respect their complaints for solutions

Suppliers:

26. Pricing to be fair

27. No coercion or litigation

28. Long-term stability

Community:

29. Human rights respected and maintained

30. Good corporate citizen through charitable donations to educational, cultural and civic needs of society

Q.18 Enumerate Benefits and disadvantages of MNCs to Host Country.

Benefits of Multinational Corporations (MNCs) to Host Country:

1. Employment Opportunities:

- MNCs often create jobs, contributing to lower unemployment rates and improved living standards for the local population.

2. Transfer of Technology and Skills:

- MNCs bring advanced technologies and expertise, fostering skill development and knowledge transfer within the host country.

3. Economic Growth and Development:

- MNCs can stimulate economic growth by investing in infrastructure, supporting local industries, and contributing to the host country's GDP.

4. Access to Global Markets:

- Host countries can benefit from MNCs' global reach, gaining access to international markets and expanding their export capabilities.

5. Increased Tax Revenue:

 - MNCs contribute to government revenue through taxes, both direct and indirect, which can be used for public services and development projects.

Disadvantages of Multinational Corporations (MNCs) to Host Country:

1. Resource Exploitation:

- MNCs may exploit natural resources without adequate environmental safeguards, leading to depletion and environmental degradation.

2. Profit Repatriation:

- Profits earned by MNCs may be repatriated to their home countries, limiting the retention of financial benefits within the host country's economy.

3. Dependency and Market Dominance:

- Overreliance on MNCs can lead to economic dependency, and their market dominance may stifle local businesses, reducing competition.

4. Labor Exploitation:

- MNCs may engage in practices such as low-wage employment or poor working conditions, contributing to labor exploitation concerns.

5. Cultural Homogenization:

- MNCs can influence local cultures, promoting a globalized, standardized approach that may erode indigenous traditions and identities.

Q.19 Discuss key global issues for business.

1. Climate Change:

- Carbon emissions, sustainability, and environmental impact pose business challenges globally.

2. Trade Relations:

- Tariffs, trade tensions, and protectionist policies impact global commerce dynamics.

3. Technological Disruption:

- Rapid advancements, AI, and automation reshape industries, requiring adaptability.

4. Cybersecurity Threats:

- Increasing cyber threats demand robust digital security measures for businesses.

5. Global Health Crises:

- Pandemics, like COVID-19, disrupt supply chains, affecting business operations.

6. Geopolitical Instability:

- Political uncertainties and conflicts impact global business investment and operations.

7. Social Responsibility:

- Ethical considerations, diversity, and social issues influence corporate decision-making globally.

8. Supply Chain Vulnerabilities:

- Dependency on specific regions creates risks amid geopolitical tensions or disasters.

9. Data Privacy:

- Growing concerns about data protection laws impact global business practices.

10. Economic Inequality:

- Widening wealth gaps pose socio-economic challenges for global businesses.

.20 Explain in detail developing and executing a comprehensive ethics program.

Q.20 Explain in detail Developing and Executing a Comprehensive Ethics Program.

1. Leadership Commitment:

 Development: Secure commitment from top leadership to prioritize and champion ethical behavior.

 Execution: Leaders set the tone, emphasizing ethical conduct in organizational culture.

2. Ethics Code and Policies:

 Development: Establish a clear code of ethics and comprehensive policies.

 Execution: Communicate, disseminate, and enforce policies consistently across all levels.

3. Ethics Training and Communication:

 Development: Design training programs to educate employees on ethical principles.

 Execution: Conduct regular training sessions and communicate ethical expectations through various channels.

4. Whistleblower Mechanism:

 Development: Establish a confidential reporting system for ethical concerns.

  Execution: Ensure accessibility, protection for whistleblowers, and a fair investigation process.

5. Risk Assessment:

 Development: Identify potential ethical risks within the organization.

 Execution: Regularly assess and update risk profiles to address emerging challenges.

6. Ethics Committees:

 Development: Form ethics committees or designate individuals responsible for overseeing ethical matters.

 Execution: Empower committees to review and address ethical issues within the organization.

7. Monitoring and Auditing:

 Development: Develop systems for ongoing monitoring and periodic ethical audits.

 Execution: Regularly assess and evaluate adherence to ethical standards, making improvements as needed.

8. Incentives and Discipline:

 Development: Create an incentive system recognizing ethical behavior.

 Execution: Implement fair disciplinary measures for ethical violations, fostering a culture of accountability.

9. Integration with Business Processes:

 Development: Embed ethical considerations in decision-making processes and corporate strategies.

 Execution: Ensure alignment of business practices with ethical principles.

10. Continuous Improvement:

 Development: Establish mechanisms for continuous improvement of the ethics program.

 Execution: Regularly review and adapt the program to address evolving ethical challenges and business changes.

11. Stakeholder Engagement:

 Development: Engage with stakeholders to understand their ethical expectations.

 Execution: Consider stakeholders' perspectives in decision-making, building trust and accountability.