BUSINESS ETHICS AND CORPORATE GOVERNANCE

AISHWARYA SINGH

Q1. DEFINE ETHICS AND STATE THE DIFFERENCE BETWEEN ETHICS AND
MORALTY.

ANS: Business ethics refers to the moral principles, values, and standards that
guide the conduct of individuals and organizations in the business world.

Principles of Ethics:

• Leadership
• Accountability
• Responsibility
• Integrity
• Respect
• Honesty
• Respect of Laws

• There is an inextricable relationship between business history and business

ethics.
• In 1988, HBS introduced the module “Decision making and Ethical Values”

• Ethics can be defined as guiding principles that help us decide between what is
right and what is wrong

• Ethical behaviour means that the individual behaves in a ‘right’ way which will be
accepted by the whole society
• It helps us in applying the ethical principles to examine and solve the complex
business problems and ethical dilemmas

• Moral standards typically refer to a set of principles or rules that guide an

individual's or a society's judgments and actions regarding what is considered
morally right or wrong. These standards can be influenced by cultural norms,
religious beliefs, philosophical perspectives and personal values.

DIFFERENCE BTWN MORALTY & ETHICS:

MORALTY ETHICS
 Morals are the existing standards dev Ethics – are the rights, duties and
by the society to empower the people obligations. What a person is expected
to live in acceptable manner, it gives to do in a particular situation.
right or wrong given by society itself.

Morality is governed by culture, Ethics are specific to a person as well

philosophy, code of conduct, relegion as the society.
etc Ethics = Morals + reasoning

latin word (manners) - customs or Greek word ethos (character) – deals

manners set by any authority with individual character, it is the
response of an individual to a specific
group.

General principles set up by a group, are the guiding principles which

which decides right and acceptable decides what is good or bad in a
behavior particular situation

goes beyond the norms defined by limited a particular space and time
the culture

deals with the principles of right or Deals with right or wrong conduct of a
wrong person in a particular situation

Change in morality is based on it is different in different context,

individual’s beliefs so there is some flexibility

Q2. What is Sarbanes-Oxley Act?

ANS: The Sarbanes-Oxley Act, often abbreviated as SOX, is a United States
federal law that was enacted in 2002 in response to a series of corporate
accounting scandals, the most notable of which was the Enron scandal. The act is
named after its sponsors, Senator Paul Sarbanes and Representative Michael
Oxley. Sarbanes-Oxley was passed with the primary goal of protecting investors
and improving the accuracy and reliability of corporate financial disclosures. Key
provisions and objectives of the Sarbanes-Oxley Act include:

1. Corporate Governance: SOX introduced significant changes to corporate

governance practices. It requires that public companies establish and maintain
internal controls over financial reporting and that these controls are periodically
audited and certified by external auditors. This is aimed at ensuring the
accuracy and integrity of financial statements.

2. Audit Committees: The act mandates that the boards of public companies have
independent audit committees responsible for overseeing the company's
financial reporting and audit process. Members of these committees must be
independent of the company and its management.

3. CEO and CFO Certification: The CEOs and CFOs of public companies are
required to certify the accuracy of their company's financial statements in
their annual and quarterly reports. This certification makes them personally
accountable for the accuracy of financial disclosures.

4. Increased Financial Disclosure: SOX requires public companies to provide more

detailed and timely financial disclosures in their annual and quarterly reports. It
also requires disclosure of off-balance-sheet arrangements that could impact a
company's financial position.

5. Prohibition on Certain Activities: The act prohibits public company officers and
directors from engaging in activities such as insider trading during blackout
periods and places restrictions on loans to executives.

6. Protection for Whistleblowers: SOX provides protection for employees who

report corporate misconduct and financial fraud. It prohibits retaliation against
whistleblowers and encourages the reporting of unethical or illegal activities.

7. Criminal and Civil Penalties: The act imposes significant criminal and civil
penalties for securities fraud, including hefty fines and imprisonment for those
found guilty of financial misconduct.

8. Auditor Independence: SOX places restrictions on the types of services that

auditors can provide to their audit clients to preserve auditor independence.

9. Code of Ethics: Public companies are required to establish a code of ethics for
senior financial officers and disclose any waivers of the code.

The Sarbanes-Oxley Act was enacted to restore public trust in the financial markets
and protect investors from fraudulent and unethical practices. It has had a significant
impact on corporate governance, financial reporting, and the auditing profession in the
United States. Companies subject to SOX compliance must adhere to its provisions, and
their financial statements are subject to greater scrutiny by auditors and regulatory
bodies to ensure transparency and accountability.
 Q3. What is the difference between business ethics and corporate
governance?
ANS: Business ethics and corporate governance are related but distinct
concepts that are essential in the world of business.
AREAS ETHICS
1.DEFINITION Refers to the moral
principles and values that guide the
behavior and
decision-making of individuals and
organizations within
the business context.
It involves assessing what is right
and wrong in business practices and
ensuring that ethical
standards are upheld in all business
activities.
2.FOCUS primarily deals with the ethical
behavior and conduct of individuals
within an organization and the
organization as a whole. It is
concerned with the values and
principles that guide business
decisions and actions.
3.SCOPE deals with a wide range of ethical
issues that may arise in the business
world, such as
honesty, transparency, fairness,
responsibility to stakeholders,
environmental impact, and treatment
of employees and customers.
4.IMPLEMENTATION Implementing business ethics
involves
establishing ethical guidelines,
conducting ethics training,
and promoting ethical behavior at all
levels of an organization.
CORPORATE GOVERNANCE
System of rules, practices, and
processes by which a company is
directed and controlled.
It encompasses the structure and
mechanisms that help align the
interests of various stakeholders,
such as shareholders,
management, customers, suppliers,
financiers, government, and the
community.
focuses on the structure and
mechanisms of how a company is
governed and how power and
responsibilities are distributed
among various stakeholders. It
emphasizes the relationship
between the board of directors,
management, and shareholders.
addresses issues related to the
structure and accountability of
the board of directors, executive
compensation, risk management,
and ensuring that the interests of
shareholders and other
stakeholders are protected.
Implementing corporate
governance typically involves
defining the roles and
responsibilities of the board of
directors, establishing oversight
mechanisms, and ensuring
compliance with relevant
regulations and laws.
 Q4. Whistle Blowers Protection Act 2014.

ANS:

• It provides a mechanism to investigate misuse of power by public servants

• It encourages anybody to question the wrongdoing of any form of fraud,

corruption or mismanagement

• The Act seeks to protect whistle blowers, i.e., persons making a public interest
disclosure related to an act of corruption, misuse of power, or criminal offense by
a public servant

1. Investigating alleged corruption and misuse of power: The Act empowers any
individual, including public servants, to report incidents of:

• Corruption: Bribery, extortion, misappropriation of funds, etc.

• Wilful misuse of power: Abuse of authority, favoritism, dereliction of duty, etc.

• Criminal offences: Cheating, forgery, tampering with evidence, etc. committed by

public servants.

2. Protecting whistleblowers: The Act safeguards individuals who make such

disclosures by:

• Establishing competent authorities: Specific authorities are designated to receive and

investigate disclosures at different levels, depending on the public servant
involved. For example, the Prime Minister handles disclosures against Ministers, while
the Central Vigilance Commission deals with those against government employees.

• Anonymity options: While the Act encourages identification, it allows anonymous

disclosures under certain conditions to protect whistleblowers from potential
retaliation.

• Prohibition of victimisation: The Act forbids any form of reprisal against

whistleblowers, including termination, demotion, or transfer. Penalties are in place for
violators.
 3. Ensuring accountability: The Act mandates timely investigations into disclosures
and appropriate follow-up actions based on the findings. Public officials found guilty
face disciplinary or legal consequences.

Q5. THE CSR ACT, 2014.

ANS: The Companies Act, 2013 introduced Section 135, which mandated
Corporate Social Responsibility (CSR) for certain companies in India. Subsequently,
the Companies (Corporate Social Responsibility Policy) Rules, 2014 were notified by the
Ministry of Corporate Affairs (MCA) to operationalize Section 135.

Impacts of the CSR Act, 2014:

• Increased CSR spending: The Act has led to a significant increase in CSR spending by
Indian companies.

• Focus on social development: Companies are now actively involved in addressing various
social issues through their CSR initiatives.

• Brand reputation: CSR activities have helped companies enhance their brand image and
reputation.

Activities NOT considered eligible CSR spending:

• Activities undertaken in the normal course of business: This includes any activity
that directly benefits the company's operations or generates profit. For
example, advertising, brand promotion, market research, etc., wouldn't qualify.

• Activities undertaken outside India: Except for training Indian sports personnel at
national or international levels, CSR projects must be focused on India.

• Contribution to any political party: Donations to any political party, directly or

indirectly, are strictly prohibited.

• Activities benefiting employees of the company: Any activity solely meant for
employee welfare (salaries, bonuses, training for job skills) cannot be counted as CSR.

• Sponsorship activities for deriving marketing benefits: Sponsorships primarily

benefiting the company's brand image or promoting its products/services are ineligible.

• Expenses to fulfill statutory obligations: Costs incurred to comply with existing laws
and regulations (e.g., labor laws, environmental regulations) wouldn't be considered CSR
expenditure.
• Administrative overheads exceeding 5% of CSR spend: While general expenses for
managing CSR projects are allowed, anything exceeding 5% of the total CSR spend is
disallowed.

The Act provides an illustrative list of activities that fall under CSR, but it's not
exhaustive. Some examples include:

• Eradicating hunger, poverty, and malnutrition: Supporting food banks, skill

development programs, and poverty alleviation initiatives.

• Promoting education and literacy: Setting up schools, providing scholarships, adult

literacy programs.

• Promoting healthcare and sanitation: Building hospitals, providing medical

care, hygiene awareness campaigns.

• Environmental sustainability: Conservation of natural resources, pollution

control, renewable energy promotion.

• Promoting gender equality and women empowerment: Skill development for

women, programs against gender-based violence, entrepreneurship support.

• Social welfare and tribal development: Supporting orphanages, rehabilitation

centers, welfare programs for underprivileged communities.

• Building skills and capacity of marginalized communities: Vocational

training, entrepreneurial development, livelihood generation programs.

• Contributing to the arts and culture: Preserving cultural heritage, promoting art
forms, supporting artists.

Q6. MORAL THEORIES IN ETHICA PRACTICES.

ANS:

• The Utilitarian Approach - Try to increase the good and reduce the harm

• The Rights Approach - Everybody has the duty to respect other's rights

• The Fairness or Justice Approach – All are equal

• The Virtue Approach – Well-being of humanity, adherence to truthfulness,

honesty, integrity

• The Common Good Approach – Benefits to as many as possible in the society.

1.The Utilitarian Theory:
Utilitarianism
• an ethics of consequences
• an action is good if it produces the greatest good for the greatest number

Business perspective:
• Any action or policy should be evaluated on the basis of benefits and costs it will
impose on the society
• Any plans, programmes or actions of the organization should be chosen to produce
the greatest net benefits for the largest number of people associated with the
business –which includes society
• The net benefits should also take into consideration environment and social
factors besides economical (SROI- Social Returns on Investment)

2.Rights Approach:
• individual's right to choose for herself or himself

Business perspective:
• Right for fair wages
• Right for safe working environment
• Right for working as per job description agreement
• Consumer Rights
• Right to Information (RTI)

3. Fairness or Justice Approach:

• actions are guided by fairness, equity and impartiality

Business perspective:
• No religion discrimination while hiring
• No situation of “women facing glass ceiling” while promoting
• No favoritism to preferred (e.g. relative) bidder during tender evaluation

4. Virtue Approach:
• certain ideals toward which we should strive, which provide for the full
development of our humanity e.g. honesty, courage, compassion, generosity,
loyalty, integrity, self-control, and prudence

Business perspective:
 • Financial audit and sharing facts with shareholders
• Clear promotion policy (KPIs)
• Granting leave to employee-on-probation

5. Common Good Approach

• society comprising individuals whose own good is linked to the good of the
community
• Community members are bound by the pursuit of common values and goals

Business perspective:
• Environment and Sustainability Policy (GRI)
• New CSR Act

Q7. Law and Ethics at Work Place.

ANS:

• Law and ethics play a complementary role

• Ethics goes a step further to cover wider social issues

• Ethical standards not only prevent “bad” but also influences “good”

• Both law and ethics required for “good behaviour” and “good effect”

• To be moral and ethical, one has to obey law

• Business being “an immortal fictitious person”, equally responsible as an individual

employee for legal and ethical behaviour

Q8. Kohlberg's theory of moral development

ANS. Kohlberg's theory is often used to understand moral development in children

and adolescents, but it has also been applied to adult moral reasoning.

Kohlberg's theory has been influential in the fields of psychology, education, and
ethics, as it provides a framework for understanding how individuals' moral
reasoning evolves over time and how they make ethical decisions based on their
level of moral development.

Lawrence Kohlberg's theory of moral development is a prominent and influential

theory in psychology that explores how individuals' moral reasoning progresses
throughout their lives. He proposed six stages grouped into three levels,
highlighting the increasing complexity of moral thinking as people mature.
 Levels of Moral Development:

1.Pre-conventional Level (Stages 1 & 2): This level characterizes early childhood and
is primarily focused on avoiding punishment and satisfying personal needs.

o Stage 1 (Punishment and Obedience Orientation): Moral actions are driven by the
fear of punishment and the desire to avoid negative consequences. Right and wrong are
based on external rules and authority figures.

o Stage 2 (Reward Orientation): Individuals focus on satisfying their own needs and
desires. Right and wrong are based on what benefits them personally or brings them
rewards.

2.Conventional Level (Stages 3 & 4): This level typically emerges in adolescence and
early adulthood, emphasizing conformity to social norms and expectations.

• Stage 3 (Good Boy/Nice Girl Orientation): Individuals seek approval and acceptance
from others by following societal rules and expectations. Right and wrong are defined
by what earns them praise and avoids disapproval.

• Stage 4 (Law and Order Orientation): Moral reasoning is based on maintaining social
order and upholding the law. Right and wrong are determined by respecting authority
figures and upholding established rules and regulations.

3.Post-conventional Level (Stages 5 & 6): This level signifies the highest level of
moral reasoning and typically develops in late adolescence or adulthood. It involves
abstract principles and universal ethical considerations.

• Stage 5 (Social Contract Orientation): Individuals value individual rights and respect
for others. Right and wrong are based on upholding principles of fairness, justice, and
social contract.

• Stage 6 (Universal Ethical Principle Orientation): Moral reasoning is guided by

universal ethical principles that transcend specific laws and societal norms. Right and
wrong are determined by principles of human rights, equality, and respect for all
individuals.

Q9. CG: Cadbury Committee Report.

• ANS: The Cadbury Report was published in 1992 in response to a number of high-
profile corporate failures in the UK.

• The report made a number of recommendations for improving corporate

governance, including:

o A clear division of responsibilities between the board of directors and management

o A majority of independent non-executive directors on the board

o Preparation of financial statements in accordance with IFRS

o An audit committee composed of a majority of independent non-executive directors

• The Cadbury Committee Report, also known as the Financial Aspects of

Corporate Governance, was published in 1992 by a committee chaired by Sir
Adrian Cadbury.
• The report was set up in response to a number of high-profile corporate failures
in the UK in the early 1990s, and it made a number of recommendations for
improving corporate governance.
• One of the key recommendations of the Cadbury Report was that companies
should have a clear division of responsibilities between the board of directors
and management.
• The report recommended that the board should be responsible for setting the
company's strategy, while management should be responsible for implementing
that strategy.
• The report also recommended that the board should be composed of a majority
of independent non-executive directors.
• The Cadbury Report also made a number of recommendations about financial
reporting and auditing.
• The report recommended that companies should prepare their financial
statements in accordance with International Financial Reporting Standards
(IFRS) and that they should have an audit committee composed of a majority of
independent non-executive directors.
• The Cadbury Report has been very influential in the development of corporate
governance practices around the world.
• It has been adopted by a number of countries, including the UK, Australia, and
Canada.
• The report has also been influential in the development of international
corporate governance codes, such as the OECD Principles of Corporate
Governance.
• The Cadbury Committee Report is a landmark document in the history of
corporate governance.
• It has had a major impact on the way that companies are governed around the
world.

Q. WHAT IS CORPORATE GOVERNANCE?

ANS:

Corporate governance is a system of rules, policies, and practices that dictate how a
company’s board of directors manages and oversees the operations of a company;

Corporate governance includes principles of transparency, accountability, and security.

Poor corporate governance, at best, leads to a company failing to achieve its stated
goals, and, at worst, can lead to the collapse of the company and significant financial
losses for shareholders.

Q10. EXPLAIN ANGLO-AMERICAN MODEL OF CG.

ANS:

• Also called ‘Anglo-Saxon’ model

• Used in U.S.A, U.K, Canada, Australia, and some common wealth countries

• Governance by board of directors, which has power to choose CEO

• CEO manages day-to-day operations but needs approval of board for major
decisions (fund raising, bid for acquisition, senior level appointments

• Board’s duties include facilitating CEO to function under set policy and
guidelines, monitoring management performance, decision-making, policy-making

• Typically gives priority to shareholder’s interests

Weakness:

• Individual shareholders not given opportunity to choose their nominees to the

board

• Less emphasis on interests of managers, employees, customers, suppliers,

community

• Less proactive involvement of shareholders in corporate governance

• Focused on greater profit so likely to suffer ethical and moral failures

Q11. EXPLAIN JAPANESE MODEL OF CG:

ANS:
• Is also called as the ‘business network’ model

• The Japanese model of corporate governance differs significantly from

Western models like the Anglo-American system. It's characterized by a strong
emphasis on relationships, stakeholder interests, and long-term stability,
resulting in a unique web of interconnectedness within corporations.

• The Japanese government plays a more active role in corporate governance than
in Western models, influencing regulations and economic policies.
 • There is supervisory board which is made up of board of directors and a
president, who are jointly appointed by shareholder and banks/financial
institutions
• This is reflection of the Japanese ‘keiretsu’- a form of cultural relationship
among family controlled corporate and groups of complex interlocking business
relationship, where cross shareholding is common
• Most of the directors are heads of different divisions of the company
• outside director or independent directors are rarely found of the board

Weaknesses of the Japanese model:

• Lack of transparency: Cross-shareholding and close relationships can lead to a lack of

transparency and accountability, making it difficult for outside investors to monitor
companies.

• Slow decision-making: The focus on consensus-based decision-making can be slow and

hinder responsiveness to changing market conditions.

• Limited shareholder influence: Individual shareholders have less influence on corporate

decisions compared to Western models, potentially reducing shareholder value.

Q12. EXPLAIN GERMAN MODEL OF CG.

ANS:
• Also called as 2 tier board model as there are 2 boards viz. the supervisory
board and the management board
• Used in countries like Germany, Holland, France, etc.
• Usually a large majority of shareholders are banks and financial institutions
• A feature unique to Germany is its politically seated ‘labor co-determination’
which requires that half the supervisory board for companies with 2,000 or
more employees be chosen from the labor force from the company’s perspective,
co-determination has proven its ability as a social conflict ‘early warning system’,
helping to reduce strikes and also elicits networking and balance in the
supervisory board
Weakness
• The co-determination requirement inflates the size of the supervisory board
(up to 21 members) and limits its qualification standards because they cannot be
set at higher levels due to the lower education levels of the ‘normal’ workforce
and to do so would prohibit the unions and the workforce from nominating good
candidates.

Q13. EXPLAIN INDIAN MODEL OF CG.

ANS: The Indian Model of Corporate Governance: A Blend of Influences
 The Indian model of corporate governance is a unique blend of various influences,
reflecting the country's rich history, cultural values, and evolving economic landscape.

It draws elements from Anglo-American, German, and Japanese models, adapting them
to the specific context of India. Here are some key features:

Regulatory Framework:

• Companies Act, 2013: This primary legislation sets the legal framework for corporate
governance, outlining rules for board composition, disclosures, shareholder rights, and
stakeholder engagement.

• Securities and Exchange Board of India (SEBI): The SEBI acts as the main
regulatory body, establishing listing requirements, insider trading regulations, and
corporate governance norms for listed companies.

• Ministry of Corporate Affairs (MCA): The MCA oversees the registration and
compliance of all companies and plays a role in enforcement of corporate governance
regulations.

▪ Is a mix of the Anglo-American and German model

▪ This is because in India, there are three types of Corporation viz.
▪ Private companies, public companies and public sectors undertakings (which
includes statutory companies, government companies, banks and other kinds of
financial institutions)
▪ Each of these corporation have a distinct pattern of shareholding.
▪ For e.g. In case of companies where the promoter and his family have almost
complete control over the company.; they depend less on outside equity capital.
▪ Hence in private companies the German model of corporate governance is
followed

Q14. NOTE ON NARAYAN MOORTI REPORT OF CORPORATE GOVERNANCE.

ANS: In 2002, the Indian government constituted the Committee on Corporate
Governance under the chairmanship of N. R. Narayana Murthy, the Infosys co-founder,
to address concerns about corporate governance practices in India. The committee
submitted its report in 2003, with a set of recommendations aimed at improving
transparency, accountability, and investor protection in Indian companies.

Key Recommendations of the Report:

• Independent Directors: The report recommended increasing the number of

independent directors on boards of listed companies to at least half. This was seen as
crucial in ensuring objectivity and protecting minority shareholder interests.
• Disclosure Standards: The report advocated for stricter disclosure norms and timely
dissemination of financial information to investors. This aimed to enhance transparency
and build trust in the market.

• Auditor Independence: The report emphasized the importance of auditor independence

and suggested measures to strengthen it, such as mandatory rotation of audit firms
and stricter regulations on non-audit services provided by auditors.

• Risk Management: The report underscored the need for robust risk management
frameworks within companies to identify, assess, and mitigate potential risks.

• Corporate Social Responsibility (CSR): The report recommended encouraging

companies to adopt CSR practices and contribute to social development.

Impact of the Report:

The Narayana Murthy Committee Report has had a significant impact on corporate
governance in India. Many of its recommendations have been implemented through
legislative changes and regulatory reforms, such as the Companies Act, 2013, and the
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Q15. Kumar Managalam Birla Committee Recommendations

ANS:

• (SEBI) in 1999 set up a committee under Shri Kumar Mangalam Birla,

member SEBI Board, to promote and raise the standards of good
corporate governance

• Primary objective of the committee was to view corporate governance

from the perspective of the investors and shareholders and to prepare a
‘Code’ to suit the Indian corporate environment

• The three key constituents, their roles and responsibilities, their rights
in the context of good corporate governance are recognised by the
committee

– The Shareholders, The Board of Directors and The Management

• The committee divided the recommendations into two categories, namely,

mandatory and non- mandatory

• Dealt with issues such as Board compositions, independent directors,

compensation and remuneration and conduct of Board members
Q16. ETHICAL DELIMA WITH SOME EXAMPLES & STEPS IN ETHICAL
DECISION MAKING.

ANS:

Ethical Dilemma

Self-inflicted situations that arises due to various contradictions between ones moral
perceptions and imperatives, conflict of ideologies between people, difference in value
system, diversity of culture, and skill of moral reasoning of an individual putting the
ethical principles at risk.

Examples:

1. Conflict of personal and professional values

2. One’s values and moral principles vs. perceived role of a task

3. Conflicting ethical values between giver and taker of a service

4. Both decisions having equally favorable / non-favorable elements

5. Both solutions unsatisfactory

6. Choice between an action in consequence

Steps in Decision-making

1. Clear perception of the problem

2. Analysis of the problem

3. Developing different alternative solutions

4. Analyzing and choosing the best solution

5. Implementation, controlling and monitoring of solution

Q17. corporate governance problem arises when there is a conflict of interest

between various units of corporate organization- Elaborate

ANS:

Conflicts of interest are a major source of problems in corporate governance. When

various units within an organization have competing interests, it can lead to a range of
negative consequences, both for the company itself and for its stakeholders.
 Here are some ways conflicts of interest can manifest and their potential
consequences:

Types of Conflicts of Interest:

• Personal vs. Professional Interests: This occurs when an individual's personal

interests, such as financial gain, clash with their professional responsibilities to the
company. This could involve insider trading, using company resources for personal
benefit, or accepting bribes.

• Interdepartmental Conflicts: Different departments within a company may have

competing goals or priorities. For example, the sales department might prioritize
making short-term sales, while the research and development department might focus
on long-term innovation. This can lead to inefficiencies, wasted resources, and missed
opportunities.

• Supplier and Customer Relationships: Conflicts of interest can arise when a company
has close relationships with suppliers or customers. For example, a company might be
tempted to give preferential treatment to a supplier who is also a major customer, even
if there are better options available.

• Management and Shareholders: There can be a natural tension between the interests
of management and shareholders. Management may prioritize short-term profits and
job security, while shareholders may be more interested in long-term growth and
dividend payout. This can lead to decisions that benefit management at the expense of
shareholders.

Q18. business must run in a socially responsible manner. "comment on the

statement in the Indian context"
ANS:

The Imperative of Social Responsibility in Indian Business

The statement "business must run in a socially responsible manner" resonates

deeply in the Indian context, driven by both cultural values and pragmatic
considerations. Here's why:

Cultural Underpinnings:

• Karma and Dharma: The concepts of karma, where actions have consequences, and
dharma, righteous conduct, are deeply ingrained in Indian culture. These principles
motivate businesses to act ethically and contribute positively to society.
• Emphasis on community and collective well-being: Indian society traditionally
emphasizes family, community, and the interconnectedness of all beings. This fosters a
sense of responsibility towards stakeholders beyond just shareholders.

• Philanthropy and social service: Giving back to the community has a long history in
India, with many prominent business leaders like Tata and Birla establishing trusts and
foundations for social causes.

Pragmatic Benefits:

• Brand reputation and customer loyalty: In today's increasingly conscious consumer

market, socially responsible practices enhance brand reputation and customer
loyalty, leading to stronger business performance.

• Employee engagement and productivity: When employees feel their company acts
ethically and contributes to society, it boosts morale, engagement, and productivity.

• Risk mitigation and long-term sustainability: Addressing social and environmental

issues can mitigate risks from regulatory changes, resource scarcity, and social
unrest, promoting long-term sustainability.

• Government incentives and regulations: The Indian government actively promotes

corporate social responsibility (CSR) through initiatives like the Companies
Act, 2013, mandating CSR spending for certain companies.

Q20. SEBI ACT 1992 (CLAUSE 49).

ANS: Establishment of Securities and Exchange Board of India (SEBI) 1988

Liberal Economic Policy in 1991

➢ New investments

➢ Foreign investments

➢ Assurance of good corporate governance by Corporate India

➢ Need for Corporate Governance for India’s developing economy: bank based +
market based

SEBI ACT 1992

Wide ranging powers of control to SEBI to insure

• Investor’s protection

• Corporate governance
 Changed the corporate governance direction in India from

“confirmations with certain rules and regulations” to

“structuring & governing business for growth in a competitive, open market

environment”

CLAUSE 49:

• The term ‘Clause 49’ refers to clause number 49 of the Listing Agreement
between a company and the stock exchanges on which it is listed (the Listing
Agreement is identical for all Indian stock exchanges, including
the NSE and BSE)

• This clause was inserted in 2000 consequent to the recommendations of the

Kumarmangalam Birla Committee on Corporate Governance constituted by SEBI
in 1999

Clause 49: specified mandatory:

• Composition of the board of directors

• Composition and functioning of the audit committee

• Governance & disclosures regarding subsidiary companies

• Disclosures by the company CEO/CFO

• Certification of financial results

• Reporting of CG as part of the annual report

• Certification of compliance of a company with provisions of Clause 49

• In 2002, SEBI constituted the Narayana Murthy Committee to assess the

adequacy of current corporate governance practices and to suggest
improvements

• In 2006, based on the recommendations of this committee, SEBI issued a

modified Clause 49 which pushed forward enhanced governance practices and
disclosures

Key mandatory parts:

– independence criteria for directors clarified

– roles and responsibilities of the board enhanced

– quality and quantity of disclosures have improved

 – roles and responsibilities of the audit committee in all matters relating to
internal controls and financial reporting consolidated

– accountability of top management—specifically the CEO and CFO—

enhanced

• In 2008, SEBI amended Clause 49 of the Listing Agreement to extent the 50%
independent directors rule to all Boards of Directors where the Non-Executive
Chairman is a promoter of the Company or related to the promoters of company

Q21. Corporate Governance: Role and Scope

ANS:

1. Establish ethical business purpose

2. Structure business processes with well-defined objectives to serve

shareholders and other stakeholders

3. Build spirit of inclusive growth for society and sustainability of environment

4. Build healthy partnerships with all stakeholders – internal and external

5. Thinking and acting in the bigger frame of global businesses

6. Continually sensitize

7. organization to global business challenges, environment and risks

8. Comply with law and environmental regulations

Q22. The Utilitarian Trolley Dilemma at Sea: Saving Five or Six?

ANS:The utilitarian theory of business ethics emphasizes maximizing happiness and

minimizing suffering for the greatest number of people. When confronted with a
difficult ethical dilemma like yours, where you can only save one group of five or
six people from drowning at sea, utilitarianism offers a seemingly objective
framework for decision-making.

Applying Utilitarian Principles:

In this scenario, both options have undeniable consequences:

• Saving the group of six: This maximizes the number of lives saved, providing
happiness and relief to six individuals and their loved ones.

• Saving the group of five: This prioritizes a proportional approach, minimizing the
absolute number of lives lost (one versus five).
 Calculating Utility:

From a purely utilitarian perspective, saving the six individuals might be viewed as the
ethically optimal choice. It results in a net gain of one additional life saved compared to
saving the five. However, the situation becomes more complex when considering
further nuances:

• Age and potential contribution: If the group of six consists primarily of young
children or individuals with a higher future potential impact, the argument for saving
them strengthens.

• Special skills or roles: Are there individuals in either group with crucial skills or
knowledge that could benefit society as a whole if saved? Their potential societal
contribution could influence the decision.

• Uncertainty and unintended consequences: Are there any unanticipated factors, like
proximity to potential rescue or underlying health conditions, that could favor one
group over the other?

Q23. THREE PILLARS OF SUSTAINABILITY.

ANS:

• Compliance is the state of being in accordance with all national, federal, regional
or local laws, regulations and government authority requirements.

• Not being in accordance with such regulations often incurs sanctions in the form
of business limitations, fines or even legal proceedings.

• Compliance with labour regulations is a critical start point for sustainable HRM.

• Corporate governance is “the system by which companies are directed and

controlled.” Of particular relevance to corporate governance is the way the
board of directors performs its duties to ensure corporate integrity, and in
many cases, the way the board directs the organization’s strategy regarding
sustainability.

• For HRM, board direction on sustainability can provide a necessary, legitimizing

and empowering framework for advancing sustainable HRM practices.

• Business ethics is a set of behavioural guidelines by which all directors,

managers and employees of an organization are expected to behave to ensure
appropriate moral and ethical business standards, typically beyond the letter of
the law.
 • Ethics usually includes guidelines relating to conflict of interest, corruption,
bribery, maintaining business records, discrimination, showing respect for people
and more.

• Publicly traded companies in many countries are required to develop a formal,

written code of ethics, which serves as a framework for business behavior.

• Often such a code is linked to core business values and corporate culture.

• For sustainable HRM, having a strongly articulated and enforced ethical

corporate stance can provide an effective springboard for communicating
sustainability values.

Q24. EXPLAIN IN DETAIL: UTILITARIAN THEORY OF BUSINESS ETHICS.

ANS:
Diving Deep into Utilitarian Business Ethics: A Comprehensive Guide

Utilitarianism, with its focus on maximizing happiness and minimizing suffering for the
greatest number of people, offers a unique perspective on business ethics.

It proposes that morally right decisions are those that generate the most positive
consequences for society as a whole, rather than focusing solely on individual actions or
motivations.

Applying this theory to the realm of business presents both advantages and challenges,
making it a subject of ongoing debate and analysis.

Strengths of Utilitarianism:

• Focus on social well-being: By prioritizing the greatest good for the

majority, utilitarianism promotes actions that benefit society as a whole, potentially
leading to positive societal outcomes like improved living standards and reduced
suffering.

• Objectivity and rationality: Its reliance on cost-benefit analysis and logic allows for a
seemingly objective and impartial approach to ethical decision-making, minimizing the
influence of emotions or personal biases.

• Flexibility and adaptability: The theory can be applied to a wide range of business
situations and ethical dilemmas, offering a versatile framework for ethical analysis.

Challenges of Utilitarianism:
• Quantification of happiness: Measuring happiness for different individuals and groups
is inherently subjective and culturally dependent. What brings happiness to one might
not apply to another, making it difficult to objectively determine the "greatest good."

• Tyranny of the majority: Maximizing happiness for the majority could potentially
marginalize or even harm minority groups whose interests clash with the majority's
desires. Balancing the needs of different stakeholders presents a significant challenge.

• Neglect of individual rights: Utilitarianism focuses on overall well-being, sometimes at

the expense of individual rights and protections. The potential for sacrificing individual
lives or freedoms for the "greater good" raises ethical concerns.

• Long-term consequences: Predicting the long-term outcomes of actions and accurately

weighing their impact on future generations can be challenging, leading to potentially
unforeseen negative consequences.