BUSINESS ETHICS AND

CORPORATE GOVERNANCE

PRESENTATION BY: HARVEEN KAUR,

PRERNA SINGH,
SANCHIT GUPTA,
SHREY GUPTA
TARANJOT KAUR.
 CORPORATE SOCIAL
RESPONSIBILITY
ALSO KNOWN AS :

• Corporate Responsibility,
• Corporate Citizenship,
• Responsible Business,
• Sustainable Responsible Business or
• Corporate Social Performance
- is a form of corporate self-
regulation integrated into a
 CSR is the deliberate inclusion
of public interest into
corporate decision-making, and
the honouring of a triple bottom
line: People, Planet, Profit.
WHY CORPORATE SOCIAL
RESPONSIBILITY IS A
DISADVANTAGE ??
L • The only social responsibility of
I business is to create shareholder
wealth.
M
• The efficient use of resources will
I
be reduced if businesses are
T restricted in how they can conduct
A their affairs.
T • The pursuit of social goals dilutes
I businesses' primary purpose.
O • Costs will be passed on to
N customers.
S
L • It will reduce economic efficiency and
I profit.
M • Directors have a legal obligation to
manage the company in the interest
I
of the shareholders-and not for other
T stakeholders.
A • CSR behavior imposes additional
T costs which reduce competitiveness.
I • CSR places unwelcome
O responsibilities on businesses rather
N than on the government or
S individuals.
LEGAL REQUIREMENTS
 LEGAL
OBLIGATION
  Any company making profit is
required as per Section 50K and
50L of Income Tax Act to
contribute 2% of their book profit
after income tax, in compliance
with prevailing legislation, to set
up a CSR Fund to finance CSR
activities.
Companies which are excluded from
the payment of CSR are as follows:

i. Company holding a Global Business

License Category 1 under the Financial
Services Act.
ii. Incomes of banks derived from
transactions with non-residents and
corporation holding a Global Business
License.
iii. An IRS Company
iv. A non-resident society, a trust or a
trustee of a unit trust scheme
SOCIAL REQUIREMENT
 SOCIAL REQUIREMENT
Sustainable development of business is closely linked to:
i. public welfare and
ii. sustainable development of the society.

 Output is no longer the only public concern over business

and the society has its expectations as to how business is
run
 Being essential for public welfare, business faces ever
more requirements of the society, whether formal or not,
as to doing business in a socially acceptable way.
Seeing that the business community engages substantial forces and
resources, the top managers' approach towards general
humanitarian development issues is critical for the society to evolve.
The community of top managers acknowledges the importance of its
resources and is up to responsible contribution to societal
development. We believe the impact that businesses of any size and
origin has locally, is essential for public development.
We do business in a market-driven way, with its pursuit of profit,
utility maximization, rational choice, networking and ongoing
development. Yet we are not irresponsive to the society that lets us
do our business. That is why we seek to address the interests and
expectations of all concerned stakeholders in our development
strategies, and this is one of the ways our CSR shows itself.
We understand that neglect of the society's expectations is fraught
with serious risks.
Issues left unsolved are likely to cause extra costs and conflicts about
the ways of settling them. The top managers' community commits to
address social issues under the principles of equity and integrity.
The community of top managers feels certain that business has the
overall humanitarian interests of the society as a higher priority than
those of any specific group. That said, we trust public institutions to
perform the duty of formulating proposals that would be of value for
the society at large. We seek to integrate such consolidated stances
into our daily activities following the principles of transparency and
expanding the dialogue with a wider range of stakeholders.
In our daily activities, we pursue long-term objectives and
sustainability correlated with our business development strategies.
We believe promotion of corporate social responsibility principles to
result in better mutual understanding and trust within the society
and also in clearer outline of common humanitarian values, and, in
the bottom line, to facilitate well-balanced public development.
VOLUNTARY RESPONSIBILITY
 VOLUNTARY GUIDELINES

Each business entity should formulate a CSR

policy to guide its strategic planning and provide
a roadmap for its CSR initiatives, which should be
an integral part of overall business policy and
aligned with its business goals. The policy should
be framed with the participation of various level
executives and should be approved by the Board.
 THE CSR Policy should normally
cover following core elements:

1. Care for all stakeholders

2. Ethical functioning
3. Respect for workers Rights and Welfare
4. Respect for Human Rights
5. Respect for Environment
6. Activities for social and inclusive Development
 IMPLEMENTATION GUIDLINES

 The CSR policy of the business entity should provide for an

implementation strategy which should include identification of
projects/activities, setting measurable physical targets with
timeframe, organizational mechanism and responsibilities, time
schedules and monitoring. Companies may partner with local
authorities, business associations and civil society/non-
Government organizations. They may influence the supply chain
for CSR initiative and motivate employees for voluntary effort for
social development. They may evolve a system of need
assessment and impact assessment while undertaking CSR
activities in a particular area. Independent evaluation may also
be undertaken for selected projects/activities from time to time.
 Companies should allocate specific amount in their
budgets for CSR activities. This amount may be
related to profits after tax, cost of planned CSR
activities or any other suitable parameter.
 To share experiences and network with other
organizations the company should engage with well
established and recognized programmes/platforms
which encourage responsible business practices and
CSR activities. This would help companies to improve
on their CSR strategies and effectively project the
image of being socially responsible.
 The companies should disseminate information on
CSR policy, activities and progress in a structured
manner to all their stakeholders and the public at
large through their website, annual reports and
other communication media.
ISSUES AND APPROACHES FOR
MEASURING BUSINESS SOCIAL
PERFORMANCE
W
H
A Corporate social performance (CSP)
T is defined as “a business
organization’s configuration of
principles of social responsibility,
I
processes of social responsiveness,
S and policies, programs, and
observable outcomes as they relate
C to the firm’s societal relationships.”
S
P
?
 WHY MEASURE BUSINESS
PERFORMANCE?

 To monitor and control.

 To drive improvement.
 To maximize the effectiveness of the
improvement effort.
 To achieve alignment with organizational goals
and objectives.
 To reward and to discipline.
Business performance
measurement is a tool to balance
five major tensions within a firm:
 
1. Balancing profit, growth and control
2. Balancing short term results against
long-term capabilities and growth
opportunities
3. Balancing performance expectations of
different constituencies
4. Balancing opportunities and attention
5. Balancing the motives of human
behavior
 WHAT IS SOCIAL-COST BENEFIT
ANALYSIS?
To reflect the real value of project to the society, we
must consider the impact of the project on the
society. IMPACT

POSITIVE NEGATIVE

Thus we evaluate a project from the point of view of

the society (or economy) as a whole; it is called social
cost benefit analysis or economic analysis.
 SCOPE OF SCBA

It applies to both public and private investments:

• Public investment
It is important for developing countries where
government plays an important role in the economic
development.
• Private investment
Here, SCBA is also important as the private investments
are to be approved by various government and quasi
government agencies.
 OBJECTIVES OF SCBA
The main focus of social cost benefit analysis is to
determine:
• Economic benefits of the project in terms of shadow
prices;
• The impact of the project on the level of savings and
investment in the society
• The impact of the project on the distribution of income in
the society
• The contribution of the project towards the fulfillment of
certain merit wants (self-sufficiency, employment, etc)
 Social Cost Benefit Analysis of
Delhi Metro

Here through social cost-benefit analysis of

Delhi Metro we are trying to measure all these
benefits and costs from Phase I and Phase II
projects covering a total distance of 108 kms in
Delhi.
 What is SHADOW price?
Maximum price that management is willing to pay for an
extra unit of a given limited resource. 
Example -if a production line is already operating at its
maximum 40 hour limit, the shadow price would be the
maximum price the manager would be willing to pay for
operating it for an additional hour, based on the benefits he
would get from this change.
 How are social costs obtained?

Estimates of the social benefits and costs of the project

are obtained using the recently estimated shadow prices
of investment, foreign exchange and unskilled labour as
well as the social time preference rate for the Indian
economy for a study commissioned by the Planning
Commission, Government of India and done at the
Institute of Economic Growth
 BENEFITS OF DELHI METRO

• Savings due to fewer accidents

• Savings in passenger time
• Reduction in air pollution
• Savings in fuel consumption
• Reduction in the number of vehicles on road
• Savings in vehicular operating costs due to the
decongestion effect
 APPROACHES OF SCBA
There are two principal approaches of social cost
benefit analysis:
 UNIDO Approach :This approach is mainly based on the
publication of UNIDO (United Nation Industrial
Development Organization) named Guide To Practical
Project Appraisal in 1978.
 L-M Approach : I.M.D. Little & James Mirlees have
developed this approach for analysis of social cost
benefit Manual Of Industrial Project Analysis In
Developing Countries and Project Appraisal And
Planning for Developing Countries.
 UNIDO APPROACH
UNIDO Approach of social cost benefit analysis
involves five stages:
1. Calculation of the financial profitability of the project
measured at market prices.
2. Obtaining the net benefit of the project at shadow (efficiency)
prices.
3. Adjustment for the impact of the project on savings and
investment.
4. Adjustment for the impact of the project on income
distribution.
5. Adjustment for the impact of the project on merit and demerit
goods whose social values differ from their economic values.
 L-M APPROACH
I.M.D. Little & James Mirlees have developed an approach to SCBA
which is famously known as L-M APPROACH. The core of this
approach is that social cost of using a resource in developing
countries differs widely from price paid for it.
Hence, it requires shadow prices to denote the real value of a
resource to the society.
Features of L-M Approach:
• L-M methods opts for savings as the yardstick for their entire
approach. Present savings is more valuable to them than present
consumption, since the savings can be converted into investments for
future.
• This approach measures the costs and benefits in terms of
international or border prices.
 Why BORDER prices?
Because the border prices represent the correct social opportunity costs
or benefit of using or producing a traded good.
The resources – inputs and outputs – of a project are classified mainly
into:
– Labour
– Traded goods
– Non-traded goods
Therefore, to find the real value of these resources, we should calculate:
• Shadow wage rate (SWR)
• Shadow price of traded goods
• Shadow price of non-traded goods
 RETURN ON INVESTMENT

A performance measure used to evaluate the efficiency of

an investment or to compare the efficiency of a number of different
investments. To calculate ROI, the benefit (return) of an investment is
divided by the cost of the investment; the result is expressed as a
percentage or a ratio. 

Return on investment is a very popular metric because of its

versatility and simplicity. That is, if an investment does not have a
positive ROI, or if there are other opportunities with a higher ROI,
then the investment should be not be undertaken.
 Social Return on Investment

SROI is an approach to understanding and managing the

impacts of a project, an organization or a policy. It is based
on stakeholders and puts financial values on the important
impacts identified by stakeholders which do not have
market values. The aim is to include the values of people
that are often excluded from markets in the same terms as
used in markets, that is money, in order to give people a
voice in resource allocation decisions.
 GOODWILL

Goodwill as a term was originally used to reflect the fact that an

ongoing business had some "prudent value" beyond its assets, such
as the reputation the firm enjoyed with its clients. Likewise, a buyer
may agree to "overpay" because he sees potential synergy with his
own business. 
Formula:
Goodwill = Purchase Price – Fair Market Value of Net Assets

 Fair Market Value of Net Assets = Net Tangible Assets + Write-up of

Net Assets
 Net Tangible Assets = Assets – Target's Existing Goodwill – Liabilities
PROFIT MAXIMISATION
V/S
CORPORATE SOCIAL
RESPONSIBILITY
 PROFIT MAXIMISATION

 Process by which a firm determines

the price and output level that returns the
greatest profit.
 Several approaches to this problem
i. Total revenue–total cost method relies on the fact that
profit equals revenue minus cost. 
ii. Marginal revenue–marginal cost method is based on
the fact that total profit in a perfectly competitive
market reaches its maximum point where marginal
revenue equals marginal cost.
 CORPORATE SOCIAL
PERFORMANCE
In today’s competitive market environment, business
is confronted with a new set of challenges that are
not only economics-related. To survive and
prosper, firms must bridge economic and social
systems. Maximizing shareholder wealth is a
necessary but by no means sufficient condition for
financial prosperity anymore. A new performance
measure called corporate social performance
(abbreviated as CSP) allows us to capture the
performance of a business in the social realm.
 THE
DIFFERENCE
 Profit Maximizing companies tend to
try to maximize short term profits at
the expense of medium and long
term profits.
Socially responsible companies, on
the other hand, attempt to produce a
good profit in the short term,
medium term, and long term.
 Socially responsible companies, if left
alone by government, will produce a
greater profit in the long term than
profit maximizing companies.
THE END