Business Ethics and Corporate Governance

Understanding Ethics

Ethics
Ethics was considered as irrelevant by corporate loyalists

Now it is seen as critical for success of business

Factors forcing towards Ethical practices Consumer Movement

Awareness in stakeholders They are not indifferent to

unethical practices like Financial Irregularities,

Tax evasion,
Kick-backs, Poor Quality products

Hazardous working conditions

Non-compliance with environmental issues

Ethics
New Norms are

Integrity,
Transparency Open communication

They result in long run in economic gains like market

capitalization

Ethics
Ethics from Latin word Ethicus & Greek word Ethikos Meaning character or manners

Ethics is a science of Moral, Moral principles & recognized rules of conduct Ethics deals with right or wrong behavior of individual

Ethics
Ethics deals with values relating to human conduct with respect to Right or wrong of actions Good or bad motives of actions Actions can be good or bad, right or wrong, Moral or immoral These are judgments Now-a-days ethical guidelines are often transferred into law or regulations

Ethical Concepts
Some of the concepts that are frequently used when discussing the subject of ethics are: Ethical Absolutism Ethical Subjectivism Ethical relativism Consequnetialism Ethics of virtue

Ethical Absolutism
Ethical absolutism is a view that certain actions are
absolutely right or wrong, regardless of other contexts such as their consequences or the intentions behind them and are independent of human opinion and have a common or universal application Thus stealing, for instance, might be considered to be always immoral, even if done to promote some other good

Objectivism is another name for absolutism.

ETHICAL CONCEPTS
Ethical Subjectivism What is ethically right or wrong is entirely personal

matter
Principles chosen by a person may be unethical Ethical Relativism

There is no universal set of principle to judge morality

Each society has its rules It is possible that ethical practices are based on false

beliefs, illogical reasoning

ETHICAL CONCEPTS
Consequentialism It is a concept of value and maximization of that value

Ethics of virtue
Emphasized role of individual traits Virtues are like Courage, Tolerance, Generosity, Honesty Virtuous acts are not done out of self- interest or to maximize pleasure In business it is a conflict between Economic performance and Social Performance

To resolve this conflict it is important to have people with ethical behavior

ETHICAL THEORIES
Ethical theories are divided in three subject areas Metaethics Normative ethics

Applied ethics
Metaethics It is a study of the origin and meaning of ethical concepts

Metaethics
It is a study of the origin and meaning of ethical concepts Meta-ethics addresses questions such as "What is goodness?" and "How can we tell what is good from what is bad?" Deals with 3 issues Metaphysical issues that deal with the question whether the moral

values exist independently of human or they are simply human

inventions. Psychological issues that deal with psychological basis of the moral

actions-How may moral judgments be supported or defended?

Linguistic issues that deal with the meaning of the key moral terms we use-What is the meaning of moral terms or judgments?

Normative Ethics
Guides human conduct.

Sets moral standards helping to determine what is

right & what is wrong. Example is Golden Rule that is We should treat others the way we want others to treat us.

Golden Rule lays down one single principle to adjudge

right or wrong.

Normative Ethics
If moral principle is to be accepted it must be

Prescriptive emphasizing that a proposed action is

obligatory. Universal applicable to any person

Overriding should be primary consideration in action

assessment. Public presupposes social interaction.

Practical achievable by average person in ordinary

circumstances.

Normative Ethics
Three theories to resolve normative question,
How one should act in particular situation 1. Teleological Ethical Theory thinking rationally about ends. Also called as consequentialist theories. Action is considered normally correct, if consequences are more favorable than unfavorable. The drawback is that consequences are required to

be quantified and quantitative terms like good depend

on perception by a person.

Three definitions of good by consequentialist Egoism consequences are more Favorable than unfavorable to person performing action then

Normative EthicsTeleological Theory

action is morally right.

Utilitarianism- morally right, if more Favorable

to everyone.
Altruism morally right if more Favorable to everyone except the individual

Normative EthicsDeontological Theory

Deontological Ethical Theory focuses on certain

fundamental duties that we have as human being.

Duties are classified under 3 headings-

Duties to god
Duties to oneself Duties to others

Normative EthicsVirtue Ethics

Virtue ethics virtues are qualities and character individual considers to be good. The theory is concerned with attaining these qualities and Hence calls for character development.

Ethical Theories
Applied Ethics deals with specific,

often controversial moral issues.

Moral standards based on ethical theories are reference point for judging the moral value of decision.

Traditional Ethical Theories

Consequentialism
It holds that the rightness or wrongness of actions and institutions is a function of the goodness or badness of

their consequences.
Utilitarianism Right actions and institutions maximize aggregate happiness Happiness is experiencing pleasure or not experiencing pain Happiness is achieving integrated satisfaction of desires, plans

Traditional Ethical Theories

Non-consequentialism
It holds that the rightness or wrongness of actions and institutions is a function of something other than the goodness or badness

of their consequences.
Three approaches
Ethics of Rights

Kantian ethics
Virtue theories

Ethics of Rights
If a person has right to something then it is wrong to deprive him of that thing on Utilitarian grounds A right is a justified claim on others The "justification" of a claim is dependent on some standard acknowledged and accepted not just by the claimant, but also by society in general Moral rights Justified by moral standards that most people acknowledge, But not necessarily codified in law These standards can be interpreted differently by different people

Ethics of Rights
Legal Rights
Enshrined in law or in a system of formal rules Enforceable through courts

Negative rights
Such rights are a claim by one person that imposes a "negative" duty on all others

Positive rights
Provide something that people need to secure their well being Impose a positive duty on us

Kantian Ethics
Persons as ends-in-themselves Always treat persons as ends-in-themselves and never merely as means to your ends Social contract theory The right moral rules are those which persons would freely choose to have govern them Universalizability

Kantian Ethics
Universalizability
Act only on universalizable maxims A maxim is an explicitly stated principle of practical reason. A fully stated maxim would include:

A maxim is universalizable if and only if you could effectively achieve your goal by acting on it in a world where everyone else was pursuing the same goal by acting similarly in similar circumstances

a statement of the goal you propose to achieve, a description of the action by which you propose to achieve it, and a statement of the circumstances under which acting that way will help you to achieve your goal.

Categorical Imperative
In order for an act to be categorically imperative It must be thought to be good in itself and in conformity to reason As a categorical imperative, it asks us whether or not we can "universalize" our actions That is, whether it would be the case that others would act in accordance with the same rule in a similar circumstance

Virtue Ethics
Virtue ethics The key ethical concept is neither utility, rights, nor principles, but virtue, or good character traits, which is what moral education should focus on developing

Ethics of Justice
JUSTICE
The most fundamental principle of justice is that "equals should be treated equally and unequals unequally." Deals with moral choices through a measure of rights of the people involved and chooses the solution that seems to damage the least number of people Supposed to ensure that all members of society receive fair treatment. Concerns what is considered to be socially just allocation of goods in a society A society in which incidental inequalities in outcome do not arise would be considered a society guided by the principles of distributive justice Concerned with giving all members of society a "fair share" of the benefits and resources available. When issues of Distributive Justice are inadequately addressed and the item to be distributed is highly valued, conflicts frequently result.

Distributive justice

Ethics of Justice
Retributive Justice People deserve to be treated in the same way they treat others Compensatory Justice Refers to the extent to which people are fairly compensated for their injuries by those who have injured them Just compensation is proportional to the loss inflicted on a person

The Ethics of Care

Emphasize the importance of relationships. The basic beliefs of the theory are: All individuals are interdependent for achieving their interests Those particularly vulnerable to our choices and their outcomes deserve extra consideration to be measured according to the level of their vulnerability to one's choices the level of their affectedness by one's choices and no one else's It is necessary to attend to the contextual details of the situation in order to safeguard and promote the actual specific interests of those involved

Gilligan's Model
Based on Ethics of Care Moral development is the development of a self-in-relation Morality is understood in terms of the preservation of valuable human relations Progress from stage to stage is motivated by increasing understanding of human relationships

GILLIGAN'S SIX STAGES OF MORAL DEVELOPMENT (ETHICS OF CARE)

Caring for the self. Caring for self is judged to be selfish. Goodness is caring for others, frequently equated with self-sacrifice. Illogic of the inequality between self and others becomes evident. Search for equilibrium. Focus on the dynamics of relationships, to eliminate the tension between self and others. Care is extended beyond personal relationships to a general recognition of the interdependence of self and other, accompanied by a universal condemnation of exploitation and hurt

Kohlbergs Model of Cognitive Moral Development

The model is necessary for study and understanding the process of Ethical Decision making People pass through six stages of moral development Punishment and Obedience Obedience of rule out of fear of possible punishment Good or bad is considered purely in terms of potential panalty Individual Instrumental Purpose and exchange Individual evaluates behavior on the basis of fairness to him/her Behavior is based on what one gets in return Mutual Interpersonal Expectations, relationships and Conformity Individual considers the well-being of others People live up to what is expected of them by those close to them

Kohlbergs Model
Social System and Conscience Maintenance
Individual considers his duty to society as right thing to do People tend to uphold law s except when they conflict with fixed social duties Individual is concerned with the maintenance of values of society and recognizes the legal or moral view that may conflict Arrive at arational decision by calculating overall utilities

Prior Rights, Social Contract or Utility

Universal Ethical Principles

Individual realizes that there are certain universal principles that are to be respected Person at this stage favours social ethics to organizational ethics for ethical direction

Law and Morality

Law, unlike morality, is made by someone So it may, unlike morality, have aims, which are the aims of its makers (either individually or collectively) However, because not all law-making is intentional, not all law has aims Is there a moral obligation to obey the law? A legal rule may be morally justified as it applies to one person and not as it applies to another, or morally justified as it applies to one action and not as it applies to another There is distinction between what is legally or conventionally right and what is naturally (or as we would say today morally) right.

Relationship between Morality and Law

The existence of unjust laws proves that morality and law are not identical and do not coincide. The existence of laws that serve to defend basic values--such as laws against murder, malicious defamation of character, fraud, bribery, etc. --prove that the two can work together. Laws can state what overt offenses count as wrong and therefore punishable. Although law courts do not always ignore a person's intention or state of mind Laws govern conduct at least partly through fear of punishment. Morality, when it becomes habit-like or second nature, governs conduct without compulsion Morality can influence the law in the sense that it can provide the reason for making whole groups of immoral actions illegal. Law can be a public expression of morality which codifies in a public way the basic principles of conduct which a society accepts.

Managing Business Ethics

Organization & its Customers

Customer and Ethical Issues

Marketing concepts are becoming synonymous with consumer orientation Code of ethics is required to frame marketing policies at every level for employees to follow uniform standards towards all customers Marketers should be fair and just

Issues with 4 Ps
Product Product should be safe and fit for intended use Disclose the risks associated with products use if any Any changed feature that might have effect on buying decision should be informed Updating of consumer product is one more issue. Price Higher than normal price should not be charged for a product with high demand No undercutting or Price fixation Disclose full price associated with any product Place No manipulation about availability of product for exploitation No use of coercion in the marketing channel Promotion Advertisements which are offensive, misleading not in accordance with law are not allowed Communication about offered product should not be deceptive

Consumer Protection
Although consumer is regarded as king, there are many problems in realizing such state of condition Most of the consumers are not aware of their rights and most of those who are aware are not ready to fight to execute their rights Consumer has been exploited systematically in all walks of life So consumer needs protection which can come from three different parties
The business The government The consumer himself

The Business and Consumer

Responsibilities of corporate towards Consumers are 5 Rs Right Quality Right Quantity Right Time Right Place Right Price Some more responsibilities are Producing goods according to specific needs of consumers and their purchasing power Providing prompt and adequate service Improving standard of living by providing goods and services of high quality Treating customers fairly in all business transactions Ensuring health and safety of customers

The Government and Consumer

Consumer protection laws designed to ensure fair trade competition and the free flow of truthful information in the marketplace Consumer Protection laws are a form of government regulation which aim to protect the rights of consumers Consumer is defined as someone who acquires goods or services for direct use or ownership rather than for resale or use in production and manufacturing Consumer interests can also be protected by promoting competition in the markets Consumer protection can also be asserted via nongovernment organizations and individuals as consumer activism

Consumer Rights
Consumer Protection Act 1986 of India recognizes six Consumer Rights Right to Safety - Right to protection of health and safety from goods and services the consumers buy or offered free Right to physical environment that will protect and enhance the quality of life Right to Information - Right to be informed about quality and performance standards, ingredients, operational requirements, freshness, possible adverse side effects and other relevant facts of the product or service that consumer buys Right to Choose Right to be assured, wherever possible to have access to have variety of goods and services at competitive prices Right against exploitation by unfair trade practices Right to be heard of grievance Right to Redressal Right to Consumer Education

Product Liability
LIABILITY FOR MANUFACTURING OR DISTRIBUTING A DEFECTIVE PRODUCT IN INDIA In India, Product liability law, also called products liability, governs the liability of manufacturers, wholesalers, distributors, and vendors for injury to a person or property caused by dangerous or defective products The goal of product liability laws is to help protect consumers from dangerous or defective products, while holding manufacturers, distributors, and retailers responsible for putting into the market place products that they knew or should have known were dangerous or defective.

Product Liability
Civil Product liability in India is, essentially, governed by a) The Consumer Protection Act, 1986 b) The Sales of Goods Act, 1930 c) The Monopolies and Restrictive Trade Practices Act, 1969 d) The law of Torts. e) special statuates pertaining to specific goods The product liability law, in India, also imposes criminal liability in case of non-compliance with the provisions of each of the below mentioned Acts The Foods Adulteration Act, 1954 The Food Safety and Standards Act, 2006 The Drug & Cosmetics Act, 1940 The Indian Penal Code, 1860 The Standards of Weights and Measures Act, 1956 The Agricultural Produce (Grading and Marking) Act, 1937 for marking and grading of commodities like vegetables, butter, etc. The Indian Standards Institution (Certification Marks) Act , 1952 to formulate a number of standards for different products by ISI The Bureau of Indian Standards Act , 1986

Product Liability
Claims regarding product liability usually fall under one of the following categories
Negligence. Extends to all parts of the production and marketing process. It involves being negligent in the way a product is presented to a client, such as using deficient labels, false advertising, and so on Warranty. Consumers may sue if advertising or information overstate the benefits of a product, or if the product does not perform as stated Strict liability. In this action, a consumer is suing because the product in question was defective before its receipt Misrepresentation. This occurs when advertising, labels, or other information misrepresent material facts concerning the character or quality of the product

Intellectual Property
Intellectual property (IP) is a term referring to creations of the mind for which a set of exclusive rights are recognized Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, and designs

Intellectual Property Rights (IPR)

Intellectual property rights as a collective term includes the following independent IP rights
Patents Copyrights Trademarks Registered ( industrial) design Protection of IC layout design Geographical indications Protection of undisclosed information

Intellectual property is divided into two categories

Industrial property which includes patents for inventions, trademarks, industrial designs and geographical indications and Copyright and related rights which cover literary and artistic expressions (e.g. books, films, music, architecture, art), plus the rights of performing artists in their performances, producers of phonograms in their recordings, and broadcasters in their radio and television broadcasts which are also referred to as neighboring rights.

IPR & Acts

Patents
A patent is an exclusive right granted by a country to the owner of an invention to make, use, manufacture and market the invention, provided the invention satisfies certain conditions stipulated in the law In India there is The Indian Patent Act The first Indian patent laws were first promulgated in 1856. These were modified from time to time Recent amendment were made in 2005

IPR & Acts

Copyrights
Copyright is a right, which is available for creating an original literary or dramatic or musical or artistic work Cinematographic films including sound track and video films and recordings on discs, tapes, perforated roll or other devices are covered by copyrights Copyright gives the creator of the work the right to reproduce the work, make copies, translate, adapt, sell or give on hire and communicate the work Under the Indian Copyright Act there is a provision to register copyright although this is voluntary

IPR & Acts

Trademarks
A trademark is a distinctive sign, which identifies certain goods or services as those produced or provided by a specific person or enterprise Trademarks may be one or combination of words, letters, and numerals They may also consist of drawings, symbols, three dimensional signs such as shape and packaging of goods, or colours used as distinguishing feature A trademark provides to the owner of the mark by ensuring the exclusive right to use it to identify goods or services, or to authorize others to use it in return for some consideration (payment) Enactment of the Indian Trademarks Act 1999 is a big step forward from the Trade and Merchandise Marks Act 1958 and the Trademark Act 1940

 The Geographical Indications of Goods Act, 1999 affords protection to goods

IPR & Acts

that can be identified as originating or manufactured in the territory of a country or a region or locality in that territory where a given quantity, reputation or other characteristic of such goods is essentially attributable to its geographical conditions In the case where such goods are manufactured goods, one of the activities of production or of processing or preparation at goods concerned takes place in such territory or locality as the case may be The legislation will be administered through the Geographical Indications Registry under the overall charge of the Controller General of Patents, Designs and Trademarks

Advertisement and Regulations

Advertisement is often described as commercial speech and enjoys protection under Article 19(1)(a) of the Indian Constitution Under the Indian legal system, the prominent, prohibitory legal provisions that regulate advertising are: Obscene publication or advertisement of a lottery under the Indian Penal Code Harmful publication under the Young Persons (Harmful Publications) Act, 1956 The indecent representation of women under the Indecent Representation of Women (Prohibition) Act, 1986 Use of report of test or analysis for advertising any drug or cosmetic under the Drugs and Cosmetics Act, 1940. Inviting transplantation of organs under the Transplantation of Human Organs Act, 1994. Advertisement of magical remedies of diseases and disorders under Drugs and Magical Remedies (Objectionable Advertisements) Act, 1954. Advertisements relating to prenatal determination of sex uner the Prenatal Diagnostic Techniques (Regulation and Prevention of Misuse) Act, 1994. Advertisements of cigarettes and other tobacco products under tah Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003. Any political advertisement forty hours prior to polling time under the Representation of People Act, 1951

 In 1985, a self regulatory mechanism of ensuring ethical advertising practices was established in the form of the Advertising Standards Council of India (ASCI), a non statutory tribunal The key objectives of ASCI code is to ensure that advertisements must Make truthful and honest representations and claims which is essential to prohibit misleading advertisements; Not be offensive to public decency or morality; Not promote products which are hazardous or harmful to society or to individuals, particularly minors; and Observe fairness in competition keeping in mind consumers interests. Under the ASCI Code, complaints against the advertisements can be made by any person who considers them to be false, misleading, offensive, or unfair

THE CODE FOR SELF-REGULATION IN ADVERTISING

Managing Business Ethics

Organization & its Employees

ETHICAL ISSUES IN HR

Manner in which Organizations deal with its employees is an indication of its ethical characteristics. Employees should be given their due reward. Ethics in HR deals with all the issues in relationship between the employees and business. Usually, permanent employees are more loyal as they have job security, a sense of belongingness and expect support at the time of difficulty

Responsibilities towards Employees

To listen to and where possible act on employees suggestions, ideas, requests and complaints To engage in negotiations when conflict arises To avoid discriminatory practices and guarantee equal treatment and opportunity regardless of gender, age, race and religion To protect employees from avoidable injury and illness at the workplace To encourage and assist employees in developing skills and knowledge that are required for accomplishing the tasks

Ethical Issues in HIRING

Right principle is to select one who is perceived to have ability to contribute most to the long-term owners value. Ethical selection is honest, fair, non-coercive, legal and conveys clearly requirements & benefits to all candidates Unethical selection Wrong candidates Dissatisfaction Unethical practices are Discrimination based on Age Gender Religion Nationality

Discrimination in Hiring
It can be ethical only if criterion for selection is Functional qualities / abilities required to do the job By discrimination pool of talent is limited Referrals beneficial for business but unethical Discrimination over qualification, age, selection on credentials and test Age criterion is unreliable measure of ability to contribute towards maximizing owners value; hence unethical Credentials may not always reflect an applicants functional ability Test that challenges applicants right to privacy are considered unethical

Ethical Issues in HIRING

Ethical Practice is Equality of Opportunity
Rules should apply equally to all No applicant should be rejected for reasons beyond the rules laid down for hiring Reservation is termed as Reverse Discrimination

Ethics in Remuneration
Remuneration is considered ethical when it is just and equitable Ethical remuneration is rewarding any action that contributes to long-term owners value. Employees needs, his effort, ability, seniority and loyalty are of no importance in deciding remuneration unless they play a role in achieving results

ETHICS IN RETRENCHMENT
At times of recession, business reduces its size and overhead cost by reducing manpower Firing Employers include at will clause in employment contract. Firing affects reputation of business Reputation is affected particularly when firing is discriminatory, unfair or vindictive Ethical issue in lay-offs or retrenchment is who should be fired first

Ethics and Working Conditions

Should deal with the issues like Forced Labor Child labor Working Hours and Compensation Health and Safety Abuse; Discrimination Compliance with Applicable Laws

Affirmative Action
Affirmative action refers to policies that take factors like race, color, religion, gender, national origin into consideration in order to benefit an underrepresented group, usually as a means to counter the effects of a history of discrimination Affirmative action is intended as an attempt to promote equal opportunity It is often instituted in government and educational settings to ensure that minority groups within a society are included in all programs

Structuring Ethics in Organization

To be considered Ethical Organisation should ensure that its Corporate code incorporates Companys values, which ensure Ethical behaviour of its employees These are policy statements laying down companys ethical standards to govern the conduct of employees. Corporate codes are voluntary. They have freedom to address any issue Top management formulate the corporate codes

Corporate Code / Code of Conduct

Corporate Code enhances Clarity of strategy Better decision making Clearer communication Ease in delegation Inspiration to have greater commitment & loyalty

Corporate Code
Three formats of corporate code Compliance code Directive statements Corporate Credos Broad general statements of commitments Management philosophy statements formal statement of companys vision of the business Formats used while formulating the corporate code Special documents reflecting companys values, principles and guidelines Circulated letters reflecting companys policies on certain issues Compliance Certificates designed for suppliers, contractors Purchase Orders

Corporate Code
Code of Conduct can be successful if it is credible and To be credible it must be Transparent by communication and training Easy to enforce Positive enforcement involving retention of current contracts Negative enforcement involving monetary fines, corrective acts Easy to monitor Implies validation of code

Development of Corporate Code

Initiative to be taken by top management Guidelines to be followed Identification of the key behaviors relating to the areas that are crucial for achieving the corporate goals Review by key members of the organisation like Legal dept. Communicate the code to every employee Update at least once in a year

Implementation of Corporate Code

Approach by Ferrell and Fraedrich is based on four aspects Organisational Structure based on this appropriate authority should be delegated to ensure ethical behavior Coordination ensures different departments follow same ethical code Motivation of employees through quality of ethical performance of company Communication aims at maintaining ethical climate in company

Implementation of Corporate Code

Another approach by Mac Donald and Zepp based on three perspectives Individual dimension Group influence Organisational strategies Their opinion is that recruit candidates with ethical standards rather than attempting to change behaviour Their should be ethical leadership rather than policies

Employees Responsibilities
Respect Respect laws, people, and property Teamwork Work openly and supportively with others, aiming toward common goals Leadership Show leadership in areas where you are strong Citizenship Build a workplace that protects health and welfare of employees, your community, and your environment Value Build a profitable company that will have stability and prosperity Honesty Believe that honesty IS the best policy Integrity Always take the high road Responsibility Take responsibility for your actions Quality Strive for quality in every aspect of your work Trust Work to build the trust of employees, supervisors, customers, and the community.

Managing Business Ethics

Organization & Natural Environment

BUSINESS ETHICS & ENVIRONMENT

Environmental Ethics examines moral basis of environmental responsibilities. Environmental Responsibilities are to be weighed against responsibilities to stakeholders and benefits to society. Environmental issues Toxic Waste Contamination of ground water Oil spills Use of fluro carbons Air Pollution Burning of fossil fuel Noise Pollution Destroying of forest and seashore

ENVIRONMENTAL ISSUES
As business expands, environmental issues start gaining importance Most of the times chemical industries create maximum pollution European legislation has proposed more than 120 acts based on Promoting the benefits of pollution prevention Customizing legislation to meet requirements of members Developing and enforcing Polluters pay policy aiming at imposing fines on defaulters

The Environment (Protection) Act, 1986

By the Act Central government has power to make rules pertaining to all or any of the following matters 1. the standards of quality of air, water or soil for various areas and purposes 2. the maximum allowable limits of concentration of various environmental pollutants (including noise) for different areas 3. the procedures and safeguards for the handling of hazardous substances 4. the prohibition and restrictions on the handling of hazardous substances in different areas 5. the prohibition and restriction on the location of industries and the carrying on process and operations in different areas 6. the procedures and safeguards for the prevention of accidents which may cause environmental pollution and for providing for remedial measures for such accidents

 When a company adopts an anti-pollution environment policy, it is said to be Going Green. Reasons for Green initiative Economic benefits from increased efficiency Competitive advantage through innovation Public Image GREEN INITIATIVES Environmentally friendly technological innovation Green tourism Green Community Environmental campaigning Environmental counselling Environmental issues are many times handled by Safety/ R&D / Maintenance departments

GREENING

Green Marketing
Green marketing is the marketing of products that are presumed to be environmentally safe It incorporates a broad range of activities like product modification changes to the production process packaging changes as well as modifying advertising Other similar terms used are Environmental Marketing and Ecological Marketing

The Green Marketing Mix

Product
Ecological products not contaminating the environment Should protect environment and even liquidate existing environmental damages Prices may be a little higher than conventional alternatives

Price

Place

Promotion

Main focus is on ecological packaging Marketing local and seasonal products e.g. vegetables from regional farms is more easy to be marketed green than products imported.
Should put stress on environmental aspects Companys expenditures on environmental protection should be advertised Sponsoring the natural environment is also very important Ecological products will probably require special sales promotions

Sustainable Development
Sustainable Development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs It calls for a broad-based alliance between industry and society to combat poverty, environmental degradation and promote development We should strive for

Changing Unsustainable Patterns of Consumption and Production Evaluate and make development decisions which lead to a more sustainable society. Make efforts to identify, evaluate, introduce and use the technologies through which substantial reduction in consumption of resources is possible

Sustainable Development Triple Bottom Line

The economic dimension
enhancing profitability, increasing shareholder value and creating wealth whilst aggressively pursuing opportunities for growth achieving high rates of economic growth in order to enable all sections of society enhance their quality of life and live with dignity
pursuing economic growth whilst preserving and enhancing our natural resources.

The social dimension

The environmental dimension

Sustainable Development
Sustainable Development has become a priority for businesses Since corporations are vital organs of society, corporate interests must serve societal concerns Such a focus of corporate interest will eventually transform into multifold business advantages

Sustainable Development Advantages

Cost and Risk Reduction Adopting principles of eco-efficiency such as reducing the use of materials and energy, minimising toxic dispersion and service intensity, recycling materials and increasing product durability will enhance profitability whilst simultaneously reducing damage to the environment Reputation and Legitimacy Being recognised by society and stakeholders as businesses committed to practices that promote sustainability across the Triple Bottom Line Innovation and Respositioning Retaining leadership in a highly competitive business environment through continuous repositioning Clean Technologies Giving businesses a competitive edge by optimising use of natural resources and deploying clean technologies to reduce damage to the environment

Ethics in Marketing
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Ethics and Marketing

Ethical issues in marketing strategy marketing strategies are required to achieve higher standards of ethics as it is in public scrutiny. Issue involved are stance adapted by company towards its competitors Ethics in Marketing Mix Product Price Promotion Place Marketing mix also includes the service aspect Ethics in Information Acquisition Ethics in Marketing Research

Ethics and Marketing Mix

Product Product has an identity and personality of its own like cigarettes, alcohol Updating of consumer product is one more issue. Product should be safe and fit for intended use Disclose the risks associated with products use if any Any changed feature that might have effect on buying decision should be informed Price Higher than normal price should not be charged for a product with high demand. No undercutting or Price fixation Disclose full price associated with any product

Place by place marketers refer to the sum of location Through which the product moves from the supplier to customer. Part at which customer is able to access the information. Also includes process of distribution and type of delivery service. No manipulation about availability of product for exploitation No use of coercion in the marketing channel Promotion is subjected to closed scrutiny. Advertisements which are offensive, misleading not in accordance with law are not allowed Attacking competitors product is not allowed Spreading unfounded and damaging rumors about competitor is not allowed. Communication about offered product should not be deceptive People, Physical evidence and Process Service aspects

Ethics and Marketing Mix

Ethical issues in Information Acquisition How much of a sensitive information a customer shares with a firm is a powerful signal of their assessment of the firm. Do not collect information which is not related to your business Do not collect data indirectly Tell your plans about using data to respondents and use data only for those plans Act as per respondents direction

Ethics and Marketing Research

The research profession in business has to ensure certain rights to the society Right to be informed of critical research results Issue involving rights to the researcher Protection against improper solicitation of proposals Misrepresentation of findings Ethical behaviour of respondents

Five entities affected by Market research process Society has right to be informed Respondents - has right to be informed, to choose, to anonymity and confidentiality, privacy and safety Client has right to anonymity, confidentiality, quality research, avoiding unnecessary research, protection against misleading presentation of data, protection against abuse of position Researcher Has right to expect ethical subject behaviour, protection against improper solicitation of proposals The issues are excessive requests or reneging on promises, availability of funds The Research Profession Issues are appropriate use of marketing research techniques, use of accepted research procedures, ethical behaviour

Ethics and Marketing Research

Ferrell and Gresham have identified three factors that determine code of ethics for marketing. Individual factor Moral values inculcated in a person by family education and culture. Significant factors Extent to which reference groups, top management and peers influence the marketer Opportunity factors Ethical codes and standards that are promoted in organisation. The above factors play a major role in deciding ethical status of an organisation

Ethics and Finance

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ETHICAL ISSUES IN FINANCE

Most of the issues are concerned with Financial Reporting. Importance of Financial Statements For effective performance of an organization, reporting should be Honest, Fair and Reliable Companies are often tempted to falsify the accounts. Ethics becomes important here

 Companies usually maintain two sets of accounts One for shareholders and Other for the internal management accounts. Management Accounts give details about Functioning of different departments, the work they perform, The cost involved and the earnings.

Financial Statements.

Financial Statements
For true fair and reliable Management Accounting Determine the key elements like objectives of the firm, their definition and measurements Ensure that funds are allocated to different activities on the basis of their importance Projected earnings of activity are in accordance with the funds allocated to it The objective of Ethical audit is to bring in accountability and transparency in the companys operations. Other aim is to track progress of the company.

Ethical Issues in Mergers and Acquisitions

Mergers and acquisitions help company To develop a competitive advantage and Thereby increase shareholder value. But takeovers harm the interest of stakeholders Like employee, Suppliers and Customers.

Mergers and Acquisitions

Takeovers are criticized by employees whose personal interests are harmed. Takeovers are looked upon as involving breach of trust by Isolating contracts with other stakeholders Suppliers or employees lose security of their work While going in for takeovers or mergers Each group must agree to respect certain contracts or promises Management should not encourage expectation which it may not be in a position to fulfill If impractical obligations are abandoned after acquisition, then the change is not unethical

 Takeovers which take place to satisfy management ambitions or just to follow trend are unethical. In such cases resource misallocation takes place by divesting resources Hostile Takeovers These elicit opposition from the boards or the employees of the target company. Reasons for opposition may be a) Protecting their own interest b) Disagreement over price One criticism for hostile takeovers is it does not consider the interest of Target Company.

Mergers and Acquisitions

Insider Trading
Insider Trading refers to Trading on price sensitive information By people who are closely connected with the firm. The information is not disclosed to other market participants. Insider Trading / Dealing is considered unethical As it violates equality of opportunity. Insider Trading that is performed with the full support & knowledge of shareholders is not unethical

Money Laundering
Involves hiding, moving and investing the proceeds of criminal transactions. Money laundering involves three basic steps Physical disposal of cash After the funds have entered the financial system (Layering stage ), they are distanced from the original source Make the wealth derived appear as legitimate

New Companies Bill

Introduced on 14/12/2011 to replace Companies Act 1956 Seeks to bring Insider Trading under ambit of criminal law Insider Trading punishable upto maximum of 5 years imprisonment Depending upon quantum of damage, offender can be fined fro Rs. 5 lakhs to 25 crores or three times the amount of profit made out of insider trading

Business Ethics in Global Contexts

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GLOBAL BUSINESS
Multinational Companies can be described as either Having substantial investment in other countries deriving income from foreign operations Substantial number of shareholders in other country Top and senior managers are recruited from different countries Have subsidiaries in many countries

 Reasons for companies going global

Multinational Companies

Reduce sourcing and distribution cost Lower wage rates Reduced transportation cost Opportunity to be close to supplier or customer Saturation of local market To maintain growth rate To exploit opportunities in new market Recession or domestic completion

Advantages from MNCs to host country Agent of change and progress Bring in plant & machinery which otherwise would have been difficult to acquire Bring in skills & technology to run the operations Bring in ideas and practices that improve R & D infrastructure

Ethical Issues in MNCs

MNCs have been accused of indulging in unethical practices in several areas. Political Activities Supporting repressive regime Paying bribes to secure political influence Not respecting human rights Paying protection money to terrorist groups Destabilizing national government which they do not approve MNCs subsidiaries may act as de-facto instrument of foreign economic policy of other state

Ethical Issues in MNCs

Sales, Marketing & Advertising
Their advertising and marketing methods sometimes undermine ancient cultures and traditions Some engage in misleading and deceitful advertising in the third world countries Some of the marketing practices promote goods that waste valuable resources in poorer nations Many MNCs provide products which are inappropriate to local needs MNCs do not always accept responsibilities for unsafe product Environmental degradation

Environmental MNCs are accused of using developing countries as dumping grounds for environmentally hazardous goods. MNCs cause more damage to environment than domestic business. Depleting natural resources Polluting the environment Not paying compensation for environmental damage Causing harmful changes in local living conditions Paying little regard to the risk of accidents and causing major environmental catastrophe

Ethical Issues in MNCs

Technology MNCs normally transfer existing or even sometimes outdated technology rather than developing new suitable for local conditions. Not engaging in research and development in host countries Encouraging Brain Drain from poor countries Making host country technologically dependent on home Country Not giving local employees access to information about key technologies Not training local nationals in the use of imported technologies Not transferring latest technologies Dumping old or outdated technologies to earn revenues

Ethical Issues in MNCs

Ethical Issues in MNCs

Economic Activities MNCs operations in underdeveloped countries have led to Dual economic structures Foreign owned capital-intensive industry operating in parallel with local labor-intensive industry. Foreign owned sectors export most of their output at lower price. Lower import prices in advanced countries further stimulate their economic development Instead of using local raw material, they import it which may be surplus in other country or at higher price.

Personnel Management & Industrial Relations Refuse to recognize trade unions who engage in collective bargaining Not ensuring Equal opportunity policies for all in the workplace Using expatriate staff for all significant managerial positions Ignoring the occupational health and safety needs of local workers Exploiting host country labor Not involving local employees in management decision making

Ethical Issues in MNCs

Regulatory Actions in Acquisitions of Global Business Many countries require MNCs to obtain government clearance before establishing a new operation or purchasing an on-going business EC is imposing a new regulation on MNCs making it difficult for them to enter Europe Social Obligations in Global Business US, Japan are making efforts to carryout social obligation They are assisting by way of loan, grants Their assistance is helping these countries to improve their economic condition to some extent and also encourage other countries to fulfill their social obligation

Global Business

Ethical Issues in Other Countries

Japan Rocked by number of scandals. France and Germany Study shows that French and German managers are more concerned with maintaining a successful business posture rather than ethical or legal questions China Ranked among the worlds gravest violators of human rights; but Chinese officials do not view their actions as unethical

Corporate Social Responsibility

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What is CSR?
Business exists and operates within society; so it should contribute towards its welfare Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to 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. CSR is the deliberate inclusion of public interest into corporate decision-making, and the honouring of a Triple Bottom Line: People, Planet, Profit

Corporate Social Responsibility

Companies are now expected to perform well in nonfinancial areas such as human rights business ethics environmental policies corporate contributions community development corporate governance and workplace issues CSR-focused businesses would proactively promote the public interest by encouraging community growth and development and voluntarily eliminating practices that harm the public sphere, regardless of legality

Responsibilities towards Community

Respect human rights and democratic institutions Supporting public policies and practices that promote human development through harmonious relations between business and other segments of the society Collaborating with such activities that aim at improving the standard of health, education, workplace safety and economic well-being Promoting and stimulating sustainable development and playing a leading role in preserving and enhancing the physical environment and conserving the earths resources Supporting peace, security, diversity and social integration; respecting the integrity of local culture Encouraging charitable donations, educational and cultural contributions and employee participation in community and civic affairs.

Trusteeship
The philosophy of Trusteeship believes in inherent goodness of human beings Resources are for everybody and wealth is for those who generate it Thus one who controls the resources is not the owner but the trustee

Trusteeship Concept of Mahatma Gandhi

Trusteeship as the sole means of continuously redistributing wealth and simultaneously assuring generation and intelligent use of wealth. Social order is based on social necessity and not personal greed The workers realise their importance in society and shed the fear of and distrust of the rich while the latter will no longer feel their existence threatened but would realise their great responsibility towards upliftment of society the trusteeship concept could be achieved by implementing in degrees By looking for a equitable balance or balance of all the stakeholders the todays entrepreneur takes the first step towards tomorrows trustee.

Multiple Stakeholder Theory

Stakeholder Concept Business wanted to strike a balance between social responsibilities & economic value Social responsibilities arise from stakeholders Stakeholders are those who are interested or affected by the business and those who are vital for the survival and success of organization
Internal Stakeholders External Stakeholders

Multiple Stakeholder Theory

Internal Stakeholders Shareholders, Employees and Management Any decision taken by them has direct impact on them. External Stakeholders Consumers, Suppliers, Creditors, Competitors and Community Multiple Stakeholder theory suggests that business has responsibilities to all these stakeholders and not only to shareholders These responsibilities can be achieved through Triple bottom line with The economic dimension represented by Profit The social dimension represented by People The environmental dimension represented by Planet CSR is towards People & Planet

Social Responsibilities of Business

There are two schools of thought on this issue: In the Free Market View, the job of business is to create wealth with the interests of the shareholders as the guiding principle The Corporate Social Responsibility View is that business organization should be concerned with social issues The Free Market case against Corporate Social Responsibility
The only social responsibility of business is to create shareholder wealth The efficient use of resources will be reduced if businesses are restricted in how they can produce The pursuit of social goals dilutes businesses primary purpose Corporate management cannot decide what is in the social interest Costs will be passed on to consumers It reduces economic efficiency and profit Directors have a legal obligation to manage the company in the interest of shareholders and not for other stakeholders CSR behavior imposes additional costs which reduce competitiveness CSR places unwelcome responsibilities on businesses rather than on government or individuals

Social Responsibilities of Business

Arguments for Corporate Social Responsibility
It is the ethical thing to do It improves the firm public image It is necessary in order to avoid excessive regulation Socially responsible actions can be profitable Improved social environment will be beneficial to the firm It will be attractive to some investors It can increase employee motivation It helps to corrects social problems caused by business Being good is good for business

London Benchmarking Group Model

The London Benchmarking Group was formed in September 1994 The LBG produced the London Benchmarking Group Model in 1997 The model provides a basis to decide what is, and what is not, Corporate Community Investment It is devised around three main motives for corporate community investment charitable gifts community investment and commercial initiatives in the community Model distinguishes between "input" costs and "output" benefits. The LBG model enables CCI (Corporate Community Investment) professionals to measure their company's overall contribution to the community, taking account of cash, time and in-kind donations, as well as management costs The model also records the outputs and longer-term community and business impacts of CCI projects

London Benchmarking Group Model

LBG focuses more on what companies achieve as opposed to how much they spend. The LBG model in essence covers four critical questions: Why do we contribute? Charity, Commercial investment, Commercial initiatives in the community How do we contribute? Cash, In Kind, Time, Management costs What do we contribute? Where do we contribute?

London Benchmarking Group Model

Benefits of the LBG The LBG model provides a comprehensive and consistent set of measures for CSI (Corporate Social Investment) professionals to determine their company's contribution to the community The model also captures the outputs and longerterm impacts of CSI projects on communities and the business itself. The LBG Model encourages community managers to: Account for their total community spend. Analyse the costs and benefits of community programs consistently. Improve management information to guide future strategy. Shift the debate from cash contributed to benefits achieved. Capture and value all inputs, such as time, in-kind giving and management cost

Ackermans Model
Robert Ackerman tried to show how individual companies can be more socially responsible He described three phases through which companies commonly tend to pass in developing a response to social issues

Ackerman Model
Phase I: Chief Executive will identify the social problem. Phase II: Company hires the staff to study the problem and suggest the solution. Phase III: Division managers implement the solution. Where the enlightened companies can make best information available. Being responsive may well be the only responsible course of action.
.

Organisational level

Phase I Issue: Corporate Obligation Action: Write and Communicate Policy Outcome: Enriched purpose, increased awareness

Phase II

Phase III

Chief Executive

Staff Specialists

Issue: Technical Problem Action: Design Data System and Interpret environment Outcome: Technical and Informational groundwork Issue: Management Problem Action: Commit Resources and Modify Procedures Outcome: Increased Responsiveness

Division Management

Carrolls Four-Part Model

Economic Responsibilities Legal Responsibility Ethical Responsibility Discretionary Responsibility

This Model suggests: Firm must produce the goods and/or services that society wants and must sell them at a profit. Legal responsibilities are also basic. Firms should operate within the law.
.

Carrolls Four-Part Model

Ethical responsibility refers to behavior by the firm that is expected by society but not codified into law These responsibilities are not well defined, where in specific situations they are clear Discretionary responsibilities encompass voluntary activities undertaken for the public good It refers to the voluntary contribution of the business to the social cause like involvement in community development or other social programmes
.

Indices for CSR

There are number of indices (commonly called as benchmarks), with the overriding objective to describe economic situation of the companies meeting certain CSR requirements Dow Jones Sustainability Index series (DJSI) Launched in September 1999 by Dow Jones, STOXX Limited and SAM Group-Sustainable Asset Management Since that time more than a dozen various indices have been created for the world, regions or industries The DJSI methodology is based on positive selection and aims at identification of best in class companies The basic criterion considered during selection of companies for indices is the analysis of three aspects: Economy Environmental protection and Social responsibility

Indices for CSR

BiE Index of Corporate Environmental Engagement
The BiE Index of Corporate Environmental Engagement Reports analyse the results of Business in the Communitys leading environmental benchmark, the Environment Index They detail the environmental management and performance of the UKs leading companies individually, universally and by sector The BiE Index, now known as the Environment Index, benchmarked companies against their peers, and against all companies that participated in the Index, on the basis of their environmental performance in key impact areas.

Business of Mohammad Yunus

Social Business is a cause-driven business In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors The company must cover all costs and make profit, at the same time achieve the social objective, such as,
healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way.

The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business The objective of the company is to achieve social goal/s.

Types of Social Businesses

Type I: Focuses on businesses dealing with social objectives only. Eg. The product produced is for the benefit of the poor. Type II: Can take up any profitable business so long as it is owned by the poor and the disadvantaged, who can gain through receiving direct dividends or by some indirect benefits. Eg. The product could be produced by the poor but exported to an international market while net profits would go towards workers benefits

Seven Principles of Social Business

Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization Financial and economic sustainability Investors get back their investment amount only. No dividend is given beyond investment money When investment amount is paid back, company profit stays with the company for expansion and improvement Environmentally conscious Workforce gets market wage with better working condition ...Do it with joy

Complexity of Ethical Issues

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ETHICAL DILEMMAS AT WORK PLACE

Business runs on decisions by choosing between alternatives But in many cases choice is difficult resulting in ethical Dilemma Ethical dilemma involves range of actions and their consequences Problem arises due to involvement of value judgment So prioritize values and violate least possible

Frequently occurring Ethical Dilemmas at Workplace To do right thing or go in line with company policy Whether to spend more time on quality job Use short-cut for quick job or follow procedures Help colleague who is being harassed or ignore it To hide a mistake or admit and rectify Bribery, Child Labour Ethical Dilemmas in Business relate to Power, Trust and Authority Secrecy, Confidentiality and Loyalty

Ethical Dilemmas

Ethical Dilemmas
Power, Trust and Authority Managers enjoy these because of their position in the organization. They are expected to use power and authority in equitable manner so trust is not destroyed. The decisions should be fair and impartial. Secrecy, Confidentiality and Loyalty In organizations we have to know who is entitled to know what In professions like medical, legal, consultants, maintaining confidentiality is essential for building trust with customers. Even business has right to protect information whose disclosure to competitors would threaten their survival.

Resolving Ethical Dilemma

To resolve ethical dilemma ask three questions
Utility : Does benefit exceed cost (shareholder) Rights : Does it respect human rights (society) Justice : Does it distribute benefits and burdens evenly (employees)

Resolving Ethical Dilemma

Two approaches : Deontological & Teleological

Deontological (Action oriented) considers duties to protect fundamental moral rights of human beings, like Teleological (Result oriented)
Right to fairness, equality, honesty, integrity, justice

Action that produce more benefits than harms are right

Resolving Dilemmas
Manager Generally adopt different ethical standards while performing different tasks. They provide rationalization for their behavior. According to Gellerman four major rationalizations are

Resolving dilemma needs skill and experience

Actions are within reasonable ethical and legal limits Actions are aimed at best interest of individual or firm Actions will not be disclosed, so no danger to him or his firm He will be protected by is company

Questions to be asked by managers to take ethical decisions How would you define the problem if you are on the other side of the fence To whom and to what do you give your loyalty as a person What is your intention in making this decision Whom would your decision or action injure Before making a decision, can you discuss the problem with affected parties Are you confident that your decision will be valid for a long-period of time Could you discuss without qualm your decision with higherups, family and society What is symbolic potential of your action if understood, if misunderstood Under what circumstances would you allow exception to stand

Resolving Dilemmas

Is the problem / dilemma really what it appears to be Is the action that you are considering is legal? Ethical? Understand the position of those who are opposing you. Check for the reasonability Whom does the decision benefit/ harm? How much? How long? Would you be allowing everyone to do what you are considering now? Have you sought the opinion of others who are more knowledgeable and would be more objective? Would your action be embarrassing to you if it were made known to your family, friends, co-workers or superiors?

Ethical Decision-making

Factors in Ethical Decision-making

Magnitude of consequence magnitude of impact of decision on employees Probability of effect Social agreement /acceptance Time interval Proximity of the persons affected Concentration of effect Decision that affect large number of people Final decision on ethical issue should be in line with greatest social benefit

Resolving Dilemmas
Employees In many organizations, the absence of commonly held beliefs and values can give rise to ethical dilemma. As a result employees have to decide themselves, what is acceptable behavior Training Employees to deal with ethical Dilemmas Step-by-step process known as BELIEVE is one way of resolving ethical dilemma

BELIEVE
B Background of the case E Estimate the ethical dilemma present L List the possible solutions to the problem I Impact Consider the likely impact of each of the possible solutions E Eliminate the totally unacceptable solution V Values Assess which values of the company are held or violated by each solution E Evaluate Considering their likely impact and the values that will be upheld or violated This approach enables organizations to achieve a uniform approach to problem solving.

Ethical Leadership
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Ethical Leadership
Leadership is ability To influence other people Shape their attitudes and behavior To achieve goals Rightness of goal is ethical issue Ethical Leadership is for moulding the people for right goals Three qualities of Ethical Leadership are Character Knowledge Action

Leadership
Leadership is critical factor in determining overall effectiveness Organizations have to be quick to respond, adapt and innovate This happens only through people who bring to work all knowledge & creative potential But people may not make them necessarily available at work How they are applied depends on leadership

Power of a Leader
Managers become effective leader because of power conferred upon them by their followers Leaders do not use any official authority Leaders power over his followers is personal which we call as Moral authority Moral authority does not flow from temptations (rewards) or threats (punishment) Leaders have to earn respect

Responsibilities of a Leader
To achieve a Task Motivating people to put in best efforts by showing path for growth Let people know
Why they are doing what they are doing (objectives) How they are doing (feedback) Helping them to do better (training)

Ensure that group functions as a cohesive unit as a team Achievement of task is most important If that is not met, then growth of individual and cohesiveness becomes irrelevant

Qualities for Ethical Leader

Leaders must have integrity Integrity is consistency between thought, speech and action Leaders act as head of family Leadership needs character to inspire confidence and command respect Six pillars of character
Trustworthiness Responsibility Justice and fairness Respect Caring Civic values

Attributes of Effective Leader

Effective Leaders
Mean what they say and know what they say Become available for consultation and advice Become available for support and help at times of difficulty Treats sub-ordinates as worthy individuals Come across as genuine and authentic Show concern, compassion and forbearance

Attributes of Effective Leader

Effective Leaders do not
Try to bluff Ridicule or insult either the person or his knowledge Hesitate to point out errors or deficiencies of sub-ordinates Carry prejudices, encourage cliques, or play favorites Disown responsibility Panic in difficult situations

Wisdom-based Leadership
Guiding ethics for global business is wisdom leadership where wisdom is
more than the sum of our knowledge, intelligence, experience, and innovative thinking.

True wisdom is

the deep understanding, keen discernment, and sound judgment that draws from a level of self-insight, personal and organizational values, and cultural broad-mindedness.

Four contexts for Wisdom Leadership

1. Paternal-mechanistic From this view, business is survival of the fittest, and competition is a win-lose game Business leaders adopt the military model of command-and-control to serve the overall goals for efficiency and productivity This context offers the wisdom of:

However, it has two limitations:

Honouring the experience and wisdom of "those who have paved the way before us. Using resources efficiently Discounting the inherent capability and motivation of people to do good and be good Believing that life (including people and nature) can and should be used and controlled for achieving one's own (self-centred) goals.

2. Humanistic From this view, the purpose of business and leadership is still wealth-creation, but with a win-win mentality With this enlightened self-interest supplants selfish-interest. The leader's job is to help employees become self-actualized intra-preneurs who invest both their emotions and their minds, for their own sake and the organizations People are considered a resource to be managed sensitively. Win-win" problem-solving is prominent in this context.

Wisdom Leadership

Wisdom Leadership Humanistic

Inherent in this context is the wisdom to fulfil the potential of the paternal-mechanistic context by:
Recognizing the essential goodness and work ethic of people. Providing opportunities for individuals to actualize their potential, which includes self-actualisation as well as work abilities and aspirations.

However, it too has two limitations: Focusing on needs, where motivation occurs when something
is perceived as missing Focusing on individualism, where the "win-win" solutions are to promote individual interests, And do not necessarily include the interest of the organization as a whole, and other stakeholders such as society and nature

Wisdom Leadership
3. Holistic From this view, the goal of business and leadership evolves beyond "wealth-creation for shareholders" to "wealth-creation for the optimal benefit of all stakeholders Leadership "control" lies more in having a common purpose and value-system rather than the command-convince or even participative empowerment leadership styles This view recognizes that people are, in fact, the principal assets of wealth-creation, especially in the knowledge-intensive, learning organizations The holistic context is increasing in strength through initiatives such as "corporate social responsibility."

Wisdom Leadership - Holistic

Inherent in this context is the wisdom to fulfil the potential of the humanistic worldview by:
Recognizing the interconnectivity of people, nature, and business enterprises. Emphasizing the holistic nature of values and principles from which to operate harmoniously and creatively Basing motivation primarily on self-oriented achievement, even while it might benefit the larger whole Focusing personal and business goals only on having a better "in-this-world life, rather than taking into consideration the spiritual life that is both "in this world and transcends it."

But again, it has two limitations:

Wisdom Leadership
4. Spiritual-based Sees people as spiritual in nature, with a particular spiritual purpose in life, along with gifts to help fulfil that purpose Leadership in this context focuses on assisting people to fulfil their life purpose while integrating that with the organizations life purpose The emerging spiritual-based context for business leadership provides its own particular wisdom:
Focusing first on a relationship with a transcendental Source of consciousness Basing motivation primarily on selfless service intending first and foremost to give and benefit the larger whole, with the skill and conscious attention to do this in a sustainable Manner

Wisdom Leadership - Spiritualbased

Ethical Leadership
The science of Yogas also suggests four margas or paths to attain ultimate objective of bliss Dnyan Yoga Path of knowledge (Rational) Bhakti Yoga Path of devotion (Emotional) Karma Yoga Path of action (Action) Raj Yoga Path of comprehension or concepts In the same way manager can attain managerial goals all by himself or leading his men

Four Yogas or Paths

DNYAN BHAKTI KARMA
Based on Concern
Analysis Emotion Activity

RAJ
Vision

Data

Relationship

Doing

Mission

Asks Orientati on

What

Who

How

Why

Intellectual

Devotional

Practical

Idealistic

CORPORATE GOVERNANCE
**************************** **

CORPORATIONS AN OVERVIEW
Earlier business was carried out in three ways 1. Sole Proprietorship under contract act 2. Partnership under partnership act 3. Unlimited or Unincorporated company First two had limitations in tapping the capital In case of unincorporated companies owners were personally liable for debt when the business failed. Then came Joint-stock company act in U.K. in which liability was limited to the amount invested. This act became framework for company law in India. It also forms basis for corporate governance.

Definitions of Corporations
Corporation is a mechanism that enables different groups to contribute capital, skills and labor for pursuing their own interest. Individual who invest in business have an opportunity to take profit without actively participating in company operations. The management runs the company on behalf of the shareholders.

Definitions of Corporations
There are many definitions Notable points are Corporation is artificial, invisible entity existing only in the contemplation of law It possesses property of immortality Corporation is separate entity having its own rights, privileges and liabilities distinct from those of its members According to Devils dictionary it is device for obtaining individual profit without individual responsibility In general corporation facilitates tapping of large amount of capital, development and expansion of business

Evolution of the corporate structure

Corporate structure was developed gradually through Darwinian process.
It was designed to meet certain needs of society that were not met by earlier business models.

Various stages of corporate evolution processes were aimed at the corporations own perpetuity and growth. In the early Anglo-Saxon form, perpetual existence was given to municipal and educational corporations.

Evolution of the corporate structure contd

They exercised control over their own functions to ensure themselves freedom from the power of the kings. By the seventeenth century, states created corporations for specific purposes. The corporations created in Britain were aimed at colonies in India and America. The limited liability of these corporations attracted huge investments.

CHARACTERISTICS OF THE CORPORATE STRUCTURE

In every stage of development, corporate structure was made stronger and more inaccessible to outside control. Characteristics of corporations 1. Limited liability The risk of loss is limited to the amount invested. What is owed to the corporation is not owed to the individual and what is owed to the individual is not owed to the corporation. Shareholder in corporation enjoys lower level of risk 2. Transferability facility of free transfer of shares. It enables to minimize the level of risk. This attracts investment

Characteristics of Corporations
3. Legal Personality Corporations is a legal person enjoying following rights Corporation give reasonable protection to individuals working for it Corporations can make donations to political parties and thus can push their agenda in favor of it Corporations can own property Corporations can continue to exist as long as it has capital to run its business 4. Centralized Management Limited authority is given to investors in day-to-day operations. They exercise their rights to take decision on general issues. Board of directors is empowered to plan companys overall directions and managers are empowered to manage day-to-day operations

PURPOSE OF CORPORATION
Human Satisfaction corporations help satisfy basic needs of security, success and fulfillment of human beings by enabling them to market their skills and experience. Helps individual to create more wealth Social Structure earlier social structures were created to develop co-operation and specialization. Corporations as social structure brought in clear financial goal behind these structures. It shifted the power from hereditary rules

PURPOSE OF CORPORATION
Efficiency and Efficacy Corporations are sometimes created to achieve efficiency and efficacy. Efficiency is productivity whereas Efficacy implies ability to produce desired result Ubiquity and Flexibility Ubiquity is to do business or carry out activities anywhere. Corporations also provide flexibility to individuals to perform better Identity They have identity with rights and powers like normal citizens

CORPORATIONS AS A PERSON
Over the years attempts have been made to establish corporation as person and gain complete rights of citizen like political and voting rights To qualify as Moral Person corporation needs to adopt moral decision-making process which includes Ability to use moral in decision-making The ability of the decision-making policy to control not only the explicit corporate act but also the structures of policies and rules

CORPORATIONS EXPECTATIONS OF SOCIETY

Goods and services to satisfy their needs Good employment and business opportunities Society seeks assurance of growth and progress from corporations Two sets of laws governing corporation and its employees, shareholders, customers, suppliers and creditors. First set involves laws enacted by the legislators They form basis for establishing minimum standards. Government intervention is needed only when system of corporate governance fails to safeguard the interests of society In practice government and corporate influence each other

CORPORATIONS EXPECTATIONS OF THE MARKET

Laws of marketplace influence the operations of corporation These are laws of economics