Understanding Ethics

:The Basic Framework

Re-cap of the first Day
Ethics: Rule or Law or
Legislation Based
 The Stockholder/ Shareholder
 The Stakeholder

Leads us to the concept Good Corporate Governance

and Corporate Social Responsibility

Ethics: Moral Reasoning

Based
Normative Theories to
understand Ethics
 Stockholder Theory
 Stakeholder Theory
 Social Contract Theory
 Consequentialist
 Non Consequentialist or Categorical
 Stockholder/ Shareholder
 Managers ( including the BOD) are to act as agents of the
Shareholders and cannot spend on activities other than
business….and indicates that business can have no social
responsibilities
 “ There is one and only one social responsibility of business – to
use its resources and engage in the activities designed to
increase its profit so long as it stays within the rules of the
game, which is to stay engaged in open and free competition
without deception or fraud” …Milton Friedman.
Stakeholder
 Any individual or group who can affect or is affected by
the firm/organisation/corporate…..and who in turn would
adopt policies that would ensure optimal balance among
them.
 Regardless of the fact whether firms/ organisations/
corporates achieve improved/superior financial
performance they should promote the interests of all
stakeholders.
Stakeholders of a firm

 Primary/Direct  Secondary/Indirect
 Employees  Media
 Shareholders  Government
 Customers  Consumer
/Environmental groups
 Suppliers
 Judiciary
 Creditors
 Political/Activist groups
 Trade Union
 Trade Unions
 Trade associations
 Financial / Local
community
 Competitors
Social Contract
 Closely related to other theories.
 Ethically duty bound to increase the welfare of the society
by catering to the needs of the consumers & employees
and without in any way endangering the principles of
natural justice.
 There is a social contract or an implicit agreement
between society and a business unit ( or other such
created entity)….wherein the business unit will serve the
interests of the society.
Consequentialists
( the theory that human actions derive their moral worth solely
from their outcomes or consequences)

 Based on Ends or consequences

 Concerned with ends, results , consequences
 Asks what is the greatest good for the greatest number
……the greatest balance of benefits over harm.
 Utilitarianism
 Libertarianism
Non Consequentialists/
Categorical
(without exceptions or conditions; absolute; unqualified
and unconditional)

 Locates morality on certain duties and rights.

Ethics ( Ref. First day)
Five Sources of Ethical standards
 The Utilitarian Approach
 The Rights Approach
 The Fairness or Justice Approach
 The Common Good Approach
 The Virtue Approach
Each of the approaches helps us determine what standards of
behaviour can be considered ethical. But there is no
agreement on what is understood as utility, or what constitutes
rights or what is fair or what is the common good or even what is
the correct virtue. Each approach helps however to hone our
understanding and in more ways than one helps us to come to
a acceptable conclusion ….. To be and act ethically.
Ethics: Moral Reasoning
Based
To ask if a society is just is to ask how it distributes the
things we prize– income and wealth, duties and rights,
power and opportunities, offices and honours.
 There are fundamentally three ways to the equitable
distribution of goods or all things important in life,
namely using welfare, freedom and virtue to decide
on what is the right thing to do .
 Over the course we will explore the strengths and
weaknesses of these three ways of thinking about
justice.
Understanding Business
Ethics
 Rule or law or Legislation based Approach
 Moral reasoning based Approach

There is unfortunately no correct approach to understand

Business Ethics and so we need to “marry” both these
Approaches to create an understanding of Ethics in the
business context
Rule or Law Based
Approach to Ethics
The Compliance Approach
Corporate Governance
 Control mechanism to stop the incidence of corporate scams and
collapses…..moved from being voluntary to became mandatory.
 Many committees like the SEBI appointed Kumar Mangalam Birla
Committee 2000, The GOI appointed Naresh Chandra Committee
2002, The SEBI appointed Narayana Murthy Committee 2003, GOI
appointed Dr J J Irani Committee 2005….. All these committees
worked to refine and introduce Clause 49 of SEBI.
 Composition of board
 Appointment and structure of audit committees
 Remuneration of Directors
 Board Procedures
 Discussion & analysis as part of the Annual Report
 Disclosure of Directors Interest
 Shareholders Rights
 Code of Conduct for all Directors and senior Management
personnel
 CEO and CFO accountable for Company’s Risks
CSR
 Globally the concept has evolved and now
encompasses concepts such as triple bottom line,
corporate citizenship, philanthropy, strategic
philanthropy, shared values, corporate sustainability
and business responsibility.
 The CSR approach is holistic & integrated with the core
business strategy for addressing social and environmental
impacts of business
 CSR needs to address the well-being of all stakeholders
and not just the company’s shareholders.
 Philanthropic activities are only a part of CSR, which
otherwise constitutes a much larger set of activities
entailing strategic business benefits.
CSR
 Clause 135 of the Cos Act 2013
 Companies with a turnover of INR 1000 crs or more, or net
worth of INR 500 crs and more, or a nett profit of INR 5 Crs and
more…to spend at least 2% of their average net profit of the
previous three years on CSR activities
 Such companies to set up a CSR Committee with their Board
Members and at least one independent Director.
 The indicative activities which can be undertaken by a
company have been specified under Schedule VII of the Act.
 All CSR spends must be in India
 CSR Activities can be implemented
 Directly on its own
 Thru its own non profit foundation set up to facilitate CSR activities
 Thru independent NGOs that have been in existence for more
than three years and have been doing such related activities
 Collaboration or pooling their resources with other companies
CSR
 Should not be seen as a source for financing resources
gaps in government schemes. Use of corporate
innovations & management skills in the delivery of
public goods is at the core of CSR Implementation by
companies.
 Corporate philanthropy has reached the ‘board-
rooms” of top companies …..created a ‘dialogue for
development.’ Top Executives are looking at issues
that are humanitarian and there is now a
collaboration for greater good.
 Projected spend for 2017-18 and 2018-19 is about Rs
22840 crores (for the big 500 cos)
CSR
 Still remains to be philanthropic but has moved from
institutional building ( educational, research and
cultural) to community development through various
projects…..but its getting to be more strategic in
nature. (The new trends in CSR Page 10)
 Focus is on what is done with profits after they are
made but not on how profits are made….
 Benefits of a robust CSR Initiative
 Communities provide the “license to operate”
 Attracting and retaining employees
 Communities as suppliers by incorporating them into their
supply chain
 Enhancing Corporate reputation
Global CSR Guidelines and
Principles
 UNGC
 UN Guiding Principles on Business and Human Rights
 ILO’s tripartite declaration of principles on multinational
enterprises and social policy
 OECD: Guidelines : Multinational Enterprises
 Institute of Social and Ethical Accountability: AccountAbility’s
AA1000 Series of Standards
 Social Accountability International (SAI): SA 8000 Standard
 ISO 26000:Social Responsibility
 OECD CSR Policies
 Global Compact Self Assessment Tool
 The SROI Network
 The LBG Model
 National Voluntary Guidelines
 on Social , Environmental and Economic Responsibilities of
Business
 CSR
 Corporate Volunteering Program
 Setting up an Employee Volunteering Program (EVP)
 As a part of the CSR Effort of companies
 Volunteering for a cause ( usually pre-selected by HR)
during work hours
 Community Engagement
 Collection of stakeholders who reside in the local vicinity
of company operations and who rely on or are impacted
by its shared resources
Looking at the CSR Data
 Video

Bhutan : Tshering Togbay

The country isn’t just Carbon
Neutral its Carbon Negative