INTRODUCTION

Business ethics –Definition, nature, Characteristics - Ethical theories, Causes of

unethicalbehaviour; Ethical abuses - Work ethics- Code of conduct - Public good
INTRODUCTION
Some years ago, one sociologist asked business people, "What does an ethic mean to you?"
Among their replies were the following: "Ethics has to do with what my feelings tell me is
rightor wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what
the law requires." "Ethics consists of the standards of behaviour our society accepts." "I
don't know what the word means."
DEFINITION
The term "ethics" is derived from the Greek word "ethos" which refers to character or
customs or accepted behaviour’s. The Oxford Dictionary states ethics as "the moral
principle that governs a person's behaviour or how an activity is conducted". The synonyms
of ethics as per Collins Thesaurus are - moral code, morality, moral philosophy, moral
values, principles, rulesof conduct, standards.
Ethics is a set of principles or standards of human conduct that govern the behaviour of
individuals or organizations. Using these ethical standards, a person or a group of
persons oran organization regulate their behaviour to distinguish between what is right and
what is wrongas perceived by others
BUSINESS ETHICS
Business ethics is a form of applied ethics or professional ethics that examines ethical
principles and moral or ethical problems that can arise in a business environment. It is also
known as Corporate ethics. It applies to all aspects of business conduct and is relevant to
the conduct of individuals and entire organizations.
SOURCES
The various sources from where ethical values have been evolved. The main sources are
◦ Religion
◦ Society
◦ Legal System
◦ Genetic inheritance
◦ Marketplace
◦ Nature
◦ Culture

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CHARACTERISTICS OF BUSINESS ETHICS
1. Business ethics are based on social values, as the generally accepted norms of good or bad
and ‘right’ and ‘wrong’ practices.
2. It is based on the social customs, traditions, standards, and attributes.
3. Business ethics may determine the ways and means for better and optimum business
performance.
4. Business ethics provide basic guidelines and parameters towards most appropriate
perfections in business scenario.
5. Business ethics is concerned basically the study of human behaviour and conducts.
6. Business ethics is a philosophy to determine the standards and norms to make mutual
interactions and behaviour between individual and group in organisation.
7. Business ethics offers to establish the norms and directional approaches for making an
appropriate code of conducts in business.
8. Business ethics are based on the concepts, thoughts and standards as contributed as well as
generated by Indian ethos.
9. Business ethics may be an ‘Art’ as well as ‘Science’ also.
10. Business ethics basically inspire the values, standards and norms of professionalism in
business for the well-being of customers.
11. Business ethics is to motivate and is consistently related with the concept of service motives
for the customers’ view point.
12. Business ethics shows the better and perspective ways and means for most excellences in
customization.
13. Business ethics aims to emphasize more on social responsibility of business towards
society.
ELEMENTS OF BUSINESS ETHICS
(i) A Formal Code of Conduct:
Code of conduct is statements of organizational values. The Sarbanes-Oxley Act, 2002 made it important for
businesses to have an ethics code, something in writing which will help the employees know – with both ease
and clarity – what is expected of them on the job. The code should reflect the managements desire to
incorporate the values and policies of the organization.

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Code of Ethics:
For every new business incorporated, it is important for the management to have a code of ethics for his
business. It is usually unwritten for small businesses. It is basically a buzzword for the employees to observe
ethical norms and form the basic rules of conduct. It usually specifies methods for reporting violations,
disciplinary action for violation and a structure of the due process to be followed.
A code of ethics must summarize the beliefs and values of the organization. For a large businessempire, it is
important to hire talent to assist existing personnel with regards to integrity, understanding, responsibility,
and cultural norms of the country.
(ii) Ethics Committee:
Ethics committees can rise concerns of ethical nature; prepare or update code of conduct, and resolve ethical
dilemma in organization. They formulate ethical policies and develop ethical standards.
They evaluate the compliances of the organisation with these ethical standards. The committee members should
be conscious about the corporate culture and ethical concise of the organisation.
The following committees are to be formed:
a. Ethics committee at the board level- The committee would be charged to oversee
development and operation of the ethics management programme.
b. Ethics management committee – It will be charged with implementing and administrating an
ethics management programme, including administrating and training about policies and
procedures, and resolving ethical dilemmas.
(iii) Ethical Communication System:
Ethical communication system helps the employees in making enquiries, getting advice if needed and
reporting all the wrong done in the organisation.
Objectives of ethical communication system are:
a. To communicate the organizations values and standards of ethical conduct or business to
employees.
b. To provide information to employees on the company’s policies and procedures regarding
ethical code of conduct.
c. To help employees get guidance and resolve queries.
d. To set up means of enquiries such as hotlines, suggestion boxes and e-mail facilities.
Top management can communicate the ethical standards to the lower management which canbe further
transferred to the operational level.

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 (iv) An Ethics Office with Ethical Officers:
The job of an ethics officer is to communicate and implement ethical policies amongst employees of the
organisation. Ethics officer should develop a reputation for credibility, integrity, honesty and responsibility.
Functions of ethics officer are:
a. Assessing the needs and risks that an ethical programme must address.
b. Develop and distribute code of conduct.
c. Conduct ethical training programme.
d. Maintain confidential service to answer employee’s questions about ethical issues.
e. To ensure that organisation is in compliance with governmental regulations.
f. To monitor and audit ethical conduct.
g. To take action on possible violation of company’s code.
h. To review and update code in time.
(v) Ethics Training Programme:
Any written ethical code will not work unless supported and followed by a proper training programme. Some
companies have an in-house training department while others may opt for an out-source expert. To ensure
ethical behaviour, a corporate training programme is established which deals in assisting employees to
understand the ethical issues that are likely to arise in their workplace.
When new employees are to be recruited, the induction training should be arranged for them. Training will
help them to familiarize with company’s ethical code of behaviour.
(vi) A Disciplinary System:
A disciplinary system should be established in the organisation to deal with ethical violations promptly and
severely. If unethical behavior is not properly dealt with, it will result in threatening the entire social system.
A company should adopt fair attitude towards everyone without any discrimination.
(vii) Establishing an Ombudsperson:
An ombudsperson is responsible to help coordinate development of policies and procedures to institutionalize
moral values in the workplace.
(viii) Monitoring:
To make an ethical programme, a successful monitoring programme needs to be developed. Amonitoring
committee is formed. Monitoring can be done by keen observation by ethics officer, surveys and supporting
systems.

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SCOPE OF BUSINESS ETHICS
Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the
company.
1. Ethics in Compliance
Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could
be to do the right thing out of the fear of being caught rather than a desire to be abiding by the law. An ethical
climate in an organization ensures that compliance with law is fuelled by a desire to abide by the laws.
Organizations that value high ethics comply with the laws not only in letter but go beyond what is stipulated
or expected of them.
2. Ethics in Finance
The ethical issues in finance that companies and employees are confronted with include:
 In accounting – window dressing, misleading financial analysis.
 Related party transactions not at arm’s length
 Insider trading, securities fraud leading to manipulation of the financial markets.
 Executive compensation.
 Bribery, kickbacks, over billing of expenses, facilitation payments.
 Fake reimbursements
3. Ethics in Human Resources
Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics
should be a pivotal issue for HR specialists. The ethics of human resource management (HRM) covers those
ethical issues arising around the employer-employee relationship, such as the rights and duties owed between
employer and employee.
The issues of ethics faced by HRM include:
 Discrimination issues i.e. discrimination on the bases of age, gender, race, religion,
disabilities, weight etc.
 Sexual harassment.
 Affirmative Action.
 Issues surrounding the representation of employees and the democratization of the
workplace, trade etc.,
 Issues affecting the privacy of the employee: workplace surveillance, drug testing.
 Issues affecting the privacy of the employer: whistle-blowing.
 Issues relating to the fairness of the employment contract and the balance of power
between employer and employee.

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  Occupational safety and health.
Companies tend to shift economic risks onto the shoulders of their employees. The boom of performance-
related pay systems and flexible employment contracts are indicators of these newly established forms of
shifting risk.
4. Ethics in Marketing
Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and
regulation of marketing. The ethical issues confronted in this area include:
 Pricing: price fixing, price discrimination, price skimming.
 Anti-competitive practices like manipulation of supply, exclusive dealing
arrangements, tying arrangements etc.
 Misleading advertisements
 Content of advertisements.
 Children and marketing.
 Black markets, grey markets.
5. Ethics of Production
This area of business ethics deals with the duties of a company to ensure that products and production
processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is
usually a degree of danger in any product or production process and it is difficult to define a degree of
permissibility, or the degree of permissibility may depend on the changing state of preventative technologies
or changing social perceptions of acceptablerisk.
 Defective, addictive and inherently dangerous products and
 Ethical relations between the company and the environment include pollution,
environmental ethics, and carbon emissions trading.
 Ethical problems arising out of new technologies for eg. Genetically modified food
 Product testing ethics.
The most systematic approach to fostering ethical behaviour is to build corporate cultures that link ethical
standards and business practices.
NATURE OF BUSINESS ETHICS
Egoism – is a theory that suggests that an action is morally right if in a given situation all decision makers
freely decide to pursue their own self interests. In such it is okay to make a decision that bene ts oneself.
Important to ensure oneself does not confuse self-interest
with selfishness. Enlightened self-interest, we are well aware that any act of self-interest will

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reap future benefits for self-interest.
Egoism limitations – Relies on an external mechanism to control individual egoists, it can result in
significant short-term harm, an egoist persona may know what they want but not what they need.
Utilitarianism –is a theory that seeks the greatest happiness for the greatest number, the maximum
pleasure with the minimum pain. The ultimate consequentialist theory, as it focuses clearly on the
consequences of a decision
1. Ensure legality of business activities: Business activities must be legal and a business
man should not do any kind of illegal activity.
2. Customer orientation: All of his operations must be customer oriented. He must bear
in his mind that the “customer is the kinds” So, he should produce and distribute that
types of goods and services which can satisfy the customers.
3. Supplying good quality product: A businessman must have to ensure the supply of
good quality products and services. He has to maintain minimum standard of his
product and service.
4. Price: Businessman has to claim a reasonable price for has products or services that is
under buying capacity of the customers.
5. Following rules and regulations: A businessman must have to follow all business-
related rules and regulations that is formulated by the government.
6. Employer-employee relationship: This is an important issue to build up a friendly
relationship between employer and employees in an organization because a success of
the organization largely depends on it.
7. Avoiding fraud and cheating: A businessman has to avoid unfair means. He should
not try to cheat or fraud the customers or general public. He should always practice
honesty and sincerity in his activities.
8. Environmental issues: in the present world, environmental issues are considered a
vital matter. A businessman ensures healthy environment for the insiders as well as the
outsiders for running the organization smoothly.
9. Avoiding artificial shortage: Some dishonest businessmen create artificial shortage of
products and thereby they want to gain more profit. This is not acceptable.
10. Avoiding harmful competition: In order to survive in the market successfully, each
and every business organization should co-operate with each other. They should avoid
harmful competition.

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CAUSES OF UNETHICAL BEHAVIOUR IN WORKPLACE

1. Misusing Company Time

One of the most regularly revealed “bad behaviours” in the workplace is the misuse of companytime. This
category includes knowing that one of your colleagues is directing personal businesson company time, staff
appearing late, extra breaks or fake timesheets. These negative behaviour patterns can rapidly spread to
different workers. It can also cultivate hatred amongst colleagues, severely influencing morale and efficiency.

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 2. Unethical Leadership

Having a personal issue with your boss or manager is a certain thing, yet reporting to a person who is acting
dishonestly is another. This may come in a clear form, such as manipulating numbers in a report or sending
company money on improper activities; nonetheless, it can also happen more subtly, through bullying,
accepting inadequate gifts from suppliers, or requesting that you avoid a standard system just once. With
studies demonstrating that managers are responsible for 60 percent of workplace wrongdoing, the abuse of
leadership authority is a disastrous reality.

3. Lying to Employees

The quickest way to lose the trust of your employees is to lie to them, but managers do it constantly. One out
of every five workers report that their supervisor or manager has lied to them within the previous year.

4. Harassment and Discrimination

Laws require associations to be equivalent to business opportunity employers. Organizations must select a
various workplace, authorize policies and training that help an equivalent open- door program, and encourage
a situation that is respectful of a wide range of people. Unfortunately, there are still numerous people whose
practices break with EEOC rules and regulations. When harassment and discrimination of employees based
on ethnicity, race, gender, handicap or age occur, has a moral line been crossed as well as a legitimate one
also. Most companies are attentive to maintain a strategic distance from the costly legal and public
implications of harassment and discrimination, so you may experience this ethical problem in more delicate
ways, from apparently “harmless” offensive jokes by a manager to a more unavoidable “group think” mindset
that can be a symptom of a toxic culture. This could be a group mindset toward an “other” group. Your best
reaction is to keep up your qualities and repel such intolerant, illegal or unethical group standards by offering
an option, inclusive aspect as the best decision for the group and the company.

5. Violating Company Internet Policy

Cyberloafers and Cybershackers are terms used to recognize people who surf the web when they ought to
work. It’s a huge, multi-billion-dollar issue for organizations. Every day at least 64 percent of employers visit
sites that have nothing to do with their work.

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 6. Pressure to Succeed

Employees may choose to act unethically based on unrealistic expectations to succeed. For example, a
salesperson may make false claims to secure a deal to meet their quota.

ETHICAL ABUSES IN BUSINESS

Corporate ethical/legal abuses include:

 Creative accounting
 Earnings management
 Misleading financial analysis
 Insider trading
 Securities fraud
 Bribery/kickbacks
 Facilitation payments

WORK ETHICS

Work ethic is a value based on hard work and diligence. It is also a belief in the moral benefit of work and its
ability to enhance character.

Workers exhibiting a good work ethic in theory would be selected for better positions, more responsibility
and ultimately promotion. Workers who fail to exhibit a good work ethic may beregarded as failing to provide
fair value for the wage the employer is paying them and should not be promoted or placed in positions of
greater responsibility.

CHARACTERISTICS OF A GOOD WORK ETHICS

Reliability

Reliability goes hand in hand with a good work ethic. If individuals with a good work ethic saythey are going
to attend a work function or arrive at a certain time, they do, as they value punctuality. Individuals with a
strong work ethic often want to appear dependable, showing their employers that they are workers to whom
they can turn. Because of this, they put effort

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into portraying -- and proving -- this dependability by being reliable and performing consistently.

Dedication

Those with a good work ethic are dedicated to their jobs and will do anything they can to ensurethat they perform
well. Often this dedication leads them to change jobs less frequently, as theybecome committed to the positions
in which they work and are not eager to abandon these posts. They also often put in extra hours beyond what
is expected, making it easy for their employers to see that they are workers who go beyond the rest of the
workforce and truly dedicate themselves to their positions.

Productivity

Because they work at a consistently fast pace, individuals with a good work ethic are often highly productive.
They commonly get large amounts of work done more quickly than others who lack their work ethic, as they
don't quit until they've completed the tasks with which theywere presented. This high level of productivity is
also due, at least in part, to the fact that these individuals want to appear to be strong workers. The more
productive they are, the more beneficial to the company they appear to those managing them.

Cooperation

Cooperative work can be highly beneficial in the business environment, something that individuals with a
strong work ethic know well. Because they recognize the usefulness of cooperative practices - such as
teamwork -- they often put an extensive amount of effort into working well with others. These individuals
commonly respect their bosses enough to work with any individuals with whom they are paired in a productive
and polite manner, even if theydo not enjoy working with the individuals in question.

Character

Those with a good work ethic often also possess generally strong character. This means they are self-
disciplined, pushing themselves to complete work tasks instead of requiring others to intervene. They are also
often very honest and trustworthy, as they view these traits as befitting

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the high-quality employees they seek to become. To demonstrate their strong character, these workers embody
these positive traits daily, likely distinguishing themselves from the rest.

CODE OF CONDUCT

Code of conduct or what is popularly known as Code of Business Conduct contains standardsof business
conduct that must guide actions of the Board and senior management of the Company.

The Code may include the following:

 Company Values.
 Avoidance of conflict of interest.
 Accurate and timely disclosure in reports and documents that the company files before
Government agencies, as well as in Company's other communications.
 Compliance of applicable laws, rules and regulations including Insider Trading
Regulations.
 Maintaining confidentiality of Company affairs.
 Non-competition with Company and maintaining fair dealings with the Company.
 Standards of business conduct for Company's customers, communities, suppliers,
shareholders, competitors, employees.
 Prohibition of Directors and senior management from taking corporate opportunities
for themselves or their families.
 Review of the adequacy of the Code annually by the Board.
 No authority of waiver of the Code for anyone should be given.

The Code of Conduct for each Company summarises its philosophy of doing business. Although the exact
details of this code are a matter of discretion, the following principles havebeen found to occur in most of the
companies:

 Use of company's assets;

 Avoidance of actions involving conflict of interest;
 Avoidance of compromising on commercial relationship;
 Avoidance of unlawful agreements;
 Avoidance of offering or receiving monetary or other inducements;

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  Maintenance of confidentiality;
 Collection of information from legitimate sources only.
 Safety at workplace
 Maintaining and Managing Records
 Free and Fair competition
 Disciplinary actions

To create a code of ethics, an organization must define its most important guiding values, formulate behavioral
standards to illustrate the application of those values to the roles and responsibilities of the persons affected,
review the existing procedures for guidance and direction as to how those values and standards are typically
applied, and establish the systemsand processes to ensure that the code is implemented and effective. Codes
of ethics are not easily created from boilerplate. Ideally, the development of a code will be a process in which
Boards and senior management actively debate and decide core values, roles, responsibilities, expectations,
and behavioral standards.

Applicability

This code is applicable to the Board Members and all employees in and above Officers level (hereinafter
collectively referred to as "Employee(s)").

PUBLIC GOOD

A public good refers to a commodity or service that is made available to all members of a society. A public
good is a good whereby no individual can be excluded from benefiting from it. In other words, everyone can
benefit from its use. This could come in the form of a government public good such as education, or a natural
public good such as air.
One of the key aspects of a public good is the fact that anyone can use it, but it doesn’t diminishits availability.
For instance, one person can use a public streetlamp, yet it doesn’t diminish theability for someone else to also
use it.
Public goods are almost always funded publicly through the government. Perhaps the only public goods that
aren’t, are natural goods such as air, the sun, and such.
Examples of public goods include law enforcement, national defence, and the rule of law. Public goods also
refer to more basic goods, such as access to clean air and drinking water.

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The two main criteria that distinguish a public good are that it must be non-rivalrous and non-excludable.
Non-rivalrous means that the goods do not dwindle in supply as more people consume them; non-excludability
means that the good is available to all citizens.

CHARACTERISTICS OF PUBLIC GOODS

Non-excludability

Non-excludability means that the producer of the good is unable to prevent others from using it. For instance,
it would be extremely difficult to prevent each person from using a traffic light. Doing so would require extreme
levels of management and prevent the use of certain roads.
At the same time, non-excludability means customers cannot be directly charged. If we lookagain at traffic
lights, it would be difficult but also chaotic to put in place a system wherebyeach user pays. So not only is
it virtually impossible to prevent use but also collect payment. Public goods such as defence, policing, and
the law are all non-excludable. Everyone benefits from policing, which makes it impossible to charge some
but not others. In turn, this presentsus with the ‘free-rider problem’.

Free Rider Problem

The free rider problem is the burden on a shared resource that is created by its use or overuse by people who
aren't paying their fair share for it or aren't paying anything at all. The free rider problem can occur in any
community, large or small.

The issue with the free-rider problem stems from the fact that if certain individuals are not paying, then the
rest will also be reluctant to pay. In turn, a private firm would produce fewer of such goods, resulting in a
sub-optimal supply to society. Therefore, the solution would be for the government to pay for it from general
taxation.
With public goods, the initial and subsequent costs are generally borne by the taxpayer. As a result, it is the
taxpayer who bears the cost whilst others can benefit without paying for it.
The free-rider problem is considered a market failure because people are benefiting, yet not paying for the
good. As a result, this can lead to an overuse of public goods. For instance, policing and the law are usually
overstretched beyond their means.

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Non-rivalry

Non-rivalry is often forgotten when looking at public goods. For instance, many will mistakenly
consider universal healthcare as a public good. Whilst there is nothing to stop all citizens accessing
it, there is a rivalrous component.
To explain, the more people who take up a bed in a hospital, the fewer there are for other patients.
Similarly, the more doctors’ appointments taken, the fewer there is available for everyone else.

Excludable Non-excludable
Rival Private goods Common-pool
resources
Eg: Food, cars,
Bottled water Forest, fisheries
Non-Rival Club goods Public goods

Table 1 : Various types of goods PublicToll Road,

Goods vsPay TV
Private Defence

Goods

Private goods and public goods are complete opposites. Whilst public goods are non-rivalrousand
non-excludable, private goods are rivalrous and excludable. In other words, public goods are unable
to exclude people. By contrast, a private good can exclude people from its use, usually in a monetary
fashion. For instance, you have to pay to get into the cinema. The cinemaprevents those without a ticket
from getting into the theatre. By contrast, there is no feasible way of doing this. That, or it would be
incredibly expensive to do so.

Public Goods = Nonrivalrous and Non- excludable

Private Goods = Rivalrous and Excludable

At the same time, private goods are rivalrous. In other words, the more one person consumers, the less
there is for others. For instance, cakes in a bakery. There is only a limited quantity at any one time.
So, the more customers that purchase doughnuts the fewer are available to others.

******************
UNIT – I INRODUCTION

After studying this unit you will be able to understand –

Meaning and definition of business ethics
Importance of business ethics
Nature and purpose ethics
Morals for organisational interest
Cultural and human values in management
Indian and global perceptive of business ethics

CONTENTS
1.1 Concept of Business Ethics
1.2 Introduction to Business Ethics
1.3 Meaning of Ethics
1.4 Meaning of Business Ethics
1.5 Definition of Business Ethics
1.6 Importance of Business Ethics
1.7 Nature of Business Ethics
1.8 Role of Ethics
1.9 Purpose of Business Ethics
1.10 Elements of Business Ethics
1.11 Advantages of Business Ethics
1.12 How can Organisation Interest Build the Moral Culture
1.13 Indian ethos in Ethics, Morality and Culture
1.14 Indian and global perspective

1.1 Concept of Business Ethics

Ethics is as to principles or standards of human conduct that govern the behavior of individuals or organizations. Using
these ethical standards, a person or a group of persons or an organization regulate their behavior to distinguish between
what is right and what is wrong as

perceived by others. It is not a natural science but a creation of the human mind. For this reason, it is not absolute and is
open to the influence of time, place and situation.
Business ethics refers to a ‘code of conduct’ which businessmen are expected to follow while dealing with others.
‘Code of conduct’ is as to principles and expectations that are considered binding on any person who is a member of a
particular group. The alternative names for code of conduct are ‘code of ethics’ or ‘code of practice’.
Business ethics comprises the principles and standards that guide behaviour in the conduct of business. Businesses must
balance their desire to maximize profits against the needs of the stakeholders. Maintaining this balance often requires
tradeoffs. To address these unique aspects of businesses, rules–articulated and implicit, are developed to guide the
businesses to earn profits without harming individuals or society as a whole.
The coverage of business ethics is very wide as it deals with norms relating to a company and its employees, suppliers,
customers and neighbors, its fiduciary responsibility to its shareholders. It reflects the philosophy of business, one of whose
aims is to determine the fundamental purposes of a company. If a company’s purpose is to maximize shareholder returns,
then sacrificing profits to other concerns is a violation of its fiduciary responsibility. Corporate entities are legally
considered as persons.

1.2 Introduction to Business Ethics

A business is any organisation or entity whose primary objective is to provide goods or services for profit.Otherwise, Ethics
is the study of morality. In short, the moral status of the sorts of decisions that are made in the context of buying and
selling goods and services can be assessed as narrated below.
For any decision that affects some individual in a positive or a negative way is a moral decision—and decisions made by
businesses are among those that affect individuals the most! That being said, anyone who owns, or runs, or works for a
business—in short, almost all of us!—needs to be in the position to know which decisions are the morally acceptable, and
which are the morally not acceptable.
So, business ethics is the applied ethics discipline that addresses the moral features of commercial activity. In practice,
however, a dizzying array of projects is pursued under its

rubric. Programs of legal compliance, empirical studies into the moral beliefs and attitudes of business people, a panoply of
best-practices claims (in the name of their moral merit or their contribution to business success), arguments for (or against)
mandatory worker participation in management, and attempts in applying traditional ethical theories, theories of justice,
or theories applicable to firms or to the functional areas of business are all advanced as contributions to business ethicsand
especially in its academic literature. These projects vary considerably and often seem to have little in common other than
the conviction, held by those who pursue them, that whatever each is pursuing is business ethics.
Therefore,
• Business ethics is a branch of ethics which prescribes standards regarding how the business is to be carried out.
• Business ethics guidelines to stakeholders.
• Business ethics isthe responsibility of the managers and employees.
• Business ethics is the application of ethical judgments to business activities.

1.3 MEANING OF ETHICS

It is refers not to the disinterested or unconcerned observer, or a passive or unaffected and reluctant individual, or a
person who is weak – willed, biased, self centered or irrational, or even the person who is not placed or positioned in the
critical place of action. It refers necessarily to the rational and responsible person who finds himself obliged and
constrained to act by virtue of the position or the office he occupies and the function he is called upon discharge.

1.4 Meaning of Business Ethics

Business ethics means both as written and unwritten codes of moral standards that are critical to the current activities and
future aspirations of a business organisation. They can differ from one company to another because of differences in
cultural perspectives, operational structures and strategic orientations. The guiding framework of business ethics exists at
all levels of the organisation. It is all about having the wisdom to determine the difference between right actions and wrong
decisions.
In simple terms, business ethics fundamentally denotes the organization’s codes of corporate governance. It stipulates the
morality standards and behavioral patterns expected of individuals and the business as a whole. These moral benchmarks
can be perceived in terms of the microenvironment and macro environment of the business.
Ethics is a set of standard, or a code value system worked out from human reason and experience, by which free human
actions are determined as ultimately right or wrong, good or evil. If an action agrees with these standards, it is ethical; if it
does not agree, it is unethical.
1.5 Definition of Business Ethics
According to Kirk O. Hanson, a renowned ethics expert who also doubles as the Executive Director of the Markkula Center
for Applied Ethics, "business ethics is the study of the standards of business behavior which promote human welfare and
the good."
“Business Ethics’’ can be defined as the critical, structured examination of how people & institutions should behave in the
world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self – interest or (for firm).
“Business ethics’ is defined by the IBE as ‘the application of ethical values to business behavior’.

According to Kenneth Kernaghan is defined as “Ethics is concerned not only with distinguishing right from and good from
but also with commitment to do what is right or what is good. The concept of ethics is inextricably linked to that of value,
that is enduring belief that influence the choices we make from available means and ends.”
According to R.E. Freeman, A.F. Stoner is defined as “Ethics broadly and simply is the study of how our decisions affect
other people. It is also the study of people’s rights and duties and of the rules that people apply in making decisions.”
According to Wiley is defined as “Ethics reflects the character of the individual and more contemporarily, perhaps the
character of the business firm, which is a collection of individuals”.
According to Baumhart “Ethical standards are principles of ideals of human conduct”.

1.6 Importance of Business Ethics

Gouthama Buddha enunciated a beautiful truth. He was not against business; but insisted on being on being ethical
activities. He said, the trader is like honey bee, which sucks honey out of the flower; but does not harm the flower what
Buddha wanted to emphasise was that no harm must be done by the businessmen in quest of personal gains. We can go a
step forward about this analogy. The honey bee, while taking the little honey of the flower, without harming flower,
actually helps the flower in the process of fertilization by pollinating it. In other words, the bee (businessman) in the activity
of sucking honey, helps the flower to multiply and grow its species. Thus, there is symbiosis in the activity. The flower helps
the bee with honey; and the bee in turn helps the flower to multiply. The business grows with the help of consumers; and
consumers grow with the help of business, provided the activities are done with ethical base. Thus, ethics forms the
foundation of good business system in the society which will be mutually helpful for growth.
This is the sum and substance of modern advertisements: Help us to grow, so that we may serve you better. We grow to
serve and we serve to grow.
Importance of ethics in business can be enumerated as follows:
1. Business is not entity in the society, totally jettisoned from the main stream of society. It is only part and parcel of
the society and its activities. As a matter of fact, all activities in the society have ethical bearing and we cannot dissociate
business from ethical conduct.

People of any profession, viz., Doctor, Lawyer, Engineer, Minster, Policeman or judge should have their professional ethics
and conduct.
2. There are several stake holders in the business. They will be particularly interested in the behavior of the business
organization. Naturally, they will expect a very high standard of morality and ethics in business.
3. A business firm thrives with the trust and goodwill of its employees. The firm is expected to maintain high moral
standard, treating all the employees with equality, encouraging team and work culture with ethical practices.
4. Building the image of a business firm is an arduous task. This can be done only by upright and honest
methods. An ethical organization commands not only trust, but also respect from all stakeholders. All stake holders gain a
lot by the ethical image of the business. The moral standard of workers, the ethical base built up by the company and the
excellent and systematic service rendered by the organization, could not be even dreamt in the present day transport
companies under nationalization.
5. Lack of ethical standards will result in deterioration of relationship between employees and employers which will in
the due course lead to decline in productivity and escalation of costs.
6. Companies with high ethical standards command respect from the public, as well as government. India’s well
managed companies are published by ‘Business India’. These companies have a brand value and accepted as leaders in the
industry.
7. Ethical practices of the firms in the long – run bring enormous dividends, goodwill and appreciation of the public.
1.7 Nature of Business Ethics Code of conduct
Business ethics is a code of conduct. It tells what to do and what not to do for the welfare of the society. All businessmen
must follow this code of conduct.
Based on moral and social values
Business ethics is based on moral and social values. It contains moral and social principles (rules) for doing business. This
includes self-control, consumer protection and welfare, service to society, fair treatment to social groups, not to exploit
others, etc.

Gives protection to social groups

Business ethics give protection to different social groups such as consumers, employees, small businessmen, government,
shareholders, creditors, etc.
Provides basic framework
Business ethics provide a basic framework for doing business. It gives the social cultural, economic, legal and other limits of
business. Business must be conducted within these limits.
Voluntary
Business ethics must be voluntary. The businessmen must accept business ethics on their own. Business ethics must be like
self-discipline. It must not be enforced by law.
Requires education and guidance
Businessmen must be given proper education and guidance before introducing business ethics. The businessmen must be
motivated to use business ethics. They must be informed about the advantages of using business ethics. Trade Associations
and Chambers of Commerce must also play an active role in this matter.
Relative Term
Business ethics is a relative term. That is, it changes from one business to another. It also changes from one country to
another. What is considered as good in one country may be taboo in another country.
New concept
Business ethics is a newer concept. It is strictly followed only in developed countries. It is not followed properly in poor and
developing countries.

1.8 ROLE OF ETHICS

We have studied, Ethics is the study of morality. It examines the moral standards of a society, group, profession or
religious, whether these standards are reasonable or not, not, i.e., whether they are supported by goods reasons. It is the
process of examining the moral standards of a person to determine whether these standards are reasonable or
unreasonable to hold, in order to apply them in practical situations and issues. The aim of ethics is to develop a body of
moral standards that we feel are reasonable to hold.
We should not come to the conclusion that ethics is only way of studying morality. There are several social sciences like
Anthropology, Sociology, Psychology also study about morality.

Ethics is a normative study of morality, while other sciences make only a positive or descriptive study of morality. We know
that normative study inculcates norms in the study. It tells what is good and what is bad. In other words, normative studies
ultimately tell what are good and what are not good; what are right and what are wrong. It is a study of what should be.
On the other hand, positive or descriptive study tells what it is. This does not reach any conclusion about good or bad.
Instead, it simply describes what they are. Anthropologists or Sociologists may describe the character and culture of a
particular society or a group of aboriginal tribes. In this context, they may also study about moral standards involved in the
culture of the people. These social scientist would try to investigate the genesis of that type of culture.
Finally, we have to differentiate between the terms Moral, Immoral and Unmoral. Morality or moral is an expression
connected with ethics which declares as good and right. On the other hand, ‘immoral’ is a term which is considered as
‘inconsistent with what is right’. It is definitely wicked or licentious.
The term ‘unmoral’ does not connote immorality. Unmoral is an expression which denotes ‘having no moral attached’. The
moral is not given to making moral reflections. This expression is also called amoral i.e., it is neither moral or immoral;
without moral sense or principles attached.
Thus, Ethics is a study of moral standards whose standards whose explicit purpose is to determine, as far as possible
whether a given moral standard ( or moral judgment based on that standard) is more or less correct.

1.9 Purpose of Business Ethics

The Oxford English Dictionary defines ethics as the moral principles that govern a person’s behaviour, and as the branch of
knowledge that deals with moral principles. Both are open to interpretation, and neither provides a practical application for
business.
Business ethics is not black or white. Decisions can be extremely complex and difficult to implement. Life is filled with grey
and companies are not equipped to ethically deal with grey. The trap in associating ethics with scandals like Enron or
BernieMadoff, is that it can normalize lesser breaches. Just because a company does not act like an Enron doesn’t make it
ethical.

It’s time to create a fresh, new, practical usage of business ethics that companies, boards, leaders and employees can rely
on. When we choose the behaviour that for own long-term benefit, ethics are the moral principles that govern that
behaviour .Therefore, ethical behaviour is the long-term benefit, which makes a sense in the long run.
Ethics therefore, is what makes sense in the long run. In the same way business ethics is what makes sense for
organizations in the long run for their customers, their employees, their investors and their wider stakeholders based on
the best possible rational decisions in their interests. There is a wealth of evidence and research supporting this. Therefore,
many businesses operate on the false premise that business ethics may not be useful, will face failure in the long run.
Very few people critically evaluate what the purpose of ethics really is; very often don’t take time to reflect on what we
really want. Individuals have absolute power to choose their own moral principles, and to decide how to behave. They are
responsible for what they choose to do. This does not justify actions on a whim in search of short term gains in the name of
ethics. Something that may appear beneficial right now often destroys value in the long run. Our busy lives force us to
focus on the short term, often at the expense of the long term. But, ethical decision making allows to balance these
conflicting choices. It requires self-awareness, a commitment to values, and critical thinking to ascertain what really is in
the sustainable interest.

1.10 ELEMENTS OF BUSINESS ETHICS

Throughout the business world, no trait is more important and influential to the success of a company than practicing
respectable business ethics from the inside out. A solid ethics foundation has four key elements.

(i) A Strong Code of Ethics:

The Sarbanes-Oxley Act of 2002 made it important for businesses to have an ethics code, something in writing about what
one ought to do, and what to strive for. This also serves to inform employees of the vision that the company’s executives
have for the company’s image and goals. This helps new employees learn important aspects of how to carry out their
actions at work, and provides veteran employees with something to fall back on; both as a reminder and as something to
cite if they are being pressed to do something that they believe to be wrong.

(ii) Ethics Training:

Any ethics code, no matter how well written, that is not understood or followed is only on the paper or disk space it is
stored on. Some companies have an in-house training department that can provide the requisite training. A trainer needs
to have sufficient experience and training in the field of ethics to be most effective.
(iii) Ethics Coach:
Either in-house or out-sourced expert, who will be available as a friendly and confidential resource for employees facing
complicated ethical dilemmas should be arranged in every company. This person needs to have sufficient expertise in
employing ethical concepts, analytical skills and decision- making tools to facilitate an ethical resolution to the problem.
Also essential in an ethics coach is the assurance of confidentiality and also a friendly and upstanding coach who protects
confidentiality, and speaks with everyone in the office at various times, not just when there is a difficulty.
Systems for Confidential Reporting:
This serves to provide employees with a means for reporting observed misconduct or violations without fear of reprisal.
This serves to further discourage ethical violations, while getting everyone involved. It also provides the all important “do
something about it” option. Additionally, early detection and resolution of ethical problems may save the company huge
amounts of money in cases such as theft or other misconduct.

1.11 ADVANTAGES OF BUSINESS ETHICS

More and more companies recognize the link between business ethics and financial performance. Companies displaying a
“clear commitment to ethical conduct” consistently outperform companies that do not display ethical conduct.

(i) Attracting and Retaining Talent

People aspire to join organisations that have high ethical values. Companies are able to attract the best talent and an
ethical company that is dedicated to taking care of its employees will be rewarded with employees being equally dedicated
in taking care of the organisation. The ethical climate is a matter of concern to the employees. Ethical organizations create
an environment that is trustworthy, making employees willing to rely, take decisions and act on

the decisions and actions of the co-employees. In such a work environment, employees can expect to be treated with
respect and consideration for their colleagues and superiors. It cultivates strong teamwork and productivity and support
employee growth.

Retaining talented people is as big a challenge as getting them in the first place. Work is a means to an end for them, not an
end in itself. The relationship they have with their employer must be a mutual, a one which is win- win and in which their
loyalty should not be taken for granted. Talented people will invest their energy and talent only in organisations with values
and beliefs that match their own. In order to achieve this match, managers need to build cultures, compensation and
benefits packages, and career paths that reflect and foster certain shared values and beliefs.

(ii) Investor Loyalty

Investors are concerned about ethics, social responsibility and reputation of the company in which they invest. Investors
are becoming more and more aware that an ethical climate provides a foundation for efficiency, productivity and profits.
Relationship with any stakeholder, including investors, based on dependability, trust and commitment results in sustained
loyalty.
(iii) Customer Satisfaction
Customer satisfaction is a vital factor in successful business strategy. Repeat purchases/orders and enduring relationship of
mutual respect is essential for the success of the company. The name of a company should evoke trust and respect among
customers for enduring success. This is achieved by a company that adopts ethical practices. When a company because of
its belief in high ethics is perceived as such, any crisis or mishaps along the way is tolerated by the customers as a minor
aberration. Such companies are also guided by their ethics to survive a critical situation. Preferred values are identified
ensuring that organizational behaviors are aligned with those values. An organisation with a strong ethical environment
places its customers’ interests as foremost. Ethical conduct towards customers builds a strong competitive position. It
promotes a strong public image.

To summarise, companies that are responsive to employees’ needs have lower turnover in staff: Shareholders invest their
money into a company and expect a certain level of return from that money in the form of dividends and/or capital growth.
Customers pay for goods, give their loyalty and enhance a company’s reputation in return for goods or services that meet
their needs. Employees provide their time, skills and energy in return for salary, bonus, career progression, learning, etc.

1.12 How can Organisation Interest Build the Moral Culture

For an organization to build a moral culture, it must exhibit trust and have the benefit of all involved - both inside and
outside the organization - in mind. The formula for doing so is fairly straightforward. First and foremost, there must be
leadership with the highest moral values. Second, there must be an environment in which employees have a sense of
belonging to and interest in an organisation. A Moral Leadership Code Moral leadership is the starting point for any
business that expects to develop a moral culture. It's the leadership that establishes the organization's values and sets the
pace for its members. Individuals should take on responsibility in a manner that helps develop not only their own moral
well-being, but encourages concern for the development of others. Leaders should understand the nature of the
organisation's workforce and display empathy for others. Leaders should be open and transparent in the decision making
process, They should work in an atmosphere of warmth and respect for employees, Employee Moral Character
Development If the leadership of an organisation promotes a moral culture and follows its own practices, its employees will
act accordingly. In taking on responsibility, employees will do so in a moral way, and cause others to develop similarly. If
employees appreciate that the leadership has empathy, they will act likewise. Employees will emulate leaders' follow
through on promises, exhibit fair treatment and remain effective communicators. Small Businesses versus Large Institutions
With small business, the moral culture is a reflection of owners or founders directly. If leaders model the moral
consciousness required, this sets the example for employees and volunteers. A sense of respect and belonging develops, It
is the close relationships of leaders with employees that allow moral culture to become secure. cpcu news•
October/November 2010 Anthony W. Bucci Jr., CPCU, AIS, is president of Bucci Insurance Group and a member of the
Society's Ethics Committee. Michael B. Weinberg, CPCU, J.D., is a partner with LeClairRyan and chair of the Society's Ethics
Committee .

Corporations with thousands of workers may have a greater challenge because of the numbers of those at management
and employee levels. Still, moral culture always starts at the top. When the leaders of the organisation remain open, earn
trust and communicate well, the workforce will appreciate and embrace the moral message. The workers will feel part of
the organisation. Because of the size of the entity, additional steps involving third•party support may be needed to
reinforce the importance of moral culture. CPCU Society Ethics Support Those insurance organizations that promote a
moral culture will find similarly suited individuals in the cpeu Society. The Society's Ethics Committee develops programs,
materials and articles to encourage leaders to develop a moral culture. Members have a sense of belonging, whether it's
with a chapter in their state or while engaged in Society service. Itis funher reinforces what large institutions seek to
achieve. Smaller organisations, too, benefit from such encouragement
Bazerman’s first book for a general audience on how to foster ethical behavior, Blind Spots, explained why people behave
unethically without intending to. His new book, The Power of Noticing, underlines why leaders need to be more aware of
ethical challenges and other “organisational threats”—and explains how they can recognize and address such challenges.
He hopes to foster organisational cultures where, by design, members keep abreast of critical information and pay
attention to what they learn, thereby avoiding lapses in judgment, and becoming generally more vigilant.
Whistle-blowing runs counter to rational self-interest, he explains, so a badly run organisation can be particularly
susceptible to what social scientists call “motivated blindness.” Psychological barriers inhibit individuals’ abilities to
perceive something amiss—whether it’s inconvenient data or evidence of wrongdoing—and then act. Even substantiated
suspicion can be short- circuited by doubt: when people smell smoke, they can be reluctant to go looking for fire. Bazerman
describes the mindset: “Life is busy, I don’t know who to report this information to, I’m not positive that something’s
wrong—I just feel that something’s wrong.”
Bazerman can recall this emotional state vividly because he has experienced it himself. In 2005, the U.S. Department of
Justice asked him to be a witness for the prosecution of the tobacco industry. Days before he was to testify, a government
lawyer asked him to water down his recommendations. Bazerman refused, but let the matter drop; he was tired and
overwhelmed, he writes, mistrusting his perception that the request was corrupt. Weeks later, news reports that the
prosecution had cut the fine it sought from $130 billion to $10 billion were followed by a New

York Times story alleging that another expert witness had been urged to alter his testimony—the result of political pressure
applied to prosecutors to water down the charges and thus reduce the financial penalty. This news of witness-tampering
spurred Bazerman to go public with his own story, but his initial passivity haunts him: why didn’t he say anything?
Partly it is because people tend to consign front-page scandals to “a special category of viscerally appalling crimes,” he
writes. Such outrages appear to be outliers. It’s easy to think of motivated blindness and institutional inertia as something
that happens only to others. People don’t realize that “human failure to act is remarkably common”—and that, in the
moment, the signs of wrongdoing can be mundane and easy to miss.
In his book, Bazerman highlights promising directions in behavioral decision research that have the potential to promote
more effective and more ethical noticing. One involves “choice architecture,” a term coined by Richard H. Thaler and
Walmsley University Professor Cass R. Sunstein in their 2008 book Nudge: Improving Decisions about Health, Wealth, and
Happiness.Choice architecture taps knowledge of psychology to identify better ways to present options—and Bazerman
asserts that organizations can use it to create systems that increase the likelihood of their staff noticing key data. In a study
he conducted with Kennedy School colleagues Alexandra van Geen and professor of public policy Iris Bohnet, supervisors
were asked to assess a pool of job candidates. When judging applicants one at a time, they tended to favor men on
quantitative tasks and women on verbal tasks. But when judging male and female candidates side-by-side, they relied on
performance-related data; gender biases no longer factored into the decision. Changing the structure of the hiring process
encouraged people to pay attention to the important information.
Though examples of glaring failures to notice may appear to outnumber models for good behavior, Bazerman offers a
mildly hopeful observation: success in noticing—and acting accordingly—often goes unnoticed itself. He illustrates with an
example beyond the realm of ethics. In 2012, state and local government officials on the East Coast who’d studied previous
severe storms observed that hundreds of drivers had been trapped on roadways in dangerous conditions. That prompted
them, in advance of Hurricane Sandy, to limit highway use to emergency personnel. This minimized casualties and allowed
them to direct their resources more efficiently. In Bazerman’s view, those civil servants “create[d] a non-story, and
avoid[ed] a bad story.” There is, he says, “a power to be extraordinarily effective by seeing things in advance.”

1.13 INDIAN ETHOS IN ETHICS, MORALITY AND CULTURE

Indian ethico – moral rules and conduct of life go back to several millennia, when the Vedas prescribed the ground rules of
human existence and living. A part from what has been stated above, the unique feature of Hindu religion and Indian ethos
is its universality, which cannot be had in any other religion and culture.
This is the universal prayer of Vedas, transcending the frontiers, nations, religious and also people. This is very in several
respects exhibiting ‘Universal Love’ of humankind. Hence, this is singularly different from other religions of the world. It is
only through Vedas and Upanishads, Hindu religion has been elevated as the spiritual religion of the world.
The ethical discussions and teachings in India continued all through Indian history, though was ruled by different emperors
and foreign rulers. The Upanishads, Puranas and Smrithis continued the tradition. The values enshrined in these divine
dicta were put forward for popular use in great epics of Mahabaratha and Ramayana. This is the only literature in the world
which has been devoted exclusively to spiritual quest. The two epics of India gave human dilemmas in every walk of life and
attach importance to values in dealing all such cases.

1.14 INDIAN AND GLOBAL PERSPECTIVE

The following list of principles incorporates the characteristics and values that most people associate with ethical
behaviour. Ethical decision making systematically considers these principles:
(i) Honesty:
Ethical executives are honest and truthful in all their dealings and they do not deliberately mislead or deceive others by
misrepresentations, overstatements, partial truths, selective omissions, or anyothermeans.
(ii) Integrity:
Ethical executives demonstrate personal integrity and the courage of their convictions by doing what they think is right
even when there is great pressure to do otherwise; they are principled, honorable and upright; they will fight for their
beliefs. They will not sacrifice principle for expediency, be hypocritical, or unscrupulous.
(iii) Promise-Keeping & Trust worthiness:

Ethical executives are worthy of trust. They are candid and forth coming in supplying relevant information and correcting
misapprehensions of fact, and they make every reasonable effort to fulfill the letter and spirit of their promises and
commitments. They do not interpret agreements in an unreasonably technical or legalistic manner in order to rationalise
non-compliance or create justifications for escaping their commitments.
(iv) Loyalty:
Ethical executives are worthy of trust, demonstrate fidelity and loyalty to persons and institution charging of interest at any
rate is by friendship in adversity, support and devotion to duty; they do not use or disclose information learned in
confidence for personal advantage. They safeguard the ability to make independent professional judgments by
scrupulously avoiding undue influences and conflicts of interest. They are loyal to their companies and colleagues and if
they decide to accept other employment, they provide reasonable notice, respect the proprietary information of their
former employer, and refuse to engage in any activities that take undue advantage of their previous positions.
(v) Fairness:
Ethical executives are fair and just in all dealings; they do not exercise power arbitrarily, and do not use overreaching or
indecent means to gain or maintain any advantage or take undue advantage of other’s mistakes or difficulties. Fair persons
manifest a commitment to justice, the equal treatment of individuals, tolerance for and acceptance of diversity, are open-
minded; willing to admit they are wrong and, where appropriate, change their positions and beliefs.
(vi) Concern for Others:
Ethical executives are caring, compassionate, benevolent and kind; they like the Golden Rule, help those in needs, and seek
to accomplish their business objectives in a manner that causes the least harm and the greatest positive good.
(vii) Respect for Others:
Ethical executives demonstrate respect for the human dignity, autonomy, privacy, rights, and interests of all those who
have a stake in their decisions; they are courteous and treat all people with equal respect and dignity regardless of sex, race
or national origin.
(viii) Law Abiding:
Ethical executives abide by laws, rules and regulations relating to their business activities.

(ix) Commitment to Excellence:

Ethical executives pursue excellence in performing their duties, are well informed and prepared, and constantly endeavour
to increase their proficiency in all areas of responsibility.
(x) Leadership:
Ethical executives are conscious of the responsibilities and opportunities of their position of leadership and seek to be
positive ethical role models by their own conduct and by helping to create an environment in which principled reasoning
and ethical decision making are highly prized.
(xi) Reputation and Morale:
Ethical executives seek to protect and build the company’s good reputation and the morale of its employees by engaging in
no conduct that might undermine respect and by taking whatever actions are necessary to correct or prevent in
appropriate conduct of others. (xii)Accountability:
Ethical executives acknowledge and accept personal accountability for the ethical quality of their decisions and omissions
to themselves, their colleagues, their companies, and their communities.
Summary
Ethics is a set of principles or standards of human conduct that govern the behavior of individuals or organizations. The
business ethics can be refers to as “code of conduct”. It is a set of principles and expectations that are considered binding
on any person who is member of a particular group. Business must balance their desire it maximize profits against the
needs of the stakeholders. Ethics is a study of morality. In simple terms, business ethics fundamentally denotes the
organisation’s codes of corporate governance. The importance of the business ethics are treat the customer with respect,
as though he is better than you and always tell the customer truth. And also ethics to take courage and hard work. They
lead to good business sense. A company with a code of business ethics is more likely to build a good reputation, which is
more likely to bring financial rewards over a period. Business ethics are those virtues that business values and standards as
established. Most business people do not take a keen interest in implementing business ethics. Most of them think that
making profit is the most important thing but as they realize later, no matter how hard they try, they do not achieve their
objectives. Business ethics is what makes sense for organizations in the long run for their customers, their
customers, their employees, their investors and their wider stakeholders based on the best possible rational decisions in
their interests. Ethical organizations create an environment that is trust worths, making employees willing to rely, take
decisions and act on the decisions and actions of the co-employees. A moral leadership code moral leadership is the
starting point for any business that expects to develop a moral culture. Ethical executives are caring compassionate,
benevolent and kind. They like the golden rule, help those in needs,and seek to accomplish their business objectives in a
manner that causes the least harm and the greatest positive good.

KEY TERMS
1. ETHICS - It refers necessarily to the rational and responsible person who finds himself obliged and constrained to
act by virtue of the position or the office he occupies and the function he is called upon discharge.
2. BUSINESS ETHICS - Business ethics means both as written and unwritten codes of moral standards that are critical
to the current activities and future aspirations of a business organisation.

Self Assessment Questions

1. What is Business Ethics?
2. Define Business Ethics
3. Explain the importance of business ethics
4. Explain the nature of business ethics.
5. What are the purposes of business ethics?
6. Explain the role of ethics.
7. Explain the elements of business ethics
8. What are the advantages of business ethics?
9. Explain the Indian and global perspective

Learning Objectives

UNIT – II THEORIES

After studying this unit you will understand

Consequential theories and non – consequential theories.
Ethical dilemma
Ethical decision making

CONTENTS

2.1 Introduction of Consequential Theories

2.2 Meaning of Consequential Theories
2.3 Definition of Consequential Theories
2.4 Principles of Consequential Theories
2.5 Objectives of Consequential Theories
2.6 Introduction of non – Consequential Theories
2.7 Meaning of non – Consequential Theories
2.8 Introduction of Ethical Dilemma
2.9 Meaning of Ethical Dilemma
2.10 Meaning of Ethical Decision Making
2.11 Meaning of Ethical Decision Making
2.12 Definition of Ethical Decision Making
2.13 Process of Ethical Decision Making
2.1 Introduction of Consequential Theories
A consequential theory judges the rightness or wrongness of an action based on the consequences that action has. The
most familiar example would be utilitarianism--``that action is best that produces the greatest good for the greatest
number'' (Jeremy Bentham).

Consequential is the class of normative ethical theories holding that the consequences of one's conduct are the ultimate
basis for any judgment about the rightness or wrongness of that conduct can reflect. Thus, from a consequential point of
view a morally right act (or omission from acting) is one that will produce a good outcome, or consequence. In an extreme
form, the idea of consequential is commonly encapsulated in the English saying, "the ends justify the means meaning that if
a goal is morally important enough, any method of achieving it is acceptable.
Consequential is usually contrasted with deontological ethics (or deontology), in that deontology derives the rightness or
wrongness of one's conduct from the character of the behaviour itself rather than the outcomes of the conduct. It is also
contrasted with virtue ethics, which focuses on the character of the agent rather than on the nature or consequences of
the act (or omission) itself, and pragmatic ethics which treats morality like science: advancing socially over the course of
many lifetimes, such that any moral criterion is subject to revision. Consequential theories differ in how they define moral
goals.
Some people argue that consequential and deontological theories are not necessarily mutually exclusive. For example, T.M.
Scanlon advances the idea that human rights, which are commonly considered a "deontological" concept, can only be
justified with reference to the consequences of having those rights. Similarly, RoberNuzick argues for a theory that is
mostly consequential, but incorporates inviolable "side-constraints" which restrict the sort of actions agents are permitted
to do.

2.2 Meaning of Consequential Theories

This array of alternatives raises the question of which moral theories count as consequential (as opposed to deontological),
and why. In practical usasge, the term ’consequential ‘ seems to be used as a family resemblance term to refer to any
descendant of classic utilitarianism that remains close enough to its ancestor in the important respects. Of course, different
philosophers see different respects as the important ones. Hence, there is no agreement on which theories count as
consequential under this definition.
To resolve this vagueness, it is important to determine which of the various claims of classic utilitarianism are essential to
consequential. One claim seems clearly necessary. Any

consequential theory must accept the claim that is labeled ‘consequential’, namely, that certain normative properties
depend only on consequences. If that claim is dropped, the theory ceases to be consequential.
Therefore,it is less clear whether that claim by itself is sufficient to make a theory consequential. Several philosophers
assert that a moral theory should not be classified as consequential unless it is agent-neutral (McNaughton and Rawling
1991, Howard-Snyder 1994, Pettit 1997). This narrower definition is motivated by the fact that many self-styled critics of
consequential argue against agent-neutrality.
Other philosophers prefer a broader definition that does not require a moral theory to be agent-neutral in order to be
consequential (Bennett 1989; Broome 1991, 5–6; and Skorupski 1995). Criticisms of agent-neutrality can therefore be
understood as directed against one part of classic utilitarianism that need not be adopted by every moral theory that is
consequential. Moreover, they argue, the narrower definition conflates independent claims and obscures a crucial
commonality between agent-neutral consequential and other moral theories that focus exclusively on consequences, such
as moral egoism and recent self-styled consequential who allow agent-relativity into their theories of value (Sen 1982,
Broome 1991, Portmore 2001, 2003).
A definition solely in terms of consequences might seem too broad, because it includes absurd theories such as the theory
that an act is morally right if it increases the number of goats in Texas. Of course, such theories are implausible. Still, it is
not implausible to call them consequential, since those theories look only at consequences. The implausibility of one
version of consequential does not make consequential implausible in general, since other versions of consequential still
might be plausible.
Besides, anyone who wants to pick out a smaller set of moral theories that excludes this absurd theory may talk about
evaluative consequential, which is the claim that moral rightness depends only on the value of the consequences. Then
those who want to talk about the even smaller group of moral theories that accepts both evaluative consequential and
agent-neutrality may describe them as agent-neutral evaluative consequential. If anybody still insists on calling these
smaller groups of theories by the simple name, ‘consequential’, this narrower usage will not affect any substantive issue.

So, what matters is only that we get clear about exactly which claims are at stake when someone supports or criticizes
what they call “consequential”. Then we can ask whether each objection really refutes that particular claim.

2.3 Definition of Consequential Theories

Consequential is a normative ethical theory, which means, it is a theory about ethical action and a proposed method for
deciding how one should choose the right ethical act. (Feiser) Consequential says that the consequences of an action are all
that matter when taking an ethical decision to act. There is important reason for the root word. The word consequence is
selected carefully and it is possible to make a distinction between the word itself and synonyms such as, results or
outcomes. (Haynes) The word result or outcome is more commonly understood to mean the product of an action directly
and inevitably follows from that action. Consequences have the possibility of being probable, or hypothetical. Alternative
moral theories to consequential are: deontology, which proposes that ethical decisions should be made by following rules
or fulfilling duties; and virtue ethics, which proposes that the ethical action to be taken is the one that would be taken by a
virtuous person.
Consequential theories have been around for a long time. But the term “consequential” was coined by Elizabeth Anscombe
in her essay “Modern Moral Philosophy” in 1958. (Frost) Utilitarianism is by far the most widely known form of
consequential, and there often is confusion when distinguishing the two. Teleology is the classical term for ethical theories
that focus on outcomes, or ends, to determine correct ethical action. (Ferrell) Teleology comes from the Greek words
“telos” meaning, “end” and “logos” meaning, science. Before Anscombe, utilitarianism was the more general term for
ethical theories associated with teleology, focusing on the overall good created as the desired outcome. Today,
consequential is the most widely accepted umbrella term, containing distinguishable sub-categories with a broadening of
desired outcomes. To summarize concisely, consequential evaluates actions based solely on weighing the consequences of
the action against a desired outcome.
2.4 Principles of Consequential Theories
• Whether an act is right or wrong depends only on the results of that act
• The more good consequences an act produces, the better or more right of that act

gives guidance when faced with a moral dilemma:

• A person should choose the action that maximizes good consequences which gives the general guidance on how to
live:
• People should live so as to maximize good consequences
Different forms of consequential differ over what the good thing is that should be maximized.
• Utilitarianism states that people should maximize human welfare or well-being (which they used to call 'utility' -
hence the name).
• Hedonism states that people should maximize human pleasure.
• Other forms of consequential take a more subtle approach; for example stating that people should maximize the
satisfaction of their fully informed and rational preferences.
In practice many people don't assess the ethical consequences of every single act (that's called 'act consequential') since
they don't have the time.
Instead people use ethical rules that are derived from considering the general consequences of particular types of acts.
That is called 'rule consequential'.
• For example, according to rule consequential people consider lying to be wrong because they know that in general
lying produces bad consequences.
Results-based ethics produces this important conclusion for ethical thinking:
• No type of act is inherently wrong - not even murder - it depends on the result of the act This far-fetched example
may make things clearer:
• Suppose that by killing X, an entirely innocent person, we can save the lives of 10 other innocent people
• A consequential would say that killing X is justified because it would result in only 1 person dying, rather than 10
people dying
• A non-consequential would say it is inherently wrong to murder people and refuse to kill X, even though not killing
X leads to the death of 9 more people than killing X
Utilitarianism
Evaluating each decision would take too long.
The classic form of results-based ethics is called utilitarianism.
This says that the ethically right choice in a given situation is the one that produces the most happiness and the least
unhappiness for the largest number of people.

The appeal of results-based ethics

Results-based ethics plays a very large part in everyday life because it is simple and appeals to common sense:
• It seems sensible to base ethics on producing happiness and reducing unhappiness
• It seems sensible to base ethics on the consequences of what we do, since we usually take decisions about what to
do by considering what results will be produced
• It seems easy to understand and to be based on common sense

Act of Consequential Theories

Act consequential looks at every single moral choice anew. It teaches:
• A particular action is morally good only if it produces more overall good than any alternative action.
Good points of act consequential A flexible system
• Act consequential is flexible and can take account of any set of circumstances, however exceptional.
Bad points of act consequential Impractical for real life use
• while it sounds attractive in theory, it’s a very difficult system to apply to real life moral decisions . Because-
• every moral decision is a completely separate case that must be fully evaluated
• individuals must research the consequences of their acts before they can make an ethically sound choice
• making such research is often impracticable, and too costly
• the time taken by such research leads to slow decision-making which may itself have bad consequences and
therefore bad consequences of delay may outweigh the good consequences of making a perfect decision
• but where a very serious moral choice has to be made, or in unusual circumstances, individuals may well think hard
about the consequences of particular moral choices in this way.

Bad for society

• some people argue that if everyone adopt an act of consequential that may lead to bad consequences for society in
general. This is because it would be difficult to predict the moral decisions that other people may make, that may lead to
great uncertainty about how they would behave
• some philosophers also think that it would lead to a collapse of mutual trust in society, as many would fear that
prejudice or bias towards family or other groups would more strongly influence moral decisions than if people used general
moral rules based on consequential
• fortunately the impracticality of act consequential as a general moral process means we don't have to worry much
about this
• Rule of Consequential Theories
Rule consequential bases moral rules on their consequences. This removes many of the problems of act consequential
Rule consequential teaches:
• Whether acts are good or bad depends on moral rules
• Moral rules are chosen solely on the basis of their consequences
So, when an individual has a moral choice to make he can ask himself weather there is an appropriate rule to apply and
then apply it.
The rules that should be adopted are the rules that would produce the best results if they were adopted by most people.
Philosophers express this with greater precision:
• an act is right if and only if it results from the internalization of a set of rules that would maximize good if the
overwhelming majority of agents internalized this set of rules
Good points of rule consequential Practical and efficient
• Rule consequential gets round the practical problems of act consequential because the hard work has been done in
deriving the rules.Individuals don't generally have to carry out difficult research before they can take actionbecause
individuals can shortcut their moral decision-making since they are much more likely to make decisions in a quick and
timely manner

Bad points of rule consequential

• Less flexiblebecause-Rule consequential uses general rules it doesn't always produce the best result in individual
caseshowever, those in favor of it argue that it produces more good results considered over a long period than act
consequential
• One way of dealing with this problem - and one that people use all the time in everyday life - is to apply
basic rules, together with a set of variations that cover a wide range of situations. These variations are themselves derived
in the same way as the general rules

Other forms of Consequential Negative Consequential

Negative consequential is the inverse of ordinary consequential. Good actions are the ones that produce the least harm.
• A person should choose the act that does the least amount of harm to the greatest number of people.
2.5 Objectives of Consequential Theories

Justification and deliberation

A normative theory such as consequential aims to answer the question: "What makes actions right or wrong?" A related
aim of normative theory is to provide principles of right action that may be employed as a moral guide to human beings in
their lives. But this aim of normative theory which formulates principles of conduct that can guide people in their actual
conduct generates a problem for consequential. The objection was first stated by Mill’s in his seminal work, Utilitarianism,
and it is this: “There is not enough time, previous to action, for calculating and weighing any line of conduct on the general
happiness.” Therefore, consequential, which says that the rightness of an action depends on the consequences is
practically useless.
To see the problem, consider that the Principle of Utility is a fundamental moral principle according to which right actions
are those that maximize happiness. This is an account of which actions are right and which are wrong in terms of a basic
moral principle. But, when moral theories are meant to provide guidance for human conduct on the basis of particular
rules, then the Principle of Utility does not seem to be very well suited to this. It would seem to be self defeating to use the
Principle of Utility as a decision procedure.By using it one would probably

be prevented from actually doing about the best action. Consider an example when someone has to act quickly in order to
save another person from drowning. If he or she had to use the Principle of Utility to calculate whether (for example)
jumping into the ocean was indeed the right thing, the opportunity of saving the life would be lost, and he or she would
end up not having done the right thing. So, the objection says that Utilitarianism fails as a moral theory because it does not
provide a rule which can actually be used be people to guide their own conduct. Note that this objection is directed to the
consequential (a theory of right action) in Classical Utilitarianism
Mill’s reply to this objection say that the “… there is ample time [for calculation], namely, the whole past duration of the
human species.” Mill's response is to say that ordinary morality should used as rules of thumb, guidelines that will help one
in navigating through his daily life, and that one should not (always) rely on the Principle of Utility as a decision procedure.
This is important because it opens up a gap between how one ought to think in contexts of moral deliberation, and those
properties of individual acts, which confer rightness or wrongness on the action. If the principle of Utility is a criterion of
rightness, and not a decision procedure, then Utilitarianism does not entail that one ought (always) to try to calculate the
greatest utility of one’s action. It will often be better to act in accordance with common sense moral rules rather than
trying to calculate the expected outcome of one’s action.
This move may easily be transferred into the more general Consequential theories. If consequential is meant to be only a
theory of justification (of what makes actions right), rather than an account of deliberation, then it is quite coherent for a
consequential to maintain that the best way of doing the right thing is not to calculate consequences but follow other
policies and rules of thumb.
Conflicts with Ordinary Morality
Other problems for consequential arise from the fact that consequential is in conflict with ordinary moral thinking in a
number of ways.
Justice
Firstly, consequential seems unable to accommodate justice and rights. J.J.C Smart’s (1978) formulates the problem for
consequential with respect to justice as follows: “The most poignant sort of case, of course, is that of the punishment of an
innocent man. Suppose that in order to prevent a riot in which thousands would certainly be killed a sheriff were to frame
and execute

an innocent man. On utilitarian principles would not the sacrifice of one life in order to save thousands be justified?”
(Smart’s discussion is with particular reference to Utilitarianism, but, again, Utilitarianism is a form of consequential.) The
point of the example is that if the sheriff frames the stranger he will bring about more good consequences than bad
consequences. One may simply stipulate that this is so. According to consequential, it is the right action to perform.
However, an innocent man does not deserve to be punished. So, it seems, consequential does not accommodate justice.
Rights
A structurally very similar problem arises with respect to consequential and rights. The concept of a "right" has to do with
protecting a person’s important interests. Rights place limits on how an individual may be treated; they are basic
constraints which set limits on what may be done to persons. Once again the problem here is that a utilitarian moral theory
is apparently committed to the claim that nothing that is ultimately prohibited, so long as the good consequences of this
action outweigh the bad. Rape, torture, and all manner of violent acts may in principle be required whenever the overall
consequences are good enough. These clashes with the idea that persons have rights which limit what may be done to
them, even in the pursuit of good consequences.
Special obligations
Another problem for consequential is accounting for the existence of special ties of obligation. Special obligations include
those acquired by entering into contracts, obligations acquired in virtue of occupying a certain occupational role, and family
ties.
For example, a teacher is obligated to certain sorts of actions related in satisfying occupational duties.These actions are
required of him or her only because of the special duties incumbent on a teacher. Similarly, a mother or father is usually
thought to be obligated to her or his children in a way he or she is not obligated to other people’s children. These are
sometime called agent-relative duties. Consequential, however, is usually understood to be an agent neural moral
theory.Therefore,one is obligated to bring about good for those who would benefit from it most, irrespective of their
relationship to oneself. This consequence is at odds with ordinary thinking in that it seems that a person reasonably
displays concern for his or her family that he or she does not display for others.

But consequential requires one to promote the good in general, and therefore does not accommodate the common sense
intuition that special obligations generate special duties, and that (for example) a father is required to do things for his own
family that he is not required to do for people in general.
On a closely related point, W.D. Ross has argued that if breaking a promise brings about slightly more happiness, then the
Classical Utilitarian must prescribe that the promise is to be broken. Imagine that one made a promise to give a friend a
ride to the airport. However, at the last moment, someone asks the first person to come away for the weekend, making it
impossible to give provide the ride for the second person. Imagine that there would be a slightly greater balance of gain
overall if the promise were broken. Ross’s point is that consequential says one should break the promise even if the overall
gain is only slightly greater. But this seems to imply that consequential cannot accommodate the point that one is obligated
by the promise, and a slight gain in overall pleasure does not seem to trump this obligation.
Consequential is too demanding
Another important objection to consequential is that it is too demanding as a moral theory. To understand this objection, it
is necessary to spend a moment considering some key features of common moral beliefs. In ordinary morality, there is a
distinction between what people are morally required to do (or not do) and what is good or morally significant to do, but
what is not strictly required.
For example, "Thou shall not murder" entails that people are required to refrain from intentionally killing innocent people.
In contrast, acts of charity are morally praiseworthy, but people are not, it is usually thought, strictly required to be
charitable. Rather, charity is something that goes beyond the bounds of duty. One would not normally be blamed for failing
to give to charity, although one would be morally praised for acts of charity. Actions that are morally admirable to do but
not strictly required are called supererogatory actions.
The problem for consequential is that it eliminates the distinction between actions that are morally required and morally
supererogatory actions. The consequentialcriterion (in its barest formulation) for right action is maximization of a specified
value: One is doing the right thing only for maximizing the good. However, people often take themselves to be acting in a
way that is morally permissible even when it clearly is not one which brings about the most good. For example, spending
money on a holiday, seems to be morally permissible action although there

are other courses of action that would serve a much greater good overall. For instance, giving the money to an agency like
the United Nations Children’s Fund (UNICEF) may help to save lives, a much greater good than a few days spent lazing
about on a beach. Only when people are doing the right things, they are able to maximise the good. It seems that almost all
of human actions are wrong. Critics contend that consequential is too demanding as a moral theory. It does not seem right
to say that one is doing wrong by going out for dinner on Friday night or sitting around chatting with friends.

2.6 Introduction of non – Consequential Theories

Kant’s moral theory is perhaps the most influential of all non consequential approaches. In his view, right actions have
moral value only if they are done with a good will for duty’s sake alone. The purpose of Kant’s theory is the categorical
imperative, a principle that he formulates in three versions. The first version says that an action is right if you can will that
the maxim of an action become a moral law applying to all persons. An action is permissible if (1) its maxim can be
universalized (if everyone can consistently act on it) and (2) you would be willing to have that happen. The second version
of the categorical imperative says that we must always treat people as ends in themselves and never merely as a means to
an end.
Kant’s theory seems to conflict with our commonsense moral judgments (Criterion 1) and has flaws that limit its usefulness
in moral problem solving (Criterion 3). The theory falters on Criterion 1 mainly because some duties generated by the
categorical imperative are absolute. Absolute duties can conflict, and Kant provides no way to resolve the inconsistencies, a
failure of Criterion 3. Furthermore, it seems to have no genuine absolute duties.
Natural law theory is based on the notion that right actions are those that accord with natural law the moral principles
embedded in nature itself. How nature reveals how it should be. The inclinations of human nature reveal the values that
humans should live by.
Aquinas, who gave us the most influential form of natural law theory, says that humans naturally incline toward
preservation of human life, procreation, the search for truth, community, and benign and reasonable behavior.
Like Kant’s theory, traditional natural law theory is absolutist, maintaining that some actions are always wrong. These
immoral actions include directly killing the innocent, interfering with procreation, and lying. The theory’s absolutist rules
do occasionally conflict, and the

proposed remedy for any such inconsistencies is the doctrine of double effect. The principle applies to situations in which
an action produces both good and bad effects. It says that performing a good action may be permissible even if it has bad
effects.But performing a bad action for the purpose of achieving good effects is never permissible. Despite the double-
effect doctrine, the theory’s biggest weakness is still its absolutism, which seems to mandate actions that conflict with our
considered moral judgments. For example, in some cases the theory might require someone to allow hundreds of innocent
people to die just to avoid the direct killing of a single person.

2.7 Meaning of non – Consequential Theories

Non-Consequential Theories always reach decisions or evaluations on the basis of something other than, or in addition to,
the sum total or net aggregate of the consequences of choices.

Non-Consequential Theories do not always ignore consequences. For example, some of Ross's prima facie duties (non-
injury and beneficence, for instance) are directly related in promoting good consequences or minimizing bad ones, where
others (fidelity, gratitude, justice) are not.

Virtue Ethics is included under Non-Consequential simply because the focus of virtue ethics is on the creation or expression
of character traits and not on production of the greatest net aggregate of consequences.

The other types of Non-Consequential theories share the feature of being clearly rule oriented. Duties can obviously be
stated in terms of rules. Rights can be stated in terms of duties, which can in turn be stated in terms of rules. Theories of
justice endorse principles of justice, which logically imply duties or rights that can be stated in terms of rules.
Non consequential theories claim that right action is not solely a matter of producing good consequences. They claim that
it is important how one treats people in the course of bringing about good consequences. This class will consider what the
non consequential perspective implies for harming and benefiting people. Possible topics include: whether we

should distinguish morally between harming people as a result of producing a good consequence and harming them in the
course of producing such a consequence; whether it is permissible to redirect threats from a larger number of people to a
smaller number of people.Whether it is ever permissible to torture people or make agreements to harm them as a means
to helping others; in what ways we should benefit people when we cannot benefit everyone.

2.8 Introduction of Ethical Dilemma

There are three conditions that must be present for a situation to be considered an ethical dilemma. The first condition
occurs in situations when an individual, called the “agent,” must make a decision about which course of action is best.
Situations that are uncomfortable but that don’t require a choice, are not ethical dilemmas.
For example, students in their internships are required to be under the supervision of an appropriately credentialed social
work field instructor. Therefore, because there is no choice in the matter, there is no ethical violation or breach of
confidentiality when a student discusses a case with the supervisor. The second condition for ethical dilemma is that there
must be different courses of action to choose from. Third, in an ethical dilemma, no matter what course of action is taken,
some ethical principle is compromised. In other words, there is no perfect solution.
In determining what constitutes an ethical dilemma, it is necessary to make a distinction between ethics, values, morals,
laws and policies. Ethics are prepositional statements (standards) that are used by members of a profession or group to
determine what the right course of action in a situation is. Ethics rely on logical and rational criteria to reach a decision, an
essentially cognitive process. Values, on the other hand, describe ideas that we value or prize. To value something means
that we hold it dear and feel it has worth to us. As such, there is often a feeling or affective component associated with
values (Allen & Friedman, 2010). Often, values are ideas that we aspire to achieve, like equality and social justice. Morals
describe a behavioral code of conduct to which an individual ascribes. They are used to negotiate, support, and strengthen
our relationships with others.
Finally, laws and agency policies are often involved in complex cases, and social workers are often legally obligated to take
a particular course of action. Standard 1.07j of the Code of Ethics (NASW, 1996) recognizes that legal obligations may
require social workers to share confidential information (such as in cases of reporting child abuse) but requires that we
protect

confidentiality to the “extent permitted by law.” Although our profession ultimately recognizes the rule of law, we are also
obligated to work to change unfair and discriminatory laws. There is considerably less recognition of the supremacy of
agency policy in the Code, and Ethical Standard 3.09d states that we must not allow agency policies to interfere with our
ethical practice of social work.
It is also essential that the distinction be made between personal and professional ethics and values. Conflicts between
personal and professional values should not be considered ethical dilemmas for a number of reasons. Because values
involve feelings and are personal, the rational process used for resolving ethical dilemmas cannot be applied to values
conflicts. Further, when an individual elects to become a member of a profession, he or she is agreeing to comply with the
standards of the profession, including its Code of Ethics and values. Recent court cases have supported a profession’s right
to expect its members to adhere to professional values and ethics. The Council on Social Work Education states that
students should “recognize and manage personal values in a way that allows professional values to guide practice” (EPAS
1.1). Therefore, although they can be difficult and uncomfortable, conflicts involving personal values should not be
considered ethical dilemmas.

2.9 Meaning of Ethical Dilemma

An ethical dilemma is a complex situation that often involves an apparent mental conflict between moral imperatives, in
which to obey one would result in transgressing another.
An ethical dilemma is one in which a person has to choose between two options, both of which are morally correct but in
conflict. Ethics and morals are inseparable. They both deal with questions of right and wrong. What constitutes ethical
behavior is determined by societal or cultural norms. What constitutes moral behavior is up to the individual to decide
based on his or her own sense of right and wrong.

Examples of Ethical Dilemma

Ethical dilemma, also known as a moral dilemmas, are situations in which there is a choice to be made between two
options, neither of which resolves the situation in an ethically acceptable fashion. In such situations, societal and personal
ethical guidelines can provide no satisfactory outcome for the chooser.
Ethical dilemmas assume that the chooser will abide by societal norms, such as codes of law or religious teachings in order
to make the choice ethically impossible.

Ethical dilemmas may arise for patients, family members, medical staff members and physicians alike.

Some of the issues surrounding problems for which ethics consultation may be requested include:
• Advance directives
• Surrogate decision making
• Refusal of treatment
• Conflicts with caregivers
• Foregoing life-sustaining treatment
• Do Not Attempt Resuscitation (DNAR) orders
• Other issues perceived as ethical problems Examples of ethical dilemmas may include the following:
• Your critically ill family member is in the hospital and the doctors and nurses are turning to you to make medical
decisions on the patient’s behalf. You don't know how to decide what to do and could use some guidance.
• You are a patient and are too sick to speak for yourself. You are concerned about who will make medical decisions
on your behalf, and whether your wishes will be followed. You wonder, "What if they disagree about what I would want, or
what would be best for me?"
• You are part of the healthcare team and your patient comes from a culture in which it is considered wrong to tell
patients that they are dying. You're unclear how to respond to a family’s request to conceal the truth from a dying patient.
• You are a physician and some may think it is time to withdraw life support and let nature take its course, yet the
dying patient’s family insists that you "do everything possible" to keep the patient alive. You are unclear how to solve this
problem and worry that "doing everything" might cause the patient pain and discomfort without offering any benefit.

2.1.0 Types of Ethical Dilemma

An “absolute” or “pure” ethical dilemma only occurs when two (or more) ethical standards apply to a situation but are in
conflict with each other. For example, a social worker in

a rural community with limited mental health care services is consulted on a client with agoraphobia, an anxiety disorder
involving a fear of open and public spaces. Although this problem is outside of the clinician’s general competence, the
limited options for treatment, coupled with the client`s discomfort in being too far from home. It would likely mean the
client might not receive any services if the clinician declined on the basis of a lack of competence. Denying to see the
patient then would be potentially in conflict with our commitment to promote the well-being of clients. This is a pure
ethical dilemma because two ethical standards conflict. It can be resolved by looking at Ethical Standard which states that
social workers should only accept employment (or in this case, a client) on the basis of existing competence or with “the
intention to acquire the necessary competence.” The social worker can accept the case, discussing the present limits of her
expertise with the client and following through on her obligation to seek training or supervision in this area.
However, there are some complicated situations that require a decision but may also involve conflicts between values,
laws, and policies. Although these are not absolute ethical dilemmas, we can think of them as “approximate” dilemmas. For
example, an approximate dilemma occurs when a social worker is legally obligated to make a report of child or domestic
abuse and has concerns about the releasing of information. The social worker may experience tension between the legal
requirement to report and the desire to respect confidentiality. However, because the NASW Code of Ethics acknowledges
our obligation to follow legal requirements and to intervene to protect the vulnerable, technically, there is no absolute
ethical dilemma present. However, the social worker experiences this as a dilemma of some kind and needs to reach some
kind of resolution. Breaking the situation down and identifying the ethics, morals, values, legal issues, and policies involved
as well as distinguishing between personal and professional dimensions can help with the decision-making process in
approximate dilemmas.

2.1.1 Meaning of Ethical Decision Making

In determining right versus wrong, it has tobe remembered that those terms are subjective. That's where understanding
the definition of ethics, and relying on a corporate code of ethics, can be very helpful. The code is the baseline by which a
person, group, or organization can measure the facts of a case (including whether a determination can be made
impartially). It is

also important to develop an organization's value statement to reflect your ethical values as well.This in turn will help the
employees to understand your commitment and direction.
When analysis and evaluation begins, the rights of the individual and group, the equality of treatment, and the steps taken
to remedy the issue or situation in a way that best serves the organization's vision or identity must all come into play. By
examining each of these elements, a decision that's cohesive, consistent and appropriate will begin to form. Finally, that
decision must be implemented (otherwise you're spinning your wheels).

2.1.2 Definition of Ethical Decision Making

Ethical decision making helps the people to make difficult choices when faced with an ethical dilemma, a situation
in which there is no clear right or wrong answer.

2.1.3 Process of Ethical Decision Making

1. Gather the facts
2. Define the ethical issues
3. Identify the affected parties (stakeholders)
4. Identify the consequences
5. Identify the obligations (principles, rights, justice)
6. Consider your character and integrity
7. Think creatively about potential actions
8. Check your gut
9. Decide on the proper ethical action and
10. Be prepared to deal with opposing arguments.

1 - GATHER THE FACTS

• Don’t jump to conclusions without the facts
• Questions to ask: Who, what, where, when, how, and why-
Finding the facts-however, facts may be difficult to find because of the
• Uncertainty often found around ethical issues Some facts are not available
• Assemble as many facts as possible before proceeding
• Clarify what assumptions you are making!
2 – DEFINE THE ETHICAL ISSUE(S)
• Don’t jump to solutions without first identifying the ethical issue(s) in the situation. Define the ethical basis for the
issue you want to focus on-
.• There may be multiple ethical issues – focus on one majorone at a time. 3 – IDENTIFY THE AFFECTED PARTIES
• Identify all of the stakeholders
• Who are the primary or direct stakeholders?
Who are the secondary or indirect stakeholders?
Why are they stakeholders for the issue?
• Perspective-taking -- Try to see things through the eyesof those individuals affected 4 – IDENTIFY THE
CONSEQUENCES
Think about potential positive and negative consequences for affected
• Parties by the decision (Focus on primary stakeholders to simplify analysis until you become comfortable with the
process).
What are the magnitude of the consequences and the probability that
• The consequences will happen.
Short term vs. Long term consequences – will decision be valid over time Broader systemic consequences – tied to symbolic
and secrecy
• Symbolic consequences – Each decision sends a message
. Secrecy consequences – What are the consequences if the decision
or action becomes public? Did you consider relevant cognitive barriers/biases?
• Consider what your decision would be based only on consequences –
• Move on and see if it is similar given other considerations.
5 – IDENTIFY THE RELEVANT PRINCIPLES, RIGHTS, AND JUSTICE ISSUES
Obligations should be thought of in terms of principles and rights involved
• A) What obligations are created because of particular ethical principlesyou might use in the situation?
Examples: Do no harm; Do unto others as you would have them do unto you; Do what you would have anyone in your
shoes do in the given context.
B) What obligations are created because of the specific rights of thestakeholders?

What rights are more basic vs. secondary in nature?

Which help protect?an individual’s basic autonomy? What types of rights are involved – negative or positive?
C) What concepts of justice (fairness) are relevant – distributive orprocedural justice? Did you consider any relevant
cognitive barriers/biases?
• Formulate the appropriate decision or action based solely on the aboveanalysis of these obligations.
6 – CONSIDER YOUR CHARACTER & INTEGRITY
Consider what your relevant community members would
• Consider to be the kind of decision that an individual of integrity would make in this situation. What specific virtues
are relevant in the situation?
• Disclosure rule – what would you do if the New York Times Reported your action and everyone was to read it.
Think about how your decision will be remembered whenyou are gone. Did you consider any relevant cognitive
biases/barriers?
• What decision would you come to based solely oncharacter considerations? 7 – THINK CREATIVELY ABOUT
POTENTIAL ACTIONS
Be sure you have not been unnecessarily forced into a
• Corner you may have some choices or alternatives that have notbeen considered If you have come up with
solutions “a” and “b,” try to
• brainstorm and come up with a “c” solution that might satisfy the interests of the primary parties involved in the
situation.

8 – CHECK YOUR GUT

Even though the prior steps have argued for a highly rational process, it is always good to “check your gut.”
Intuition is gaining credibility as a source for gooddecision making – knowing something is not “right.”
• Particularly relevant if you have a lot of experience in the area – expert decision-making.
9 – DECIDE ON YOUR COURSE OF ACTION AND PREPARE RESPONSES TO THOSE WHO MAY OPPOSE YOUR POSITION

Consider potential actions based on the consequences,

• Obligations, and character approaches.
Do you come up with similar answers from the differentperspectives?
Do the obligation and character help you “check” theconsequential preferred action?
How can you protect the rights of those involved (or your own character) while still maximizing the overall good for all of
the stakeholders?
What arguments are most compelling to you to justify theaction ethically? How will you respond to those with opposing
viewpoints?

Summary
Consequential is the class of normative ethics theories holding that the consequences of one’s conduct are the ultimate
basis for any judgment about the rightness or wrongness of that conduct can reflict. The term ‘Consequential’ seems to be
used as a family resembalance term to refer to any descendant of classic utilitarianism that remains close enough to its
ancestor in the important respects. If that claim is dropped, the theory ceases to be consequential. Besides anyone who
wants to pick out moral theories this absurd theory may talk about evaluative consequential, which is the claim that more
rightness depends only on the value of the consequences. It has an act is to right or wrong depends only on the results of
that act. The forms of consequential take a more subtle approach. The consequential criterion for right action is
maximization of a specified value. The non- consequential theories always reach decisions or evaluations on the basis of
something other than, or in addition to the sum total or net aggregate of the consequences of choices. The theories of
justice endrose principles of justice, which logically imply duties or rights that can be stated in terms of rules. An ethical
dilemma, it is necessary to make a distinction between ethics, values, morals laws and policies. It assume tht the chooser
will abide by societal norms such as codes of law or religious teachings in order to make the choice ethically impossible. The
ethical decision making helps the people to make difficult choices when an ethical dilemma, a situation in which or wrong
answer.

KEY TERMS
1. CONSEQUENTIAL THEORY - The term ’consequential ‘ seems to be used as a family resemblance term to refer to
any descendant of classic utilitarianism that remains close enough to its ancestor in the important respects.
2. NON CONSEQUENTIAL THEORY - Non-Consequential Theories always reach decisions or evaluations on the basis of
something other than, or in addition to, the sum total or net aggregate of the consequences of choices.
3. ETHICAL DILEMMA - An ethical dilemma is one in which a person has to choose between two options, both of
which are morally correct but in conflict. Ethics and morals are inseparable. They both deal with questions of right and
wrong.
4. ETHICAL DECISION MAKING - In determining right versus wrong, it has tobe remembered that those terms are
subjective. That's where understanding the definition of ethics, and relying on a corporate code of ethics, can be very
helpful.

Self Assessment Questions

1. What is meant by consequential theories?
2. Define consequential theories
3. Explain the principles of consequential theories.
4. What are the objectives of consequential theories?
5. What is meant by non – consequential theories?
6. What is Ethical dilemma?
7. Explain the types of ethical dilemma.
8. What is meant by Ethical decision making?
9. Define Ethical decision making
10. Explain the process of ethical decision making.
Learning Objectives

UNIT – III ENVIRONMENT ISSUES

After studying this unit you will be able to understand-

Environment issues
Protecting the Natural Environment
Prevention of pollution and Depletion of Natural Resources
Conservation of Natural Resources
CONTENTS

3.1 Introduction of Environment Issues

3.2 Meaning of Environment Issues
3.3 Important of Environmental Issues
3.4 Meaning of Prevention of Pollution
3.5 Meaning of Protecting the Natural Environment
3.6 Definition of Prevention of Pollution
3.7 What are the Economic Incentives for Pollution Prevention?
3.8 Types of Pollution Prevention
3.9 Meaning of Depletion Natural Resources
3.10 Definition of Depletion of Natural Resources
3.11 Effects of Depletion of Natural Resources
3.12 Basic Reasons for the Depletion of Natural Resources
3.13 Meaning of Conservation of Natural Resources
3.14 Definition for Conservation of Natural Resources
3.15 Needs for the Conservation of Natural Resources

3.1 Introduction of Environment Issues

Environmental issues gained increasing prominence in the latter half of the 20th century. Global population growth has led
to increasing pressure on worldwide natural resources including air and water, arable land, and raw materials.Modern
societies have generated an increasing demand for the use of industrial chemicals. The use of these chemicals results in
great benefits in raising the standard of living, prolonging human life and improving the environment. But as new chemicals
are introduced into the marketplace and existing chemicals continue to be used, the environmental and human health
impacts of these chemicals have become a concern. Today, there is a much better understanding of the mechanisms that
determine how chemicals are transported and transformed in the environment and what their environmental and human
health impacts are, and thereforenow it is possible to incorporate environmental objectives into the design of chemical
processes and products. The challenge for future generations of chemical engineers is to develop and master the technical
tools and approaches that will integrate environmental objectives into design decisions. Major environmental problems are
caused by the production and use of chemicals in modern industrial societies. With each environmental problem
introduced, the chemicals or classes of chemicals implicated in that problem are identified. Whenever possible, the
chemical reactions or other mechanisms responsible for the chemical’s impact are explained. Trends in the production, use,
or release of those chemicals are shown. Finally, a brief summary of adverse health effects is presented. This chapter’s
intent is to present the broad range of environmental issues which may be encountered by chemical reactions regarding
the design, production, and use of chemicals.
Environmental issues have gained increasing prominence in the latter half of the 20th century and the beginning of the
21stcentury. Growth in population and affluence around the globe, put an increasing pressure on natural resources,
including air and water, arable land, and raw materials. Concern over the ability of natural resources and environmental
systems to support the needs and wants of global populations, now and in the future, is part of an emerging awareness of
the concept of sustainability. Sustainability is a powerful, yet abstract, concept. The most commonly employed definition of
sustainability is that of the Brundtland Commission report - meeting the needs of the present generation without
compromising the

ability of future generations to meet their needs (World Commission on Environment and Development, 1987). However,
an internet search on the definition of sustainability will return millions of variations on this basic concept. In engineering,
incorporating sustainability into products, processes, technology systems, and services generally means integrating
environmental, economic, and social factors in the evaluation of designs. Even though this may seem simple in the abstract,
but converting this concept to the types of quantitative design tools and performance metrics that can be applied in
engineering design is a challenge. Quantitative tools available to engineers seeking to design for sustainability are
continually evolving, but currently focus on natural resource conservation and emission reduction. While describing those
tools, it will be useful to first review some of the details of the natural resource and environmental challenges.

3.2 Meaning of Environment Issues

Environmental issues are harmful effects of human activity on the biophysical environment. Environmentalism, a social and
environmental movement, addresses environmental issues through advocacy, education and activism.
Environmental issues are defined as problems with the planet's systems (air, water, soil, etc.) that have developed as a
result of human interference or mistreatment of the planet.

3.3 Importance of Environmental Issues

While this guide to important environmental issues is not comprehensive, if you’re new to green or simply want a refresher
overview, this list neatly summarizes some of our most pressing environmental concerns … some of which cannot be solved
simply via creative upcycling or small - living.

1. Climate Change
Global warming has been concerning scientists for decades, but Al Gore legitimized the crisis with his controversial film An
Convenient Truth. From the melting polar ice caps to catastrophic weather and threatened ecosystems, has resulted in real
climate change.Scientists agree that humans are influencing climate change with our production of greenhouse gases
(mainly stemming from carbon dioxide and methane). What can you do? How bad is it? Why do so many people still think
climate change - isn’t real? Is it real? These are just some of the issues worth exploring. The good news is that despite the
urgency of the crisis, there are exciting technological developments as well as meaningful lifestyle changes that can help
the people to live with comfort.
2. Energy
Clean energy vs. dirty energy. Renewable energy. Energy independence.Petroleum.Biofuels.Coal. ANWR and offshore
drilling. Even Pairs Hilton has something to say about energy. Energy is ranking in second to climate change.But the picture
is not as clear as one might think. China is heavily criticized, but did you know the state of California is worse? Look for
plenty of myth-busting and interesting news to come, as well as practical tips to reduce your own energy dependence.
Though no single energy source is going to be the solution, positive developments toward a cleaner future are happening
every single day.

3. Waste
With the immediate looming problems of climate change and energy, focus has shifted away from landfill waste.But this is
a serious problem. The world has largely accustomed to a throwaway lifestyle.But that is neither healthy nor sustainable.
Waterways are choked with trash and modernized nations ship their undesirable leftovers to the developing world.
Fashion, fast food, packaging and cheap electronics are just some of the problems. The amount of waste the industrialized
world generates is shocking. Water bottles are the defining symbol of this critical

issue. Fortunately, people are becoming aware of the consequences of "fast consumption" and there are many simple
changes that we can make in our own life to help significantly reduce landfill waste.
4. Water
Short supply of pure water has become global issue. Our global reserves of drinkable water are a fraction of 1% and 1 in 5
humans does not have access to potable (safe) water. Many people do not realize that strife has already broken out in
some stressed regions. There are many potential solutions, some promising, others challenging. Desalinization is an energy-
inefficient, expensive option. But there are many things we can do.
5. Food
Biofuels have turned into a global controversy – the idea that people may causing the starvation of millions in order to fuel
their SUVs is sickening. And yet that’s not the whole picture. For example, eating hamburgers has as much or more impact
on the global food picture as the use of biofuels. There is also the whole issue of “food miles” – at first, local seemed
logical, but the situation is more complex than that. It’s all about resources and efficiency. There are big questions: can we
support the world without turning to vegetarianism? We know that the planet can’t afford the Western way of eating. It
would take 5 earths to support that lifestyle! What about hunting – is that good for the environment? Look for more
articles soon exploring the complicated world of food. Fortunately, there are a multitude of tasty diets that incorporate
greener values. So, it is not necessary to adhere to vegetarianism.
6. Consumption
This is directly tied to waste. It is well-known that the industrialized world simply consumes in a way that is not sustainable.
But, the developing world is rapidly imitating the model. Sustainability in the most compelling sense is about long-term
solvency. The way we live now is borrowing against the future. Reducing consumption, and smart consumption, are both
necessary .There are many ways to go about doing this. Some methods are pure geek, some are high tech, and some are
just common sense. Once we start exploring, we will be able to feel that it's actually fun.

7. Land Management
From desertification to polar ice melting to erosion and deforestation, existing land management choices are not serving
the planet or its inhabitants very well. The 1990s saw some headway with forest management but the Bush
administration’s various initiatives (most notoriously, “Healthy Forests”) have set back progress by decades. There is very
little land left that is undeveloped, either with structures or roads. In fact, there is virtually no land left that is not subject to
light or noise pollution. The modern green movement believes that in order to create a sustainable future, people will need
to return to the conservation spirit that Americans were once famous for. That's a value system that includes meaning,
adventure, and self- sufficiency – no wonder so many people are getting inspired.

8. Ecosystems and Endangered Species

The good news is that some species have made a comeback. The bad news is that many more species are now under
threat, including indicator species and evolutionarily unique species. (When an indicator species becomes threatened,
endangered, or worse, extinct, this means an entire ecosystem faces collapse.) The consequences can have global impact.
From the most unusual endangered animals to a complete list of indicator species for key ecosystems and how we can
help.

3.4 Meaning of Protecting the Natural Environment

Environmental protection is a practice of protecting the natural environment on individual, organizational or governmental
levels, for the benefit of both the natural environment and human beings. Due to the pressures of population and
technology, the biophysical environment is being degraded, sometimes permanently. This has been recognized, and
governments have begun placing restraints on activities that cause environmental degradation. Right from 1960s,
activities of environmental movement created awareness of the various environmental issues. There is no agreement
on the extent of the environmental impact of human activity, and protection measures are very rarely criticized.
Academic institutions now offer courses, such as environmental studies environmental management, and environmental
engineering, that teach the history and methods of environment protection. Protection of the environment is needed due
to various human

activities. Waste production, air pollution, and loss of biodiversity (resulting from the introduction of invasive species and
species extinction) are some of the issues related to environmental protection. Environmental protection is influenced by
three interlinked factors: environmental legislation, ethics and education. Each of these factors plays its part in influencing
national-level environmental decisions and personal-level environmental values and behaviors. To bring reality in
environmental protection it is important for societies to develop each of those areas.Togetherness will inform and drive
environmental decisions.
Our natural environment is a priceless part of our heritage.Plants and soils help to purify water, forests act as natural
carbon sinks, and all animals have a role to play in the food-chain. A healthy natural environment is vitally important for all
eco-systems and it is our responsibility to protect it.
3.5 Meaning of Prevention of Pollution
Pollution prevention occurs when raw materials, water, energy and other resources are utilized more efficiently, when less
harmful substances are substituted for hazardous ones, and when toxic substances are eliminated from the production
process.

Pollution prevention reduces the amount of pollution generated by a process, whether it is consumer consumption, driving,
or industrial protection. In contrast to most pollution control strategies, which seek to manage a pollutant after it is formed
and reduce its impact upon the environment, the pollution prevention approach seeks to increase the efficiency of a
process, thereby reducing the amount of pollution generated at its source. Eventhough, there is wide agreement that
source reduction is the preferred strategy, some professionals also use the term pollution prevention to include pollution
reduction.
With increasing human population, pollution has become a great concern. Pollution from human activities is a problem that
which is not inevitable. With a comprehensive pollution prevention program, most pollution can be reduced, reused, or
prevented. The US Environmental Protection Agency works to introduce pollution prevention programs to reduce and
manage waste.
Pollution is the contamination of air, soil, or water by the discharge of harmful substances. Pollution prevention is the
reduction or elimination of pollution at the source (source reduction) instead of at the end-of-the-pipe or stack. Pollution
prevention happens when raw materials, water, energy and other resources are utilized more efficiently, when less harmful
substances are substituted for hazardous ones, and when toxic substances are eliminated from the production process. By
reducing the use and production of hazardous substances, and by operating more efficiently we can protect human health,
strengthen our economic well-being, and preserve the environment.
Source reduction allows for the greatest and quickest improvements in environmental protection by avoiding the
generation of waste and harmful emissions. Source reduction makes the regulatory system more efficient by reducing the
need for end-of-pipe environmental control by government.
NPPR supports multi-media P2 approaches which work to solve environmental problems holistically and do not only focus
on pollution in a single medium (air, land, or water). Well planned rules, regulations and solutions that are not multi-media
sometimes exacerbate existing conditions by creating larger problems to other media that are not accounted for by a single
media-specific solution. Many times this can result in the transfer of pollution from one medium to another. For example,
in some cases, by requiring hazardous air emission controls for

industrial facilities, other problems might result, such as pollutants being transferred to underground drinking water
through the residual sludge.

3.6 Definition of Prevention of Pollution

Pollution prevention (P2) is the reduction or elimination of wastes and pollutants at their sources. For all the pollution that
is avoided in the first place, there is that much less pollution to manage, treat, dispose of, or clean up. P2 can encompass
activities such as:
• redesigning products to cause less waste or pollution during manufacture, use, or disposal
• altering production processes to minimize the use of toxic chemicals
• implementing better housekeeping practices to minimize leaks and fugitive releases from manufacturing processes
• taking steps to reduce energy consumption.
Pollution prevention within industry generally receives the most attention. However, P2 efforts in other sectors are equally
important.
For example, planting pestresistant crops can reduce or eliminate the need for chemical pesticidesand there by reducing
the water, air, and soil pollution that results from the manufacture and use of agricultural chemicals. In office settings,
simple steps such as making double-sided copies and printing drafts on the back sides of discarded paper can substantially
reduce the consumption and disposal of paper products. At home, minimizing the use of toxic household chemicals such as
drain cleaners and herbicides will reduce the amount of hazardous chemicals that eventually end up into the environment.
The range of P2 opportunities is constrained only by the limits to our relationship with the environment.

3.7 Economic Incentives for Pollution Prevention

Adopting pollution prevention practices and techniques often benefits industry by lowering a company’s operational and
environmental compliance costs. By preventing the generation of waste, P2 can also reduce or eliminate long-term
liabilities and clean-up costs. In addittion, disposal costs are reduced when the volume of waste is decreased. This can also
lead to a reduction in workplace exposures to hazardous materials which can affect workers’ health and hence, their
productivity. If less waste is produced, there will also be a diminished need for on-site storage space. Furthermore, by
preventing pollution there will be a greater likelihood that

a company will be in compliance with local, state, and rational compliance statutes. Finally, as community pillars,
businesses shoulder an important responsibility for protecting the environment and natural resources for their own good
as well as that of thesociety.
.
3.8 Types of Pollution Prevention
When we cause pollution it will be ourresponsibility to incur the cost of the cleaning up. This can be expensive particularly
if groundwater has become contaminated. There may be additional costs associated with our incident response and/or
fines through the criminal courts or civil claims. Following these good practice guidelines will surelyhelp to reduce the
likelihood of an incident. A rapid response to incidents will help to minimize the environmental impact and could reduce
the overall costs.
Silt pollution is a major cause of environmental incidents. It can damage and kill aquatic life by smothering and suffocating
and can cause flooding by blocking culverts and channels activities that can cause silt pollution.
Silt and contained water can be caused by - Disturbance of river bed or bank
De watering and pumping of excavations Run off from exposed grand
Plant washing roads and river crossings
When we are able to prevent water becoming contaminated in the first place, then it reduces the risk of pollution and the
overall cost of control measures. To avoid silt pollution,whenever possible use methods of work that reduce or eliminate
working in the channel and that do not contaminate surface water disturbance of the river bed / working in the river
channel .
The risk of silt pollution causing an incident will depend on many factors including: -
• likelihood of silt being disturbed
• what the river bed is made of, e.g. silt or gravel
• the conditions in which the work is carried out, e.g. hot weather and low flows

Silt pollution caused by working in surface waters can be minimized or prevented by keeping water out of the works area
using appropriate isolation techniques, such as coffer dams and by-pass channels.
Disposal of water from excavations, dewatering and pumping
Problems with disposal of water from the above activities may be minimized avoided by:
• preventing water from entering excavations, by using cut off ditches
• considering the impact on groundwater by using well point dewatering or cut off walls
• using pump sumps in excavations
• supporting inlet hoses above the bed
• discharging on to hard surfaces (concrete slabs/gravel) in to surface waters
• use of appropriate pump rates – to avoid disturbance of bed or bank, the maximum rate should be set after
consideration of the flow of the river, the location of the discharge and the risk of erosion
• protection of the pump inlet to avoid drawing in aquatic life and other debris
• minimized disturbance of standing water Exposed ground and stockpiles
Soil stripping and vegetation removal at the start of a project can increase the volume of contaminated surface water run-
off. It can also reduce the area of vegetated land available for disposal of silty water. To avoid this-
• minimize the amount of exposed ground and soil stockpiles from which the water drains and the period of time
such water drains.
• remove vegetation from the area that needs to be exposed in the near future
• seed or cover stockpiles
• use silt fences at the toe of the slope, made from geo textiles, to reduce silt transport
• collect run-off in lagoons and allow suspended solids to settle before disposal On-site working
The movement and maintenance of plant on site can generate silt and oil contaminated water. Sources of silt such as plant
and wheel washing and site roads and river crossings carry a high risk of causing pollution. To reduce the pollution risk
make sure that-
• plant and wheel washing is carried out in a designated area of hard standing at least 10 metres from any
watercourse or surface.

• Water drain run-off can be collected in a sump - recycle and reuse water where possible
• settled solids can be removed regularly
• discharge of contaminated water goes to foul sewer (if possible) with prior permission from the local sewerage
provider ortanker off site for authorized disposal .
Site roads and river crossings
Run off from site roads and river crossings can contain high levels of silt. This the pollution risk can be reduced by:
• brushing or scraping roads to reduce dust and mud deposits
• putting small dams in artificial roadside ditches to retain silt
• using existing permanent bridges or pipe crossings for river crossing
• if necessary building temporary bridges - but not fording rivers
• working from the bank where possible – not in the river Disposal of contaminated water - treatment and disposal
methods
Where runoff water is contaminated with silt or other pollutants such as oil this water must not be pumped or allowed to
flow directly or indirectly in to surface waters or groundwater without treatment.
If a discharge to surface waters, groundwater, soak ways or surface water sewers is necessary. The choice of method for
the treatment and disposal of contaminated water will depend on:
• the volume of water
• the area of land available for storage, treatment or discharge
• the amount and type of silt
• the presence of other substances in the water
• the conditions of any consent or authorization Treatment and disposal methods include: Contained water
treatment and disposal Sustainable Drainage Systems (SUDS) Settlement Lagoons
Filtration
Pump to grass land Discharge to sewa Tanker off site

Sustainable Drainage Systems (SUDS)

Sustainable drainage is the practice of controlling surface water runoff as close to its origin as possible by slowing flows,
allowing adequate settlement and biological action to take place before water is discharged to a watercourse or to ground.
It uses softer engineering solutions to imitate natural drainage rather than traditional piped drainage solutions. Sustainable
drainage methods used both in the construction phase and in the design of the project will:
• reduce flood risk from development within a river catchment
• minimize diffuse pollution arising from surface water runoff
• minimize the risk of pollution to groundwater
• minimize environmental damage, such as bank erosion and damage to habitats
• maintain or restore the natural flow regime of the receiving watercourse
• maintain recharge to groundwater
• achieve environmental enhancements, improvement to wildlife habitats, amenity and landscape quality
Examples of source control sustainable drainage systems
Porous surface pavements – water permeates through in to the soil or sub-surface reservoir which can then be allowed to
discharge slowly rather than directly running off. This will minimize the volume of water that you might need to treat and
can also recharge groundwater. Porous pavements need to be protected during installation from blocking by excessive silt
contaminated water.
Infiltration trenches – a shallow excavated trench backfilled with stone to make an underground reservoir. Runoff is
diverted in to the trench and then filters in to the subsoil. The closer to the source the more effective this method will be
infiltration basins – a shallow surface impoundment where water is stored until it gradually infiltrates in to the soil of the
basin floor. The performance of the basin depends largely on the permeability of the soil and the depth of the water table
Filter drains or French drains - these are similar to infiltration trenches but also allow movement of run off slowly towards a
watercourse allowing time for filtration, storage and some loss of water due to evaporation / infiltration.
Swales – grassed wide shallow depressions which lead water overland from a drained surface in to storage or discharge
system. They provide temporary storage for run off reducing high flows.

Solids are retained and oily residues and organic matter broken down in the top layer of the soil and vegetation.
Filter strips – vegetated sections of land designed to accept run off as an overland sheet flow. To be effective they should
be 5 – 15 metres wide and are best employed on the upstream end of a drainage system. They are most effective at
removing excess solids and pollutants before discharging to downstream system.
Other SUDS can be considered including ponds, detention basins (dry ponds) and wetlands. At the planning stage consider
how drainage can be managed by using SUDS. Pollution removal by these methods is achieved by sedimentation,
adsorption, absorption, filtration and microbial action. In Scotland, discharges of water run-off from construction sites are
required to be treated by either a Sustainable Urban Drainage System (SUDS) or an equivalent equipped to avoid pollution.
However, the final SUD System cannot be an equivalent and must be a recognized SUD System
Settlement lagoons or tanks
To be effective a settlement lagoon or tank should retain contaminated water long enough for silt to settle out. The length
of time will depend on the type of silt, with finer clay solids taking longer to settle . Flocculants can themselves be polluting
and/or toxic and need careful use and monitoring to be effective. The checklist below gives guidance on lagoon/tank
operation.
Filtration
When there is no space for lagoons and the water is contaminated with course silt tanks filled with filter material may be
used. Single sized aggregates 5–10 mm, geotextiles or straw bales can be used as a filter. It must be monitored carefully the
inlet pump rate and discharge quality Pump to grassland may be used with the permission ofthe landowners’ before
planning to use this method of disposal. The discharge rate must match the rate of infiltration in to the soil which will vary
with the type soil, amount of vegetation cover and the gradient.
Discharge to sewer if discharge to a foul sewer is possible it will require the permission of the local sewerage provider. They
may issue a consent/authorization limiting the volume and content of the discharge.
Tanker off site
If no other disposal routes are available then contaminated water can be collected and disposed off site by tanker. This may
be a costly option.

Concrete and cement

Fresh concrete and cement are very alkaline and corrosive and can cause serious pollution. Concrete and cement mixing
and washing areas should be sited 10 metres from any watercourse or surface water drain to minimize the risk of run off
entering a watercourse
• Have settlement and re-circulation systems for water reuse, to minimize the risk of pollution and reduce water
usage
• Have a separate area for washing out and cleaning of concrete batching plant or ready mix lorries;
• collect wash waters and, where necessary, discharge to the foul sewer (you must have permission from the local
sewerage undertaker for this), or contain wash water for authorized disposal off site Wash waters from concrete and
cement discharged to the water environment.

Oil and chemicals

In England, oil storage containers (e.g. tanks, IBCs, drums and mobile bowsers) greater than 200 litres must comply with the
Control of Pollution (Oil Storage) (England) Regulations 2001 - reference 11. Similar legislation is expected in Northern
Ireland.
In Scotland, storage must be compliant with the Water Environment (Oil Storage) (Scotland) Regulations 2006 - reference
12 -; these regulations apply to the storage of any volume of any kind of oil, with more prescriptive requirements applying
to industrial, commercial and institutional sites storing over 200 litres of oil.

Storage - general
Make sure fuel, oil and chemical storage on site is secure. Site the storage on an impervious base within a secondary
containment system such as a bund. The base and bund walls should be impermeable to the material stored and able to
contain at least 110% of the volume stored. Site the storage area above any flood water level and where possible away
from high-risk locations (such as within 10 metres of a watercourse or 50 metres of a well, borehole or spring), to minimise
the risk of a spill entering the water environment. Keep a spill kit with sand, earth or commercial products that are
approved for stored materials, close to storage area. Train staff on how to use these correctly.

Remove damaged leaking or empty drums from site immediately and dispose any drums via a registered waste disposal
contractor
Security
Secure site against theft and vandalism. Statistics show that damage from vandalism is a common cause of pollution.
Therefore take action to secure site by
• fitting lockable valves and trigger guns on pipework from storage containers
• installing anti siphon valves in pipework between containers and pumps
• installing armoured hoses
• storing tanks drums and mobile bowsers in a locked container or compound when not in use
• considering lighting, alarm or CCTV systems for your site or compound
• installing lockable fencing around the site or employing security staff

Re-fuelling
The risk of spilling fuel is at its greatest during refuelling of plant. To minimise this risk:-
• refuel mobile plant in a designated area, on an impermeable base away from drains or watercourses
• use a bunded bowser
• supervise all refuelling and bulk deliveries
• check the available capacity in the tank before refuelling
• don’t jam open a delivery valve
• check hoses and valves regularly for signs of wear
• turn off valves after refuelling and lock them when not in use
• position drip trays under pumps to catch minor spills
• keep a spill kit with sand, earth or commercial products for containment of spillages
• provide incident response training to your staff and contractors

Biodegradable oils
If possible use biodegradable chainsaw chain bar lubricant and biodegradable hydraulic oil in plant when working in or near
watercourses. The Environment Agency and its contractors use

biodegradable oils for their own operations. Biodegradable oils are less toxic than most of the synthetic oil but should still
be stored and used to the same standards as other oils

Trade materials
Sealant, coatings, adhesives and glazings can be toxic to plants and animals if released in to the environment. Select, store
and use these materials carefully to save resources and protect the environment. Sealant and glazing compounds
containing asbestos should not be used.Instead -
• use water based or low solvent products
• avoid products containing lead as a drying agent and those containing hazardous solvents (toluene or chlorinated
hydrocarbons )
• provide safe and secure storage

Bridge maintenance and structures over water

Work to maintain bridges or other structures over or next to watercourses has a high risk of causing pollution. The
maintenance work itself may require authorization.Most appropriate method can be of worked out which agrees with an
environmental management plan.
Pollutant containment
Dust, debris and wastewater are the most common pollutants produced by structure maintenance. Choose a containment
system designed to reduce the risk of pollution from work. The system should take account of the sensitivity of the
environment. The type of containment will depend on the sensitivity of the site.
Methods of containment include:
• air or water impenetrable walls
• rigid or flexible framing lined as necessary
• fully sealed joints
• airlocks or resealable entryways
• negative air pressure (achieved by forced or natural air flow) and
• exhaust air filtration
In sealed containment areas filtered ventilation must be provided to prevent the build-up of dust and minimize the
possibility of air escaping through breaches of the containment

. Use physical cleaning instead of liquid chemicals such as caustic and acid solutions. Contain wastewaters from surface
washings and agree the disposal method with us as part of the environmental management plan before you start work. In
somecircumstances.Barge with a wastewater containment facility may be used for working over water, or dispose to foul
sewer with prior permission of the local sewerage undertaker.

The containment facility must be designed so that the structure does not obstruct the river flow beneath it to such an
extent that it increases the risk of flooding to an unreasonable level.
Paint removal
Paint removal methods include:-
• abrasive blast cleaning
• blasting in a closed circuit
• preparation by various types of wet abrasive blasting or water jetting
• chemical stripping and
• hand or power tool cleaning.
Abrasive blasting produces the greatest level of dust and debris. The use of vacuum attachments on power tools can
reduce dust generation. Water cleaning methods produce less debris, but generate run-off, which needs to be contained
and treated.
Sample existing coatings for hazardous materials (e.g. lead) can be removed. This will help to determine the level of
containment which is required . The level of containment needed depends on:
• The amount of paint to be removed
• The type and concentration of the hazardous materials
• the sensitivity of the surrounding environment

Surface cleaning
While using high-pressure water or steam cleaners avoid using grit blasting with slag-derived grit as they can contain
significant levels of heavy metals such as copper. These can be toxic if they get in to the water environment. Reduce the
potential for contamination by using garnet, low silica abrasive or recycled glass media with vacuum attachments.

Painting
We advice for painting is much the same as for paint removal although the volume of waste and size of operations will be
less. Remove dust and debris by sweeping or vacuum cleaning before painting. Paints can be applied onsite using brush,
conventional spray or airless spray. Consider using electrostatic spray units to reduce the loss of product by over-spraying.
Carefully consider the type of paint for use. Although water based solvent free paints have lower environmental impact
they may require more frequent application. Solvent-based paints could have a higher environmental impact but will last
longer and require less maintenance. The decision to use water or solvent-based paints should be based on the
environmental sensitivity of the area/surrounding environment and ease of access to the structure.
Herbicide use
In England, Northern Ireland and Wales written approval is necessary to use herbicides in or near waters. Therefore, only
approved herbicides may be used for ensuring that the interests of other river users.
Waste management
Legal waste storage and disposal are essential for effective pollution prevention.
Waste must be transferred to an authorized registered or exempt waste carrier or waste manager. It must be accompanied
by a full description of the waste and a waste transfer note and be disposed off lawfully.
Incident response
It is necessary to produce an Incident Response Plan as part of the environmental impact management of the work which
mayinclude the following: -
• list of key external and internal contacts
• reporting procedures
• site plan including drainage and location of storage/refuelling areas
• list of stored materials
• details of local environmental sensitivities, e.g. abstractors, high amenity areas and fish farms
• location of spill equipment
• procedures for spill containment and remediation.
Training must be given to staff and contractors in the use of spill equipment and how to manage and dispose of waste
materials legally. While using oil and chemicals in close proximity to a

watercourse, store a suitable spill kit or absorbent materials nearby. Provide appropriate temporary storage for any oils
and chemicals.

3.9 Meaning of Depletion Natural Resources

Resource depletion is the consumption of a resource faster than it can be
replenished. Natural resources are commonly divided between renewable resources and non- renewable resources.
Resource depletion occurs when the raw materials available in a given geographic region are used up. Any resource of
which there is a limited supply or that regenerates its supply over time at a limited rate can become depleted.
Deforestation, mining, and oil consumption all consume resources that are commonly used in manufacturing and for other
industrial concerns. Other activities, such as overfishing and over-farming, can also lead to the depletion of available
resources. In some cases, resource depletion is not intentional and contributes nothing to any industrial or commercial
concern. In fact it is caused by unintentional contamination of a resource, such as through pollution.
There are many different underlying human causes of resource depletion.Most of them linked to excessive consumption of
commercial products and food in many parts of the world. Fossil fuels, for instance, are burned to produce energy for a
vast number of different personal, commercial, and industrial concerns and are, accordingly, being rapidly depleted. The
production of farmland also consumes many resources. Most farmland exists to support the meat industry, particularly in
the United States. Space for farmland is often produced by clear cutting forests, which are important natural resources.
Natural resources are grouped into two primary categories: renewable resources and nonrenewable resources.
Renewable resources are those that, over time, are naturally regenerated, such as animals used for food, forests, wind
energy, and solar energy. Despite the fact that these are renewable, special care must still be taken to avoid depleting
resources. If overfishing significantly reduces a fish population, for instance, it may not be able to reproduce sufficiently to
repopulate and may, therefore, become extinct.
Nonrenewable resources, on the other hand, are those which simply cannot be regenerated — metal ores, for instance,
once taken from the Earth, they cannot regenerate.

Resource depletion is commonly studied in the field of economics because the availability of raw materials can have a
significant impact on the global economy. The production of many different commonly-used items, particularly some
electronics that depend on relatively rare materials, depends on a constant supply of materials that exist only in limited
quantities. Resource depletion can have dire implications on the price and availability of such products.
Environmentalists are also very concerned with resource depletion generally for different reasons. Resource depletion can
severely damage ecosystems, the environment, the atmosphere, and many other important aspects of the Earth.
Individuals with environmental concerns,should be generally more concerned with maintaining the overall health of the
environment than with finding new sources of resources.

3.10 Definition of Depletion of Natural Resources

Natural resource depletion is the sum of net forest depletion, energy depletion, and mineral depletion. Net forest depletion
is unit resource rents times the excess of round wood harvest over natural growth. Energy depletion is the ratio of the
value of the stock of energy resources to the remaining reserve lifetime (capped at 25years). It covers coal, crude oil, and
natural gas. Mineral depletion is the ratio of the value of the stock of mineral resources to the remaining reserve lifetime
(capped at 25 years). It covers tin, gold, lead, zinc, iron, copper, nickel, silver, bauxite, and phosphate.

3.11 Effects of Depletion of Natural Resources

Natural resources include water, fuel, soil, land and air. The effects of natural resource depletion vary depending on the
type of resource.
Reduced water quality affects humans and animals by reducing the amount of healthy and safe drinking water.
The rapid use of fossil fuels introduces foreign and harmful toxins into waterways, the ground and the atmosphere, and
affects human populations by increasing the cost of transportation.
Depletion of natural resources produces competition among living organisms for the remaining portions, and thereby
diminishes the quality of available resources.

Of the life-sustaining natural resources for humans, plants and animals, water ranks high on the list of the most basic and
important elements. Certain human-caused activities reduce the quality of safe and accessible drinking water. A reduced
water quality presents problems surrounding health and welfare, especially in combination with too much or too little
water. Impaired water quality makes drinking water more expensive for people and less readily available. Through storm
water runoff, industrial waste emissions and fertilizers, contaminated water enters streams and rivers which ultimately
jeopardizing the health and vitality of marine ecosystems.

Overuse of fossil fuels reduces their availability and also introduces harmful toxins into waterways and the atmosphere.
Deforestation and agricultural activities exacerbate erosion and

cause soil contamination, which impairs the survival capacity of plants, and makes surrounding areas prone to flooding and
environmental disasters.
3.12 Basic Reasons for the Depletion of Natural Resources:
1. Rapid population increase,
2. Pollution,
3. High consumption of resources, and
4. Deterioration of land.
1. Rapid population increase:
There has been a tremendous increase in India’s population and it has now crossed 103 crores (1.03 billion). An increase in
population will decrease all types of natural resources and result in environmental pollution. Ultimately, there will be short
supply, as well as deterioration in quality of natural resources. This is because increase in population will increase the
demand of natural resources and environment.
At present, the world population is increasing by two per cent every year. The industrialized countries have annual growth
rate of 0.5 to 1 per cent.On the other hand the developing countries have the growth rate of 2 to 3 per cent. The per capita
use of energy and mineral resources shows a difference between the developing and developed countries of the world. The
developed countries consume less but their resources are enough. The population and per capita consumption have a
considerable impact on the environment. The world unable to meet the continuously increasing demand for natural
resources.
2. Pollution:
The environment is deteriorating due to increasing population and industrial revolution. The atmosphere, lakes, streams,
rivers are polluted by sewage, industrial wastes, heat, radioactive materials, detergents, fertilizers and pesticides. Besides
these, a number of toxic materials are released into our surroundings. The uncontrolled and indiscriminate use of
pesticides has disturbed the entire food chains by which animals including man are affected.
It has been estimated that average individual has about 7 parts per million (ppm) DDT in his body which affects in long-
term. Recent researches have revealed that this proportion of DDT in our body has harmful effects on heart and liver and
higher concentration may cause several other diseases including cancer. Many gases, e.g., carbon monoxide, sulphur
dioxide, carbon dioxide

and nitrous oxide are known to cause respiratory troubles. The unplanned and uncontrolled industrial growth may
adversely affect or destroy the health of the society.

3. Consumption of materials:
Due to tremendous increase of population, most of the natural resources are being rapidly consumed. This high rate of
consumption has disturbed our ecosystems. But, on the other hand, many of the natural resources are essential for basic
human needs. Many industries require raw materials which are essential for the advancement of the country. However,
their rapid consumption will affect adversely the quality of the environment either by unwise use of natural resources or by
increasing pollution.
4. Deterioration of land:
Due to excessive consumption of minerals of the soil by cropping or soil erosion or other natural events, fertility of soil is
lost and the land deteriorates gradually. Sometimes drought also results in deterioration of land and many nutrients of the
top soil are destroyed and soil fertility is lost. As a result of cropping, the cycling of soil mineral nutrients is greatly reduced.
Erosion has also depleted soil fertility since most of the minerals remain in the upper part of the soil and they are easily
removed by wind or washed away by water. Sometimes water erosion takes its toll of fertile soils.
Man has also deteriorated agricultural land and ultimately caused the loss of national economy. It is commonly seen that
man cannot degrade one part of his environment without simultaneously affecting other parts. For proper economic
development lands for cropping, forest, recreation, transportation and wildlife are needed but their availability is reducing
day by day. Therefore, it is necessary to practice integrated policy of resource management. If not unexpected future
shortage might upset the national economy.

3.13 Meaning of Conservation of Natural Resources

The term conservation came into use in the late 19th century. It refers to the management, mainly for economic reasons,
of such valuable natural resources as timber, fish, game, topsoil, pastureland, and minerals, and also to the preservation of
forests, wildlife, parkland.
Conservation of natural resources is now usually embraced in the broader conception of c onserving the earth itself by
protecting its capacity for self

renewal. Particularly complex are the problems of nonrenewable resources such as oiland coal an d other minerals in great
demand.
Current thinking also favours the protection of entire ecological regions by the creation of "bios phere reserves." Examples
of such conservation areas include theGreat Barrier Reef off Australia and Adirondack State Park in the United States. The
importance of reconciling human use and c onservation beyond the boundaries of parks has become another important
issue.

3.14 Definition for Conservation of Natural Resources

The Protection, Preservation, restoration, and rational use of all resources in the total environment.

3.15 Need for the Conservation of Natural Resources

1. It aims at sustainable benefit to the present generation.
2. It maintains a potential to meet the needs and aspirations of future generations.
3. Proper, judicious and planned use of natural resources may sustain the environment.
4. Proper exploitation and conservation of renewable resources create fewer problems.
5. Over-exploitation causes damage of the existing environment.

Summary

There, is a much better understanding of the mechanisms that determine how chemicals are transported and transformed
in the environment and what their environmental and human health impacts are, and therefore now it is possible to
incorporate environmental objectives into the design of chemical process and products. Environmental issues are harmful
effects of human activity on the bio physical environment. Scientists agree that humans are influencing climate change with
our production of green houses gases. Some methods are pure geek, some are high tech, and some are just common sense.
Environmental protection is a practice of protecting the natural environment on individual, organizational or governmental
levels, for the profit of both the natural environment and human beings. Protection of the environment is needed due to
various human activities. It bring reality in environmental protection it is important for societies to develop each of those
areas. Pollution prevention reduces the amount of pollution generated

by a process, whether it is consumer consumption, driving or industrial protection. If less waste is produced, there will also
be a diminished need for on productivity. A rapid response to incidents will help to minimize the environmental impact and
could reduce the overall costs. Any resource of which there is a limited supply of that regenerates its supply overtime at a
limited rate can become depleted. It can have dire implications on the price and availability of such products. Natural
resources include water, fuel, soil, land and air. Depletion of these resources produces competition among living organisms
for the remaining portions, and there by diminishes the quality of available resources. The conservation of natural
resources is now usually embraced in the broader conception of conserving the earth itself by capacity for self renewal.

KEY WORDS
1. ENVIRONMENTAL ISSUES - Environmental issues are harmful effects of human activity on the biophysical
environment. Environmentalism, a social and environmental movement, addresses environmental issues through
advocacy, education and activism.
2. PROTECTING THE NATURAL ENVIRNOMENT - Environmental protection is a practice of protecting the natural
environment on individual, organizational or governmental levels, for the benefit of both the natural environment and
human beings.
3. PREVENTION OF POLLUTION - Pollution prevention occurs when raw materials, water, energy and other resources
are utilized more efficiently, when less harmful substances are substituted for hazardous ones, and when toxic substances
are eliminated from the production process.
4. DEPLETION OF NATURAL RESOURCES - Resource depletion is the consumption of a resource faster than it can be
replenished. Natural resources are commonly divided between renewable resources and non-renewable resources.
5. CONSERVATION OF NATURAL RESOURCES - It refers to the management, mainly for economic reasons, of such
valuable natural resources as timber, fish, game, topsoil, pastureland, and minerals, and also to the preservation of forests,
wildlife, parkland.

Self Assessment Questions

1. What is meant by Environment Issues?
2. Explain the importance of environment issues.
3. What is meant by protecting the natural environment?
4. What is meant by prevention of pollution?
5. Define prevention of pollution
6. What are the Economic Incentives for Pollution Prevention?
7. Explain the types of prevention of pollution.
8. What is meant by depletion of natural resources?
9. Define depletion of natural resources
10. What are the effects of depletion of natural resources?
11. Explain the basic reasons for depletion of natural resources
12. What is meant by Conservation of natural resources?
13. Define conservation of natural resources
14. Explain the needs of the conservation of natural resources.
15. Explain the importance of conservation of natural resources.

UNIT – IV WORKPLACE ETHICS

Learning Objectives

After studying this unit you will be able to understand-

Workplace Ethics
Personal and professional ethics in the organisation
Discrimination of ethics in the organisation
Harassment of ethics in the organisation
Gender equality of ethics in the organisation

CONTENTS

4.1 Introduction of Workplace Ethics

4.2 Meaning of Workplace Ethics
4.3 Definition of Workplace Ethics
4.4 Importance of Workplace Ethics
4.5 Professional Codes of Ethics
4.6 Ethical Challenges in the Workplace
4.7 Ethical principles in the workplace
4.8 Advantages and Disadvantages of Workplace Ethics
4.9 Introduction of personal ethics
4.10 Meaning of Personal Ethics in the Organisation
4.11 Definition of Personal Ethics in the Organisation
4.12 Difference between Personal and Professional Ethics
4.13 Needs of Personal Ethics in the Organisation
4.14 Introduction of Professional Ethics in the Organisation
4.15 Meaning of Professional Ethics in the Organisation
4.16 Futures of Professional Ethics in the Organisation
4.17 Meaning of Discrimination
4.18 Importance of Discrimination
4.19 Meaning of Harassment
4.20 Employer Liability for Harassment
4.21 Benefits of Workplace Harassment Training
4.22 Meaning of Gender Equality
4.23 Definition of Gender Equality
4.24 Importance of Gender Equality

4.1 Introduction of Workplace Ethics

The management of ethics in the workplace holds tremendous benefits for everyone, benefits both moral -- and even
practical. This is particularly true today when it is critical to understand and manage highly diverse values in the workplace.
When at a time too many people still feel that business ethics is a topic for philosophy or is about shaming and blaming
people. This unit aims to make the topic of business ethics very understandable and accessible.

The field of business ethics has traditionally been the domain of philosophers, academics and social critics. Consequently,
much of today's literature about business ethics is not geared toward the practical needs of leaders and managers -- the
people primarily responsible for managing ethics in the workplace. The most frequent forms of business ethics literature
today typically include-

a) philosophical, which requires extensive orientation and analysis;

b) anthologies, which require much time, review and integration;

c) case studies, which require numerous cases, and much time and analyses to synthesize; and

d) extended stories about businesses "gone bad".

This lack of practical information is not the fault of philosophers, academics or social critics. The problem is the outcome of
insufficient involvement of leaders and managers in discussions and literature about business ethics. More leaders and
managers should become more involved.

4.2 Meaning of Workplace Ethics

Workplace ethics are codes of conduct that influence the development of an ethical culture within the workplace. Going
beyond what is considered legal in the area where the business operates, they inspire communication between employees,
allow for respect to be extended to each person within the organization, and promote customer relationships that are
based on honesty and integrity. While there are core elements that tend to define a work-

based code of ethics, the specific expressions of these central values vary from one corporate setting to the next.
It is important to remember that workplace ethics are shaped by the following factor. Work place policy must be in
harmony with all laws and regulations that are currently in force in the jurisdiction where the business operates. This helps
to ensure that basic ethics preclude any pressure or coercion to engage in actions that are considered to be
illegal, promote discriminationin the workplace, support unfair hiring and firing practices, or allow wages to be set that are
below the minimum legal standards for the area.
Along with being shaped by laws and regulations, workplace ethics are also influenced by business ethics. Forexample,
ethical business practices would include actions such as not using marketing materials or campaigns that mislead
consumers. Workplace ethics would also involve establishing and operating support networks such as employees wellbeing
programmes which in turn help the employees to be healthy and happy. Ethics of this type would also involve

the conscious effort to cultivate a working environment where people want to come to work and be productive because of
pride in what they do for a living.
While businesses tend to comply with laws and regulations not every company looks the need to develop workplace ethics
that affirm the worth of employees and motivate them to be productive on their job. When a company chooses to do no
more than what is required by local law, the chances of heavy employee turnover are much higher. In addition, it is easier
for cliques to develop among certain groups of employees, a state that can often undermine productivity and cost the
company a great deal in terms of time and revenue generation.
One of the tasks many business consultants face is helping clients assess the status of workplace ethics in their offices and
manufacturing facilities, and then find ways to expand and enhance those ethics at all levels of the operation. Often,
consultants can spot problems that are not immediately noticeable to managers and business owners, simply because the
problems developed incrementally over an extended period of time. However, once the issues are identified and resolved,
it will strengthen the company and the employees will be significantly happier.
4.3 Definition of Workplace Ethics

Companies use workplace ethics to govern employee behavior, regulate management’s moral decisions and keep
companies out of legal trouble. Some businesses clarify ethics in an official company code of ethics. Employees of
companies with no official code can rely on personal ethics derived from universal codes. Workplace ethics is not meant
only for corrupt employees, but workplace ethics guide all businesspeople who search for moral and professional direction.

According to Kirk O. Hanson, a renowned ethics expert who also doubles as the Executive Director of the Markkula Center
for Applied Ethics, "business ethics is the study of the standards of business behaviour which promote human welfare and
the good."

Business ethics manifests both as written and unwritten codes of moral standards that are critical to the current activities
and future aspirations of a business organisation. They can differ from one company to another because of differences in
cultural perspectives, operational structures and strategic orientations. The guiding framework of business ethics exists at
all levels

of the organisation. It is about having the wisdom to determine the difference between right actions and wrong decisions.

In simpler terms, business ethics fundamentally epitomises the organisation's codes of corporate governance. It stipulates
the morality standards and behavioral patterns expected of individuals and the business as a whole. These moral
benchmarks can be perceived in terms of the microenvironment and macro environment of the business.

4.4 Importance of Workplace Ethics

Our actions affect not only ourselves, but also those around us. Many of the professional decisions involve ethics. When we
tell a lie, we can lose someone's trust and undermine our own integrity. If we use shoddy materials or workmanship on the
job, we can jeopardize the safety of others.

Questions of morality and ethics can be found at all levels of society. Ethical behavior is equally important in the workplace
as it is in our personal lives. Ethics is of great concern wherever business is conducted.

A successful business depends on the trust of various parties—employees, managers, executives, customers, suppliers, and
even competitors. Six ethical terms form the foundation of trust upon which ethical business practice is built:

• Ethics
• Values
• Morals
• Integrity
• Character
• Laws

Ethics

Ethics refers to a set of rules that describes acceptable conduct in society. Ethics serve as a guide to moral daily living and
helps us to judge that how our behavior can be justified.

Ethics refers to society's sense of the right way of living our daily lives. It does this by establishing rules, principles, and
values on which we can base our conduct. The important concepts that directly associated with ethics are truth, honesty,
fairness, and equity.

While ethics is a societal concern, it is of critical importance to the professions that serve society. Because professionals
such as physicians, attorneys, engineers, and property and facility managers provide services that affect our welfare. They
develop professional codes of ethics that establish professional standards for behavior.

Examples of the types of standards found in professional codes of ethics include:

• An Lawyer or Doctor maintaining client-patient confidentiality

• An Accountant who do not use client information for personal gain
Values
Values are defined as the acts, customsthat institutions and group of people regard in a favorable manner. Statements of
value typically contain words of approval, disapproval, and obligation. Some of these words might be good, bad, should,
and should not. However, value judgments may not contain specific value words. "That is a lie" does not contain a
particular word of disapproval, but the implication that a lie is wrong is understood.
Values are what really matter to us most—what we care about. For instance, family devotion, respect for the environment,
and working hard for a day's pay are three values that can evoke a response in many people.
Morals
Morals are a set of rules or code of conduct on which society is based. Certain moral elements are universal, such as the
laws forbidding homicide and the basic duties of doing good and furthering the well-being of others. With morals serving as
the underpinning of society, there are four points that should be remembered, says philosopher Robert C. Solomon.
• Moral rules are important: In general, moral rules are rules that help society function in a civilised way.

• Morality consists of universal rules: They apply to everyone, everywhere, and are recognized by everyone as being
necessary.

• Morals are objective: They will never consider personal preferences. For example,Right is right and wrong is wrong.

• Morality affects other people: Morality involves considering the well-being of others as reflected by the Golden
Rule: Do unto others as you would have them do unto you.

Integrity

To have integrity is to be honest and sincere. Integrity is defined as adhering to a moral code in daily decision making.
When people and businesses possess integrity, it means they can be trusted. On the other hand, companies that lack this
quality and mislead customers with inferior products or false advertising will suffer the consequences later on.

Character
Ethics is not just how we think and act. It is also about character. Character drives what we do when no one is looking. Each
person has the ability to build, change, or even destroy his or her own character Our character can be built through the way
we live—by thinking good thoughts and performing good acts. Similarly, bad thoughts and behavior can destroy our
character.

A person with good character has high morals and will act morally in all situations by choice and not by force. A person with
character will honour his or her commitments. Character pertains to organizations, as well. A company with high character
is worthy of trust and respect, acts honestly, and stands by its promises.

Laws

The law is a series of rules and regulations designed to express the needs of the people. Laws protect people from the most
blatant and despicable affront to morality, such as murder, rape, and theft.

Laws frequently provide us with a sense of right and wrong and guide our behaviour, but not always. While murder is
against the law, the law does not always stop someone from killing another out of hatred, anger, or in defense of a
personal philosophy.

Laws are instituted as notions of justice and tend to be specificand therefore different from society to society. Laws always
have a strong connection to morality, ethics, and values. But, not all laws are ethical.

Laws have legalised slavery, segregation, sexism, and apartheid. Although these laws might have reflected society's values
at the time they were enacted, they will never justify immoral behavior. Likewise in business, it is not unlawful to lie to a
coworker or on a job application, but both are ethically wrong.

These six concepts—ethics, values, morals, integrity, character, and laws—form the foundation of trust upon which ethical
business practice is built.

4.5 Professional Codes of Ethics

Many professions and corporations have developed codes of ethics to address their unique business situations. In fact, 90
percent of Fortune 500 companies and nearly half of all corporations have codes of ethics that can be applied to all
employees. By developing a code of ethics, an organisation makes it clear that employees and members cannot claim
ignorance as a defense for unethical conduct.

Benefits of a Corporate Code of Ethics

Codes of ethics help employees strike a balance between the ends and the means used to obtain them. This balance may
be one of the most challenging aspects of being an ethical organization.

The Federal Sentencing Guidelines for Organizations provide an additional incentive for having corporate codes of ethics
and ethics training. Companies that are taking real steps to prevent unethical and illegal behavior are likely to receive less
severe punishment an employee

found to be guilty of breaking the law. The unethical conduct of just a few employees can affect an entire organisation.

Benefits of a Professional Code of Ethics

A professional code of ethics sets a standard for which each member of the profession can be expected to meet. It is a
promise to act in a manner that protects the people’s well-being. A professional code of ethics informs the public regarding
expectation from a personality namelya doctor, lawyer, accountant, or an engineer. As long as professionals adhere to
these standards, the public is willing to have their professional associations create and enforce their ethical codes.
In cases where these codes are repeatedly and totally violated, the public is likely response is to demand protective
legislation. Most professionals would prefer to police themselves, rather than have an externally imposed set of
regulations. That is a major reason why they create codes of ethics in the first place.

Successful Implementation of a Code of Ethics

Within an organisation, top-down support is critical. When top management does not act ethically and support others who
do, an organisation's ethical code will have little meaning. It is critical for managers and executives to:

• act consistently with the company's ethical standards

• apply those standards in dealing with employees

Acknowledging and rewarding those, whose behaviouris consistent with the company's code of ethics declare to all that
ethical behaviour is truly valued. On the other hand, promoting and providing bonus to employees whose success is due to
the part of unethical behaviour sends an unwanted message.

Remaining ethical is not a static issue. It requires review and evaluation. Companies need to periodically review their
priorities and make necessary adjustments. Otherwise, their standards and training become outdated.

4.6 Ethical Challenges in the Workplace

We may think that once a person gets a job, he will do everything in the best interests of the company. But workplace
ethics involve a tension between what people feel is right for them versus what's right for the workplace. We may know
something about this conflict of interest, especially when the employer doesnot have a written policy about some of the
more widespread infractions. When businesses do focus more on the importance of ethics, such as during an economic
challenge when the competition for work is higher, there is a drop in misconduct and a rise in reporting misbehavior,
according to a survey by the Ethics Resource Center. Businesses can use current ethical dilemmas to create

Fair Treatment
In a perfect world, everyone wants to be treated fairly. In fact, there are fewer ethical violations when people see integrity
in the leadership, according to Walker Information Inc. When it feels like managers are best buddies with everyone but
you, though, you'll start second- guessing performance reviews, discipline, compensation and what a win looks like. It
doesn't help when people muddy the waters by dating co-workers or hiring family members, for seniority seems to become
less about tenure and more about favoritism.

Trust
When you are sick of feeling like you don't know whom to trust, then become
trustworthy and lead by example. Start by developing a reputation for meeting deadlines and not misusing the time you
are paid for. Next, sort out the tension between personal morality and workplace loyalty. When your boss asks you to lie to
cover for him, you'll ultimately choose between holding to the truth versus keeping the appearance of being a "team
player." Even when you're trying to seal the deal with a tough client, don't tell "white lies" to sway their decisions.

Using Resources
Don't feel like you're paid what you're worth? Join the club, and don't expect to feel good about it. If your pay doesn't
match your sense of entitlement, you'll be tempted to conduct personal business during working hours of the company to
justify it. Tying up company phone lines, Internet, printer, copy machine and more for non-work purposes may feel
legitimate at first

–For example, taking a ream of paper home to print off a presentation; however, if you don't use it all, you will be tempted
to justify keeping it since you used your own printer's ink on the report. A good rule of thumb is to keep work resources at
work and avoid doing personal tasks or favours with them.

Harassment
Whether you are full time or part time employee, it's your right to feel safe all the time. Harassment at work, including
bullying, peer pressure and sexual advances that make you feel uncomfortable, is a solvable problem if you're willing to
hold your company accountable for it. Talk with your boss or HR department about official and anonymous channels for
employees to report incidents. More than one in five employees who reported misconduct say that they experienced some
form of retaliation, according to 2011 survey by the Ethics Resource Center. If you fear losing your job by reporting
something committed against you or another person, the behaviour will likely continue, then that willmake you to remain
ethically torn.

Expenses
There's a good chance that you know when you're fudging an expense report. Even when your company clarifies which
expenses are reimbursable and how they're tracked, you and your co-workers may look for the loophole to claim the
doughnuts you bought when you gassed up the company car. Until the IRS audits your company, the short-term loss is
typically felt in terms of profit. Develop standards that are above reproach by capping what you claim to only what you
spent money on. If there ever is a profit, such as leftovers from a catered lunch, send the food home with someone else
versus enjoying it yourself and potentially over-ordering again next time.

4.7 Ethical Principles in the Workplace

When employees have no ethical principles to follow in the workplace they make decisions based on their own values.
However, varying values can create discord on the workplace.Therefore, management needs ethical principles to set
standards for employees. Regardless of individual values, ethical principles in the workplace set common workplace values.
This kind of mutual understanding helps to create greater efficiency and productivity.

Importance

Guidelines

Ethical principles in the workplace can come into question when an employee needs to make a decision. A decision may
involve fairness, truth or values in the workplace. It may concern a legal matter, professional or personal conflict. Even if an
employee believes that he can get away with a decision and "no one will know," the decision can involve ethical principles.
Employees confused about ethical principles in the workplace should be able to approach their supervisors for guidance.
Consequences

An employee sees another employee stealing from the stock room and decides not to report it. A supervisor suspects that
financial statements have changed after a new employee started and doesn't address it. Both are likely violations of the
company's ethical principles.So it is the management responsibility to act based on ethical principles, if not the workplace
can suffer consequences. When a manager chooses to ignore the matter, he indirectly tells employees that they don't have
to take workplace ethical principles seriously. Some employers will fire an employee for unethical behaviour to set
standards for ethical principles in the workplace.
Evaluation

Managers can meet with employees individually and grade them on their ethical behaviour as a method of assessing how
the workplace responds to the company's ethical principles. Even the management can ask employees to complete ethical
checklists each month to gauge how they are performing when it comes to ethical principles. At the same time, this level of
focus shows employees that the company is committed to ethical principles in the workplace.

4.8 Advantages and Disadvantages of Workplace Ethics

American history abounds with examples of discrimination against minorities and women, ranging from voting laws to
admissions and hiring policies. To help rectify the historical inequalities suffered by women and minorities, President John
F. Kennedy and President Lyndon B. Johnson issued Executive Order 10925 and Executive Order 11246, which effectively
mandate non-discriminatory policies in regards to race, religion, gender and country of origin. Many companies now
employ affirmative action policies as part of their business models, but the practice remains controversial, as it creates
advantages and disadvantages
Diversity
Affirmative action policies help to create a more diverse work environment. Diversity, in turn, provides business with two
key advantages: First, they provide more adaptability in terms of problem solving by offering a wider array of possible
solutions; and companies that embrace a multi-cultural employee roster are better positioned to serve multi-cultural
communities, by overcoming language and cultural barriers.

Increased Opportunities
By maintaining affirmative action hiring policies, a business can expand its opportunities to include government contracts.
The Executive Order put into place by President Lyndon B. Johnson specifies that businesses receiving government
contracts must establish and maintain affirmative action policies. The availability of government contracts vary from
administration to administration and federal budget to federal budget, but such contracts can prove a lucrative windfall for
the businesses that win them.

Moral Commitment
Embracing affirmative action can provide businesses with a means of making a moral commitment to the ideal of justice or
equal treatment for all. The advantage of such a moral stand within the workplace remains indirect. It can help to draw
employees who share a belief in the principle of justice, which helps to foster a more tolerant work environment. It can
also reassure employees who come from historically underrepresented groups that they will be able to get full
consideration for any available promotions.

Reverse Discrimination
One major disadvantage of affirmative action in the workplace is the reality or perception of reverse discrimination. In
essence, those opposed to affirmative action programs claim that the programs penalise those from the historically
dominant group even when they possess the appropriate qualifications for a given job. While reverse discrimination
remains exceedingly rare in practice, the accusation of reverse discrimination can generate a negative social backlash for a
company, which may undermine its financial future. This kind of accusation can also potentially undercut the confidence of
minority and women employees concerning their skill level.

Stigmatisation
Affirmative action policies can potentially create a stigma that minorities and women obtain positions in a company based
on gender, race or ethnicity, rather than through achievement and qualifications. In the workplace, this stigma can
translate into questioning the competence of minority and women employees to do their jobs. The stigmatisation may also
lead minority and women employees to question why an employer chose to hire them.

4.9 Introduction of Personal Ethics

Unlike professional ethics, personal ethics has received limited attention in the literature. To measure personal ethics,
beginning with the definition provided by Forsyth worthwhile. Forsyth’s definition has been extended to include two
dimensions of relativism and idealism as well as taxonomy of four approaches situationalsubjectivism, absolutism and
exception. In addition, Forsyth developed an instrument that aids in classifying individuals into the four taxonomy
categories.
Forsyth and colleagues studied the influence of personal ethics on business decisions in organizations. Forsyth’s approach
asserts that personal ethics comprise of ethical beliefs, attitudes and moral ideologies. In addition, Forsyth defined
personal ethics based on two dimensions: relativism and idealism. He noted that “individual variations in approaches to
moral [ethical] judgment may be described most parsimoniously by taking into account two basic factors…relativism… and
idealism...”.

Relativism refers to “the extent to which the individual rejects universal moral [ethical] rules”. In addition, he suggested
that relativism refers to the “nature of the situation [where] circumstances weigh more than the ethical principle”. Idealism
refers to the extent that “some individuals idealistically assume that desirable consequences can, with the ‘right’ action,
always be obtained.
4.10 Meaning of Personal Ethics in the Organisation

Personal ethics is defined as any ethical system or doctrine that has been chosen as a moral guide in the particular life of an
agent.

4.11 Definition of Personal Ethics in the Organisation

Personal ethics is the process of learning what is right and wrong, then doing what is
right.

4.12 Difference between Personal and Professional Ethics

Personal ethics refers to the ethics that a person identifies with in respect to people and situations that they deal with in
everyday life.
Professional ethics refers to the ethics that a person must adhere to in respect of their interactions and business dealings in
their professional life.
In some situations, personal and professional ethics may clash and cause a moral conflict. For example:
• A police officer may personally believe that a law that he is required to enforce is wrong. However, he is required
to obey all lawful and reasonable instructions to enforce that law unless there is good and sufficient cause to do otherwise.
• A doctor may not personally believe that the course of medical treatment chosen by a patient is the right one.
However,she must respect the rights, autonomy and freedom of choice of the patient.

4.13 Need of Personal Ethics in the Organisation

To maintain that personal ethics comprising of morals, principles, and values, it requires constant repetition that is taught
and not magically acquired. It is the parents responsibility to

teachthe importance of honesty, accountability, responsibility, and integrity.So, lessonsthat are taught by parentsare so
vital to personal ethics and good behavior. Therefore we cannot place our own interests and value them ahead of our faith,
family, friends, and others.
There is no place for arrogance and greed in our personal lives or in the business world. Grace and humility are required in
all of our lives. The best place we can point fingers is at our own tummies and not blame others.So let us strive to teach,
enrich, and develop others about personal ethics and remember the lessons of our mentors.

4.14 Introduction to Professional Ethics in the Organisation

Business or professional ethics are standards or codes of conduct set by people in a specific profession. A code of ethics is a
part of the expectations of those involved in many different types of professions. People in a profession don't want to
object bad, dishonest or irresponsible behaviour if it does occur by someone in their field. By setting out expected
behaviour in the form of professional ethics, professionals work together and try to uphold a good reputation. Professional
ethics are commonly known as ethical business practices..
Respect and honesty are the two main components of professional ethics. All employees are expected to represent a
business ethically as they are a part of it. This is why businesspeople traditionally speak of "we" or "us" rather than the
more personal "I" for the most part. For instance, if an employee must mention company policy to a customer, he or she
may say "I'm sorry, but this is our company policy in these situations." Policies are another type of preferred standards in
how business is done, and everyone in a company is expected to represent them.

It should be noted that people within each profession are expected to be respectful and honest in their personal dealings
as well. For instance, it would be unethical for law enforcement professionals also being criminals in their time off the job.
Professionals are also expected to uphold ethics by not getting involved in any type of conflict of interest. A conflict of
interest situation may occur when an individual tries to accomplish personal goals as a result of being in a certain
profession. For example, a politician who uses government resources to get work done at his home could be seen as being
involved in a conflict of interest.
Professional ethics training is often included in career education programs. For example,Doctors are trained on the many
ethical issues regarding patient confidentiality. It is

both unethical and unlawful to discuss a patient's health records with others who are not involved in the medical care of
the individual.
Engineering, journalism, religious organizations and many other professions have professional ethics. These ethical codes
or rules must never go against laws, but rather often coordinate with them as in the case of medical record confidentiality.
In general, these ethics always include upholding honesty and respect in the profession over personal needs, conflicts or
biases. A bias is a personal belief such as prejudice toward a certain group of people.

4.1.5 Meaning of Professional Ethics in the Organisation

Professional ethics is defined as the personal and corporate rules that govern behaviour within the context of a particular
profession. An example of professional ethics is the American Bar Association's set of ethical rules that govern an attorney's
moral obligations.
Professional ethics encompass the personal, organisational and corporate standards of behaviour expected of
Professionals.Professionals and those working in acknowledged professions, exercise specialist knowledge and skill. How
the use of this knowledge should be governed when providing a service to the public can be considered a moral issue and is
termed professional ethics.
Professionals are capable of making judgements, applying their skills and reaching informed decisions in situations that the
general public cannot, because they have not received the relevant training. One of the earliest examples of professional
ethics is the Hippocratic oath to which medical doctors still adhere to this day.
Many professions that are trusted by the public to apply expert knowledge (doctors, engineers, lawyers, charted
accountants and the like) have a Code of Ethics which sets out their expectations of a member’s behaviour and the
boundaries within which members have to operate. A Code of Ethics helps to clarify the profession’s values provides a
reference point for decision making and can be used as a framework for discipline. Most Codes of Ethics are principles
based, providing guidance as to the principles on which professional judgement and decisions should be based, rather than
a rigid system of rules.
There tend to be some common themes, so for example AAT’s Code of Ethics, like that of other professional accountants,
sets out 5 fundamental principles which members must apply:

integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
Professional Ethics is partly comprised of what a professional should or should not do in the work -place. It also
encompasses a much greater part of the professional’s life. If a professional is to have ethics then that person needs to
adopt that conduct in all of his dealings. Another aspect of this is the enhancement of the profession and the industry
within which the professional works.
4.16 Future of Professional Ethics in the Organisation

Computer Societies around the world such as the IEEE and national bodies in Australia, Singapore, the UK and other
countries have on their websites professional codes of ethics to consider and adopt in the way professionals conduct
themselves in and out of the work place. Personal ethics, morality, and integrity will strongly influence a person’s
professional ethical conduct. Integrity means wholeness or completeness which needs continuity of life in all its actions.
We must not delude ourselves or the people we lead by thinking that we can practice conduct.
Code of Professional Ethics in the Organisation

A Code is a statement of policies, principles or rules that guide behaviour. Certainly, codes of ethics do not apply only to
business enterprises, but they should guide the behaviour of people in all organisations and in all walks of life. So it is
named as “Professional Ethics”. In the present time, every profession has its own codes, to be practised by their
professionals.
Ethics in Different Professions

All persons, whether they are in business, government, educational institutes, or any other professions are concerned with
ethics. Encyclopedia of Social Sciences defines ethics as “the organization or criticism of conduct in terms of notions like,
good, right or welfare… Ethics is the secular and critical manner of taking account of the rationalising process in human
conduct. Its temper is non-mystical, and its orientation is social rather than theological.”
4.17 Meaning of Discrimination

Discrimination is treatment or consideration of, or making a distinction in favour of or against, a person or thing based on
the group, class, or category to which that person or thing belongs rather than on individual merit.This includes treatment
of an individual or group based on their actual or perceived membership in a certain group or social category, "in a way
that is worse than the way people are usually treated".It involves the group's initial reaction or interaction going on to
influence the individual's actual behaviour towards the group leader or the group, restricting members of one group from
opportunities or privileges that are available to another group, which leads to the exclusion of the individual or entities
based on logical or irrational decision making.
Not all discrimination is based on prejudice. However,some religious duties, for example, need to be performed exclusively
by a person professing the religion that commands those duties.Also, in the U.S., government policy known as affirmative
action was instituted to encourage employers and universities to seek out and accept groups such as African-Americans
and women, who have been subject to the opposite kind of discrimination for a long time. Discriminatory traditions,
policies, ideas, practices, and laws exist in many countries and institutions in every part of the world, even in ones where
discrimination is generally looked down upon. In some places, controversial attempts such as quotas have been used to
benefit those believed to be current or past victims of discrimination—but have sometimes been called reserve
discrimination.
Discrimination is the act of treating someone unfavourably or favourably because of some characteristic such as race, age,
culture, gender, religion, and so on. Any distinction, exclusion or preference made on the basis of race, colour, sex, religion,
political opinion, national extraction or social origin, which has the effect of nullifying or impairing equality of opportunity
or treatment in employment or occupation is unlawful.
4.18 Importance of Discrimination

Failure to treat people fairly or equitably may be classed as discrimination. Anti- discrimination is about ensuring that
everyone gets a fair go in life. The Anti-Discrimination Act 1991 (Qld) promotes fair treatment and equality by making
unfair discrimination unlawful. It also places responsibilities on everyone to ensure that unlawful discrimination and certain
‘objectionable conduct’ is minimised or prevented.

4.19 Meaning of Harassment

Harassment is a form of employment discrimination that violates Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, (ADEA), and the Americans with Disabilities Act of 1990, (ADA).
Harassment is unwelcome conduct that is based on race, color, religion, sex (including pregnancy), national origin, age (40
or older), disability or genetic information. Harassment becomes unlawful where -
1) enduring the offensive conduct becomes a condition of continued employment, or

2) the conduct is severe or pervasive enough to create a work environment that a reasonable person would consider
intimidating, hostile, or abusive.
Anti-discrimination laws also prohibit harassment against individuals in retaliation for filing a discrimination charge,
testifying, or participating in any way in an investigation, proceeding, or lawsuit under these laws; or opposing employment
practices that they reasonably believe discriminate against individuals, in violation of these laws.
Petty slights, annoyances, and isolated incidents (unless extremely serious) will not rise to the level of illegality. To be
unlawful, the conduct must create a work environment that would be intimidating, hostile, or offensive to reasonable
people.
Offensive conduct may alsoinclude, offensive jokes, slurs, epithets or name calling, physical assaults or threats,
intimidation, ridicule or mockery, insults or put-downs, offensive objects or pictures, and interference with work
performance. Harassment can occur in a variety of circumstances, including, but not limited to, the following:
• The harasser can be the victim's supervisor, a supervisor in another area, an agent of the employer, a co-worker, or
a non-employee.

• The victim does not have to be the person harassed, but can be anyone affected by the offensive conduct.
• Unlawful harassment may occur without economic injury to, or discharge of, the victim.

Prevention is the best tool to eliminate harassment in the workplace. Employers are encouraged to take appropriate steps
to prevent and correct unlawful harassment. They should clearly inform the employees that unwelcome harassing conduct
will not be tolerated. They can do this by establishing an effective complaint or grievance process, providing anti-
harassment training to their managers and employees, and taking immediate and appropriate action when an employee
complains. Employers should strive to create an environment in which employees feel free to raise concerns and are
confident that those concerns will be addressed.
Employees are encouraged to inform the harasser directly that the conduct is unwelcome and must stop. Employees
should also report harassment to the management as early as possible to prevent its escalation.
4.20 Employer Liability for Harassment

The employer is automatically liable for harassment by a supervisor that results in a negative employment action such as
termination, failure to promote or hire, and loss of wages. If the supervisor's harassment results in a hostile work
environment, the employer can avoid liability only if it can prove that:
1) He reasonably tried to prevent and promptly correct the harassing behavior; and

2) The employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the
employer.
The employer will be liable for harassment by non-supervisory employees or non- employees over whom it has control
(e.g., independent contractors or customers on the premises), if it knew, or should have known about the harassment and
failed to take prompt and appropriate corrective action.
While investigating allegations of harassment, the entire record including the nature of the conduct, and the context in
which the alleged incidents occurred must be examined. A

determination of whether harassment is severe or pervasive enough to be illegal is made on a case-by-case basis.

4.21 Benefits of Workplace Harassment Training

The training community has heard the maxim “the most successful organizations know the value of employee training”. So,
what are the benefits of worklpace harassment training for employees? A short list of training benefits are-

• Fewer errors
• Lower turnover rates
• Sends the message that employees are valued

Can harassment prevention training create substantial positive outcomes such as those listed above? Or, is workplace
harassment training a “check-the-box” item that simply results in fewer harassment claims and functions as an insurance
policy – a reasonable step taken to mitigate liabilities?

Error Reduction

Data from the Sexual Experiences Questionnaire (SEQ, Form W) indicated the extent to which human resource
professionals received unwanted sexual behavior over a 5 year period. It is surprising since HR personnel being harassed
seems a bit like a school-aged child bullying the parent rather than their classmate. One of the stats from the report
showed that “89 percent of human resource professionals self-reported to have received gender harassment." Does this
indicate lack of awareness skills on what is appropriate and what is not? Can the prohibited behaviours be viewed as
errors? Many employees act without knowledge and their intent is not to offend. For example, hugging is a controversial
topic. Can you think of a situation where hugging a colleague is OK and another scenario when it would be considered
aggressive? Probably. How to appropriately act in today's complex workplaces requires training, just like customer service
skills or effective delegation training.
Turnover

Creating and maintaining a respectful workplace helps reduce turnover. Experiences of harassment led to increased
turnover based on a study conducted by the military with over 11,000 servicewoman serving as the data pool. The cost of
turnover is well documented. Turnover varies depending on the industry and job status but for a hourly line employee, the
cost of replacing, training etc. starts at a couple of thousand dollars.

Motivation

Feeling appreciated lately? If not, how much more motivated would you feel (and act) if you knew you were valued? On the
other hand, take a walk on the dark side and imagine how your self-worth would suffer if you were the target of harassing
behaviors – be it sexual, bullying, retaliation, etc.

We all need to feel safe and protected in order to be productive workers. Harassed employees seek relief – using sick leave,
for example, more frequently than the average employee.

Start with the End

Maximising the benefits of workplace harassment training starts with the end goal. Most employers want their employees
to be knowledgeable and aware so that they can know definitive guidelines that are clearly spelled out in their policies
against harassment. That’s a good goal. How to avoid prohibited behaviour is a skill that is best learned by regular
reinforcement. Training that is “one and done” is not goal oriented except to perhaps minimise the cost associated with the
training initiative. Workplace harassment training that is given to managers and not individual contributors leaves out the
positive changes that can happen when everybody is on the same work. Continuous learning deployed regularly makes a
statement – we, your employer, do not tolerate prohibited behavior in the workplace and expect our employees to treat
each other with respect.

Continuing

Consider sending emails to all employees at least once per quarter with a short message that respectful behaviour is
essential. Assign them an online mini-course (about 5 minutes in length) with a thought provoking scenario that keeps
them actively thinking about doing the right thing. Ask employees what they think about getting consistent messaging that
expresses the organisation’s values about respect in the workplace. People get excited about this stuff. Check out Menlo
Innovations joyful culture. Richard Sheridan is CEO and wrote the book Joy,Inc. As stated on their website – “people want
to see it. Up close and personal, they come from around the world to visit. Some stay for hours, others for days. They walk
through, they ask questions,

they take pictures, they listen to the stories and take away inspiration.” That’s life, in this case ... work life to the max!

4.22 Meaning of Gender Equality

Gender equality, also known as sex equality, gender egalitarianism, sexual equality or equality of the genders, is the
view that men and women should receive equal treatment, importance and should not be discriminated based on
gender.This is the objective of the United Nations Universal Declaration of Human Rights, which seeks to create equality in
law and in social situations, such as in democratic activities and securing equal pay for equal work.

4.23 Definition of Gender Equality

For an expression that is much talked about, you rarely come across a clear definition of what gender equality actually
means. I’m pretty sure different people mean very different things when talking about gender equality, and many people
probably aren’t even aware of exactly what they mean.

Not defining words properly is a sure recipe for discussions and debates that lead nowhere, and heated arguments that are
as passionate as they are meaningless.

I believe that by defining what we mean by gender equality, we can avoid intellectual sloppiness, and clarify our own
beliefs in this area. Furthermore, you cannot hit a target unless you know what the target is, and for most people gender
equality is a desired outcome.

4.24 Importance of Gender Equality

An article on June 19 in The Jakarta Post noted that women’s groups had opposed moves from the government to release a
bill aimed at guaranteeing equal rights between both genders. Their opposition was partly due to complaints that the bill
would allow same-sex marriage, marriage between adults and minors, and other issues, due to a lack of details on how to
specifically empower women and achieve gender equality.
As with any issue, a new regulation enacted by the government aimed at tackling this issue must be specific in its design.
This ensures that the regulation is only concerned with the

particular issue at hand, eliminating any source of confusion or loopholes for other issues. Therefore, the government must
carefully reexamine any bill which is aimed at creating a more gender-equal society.
But why is gender equality an issue in the first place? What exactly does it mean to have genderequality?For many
Indonesians, men and women alike, notions of gender equality are against the traditional division of labour whereby
husbands are the breadwinners and wives take care of things at home. Indeed, this is the principle charge laid out against
the gender equality bill. This division of labour has become inbuilt as a result of cultural and religious beliefs and is
visiblypracticed in the rest of Asia.
This division, however, reduces the propensity for women to be exposed to the same opportunities as men. With a future
of domestic work already laid out, it discourages and may even form a direct barrier for women in pursuing skills necessary
for any employment outside the home. Economic dependency is thus formed between the man and the woman, leaving
the woman in a highly precarious situation should relations with the man be anything less than amicable or if an
unfortunate tragedy occurs.
One can observe the resulting economic disparity as a result of this division of labor in Indonesia. Data from the 2011
Global Gender Gap Report indicated that only 53 percent of women were participating in the labor force compared to 87
percent of men. In addition, the estimated average earned income for men was US$5,915 but only $2,487 for women. To
put this into perspective, Indonesia’s annual gross domestic product (GDP) per capita (an estimate of the average income
per person) is $4,003, showing that women earn far less than the national average.

Inequality also exists in wages for similar jobs. The report gave a number of 0.67 to highlight the gap in male and female
wages (a number of 1 indicates perfect equality). Furthermore, just 22 percent of legislators, senior officials, and managers
are women,
while only 18 percent of the seats in the House of Representatives are held by women. Finally,
95 percent of Indonesian men are literate compared with 89 percent of women.
Economic and social inequality thus exists between men and women; inequality entrenched through the traditional
division of labour. While this article is not alleging that all women would want to pursue paths other than domestic work
should the division be eliminated,

it may indeed be the case that some women would be interested in pursuing other career or non- career opportunities.
This is the definition of gender equality: Equal exposure to the same opportunities between men and women. Looked at in
this way, gender equality does not suppose that managerial posts in the office will be split evenly between men and
women. Rather, both males and females, throughout their life journeys, are given equal exposure to the same
opportunities.
Equal exposure is, of course, an arbitrary judgment and how one quantifies equal exposure merits a whole book in itself.
For the purposes of this article, equal exposure can be defined in three ways.
First, both men and women are taught the same curriculum at school. To Indonesia’s credit, a near perfect equality in
school enrollment between girls and boys exist. In order to make gender equality more effective, however, subjects
traditionally only taught to females, such as sewing or home economics, should not be mandatory but should be made
available as electives for both genders.
The curriculum should not mold students along specific paths but rather expose them to a myriad of different
opportunities.
Second, equal pay for similar or same work must be rigorously enforced by the state through regulatory bodies. Any
disparity in wages due to gender is unfair and suggests that a woman is unable to do the same work as effectively as a man.
Hence, equal pay would promote greater respect among coworkers of both genders. It would also encourage greater
female participation in the workplace as they would now receive the same benefits as men. This also broadens the pool of
future stars, as the female factory worker today may become the plant manager of tomorrow. One can observe the
tremendous macroeconomic gains to be made from gender equality.
Third, affirmative action policies in favor of women should be slowly reduced as the first two factors above become
increasingly common. As women are given more equal exposure to the same opportunities, the state should eliminate any
affirmative action policy since they are no longer necessary. This would eliminate any backlash from groups who claim that
the rise of women in the labor force is due to mitigating circumstances.

It would also validate the credibility of women and show that the traditional division of labor should not be ingrained and
that rather, women should be given the same opportunities as men to pursue their own futures.
The above points are not an argument against the traditional division of labor. On the contrary, the aim of this article is to
show that the traditional division of labor has the effect of disadvantaging women as measured through economics. It
should be the aim of the state to provide equal exposure to the same opportunities for all and, hence, rules and regulations
should be in favor of creating a more gender-equal society.

Summary

The field of business ethics has traditionally been the domain of philosophers, academics and social critics. It includes the
case studies, which require numerous cases, and much time and analyses to synthesize. Workplace ethics are codes of
conduct that influence the development of an ethical culture within the workplace. It would also involve establishing and
operating support networks such as employees well being programmes which in turn help the employees to be healthy and
happy. When a company chooses to do no more than what is required by local law, the chances of healthy employee
turnover are much higher. Many of the professional decisions involve ethics. By developing a code of ethics, an
organization makes it clear that employees and members cannot claim ignorance as a defence for unethical conduct. The
code of ethics help employees strike a balance between the ends and the means used to obtain them. Most professionals
would prefer to police themselves, rather than have an externally imposed let of regulations. The workplace ethics involve
a tension between what people feel is right for them versus what’s right for the workplace. Gender equality is also known
as sex equality, gender equalitarianism, sexual quality or equality of the gender, is the view that men and should receive
equal treatment.

KEY TERMS

1. WORK PLACE ETHICS - Workplace ethics are codes of conduct that influence the development of an ethical culture
within the workplace.

2. PERSONAL ETHICS IN THE ORGANISATION - Personal ethics is defined as any ethical system or doctrine that
has been chosen as a moral guide in the particular life of an agent.
3. PROFESSIONAL ETHICS IN THE ORGANISATION - Professional ethics is defined as the personal and corporate rules
that govern behaviour within the context of a particular profession.
4. DISCRIMINATION - Discrimination is treatment or consideration of, or making a distinction in favour of or against, a
person or thing based on the group, class, or category to which that person or thing belongs rather than on individual
merit.
5. GENDER EQUALITY - Gender equality, also known as sex equality, gender egalitarianism, sexual equality or
equality of the genders, is the view that men and women should receive equal treatment, importance and
should not be discriminated based on gender.

Self Assessment Questions

1. What is meant by workplace ethics?

2. Define workplace ethics
3. Explain the importance of workplace ethics?
4. Explain the professional codes of ethics.
5. Explain the ethical challenges in the workplace.
6. What are the principles of ethics in the workplace?
7. What are the advantages and disadvantages of ethics in the workplace?
8. What is meant by personal ethics in the organization?

9. Define personal ethics in the organization

10. Differences between the Personal and Professional ethics in the organisation.
11. What are the needs of the personal ethics in the organization?
12. What is meant by professional ethics?
13. What are the futures of professional ethics in the organization?
14. What is meant by Discrimination?
15. Explain the importance of Discrimination
16. What is meant by harassment?
17. Explain the employer liability in the harassment?
18. What are the benefits of workplace training in harassment?
19. What is meant by gender equality?
20. Define gender equality
21. Explain the importance of gender equality

UNIT – V

ORGANIZATION ETHICS DEVELOPMENT SYSTEM

Learning Objectives

After studying this unit you understand –

Organization Ethics Development

Organizational Culture and values
Code of ethics
Value based Leadership and its effectiveness

CONTENTS

5.1 Meaning of Organisation Ethics Development System

5.2 Importance of Organisation Development System
5.3 Elements of organisational development system
5.4 Meaning of Organisational Cultural
5.5 Definition of Organisational Cultural
5.6 Characteristics of Organisational Culture
5.7 Organisational Values
5.8 Importance of Organisational Values
5.9 Meaning of Code of Ethics
5.10 Definition of 'Code of Ethics'
5.11 Components of Code of Ethics
5.12 Meaning of Value Based Leadership
5.13 Definition of Value Based Leadership
5.14 Importance of Value Based Leadership
5.15 Benefits of Value Based Leadership
5.16 Effectiveness of Value Based Leadership

5.1 Meaning of Organisation Ethics Development System

An organisation is formed when individuals from different backgrounds and varied interests come together on a common
platform and work towards predefined goals and objectives.

Employees are the assets of an organisation and it is essential for them to maintain the decorum and ambience of the
workplace.

The way an organisation should respond to external environment refers to organization ethics. Organisation ethics
comprises of various guidelines and principles which decide the way individuals should behave at the workplace.

It also refers to the code of conduct of the individuals working in a particular organisation.

Every organisation runs to earn profits but how it makes money is more important. No organisation should never depend
on unfair means to earn money. One must understand that money is not the only important thing; pride and honour are
more important. An individual’s first priority can be to make money but he should not stoop too low just to be able to do
that.

Organisational ethics are the principals and standards by which businesses operate. They are best demonstrated through
acts of fairness, compassion, integrity, honour and responsibility.
5.2 Importance of Organisation Development System

Ethics are the principles and values an individual uses to govern his activities and decisions. In an organisation, a code of
ethics is a set of principles that guide the organization in its programs, policies and decisions for the business. The ethical
philosophy that an organisation uses to conduct business can affect the reputation, productivity and bottom line of the
business.
Leadership Ethics
The ethics that leaders in an organisation use to manage employees may have an effect on the morale and loyalty of
workers. The code of ethics leaders use determines discipline procedures and the acceptable behavior for all workers in an
organisation. When leaders have high ethical standards, it will encourage workers in the organisation to meet that same
level.

Ethical leadership also enhances the company’s reputation in the financial market and community. A solid reputation for
ethics and integrity in the community may improve the company’s business.

Employee Ethics
Ethical behaviour among workers in an organisation ensures that employees complete work with honesty and integrity.
Employees who use ethics to guide their behaviour will surely follow to employee policies and rules while striving to meet
the goals of the organisation. Employees who follow ethics also meet standards for quality in their work, which can
enhance the company’s reputation for quality products and services.

Ethical Organisational Culture

Leaders and employees following to a code of ethics create an ethical organisational culture. The leaders of a business may
create an ethical culture by exhibiting the type of behaviour they would like to see in employees. The organisation can
reinforce ethical behaviour by rewarding employees who exhibit the values and integrity that coincides with the company
code of ethics and in turn disciplining those who make the wrong choices.

Benefits to the Organisation

A positive and healthy corporate culture improves the morale among workers in the organisation, which may increase
productivity and employee retention; this, in turn, has financial benefits for the organisation. Higher levels of productivity
improve the efficiency in the company, while increasing employee retention reduces the cost of replacing employees.

5.3 Elements of Organisational Ethics Development System

Organisational ethics are the principals and standards by which businesses operate, according to Reference for Business.
They are best demonstrated through acts of fairness, compassion, integrity, honour and responsibility. The key for business
owners and executives is ensuring that all employees understand these ethics. One of the best ways to communicate
organisational ethics is by training employees on company standards.

Uniform Treatment
One example of organisational ethics is the uniform treatment of all employees. Small business owners should treat all
employees with the same respect, regardless of their race, religion, cultures or lifestyles. Everyone should also have equal
chances for promotions. One way to promote uniform treatment in organisations is through sensitivity training. Some
companies hold one-day seminars on various discrimination issues. They also invite outside experts in to discuss these
topics. Similarly, small company managers should avoid favouring one employee over others. This practice may also lead to
lawsuits from disgruntled employees. It is also counterproductive.

Social Responsibility
Small companies also have an obligation to protect the community. For example, the owner of a small chemical company
needs to communicate certain dangers to the community when explosions or other disasters occur. It is a necessity on the
owner to maintain certain safety standards for protecting nearby residents from leaks that affect the water or air quality.
There are state and central laws that protect people from unethical environmental practices. Business owners who violate
these laws may face stiff penalties. They may also be shut down.

Financial Ethics
Business owners must run clean operations with respect to finances, investing and expanding their companies. For
example, organisationsshould not give bribe to state legislators for tax credits or special privileges. Insider trading is also
prohibited. Insider trading means that managers or executives illegally apprise investors or outside parties of privileged
information affecting publicly traded stocks, according to the Securities and Exchange Commission. The

information helps some investors to achieve greater returns on their investments at the expense of others. Executives in
small companies must strive to help all shareholders to earn better returns on their money. They must also avoid collusive
arrangements with other companies to deliberately harm other competitors.

Considerations
A small company's organisational ethics can also include taking care of employees with mental illnesses or substance abuse
problems, such as drug and alcohol dependency. Ethical business owners help their employees to overcome these types of
problems when possible. They often put them through employee advisor programmes, which involves getting them the
treatment they need. Employees may have issues that lead to these types of problems. Therefore, they deserve a chance to
explain their situations and get the help they need.

5.4 Meaning of Organisational Culture

Organisational culture is one of the major issues in academic research and education, in organisation theory as well as in
management practice. There are good reasons for the culture dimension to be the centre in all aspects of
organisational life.

5.5 Definition of Organisational Culture

Organisational culture is a system of shared assumptions, values, and beliefs, which governs how people behave in
organisations. These shared values have a strong influence on the people in the organisation and dictate how they dress,
act, and perform their jobs. Every organisation develops and maintains a unique culture, which provides guidelines and
boundaries for the behaviour of the members of the organisation. Let's explore what elements make up an organisation's
culture.
Organisational culture is composed of seven characteristics that range in priority from high to low. Every organisation has a
distinct value for each of these characteristics, which, when combined, defines the organisation's unique culture. Members
of organisations make judgments on the value their organisation places on these characteristics, and then adjust their
behaviour to match these perceived set of values.

There are many different definitions of organisational culture, although almost all of the most widely accepted ones are
similar and cover many of the same aspects.
Organisational culture refers to the general culture within a company or organisation, and is often also referred to as
corporate culture, though that isn't the best description since a large non-profit organisation or charity could also have its
own organizational culture even though they are definitely not corporations. Here are some of the many definitions of
organisational culture that can be found.

Gareth Morgan has described organisational culture as: "The set of beliefs, values, and norms, together with symbols like
dramatised events and personalities that represents the unique character of an organisation, and provides the context for
action in it and by it." Beliefs and values are words that will pop up frequently in other definitions, as well. Norms might be
described as traditions, structure of authority, or routines.

Edgar Schein, one of the most famous and most respected theorists dealing with organisational culture says that the
definition of organisational culture has to be general, or else you start to eliminate factors that actually are part of
corporate culture.

Schein's definition of organisational culture is: "A pattern of shared basic assumptions that the group learned as it solved its
problems that has worked well enough to be considered valid and is passed on to new members as the correct way to
perceive, think, and feel in relation to those problems." Although the words are different, the two definitions are nearly the
same in terms of content.

Another more simple way of looking at organisational culture is to view it as a group's general reaction to stimulus. An
organisational culture is a group of people who have been trained, or who simply have learned by those around them, how
to act in any given situation. In this way, corporate culture functions just as any social learning does.

The other aspect of organisational culture that is often true is that it becomes very deeply rooted. It is the identity of a
company, and because of that, in some ways it becomes an identity of those who work there, as well. This is always
important to remember, as culture becomes like

a circular argument. The people end up affecting the culture as much as the culture is affecting them.

Because culture is so deeply rooted in an organizations history of success or failure, and because of its collective
experience, any organisation that needs to work to change it will be facing an uphill battle and a huge investment in time,
resources, and work. In these situations, it is often best to find some professional outsiders to at least help out, people who
haven't been exposed and sucked into the bad habits of a dysfunctional organisational culture.

So while there are many definitions of organisational culture, all of them focus on the same pointsi.ecollective experience,
routine, beliefs, values, goals, and system. These are learned, re-learned, and passed on to new employees, and continues
on as part of a company's core identity.

5.6 Characteristics of Organisational Culture

The seven characteristics of organisational culture are:

1. Innovation (Risk Orientation)

Companies with cultures that place a high value on innovation encourage their employees to take risks and innovate in the
performance of their jobs. Companies with cultures that place a low value on innovation expect their employees to do their
jobs in the same way that they have been trained to do them, without looking for ways to improve their performance.

2. Attention to Detail (Precision Orientation)

This characteristic of organisational culture dictates the degree to which employees are expected to be accurate in their
work. A culture that places a high value on attention to detail, expects their employees to perform their work with
precision. A culture that places a low value on this characteristic does not do so.

3. Emphasis on Outcome (Achievement Orientation)

Companies that focus on results, but not on how the results are achieved, place a high emphasis on this value of
organisational culture. A company that instructs its sales force to do whatever it takes to get sales orders has a culture that
places a high value on the emphasis on outcome characteristic.

4. Emphasis on People (Fairness Orientation)

Companies that place a high value on this characteristic of organisational culture place a great deal of importance on how
their decisions will affect the people in their organisations. For these companies, it is important to treat their employees
with respect and dignity.

5. Teamwork (Collaboration Orientation)

Companies that organise work activities around teams instead of individuals place a high value on this characteristic of
organisational culture. People who work for these types of companies tend to have a positive relationship with their
coworkers and managers.

6. Aggressiveness (Competitive Orientation)

This characteristic of organisational culture dictates whether group members are expected to be assertive or easygoing
when dealing with companies they compete with in the marketplace. Companies with an aggressive culture place a high
value on competitiveness and outperforming the competition at all costs.

7. Stability (Rule Orientation)

A company whose culture places a high value on stability are rule-oriented, predictable, and bureaucratic in nature. These
types of companies typically provide consistent and predictable levels of output and operate best in non-changing market
conditions.

5.7 Organisational Values

Although organizational values seem too many people somewhat of a “soft” concept within the field of human resources
management, MusekLešnik says that it is much more tangible concept than it seems. Kenny proposed that just like every
human community has its own value system, every organisation has its own value system. In this context Mesner Andolšek
has established a relationship between individuals’ values and organizational values, where she said that values of
organisation have grown from values of individuals that have shaped the organisational culture, and since organisational
values are one of the fundamentals of organisational culture.This makes organisational values grow from individual values.
Somewhat similar is also the view of Pfeiffer and others where they see the creation of organisational values as a process of
following the philosophy of the company that is embedded in organisational culture. Simmerly also agrees that
organisational values evolve from organizational culture, in his view organisational values evolve from modes of conduct,
communication styles and decision making styles within organisation. Svetlik says that organisational values are values that
are being pushed forward by the management and have proven itself as a good foundation for development of
organisation. Same author also says that organisational values are intended to inspire employees with creative energy that
will push organisation forward towards desired goals. Cingula has also discussed organisational values, he sees
organisational values as: “what people within organisation think is good for organisation, what needs to happen within

organization and what might be needed within organization in the future”. Same author also says that due to mentioned
above organisational values reflect the mission and strategic goals of the organisation.
5.8 Importance of Organisational Values
The importance of organisational values for organisations is shown even strongly now in the time of economic uncertainty
then even before. Organisations use organisational values to inspire their employees as well as their customers.
Organisational values are often discussed to be a powerful marketing tool, since clear organizational values are positively
noted and they encourage potential buyers to buy or use company’s product. It has been established by several authors
that organizational values influence organizational structure, organizational culture, organizational identity, organizational
strategy thus shaping organizational goals and means to achieve those goals. The importance of organizational values is
even more stressed by MusekLešnik when he says that organization is just like a human; it makes decisions, does what it
thinks its right, has legal limitations on what it can do, has moral limitations, cerates and implements its own rules and
beliefs, it advances on the basis of its decisions, creates myths, legends and habits and so on. We can say that
organizational values are integrated into personality of a company thus playing a similar role as values do in lives of
individuals; directing behavioral patterns, influencing relationships within the organization and influencing how company
perceives its customers, suppliers and competition. When discussing the importance of organizational values for
organization it is also important to present how these organizational values influence employee performance. Several
authors have discussed this phenomenon; Berkhout and Rowlands have made a research on personal and organizational
values among employees of organizations that specialize in alternative energy sources (solar electricity, wind electricity,
smaller hydro-electrical plants, etc.), they have determined, that those organizations that focus their selection procedure
on matching personal values with organizational values tend to be significantly more successful in their work because of
the fact that employees have a higher level of job satisfaction. Some later studies in the similar conducted by Kaye and
Jordan-Evans have even determined that some individuals even perceive the importance of a good match between
organizational and personal values to be more important than the income they get. This

clearly shows that people have started to value more how they feel in the organization then how much they get paid for
the work they do.

5.9 Meaning of Code of Ethics

A code of ethics issued by a business is a particular kind of policy statement. A properly framed code is, in effect, a form of
legislation within the company binding on its employees, with specific sanctions for violation of the code.
5.10 Definition of 'Code of Ethics'
A guide of principles designed to help professionals conduct business honestly and with integrity. A code of ethics
document may outline the mission and values of the business or organization, how professionals are supposed to approach
problems, the ethical principles based on the organization's core values and the standards to which the professional will be
held.

5.11 Components of Code of Ethics

As infamous cases such as Enron and Goldman Sachs show, code of ethics violations go far beyond the company walls. The
code of ethics is the set of behavioral rules employees should follow to ensure the company's values are reflected in all
business dealings. Regardless of the

size of the business, clearly defined codes and closely monitored transactions should keep your company from violating
laws and make it a place where employees feel comfortable doing the right thing.

Values
Business values typically are expressed in terms of how the company performs its day-to-day interactions with suppliers,
employees and customers. A primary objective of the code of ethics is to define what the company is about and make it
clear that the company is based on honesty and fairness. Another commonly defined value is respect in all interactions,
regardless of the circumstances.

Principles
Principles are used to further support the business values by including operational credos employees should follow.
Customer satisfaction, business profitability and continuous improvement are key factors in documenting business
principles. Corporate responsibility to the environmentally friendly use of natural resources is another business principle
that often is found in code of ethics.

Management Support
Manager support of the values and principles may be documented in the code of ethics. Open door policies for reporting
ethics violations can be included in the code, along with a process to anonymously report any code of ethics issues. To
reflect how seriously management considers

the code, some businesses display the code of ethics with management signatures in prominent areas, such as the break
room, where employees will see it on a daily basis.

Personal Responsibility
Another component is a statement regarding each employee's personal responsibility to uphold the code of ethics. This
may contain information regarding both the legal and moral consequences if an employee violates the code. The
requirement to report any violators is normally a component of the ethics code's personal responsibility. This is meant to
show that it is not sufficient to merely adhere to the values and principles but to help ensure every employee supports the
code of ethics by reporting violators.

Compliance
Any laws or regulations may be referenced as rules to adhere to as part of daily business interactions. The Sarbanes-Oxley
Act--which was enacted as a direct result of the Enron case, in which executives falsified financial records to overstate the
company's worth--details what financial reporting a company must do. Compliance to all financial reporting and any
licensing requirements such as ISO 9000 by the International Organization for Standardization can be documented, along
with the expectation that all licenses will be maintained and legal regulations met.

5.12 Meaning of Value Based Leadership

In a world in which ruthless exploitation and competition, self servingbehaviours and instability seem to be the norms,
value based leadership holds a number of extraordinary promises that any sensible leader would dream of: self managing
employees; lesser need for supervision and control; greater respect between people; increased enthusiasm and dedication
to the task; service oriented mentalities; more genuine corporate culture; socially responsible and environmentally friendly
work practices; reputation of reliability, fairness and honesty; team bonding; more humaneness in relationship; trust and
loyalty; enhanced integrity and accountability; enhanced decision making which contributes to the vision whilst building on
trust; greater commitment of team members, customers and shareholders; increased flexibility and ‘intelligence’;
enhanced performance; better integration work / personal life; clarity of

purpose, mission and vision; increased job and personal satisfaction through a deeper sense of meaning; increased self
esteem; role modeling in society; potential legacy; etc. The list could be longer.
The essential characteristic of values based leadership is the belief that the welfare of people is the end of leadership and
not that people are the means to the leader’s goals.
In concrete terms, value based leadership is the intention given to and the attention paid to aligning a community or an
organization’s values, mission and vision with its strategy, performance management, rewards, processes and systems. It is
essentially about cultivating a purposeful consistency in your organization, allowing a culture of genuine sincerity, trust and
collaboration to flourish and endeavoring to do what you say at all times. Value based leadership is a system; it takes into
consideration the whole organization that it organizes around well defined core values.
Core values are the “sacred” fundamental convictions that employees have about how they want – and therefore must –
behave in the context of the organization’s mission.

5.13 Definition of Value Based Leadership

In the leadership literature stream, VBL theories have received increased attention, in the past decade, as many charismatic
and seemingly transformational leaders had emerged that lacked a moral, authentic and ethical dimension. VBL, like many
evolving theories can have

multiple definitions. Bass &Avolio, Bass &Steidlmeier, Brown &Treviño, Gardner &Avolio, define values based leaders as
those with an underlying moral, ethical foundation. VBL describes behaviors that are rooted in ethical and moral
foundations. Examples of prominent VBL styles in the leadership research include spiritual, servant, authentic, ethical and
transformational leadership. Management literature has also addressed the need for morality and ethics in corporate
leaders, with some researchers expanding the discussion of VBL to include a leadership style where there is a congruence
of a leader’s values with an organization’s values or with the needs and values of all corporate stakeholders. Leadership
and management theorists concur regarding the importance of the development and assessments of ethics and values in
21st century leaders. This study examines the prevailing literature and research on the various constructs rooted in VBL. It
identifies three constructs: (a) authentic, (b) ethical and transformational leadership that are considered the most
emphasized behaviors in the VBL literature and examines the literature streams and progression of research for each of
these VBL theories that have transformed the way the world looks at leadership. The research outlines that VBL is essential
for leaders to be truly successful and effective. The analysis concludes by outlining literature gaps and providing
recommendations for future study of VBL.

5.14 Importance of Value Based Leadership

In a competitive business environment, effective leadership is an essential requirement in order to achieve organisational
goals. To do this, leaders must be able to provide inspiration, motivation and clear direction to their team.

We have all heard the adage, leaders are born; not made. Ii is believed some are born while others are taught. Leadership,
a critical management skill, is the ability to motivate a group of people toward a common goal. How you motivate others to
get to that goal is influenced by the values you bring to the position. Your values reflect a collection of experiences over
your lifetime beginning with your childhood.

Morality

Whatever you do in life, you must be able to live with yourself. My moral compass was established growing up on the farm.
At that time, I did not appreciate the values my parents tried to instill in me. We did not have much in the way of material
things but we had things that money could not buy, such as love, support and a faith in God. That training coupled with
strong families who supported each other helped me develop a moral system that would direct my life.
Knowing yourself is crucial as you are faced with ethical choices; as you communicate with others who have different ideas
or even as you make day-to-day decisions. How will you know what to do? If you have clearly defined your values and
made a commitment to live by them your decision will be easy. If you are clear about your own values, priorities and
preferences and not let society or someone else define them for you, you can better articulate what you stand for and can
make better choices. Never compromise yourself or your values but maintain the highest standards of excellence and
integrity. We all face temptations but it is how you deal with those temptations that define you as a person. I recall the
time when I was running my business and had the opportunity to secure a large contract I desperately wanted. I

discovered, however, that in order to get the contract I had to give the contracting officer a kickback. I turned down the
opportunity and felt good about my decision. So cultivate a moral compass that protects not only your reputation, but
most importantly protects your soul.

Honesty and Integrity

In today's environment, these two characteristics are in the forefront on both the political and corporate scene. With all of
the indiscretions among our leaders of today, everyone is hungry for leaders who are honest and have immeasurable
integrity. People want their leaders to be someone they can trust and they want to be able to depend on what the leaders
say. In other words, watch the person's actions as opposed to the words. Leaders should "walk the walk." Their own
behaviors should set examples for others. Among their followers, there should be no question about the values of the
leader.

Inspiration

A good leader encourages others to take action, sharing with them the vision that gives them the desire to follow. An
inspirational leader remains positive even in the face of insurmountable circumstances and continues to motivate the
team. This type leader involves the team in changes and provides the support needed for them to carry out their
responsibility. With this quality a leader is more interested in results than process, allowing members the flexibility to plan
and implement their strategy. In my own business, I encouraged managers to be creative with ideas and be willing to
suggest new ways of doing things. I maintained my role as leader by not abdicating my responsibility. One example was a
specially designed training program that required not only an investment from the company but required employees to
invest some of their free time to prepare for advancement. This program made it possible to increase the number of
internal promotions. I am sure this program was better received since it originated among employees.
Gratitude

Everyone wants to feel appreciated. Great leaders use gratitude to motivate their team and to create a positive workplace.
Learn to complement even the smallest thing. If employees can

experience small successes, it can lead to even greater successes. "Thank you" is a powerful word. Say thank you often and
with sincerity even when employees have done no more than expected. Also be specific about why you are thankful. If the
employee's action has contributed to some success for the team or your customers, let the employee know it.

5.15 Benefits of Value Based Leadership

A number of clients continue to make a commitment to implement Values Based Leadership (or VBL) in their organizations.
To help others learn from their experiences, I would like to share some ways of using VBL and some of the benefits of doing
so.

VBL is a model of leadership designed to help anyone in an organisation become a more effective leader - that is, a leader
who contributes to the fulfillment of important values . . . values like trust and respect, dignity and cooperation, caring and
service.

Based on my observations and experiences with many different kinds of organizations, there are a number of key ways of
using VBL and clear benefits of doing so. (If you are not familiar with the processes in the VBL model, take a look at the VBL
skills menu.)

Using VBL

As people get training in VBL, they begin to apply the inner and outer processes in day- do-day situations. Here are some of
the ways people use these skills:

• When there is something preventing you from doing your job with the quality you would like, you can request help,
get heard, and give others a chance to give you the support you need.
• If you are hesitant to bring up an unresolved issue with your boss, you can overcome your hesitancy with the
courage that comes from activating your integrity and self-respect and by assuming that the other person will respect you
enough to listen to your request.
• When you feel unappreciated and that your work seems unimportant and unrecognized, you can request a
discussion and then ask about the benefits of your contributions, or those of your group.

• If you are a boss, you can proactively inquire about the status of relationship issues and values within your group,
listen with empathy to what people say and respond when you can help.
• When you get complaints or negativity coming your way, you can accept that the underlying reason for this is that
the person's reasonable, healthy values are in some way being violated.
• When someone does a good job, you can express your appreciation to them, whether they are a peer, a
subordinate, someone in another group, or your boss. Tell them what you noticed about what they did and how you
benefit from it.
• If you do something that violates the values of someone else, you can apologise to that person by recognising the
pain you caused, saying you are sorry, promising to do your best not to repeat what you did and ask for forgiveness. Then
keep your promise.
• If you are stressed, angry or upset about something, you can pause, do some healing, and expand thinking, before
talking with the person who can help to solve the problem. That will help you to behave professionally while still being
completely honest.
• If members of your group fail to deal with important issues and people are gossiping about it, you can engage in a
group conversation to clear the air, voice each person's concerns and seek solutions to the problems.
• When you have a problem you can ask your boss for a VBL session. If you don't get that issue resolved with your
boss, you both can seek help from your boss's boss or from the organization's VBL facilitators (if you have them). The
organisation may be able to help you and your boss resolve that conflict to create a triple-win for you, your boss and the
whole organisation.

These are just a sampling of the many kinds of situations where you can demonstrate leadership to fulfill values.

Benefits of VBL

There are quite a few immediate benefits of using VBL which help make this kind of leadership rewarding to you:

• By expanding your thinking, VBL can help you to increase your leadership intelligence while you challenge your old
ways of approaching situations.
• By enhancing your communicating, VBL can help you improve your relationships while you solve day-to-day
problems.
• By fulfilling personal and organizational values, VBL can help you to feel better on the job, as well to enable you
help others feel more fulfilled and less stressed too.
• By resolving problems where important values are violated, VBL can help you prevent an organizational "infection"
where painful feelings fester and victim cycles expand. In this kind of situation, VBL works like the immune system of the
organization—it becomes a set of processes to identify and heal threats to the health of the whole. That enables the
organisation, by opening feedback loops, to practice its values and to create and maintain a more healthy, more productive
culture.

While VBL provides these kinds of immediate benefits, the growth of greater savvy and expertise in these leadership skills
makes them even more easy and fun to use. VBL skill development is much like skill development in a sport like golf, or the
skill development of learning to play a musical instrument - advanced skills come from the patient discipline of preparing,
practising, and rehearsing. And using these skills gets easier and more fun, as you get better at them.

I hope you will take advantage of the benefits of VBL for developing leadership skills. In doing so, you help your
organization become an even better place to work, AND you make YOUR work life more fulfilling and less stressful.

5.1.6 Effectiveness of Value Based Leadership

VBL has benefits beyond providing better organizational outcomes when moral and ethical principles are adhered to.
Research has also demonstrated that transformational, authentic and ethical leadership traits result in leaders that are
more effective. George summarizes what happens when VBL are at the helm. George argued that leaders were needed that
“lead with purpose, values and integrity; leaders who build enduring organizations, motivate their employees to provide
superior customer service, and create long term value for shareholders” (p. 9) and that this would ultimately result in more
effective leaders and organizations.

Summary

Employees are the assets of an organization and it is essential for them to maintain the decorum and ambience of the
workplace. Organisation ethics are the principals and standards by which businesses operate. They are best demonstrated
through acts of fairness, compassion, integrity, honour and responsibility. In an organization a code of ethics is a set of
principles that guide the organization in its programs, policies and decisions for the business. One of the best ways to
communicate organizational ethics is by training employees on company standards. Organisational culture is one of the
major issues in academic research and education, in organization theory as well as in management practice. A culture that
places a high value on attention to detail, expects their employees to perform their work with precision. A company whose
culture places a high value on stability are rule oriented, predictable and bureaucreactic in nature. Organisational values
are often discussed to be a powerful marketing tool, since clear organizational values are positively noted and they
encourage potential buyers to buy or use company’s product. The code of ethics is the set of behavioral rules employees
should follow to ensure the company’s values are reflected in all business dealings. The essential characteristic of values
based leadership is the belief that the welfare of people is the end of leadership and not that people are the means to the
leader’s goals. It is an essential requirement in order to achieve organizational goals.

KEY TERMS

1. ORGANISATION ETHICS DEVELOPMENT SYSTEM - An organisation is formed when individuals from different
backgrounds and varied interests come together on a common platform and work towards predefined goals and objectives.

2. ORGANISATIONAL CULTURAL - Organisational culture is one of the major issues in academic research and
education, in organisation theory as well as in management practice. There are good reasons for the culture dimension
to be the centre in all aspects of organisational life.

3. CODE OF ETHICS - A code of ethics issued by a business is a particular kind of policy statement. A properly framed
code is, in effect, a form of legislation within the company binding on its employees, with specific sanctions for violation of
the code.

4. VALUE BASED LEADERSHIP - In concrete terms, value based leadership is the intention given to and the attention
paid to aligning a community or an organization’s values, mission and vision with its strategy, performance management,
rewards, processes and systems

Self Assessment Questions

1. What is meant by organisation ethics development system?

2. Explain the importance of organisation ethics development system
3. What are the elements of organisational development system?
4. What is meant by organisational cultural?
5. Define organisational cultural
6. What are the characteristics of organisational cultural?
7. Explain the organisational values in the business ethics
8. Explain the importance of organisational cultural
9. What is meant by code of ethics?
10. Define code of ethics
11. What are the components of code of ethics?
12. What is meant by value based leadership?
13. Define value based leadership
14. Explain the importance of value based leadership
15. What are the benefits of value based leadership?
16. Explain the effectiveness of value based leadership

UNIT – VI

MARKETING ETHICS AND CONSUMER PROTECTION

Learning Objectives
After studying this study you will be able to understand –
Marketing Ethics and Consumer protection
Healthy competition and protecting consumer’s interest
Advertising ethics
Ethics in Accounting and Finance
Importance, Issues and common problems
CONTENTS
6.1 Meaning of Marketing Ethics
6.2 Introduction of Marketing Ethics
6.3 Definition of Marketing Ethics
6.4 Need of Business Ethics in Marketing:
6.5 Objectives of marketing ethics
6.6 Importance of Marketing Ethics
6.7 Meaning of Consumer Protection
6.8 Needs of Consumer Protection
6.9 Importance of Consumer Protection
6.10 Objectives of Consumer Protection
6.11 Meaning of Healthy Competition
6.12 Definition of Healthy Competition
6.13 Protection Consumer Interest
6.14 Concept of Consumer Interest
6.15 Introduction of Ethics in Accounting
6.16 Meaning of Ethics in Accounting
6.17 Definition of Ethics in Accounting
6.18 Importance of Ethics in Accounting
6.19 Ethical Issues in Accounting and Financing
6.20 Common Problems of ethics in Accounting
6.21 Introduction of Ethics in Finance
6.22 Definition of Ethics in Finance
6.23 Importance of Ethics in Finance
6.24 Ethics of common Problems in Finance

6.1 Introduction of Marketing Ethics

Marketing ethics is viewed as important because of marketing’s interface with many diverse stakeholders. Marketing is a
key functional area in the business organisation that provides a visible interface with not only customers, but other
stakeholders such as the media, investors, regulatory agencies, channel members, trade associations, as well as others. It is
important when addressing marketing ethics to recognise that it should be examined from an individual, organisational,
and societal perspective. Examining marketing ethics from a narrow issue perspective does not provide foundational
background that provides a complete understanding of the domain of marketing ethics. The purpose of this chapter is to
define, examine the nature and scope, identify issues, provide a decision-making framework, and trace the historical
development of marketing ethics from a practice and academic perspective.
6.2 Meaning of Marketing Ethics

Marketing ethics is an area of applied ethics which deals with the moral principles behind the operation and regulation of
marketing. Some areas of marketing ethics (ethics of advertising and promotion) overlap with media ethics.

Ethics in marketing appears, at first, to be an extraordinarily complex topic. What practices are ethical, what practices are
unethical, what’s appropriate and what’s not, etc. – all are important points of discussion, but arenot actually that complex
as long as a clear understanding of ethics.
6.3 Definition of Marketing Ethics

Ferrell in 2005 has defined marketing ethics as the study and philosophy of human conduct, with an emphasis on the
determination of right and wrong. For marketers, ethics in the workplace refers to rules (standards, principles) governing
the conduct of organisational members and the consequences of marketing decisions.
Therefore, ethical marketing from a normative perspective approach is defined by Murphy, Laczniak, Bowie and Klein in
2005 as “practices that emphasise transparent,
trustworthy, and responsible personal and organisational marketing policies and actions that exhibit integrity as well as
fairness to consumers and other stakeholders.
Marketing ethics focuses on principles and standards that define acceptable marketing conduct, as determined by various
stakeholders and the organisation responsible for marketing activities. While many of the basic principles have been
codified as laws and regulations to require marketers to confirm to society’s expectations of conduct, marketing ethics goes
beyond legal and regulatory issues. Ethical marketing practices and principles are core building blocks in establishing trust,
which help build long-term marketing relationships. In addition, the boundary- spanning nature of marketing (i.e. sales,
advertising, and distribution) presents many of the ethical issues faced in business today.
Both marketing practitioners and marketing professors approach ethics from different perspectives. For example, one
perspective is that ethics is about being a moral individual and that personal values and moral philosophies are the key to
ethical decisions in marketing. Virtues such as honesty, fairness, responsibility, and citizenship are assumed to be values
that can guide complex marketing decisions in the context of an organisation. On the other hand, approaching ethics from
an organisational perspective assumes that establishing organisational values, codes, and training is necessary to provide
consistent and shared approaches to making ethical decisions said by Ferrell and Ferrell in 2005.
6.4 Need of Business Ethics in Marketing:
Business ethics are special type of regulatory guidelines. They are vital for making business operations more authentic.
Today’s marketing practices are full of deceptive packing, ambiguous offers, exaggerated advertising, and aggressive
selling. Some marketers practice several unfair practices to attract customers in pursuit of sales volumes and profits.
Business ethics restrictall these things. Their presence and compulsion to follow them make a lot of difference in marketing
activities. Business ethics are necessary for marketer as well as consumers. They have many direct or indirect purposes.

6.5 Objectives ofmarketing ethics

1. To prevent malpractices in business. Ethics make business activities more authentic.

2. To ensure uniformity in marketing practices among various business enterprises throughout the country.

3. To make marketers more aware, sensible, and liable to customers and society as a whole.

4. To ensure confirmation of marketing practices with the contemporary legal framework.

5. To enforce government, voluntary socialorganisations, and others to be alert regarding long-term interest and
welfare of society.

6. To assist government to formulate necessary legal provisions and enforce the marketers to obey them.

7. To distinguish ideal firms from exploiting firms. They facilitate in taking needed actions against those firms
indulging in malpractices.

8. To decide on rewards, awards, certificates, prizes, and other encouragements for deserving business firms.

6.6 Importance of Marketing Ethics

Generally, ethics refer to the way in which people relate in a moral manner toward others in all of their various
interactions. Marketing Ethics refer specifically to the application of this basic morality in the conduct of business with their
consumers and other related parties. Such practices must necessarily include a conscious attempt by the businesses under
consideration to apply moral principles when they are dealing with clients or other customers, especially when it comes to
the production, pricing and promotion of their goods or services. Some ethical issues are universal, while some are derived
from the culture and beliefs of various people. As such, various companies must necessarily incorporate this consideration
in their marketing ethics.
An example of how Marketing Ethics can be derived from the cultural or societal values of the particular group of people in
the environment is that the business operating can be explained by using the example of the practice of animal testing.
Some cultures are more

offended by the issue of animal testing than others due to the type of values in place in those societies. A cosmetics
company in a less-developed country where poverty is still prevalent might not have the luxury of seeking alternative forms
of testing for their products. In this case, the subject of the practice of animal testing might not be a big issue, and even the
customers might not be too concerned about any such practice since they might not have too many alternatives. In
contrast, a company in a developed country might face boycotting from consumers if they engage in the practice simply
because their culture is one of affluence and they have a lot of alternatives to the product produced by this manufacturer.
Marketing ethics may also be referred the manner in which a business presents its products to consumers, such as
engaging in double speak or deliberately misrepresenting information or facts in order to generate more sales and make
more profit. For example, a company could deliberately package its product to look like that of another popular product
even though it knows that its own version is substandard. This company might rely on the fact that not a lot of people will
look too closely to tell the difference between the two products. Not only would such a misapplication of marketing ethics
be morally reprehensible, it would also be basis for a lawsuit if the other company can prove that it is capitalizing on its
product identity to generate sales. As such, the issue of the application of marketing ethics is one that helps to ensure that
consumers and clients do not get a raw deal from manufacturers.

6.7 Meaning of Consumer Protection

Consumer protection is a group of laws fororganisations designed to ensure the rights of consumers as well as fair trade,
competition and accurate information in the marketplace. The laws are designed to prevent businesses that engage in
fraud or specified unfair practices from gaining an advantage over competitors.

They may also provide additional protection for those most vulnerable in society. Consumer protection laws are a form of
government regulation, which aim to protect the rights of consumers.

For example, a government may require businesses to disclose detailed information about products, particularly in areas
where safety or public health is an issue, such as food. Consumer

protection is linked to the idea of consumer rights, and to the formation of consumer organisation, which help the
consumers tomake better choices in the marketplace and get help with consumer complaints.

6.8 Importance of Consumer Protection

Consumer protection is very wide. It includes rights, responsibilities and various remedies available to consumers. It is not
only beneficial for consumer but it is equally important for businessmen also.

1. Consumer Ignorance:
Consumer protection provides information to the ignorant customers with regard to their rights and remedies available to
them. It spreads awareness so that consumer can know about the various redressal agencies where they can approach to
protect their interests.

2. Unorganized Consumers:
In developing countries like India, consumers are not organised. There are very few consumer organisations which are
working to protect the interests of consumers. Consumer’s protection encourages establishment of more consumer
organisations. Consumer protection provides power and rights to these organisations as these organizations can file case
behalf of customers.

3. Widespread Exploitation of Consumers:

Nowadays, even though consumer is the king pin of market eventhen there is lot of exploitation of consumers as
businessmen use various unfair trade practices to cheat and exploit consumers. Consumer protection provides safeguard to
consumers from such exploitation.

Importance of Consumer Protection from Businessmen’s point of View

Businessmen cannot survive for a long time by ignoring the interests of consumers. They have to give due importance to
consumers if they want to prosper in competitive market. Consumers protection provides following benefits to
businessmen:

1. Long Term Interest of Business:

After the liberalisation and globalisation the level of competition has increased so much that business has to face not only
internal but also international competition. In the race of competition the businessmen can win and capture a big share in
the market only when they are able to satisfy its customers by designing the products keeping in mind the requirements of
the customers.

The businessmen who ignore the interest and satisfaction of customers will lose their goodwill and clients. So it is in
interest of the business itself to keep its customers satisfied.

2. Businessman responsible for Society’s Resources:2

Businessmen use the resources of society. They earn profit by supplying goods and services to the members of society.So it
must do something for society. Businessmen are merely trustee of resources,they must use these resources for the
benefits of consumers.

3. Social Responsibilities:
A businessman has social obligations towards various groups and customer is one of the important groups. It is the
responsibility of businessmen to provide quality goods at reasonable price. Consumer protection guides businessmen to
provide social responsibilities.

4. Moral/Ethical Justification:
Traditionally ethics was part of profession only, but today ethics is playing very important role in business also. The ethics
or a moral value practiced by the businessmen adds glory to businessmen. In today’s environment business without ethical
value is not more than a criminal activity and no civil society can tolerate and allow the existence of unethical business.

5. Government Intervention:
If businessmen want to avoid intervention of government then they should not involve in unfair trade practices.
Government intervention may spoil the image of business. Businessmen should voluntarily involve in the activities which
protect the interest of the consumer.

6. Consumer is the Purpose of Business:

The basic purpose of business is to create more and more customers and retain them.The businessmen can create more
customers only by satisfying the customers and protecting the interest of consumers. The customer is the foundation of
business.

6.9 Need of Consumer Protection

Under the modem philosophy of marketing, consumer is supposed to be the king and business is expected to be provided
the maximum possible satisfaction. But in reality, consumers are often exploited. In a country like India there is shortage of
many products. A few firms enjoy monopoly powers in the market place. A large majority of consumers are ignorant and
illiterate and do not know their rights. They are poor and there is lack of unity among them. Due to all these reasons,
consumers are often deprived of their rights. They are often exploited through misleading advertisements, poor quality
goods, fractional weights and measures, overcharging, etc. Therefore, it is the need of the hour that countries like India
should have strong Consumer Protection Act to protect the consumers.
6.10 Objectives of Consumer Protection

Taking into account the interests and needs of consumers in all countries, particularly those in developing countries;
recognising that consumers often face imbalances in economic terms, educational levels, and bargaining power.Bearing in
mind that consumers should have the right of access to non-hazardous products, as well as the importance of promoting
just, equitable and sustainable economic and social development, these guidelines for consumer protection have the
following objectives:
a. To assist countries in achieving or maintaining adequate protection for their population as consumers;
b. To facilitate production and distribution patterns responsive to the needs and desires of consumers;
c. To encourage high levels of ethical conduct for those engaged in the production and distribution of goods and
services to consumers;

d. To assist countries in curbing abusive business practices by all enterprises at the national and international levels
which adversely affect consumers;
e. To facilitate the developing of independent consumer groups;
f. To further international co-operation in the field of consumer protection;
g. To encourage the development of market conditions which provide consumers with greater choice at lower prices.

6.11 Meaning of Healthy Competition

Healthy competition is where all competitors have fun even if they don't finish first and those that win are good sports
about it.

6.12 Definition of Healthy Competition

Competition is defined as the activity or condition of striving to gain or win something by defeating or establishing
superiority over others. Competition exists when there is a scarcity of a desired outcome. Individuals and/or groups are
then in a position that they must vie for the attainment of that outcome.

6.13 Protection Consumer Interest

Consumers have been recognised as an important component of the economy, and protecting them from exploitation and
ensuring their rights has become a vital feature of government legislations and policies. Apart from the legislation enacted
for consumer protection, a number of other laws provide for the protection of consumer interests.

6.14 Concept of Consumer Interest

An effective framework from which is to analyze consumer protection issues depends upon both a clearly articulated
understanding of what constitutes the consumer interest and the availability of rigorous CIR-related scholarship. This
Primer provides definitions for six overarching concepts that shape any discussion of consumer interest-related research.
Although stand-alone concepts; they are richly interconnected. The intent is to provide common understandings about
what constitutes the consumer interest in exchanges among policy makers

and between policy makers and CIR-related researchers. The work of the Canadian consumer policy community will be
informed and enriched through these exchanges. As well, this will assist researchers in identifying aspects of their work as
CIR scholarship.

Advertising Ethics

Advertising is the commercial promotion of goods and services done in order to increase the sales. There are number of
means of advertising which includes television, newspapers, wall paintings, billboards, magazines, Internet, by the word-of-
mouth and in many other ways. Advertising informs the buyers about the availability of a certain product or service in the
market and encourages them to buy it.
Important of Advertising Ethics

Number of advertising agencies is more across the country. As the population is more there is B-Line of manyinternational
companies trying to put their hand in Indian Market. These advertising agencies are exploiting these Indian manufacturers
in putting their market through advertising suitable to Indian conditions. The severe competition for the same product and
services bring in fierce advertisement from agencies counteracting on each other’s specifications. The recent advertisement
between Times of India and The Hindu competing on each other is an example. The design patents have become legal in
India only in recent times. Until now advertisements also boost the sales of duplicate and mal-nutrition products.

Advertising and the Ethical Aspects

Ethics means a set of moral principles which govern a person’s behaviour or how the activity is conducted. Advertising
means a mode of communication between a seller and a buyer. Thus ethics in advertising means a set of well defined
principles which govern the ways of communication taking place between the seller and the buyer. Ethics is the most
important feature of the advertising industry. Even though there are many benefits of advertising, there are some points
which donot match the ethical norms of advertising

. • An ethical advertisement is the one which doesnot lie, doesnot make fake or false claims and is in the limit of
decency. Nowadays, advertisements are more exaggerated and a lot of puffing is used. It seems like the advertisers lack
knowledge of ethical norms and principles. They just don’t understand and are unable to decide what is correct and what is
wrong.

• The main area of interest for advertisers is to increase their sales, gain more and more customers, and increase the
demand for the product by presenting a well decorated, puffed and colorful advertisement. They claim that their product is
the best, having unique qualities than the competitors, more cost effective, and more beneficial. But most of these
advertisement are found to be false, misleading customers and unethical .The best example of these types of
advertisements is the one which shows evening snacks for the kids, they use coloring and gluing to make the product look
glossy and attractive to the consumers who are watching the advertisements on television and convince them to buy the
product without giving a second thought.

. • Ethics in Advertising is directly related to the purpose of advertising and the nature of advertising. Sometimes the
manufactures need to prove the benefit of the product through the advertisement which may not be in an ethical mode.
But they should give the attention towards the advertisements which is not exaggerated.

Ethics in Advertisement

• Ethics also depends on what we believe. If the advertisers make the advertisements on the belief that the
customers will understand, persuade them to think, and then act on their advertisements, then this will lead to positive
results and the advertisement may not be called unethical .

But at the same time, if advertisers believe that they can fool their customers by showing any impractical things like just
clicking fingers will make your home or office fully furnished or just buying a lottery ticket will make you a millionaire, then
this is not going to work out for them and will be called as unethical.

• The advertisements should follow three moral principles i.e. Truthfulness, Social Responsibility and Upholding
Human Dignity. Generally, big companies never lie as they have to prove their points to various ad regulating bodies. Truth
is always said but not completely. Sometimes it is better not to reveal the whole truth in the advertisements but at times
truth has to be shown for betterment.

6.15 Introduction of Ethics in Accounting

Accounting ethics is primarily a field of applied ethics, the study of moral values and judgments as they apply to
accountancy. It is an example of professional ethics. Accounting ethics were first introduced by Luca Pacioli, and later
expanded by government groups, professional organizations and independent companies. Ethics are taught in accounting
courses at higher education institutions as well as by companies training accountants and auditors.
Accounting is a business field in which accuracy and interpretation are both very important. Small discrepancies can
displace huge sums of money, especially in bigger companies. These discrepancies can be either introduced on purpose, or
included by accident. Ethics is the practice of behaviour that does not allow for intentionally inaccurate or false accounting
practices. This pertains not only to following the law, but also to interpreting financial data as clearly and honestly as
possible in all situations.

6.16 Meaning of Ethics in Accounting

Accounting ethics is a field of professional ethics which pertains specifically to accounting. Whether accountants work in
public or private practice, they are expected to adhere to ethical standards which are designed to ensure that accountants
behave in a way which is ethical and consistent. In some regions, in order to be certified as an accountant, one must
indicate agreement to comply with an ethical code, and people can be stripped of their certification if they fail to abide by
ethical codes. For most professional organisations of accountants, in order to be members, people must agree to and
uphold ethical standards, and they will be removed from the organisation if they fail to do so.

In business, people use the information collected by accountants to make very important decisions, including decisions on
how to structure the organization’s profit system and whether

to invest in a particular business or not. The government also uses information provided by accountants to make decisions
concerning laws and taxes. Because of so much dependency on the results given by accountants, ethical concerns are more
prominent in the field of accounting than other industries.

The earliest documented discussions of accounting ethics appear to date to the 1400s, and many of the ethical issues which
pertain to accounting continue to be the same, even if the financial world of today would be unimaginable to a 15th
century accountant. One of the key issues with accounting ethics is that poor ethical behaviour on the part of an
accountant does not just potentially hurt a client, it can also hurt society. For example, when an accountant colludes in
falsifying financial statements which in turn hurts investors in a company, taxpayers who may be caught up in government
bailouts or regulatory efforts pertaining to the company, and the workers at the company.

6.17 Definition of Ethics in Accounting

The American Institute of Certified Public Accountants (AICPA) maintains the AICPA Code of Professional Conduct. The code
is available at the organisation's website; this version of the code covers the AICPA standards for professional conduct as of
October 2013.
The International Ethics Standards Board for Accountants (IESBA) develops and maintains the Handbook of the Code of
Ethics for Professional Accountants. The IESBA is an independent standard-setting body. The International Federation of
Accountants (IFAC) has the handbook available in PDF format for download from the IFAC website; the handbook covers
the IFAC standards as of March 2013.
It is important for accountants to follow ethical guidelines and conduct their duties with impartiality. Failure to do so could
lead to both ethical and criminal violations. However, pressure from management, ignorance of ethics requirements,
anunwillingness to report accounting violations, a tendency to minimise the ethical significance of omitting certain financial
records to skew results and just plain greed are all common reasons why accountants may violate accounting ethics.
Accountants who violate ethics are subject to lose their license or job, among other punishments.

6.18 Importance of Ethics in Accounting

Proper ethics and ethical behaviour are extremely important in accounting for a variety of reasons. To begin with,
accountants are often privy to sensitive information regarding their clients, such as Social Security or bank account
numbers. This gives accountants a good deal of power in regard to their clients and it is important that the trust between
an accountant and their clients not be abused. In the same way it is important that the industry itself does not become
stigmatised as an unethical one, something that could potentially harm business for all accounting firms.
Ethics are important throughout the business world, but they are especially important for accounts and all accountancy and
all accounting practices. In general,this is because accounting deals more with facts, figures and hard data than any other
business area. This means that there is less room for perspective, and the results of unethical behaviour are much more
widespread.
Maintaining ethical standards are necessary in every business entity that intends to survive successfully in the market and
improve total organisational competencies and efficiencies.
Developing total efficiencies of the employees is essential for leading a business entity in the direction of success
continuously. This necessitates training and guiding the employees in such a way so as to build their efficiencies in all the
aspects of business while stressing on maintaining ethical standards effectively at all times. Understanding and upholding
business ethics is essential for overall business activities. Therefore, it goes with the accounting profession as well.
Ethics is synonymous with morality, honesty and integrity. Ethics means the basic concepts and fundamental principles of
right human conduct.It also involves differentiating between good and bad, right and wrong, so that an accounting
professional follows what is principally right for him to do.
Since the accounting profession involves various functions of accounting, such as, recording of all business events that are
of financial character, classifying and summarising them and present them in the form of profit and loss statement, balance
sheet and cash flow statement, the way these activities are performed is very important and it has a lot do with
maintaining accounting ethics of accountants.

One of the most important thing that shows ethical behaviour of an accountant is that he needs to remain impartial and
loyal to the business organisation while performing the related activities sincerely and with honesty. Since the accounting
information drawn from the financial statements is of great value and significance to be relied upon and upon which the
success or failure of a business immensely depends, an accountant should not manipulate the accounting figures in order
to hide any information. In terms of balance sheets, the information concerning, cash, receivables, inventory, prepaid
expense, long term receivables etc must be presented accurately.
Similarly, the activities pertinent to the components of income statements, such as, revenue and expense are to be carried
out efficiently. An accountant should not change the accounting figures to make profits look better in the income
statement. In this way, accounting professionals are supposed to provide the accurate information to the top management
without changing the figures showing less expenses or greater revenues.
Therefore, the accounting ethics should be applied to each and every activity of the process of accounting, so that the
complete, accurate and reliable information can be presented to the desired users of financial statements in a business
organisation.

6.19 Ethical Issues in Accounting and Financing

An accountant working in the public or private sector must remain impartial and loyal to ethical guidelines when reviewing
a company’s or individual's financial records for reporting purposes. An accountant frequently encounters ethical issues
regardless of the industry and must remain continually vigilant to reduce the chances of outside forces manipulating
financial records, which could lead to both ethical and criminal violations.

Pressure from Management

The burden for public companies to succeed at high levels may place undue stress and pressure on accountants creating
balance sheets and financial statements. The ethical issue for these accountants becomes maintaining true reporting of
company assets, liabilities and profits without giving up the pressure placed on them by management or corporate officers.
Unethical accountants could easily alter company financial records and maneuver numbers to place false pictures of
company successes. This may lead to short-term prosperity, but altered financial records will ultimately spell the downfall
of companies when the Securities and Exchange Commission discovers the fraud.
Accountant as Whistleblower
An accountant may face the ethical dilemma of reporting discovered accounting violations to the Financial Accounting
Standards Board. While it is an ethical accountant's duty to report such violations, the dilemma arises in the ramifications
of the reporting. Government review of company’s financial records and the bad press caused by an accounting scandal
could cause the company's rapid decline and may lead to the layoff of thousands of employees. Executives and other
corporate officers can also face criminal prosecution, leading to heavy fines including imprisonment.

The Effects of Greed

Greed in the business and finance world leads to shaving ethical boundaries and stepping around safeguards in the name of
making more money. An accountant can never let the desire to earn a better living and acquire more possessions get in the
way of ensuring that she follows ethical guidelines for financial reporting. An accountant who keeps eyes on own bank
account

more than on company's balance sheet becomes a liability to the company and may cause real accounting violations.

Omission of Financial Records

A corporate officer or other executive may ask an accountant to omit or leave out certain financial figures from a balance
sheet that may place the business in a bad light to the public and investors. Omission may not seem like a significant breach
of accounting ethics to an accountant because it does not involve direct manipulation of numbers or records. This is
precisely why an accountant must remain ethically vigilant to avoid falling into such a trap.

6.20 Common Problems of ethics in Accounting

Ethics in accounting are concerned with how to make good and moral choices in regard to the preparation, presentation
and disclosure of financial information. During the 1990s and 2000s, a series of financial reporting scandals brought this
issue into the forefront. Knowing some of the issues presented in accounting ethics can help to ensure that we are
considering some of the implications for the actions that we take with our own business.

Fraudulent Financial Reporting

Most accounting scandals over the last two decades have centered on fraudulent financial reporting. Fraudulent financial
reporting is the misstatement of the financial statements by company management. Usually, this is carried out with the
intent of misleading investors and maintaining the company's share price. While the effects of misleading financial
reporting may boost the company's stock price in the short-term, there are almost always adverse effects in the long run.
This short-term focus on company’s finance is sometimes known as "myopic management."

Misappropriation of Assets
From an individual employee point of view the most common ethical issue in accounting is the misappropriation of assets.
Misappropriation of assets is the use of company assets for any other purpose than company interests. Otherwise known
as stealing or embezzlement, misappropriation of assets can occur at nearly any level of the company and to nearly any

degree. For example, a senior level executive may charge a family dinner to the company as a business expense. At the
same time, a line-level production employee may take home office supplies for personal use. In both cases,
misappropriation of assets has occurred.

Disclosure
As a subtopic of fraudulent financial reporting, disclosure violations are errors of ethical omission. When intentionally
recording transactions in a manner that is not in accordance with generally accepted accounting principles itis considered
fraudulent financial reporting. Also, the failure to disclose information to investors that could change their decisions about
investing in the company could be considered fraudulent financial reporting. Company executives must walk a fine line
which is important for management to protect the company's proprietary information. However, if this information relates
to a significant event, it may not be ethical to keep this information from the investors.

Penalties
Penalties for violations of accounting ethics laws have increased greatly since the passage of the Sarbanes-Oxley Act of
2002. This legislation allows for harsh penalties for manipulating financial records, destroying information, interfering with
an investigation and provides legal protection for whistle-blowers. In addition, chief executives can be held criminally liable
for the misreporting of their company. If accounting ethics wasnot an important consideration before, the higher stakes
provided by the Sarbanes-Oxley Act have definitely upped the ante.

6.21 Introduction of Ethics in Finance

For many, the expression “ethical finance” is an oxymoron. The media have had a great deal to say about corporate
misconduct (Enron, Tyco, World Com, Ahold, ABB, Parmalat); about recent financial scandals: ponzi schemes (Bernard
Madoff is serving a 150 year jail sentence for the largest investor fraud ever committed); about weak corporate
governance; and about exorbitant bonuses paid to executives and traders in financial institutions. One might ask, “Are
there really any ethics in finance?” In part the answer lies hidden in the complexity of the world of finance – a vast subject
made even more complex by such forces as globalization, consolidation, deregulation, disintermediation1 and
diversification.

Historians may well determine that the turning point from traditional banking to disintermediation and innovative finance
may have occurred in 1971 with the end of the dollar’s convertibility into gold. In the following years corporations
expanded their businesses internationally and looked for new ways of funding, including the issuance of bonds sold on the
capital markets to individuals and institutional investors. With disintermediation banks have transferred some of their
traditional risks such as credit and market risks to other economic agents and have engaged in a fierce competition for the
development of innovative products that generate new sources of non-interest income to offset the declining
intermediation margin from traditional lending activities.
Ordinary investors can very well feel lost in the labyrinth of financial institutions namely commercial banks, investment
banks, asset management firms, hedge funds, mutual funds, savings banks, insurance companies. Other elements of
complexity exist in the customers (private, corporate, public entities) in the markets (money, stock exchange, commodity,
debt, derivative, foreign exchange), in the instruments (equity, bonds, derivatives), as well as in the services rendered
(insurance, underwriting, leasing). These and other ways to segment financial markets illustrate the complexity of the
arcane world of finance. According to the McKinsey Global Institute 3rd Annual Report, the world’s financial assets were
about $140 trillion at the end of 2005 and this was then expected to exceed $228 trillion by 2010.
6.22 Definition of Ethics in Finance

Ethical finance is a difficult term to define. A very restrictive way to describe it would be as an “umbrella concept” for a
philosophy of investing based on a combination of financial, social, environmental and sustainability criteria.

Euros if defines this philosophy with the term of Sustainable and Responsible Investment (SRI): “This is a concept that
continues to evolve. Nevertheless, the constant within this area is that sustainable and responsible investors are concerned
with long-term investment; and environmental, social and governance (ESG) issues are important criteria to determining
long- term investment performance.”

6.23 Importance of Ethics in Finance

Out of this labyrinth have emerged two very different trends among financial institutions. One is the search for ever-
increasing size, diversification, and especially profitability – characterised by an increasing focus on immediate or short
term profits, egregious levels of executive compensation, blind acceptance of higher risks, and a parallel erosion in trust
and confidence in the institutions, in the products and services, and in the individuals involved.
The other trend, and an encouraging one, shows that finance is on its way to re-discover its instrumental function in
support of the economy with an increasing consideration of environmental, social and governance issues in investment
decisions and services being offered. These values-based decision criteria, services and institutions are the subject of this
knowledge center.
For the past twenty years, the European Baha’i Business Forum (EBBF) has been offering publications and conferences on
the very values that are essential to building confidence and trust in the firms and financial systems. Among these core
values of EBBF which are very relevant to finance are ethical business practices, corporate responsibility, sustainability,
values based leadership, gender balance, and consultative decision-making. In addition to these values, several EBBF
publications address the fundamental question, “What is the purpose of the enterprise?” A new “work ethic” based on a
spirit of service to humanity, is essential. To quote from one of these EBBF publications,
“The ideology of purpose that will dominate the future is one that finds acceptance and participation by society at large,
unleashes human potential, draws individuals and organisations towards ethical behaviour, and makes it possible for every
human being to make a difference. Only the purpose of ‘serving the real needs of humanity’ is likely to meet these
requirements.” (Purpose beyond Profit, by Marjo Lips-Wiersma, EBBF, 2008, p.26)

6.24 Ethics of common Problems in Finance

The financial crisis of 2008-2009 has seen a pervasive collapse of trust. Banks no longer trust other lenders. Investors no
longer trust banks. Lenders no longer trust borrowers. At the

same time a large number of what may be termed “ethical finance” initiatives have grown. It is this field of activity which is
addressed in this knowledge center.
In all my financial interactions – be it planning for clients, training, teaching or writing, people have come to me with some
problem which they think is unique. In all the financial problems, I am able to find a pattern. Believe it or nor, people more
often than not choose the problem by their behavior. It is easy for me to find a pattern and say, “Well you chose your
problem, did you not?”

The financial problems may be caused by some or allof the following financial behaviour:

No proper planning

The single biggest problem for most people is that they just do not plan their finances. Even if they are not happy about the
results of what they have done so far, they do not change the way things are done.

Overspending

Many people with not very high incomes have very high ambitions. Most of this problem is because the salesmen in most
shops do not tell you the price of a product, they only tell you the EMI — so anything from a plasma TV to a luxury home on
the outskirts of the city are made to look cheap! After all at Rs 2,899 a month does a plasma TV not look cheap?

Not talking finance at home

Children are kept away from the finance topics at the dining table. Finance is perhaps the second most important topic at
home. So many children grow up without knowing how much of sacrifice their parents have gone through to educate them.

Parents spending on education and marriage

There are too many kids who come to believe that they need to worry about savings, investment and life insurance only at
the age of 32 plus. This means the father, father-in-law or a

bank loan has funded their education and marriage. Kids should take on financial responsibility at a much younger age than
what is happening currently.

Marriage between financially incompatible people

Most marriages conducted under stress are actually under financial stress. Either the husband or the wife is from a rich
background and the other partner cannot understand or cope up with the spending pattern. It is necessary to match people
financially before marriage.
Delaying saving for retirement

“I am only 27 years old why should I think of retirement” seems to be a very valid refrain for many 32 year olds! Every year
that delayed in investing, the greater the amount that you will have to save later in your life. Till the age of 32 it might be
feasible for you to catch up, but after some time the amount that you need to save for retirement just flies away.

Very little life insurance

With all the risks of life styles, travel, etc. illness and premature death are common. We all have classmates who had heart
attack at the age of 32 but still pretend that we do not need life insurance or medical insurance.

Not prepared for medical emergencies

Normally big emergencies,financially speaking are medical emergencies. Being unprepared for them by not having an
emergency fund is quite common.

Lack of asset allocation

Risk is not a new concept. However, it is a difficult concept to understand. At 3k index people were afraid of the market.
Now everybody and even the aunt want to be in the equity market.There are enough advisors who keep saying, “Equity
returns are superior to debt returns.” This is true with a riderin the long run. So there could be a much larger allocation to
equity at higher prices to make for the time missed out earlier?

Falling prey to financial pitches

The quality of pitches has improved Aggressive young ones are recruited by brokerage houses, banks, mutual funds, life
insurance companies, etc. and they are selling mutual funds, life insurance, portfolio management schemes, structured
products, etc.

Buying financial products from ‘obligated persons'

This is perhaps one of the worst things that could be done in financial life. A friend, relative, neighbour, colleague who has
been doing something else suddenly becomes a financial guru because they have become an agent. There you are saddled
with a dud product for life.

Financial illiteracy

Most people do not wish to know or learn about financial products. They simply ask, “Where do I have to sign”.Because of
this buying a mutual fund is easier than buying life insurance.

Ignoring small numbers for too long

What difference will it make if I save Rs 1,000 a month? Well over a long period it could make you a millionaire! So start
early and invest wisely. It will make you rich. That is the power of compounding.

Urgent vs important:

Most expenses, which look urgent, are perhaps not so important.For example, a shirt or shoe at a sale –the luxury item
which was being offered at 30 per cent discount. These small leakages are all reducing the amount of money that we will
have for the bigger things like education or retirement.

Summary
Employees are the assets of an organization and it is essential for them to maintain the decorum and ambience of the
workplace. Organisation ethics are the principals and standards

by which businesses operate. They are best demonstrated through acts of fairness, compassion, integrity, honour and
responsibility. In an organization a code of ethics is a set of principles that guide the organization in its programs, policies
and decisions for the business. One of the best ways to communicate organizational ethics is by training employees on
company standards. Organisational culture is one of the major issues in academic research and education, in organization
theory as well as in management practice. A culture that places a high value on attention to detail, expects their employees
to perform their work with precision. A company whose culture places a high value on stability are rule oriented,
predictable and bureaucreactic in nature. Organisational values are often discussed to be a powerful marketing tool, since
clear organizational values are positively noted and they encourage potential buyers to buy or use company’s product. The
code of ethics is the set of behavioral rules employees should follow to ensure the company’s values are reflected in all
business dealings. The essential characteristic of values based leadership is the belief that the welfare of people is the end
of leadership and not that people are the means to the leader’s goals. It is an essential requirement in order to achieve
organizational goals.
KEY TERMS

1. Marketing Ethics - Marketing ethics is an area of applied ethics which deals with the moral principles behind the
operation and regulation of marketing. Some areas of marketing ethics (ethics of advertising and promotion) overlap with
media ethics.
2. Consumer Protection - Consumer protection is a group of laws fororganisations designed to ensure the rights of
consumers as well as fair trade, competition and accurate information in the marketplace.

3. Healthy Competition - Healthy competition is where all competitors have fun even if they don't finish first and
those that win are good sports about it.

4. Protection Consumer Interest - Consumers have been recognised as an important component of the economy, and
protecting them from exploitation and ensuring their rights has become a vital feature of government legislations and
policies.

5. Ethics in Accounting - Accounting ethics is a field of professional ethics which pertains specifically to accounting.
Whether accountants work in public or private practice, they are expected to adhere to ethical standards which are
designed to ensure that accountants behave in a way which is ethical and consistent.

6. Ethics in Finance - Ethical finance is a difficult term to define. A very restrictive way to describe it would be as an
“umbrella concept” for a philosophy of investing based on a combination of financial, social, environmental and
sustainability criteria.
Self Assessment Questions

What is meant by marketing ethics?

Define marketing ethics
Explain the needs of marketing ethics
What are the objectives of marketing ethics?
Explain the importance of marketing ethics
What is meant by consumer protection?
Explain the importance of consumer protection
What are the needs of consumer protection?
Explain the objectives of consumer protection
What is meant by healthy competition?
Define the healthy competition
Explain the protection consumer interest
Explain the concept of consumer interest
 What is meant by accounting ethics?
Define accounting ethics
Explain the importance of accounting ethics
What are the common problems in accounting?
Explain the ethical issues in accounting and financing
What is meant by financing?
Explain the importance of financing
What are the common problems in financing?

Learning Objectives

UNIT – VII
CORPORATE SOCIAL RESPONSIBILITY

After studying this unit you will understand –

Corporate social responsibility
Strategic components
Different approaches to CSR
Globalization
Sustainability
CSR standards
Best practices

CONTENTS

7.1 Introduction of Corporate Social Responsibility

7.2 Meaning of Social Responsibility
7.3 Definition of Social Responsibility
7.4 Need and Importance of Corporate Social Responsibility
7.5 Definition of Corporate Social Responsibility
7.6 Benefits of Corporate Social Responsibility
7.7 Meaning of strategy
7.8 Definition of Strategy
7.9 Strategic Components Process
7.10 Different approaches to CSR
7.11 Meaning of Globalization
7.12 Definition of Globalization
7.13 Effects of Globalization
7.14 Importance of Globalization
7.15 Meaning of Sustainability
7.16 Definition of Sustainability
7.17 Principles of Sustainability
7.18 CSR Guidelines standards
7.19 Meaning of Best Practices
7.20 Definition of Best Practices
7.21 Benefits of Best Practices

7.1 Introduction of Corporate Social Responsibility

Corporate Social Responsibility, or CSR, is something that was started by fashionable 'ethical' businesses. Realising that
promoting a responsible way of doing business actually improved the bottom line soon received wider interest, and now
demonstrating responsibility has become expected when bidding for major contracts.
.

The concept of Corporate Social Responsibility can be explained in a simple way that doing the right thing. Corporate Social
Responsibility, or CSR for short, is about how the organisation's existence affects stakeholders beyond the own insular
interests, recognising the impact of operations on the community at large.
Adopting CSR considers how we can use this impact in a positive way, leading to sustainable growth and financial gains.
Over the years, CSR has become more and more popular.Back in 2007 more than 80% of the FTSE 100 index reported on
Corporate Social Responsibility within their Annual Report.
7.2 Meaning of Corporate Social Responsibility
CSR aims to ensure that companies conduct their business in a way that is ethical. This means taking account of their social,
economic and environmental impact, and consideration of human rights.
It can involve a range of activities such as:
• Working in partnership with local communities
• Socially Responsible Investment (SRI)
• Developing relationships with employees and customers

• Environmental protection and sustainability

Some businesses have as their main purpose the fulfillment of social or environmental goals, as opposed to a business that
tries to achieve its financial goals while minimising any negative impact on society or the environment. These businesses
are called Social Enterprises.
Corporate Social Responsibility is a management concept whereby companies integrate social and environmental
concerns in their business operations and interactions with their stakeholders.
Different organisations have framed different definitions - although there is considerable common ground between them.
In simple terms it could be defined that CSR is about how companies manage the business processes to produce an overall
positive impact on society.
Take the following illustration:

Companies need to answer about two aspects of their operations.

1. The quality of their management - both in terms of people and processes (the inner circle).
2. The nature and quantity of their impact on society in various areas.
Outside stakeholders are taking an increasing interest in the activity of the company. Most look to the outer circle
regarding what the company has actually done, good or bad, in terms of its products and services, in terms of its impact on
the environment and on local communities, or in how it treats and develops its workforce. Out of the various stakeholders,
it is financial analysts who are predominantly focused as well as past financial performance on quality of management as an
indicator of likely future performance.
7.3 Definition of Corporate Social Responsibility
The World Business Council for Sustainable Development in its publicationMaking Good Business Sense by Lord Holme and
Richard Watts, used the following definition.
“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”
The same report gave some evidence of the different perceptions of what this should mean from a number of different
societies across the world. Definitions asdifferent as CSR is about capacity building for sustainable livelihoods. It respects
cultural differences and finds the business opportunities in building the skills of employees, the community and the
government from Ghana, through to CSR is about business giving back to society from the Phillipines.
Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. Companies make
profits, unhindered except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to charitable
causes. It is seen as tainting the act for the company to receive any benefit from the giving.
The European model is much more focused on operating the core business in a socially responsible way, complemented by
investment in communities for solid business case reasons. This model is more sustainable because:

1. Social responsibility becomes an integral part of the wealth creation process, when managed properly will
enhance the competitiveness of business and maximise the value of wealth creation to society.
2. When times get hard, there is the incentive to practice CSR more and better as a philanthropic exercise
which is peripheral to the main business, which will always be the first thing to go when push comes to shove.
Since any process is based on the collective activities of communities of human beings (as companies are) there is no 'one
size fits all'. In different countries, there will be different priorities, and values that will shape how business act. And even
the observations above are changing over a time. The US has growing numbers of people looking towards core business
issues.
Corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social
welfare. The term generally applies to company efforts that go beyond what may be required by regulators or
environmental protection groups.
Corporate social responsibility may also be referred to as "corporate citizenship" and can involve incurring short-term costs
that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental
change.
Corporate Social Responsibility (CSR) is defined as the voluntary activities undertaken by a company to operate in an
economic, social and environmentally sustainable manner.
The Government of Canada understands that responsible corporate behaviour by Canadian companies operating
internationally not only enhances their chances for business success but can also contribute to broad-based economic
benefits for the countries in which they are active and for Canada. Investing and operating responsibly also plays an
important role in promoting Canadian values internationally and contributes to the sustainable development of
communities. The Government of Canada is therefore committed to promoting responsible business practices; and expects
and encourages Canadian companies working internationally to respect all applicable laws and international standards, to
operate transparently and in consultation with host governments and local communities, and to conduct their activities in a
socially and environmentally responsible manner.

7.4 Need and Importance of Corporate Social Responsibility

• Solving social problems: Resource given by the organisations to solve the social problem. For example is the protest
against aerosol sprays.
• Organisation should be, For example, give due consideration and job satisfaction, make very reasonable effort to
give security of employment, and provide employment opportunities for minority groups.

• Improves public image of the firm

- Social initiatives taken by organisations tend to promote goodwill, public favour, corporate trust, profit.For example,
Cigarettes.
• Improving stock price
For example: giving recognition to the needs of developing countries; limiting the extent of political involvement or
campaigning; donations to; or sponsorship of; the arts, educational research institutions, sporting organisations or
charities.

• Serving best interest of Business to promote and improve the communities

• Assist Government to solve social, economical and political problems of the country.
• Protection to Consumer Movement - protects consumers against business mal practices like adulteration, black
marketing, unfair pricing, shortage in weight, measures, etc.
• Relationship with Trade Union-paves good relationship between management and labour.
• Insists upon need for Social Audit.
• Assits in framing and maintaining polices to Attract and retain staff
• Helps Customers to be attracted to socially responsible companies
• Corporate social Responsibility helps to create, attract and retain investors
• Corporate Social Responsibility helps to reduce the business costs.
• To share the negative consequences as on result of industrialisation.
• Helps to get talented personalities.
• Plays a major role in Transfer of Technology (TOT).
• CSR is for human right corporate sustainabilityfor corporate sustainability goals.
• Creates an interdependency between a corporation and community.
• A CSR program can be seen as an aid to alleviate poverty.

7.5 Benefits of Corporate Social Responsibility

By publicising corporate social responsibility (CSR) activities, itensures that customers, suppliers and the local community
can know what the company is doing. CSR lends itself to good news stories.Publicity like this can be a key part of using CSR
to win contracts. People want to buy from businesses they respect. CSR can be particularly effective for targeting ethical
companies, the public sector and non - profit organisations.
At the same time, CSR should be seen as part of a continuing process of building long- term value. Everything done under
CSR will help improve the reputation and encourage customers and other stakeholders to stay involved with the company.
A business that buys recycled paper but exploits its customers and ignores the community will miss.

CSR gives due consideration working towards a management standard which in turn helps to publicise the ethical,
environmental or social responsibility. For example, many businesses have already achieved the environmental
management standard ISO 14001.A new voluntary standard is being introduced later in 2010 to help businesses manage
their corporate social responsibility.
Effective CSR helps to continue and differentiate a business from other businesses. Even with dozens of competitors, a real
commitment to CSR stands out. As an example, John Lewis department stores are well known as a business owned by its
employees. Its commitment to CSR feeds through into customer service, sales and profits.
CSR can also guide in rendering products and services that reflect the values and customs to the stakeholders of the
business. Over time, it can all add up to a powerful brand and a winning business.

7.6 Meaning of Strategy

In business, it has been said that business strategy is all about competitive advantage. The sole purpose of strategic
planning is to enable a company to gain, as efficiently as possible, a sustainable edge over its competitors. Corporate
strategy thus implies an attempt to alter a company’s strength relative to that of its competitors in the most efficient way.
In some ways, these definitions are all different. Highlighting these differences leads you to believe that-
• Strategy or strategic thinking is just too hard to pin down
• to live with a certain degree of ambiguity.
• will help you to hope that when you say you want to do something “strategic,” that everyone will sort of know
what you mean. This, in turn, makes the role of strategic intelligence even fuzzier. Strategic intelligence is intelligence that
supports either the formulation or execution of a strategy. That doesn’t help much, though, if the word strategy is still up in
the air.

7.7 Definition of Strategy

For this reason, it is vital to develop a uniform definition of strategy and strategic. Such a definition should work not only
for armies and football teams but also for companies or governments, private firms or multinational corporations. This new
definition of strategic cannot be developed in a vacuum, however. A genuinely new definition should build on and extract
from the common theme. For the competitive intelligence specialist it should increase understanding of the client’s needs.
We believe that such a theme exists and that the concept of resources at risk links all definitions of strategy and strategic
together. All decisions involve risk and strategic decisions involve lots of risk but, more importantly, lots of risk to lots of
available resources. Strategic decisions, then, are decisions where the resources at risk from the decision- maker’s
perspective are large relative to the decision-maker’s total resources. For example, suppose a person owns a dry cleaning
store. This person is considering opening another dry cleaning store on the other side of town. Such a decision is clearly a
strategic one for the owner. The owner will have to gamble a substantial amount of his current and future resources on the
prospect of a successful outcome to this decision. If he decides to take the risk and it flops, he could lose his original shop,
and therefore, his livelihood. A decision to proceed will inevitably tie up large chunks of capital and time – all scarce
resources. This is not the case for another person who owns a chain of 1000 dry cleaning stores.

7.8 Strategic Components Process

1. Environmental Scanning
. Environmental scanning refers to a process of collecting, scrutinising and providing information for strategic purposes. It
helps to analyse the internal and external factors influencing an organisation. After executing the environmental analysis
process, management should evaluate it on a continuous basis and strive to improve it.

2. Strategy Formulation
Strategy formulation is the process of deciding best course of action for accomplishing organisational objectives and hence
helps in achieving organisational purpose. After conducting environment scanning, managers formulate corporate, business
and functional strategies.
3. Strategy Implementation
Strategy implementation implies making the strategy work as intended or putting the organisation’s chosen strategy into
action. Strategy implementation includes designing the organisation’s structure, distributing resources, developing decision
making process, and managing human resources.
4. Strategry Evaluation
Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are
appraising internal and external factors that are the root of present strategies,
measuring performance, and
taking remedial / corrective actions.
Thisevaluation makes sure that the organisational strategy as well as its implementation meets the organisational
objectives.These components are steps to be carried in chronological order, when creating a new strategic management
plan. Present businesses that have already created a strategic management plan will revert to these steps as per the
situation’s requirement, so as to make essential changes.
.

Components of Strategic Management Process

Strategic Management is an ongoing process. Therefore, it must be realised that each component interacts with the other
components and that this interaction often happens in chorus.

7.9 Different approaches to CSR

Generally, the spectrum of approaches to corporate social responsibility (CSR) includes four separate stances.
On the lower end, obstructionist and defensive stances relate to approaches that require little or no corporate
action.
Accommodative and proactive stances are on the higher end of the spectrum and involve a greater acceptance of
being social responsible as a corporate citizen.
The obstructionist stance to corporate social responsibility involves minimum effort to improve the social and
environmental impact of the company within a community. For example, the corporation that takes an obstructionist
stance may cross an ethical or legal line, such as dumping hazardous material in a local landfill. Its response is to do nothing
to correct its actions and may deny wrongdoing when confronted.As the spotlight on local, regional, and global business
practices increases, few corporations may actually follow the obstructionist approach. Typically, there is an expectation of
responsible corporate citizenry to the community and environment that supports the organisation’s success. Some may
demonstrate self-correction and avoid doing something that negatively impacts the organisation’s image.
The next approach on the lower end of the corporate social responsibility spectrum is the defensive stance.
Typically, a company that follows this model complies with the minimum legal requirements to stay in business. Efforts to
exceed minimum standards are often nonexistent unless regulations require a change in business practices.This approach
may also become necessary based on a country’s legal requirements. For example, U.S. tobacco manufacturers must
include a warning label on cigarette packaging about the hazards of smoking. In countries where warning labels are not
required, the same manufacturer may not include the labels on cigarette packaging.
Part of the higher end of the corporate social responsibility spectrum is the accommodative stance. With this
approach, corporations go beyond their ethical and legal obligations to support sustainable practices. This usually occurs
when the corporation is approached by an outside organisation often charitable and asked to sponsor an event within the
community.The proactive approach is the highest degree of CSR. Usually, firms that

believe in social responsibility beyond ethical, legal, and profitable motives will take proactive steps to support efforts that
strengthen the community. Rather than waiting for a request as happens with the accommodative stance these companies
generally seek opportunities to support charitable organisations and various causes.
Not all companies consistently follow one corporate social responsibility approach. A company may take a proactive stance
on one issue and a defensive stance on another. This decision is often made because one cause positively boosts the
company's image, while the other may damage its reputation.

7.10 Meaning of Globalisation

Globalisation is the process of international integration arising from the interchange of world views, products,
ideas and other aspects of culture. Advances in transportation and telecommunications infrastructure,
including the rise of the telegraph and its development the Internet, are major factors in globalisation, generating further
interdependence of economic and cultural activities.
Though scholars place the origins of globalisation in modern times, others trace its history long before the European Age of
Discovery and voyages to the New World. Some even trace the origins to the third millennium BCE.Large-scale globalisation
began in the 19th century. In the late 19th century and early 20th century, the connectedness of the
world economies and cultures grew very quickly.
The concept of globalisation emerged from the intersection of four interrelated sets of "communities of practice":
academics, journalists, publishers/editors, and librarians.
In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization. They are-
a. Trade and transactions,
b. Capital and investment movements,
c. Migration and movement of people and
d. The dissemination of knowledge.
Further, environmental challenges such as global warming, cross-boundary water and air pollution and over-fishing of the
ocean are linked with globalisation.

7.11 Definition of Globalisation

Human societies across the globe have established progressively closer contacts over many centuries, but recently the pace
has dramatically increased. Jet airplanes, cheap telephone service, email, computers, huge oceangoing vessels, instant
capital flows, all these have made the world more interdependent than ever. Multinational corporations manufacture
products in many countries and sell to consumers around the world. Money, technology and raw materials move ever more
swiftly across national borders. Along with products and finances, ideas and cultures circulate more freely.
As a result, laws, economies, and social movements are forming at the international level,many politicians, academics, and
journalists treat these trends as both inevitable and (on the whole) welcome it. But for billions of the world's people,
business-driven globalisation means uprooting old ways of life and threatening livelihoods and cultures. The global social
justice movement, itself a product of globalization which proposes an alternative path that is more responsive to public
needs. Intense political disputes will continue over globalisation's meaning and its future direction.
Globalisation is the system of interaction among the countries of the world in order to develop the global economy.
Globalisation refers to the integration of economics and societies all over the world. Globalisation involves technological,
economic, political, and cultural exchanges made possible largely by advances in communication, transportation, and
infrastructure.
Robertson had contributed an article, ‘Mapping the Global Condition: Globalization as the Central Concept’. It is here that
Robertson for the first time explained the concept of globalization. He says in his introduction: “My primary aim in this
discussion is with the analytical and empirical aspects of globalisation.”
In other words, globalisation is a comprehensive process, which includes both modernization and post-modernisation. It
would be wrong to say that the origin of globalisation is from intra-societal relations. Nor is the origin from inter-state
relations. Its making, according to Robertson, has been much more complex and culturally richer than that. It is inclusive of
both modernity and post-modern.

7.12 Effects of Globalisation

According to economists, there are a lot of global events connected with globalisation and integration.It is easy to identify
the changes brought by globalisation. The impact and effects felt by globalization can be summarised as follows-
1. Improvement of International Trade.
Because of globalisation, the selling and purchasing of products and services among the countries has increased
dramatically.
2. Technological Progress.
The need to compete and be competitive globally, governments have upgraded their level of technology.
3. Increase ininfluence of Multinational Companies.
A company that has subsidiaries in various countries is called a multinational. Often, the head office is found in the country
where the company was established.
An example is a car company whose head office is based in Japan. This company has branches in different countries. While
the head office controls the subsidiaries, the subsidiaries decide on production. The subsidiaries are tasked to increase the
production and profits. They are able to do it because they have already penetrated intothe local markets.
This rise of multinational corporations began after World War II. Large companies refer to the countries where their
subsidiaries reside as host countries. So, globalisationhelps to do a lot with the rise of multinational corporations.
4. Strengthening the power of WTO, IMF, and WB.
According to experts, another effect of globalisation is strengthening thepower and influence of international institutions
such as the World Trade Organisation (WTO), International Monetary Fund (IMF), and World Bank (WB).
5. Greater mobility of human resources across countries.
Globalisation allows countries to source their manpower in countries with cheap labour. For instance, the manpower
shortages in Taiwan, South Korea, and Malaysia provide opportunities for labour exporting countries such as the
Philippines, India to bring their human resources to those countries for employment.

6. Greater outsourcing of business processes to other countries.

China, India, and the Philippines are tremendously benefiting from this trend of global business outsourcing. Global
companies in the US and Europe take advantage of the cheaper labour and highly-skilled workers that countries like India
and the Philippines can offer
7. Global civil society.
An important trend in globalisation is the increasing influence and broadening scope of the global civil society.
Civil society often refers to NGOs (nongovernment organisations). There are institutions in a country that are established
and run by citizens. The family, being an institution, is part of the society. In globalisation, global civil society refers to
organisations that advocate certain issue or cause.
There are NGOs that support women's rights and there are those that promote environment preservation. These
organisations don't work to counter government policies, but rather to establish policies that are beneficial to all. Both the
government and NGOs have the same goal of serving the people.
The spread of globalisation led to greater influence of NGOs especially in areas of great concern like human rights, the
environment, children, and workers.The growing influence of NGOs is the increasing power of multinational corporations. If
this trend continues, globalisation will pave the way for the realisation of the full potential of these two important global
actors.
7.13 Importance of Globalisation
The importance of globalisation in business is extremely undeniable due to its innovative and progress that helps business
to stand firmly despite of the gradual financial crisis.
Globalisation is one of the most disputed issues facing by businessmen nowadays. This is actually the process in which the
economy is rapidly transforming as a single interdependent industry system. This is also a trend which has gained force
throughout the entire world. Loaded by various advances different aspects such as business, transportation technology,
and communications, globalisation provides a fast melding of industry culture throughout the world as well as the
development of innovative marketplaces to operate trade between physically distant people. As part of the development
of industry, it is necessary to be aware about the

importance of globalisation in order to take advantage of its benefits. The importance or benefits of globlisation are-

Globlisation helps in Development of Trade Opportunities

Developing different business establishments is one of the most important factors of globalisation. Through this, it gives
new opportunities for exporting and importing goods and services. Communication is one of the most major powerful
drivers of globalisation.
For instance, the international businesslanguage is the English. Using this language, businessmen from US can easily
communicate with other businessmen who can also fluently communicate with client in China. The fast melding of industry
etiquette aids to operate business communication. Aside from communication opportunities, globalisation also associated
with practical opportunities in which people can be given a chance to work based on their intellectual skills.

Globalisation leads to Economic Enhancement

Globalisation offers new chances to undeveloped countries through allowing them to connect with new markets
throughout the world.

For example, India and China have ridden the line of globalisation all over the years. Due to this, both countries are able to
focus on economic development through improving the power services and actual working services. Globalisation also
focused on the inner economic business plan in which every entrepreneur provides different trade opportunities to the
people. In addition, theeconomy and globalisation work together to develop and produce a highly improved nation in
terms of business aspects.

Globalisation provides for Outsourcing and Procurement

The development of global market and progressions in intercultural communication makes a wealth of business and trade
opportunities to source labour and low-cost equipment. The said outsourcing is a process when less economic expensive,
the foreign labour is being used for activities conventionally executed at home. In some countries, this process is appeared
as

growing unreliable. However, in India and Philippines, outsourcing provides unparalleled economic trade to the people in
terms of gaining more jobs in media and communication aspects.
7.14 Meaning of Sustainability
In ecology, sustainability is the ability to be sustained (ongoing) rather than temporary; it is how biological systems remain
diverse and productive indefinitely. Long-lived and healthy wetlands and forests are examples of sustainable biological
systems.
In more general terms, sustainability is the endurance of systems and processes. The organising principle for sustainability
is sustainable development, which includes the four interconnected domains: ecology, economics, politics and culture.
Sustainability science is the study of sustainable development and environmental science.

7.15 Definition of Sustainability

Sustainability could be defined as an ability or capacity of something to be maintained or to sustain itself. It’s about taking
what we need to live now, without jeopardising the potential for people in the future to meet their needs.
Sustainability is the ability to continue a defined behavior indefinitely.
For more practical detail the behavior you wish to continue indefinitely must be defined.

For example:
Environmental sustainability is the ability to maintain rates of renewable resource harvest, pollution creation, and non-
renewable resource depletion that can be continued indefinitely.
Economic sustainability is the ability to support a defined level of economic production indefinitely.
Social sustainability is the ability of a social system, such as a country, to function at a defined level of social well being
indefinitely.
A more complete definition of sustainability is thus environmental, economic, and social sustainability.
7.16 Principles of Sustainability
In order to become more sustainable, it is important to have an agreed set of principles that can be used as a basis for co-
ordinated national policies, strategies and action plans.
The UK Government published its 'Five Principles of Sustainable Development' in its Shared Framework for Sustainable
Development, released in March 2005.
The principles, which were developed with support from the SDC, have been agreed by the UK Government (inc NI), the
Welsh Assembly Government and the Scottish Executive, and are reflected in the UK sustainable development strategy,
'Securing the Future', also released in March 2005.
Securing the Future

7.17 CSR Guidelines standards

The growing interest in Corporate Social Responsibility (CSR) has been accompanied by the development of several
international guidelines and standards. These documents, created by all kinds of organisations, set out to help companies
put CSR into practice in a general way, or by placing emphasis on specific CSR aspects, such as human rights, labour rights,
health and safety in the workplace, the environment, and corruption. A description of the most important CSR guidelines
and standards are-.
GeneralThe United Nations Global Compact
The Global compact is an international initiative put forward by the United Nations. It aims to achieve voluntary
commitment to social responsibility from organisations by implementing ten principles based on human, labour and
environmental rights, and the fight against corruption.

OECD Guidelines for Multinational Enterprises

The Guidelines for Multinational Enterprises of the Organisation for Economic Co-operation and Development (OECD) are
recommendations directed at multinational enterprises with the aim of promoting their responsible behaviour, establishing
a favourable climate for international investment and increasing the positive contributions of multinational enterprises in
the economic, environmental and social fields.
 Global Reporting Initiative (GRI)
The Global Reporting Initiative, an independent institution in which different stakeholders take part, produces and
promotes the “Sustainability Reporting Guidelines”. This is the most internationally recognized standard for Sustainability
Reporting and offers principles and indicators so that organisations are able to measure and report their economic,
environmental and social behaviour.

AccountAbility 1000 (AA1000)

The series of AA1000 standards of the British institute AccountAbility advises organisations, so that they can establish
systematic responsibility processes that involve parties interested in the generation of strategies, policies and programmes,
as well as associated indicators, objectives and communication systems, which effectively guide their decisions, activities
and general organizational results.

The Caux Round Table Principles for Business (CRT)

The “Caux Round Table”, made up of business leaders from Europe, Japan and the United States, promotes ethical
capitalism. The Principles for Business represent a declaration of objectives for ethical and responsible business conduct
worldwide, based on shared values. The Principles include the social impact of business operations on the local community,
respect for laws and ethics, support for multilateral trade agreements that promote free trade, respect for the
environment, the prohibition of illegal business operations and other corrupt practices.

Performance Standards on Social and Environmental Sustainability of the IFC (World Bank)
The Performance Standards on Social and Environmental Sustainability created by the International Finance Corporation
(IFC) of the World Bank, define the criteria for financing projects in the private sector. The eight Performance Standards
establish conditions that the client must comply with while the IFC investment is in force, and they can help enterprises
deal with the environmental and social risks and opportunities of their projects.

Millennium Development Goals

At the Millennium Summit at United Nations headquarters in 2000, representatives of 189 countries adopted the socalled
Millennium Declaration, committing their nations to a new global partnership to reduce extreme poverty and setting out a
series of targets, known as the Millennium Development Goals (MDGs) and whose deadline is fixed for 2015.

Universal Declaration of Human Rights

The Universal Declaration of Human Rights, adopted by the United Nations General Assembly in 1948, represents a
reference document concerning the respect for the fundamental rights and freedom of the people.

Labour Rights
The ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social PolicyThe Tripartite Declaration
of Principles concerning Multinational Enterprises and Social Policy of the International Labour Organisation (ILO) is based
on international agreements and recommendations, and offers multinational enterprises, governments, employers and
workers guidelines concerning employment, training, living and working conditions, and workplace relations.

Social Accountability 8000 (SA8000)

The SA 8000 Standarad is an auditable and certifiable standard created by the North American organization, Social
Accountability International (SAI). This standard defines the requirements needed to implement a management system for
the enhancement of labour conditions in the enterprise based on different ILO agreements and recommendations, the
Universal Declaration of Human Rights and the United Nations Convention on the Rights of the Child.

Work Place Health and Safety

The OHSAS 18001 standard establishes the requirements of a management system that enables companies of all kinds
and size to prevent and control workplace risks. Based on the original British standard BS8800, it was created by several
national organisations for standardisationand certification, and specialised consultancies, as an international standard to
certify management systems in workplace health and safety.

Environmental Management Standarads

The ISO 14000 standard belongs to the series of ISO 14000 environmental management standards, promoted by the
International Organisation for Standardisation (ISO), and can be

certified through certification organisations supervised by authorised national bodies. The ISO 14001 standard is voluntary
and lays down the requirements for implementing an environmental management system based on compliance with the
laws in force, pollution prevention and continuous improvement.
The CERES Principles
The CERES Principles are ten principles of environmental conduct established by the Coalition for Environmentally
Responsible Economics (CERES). CERES is a coalition of investors, environmental organisations and public interest groups,
with headquarters in the United States, which encourages companies to incorporate commitment to sustainability in their
business.

Corruption
OECD Convention on Combating Bribery of Foreign Public Officials in International BusinessTransactions
The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of the Organisation
for Economic Co-operation and Development (OECD) determines transnational bribery as an offence, and establishes the
corresponding sanctions.
Transparency International Business Principles for Countering Bribery The Business Principles for Countering
Bribery have been created by the independent organisation Transparency International in collaboration with Social
Accountability International (SAI) and a multi-stakeholder group representing the private sector, the academic world, trade
unions and NGOs. The aim of this document is to provide generic guidelines of good practices to counter bribery, adaptable
to different business sizes and contexts.

7.18 Meaning of Best Practices

A best practice is a method or technique that has consistently shown results superior to those achieved with other means,
and that is used as a benchmark. In addition, a "best" practice can evolve to become better as improvements are
discovered. Best practice is considered by some as a business buzzword, used to describe the process of developing and
following a standard way of doing things that multiple organisations can use.

7.19 Definition of Best Practices

Best practice definitions often focus on the ability of a method or process to consistently show superior results. We believe
best practice is about using approaches that not only deliver superior results but also consider sustain ongoing
development of the approach.
Best practice means finding and using the best ways of working to achieve the business objectives. It involves keeping up to
date with the ways that successful businesses operate in the sector and others and measuring the ways of working against
those used by the market leaders.

7.20 Benefits of Best Practices

Using standards can offer a set of powerful business and marketing tools for organisations of all sizes. These standarads can
also be used to fine-tunethe performance and manage the risks thatare faced, while operating in more efficient and
sustainable ways. Standards allow to

demonstrate the quality of what we can do to our customers, and they help to see how to embed best practice into the
organisation.
Summary
Corporate Social Responsibility aims to ensure that companies conduct their business in a way that is ethical. It can involve
a range of activities such as working in partnership with local communities. It also developing relationships with employees
and customers. Corporate Social Responsibility is a management concept where by companies integrate social and
environmental concerns in their business operations and interactions with their stakeholders. Most look to the outer circle
regarding where the company has actually done, or good or bad, in terms of its products and services, in terms of its impact
on the environment and on local communities in how it treats and develops its workforce. Protection to consumer
movement protects consumers against business mal practices like adulteration, black marketing, unfair pricing, shortage in
weight, measures, etc. Everything done under CSR will help improve the reputation and encourage customers and other
stakeholders to stay involved with the company. A business that buys recycled paper but exploits its customers and ignores
the community will miss. Corporate strategy thus implies an attempt to alter a company’s strength relative to that of its
competitors in the most effective way. Present businesses that have already created a strategic management plan will
revert to these steps as per the situation’s requirement, so as to make essential changes. As the spot light on local,
regional, and global business practices increases, few corporations may actually follow the obstructionist approach.
Globlisation is the process of international integration arising from the interchange of world views, products, ideas and
other aspects of culture. And it is easy to identify the changes brought by Globlisation. The organizing principle for
sustainability is sustainable development, which includes the four interconnected domains – ecology, economics, politics
and culture. A best practice is a method or technique that has consistenly shown results superior to those achieved with
other means and that is used as a benchmark.
KEY WORDS
1. Corporate Social Responsibility - CSR aims to ensure that companies conduct their business in a way that is ethical.
This means taking account of their social, economic and environmental impact, and consideration of human rights.

2. Strategy - In business, it has been said that business strategy is all about competitive advantage. The sole purpose
of strategic planning is to enable a company to gain, as efficiently as possible, a sustainable edge over its competitors.
3. GLOBALISATION - The concept of globalisation emerged from the intersection of four interrelated sets of
"communities of practice": academics, journalists, publishers/editors, and librarians.
4. Sustainability - In ecology, sustainability is the ability to be sustained (ongoing) rather than temporary; it is how
biological systems remain diverse and productive indefinitely.
5. Best Practices - A best practice is a method or technique that has consistently shown results superior to those
achieved with other means, and that is used as a benchmark.
Self Assessment Questions
1. What is meant by corporate social responsibility?
2. Define corporate social responsibility
3. Explain the needs and importance of corporate social responsibility
4. What are the benefits of corporate social responsibility?
5. What is meant by strategic?
6. Define strategic
7. What are components and process of strategic?
8. Explain the different approaches to CSR
9. What is meant by globalization?
10. Define globalization
11. Explain the effects of globalization
12. Explain the importance of globalization
13. What is meant by sustainability?
14. Define sustainability
15. Explain the principles of sustainability
16. Explain the CSR standards
17. What is meant by best practices?
18. Define best practices
19. Explain the benefits of best practices

UNIT –VIII CORPORATE GOVERNANCE

Learning Objectives
After studying this unit you will be able to understand -
Corporate Governance
Audit committees
Role of independent directors
Protection of stake holders

CONTENTS

8.1 Introduction of Corporate Governance

8.2 Meaning of Corporate Governance
8.3 Definition of Corporate Governance
8.4 Importance of Corporate Governance
8.5 Nature of Corporate Governance
8.6 Benefits of Corporate Governance
8.7 Meaning of Audit Committees
8.8 Definition of Audit Committees
8.9 Objectives of Audit Committees
8.10 Scope of Audit Committees
8.11 Advantages and Disadvantages of audit committees
8.12 Role of audit committees
8.13 Functions of audit committees
8.14 Independent directors
8.15 Definition of independent directors
8.16 Need for Independent directors
8.17 Role of Independent directors
8.18 Qualifications and Disqualifications of Independent directors
8.19 Appointment of Independent directors
8.20 Resignation or removal of Independent director
8.21 Meaning of Stakeholders
8.22 Broad definition of Stakeholders
8.23 Protection of Stakeholders
8.24 How stakeholders are currently protected in UK Law?
8.25 Protection for Creditors and a Stakeholder Constituency

8.1 Introduction of Corporate Governance

Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and
managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors
and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal
goals, as well as, economic and social goals.

Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s
management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the
owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners
must see that individual’s actual performance is according to the standard performance. These dimensions of corporate
governance should not be overlooked.

Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a fair return on
their investment. Corporate Governance clearly distinguishes between the owners and the managers. The managers are
the deciding authority. In modern corporations, the functions/ tasks of owners and managers should be clearly defined,
rather, harmonizing.

Corporate Governance deals with determining ways to take effective strategic decisions. It gives ultimate authority and
complete responsibility to the Board of Directors. In today’s market- oriented economy, the need for corporate governance
arises. Also, efficiency as well as globalization are significant factors urging corporate governance. Corporate Governance is
essential to develop added value to the stakeholders.

Corporate Governance ensures transparency which ensures strong and balanced economic development. This also ensures
that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It ensures that all
shareholders fully exercise their rights and that the organisation fully recognises their rights.

Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate Governance
encourages a trustworthy, moral, as well as ethical environment.

8.2 Meaning of Corporate Governance

Corporate governance refers to the set of systems, principles and processes by which a company is governed. They provide
the guidelines as to how the company can be directed or controlled in such a way that it fullfils its goals and objectives in a
manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. Stakeholders for
this purpose will include everyone ranging from the board of directors, management, shareholders, customers, employees
and society. The management of the company hence assumes the role of a trustee for all the others.
The system of rules, practices and processes by which a company is directed and controlled, corporate governance
essentially involves balancing the interests of the many stakeholders of the company which includes its shareholders,
management, customers, suppliers, financiers, government and the community.

Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically
every sphere of management, from action plans and internal controls to performance measurement and corporate
disclosure.
8.3 Definition of Corporate Governance

Corporate governance is a field in economics that investigates how to secure efficient management of corporations by the
use of incentive mechanisms, such as contracts, organisational designs and legislation. This is often limited to the question
of improving financial performance,
“Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a
return on their investment.’’

“Corporate governance is about promoting corporate fairness, transparency and

accountability”.

“Corporate governance - which can be defined narrowly as the relationship of a company to its shareholders or, more
broadly, as its relationship to society”
Some commentators take too narrow a view, and say it (corporate governance) is the fancy term for the way in which
directors and auditors handle their responsibilities towards shareholders. Others use the expression as if it were
synonymous with shareholder democracy. Corporate governance is a topic recently conceived, as yet ill-defined, and
consequently blurred at the edges…corporate governance as a subject, as an objective, or as a regime to be followed for
the good of shareholders, employees, customers, bankers and indeed for the reputation and standing of our nation and its
economy

8.4 Importance of Corporate Governance

There is some evidence that good corporate governance produces direct economic benefit to the organisation. One study,
conducted at Georgia State University and published in December 2004, found that public companies with independent
boards of directors have higher returns on equity, higher profit margins, larger dividend yields, and larger stock
repurchases.

This study was consistent with another study of 250 companies by the MIT Sloan School of Management which concluded
that, on average, businesses with superior information technology (IT) governance practices generate 25 percent greater
profits than firms with poor governance, given the same strategic objectives.

Although the Sarbanes-Oxley Act of 2002 applies almost exclusively to publicly held companies, the corporate scandals that
gave rise to that legislation have increased pressure on all organisations (including family-owned businesses and nonprofit
organisations) to have better corporate governance. Private and non profit organisations may feel pressure from lenders,
insurance underwriters, regulators, venture capitalists, vendors, customers, and contributors to be Sarbanes-Oxley
compliant. In addition, some courts and state legislatures may by analogy apply the enhanced corporate governance
practices developed under Sarbanes-Oxley to private and nonprofit organisations. Finally, a few provisions of Sarbanes-
Oxley do affect private and nonprofit organisations, such as the provisions relating to criminal liability for document
destruction and for retaliation against whistleblowers.

Nonprofit organisations are not immune from scandal. Even before there was an Enron, there was the scandalous
bankruptcy of AHERF (the Allegheny Health, Education and Research

Foundation), a nonprofit organisation. The scandals involving The Nature Conservancy, the United Way of the National
Capital Area, and PipeVine, Inc., attest to the need for nonprofit organisations to have at least the perception of good
corporate governance. On August 16, 2005, it was reported in The Wall Street Journal that Cornell University Medical
School agreed to pay
$4.4 million in connection with fraudulent U.S. Government claims that allegedly occurred as a result of Cornell's failure to
pay attention to a whistleblower who was a member of the Cornell faculty.

Private companies that intend to seek capital from financial institutions and institutional investors should also be sensitive
to their corporate governance image, since this image is an important factor in the ultimate decision to provide capital to
the organisation. Family-owned private companies benefit from good corporate governance by avoiding the devastating
effects of sibling rivalry and expensive litigation between family members who have different views concerning the
business.

Good Corporate Governance ensures that the business environment is fair and transparent and that companies can be held
accountable for their actions. Conversely, weak Corporate Governance leads to waste, mismanagement, and corruption. It
is also important to remember that although Corporate Governance has emerged as a way to manage modern joint stock
corporations it is equally significant in state-owned enterprises, cooperatives, and family businesses. Regardless of the type
of venture, only Good Governance can deliver sustainable long run goodness.

8.5 Nature of Corporate Governance

During the last decade, corporate governance has become a contested and controversial issue. Following the collapse of
Enron and other accounting fraud and corporate scandals involving firms such as Parmalat, Barings, Tyco, WorldCom, and
SOCGEN and in light of the demise of Arthur Andersen, one of the "Big Five" accounting firms appear to have shaken the
confidence of investors. The principal weakness of corporate governance today is the excessive concentration of power in
the hands of top management. The phenomenal growth of interest in corporate governance has been accompanied by a
growing body of academic research. As the

discipline matures, far greater definition and clarity are being achieved concerning the nature of corporate governance.
Jill and Aris Solomon in 2004 has defined Corporate governance as the system of checks and balances, both internal and
external to companies, which ensure that companies discharge their accountability to all companies, stakeholders and act
in a socially responsible way in all areas of their business activity.
However, there is no single, accepted definition of corporate governance. There are substantial differences in definitions in
various countries.
According to Parkinson (1994), corporate governance is the process of supervision and control intended to ensure that the
company's management acts in accordance with the interests of shareholders. The purpose of corporate governance is to
safeguard the integrity of the promises made by corporations to investors.
Another way to say this that corporate governance is about reducing deviance by corporations where deviance is defined
as any actions by management or directors that are at odds with the legitimate, investment-backed expectations of
investors.
Good corporate governance, therefore, is simply about keeping promises and vice versa. Generally, Corporations are
almost universally conceived as economic entities that strive to maximize value for shareholders.
According to Chris Thomas (2010), the principal characteristics of effective corporate governance are: transparency
(disclosure relevant financial and operational information and internal processes of management oversight and control);
protection and enforceability of the right and prerogative of all shareholders; and directors capable of independently
approving the corporation's strategy and major business plan and decisions, and of independently hiring management,
monitoring management's performance and integrity, and replay management when necessary.
The current corporate governance practice in the U.S. can be described as overly complex given the different sets of laws
and regulations addressing corporate governance. Federal, state, and market are the mechanisms was utilised by the U.S
corporate governance.

Edwards (2003), explained that the first line of defency with regard to the corporate governance mechanisms in the United
States is the basic legal structure comprising state-based corporate law (prior to SOX) and federal securities law. Sufficient
corporate disclosure to make the operations of corporations transparent to shareholders in requiring by federal securities
law in order to empowers shareholders, which by subjecting it to market inspection and discipline. Besides that,
shareholders are also entitles to sue fraudulent managers.
The second level of defency is state law and the certificate of incorporation, which together establish a governance
structure for the corporation, assigning rights and duties to shareholders, directors, and managers. Therefore, the legal
requirements are differ from one state to another. For instance, most of the large public companies in the U.S., irrespective
of the location of their operations, are incorporated in Delaware due to its business-friendly corporate legal environment.
However, following the various scandals, the SOX statute came into force leading to at least the partial federalization of
corporate law.
The third level of governance mechanisms in the U.S. is executive compensation, through which shareholders and their
elected directors choose to employ an incentive compensation structure for both managers and directors to better align
their interests with those of the shareholders.
For example, Coca-Cola is one which exercises the best corporate governance practices in US. Coca-Cola is largest
manufacturer, distributor and marketer of non-alcoholic beverage concentrates and syrups in the World. It is also involved
in the manufacture, distribute and market some finished beverages. Coca-Cola being recognised as the World's most
valuable brand, it markets four of the world's top five soft drink, brands, including Diet Coke, Fanta and Sprite. It has been
124 years in business and now sold in more than 200 countries (Coca-Cola Annual Report, 2009). The Coca-Cola Company is
committed to sound principles of corporate governance. The Board is elected by the shareowners to oversee their interest
in the long-term health and the overall success of the business and its financial strength. The Board serves as the ultimate
decision making body of the Company, except for those matters reserved to or shared with the shareowners. The Board
selects and oversees the members of senior management, who are charged by the Board with conducting the business of
the Company (Coca-Cola Annual Report, 2009).

The company is guided by established standards of corporate governance and ethics. The code guides their business
conduct, requiring honesty and integrity in all matters. All of the associates and directors are required to read and
understand the Code and follow its precepts in the workplace and larger community. The Code is administered by their
Ethics and Compliance Committee. This cross-functional senior management team oversees all the ethics and compliance
programmes and determines Code violations and discipline. The Ethics & Compliance Office has operational responsibility
for education, consultation, monitoring and assessment related to the Code of Business Conduct and compliance issues.
Associates worldwide receive a variety of ethics and compliance training courses administered by the Ethics & Compliance
Office. They regularly monitor and audit the business to ensure compliance with the Code and the law. They also maintain
a consistent set of best-in-class standards around the world that govern how they investigate and handle Code issues.
Acting with integrity is about more than Coca-Cola Company's image and reputation, or avoiding legal issues. It's about
sustaining a place where all are proud to work. Ultimately, it's about each knowing that they have done the right thing. This
means acting honestly and treating each other and the customers, partners, suppliers and consumers fairly, and with
dignity. The Code of Business Conduct is the guide to appropriate conduct. Together with other Company guidelines, such
as the Workplace Rights Policy, they have set standards to ensure that do the entire right thing. In 2008, the Code was
revised to further improve its effectiveness. In order to prevent workplace violence and drug-free workplace, they trained
associates on the Code of Business, European Union competition law, Latin American competition law, financial integrity,
intellectual property and competitive intelligence. Besides, they are also rolled out an updated global anti-bribery
compliance programmes with supporting policies, training and audits. In addition, they expanded their compliance
programmes around United States trade sanctions with supporting policies, training and audits.

8.6 Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.

2. Strong corporate governance maintains investors’ confidence, as a result of which, company can raise capital
efficiently and effectively.
3. It lowers the capital cost.

4. There is a positive impact on the share price.

5. It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the
shareholders and the organisation.
6. Good corporate governance also minimises wastages, corruption, risks and
mismanagement.
7. It helps in brand formation and development.
8. It ensures organisations are managed in a manner that fits the best interests of all.

8.7 Meaning of Audit Committees

An Audit committee is a sub-committee of the Board of Directors that is responsible for the financial reporting and
disclosure process.
Members of audit committee must be independent of management, meaning they do not receive any
compensatory fee, other than for service on the audit committee.
The audit committee is directly responsible for the appointment, compensation, and oversight of the work
of any registered public accounting firm employed by the company.
The audit committee must pre approve all audit and non audit services provided by its auditor.
The audit committee must establish procedures for, and design the treatment of, internal complaints
received regarding the company (ie. the whistleblower hotline).
Each audit committee member must have the authority to engage independent counsel or other advisors
in order to carry out its duties
8.8 Definition of Audit Committees
An audit committee is a selected number of members of a company's board of directors whose responsibilities include
helping the auditors to remain independent of management. Most of the audit committees are made up of three to five or
sometimes as many as seven directors who are not a part of company’s management

This standard requires the auditor to communicate with the company's audit committee regarding certain matters related
to the conduct of an audit and to obtain certain information from the audit committee relevant to the audit. This standard
also

requires the auditor to establish an understanding of the terms of the audit engagement with the audit committee and to
record that understanding in an engagement letter.
8.9 Objectives of Audit Committees

The objectives of the auditor are to:

a. Communicate to the audit committee the responsibilities of the auditor in relation to the audit and
establish an understanding of the terms of the audit engagement with the audit committee;
b. Obtain information from the audit committee relevant to the audit;
c. Communicate to the audit committee an overview of the overall audit strategy and timing of the audit; and
d. Provide the audit committee with timely observations arising from the audit that are significant to the
financial reporting process.
Note: "Communicate to," as used in this standard, is meant to encourage effective two-way communication between the
auditor and the audit committee throughout the audit to assist in understanding matters relevant to the audit.
8.10 Scope of Audit Committees
Once a company has decided to form an audit committee, it must then decide who will reside on it. Ideally, the audit
committee should be comprised of independent persons, which typically disallows either directly or indirectly any director,
executive officer, partner, member, principal or owner of the company. The board should thus carefully select individuals
with a variety of skill sets and backgrounds to serve on the audit committee.
The company’s board of directors should also use its discretion to establish the scope of the audit committee, including
determining what procedures should be followed, and providing guidance on the committee’s functions. The American
Institute of Certified Public Accountants has a section on its website entitled the “Audit Committee Effectiveness Center”.
While geared towards public companies, the Center provides advice relevant to all companies, including detailed
explanations, functions and procedures for audit committees that will assist the board in determining the scope of the
audit committee.

The audit committee should take minutes at every meeting, which should then be submitted to the board and included in
the company’s minute book. What follows are suggested items that an audit committee should discuss and review in
consultation with an independent auditor and management:
1. Inquiries about the current and/or unresolved issues or problems that have arisen in the financial,
compliance, or operational control environment.
2. Recommendation of a firm or individual to be engaged as the company’s independent auditor.
3. Review and approve the independent auditor’s compensation and the terms of the auditor’s engagement.
4. Review the result of each independent audit, the auditor’s report, any related management letter and
management’s response to recommendations made by the independent auditor in connection with the audit.
5. Review the company’s financial statements, any report or opinion rendered by the independent auditor in
connection with those financial statements, and any dispute between management and the independent auditor that
arose in connection with the preparation of the financial statements.
6. Consider the scope and plan of forthcoming external audits.

7. Consider the adequacy of the company’s internal accounting controls.

8. Consider the appropriate accounting principles and practices to be used in the preparation of the
company’s financial statements.
9. Discuss the performance of key financial and operations officers.
8.11 Advantages and Disadvantages of audit committees

The advantages and disadvantages derived from audit committees can be summarised as
under

Advantages of Audit Committee

1. It provides an internal reporting mechanism compared to reporting to the directors who may wish to hide or
amend unfavorable internal audit.
2. Shareholder and public confidence in published financial information is enhanced because it has been reviewed by
an independent committee.
3. Provides better communication between the directors, the external auditors and the management.
Disadvantages of Audit Committees
1. It enhances the fear that the purpose of audit committee is to catch the management out.
2. It may lead to a problem that the non-executive directors being overburdened with details.
3. It leads to additional cost in terms of time involved.

8.12 Role of Audit Committees

It is evident that it is the basic responsibility of the board of directors to oversee the affairs of the company for the benefit
of its shareholders. All the major decisions have to be taken at the board level. To enable the board to discharge its
responsibilities, it is usual in a large company to form various committees at the board level to ensure that detailed
discussion takes place on issues like

(a) internal control system, internal audit, financial reporting, accounting policies etc.,

(b) recruitment and proper remuneration to executives,

(c) implementation of effective communications programme,

(d) safety of health and environment and

(e) business development in compliance with laws and succession of senior management.

So far as the financial reporting is concerned, it is the primary responsibility of the Audit Committee and therefore lot of
importance is given to the functions of this committee in the legislation for corporate governance.

Sec. 292A of the Companies Act provides for mandatory appointment of audit committee by the board of directors of a
public company having paid up capital of not less than

Rs.5crores. Such a committee should have minimum of three directors. Two-thirds of the total members of this committee
should be non-executive directors. The terms and conditions for the audit committee is to be laid down by the board of
directors. The annual report of the board has to disclose the composition of the committee. The statutory auditor, internal
auditor and director (finance) have to attend and participate at the meetings of the audit committee. The recommendation
of the audit committee on any financial matter shall be binding on the board. The chairman of the audit committee has to
attend the annual general meeting and provide clarification on accounts and matters relating to audit.

This Section also provides that the audit committee should have discussions with statutory auditors periodically about
internal control systems, the scope of audit, including the observations of the auditors and review the half-yearly and
annual financial statements before submission to the Board and also ensure compliance of internal control systems.
Further, the audit committee has to consider the limited review reports of auditors which should be submitted on quarterly
basis. The audit committee has the authority to investigate into any matter in relation to the items specified in Sec. 292A or
referred to it by the Board. For this purpose it shall have access to information contained in the records of the company
and external professional advice, if necessary.

It may be noted that the scope and functions of the audit committee of a listed company as contained in clause 49 of the
listing agreement, are wider as compared to the above requirements of Sec. 292A of the Companies Act. Further, as stated
earlier, Naresh Chandra Committee has made some more suggestions to further strengthen the working of the audit
committee. Under Clause 49 of the listing agreement, the audit committee is required to discharge the function of
oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the
financial statements are correct, sufficient and credible. The audit committee has to ensure compliance with accounting
standards, interact with internal auditors and statutory auditors, recommend the appointment of internal and statutory
auditors and also recommend their remuneration, ensure the adequacy of internal controls and internal audit procedures,
review financial statements before they are placed before the Board for its approval, review company’s financial and risk
management policies and look into the reasons for substantial defaults in the payment to depositors, debenture holders,
shareholders, creditors etc.

8.13 Functions of Audit Committee

An audit committee is a committee comprising of non-executive directors which is able to view a company’s affairs in a
detached and independent way and collaborate effectively between the main board of directors and the external auditors.
The functions of audit committee will include -
• Monitoring the integrity of the financial statements.
• Reviewing the company’s internal financial controls.
• Monitoring and reviewing the effectiveness of the internal audit functions.
• Making recommendations in relation to the appointment and removal of the external auditors and their
remuneration.
• Reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit
process.
• Developing and implementing policy on the engagement of the external auditor to supply non-audit services.
• Reviewing arrangements for confidential reporting by employees and investigation of possible improprieties.
8.14 Independent Directors

(i) Apart from receiving director’s remuneration, does not have any material pecuniary relationships or transactions
with the company, its promoters, its senior management or its holding company, its subsidiaries and associated companies;

(ii) Is not related to promoters or management at the board level, or one level below the board (spouse and
dependent parents, children or siblings);

(iii) Has not been an executive of the company in the last three years;

(iv) Is not a partner or an executive of the statutory auditors and the internal audit firms that are associated with the
company, and has not been a partner or an executive of any such firm for the last three years. This will also apply to legal
firm(s) and consulting firm(s) that have a material association with the entity;

(v) Is not a significant supplier, vendor or customer of the company;

(vi) Is not a substantial shareholder of the company, i.e. owning 2% or more of the block of voting shares
(vii) Has not been a director, independent or otherwise, of the company for more than three terms of three years each
(not exceeding nine years in any case);

The Committee has also made some useful suggestions for minimum size of board of directors, procedure for holding
board meetings, permission to be granted for holding board meetings through teleconferencing and video-conferencing to
ensure participation of all directors and financial and non-financial information to be provided to the directors in the
agenda papers. In order to provide incentive to independent directors, the committee has suggested that adequate
remuneration should be paid to them. Further, such directors should be exempted from criminal and civil liabilities under
various enactments such as Companies Act, Negotiable Instruments Act, Provident Fund Act, ESI Act, Factories Act,
Industrial Disputes Act, Electricity Supplies Act etc. In order to ensure that independent directors can discharge their
functions properly, the committee has also suggested for organising adequate training courses for them.

In its recommendations relating to role of independent directors, the committee has laid great emphasis on the role of
Audit Committee and its independence. It is suggested that the members of the audit committees of listed and other large
companies should consist exclusively of independent directors. The functions of the audit committee should be as listed in
clause
47wQbNPTDJp9hMYdvogK2hAUiHsGeiybwaWe36bwtRQ3UTpYV7YuZ8FV5j9nauFCWwcjM6dTzpL5s2N79Rp5unwdMvc8ZK
Uof audit committee and dates and frequency of meetings, the chairman of the audit committee should annually submit a
report whether and to what extent each of the functions listed in the audit committee charter have been discharged during
the year. This report should indicate the views of the committee on the adequacy of internal control systems, perceptions
of risks and in the event of any audit qualifications, why the audit committee accepted and recommended the financial
statements with qualifications. Further, the report should state whether the audit committee met the statutory and
internal auditors without the presence of the management and whether such meetings revealed materially significant
issues or risks.

8.15 Definition of Independent Directors

“Independent Director means a non – executive director of the company who:

a) Apart from receiving directors remuneration does not have any material pecuniary relationships or transactions
with the company, its promoters, directors, its senior management or its holding company, its subsidiaries and associates
which may affect independence of the director.
b) Is not related to promoters or persons occupying management positions at the board level or at one level below
the board.
c) Has not been an executive of the company in the immediately preceding three financial years.
d) Is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the
following:
i) The statutory audit firm or the internal audit firm that is associated with the company and
ii) The legal firms and consulting firms that have a material association with the company.
e) Is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect
independence of the director and
f) Is not a substantial shareholder of the company.
g) Is not less than 21 years of age(7*).

“An Independent Director in relation to a company means a director other than a managing director or a whole time
director or a nominee director :
a) A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or
associate company.
b) Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate
company amounting to ten percent or more of the gross turnover of such firm.
iii) Holds together with his relatives two percent or more of the total voting power of the company.
iv) Is a Chief Executive or Director by whatever name called, of any non-profit organisation that receives twenty five
percent or more of its receipts from the company any of its promoters, directors, or its holding, subsidiary or associate
company or that holds two percent or more of the total voting power of the company (or)
v) Who possesses such other qualifications as may be prescribed (8*)”.
“The expression Independent Director refers to a non – executive director of a company who apart from receiving the
directors remuneration, does not have any material pecuniary relationships or transactions with the company, its
promoters, directors, senior management holding company or its subsidiaries and associates, which may impact his/ her
independence(9*). Independent Director means a person other than the employee of the company or an executive officer
of the company or any other individual having a relationship which in the opinion of the issuers board of directors, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons
shall not be considered independent.
a) A director who is or at any time during the past three years was employed by the company.
b) A director who accepted or who has a family member who accepted any compensation from

the company in excess of 1,00,000 US Dollars during any period of twelve months within three years preceding the
determination of independence, other than the following :
i) Compensation for board or board committee service.
ii) Compensation paid to a family member who is an employee of the company.
iii) Benefits under a tax qualified retirement plan or non-discretionary compensation.

c) A director who is a family member of an individual who is or at any time during the past three years was employed
by the company as an executive officer.
d) A director of the issuer company who is or has a family member who is employed as an executive officer of another
entity where at any time during the past three years any of the issuer serve on the compensation committee of such other
entity(10*)”.

8.16 Need for Independent Directors

The need for Independent Directors was felt by the Indian Legislators and the Corporate experts after the Satyam Debacle
in the year 2009. Satyam case was perhaps the biggest corporate fraud case where M/S Satyam Computer Services Ltd
caused loss to the investors to the tune of Rs. 14162 crores. The company head Ramalinga Raju and members of his family
secured illegal gains to the tune of Rs. 2743 crores by various tricks. The fraud was perpetrated by inflating the revenue of
the company through false sales invoices and showing corresponding gains by forging the bank statements with the
connivance of the Statutory and Internal Auditors.
The annual financial statements of the company with inflated revenue were published for several years and this led to the
higher price of the scrip in the market. In the process innocent investors were lured to invest in the company. Attempts
were made to conceal the fraud by acquiring the companies of kith and kin. In order to avoid such scams in the future and
to protect the interests of the investors, especially the minority share holders the concept of Independent Directors
emerged.

The Companies Act, 2013 was enacted with a view to improve the standards of Corporate Governance and ensure
transparency to the minority shareholders. The new act contains provisions pertaining to Independent Directors. Section
149(6) of the Act defines Independent Directors. Section 150 deals with the manner of selection of Independent Directors.
Section 149

(12) talks about the liability of Independent Directors. Schedule IV of the said Act lays down a code for Independent
Directors.
The presence of Independent Directors on the Board of a company would improve corporate governance, particularly for
public companies or companies with a significant public interest. Corporate experts felt that independent directors would
be able to bring an element of objectivity to the Board process in the general interest of the company and thereby to the
benefit of minority interests and small shareholders. Finally it was felt by the corporate experts that the inclusion of
independent director often brings a different point of view, a more knowledgeable view, and a more professional view.

8.17 Role of Independent Directors

Independent Directors have a key role in the entire mosaic of corporate governance. It is increasingly being recognized that
independent directors occupy a pivotal position with respect to the progress of the company. In fact Independent Directors
are considered as both a safeguard and a significant source of competitive advantage.

Neither the Listing Agreement nor the Companies Act 1956 prescribes the scope of duties of Independent Directors versus
(vis – a – vis) the executive directors, the promoters, or the share holders, minority or otherwise. Independent Directors
may be viewed as repositories of vigilance intended to ensure that the promoters and executive directors carry on the
activities of the company in conformity with the interests of the shareholder as a whole. Alternatively, independent
directors could be viewed as strategic advisors to the board, critical to maximising revenue and overall value of the
company.

The new act includes a guide to professional conduct for independent directors, which crystallises the role of independent
directors by prescribing facilitative roles, including offering independent judgement on issues of strategy, performance and
key appointments, and taking an objective view on performance evaluation of the board. Independent directors are
additionally required to satisfy themselves on the integrity of financial information to balance the conflicting interests of all
stakeholders and in particular to protect the rights of the minority shareholders.

A stakeholder is any person, organisation, social group, or society at large that has a stake in the
business. Thus, stakeholders can be internal or external to the business. A stake is a vital interest in the business or its
activities. It can include ownership and property interests, legal interests and obligations, and moral rights. A legal
obligation may be the duty to pay wages or to honour

contacts. A moral right may include the right of a consumer not to be intentionally harmed by business activities.
Stakeholders can:

• Affect a business
• Be affected by a business
• Be both affected by a business and affect a business

A stakeholder is often contrasted against a shareholder, which has an ownership interest in the business. R. Edward
Freeman and his book Strategic Management: A Stakeholder
Approach (1984) has had a major influence on stakeholder theory.

Stakeholders
The concept of a stakeholder does have moral and ethical implications for business governance. If a business only has a
duty to its shareholders, then the business may have no moral obligations to any other person, organisation or society. On
the other hand, if a business has a duty to its stakeholders, then a business must take into account the interests of its
stakeholders as well and not focus completely on maximising the interests of its owners.

Examples

Let's look at some common stakeholders in a typical business. Remember, the key requirement is that a stakeholder is
either affected or affects the business. Consequently, the definition of stakeholder is very broad.
8.22 Broad Definition of Stakeholders

Many different groups have an interest or involvement in digital information. Any strategy for digital preservation will
naturally have to take into account the various needs and perspectives of these groups. The stakeholders include:
• Authors
• Publishers
• Libraries
• Archive centres
• Distributors
• Networked information service providers
• IT suppliers
• Legal depositories
• Consortia
• Universities
• Research funders

8.23 Protection of Stakeholders

Despite the varying perspectives of the various different theories of the firm, they all have the same opinion on at least one
thing: a firm cannot exist without stakeholders said by M Greenwood, 2001 Although shareholders are an extremely vital
constituent in effectively running an organisation in their capability as the primary finance providers, there are numerous
organisations that exist without them. Examples of such organisations are law firms which are owned by their employees.

The stakeholder approach and even the enlightened shareholder value approach which is currently prevalent in the UK,
dictates the significance of other stakeholders such as employees and customers to the company. This section also
mentions the circumstances where shareholders were given preference over the other stakeholders by the management.
Though shareholders, employees, suppliers and creditors etc. all are stakeholders, they should be treated fairly by the
management.
Even though stakeholders form an essential part of a firm, there is a constant debate on whether they need additional
protection under UK law. Rather than merely the protection received by means of contracting with the firm. Academic
literature has formed various reasons why stakeholders of the firm perhaps require such additional protection. Some of the
essential reasons are discussed below.
Contractual Protection Does Not Fully Protect Stakeholders

Residual claimants' argument: The main reason why shareholders have given the power over the operations of a company
is because they assert to be the residual claimants over the company's assets as their claims are not absolutely protected
via contractual mechanisms. The return on a company's stock is not fixed and if a company makes losses the shareholders
do not receive a return on their investment via dividends while the remaining of the stakeholders are covered by their
individual contracts. Moreover, in the case of a winding up process of the company, the shareholders are the last to receive
their share of the company's assets after all the fixed contractual claims of the company are settled.
However, opinions have emerged that do not acknowledge this view totally. At the same time it is generally agreed that the
control of the company should be placed with the residual claimants of its assets, there has been considerable debate on
which the actual residual claimants are (Blair, 1995). While shareholders assert that they remain the sole residual claimants
of a company's assets, on the other hand employees hold their own point of view. The employees of a firm think that in
cases where they acquire firm specific skills, their value in the market is less than their value in the firm. They hold the
opinion that they have made specific investments and contributions towards the success of the firm. They believe that they
should have a right to be a part in its decision making process as their futures are now emotionally involved with the

performance of the company. Examples of such employee participations are found in Germany where employee
representation is done through Supervisory Boards which play an important role in the decision making capacity of the
board of directors (Schneider, 1992).
While employees uphold their view as being part of the residual claimants of the firm, certain suppliers argue the same
(Williamson, 1991). In many instances, suppliers while contracting with the firm set up services and buy equipment specific
to the firm they are supplying to. In doing so, they make a long term commitment with the firm which cannot be covered
merely through contract. Therefore, by making such firm specific investments, they as well think to form part of the
residual claimant structure of the firm. And they want to have authority over the formation of the firm's strategic policies
and objectives.
High cost of contracting: The idea of contracting is for the service providers to look for a little, if not whole, protection for
the services they provide. While contracting remains a positive mode to look for protection, it on number of times fails to
offer full protection to the stakeholder of a company. Firstly, contracting lead to many costs that cannot be borne by all
stakeholders. It is hard for the comparatively smaller stakeholders to involve in detailed contracting. As the high costs of
preparing an in depth contract cannot be borne by them. Moreover, such stakeholders do not have sufficient bargaining
power to put in order such a thorough contract that may possibly limit managerial power. Indulging in detailed contracting
would perhaps not even be advisable for stakeholders which do possess this high bargaining power since this will obstruct
the management's ability to function effectively.

Protection against Dysfunctional Managerial Decisions

The task of a company's management is to prop up the success of the company by providing it with strategic direction and
aiming towards its long term growth and prosperity. In return the company compensates the management through cash
salaries, bonuses and stock options. This transaction would make it seem that the management should work for the
interest of the company as a separate legal entity.
However, since shareholders are the controllers of the company through their voting rights and in many cases take an
active part in determining the earnings of the managers, the management is

susceptible to making dysfunctional decisions that favour of the shareholders while damaging the other stakeholders and
the company as a whole (J Day & P Taylor, 1998). Amongst many, these decisions include high dividend payments, claim
dilution, asset substitution, and risk shifting.
Therefore, in order to secure the interests of other stakeholders in relation with the shareholders there is need for
additional protections for all stakeholders.

When a company is in financial agony or is heading towards it, the managers may have a propensity to side with the
shareholders by issuing high dividends which will trim down the finances available to the remaining of the stakeholders.
This action will not only be to the disadvantage of the stakeholders, but will also adversely affect the company and damage
its reputation since it will diminish the likelihood of its revival. However, since the shareholders hold close ties with the
management, they receive privileged treatment over all other stakeholders.
Risk shifting is another instance of management siding with the shareholders. When a company is close to insolvency,
company law requires the management to shift its focus to owing fiduciary duties to creditors instead of owing these duties
to shareholders. In such distressed times, only the shareholders will benefit from further investments even though the risk
is borne by the creditors. In such cases, the management might be unduly pressurised by the shareholders into indulging in
enormously high risk and high return yielding projects. Since the accomplishment of such projects will make sure that the
shareholders will gain along with the creditors. However, shareholders will have nothing to lose if the project is
unsuccessful and the actual burden will drop on the creditors as the company is now unable to meet its fixed obligations
owed to them.
Customers are also stakeholders to a company and they rely on adequate pricing practices and fair practices by the
directors of the company. Since the privatisation of previously government run industries customers are in need of
protection (S Ogsen and R Watson 1999) and directors who are inept at their job may hinder customers as well as other
stakeholders, such as the government who want fair practices and competently run companies.

Monitoring Costs

Even though the stakeholders of the company are free to contract with the firm and protect their interests, the monitoring
costs incurred in ensuring that the contract is not breached are an additional burden on the stakeholders. While a number
of stakeholders may be capable of supporting such costs, many will not as they will not acquire the adequate resources to
expend on the monitoring purpose.
Moreover, it is also vital to realise that the risk attached to many business functions changes once the stakeholder has
contracted with the firm. Due to the incapability of numerous stakeholders to monitor firm's activities, they are not in a
situation to find out the change in the riskiness of their investment and consequently are in a much more fragile
circumstance than they perceive it to be.
Therefore, the law needs to supply a framework that will necessitate the management to meet up their obligations to these
stakeholders and protect their interests in the company.

8.24 How are Stakeholders Currently Protected Under UK Law?

Although there are number of legislations protecting the interests of various stakeholder constituencies like the
Employment Act 2002, Environment Act 1995 and various others, the focus of this paper will be on the major reforms
brought under the Companies Act 2006, Insolvency Act 1986, and various voluntary codes of compliance introduced during
the last two decades beginning form the Cadbury Code in 1992.

Protection for Stakeholders under the Companies Act 2006

The notion of the stakeholder value approach has been growing for a number of years and, along the way, increasingly
raising concerns over the acceptance of the shareholder primacy model. In the Companies' Act 2006, (hereinafter called as
Act) the debate of increased stakeholder protection finally made considerable progress through the codification of
directors' duties towards protection of the stakeholders of the company. As far as stakeholder protection is concerned,
amongst the various provisions of the Act that codifies the duties of directors towards the company, section 172
(Companies Act 2006 Handbook, Twenty first Edition, Butterworths 2007) remains the most significant one.

This section requiring the directors to “Promote the success of the company” is not only a codification of the previous law,
but is also the introduction of a new one (Out-Law.com, 2007). For the first time, the duty has been imposed upon the
directors of a company to promote the success of the company while giving regard explicitly to the interests of its
stakeholders. In the past, the language used in the Act required the director to act “bonafide in the best interest of the
company”. In real meaning, this duty is amended in the updated Act of 2006 through the obligation of the directors to act
in good faith and to promote the success of the company. However, what has altered is that the Act now not only
prescribes the duty owed by the directors of a company, but also the way they are supposed to discharge this duty.
Prior to the Act was passed, there were rising concerns of whether or not setting out a detailed list of stakeholders, before
making any decisions the interests of which the directors would have to give regard to, would convince a formal box ticking
approach. This could have led to ever-increasing administrative burden for the company which lack in bringing any
considerable change in the behaviour of directors. However, these concerns were shrugged away by the government
suggesting that the section requires directors to ‘think about' the interest of stakeholders so that their stake in the
company may be protected.
Even though section 172 requires the directors to give regard to the interests of stakeholders, it does not mean that they
should compromise the interests of the company in order to protect the interests of any of the stakeholders. All it does is
formalise the duty imposed by law on the directors to give due regard to the interests of the specified stakeholders and at
the same time making decisions in the best interest of the company which is the essence of the Enlightened shareholder
value approach.
Another addition into the law that has come through the incorporation of Section 172 has been that of preparing a
Business Review at the end of the financial year. With the exception of companies that are part of the small businesses
regime, directors of a company are now by law required to produce a Business Review the purpose of which is to provide
information to the members of the company in order to help them assess how the directors have performed their duty
under section 172 of the Act.

In the business review the directors are required to reveal a true and fair sight of the company's business along with a
description of the principle risks and uncertainties that are facing the company (http://www.berr.gov.uk/bbf/financial-
reporting/business-reporting/page21339.html). Moreover, the directors are also required to prepare an analysis of the
company's performance using financial and other key performance indicators.
The business review for quoted companies carry extra requirements including trends expected to affect the future
expansion, information about environmental matters, the company's employees etc. However, revealing this information
may be avoided if the directors consider that it will be gravely detrimental to the person contracted with or adversely affect
the interest of the general public.
Even though the Business Review may be the move in the right path as far as the stakeholders are concerned, it still does
not bring the same level of protection for the stakeholder and disclosure of information concerning the actions of the
company that were introduced through the Operating and Financial Review (OFR). However, the OFR was repealed soon
after its introduction and hence not incorporated into the Companies Act 2006. Therefore, it remains to be seen whether
the Review will be able to follow through with its desired objective of providing additional protection for stakeholders.
The Act also provides the Authority (which currently is the FSA in the UK), the discretion to form Corporate Governance
rules as they deem appropriate through Section 1269 of the Companies Act 2006. This section inserts a new section 890
into the FSMA 2000 which gives the Authority a power to make rules implementing or enabling the implementation of or
dealing with the matters relating to the community obligations on corporate governance of issuers on a regulated market.
This rule making power will allow the authority to create corporate governance rules in order to cover issuers for whom the
UK is the home member state and whose securities are traded on a regulated market in the UK. In essence this section
provides the Authority the power to determine the relationship between the issuer and its organs with regard to corporate
governance issues. Even though this section provides the Authority with a broad discretion on protecting the interests of
stakeholders, the elements of the provision seem to be unclear and it is however to be observed if they aid the
stakeholders of an issuer which listed on a regulated market in providing useful contribution for the corporate governance
issues of a firm.

Protection for Stakeholders through the Compliance of the Voluntary Codes

Starting from the Cadbury Report being published in 1992 till the issuance of the Higgs review in 2003, the corporate
governance field in the UK has witnessed the development of number of Codes aimed at making better the governance
structure of an organization. These reports have focused on issues such as the role of Non Executive Directors, Audit
Committees, Directors' Remuneration Committees, and Internal Controls etc and have been implemented by the majority
of large public and private organisations in the UK. Most importantly, the London Stock Exchange has mandated the
compliance to the Combined Code on Corporate Governance to be implemented by all its quoted companies.

Even though compliance with these various codes of corporate governance will most likely to improve the performance of
the company at large, the codes fail to necessitate the management to explicitly look after the interests of stakeholders.
These codes seem to provide special emphasis on the role of shareholders in the governance of organizations in the UK
which is a rather obvious portrayal of the strong roots of the shareholder primacy model that are still existent today.

8.25 Protection for Creditors and a Stakeholder Constituency

Amongst the Stakeholder group, the Creditors being one of the most significant stakeholders to whom the special legal
attention have been provided not only under the Companies Act, but also through the incorporation of the Insolvency Act
1986.
Though, this rule in practice only provides with a false sense of security to the company's creditors. Firstly, the minimum
amount of capital to be raised is independent of the riskiness of the business which is pretty complicated to understand.
Secondly, even if the minimum capital has been raised and is not authorised to be returned to the members of the
company, it still does not prohibit the legal capital to be lost via trading losses.
One argument that is continuously used to support this law is that the rationale of the minimum share capital is mainly to
protect the interests of tort victims who are not able to contract themselves with the company. This argument is a sensible
one, but then on the other hand for

private companies the non existence of the minimum share capital rule seems confusing since a private company could
have as many tort victims as a public enterprise.
Furthermore, the protection is also extended to the creditor through Section 646 of the Companies Act relating to
reduction of capital rules by the court. Since the legal capital of a company is raised to protect the interests of its creditors,
this section provides them with the right to object a reduction of that capital and appeal to the court. The court may make
an order confirming the reduction of capital on such terms and conditions as it thinks fit. However, this too is a fragile type
of protection available for the creditors since the company is usually able to satisfy the courts that the claims of the
creditors will be met by the company (Davies, Principles of Modern Company Law, 2003).
Moving away from the protection available to the creditors via the Companies Act 2006, they are also additional security
provided by the Insolvency Act 1986. While the company is in a solvent state, the duties owed by the directors are to the
shareholders of the company. However, once the company reaches a state where it begins to face difficulty in meeting its
debt obligations, the law requires the directors to switch duties and primarily look after the interests of the creditors of the
company. It exposes the directors (and shadow directors) of a company to personal liability who, at the point that they
realise or ought to have realised that the company had no reasonable prospects of meeting its debt obligations, fail to take
all the reasonable steps that they are expected to take in order to protect the interests of the creditors (Davies, Directors
Creditor- Regarding Duties in Respect of Trading Decisions Taken in the Vicinity of Insolvency, 2006).
The enforcement of this duty is done by sections 213 and 214 of the Insolvency Act 1986 whereby any directors that
indulge in wrongful or fraudulent trading will be held accountable by law. The purpose of these actions is to stop directors
from indulging willingly or unwillingly in activities that they are aware will harm interests of the creditors of the company
and reduce the value of their investment.
Summary

Corporate Governance is the interaction between various participants in shaping corporation’s performance and the way it
is proceeding towards. The owners must see that individual actual performance is according to the standard performance.
It deals with determining ways to take

effective strategic decisions. Corporate Governance has a broad scope. It includes both social and institutional accepts. It
encourages a trust worthy, moral, as well as ethical environment. Stakeholders for his purpose will include everyone
ranging from the board of directors, management, shareholders, customers, employees and society. Good corporate
governance ensures corporate success and economic growth and it has lowers the capital cost. And it ensures organizations
are managed in a manner that fits the best interests of all. The audit committee is directly responsible for the appointment,
compensation, and over sight of the work of any registered public accounting firm employed by the company. The
company’s board of directors should also use its discretion to establish the scope of the audit committee, including
determining what procedures should be followed, and providing guidance on the committee’s functions. The result of each
independent audit, the auditor’s report, any related management letter and management’s response to recommendations
made by the independent auditor in connection with the audit. It has to making a recommendations in relation to the
appointment and removal of the external auditors and their remuneration. In order to provide incentive to independent
directors, the committee has suggested that adequate remuneration should be paid to them. A legal obligation may be the
duty to pay wages or to honour contracts. A moral right may include the right of a consumer not to be intentionally harmed
by business activities.
KEY TERMS

1. Corporate Governance - Corporate governance refers to the set of systems, principles and processes by which a
company is governed.
2. Audit Committees - An Audit committee is a sub-committee of the Board of Directors that is responsible for the
financial reporting and disclosure process.
3. Independent Directors - The term ‘Independent Director’ has not been defined in the Companies Act. However,
clause 49 of the listing agreement defines the term to mean a director who, apart from receiving director’s remuneration,
does not have any other material pecuniary relationship or transactions with the company, its promoters, its management
or its subsidiaries which in the judgement of the board may affect the independence of judgment of the director.

BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY

Table of Contents
Introduction 7
Concept of corporate social responsibility 8
Elements and dimensions of corporate social responsibility 14
Corporate social responsibility as a company value driver 22
Corporate social responsibility within the framework of corporate governance31 Corporate social responsibility in various
business areas 45
Corporate social responsibility reporting 51
Conceptual framework of business ethics 63
Business ethics components 70
Ethical decision making process 78
Business ethics versus corporate social responsibility 86
Business ethics and strategic management 99
Corporate social responsibility: research design 113
References 129

INTRODUCTION

Corporate social responsibility appears to be a rapidly developing topic over the past
40 years, which started with the debate raised by Austrian economic school representatives on whether an enterprise
needs to have any social responsibility beyond paying salary (to provide employees living), taxes (to ensure government
with the money to implement social projects) and dividends (to improve investors’ well- being). Yet the mainstream
research in corporate social responsibility indicated that participation in such activities leads to increased profits and better
interaction with major enterprises’ stakeholders.
Currently the majority of researchers agree that classical capitalism is unable to resolve social problems, so enterprises
need to step in to improve well-being and correspondingly develop their image. Scholars have realized that Corporate
Social Responsibility had changed corporate governance practices and led to realization of double goals achieved by
corporations. This increased interest from the practitioners’ side enhanced research in the field and led to incorporating
the ideas of corporate social responsibility into management curricula in business schools worldwide.
At the current moment, corporate social responsibility was followed by an even more challenging concept, sustainable
development. This concept required fulfilment of social, economic and environmental goals as a holistic result of
organization’s functioning and development.
Another important concept, related to corporate social responsibility, is business ethics. This one is becoming more and
more popular among both scholars and practitioners with development of technology. Both Corporate Social Responsibility
and Business Ethics concepts are well developed in existing literature, yet the difference between the two is not always
defined to a final extent – moreover, both concepts seem to overlap. Though the two are not controversial, it seems
necessary to draw the line in order to ensure more efficient managerial decisions by understanding whether Corporate
Social Responsibility or business ethics related concepts are more relevant in the certain situation.
The above-mentioned concepts became the core issue of this book. We are aiming to explore the ideas of Corporate Social
Responsibility and Business Ethics, to define their interactions and differences, and thus develop holistic understanding of
the concept.

CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY

Broadly defining the concept of Corporate Social Responsibility (CSR) we can state that it denotates the three-valent
relation between employees, businesses and the state, or, in other words – the social partnership. In general, there are
three models of CSR.
The first model (Belgium, the Netherlands, Finland, Sweden) — is characterized by active participation of the state on all
levels – from the national to the individual. The crucial role is assigned to legal actions in the field of social protection of the
population is employed to fight unemployment: reducing employee turnover, job creation, the implementation of regional
social business projects. State agencies and local governments play an active role in the development of CSR. The second
model (the U.S.A., Canada, Japan, Latin America, English-speaking Africa) – presupposes mostly the regulation on the
enterprise level. The role of government in this case almost exclusively lies in the adoption of the relevant laws and
regulations, guidelines and requirements. In the U.S.A. and Canada, for instance, the associations of entrepreneurs prefer
not to interfere in the process of social and labour relations in the enterprise, but are actively involved in the legislative and
political activities. Whereas the third model (Austria, Germany, France, partly UK) combines the features of the two
previous versions. Namely, along with typically European attention of the state and society to the social activities of the
organizations, there are elements of social programmes initiated by private companies (Madrakhimova, 2013).
The current processes of globalization and internationalization of business require coming to more or less common
understanding of the concept of CSR and its application. One of such attempts is to be found in the European Commission’s
Green Paper (2001). We will turn to this document at the end of this chapter, still prior to this it could be worth to make a
short detour in the historical development of the notion of CSR.
A special stress here is put on the adjective ‘theoretical’, since certain manifestations of social responsibility can be found
much earlier – in the 18th century in Adam Smith’s seminal work An Enquiry into the Nature and Causes of The Wealth of
Nations in which he stated that the needs and desire of the society could best be met by the free interaction of individuals
and organizations in the marketplace. At the same time, he also recognized the role of honesty on the part of all parties
involved (Smith, 1981). In the actual business practices, CSR can be found when Cadbury chocolate maker family
introduced a social responsibility practice for the benefit of its workforce which included the medical department, pension
fund education and employee training (Frank et al., 2004). By the early 19th century industrialization and technological
development led to the creation of new job opportunities and improvement of living standards. Hence, the focus of CSR
activities was switched to protecting the environment, selling nutritious products and advocating healthy lifestyles,
ensuring a safe and healthy workforce (Tripathi & Bains, 2013). The beginning of the 20th century marked the formation of
the trade unions and
governments began to assume more responsibility for welfare and infrastructure, gradually introducing anti-trust
legislation.
Historians of Corporate Social Responsibility generally agree that the concept of CSR itself emerged in the 1930s and 1940s,
but was it defined in 1953 with the publication of a book by Howard Bowen Social Responsibility of Businessman (Bowen,
1953). The main question in this book is the one that has not lost its urgency even today is: What responsibilities to society
may businesspeople reasonably be expected to assume? He set forth an initial definition of the social responsibilities of
businessmen as follows: CSR refers to the obligations of businessmen to pursue those policies, to make those decisions, or
to follow those lines of action which are desirable in terms of the objectives and values of our society (Ibid.).
The late 1950s and 1960s saw a shift in attitudes towards government and business, numerous legislative acts were passed
to protect consumer rights (Lee, 2008). The main topics that can be characterized as socially responsible were philanthropy,
employee living and working condition improvement, customer relations, and stockholder relations.
In the late 1970s both the Organization of Economic Cooperation and Development (OECD), and the United Nations Centre
on Transnational Corporations (UNCTC) began developing codes of conduct in an attempt to control different aspects of
corporate globalization. The OECD Guidelines for Multinational Enterprises (OECD, 2011) included such aspects as
accounting, tax payments, and operating in accordance with local laws.
The time period of the 1970s and 1980s was characterized as an issues era, where companies began noticing specific
societal, environmental and community concerns (Drucker, 1984). This caused the necessity of new empirical research in
the field and development of new complementary concepts like as corporate social responsiveness, corporate social
performance, public policy, business ethics, and stakeholder theory/management.
The 1990s marks the beginnings of the era of globalization, the collapse of the Soviet Union and the end of the Cold War, IT
revolution and so on. Corporations considered relocating their operations in other business-friendly countries, that is,
countries with lower environmental and social standards, and “looser” legislation (permitting child labour, longer working
hours). Let us mention just one telltale example: the Nike company has been accused of using sweatshops producing goods
in South Korea, Mainland China, and Taiwan, as well as employing children labour (up to 18 hours daily). Since then, the
company has developed its social responsibility strategy, has paid attention to the sustainability issues, worked out the
corporate codes of conduct (Nike, 2017). At the same time, this period witnessed some key developments such as the
formation of the World Business Council for Sustainable Development, and the United Nations Global Compact (Simon et
al., 2011). In the field of theory the most significant proposal came in 1991, when a famous researcher Carroll redeveloped
his framework of Corporate Social Responsibility and divided it into four levels in the form of a pyramid, which are:
economic, legal, ethical and

philanthropic responsibility (Carroll, 1991). According to him, the firm should strive to make profit, obey the law, be ethical
and be a good corporate citizen. In addition to that, the concept of the Triple Bottom Line (TBL) was developed that
included three elements: profit, people, and planet (Savitz, 2014). The attention towards CSR has ever grown since 2000s
and onwards, we can mention such initiatives as the Global Reporting Initiative (GRI), the UN Global Compact, the
Principles for Responsible Investment (PRI), the redrafted Organization of Economic Cooperation and Development (OECD)
guidelines for multinational enterprises, related to human rights and conditions for workers in factories in developing
countries. The main themes compatible with CSR were the following: corporate social performance, business ethics,
sustainability, and corporate citizenship.
Since the first decade of the 21st century some new initiatives have flourished among them the Corporate Responsibility
Index (CRI); the Sustainability Index (SI); the Corruption Perception Index (CPI), etc. – tools that enable companies to
effectively measure, monitor, report and improve their impacts on society and the environment. Another important aspect
concerns the stakeholder involvement as it enables a shared understanding of the impact on industry operations with its
stakeholders and the company. Schwartz and Carroll (2003) presented a three-domain approach to corporate social
responsibility. The three-domain approach took Carroll’s above mentioned four categories of CSR and reduced them to
three: economic, legal, and ethical. The major book on the business practices of CSR was published by P. Kotler and N. Lee
(2005). The authors set out to demonstrate how the CSR approach establishes a new way of doing business that combines
the success and the creation of value with a respectful and proactive attitude towards stakeholders. All the practices are
were divides in six types of social initiatives: (1) cause promotion (increasing awareness and concern for social causes); (2)
cause- related marketing; (3) corporate social marketing (behaviour change initiatives); (4) corporate philanthropy
(contributing directly to causes); (5) community volunteering (employees donating time and talents to the community); and
(6) socially responsible business practices (discretionary practices and investment to support causes). The main advantage
of the given division lies in the fact that it takes into account both corporate and societal interests, that is, includes the
corporate governance perspective (corporate image, corporate reputation, etc.). Table 1.1 summarizes the historical
development of the CSR concept.

Table 1.1. Historical development of the theoretical concept of CSR (Source: Author’s according to Carroll et al., 2018;
Tripathi & Bains, 2013)
Years Concepts and problems related to CSR
1950s Accent on large businesses and managerial responsibilities; corporate managers as public trustees; the idea of
balancing competing claims to
corporate resources; the acceptance of philanthropy as a manifestation of business support for good causes
1960s Consumer rights; criticism of corporatism; relationship between corporation and society; legislation, philanthropy,
working conditions; personnel
policies; customer relations; stockholder relations

1970s Minority hiring: ecology (concern for environment); minority training; contributions to education; contributions to
the arts; urban renewal; civil
rights; corporate social performance; managerial approach; codes of conduct
1980s Corporate social responsiveness, corporate social performance; public
policy, business ethics, stakeholders’ theory
1990s Globalization; IT revolution; end of Cold War; environmental issues; role
of NGOs; Global Reporting Initiative; Global Compact; Principles for Responsible Investment; corporate citizenship;
sustainability
21st
century Tri-dimension model of CSR (reduction of four-level CSR pyramid); CSR
as a way of doing business; 6 types of CSR; sustainability

Still, there is still no consensus on the definition for CSR (Dahlsrud, 2008). On various occasions, the notion of CSR has been
used as a synonym for business ethics, associated solely with corporate philanthropy and/or related to environmental
policy. Therefore, we propose, for the sake of learning, to stick to the explanation given in the European Commission’s
Green Paper: Promoting a European Framework for Corporate Social Responsibility of 2001. It describes CSR “as a concept
whereby companies integrate social and environmental concerns in their business operations and their interaction with
their stakeholders on voluntary basis” (COM, 2001). The definition stresses the main points, that CSR involves social and
environmental issues of business strategies, and it is based on the principle of voluntarism. In addition, the definition
stresses the role of the internal and external stakeholders and the respective issues, such as investing in human capital,
health and safety, change management, corporate image and reputation, financial accountability, environmental safety,
etc. In sum, we can say that the Green Paper strives to answer four main questions: (1) What is the role of CSR in corporate
business strategies? (2) What are the best ways to establish and develop a process of structured dialogue between
companies and their various stakeholders? (3) What should be the respective roles of the main actors? (4) What are the
best means to develop, evaluate and ensure the effectiveness and reliability of CSR instruments?
Yet another aspect to be mentioned here is the one of the corporate social performance, that is, the ways how
corporations react to the societal demands. Donna
J. Wood (1991) admits that the basic idea of corporate social responsibility is that business and society are interwoven
rather than distinct entities; therefore, society has certain expectations for appropriate business behaviour and outcomes.
When all three phenomena (institutional, organizational, and individual) are being distinguished, it is possible to stress the
performative aspect of CSR.
The author proposes the following scheme: principles of corporate social responsibility comprise legitimacy (the
institutional principle); public responsibility (the organizational principle); managerial discretion (the individual principle).
This allows to identify specific channels through which the corporation interact with society, as well as socially responsible
management practices.
The impact of CSR on the company competitiveness has been researched by M. Porter and M. Kramer in their article The
Competitive Advantage of Corporate Philanthropy (2006). According to them, companies can use their social responsible
practices to improve their competitive context (the quality of the local business environment) and long-term business
prospects. According to them, the company’s competitive context consists of four interrelated elements: factor conditions
or the available inputs of production; demand conditions; the context for strategy and rivalry; and related and supporting
industries. Identification of these factors show the realms, where the business and societal interests overlap, this allows for
more context-focused approach, and hence – the increased competitiveness.
The similar problem is being brought about also by R. Dobrea and A. Gaman in their article Aspects of the correlation
between corporate social responsibility and competitiveness of organization (2011). Summarizing vast amount of literature
on the subject the authors have pinpointed three main approaches to CSR. (1) Addressing CSR as an obligation to the
shareholders, activities designed to increase its profits so long as it stays within the rules of the game. This entails that
maximizing profits for shareholders is the central concern of any organization, while socially responsible activities and
initiatives are not the companies’ concerns. (2) Addressing CSR as an obligation to all stakeholders in their diversity
(interests of different social groups, directly or indirectly affected by the company activities). (3) Addressing CSR as an
obligation to society as a whole. The authors find a positive correlation between corporate social responsibility and
microeconomic competitiveness that leads to better economic performance. Although the main goal of the company is a
profit production, their overall success in the contemporary business environment also depends on the compliance with its
obligations to the stakeholders, social welfare and environmental protection. De Sousa Filho and others (2010) address the
question of strategic CSR management. In their opinion, there are three types of social investment (altruistic, selfish and
strategic); the strategic investment, in particular, creates better results for companies that try to simultaneously achieve
the maximization of both profit and positive advantages to the society and local community. Besides that, the strategic
management entails additional benefits for the company – enhanced reputation, positive image, attraction of well-
qualified staff, differentiation of products, etc. It is mandatory that all these activities should be aligned with the corporate
values and strategies.
All these approaches, however different, seek create and exploit win – win situations for enterprises and for society at
large. CSR is increasingly recognized as being about having good business practices and its impacts are seen as contributing
to an organization’s reputation and performance. The latter is becoming more and more important as the value of business
becomes more and more reliant on intangible elements. Despite the wide spectrum of approaches to CSR, there is general
consensus on its main features:
• CSR is corporate behaviour that exceeds the solely legal requirements,
• CSR is a voluntarily adopted socially responsible business practice,

• CSR is intrinsically linked to the concept of sustainable development: businesses need to integrate the economic,
social and environmental impact in their operations,
• CSR is not an optional addition to the core business activities, but rather – the fundamental way, how the things are
done taking into account individual and societal interests, as well as concern for environmental issues.
CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES
1. What is your definition of Corporate Social Responsibility?
2. What is the main difference between the last century’s CSR definitions and modern definitions of the concept?
3. What is common in all the definitions of CSR proposed by different researchers and organizations?

ELEMENTS AND DIMENSIONS OF CORPORATE SOCIAL RESPONSIBILITY

After reflecting on the historical developments and contemporary interpretations of the concept of CSR the point has been
reached where the structure of the phenomenon in question, that is, its dimensions and/ or elements have to be discussed.
Traditionally, companies have had one responsibility: to make a profit. But the concept of corporate social responsibility
holds that companies should be responsible to more than just their owners. Corporate social responsibility holds that there
are multiple dimensions that should affect a company's actions, although it is important to note that these dimensions can
vary from industry to industry and they are dependent on conceptions of the CSR itself. Thus, in general, the various
theories of CSR could be classified in four groups: instrumental theories, political theories, integrative theories and ethical
theories (Garriga & Melé, 2004). Based on these theories, CSR is perceived as a consequence of how the relationship
between business and society is understood (Table 2.1).

Table 2.1. Theories and issues in CSR (Author’s according to Garriga & Mele, 2004)
Theories of CSR Issues of CSR
Instrumental theories, in which the corporation is seen only as an instrument of wealth creation, and its social activities as
a tool to achieve economic results; increasing profit is the only social responsibility of business Maximization of
shareholder value as the supreme criterion for evaluating specific corporate social activities
Social investments in a competitive context
Natural resource-based view of the firm and dynamic capabilities. This approach maintains that the ability of a firm to
perform better than its competitors depends on the unique interplay of human, organizational, and physical resources over
time
Disruptive innovation - products or services that do not have the same capabilities and qualities as those being used by
customers in the mainstream markets and thus can be introduced only for new or less demanding applications among non-
traditional customers, with low-cost production and adapted to local needs Cause related marketing, aimed principally at
boosting company revenues and sales or enhancing customer relationships by associating the brand with the ethical or
social responsibility
dimension
Political theories in which the social power of corporation is emphasized, specifically in
its relationship with
society and its responsibility in the political arena associated with this power. This leads the Corporate
constitutionalism – business is a social institution and it must use power responsibly; the equation of social power
responsibility has to be understood through the functional role of business and managers
Integrative social contract theory - takes into account the socio- cultural context and also to integrate empirical and
normative aspects of management. Social responsibilities come from consent on two levels: a theoretical macrosocial
contract appealing to all rational contractors, and a real microsocial contract by members of numerous localized
communities

corporation to accept social duties and rights

or participate in certain social cooperation Corporate citizenship theories and approaches on ‘corporate citizenship’
are focused on rights, responsibilities and possible partnerships of business in society
Integrative theories which consider that business ought to integrate social demands. They usually argue that business
depends on society for its continuity and growth and even for the existence of business itself Issues management. In
this approach it is crucial to consider the gap between what the organization’s relevant publics expect its performance to
be and the organization’s actual performance Principle of public responsibility. According to this view, if business adhered
to the standards of performance in law and the existing public policy process, then it would be judged acceptably
responsive in terms of social expectations Stakeholder management is oriented towards ‘stakeholders’ or people who
affect or are affected by corporate policies and practices. Stakeholder management tries to integrate groups with a stake in
the firm into managerial decision making Corporate social performance includes a search for social legitimacy, with
processes for giving appropriate responses: environmental assessment, stakeholder management and issues management,
and outcomes of corporate behaviour including
social impacts, social programmes and social policies
Ethical theories understand that the relationship between business and society is embedded with ethical values. This leads
to a vision of CSR from an ethical perspective and as a consequence, firms ought to accept social responsibilities as an
ethical obligation above any other consideration Normative stakeholder theory. Following this theory, a socially
responsible firm requires simultaneous attention to the legitimate interests of all appropriate stakeholders and has to
balance such a multiplicity of interests and not only the interests of the firm’s stockholders
Human-rights-based approaches for corporate responsibility have been proposed. One of them is the UN Global Compact,
which includes nine principles in the areas of human rights, labour and the environment
Corporate sustainability is a custom-made process and each organization should choose its own specific ambition and
approach regarding corporate sustainability. This should meet the organization’s aims and intentions, and be aligned with
the organization strategy, as an appropriate response to the circumstances in which the organization operate
The common good approach holds the common good of society as the referential value for CSR. This approach maintains
that business, as with any other social group or individual in society,
has to contribute to the common good, because it is a part of society

In general, in all theories of CSR, discussed above, there are three main focal aspects:
(1) meeting objectives that produce long-term profits, (2) using business power in a responsible way, (3) integrating
social demand.
Carroll (1991) suggests that the social responsibility of an organization can be divided into four components: economic,
legal, ethical, and philanthropic responsibilities. The four components could be depicted as a pyramid. The lower level of
the pyramid

consists of the economic responsibilities, that is business affairs (profit making) in each given society. Companies should be
motivated by profit and put the company's business in hand of consumers, investors and other stakeholders. Enterprises
are aware that their survival in today’s market depends on sacrifice short-term profits due to the positive effects in the
future, which satisfy the owners and managers, not just as they used to maximize profits. Still, the customer’s satisfaction
and loyalty, as well as fair employee treatment are important factors (Gonzalez-Rodrıguez, 2015). This dimension provides
the economic indicators on the direct and indirect economic impact on communities through spending power and
economic impact through business process; outsourcing, knowledge, innovation, social investments in employees and
consumers; and taxes, tax incentives, wages, pensions and other benefits paid to employees. At the same time, rules and
regulations are set for the business to operate within certain limits. Meeting these rules constitutes the legal
responsibilities of the business. Legal dimension of CSR entails the compliance to the legal requirements and regulations.
Many ethical and economic issues go to court or legislative debates, since the legislative acts set rules for responsible
businesses activities. The legislative acts can be divided into laws that regulate competition, consumer protection laws,
environmental laws and laws that promote safety and fairness. Nevertheless, these acts do not cover the full range of
business responsibility towards the society. It happens for particular reasons: (1) laws can’t cover all possible issues and
topics that have arisen and will arise in business transactions (for example, privacy issues in digital marketing, genetically
modified foods, etc.; (2) the laws often act belatedly in relation to new developments; (3) there is always possibility of the
personal interests and political motivation behind the certain legislative acts (Carroll et al., 2018). The third layer of the
pyramid comprises the ethical responsibilities. Ethical dimension of CSR refers to behaviours and activities that are
permitted or prohibited by organization members, community, society, even if they are not codified by law. Due to the fact
that the laws are the essential, but often not sufficient aspect, the ethical dimension adds the missing value and
normativity aspects. Ethical responsibilities embody the full scope of norms, standards, values, and expectations that
reflect what consumers, employees, shareholders, and the community regard as fair, just, and consistent with respect for
or protection of stakeholders’ moral rights. Philanthropic responsibilities reflect current expectations of business by the
public. The nature of these activities are voluntary or discretionary, guided only by business’s desire to engage in social
activities that are not mandated, not required by law, and not generally expected of business in an ethical sense. Such
activities might include corporate giving, product and service donations, employee volunteerism, community development,
and any other kind of voluntary use of the organization’s resources and its employees with the community or other
stakeholders. In sum, we can conclude that, first, the philanthropic dimension improves quality of live. Second, these
responsibilities reduce the size of government involvement in charity offering help to people with legitimate needs. Third,
the philanthropic responsibilities increase the staff leadership ability. Fourthly, the philanthropic dimension builds the staff
moral principles. All four dimensions of this model can be summarized in the following table (Table 2.2).

Table 2.2. Understanding the Four Components of CSR (Source: Carroll et al., 2018)
Type of
Responsibility Societal Expectation Explanations
Economic responsibility REQUIRED of
business by society Be profitable. Maximize sales, minimize costs. Make sound strategic decisions. Be attentive to
dividend policy. Provide investors
with adequate and attractive returns on their investments
Legal responsibility REQUIRED of
business by society Obey all laws, adhere to all regulations. Environmental and consumer laws. Laws protecting
employees. Fulfil all contractual
obligations. Honour warranties and guarantees.
Ethical responsibility EXPECTED of
business by society Obey all laws, adhere to all regulations. Environmental and consumer laws. Laws protecting
employees. Fulfil all contractual obligations. Honour warranties and
guarantees
Philanthropic responsibility DESIRED/EXPECTED
of business by society Be a good corporate citizen. Give back. Make corporate contributions. Provide programmes
supporting community—education, health or human services, culture and arts, and civic.
Provide for community betterment. Engage in volunteerism

The four-part definition of CSR provides the structure or framework within which to identify and situate the different
expectations that society has of business.
Criticism of Carroll’s pyramid. A number of scholars have criticized the classical Carroll’s model due to its obsoleteness and
lack of important aspects. Thus, Crane and others (2004) argue the model does not address conflicting obligations and how
culture manifests itself. Different responsibilities play a different role in various countries due to religious and historic
traditions Visser (2006), on his turn, applied Carroll’s model to the African context and noted that, just like in the European
case, different layers of the model had varying significance. The main criticism regards the fact that the model lacks
descriptive clarity. Carroll justified his hierarchy of responsibilities as an order of dependence and his empirical evidence
implies yet another rationale, namely that it reflects the relative perceived importance assigned by managers. Quite similar
criticism, i.e., regarding the hierarchical structure, is exercised by Baden (2016), who suggested a different ranking of the
dimensions due to the increasing role business plays in the society (ethical, legal, economic and philanthropic
responsibilities). At the same time Nalband and Kelabi (2014) suggests that Carroll was trying to establish an umbrella
concept for the relationship between business and society, as the result he missed the recent developments in the field of
sustainability that integrates the social, economic and environmental aspects. Despite this criticism, we can conclude that
all misgivings of the model is due to the changing
economical environment, rather than the deficiency of the model itself. In what follows we will discuss several more
models of CSR.
Five-dimensional conceptual model. In the recent research literature, there are described two new dimensions:
volunteering dimension and stakeholder dimension, in addition to the economic, social and environmental ones (Arsic et
al., 2017; Dahlsrud, 2008; Slack, 2013). These five dimensions can be characterized in the following way. The economic
dimension refers to the fact that companies should be motivated by profit and put the company's business in hand of
consumers, investors and other stakeholders. The social dimension means being accountable for the social effects the
company has on people - even indirectly. The basic objective of social dimension is that corporations should work for
building up a better society as a whole and integrate social concerns in their business operations and consider the full
scope of their impacts on communities. The company reports about CSR indicators is a current topic in recent years in the
world and a growing number of researchers are dealing with this matter. Responsibility for employees, their needs and
state of health is another important factor of this dimension, as well as the value which is generated through the activities
of the CSR. The stakeholder dimension designates the need of companies to take responsibility for wider group of direct
and indirect collaborators. They must take in account the whole supply chain and establish such level of collaboration that
all unsustainable or socially irresponsible practices are detected and prevented. The environmental dimension means that
business strategies should consider environmental protection and also investments in CSR and environmental reporting
should be above mandatory (Wagner et al., 2002; Kolk, 2016) despite the fact that the interests of different groups
regarding environmental CSR are with significant level of variation. The voluntariness dimension means overcoming the
minimum of prescribed standards related to product quality or safety, community support, support to charitable
institutions, support to employees in social projects engagement through volunteering and establish corporate
foundations.
Ten-dimensional conceptual model. Summing up different models and interpretations, Rahman (2011) creates a scale of
ten most important dimensions of the CSR in the 21st century. The 21st century is the era of the CSR industry: corporations
either have special CSR departments or they are outsourcing. Universities are holding CSR conferences and researcher are
contributing to the new literature in the CSR field; there are publishers, who are printing CSR related books and journals;
there are journalists, who are reporting on CSR issues in the newspapers. Currently the main dimensions are the following:
(1) obligations to the society; (2) stakeholder involvement; (3) improving the quality of life; (4) economic development; (5)
ethical business practice; (6) compliance to the law; (7) voluntariness; (8) human rights; (9) protection of environment; (10)
transparency & accountability. Most of the dimensions have been discussed above, it is important to stress the importance
of the latter aspect, that is, the one of transparency: the publication of significant results of the audit office, informing
interested groups on the social impact, or social and environmental risk generated by the organization, offering information
in the manner and through the appropriate and accessible channels, so that organizations ensure that their partners know
and understand the

social impact caused by them and are therefore able to defend their rights and make informed decisions.
Commission of European Communities Green Paper Promoting a European framework for Corporate Social Responsibility
(COM, 2001) is the policy document that delineates specific (internal and external) aspects of CSR. CSR extends beyond the
corporation and involves a wide range of stakeholders in addition to employees and shareholders: business partners and
suppliers, customers, public authorities and NGOs representing local communities, as well as the environment. The internal
and external dimensions according to this document have been summarised in the table (Table 2.3).

Table 2.3. Internal and external dimensions of CSR (Source: COM, 2001)
Internal dimensions of CSR
Human resource management Lifelong learning, empowerment of employees, better information throughout the
company, better balance between work, family, and leisure, greater work force diversity, equal pay and career prospects
for women, profit sharing and share ownership schemes, and concern for employability as well as job security
Responsible recruitment practices, involving in particular non- discriminatory practices, could facilitate the recruitment of
people from ethnic minorities, older workers, women and the long-term unemployed and people at disadvantage
Contributing to a better definition of training needs through close partnership with local actors who design education and
training programmes; supporting the transition from school to work for young people, for example by providing
apprenticeship places; valuing learning, in particular in the Accreditation of Prior and Experiential Learning
(APEL); and providing an environment which encourages lifelong learning by all employees
Health and safety at work The trend of outsourcing work to contractors and suppliers makes companies more
dependent on the safety and health performance of their contractors, especially those who are working within their own
premises Additional ways of promoting health and safety, by using them as a criteria in procuring products and services
from other companies and as a marketing element for promoting their products or services Occupational safety and health
criteria have been included to varying
degrees into existing certification schemes and labelling schemes for products and equipment.
Adaptation to change Restructuring in a socially responsible manner means to balance and take into consideration the
interests and concerns of all those who are affected by the changes and decisions
This process should seek to safeguard employees’ rights and enable them to undergo vocational retraining where
necessary, to modernise production tools and processes in order to develop onsite activities, to mobilise public and private
financing and to establish procedures for
information, dialogue, cooperation and partnership

By engaging in local development and active labour market strategies through involvement in local employment
and/or social inclusion
partnerships, companies can lessen the social and local impact of large scale restructuring
Management of environmental impacts and natural resources Reducing the consumption of resources or reducing
polluting emissions and waste
Integrated Product Policy (IPP) is founded on the consideration of products’ impacts throughout their life cycle, and
involves business and other stakeholders in dialogue to find the most cost-effective approach Opportunities associated
with improved environmental performance. The European Eco-Efficiency Initiative (EEEI), an initiative of the World
Business Council for Sustainable Development and the European Partners for the Environment in partnership with the
European
Commission
External dimensions of CSR
Local communities Integration of companies in their local setting. Companies contribute to their communities,
especially to local communities, by providing jobs, wages and benefits, and tax revenues. On the other hand companies
depend on the health, stability, and prosperity of the communities in which they operate
Interaction with local physical environment, avoidance of pollution, attracting of labour force, environmental education
Involvement in community causes by means of provision of additional vocational training places, assisting environmental
charities, recruitment of socially excluded people, provision of child-care facilities for employees, partnerships with
communities, sponsoring of local sports and cultural events or donations to charitable activities
The development of positive relations with the local community and thereby the accumulation of social capital is
particularly relevant for non- local companies
Business partners, suppliers and consumers By working closely with business partners, companies can reduce
complexity and costs and increase quality. In the long run building relationships may result in fair prices, terms and
expectations along with quality and reliable delivery
Companies should be aware that their social performance can be affected as a result of the practices of their partners and
suppliers throughout the whole supply chain. The effect of corporate social responsibility activities will not remain limited
to the company itself, but will also touch upon their economic partners
Promoting entrepreneurial initiatives in the region of their location Corporate venturing constitutes a further way for large
companies to facilitate the development of new innovative enterprises
Applying the principle of design for all (making products and services usable by as many people as possible including
disabled consumers)
Human rights CSR has a strong human rights dimension, particularly in relation to international operations and global
supply chains
Inclusion of corruption clause

Codes of conducts. Codes of conduct should be applied at every level of the organisation and
Production line. Full disclosure of information by companies is important, including to local communities, as part of an
ongoing dialogue with them
Impact of a company’s activities on the human rights of its workers and local communities extends beyond issues of labour
rights
Global Environmental Concerns Pursuit the social responsibility internationally as well as in Europe, encourage of better
environmental performance throughout their supply chain
Participation in Global Compact

CSR is a concept that denotates company’s decision to contribute to a better society on the voluntary grounds. At present,
the increasing number of countries recognize the significance and value of CSR both for the company (creating the
competitive advantage) and stakeholders (all parties involved and impacted by the actions of the company).

CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES

1. What are the key dimensions of CSR concept?
2. Which model of CSR dimensions seems to be the most rational one?
3. What should be reflected in a non-financial report of a company regarding the CSR activities?

CORPORATE SOCIAL RESPONSIBILITY AS A COMPANY VALUE DRIVER

There has been significant interest and debate on the impact that a company’s investments in Corporate Social
Responsibility (CSR) practices and initiatives have on its market value. In this chapter the relevance of CSR practices and
initiatives for companies will be discussed. While a number of research suggest that there is a positive link between the
implementation of CSR practices and firm value, still doubts continue to persist due to the impact of effect of
environmental factors such as the maturity of institutional systems and the efficiency of market mechanisms present in
different countries and the variability in the institutional usage of CSR by firms. This chapter will discuss four sets of
questions: (1) Value Driver Model; (2) CSR and business performance; (3) Correlation of CSR and competitiveness of
companies; (4) CSR as value creator for consumers.
Value Driver Model
The Value Driver Model is a simple and direct approach companies can employ as key metrics in accessing the financial
impact of their CSR strategies. For many companies sustainable business strategies are already yielding tangible financial
benefits. Employing the Value Driver Model could be a first step on the path toward deepening
investor interest in sustainability as a source of business value, whereas for the companies seeking to increase their
financial increase the Value Driver Model can be used as motivational factor (Global Compact Lead, 2013). Many
companies are also changing the way they operate by executing strategies that promote more efficient use of human and
natural resources and thereby improve operating results.
The Value Driver Model, described in the document “The value driver model. A tool for communicating the business value
of sustainability” (Global Compact Lead, 2013) takes into account three key factors of the company performance:
1) Sustainability-advantaged growth (S/G) - measuring a company’s revenue volume and growth rate in comparison to
their predecessors and/or competitors;
2) Sustainability-driven productivity (S/P) – measuring the financial impact on a company’s cost structure;
3) Sustainability-related risk management (S/R) – measuring performance over time, paying a special attention to the
risk assessment.
The purpose of this model is to offer a means of simplifying and highlighting such key impacts and to make it easier for a
wide spectrum of observers to evaluate sustainability as a noteworthy source of value creation. The structure of the Value
Driver Model is represented in the Figure 3.1.

Figure 3.1. The Value Driver Model (Source: Global Compact Lead, 2013)

Sustainability-advantaged revenue growth depends upon variations of the following four key sub-components:
• Expanding market share based on enhanced demand for sustainability advantaged products,
• Sales growth on the basis of brand reputation,
• Creating and developing innovative sustainable products and services to meet customer needs while diminishing
the negative social and environmental impact,
• Implementing a long-term strategy and plan, along with the required investments, to deliver sustainability-
advantaged growth.
As a rule, investors want to know at least two essential facts about the company’s sustainability advantaged revenue. (1)
What is the current sustainability quality of revenue
or the absolute percentage of total sales accounted for by products or services designated as sustainability-advantaged
either by the company itself or by a reliable third party? (2) What is the company’s growth rate of sustainable products
compared to the firm’s overall growth rate? The productivity factor consists of operational efficiency, human and
reputation capital management, and risks involved. This model allows seeing clearly the aspects of company’s financial
value and competitive advantages.
The sustainability-driven productivity advantage is rooted in three primary sources:

• Efficiency of operations resulting in cost savings and better use of natural resources.
• Human resource management to reduce costs in attracting and retaining best specialists, as well as
increased worker productivity due to skills and safety training, and inclusive and equitable work
environments.
• Enhancement of product and service value on the basis of sustainable approach.
Like sustainability-advantaged growth and sustainability-driven productivity, sustainability-related risk management
provides investors with a few critical, measurable data points that reflect management’s best assessment of exposure to
risks that could imperil key business objectives. The main risk factors to be taken into account are the following:
• Operational and regulatory risks – related to day-to-day business operations, licencing, environmental impact
(pollution and toxic emissions), operating standards.
• Supply chain risks are related to supply of reliable, environmentally sound produce and services according to
company codes and international standards.
• Reputational risks – negative media coverage, negative legal judgements, etc., that can be avoided by proactive
policies and corporate communication (Global Compact Lead, 2013).
CSR and business performance
During the last three decades, numerous theoretical and empirical research analysing and discussing the existing
relationship between CSR and company performance have been published. In sum, in the theoretical literature there exist
three main approaches regarding relationship between CSR and business performance, they can be characterized as the
negative, the neutral and the positive ones (Maldonado- Guzman et al., 2016).
Researchers advocating the negative relationship state that implementation costs of CSR are too high compared with the
results obtained (Oh & Park, 2015; Lopez et al., 2007). Other group of authors argues that the relationship between CSR
and company performance is rather insignificant on the basis that it is not clear whether this relationship exists at all
(Curran & Moran, 2007; Garcia-Castro et al., 2010). Still, the majority of the researchers define that the adoption of CSR
activities carried out by companies allows them to increase their level of performance (Mishra & Suar,
2010; Doh et al., 2010; Callan & Thomas, 2009). They admit that there is a delicate interplay among different factors.
Business Performance can be characterized by attributes, for example, such as ‘well’ or ’poor’, depending on the
expectations of the individual analysing the data he or she has chosen to examine in order to gain insight into the state the
company is in at

a given moment. In order to understand the concept of business performance it is proposed to use the model developed by
Kaufman and Olaru (2012) (Figure 3.2).

Figure 3.2. Business Performance in Business Architecture (Source: Kaufman & Olaru, 2012)

Figure 3.2 displays the Business Performance of a company in relation to its management, business strategy and company´s
processes. On one hand, there is a top- down relation – Business performance must meet or exceed the expectations of the
leadership. On the other hand, the bottom-up relation shows the management if expectations are
met and gives vital information about necessary adjustments to the business processes that need to be made. The figure
shows that both, top-down and bottom-up are of the equal importance. They include approaches such as Total Quality
Management (TQM) and Management by- strategies.

CSR and company’s competitive advantage

There are many attempts to define the relation between CSR and company competitiveness. The impact of CSR on the
competitive advantage may be divided into five different elements which intersect one another: reputation and brand
strengthening; more efficient operations; improved financial performance; increase in sales and consumer loyalty and
increased ability to attract and retain high-quality employees (Ljuboevic et al., 2012).
According to Porter and Kramer (2006), the competitive context can be divided into four broad areas:
• The quantity and quality of available business inputs;
• Policies that protect intellectual property, ensure transparency, safeguard against corruption, and encourage
investment;

• The size and particularity of the local demand;

• The support industries and infrastructure.
Figure 3.4 depicts the elements of the competitive context and social dimensions of the external environment.

Figure 3.4. The Four Elements of Competitive Context (Source: Porter & Kramer, 2006)

The impact of social responsibility on company competitiveness varies according to industry, company size and dislocation.
However, it is recognized that each and every company needs its social agenda in order to achieve social and economic
benefits at the same time.
CSR as value creator for consumers
Consumers typically evaluate the CSR actions of a company according to their own interests, and priorities. Within this
context, company social performance can be viewed as attitude to its actions, rather than actions themselves. Moreover,
manifestation of CSR is a key to understanding how it affects consumers as simple investing in social activities does not
have a direct impact on consumer attitudes. One of the possible approaches in describing CSR as value creator for
consumers is through the concepts of consumption values, consumer satisfaction and consumer loyalty.
The consumption values fall into three main categories (Sheth et al., 1992):

• Emotional values - consumer satisfaction from a purchase with a social or environmental added value;
• Social values are deduced from purchases from companies active in CSR;
• Functional values – aspects of CSR that relate to the actual benefit the consumer receives from the product or
service.
Consumer satisfaction is a significant indicator of any company performance. Rana and others (2014) define it as feeling or
attitude of a consumer towards a product/service after it has been used. It can be measured by the fact if consumer’s
expectations have been met fully, partly or not met at all. At the same time, social dimension that includes such aspects as
responsible attitude to environment and recycling, employment policies and participation in social projects can strengthen
company’s competitive power. A satisfied consumer will provide good references that can encourage other customers to
choose this particular company over any other company (Irshad et al., 2017). It is possible to classify the description of
customer satisfaction in relation different marketing tasks (Figure 3.5).

Figure 3.5. Characteristics of consumer satisfaction approaches (Source: Linina et al.,

2016)

Figure 3.6. Conceptual model of CSR impact on customer satisfaction and loyalty
(Source: Linina et al., 2016)

The current model accentuates three aspects of CSR that are decisive in customer satisfaction and loyalty formation,
namely, the ones of employment policies and attitude to employees; responsible attitude to environment; participation in
socially oriented projects. In other words, social activities of the company create an additional value, hence increase the
consumer satisfaction and creates the basis for loyalty.

CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES

1. Do you agree that CSR-practices and the company’s orientation towards CSR goals can be a driver for value
creation? Provides some arguments pro-/contra-
2. Based on the theory, provide examples of how different types of CSR-related (environmental, social...) activities can
contribute to the value creation of a company.

CORPORATE SOCIAL RESPONSIBILITY WITHIN THE FRAMEWORK OF CORPORATE GOVERNANCE

The existing research on how Corporate Social Responsibility practices influence corporate performance indicates the that
the concept itself appears to be controversial (Margolis & Walsh, 2003); some scholars argue that social responsibility
creates extra profits and company value, others indicate solely negative outcomes (the corporations just lose money on
socially responsible behaviour), while the third say results may be both. The majority of researchers agree that outcomes of
socially responsible corporate behaviour are both context based and firm specific (Barnett, 2007). In case of developing
countries and transit economies both the concept of social responsibility and its perception appear different: “The
rationale for focusing on Corporate Social Responsibility in developing countries as distinct from Corporate Social
Responsibility in the developed world is fourfold:
1. developing countries represent the most rapidly expanding economies, and hence the most lucrative growth
markets for business,
2. developing countries are where the social and environmental crises are usually most acutely felt in the world,
3. developing countries are where globalization, economic growth, investment, and business activity are likely to have
the most dramatic social and environmental impacts (both positive and negative),
4. developing countries present a distinctive set of CSR agenda challenges which are collectively quite different to
those faced in the developed world.” (Viser, 2012).
Hence, in case of developing countries, institutionally underdeveloped countries and transit economies one should take
into consideration the context and existing perception of Corporate Social Responsibility in order to understand the forms
it takes within the framework of social governance.

Importance of economic efficiency

Figure 4.1. Socially responsible business typology model (Source: Author’s developed)

The positioning of the company on a grid matrix that appear in Fig. 4.1 is determined on a scale from 0 to 9, where 0 stands
for the type of efficiency which is totally unimportant within the framework of company’s corporate governance’ and 9
stands for an extremely important type of efficiency within the framework of company’s corporate governance’. The two
extremes here are organizations as described by Friedman (absolute ignorance of company’s social efficiency), that is
mapped at the maximum of 9;0 on the matrix. The other extreme point is represented by the non- profit organization, for
which economic efficiency is not the main issue of governance (though usually they do have restrictions on economic
efficiency) – which can be found at the point 0;9 on the presented map.
For the type of corporate governance known as social enterprises, both social and economic efficiency are equally
important, which makes this approach somewhat different from traditional Corporate Social Responsibility which tries to
combine both social and economic efficiency, yet one can be more important than the other. The smallest difference in the
suggested model can be seen when social businesses (9;9 at the maximum point) and socially responsible organizations
(approximately 6;9) are compared. Yet, the model distinguishes traditional Corporate Social Responsibility and social
enterprises, and for the latter social efficiency appears to be

extremely important while the social effects should not be neglected during organizational crisis. For socially responsible
companies, cutting costs in a manner that neglects social efficiency is acceptable, especially in the case when such actions
are core of the project to ensure the company’s survival, whereas a social entrepreneur would not even consider such an
opportunity as the social effect is a core of company’s business model.
Literature widely discusses the role of institutions in the development of social entrepreneurship (Dacin et al., 2010; Estrin
et al., 2013, Mair & Marti, 2009, Sud et al., 2009). This determines the relevance and influence of the institutions for the
trends of social entrepreneurship development where social business models develop and flourish under the institutional
settings they were set for (Dacin et al., 2010) and thus question the ability of social entrepreneurs to provide solutions to
society’s pressing social challenges (Sud et al., 2009). The authors of the present research share the findings of Sud et al.
(2009) who sees social business as a special approach towards ensuring social and economic development, when existing
entrepreneurial opportunities were ignored by conventional entrepreneurs (Yunus, 2008). The understanding within the
framework of the present research is based on the work of Dacin et al. (2010), who acknowledged that social
entrepreneurship emerges as a response to significant socio economic, cultural or environmental issues (Dacin et al., 2010).
Empirical research offers a similar perspective by noting a higher probability of social entrepreneurship activity in
developing countries as a response to the oversights attributable to political agendas and weaknesses found in the
country’s government (Terjesen et al., 2011). In such contexts, failure of social market develops a new opportunity for the
social entrepreneur (Austin et al., 2006) who hence creates social value from this opportunity (Urbano et al., 2010). Yet,
though these arguments are quite intuitive, they were not supported by certain empirical studies in existing literature. For
example, Stephan et al. (2014) reports that the revenue-generating social business is only strongly associated with
government activities in the filed and the rule of law, and these features can rarely be found in the developing countries
with weak institutions – and yet quite a number of social businesses are being established there. The Global
Entrepreneurship monitor (GEM) report finds that equally high levels of social entrepreneurship activity can be found in the
US, Iceland and Finland (countries associated with a high level of institutional development) as in Argentina, Colombia or
Uganda (which are associated with underdeveloped institutions).
To resolve the revealed contradiction, existing research suggests an approach to define how institutions influence
organizations with a social mission. This inlcudes
(1) formal and informal institutions that influence (by means of measuring the share of formal institutions in economic
environment of a social entrepreneur) and (2) the average level of regulatory control and rule of law (as a measure for
strength of formal institutions). The matrix mapping social business onto these two axes can be found in Figure 4.2.

Share of formal institutions

Figure 4.2. Matrix of businesses with social mission on immature state of the key market (Source: Author’s developed)

This matrix allows seeing that low formal institution development drives Corporate Social Responsibility out of corporate
governance practices, as the company is usually unable to use the outcomes for its prosperity. Instead in institutionally
underdeveloped economies social entrepreneurship arises, filling out institutional gap and replacing traditional Corporate
Social Responsibility.
The mapping presented in Figure 4.2 above is applied from the social business creation and development perspective
because social businesses, as case studies indicate, appear in underdeveloped markets. Once they reach maturity, social
businesses may remain in the field in which they were created, but in many cases CSR practices may appear in a given field.
As Figure 4.2 indicates, social businesses emerge within contexts in which informal institutions experience relatively low
levels of regulation and control, which may result from both laissez-faire and weak state practices. This type is marked as
0;0 on the matrix. The level of regulation reflects the government’s attitude toward market failure, where, if regulatory
control is high, this indicates that the government only considers solutions that involve the state. Examples of this approach
include Belarus,

the Democratic Republic of Korea, and the Russian Federation, which impose strict regulations on any emerging social
activities. A low level of regulation indicates that the government supports state-free solutions to social problems.
Examples of this approach include Bangladesh, Uganda and Argentina. A quantitative analysis conducted using data from
the Economic Freedom Index used to measure the level of state regulation Heritage Foundation (2009) and the SEA rate
(Terjesen et al., 2011) indicated that there is a positive Spearman correlation between these parameters 0(ρ
= 0.318, significant at 0.05 level), which supports the approach of mapping social entrepreneurship with respect to the level
of government regulation.
The second parameter, the prevalence of formal institutions, indicates that there are approaches available for solving social
issues, and these are used by either not-for- profits or socially responsible organizations. Social businesses emerge to close
the gap resulting from underdeveloped formal institutions, and in many cases, as indicated by Yunus (2008), support the
creation and implementation of new institutions. In this case, social entrepreneurship seeks to fill the oversight created by
market failure, in accordance with theory (Bator, 1958), and might indicate the need to develop certain institutions to solve
the issue. Once the issue is solved, the market becomes characterized by greater control and/ or the prevalence of formal
institutions with new social entrepreneurs rarely appearing in this new market.
Social responsibility practices are mapped in Figure 4.2 and show the extreme, at 9;0, and emerge in contexts in which
institutions are well-developed while the level of regulation is relatively low. In this case, socially responsible practices
appear best suited to address a social mission: developed institutions facilitate companies’ efforts to provide social
services, while the relatively low level of regulation allows such organizations to be proposed without needing register as a
special type of organization. The latter is located, at the extreme point, at 9;9, where both institutions are developed and
government regulation is strong. In this case social services, tend to primarily be provided by non-profits, in keeping with
existing legal requirements regarding provision of social services. In some cases, these two types of organizations serve as
platforms for the improvement of existing institutions to better achieve the social mission, but their activities rarely
produce incentives for the creation of new formal institutions which is the opposite of the case of social business
development, where formal institutions arise in response to challenges created by this type of business. Finally, informal
social practices appear when informal institutions prevail and regulation is strong, mapped at 0;9 shown at the extreme
point of Figure 4.2. In this case, social businesses experience issues at the creation stage because regulatory procedures do
not permit the official registration of these types of businesses, as they fall outside the existing legal frameworks and the
government refuses to develop new ones or change existing regulation. In this context, literature indicates that informal
enterprises will emerge (de Soto, 2000) and this is also the case for enterprises with a social mission. This quadrant is the
only one that indicates limited potential for institutional change in the field of social businesses, as in the other three
quadrants, either the improvement of existing formal institutions or the development of new ones matching societal needs
can be expected.

The other significant characteristic distinguishing social entrepreneurship in terms of key entrepreneurial intention was
suggested by Yunus (2008) and represents a concern for the client’s dignity. Most studies overlook this issue and instead
regard social business as enterprises providing solutions to social problems while remaining sustainable; this internal
sustainability is instead regarded as the major difference. However, within the framework of the present research a focus
on dignity is understood as a key feature of social entrepreneurship where its mission is not only to generate a social effect
but also to respect the client and provide them with a platform to feel respected. Social business opportunities may be
identified if this issue is taken into consideration. This assertion is illustrated in Figure 4.3.
The key features of social businesses, as the figure indicates, are dignity orientation and efficiency orientation. The extreme
Friedmanite organizations are concerned with goal achievement and efficiency, are balanced by achieving both the desired
result (as goal-oriented enterprises) and the efficient use of resources (Friedman, 1970). Socially responsible organizations
and not-for-profits are efficacy oriented in terms of achieving their social goals but are not concerned with achieving high
levels of efficiency – primarily because the funds used to achieve their social goals come from external sources (for non-
profits, grants and charitable donations and, for socially responsible businesses, earnings from the businesses’ main
activities). However, these latter two types differ with respect to considering the feelings of the clients receiving social
services. In the case of not-for-profits, it appears logical for these organizations to simply distribute goods and services
among those who require them. Yet this approach may create dependency on such assistance when the recipients do not
search for a sustainable solution but instead rely on charity programmes to support themselves and thus lose their sense of
dignity (Yunus, 2008). Socially responsible businesses rarely adopt such a position in relation to their clients. An analysis of
best practices such as Pampers’ (2006)‘One pack – one vaccine’ reveals that the clients of socially responsible companies
are provided with a sense of belonging and dignity – they feel involved in solving an important social problem while socially
responsible businesses can behave similarly to not-for-profits toward those who receive their assistance. Social
entrepreneurs lie at the other extreme: they combine a dignity orientation in client treatment with an efficiency
orientation in resource treatment, in accordance with Dees (2001) findings.
This combination of theoretical orientations is important for improving the current state of knowledge regarding social
entrepreneurship, as it demonstrates that sustainability is achievable even when solving major social problems. This type of
approach allows social entrepreneurs to attain a solution that is efficient from a resource use perspective and from a value
creation perspective. This finding resolves the contradiction outlined by Friedman (1970) that social responsibility does not
need to be funded by other activities, as it should involve different business models based on social market opportunities.
First, the existence of profitable social businesses resolves Friedman’s (1970) dilemma between engaging in socially
responsible behaviour and maintaining high profits, as social entrepreneurs acquire profits by achieving a social mission.
Thus the present

research provides a different view and solution to Friedmanite dilemma than the one suggested by Porter and Cramer
(2011). The present research implies that the dilemma is solved because an entrepreneur can find social opportunities
leading to profitability which are not due to shared value creation. The basis for such activity, as outlined by Yunus (2008),
is that conventional entrepreneurs overlook market opportunities because they are obscured by the opportunities’ social
nature.

Efficacy orientation Efficiency orientation Resources treatment

Figure 4.3. Dignity/efficiency types of business matrix (Source: Author’s developed)

Although social businesses currently present a relatively lower level of profitability than conventional firms do, there is a
greater number of market opportunities in the social business sector, and thus social entrepreneurship is becoming
increasingly attractive, even for venture capitalists. An example of this trend is Coursera’s success in raising venture capital
despite the lack of sufficient clarity in the business model where the idea’s high potential was sufficient to attract investors.
Thus, conventional entrepreneurs and existing enterprises should consider social market opportunities as a means of
business development, which contrasts with Friedman’s position of ignoring social mission opportunities as a priori
unprofitable, and this serves as a basis for shared

value creation as the key concept in future economic development (Porter & Cramer, 2011).
The other important feature is the role and position of social entrepreneurship in improving the institutional environment.
Dacin et al. (2010) has stated that social entrepreneurs are eager to provide creative solutions to overcome environmental
barriers, thus they rarely reject the idea of business attributable to underdeveloped environment. In line with the results of
the present analysis, they noted that social entrepreneurship activity is likely to occur in absence of formal institutions in
order to fill the oversight between the existing environment and social needs. In this case, conventional entrepreneurs
would seek a solution within the framework of existing institutions which is the approach followed by socially responsible
businesses and not-for-profits. Whereas social entrepreneurs would develop a platform for new institutions that may
subsequently be made formal (see Yunus, 2008, for examples). Although social entrepreneurship business models cannot
currently be implemented in certain contexts (see Dacin et al.’s (2010) criticism of the Aravind Eye Clinic business model in
the US institutional environment), these models appear to offer more sustainable solutions to numerous social problems
than current governmental and non-profit practices do. Therefore, institutions, and not social business models, might
provide a more meaningful area of change. Consequently, conventional entrepreneurs may use social businesses’ as the
approach to identify solutions to their business issues that might appear solvable in a modified institutional environment
where such initiatives could gain support in both social and economic markets as being more efficient. Yet, the majority of
researchers agree that social enterprises and Corporate Social Responsibility practices can be considered the same research
object, the difference lies in the field of heavier focus of corporate governance whether it considers economic outcome a
consequence of fulfilling social needs (social business) or vice versa (corporate social responsibility).
Developing Corporate Social Responsibility measuring tool to ensure quality corporate governance
Based on this positioning, one needs a measuring instrument for Corporate Social Responsibility evaluation within a
company. Such an assessment of Corporate Social Responsibility practices for a variety of companies seems possible if one
can use a specific tool, which would combine both existing theoretical frameworks and existing society perception.
Moreover, such tool yet had to be developed. Based on the data from legal entities, the researchers had developed several
Corporate Social Responsibility measuring instruments, one of which is described below.
To evaluate the data for this research, researchers have developed list of indicators on the basis of correlation analysis
results, which included 22 indicators originally used by researchers and 6 more suggested the experts in interviews. The
analysis had proven the following indicators to be significant: “(a) share of rejected goods and services on the basis of their
poor quality, Pearson correlation equals -0.6112; (b) the share of corruptive costs in total costs (approximate estimation),
Pearson correlation equals -0.5684; (c) the share of labour contract violations of total employee interaction, Pearson
correlation equals -0.5106; (d) the share of properly proceeded

reclamations, Pearson correlation equals + 0.6984; (e) the share of deals done on terms of pre-payment, Pearson
correlation equals -0.8173” (Svirina & Khadiullina, 2014).
Existing research is somewhat controversial when it comes to an issue of Corporate Social Responsibility relation to
company performance (Henriques, 2003); so for the study described below Corporate Social Responsibility seen as a set of
socially responsible activities, which are performed by the enterprise despite they are not legally required. This leads to a
double meaning situation – on the one hand such activity means additional costs for the company, but in the long run can
provide higher customer appreciation resulting in increased sales. The final list of significant criteria with their ranges, built
in accordance with the above stated CSR definition, is in Table 4.1.
Table 4.1. Corporate Social Responsibility assessment tool (Source: Svirina & Khadiullina, 2014)
Indicator Corporate Social Responsibility performance quality
Outstanding Excellent Good Average Poor Very poor
The share of goods and services rejected because of poor quality 0-0,5% 0,5- 4% 4-7% 7-15% 15-25% >25%
The share of corruption- based costs in total costs <1% 1-4% 4.01-9% 9.01-17% 17.01-35%
>35%
The share of labour contracts’ violations 0-0.1% 0.11-1% 1.01-4% 4.01-7% 7.01-10% >10%
The share of reclamations proceeded according to existing procedure >99.7% 98-99,7% 90-97.9% 80-89.9%
60-79.9% <60%
The share of pre-paid deals <0.5% 0.5-5% 5.01-15% 15.01-25% 25.01-40% >40%
For each type of performance within the Corporate Social Responsibility concept, each performance type was assigned a
number of points, when ‘outstanding’ means 8 points, ‘excellent’ – 5 points, ‘good’ – 4 points, ‘average’ – 3 points, ‘poor’ –
2 points and ‘very poor’ – 1 point. Henceforth the maximum amount of points enterprise’s management can get for
organizational culture development (without outstanding performance) is 20 points. For Corporate Social Responsibility a
company can get maximum 25 points without providing outstanding management performance.

Correlation of defined Corporate Social Responsibility level and the EBITDA of the studied enterprises is shown in Table 4.2.

Table 4.2. Correlation analysis of Corporate Social Responsibility level and EBITDA
(Source: Svirina & Khadiullina, 2014)
CSR level EBITDA
CSR level Pearson correlation 1 0.854**
N 132 132
EBITDA Pearson correlation 0.854** 1
N 132 132
**. Correlation significant at 0.01

This correlation is in line with mainstream research findings and outlines a strong positive correlation between the quality
of Corporate Social Responsibility (viewed as special managerial function), and the EBITDA of studied enterprises.
Prediction enterprise management quality model in relation to Corporate Social Responsibility practice
To finalize the findings in the field, “correlation between management performance multiplier has been estimated, which is
done according to Equation 3; the resulting factor was chosen as fulfilment of management plans (the average for tactical
and strategic plans was taken), which was estimated as a ratio of resources consumed to fulfil the plan to the amount of
resources planned for consuming, in % (where 100% meant consuming the same exact amount of resources as it was
planned, and amount less than 100% meant less resources were consumed than the plan suggested). The correlation rate
for 32 companies studied in this survey was estimated at the level of - 0.6751 that means there is a strong negative
correlation. The trend line for the data has turned out to be polynomial” (Svirina & Khadiullina, 2014).
The level of R2 shows that management multiplier variation explains only 51.43% of management plans fulfilment
variation. But, this might be due to the fact that in this study only two management functions have been examined to
create a multiplier, and these functions were not the basic ones (such as planning, organization or motivation), so if the
amount of functions examined was increased, the R2 would probably be higher. Other type of trends, such as logarithmic,
linear or exponential had shown lower levels of R2 (in all cases less than
47wQbNPTDJp9hMYdvogK2hAUiHsGeiybwaWe36bwtRQ3UTpYV7YuZ8FV5j9nauFCWwcjM6dTzpL5s2N79Rp5unwdMvc8ZK
Ubetween management performance multiplier (which varied from 0 to 1) and management plans fulfilment.
The prediction function for the level of management plans fulfilment in relation to management performance multiplier is
presented in Equation 3, and it represents the sixth-order polynomial.

PFman = 205467 M6 – 642294M5 +799613M4 - 502920M3 + 167383M2 – 27821M +1994 (3)

where
PFman – percentage of management plans fulfilment in terms of resources spent to achieve the planned results, where
100% stands for a perfect fit with the original plan
M – management performance multiplier estimated according to Equation 3, from 0 to 1 (or over 1 in case of outstanding
management performance)

Thus in case of a low level performance multiplier which means that in case of mismanagement the variation of
management plans fulfilment is very high, which is due to the fact that management does not have much influence on this
process. As the multiplier gets higher, the results become more consistent and get closer to the original plan.
The prediction function from Equation 3 can be used in order to pre-estimate possible deviations of the resource
consumption during implementation of the plan, which would result in more accurate planning.
The model for predicting EBITDA on the basis of Corporate Social Responsibility level, created using SPSS, estimated R2 for
ANOVA model is 0.529. The coefficients for the model are presented in Table 4.3. This particular model can be used to
enhance the quality of measurement-based management of Corporate Social Responsibility practices as the outcome of
those is not always clear and concise, and in a few cases is not really measurable. Though the integral level of Corporate
Social Responsibility seems to predict only 52.9% of company profitability variation, it is still a reliable managerial tool if the
company wishes to assess perspective Corporate Social Responsibility outcomes in terms of monetary units – though the
research in this field is quite controversial, it seems that in case of corporations Corporate Social Responsibility can be paid
off at least in the strategic perspective.

Table 4.3. ANOVA model coefficients. (Source: Svirina & Khadiullina, 2014)

Model Non-standardized
coefficients Standardized
coefficients Т Value
B Standard error Beta
Constant -0.011 0.004 -2,589 0.027
CSR level 0.002 0.000 0.854 5,187 0.000
These results seem contradictory to some extend to regular perception of CSR. Usually CSR is viewed a type of
governmental responsibility which does not lead to increased interest in company’s products. While the employees of
socially responsible companies are likely to appreciate Corporate Social Responsibility practices, resulting in their increased
efficiency and in lower labour costs and higher quality of company products.

Though the number of stimulus for Corporate Social Responsibility is smaller than the amount of obstacles, these practices
are gaining popularity, especially in local communities – and increased social responsibility is starting to change societal
perception.
Social business and Corporate Social Responsibility both consider the client’s dignity in areas in which it has not been
regarded as an important aspect of performance. Although there is contradictory evidence regarding the relationship
between Corporate Social Responsibility and increased firm performance (Roman et al., 1999), a case analysis of social
entrepreneurship practices reveals that social entrepreneurs provide a higher level of human resource efficiency than
conventional firms (Osberg, 2013). According to Budd (2004), the issues of dignity and human performance are
interrelated; the present research indicates that issues concerning dignity are well- developed and fully identified by social
entrepreneurs – thus social business may be considered more efficient in human resources implementation due to their
greater attention to the issues of dignity. Social entrepreneurs may explain the lack of consensus regarding socially
responsible practices’ effects on company performance in the pursuit of a social mission’s effects on the firm performance,
if such issues of dignity appear to be the basis for such a pursuit. In other cases, having a social mission should not affect
company performance. Thus, conventional enterprises can increase the efficiency of their human resources by adopting a
dignity-based attitude toward clients, and social entrepreneurs may provide exemplary practices in the field.
The existence of profitable social businesses resolves Friedman’s (1970) dilemma between engaging in socially responsible
behaviour and maintaining high profits, as social entrepreneurs acquire profits by achieving a social mission. Thus this
research provides a different view and solution to Friedmanite dilemma than the one suggested by Porter and Cramer
(2011).The present research implies that the dilemma is solved because an entrepreneur can find social opportunities
leading to profitability which are not due to shared value creation. The basis for such an activity, as outlined by Yunus
(2008), is that conventional entrepreneurs overlook market opportunities because they are obscured by the opportunities’
social nature. Although social businesses currently present a relatively lower level of profitability than conventional firms
do, there is a greater number of market opportunities in the social business sector, and thus social entrepreneurship is
becoming increasingly attractive, even for venture capitalists. An example of this trend is Coursera’s success in raising
venture capital despite the lack of sufficient clarity in the business model, where the idea’s high potential was sufficient to
attract investors. Thus, conventional entrepreneurs and existing enterprises should consider social market opportunities as
a means of business development, which contrasts with Friedman’s position of ignoring social mission opportunities as a
priori unprofitable, and this serves as a basis for shared value creation as the key concept in future economic development
(Porter & Cramer, 2011).
The other important feature is the role and position of social entrepreneurship in improving the institutional environment.
Dacin et al. (2010) have stated that social entrepreneurs are eager to provide creative solutions to overcome
environmental barriers, thus they rarely reject the idea of business attributable to underdeveloped

environment. In line with the results of the present analysis, they have noted that social entrepreneurship activity is likely
to occur in absence of formal institutions in order to fill the oversight between the existing environment and social needs.
In this case, conventional entrepreneurs would seek a solution within the framework of existing institutions which is the
approach followed by socially responsible businesses and not- for-profits. Whereas social entrepreneurs would develop a
platform for new institutions that may subsequently be made formal (see Yunus, 2008, for examples). Although social
entrepreneurship business models cannot currently be implemented in certain contexts (see Dacin et al.’s (2010), criticism
of the Aravind Eye Clinic business model in the US institutional environment), these models appear to offer more
sustainable solutions to numerous social problems than current governmental and non-profit practices do. Therefore,
institutions, and not social business models, might provide a more meaningful area of change. Consequently, conventional
entrepreneurs may use social businesses as an approach to identify solutions to their business issues that might appear
solvable in a modified institutional environment where such initiatives could gain support in both social and economic
markets as being more efficient.

CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES

1. What are the key features and key implications of corporate social responsibility?
2. What relationship can one find between Corporate Social Responsibility and social business development and
institutional development?
3. How can one measure Corporate Social Responsibility within the framework of corporate governance?
4. What are the key concerns when a company develops Corporate Social Responsibility as a key action of company’s
competitive advantage?
5. How does the development of Corporate Social Responsibility and social business influence entrepreneurial
development?

CORPORATE SOCIAL RESPONSIBILITY IN VARIOUS BUSINESS AREAS

The concept of Corporate Social Responsibility (CSR) may mean different things in different industries due to their specific
financial accountability requirements, as well as their relations with stakeholders. Thus, we cannot say that human
resource managers would view responsibilities in the same light as, for example retailers or public relation specialists. In
other words, in different industries and based on company’s nature of activities, the relation social-financial performance
may have different levels of sensitivity to different dimensions of CSR (Shalchian et al., 2015).
In this chapter, the specific characteristics of CSR will be briefly discussed in the following areas: (1) manufacturing and
service industries, (2) retailing, (3) human resource management, (4) finance and banking.
CSR in Manufacturing and Service Industries
One of the most important directions of CSR, in general, is building relations with local communities, this pertains especially
to production companies as they require the extensive and highly developed infrastructure, and at the same time
compliance with 6R principle – reduce, reuse, recycle, recover, redesign, and remanufacture – pertaining to operation type,
price, quality, time, quantity, and cost (Stasiku- Piekarska & Wyrwicka, 2019). The latter aspect, in particular, distinguishes
CSR in manufacturing from the one in service industry. Other significant aspects of the manufacturing industry CSR include
the socially fair treatment of employee and environmentally conscious thinking on all management levels from top to
bottom and vice versa.
In comparison to manufacturing industries service industries exhibit a few specific traits: (1) the industry tends to be more
labour intensive by in comparison to the manufacturing, at the same time in many developing countries it supplies the
majority of working spaces; (2) technological development has changed the employment landscape overall, as a result, the
labour force has moved into the sphere of services, hence employee welfare has become a matter of prime concern
(Handayani et al., 2017).
On the other hand, regarding the manufacturing industry, we can speak about six key business drivers, that, according to A.
Troup (2018) make it possible to create employee-cantered CSR strategies. These drivers are the following:
• Engagement of younger generation that is more ambitious, more technologically educated, employee-cantered
approach can create a space for their self-expression in socially oriented activities.
• Nurturing young talents through training programs, grants, skills-based volunteering opportunities expose young
people to promising career possibilities in manufacturing industry.
• Increase of productivity due to employee engagement and loyalty to the company.

• Community development through investing in the neighbourhood development that can attract new employees
and build company image and good reputation.
• Building collaborative and multi-dimensional partnerships with NGOs and governmental agencies will facilitate
company further development.
• Corporate citizenship involves organization’s understanding of internal and external changes in order to be able to
meet interests of its stakeholders and be sustainable in long run.
CSR practices in the manufacturing industry are closely related to the environmental management in the matters of
providing raw materials, closed production cycle, recycling, use of environmental friendly materials, green innovation, etc.
In these cases, CSR is needed as an ethical and moral obligation of the company in reduction of negative impacts of the
company.
Nevertheless, according to some researchers (Casado-Diaz et al., 2014, Kalaignamam et al., 2013) CSR effect on
performance is higher for services firms than for manufacturing companies due to the specific nature of their services that
includes face-to-face involvement with customers. From the investors’ viewpoint it is more difficult to evaluate services
company performance based on the financial results only, therefore CSR activities that result in accumulation of the so-
called reputation capital gain a special significance in reducing their perceived risks. While consumer goods can be easily
checked regarding their quality standards, there is a great variability in quality in the services industries. This make
prospective customers to look for additional information – company characteristics, activities in the society, public
exposure, etc. Individuals can use this information for uncertainty and risk reduction by proxi, that is, customers may think,
if the company is interested in the social well-being, it might, as well, be interested in taking good care of its customers
(Nicolau, 2008). At the same time, service companies, on their part, are interested in spreading information to existing and
potential investors, as well as to customers, creating so-called ‘ŗeputation capital’ (defined as a public trust). Different
social activities and ethical responsible practices thus gains a paramount significance as they signal about company’s core
values, employment policies, attitude towards environment protection, etc. In addition to that, the reputation capital
allows to attract and retain skilled labour-force, to reduce investment risks.
CSR in Retailing
Although, in general, all the categories and characteristics of the CSR are applicable to the sphere of retailing, there are
some idiosyncratic features to be mentioned. Thus,
J. Anselmasson and U. Johansson (2007) distinguish three main attitude-based dimensions – human responsibility (fair-
trade), product responsibility (user-friendly information), and environmental (eco-conscious actions, e.g., disposable
packaging, etc.) responsibility. In addition, we have to talk about the supply chains in retailing, since in the case of mega-
retailers (chain stores and chain operations) there exist a lot of social risks, such as child labour, sweatshops, pollution, etc.
Namely, the longer

supply chain the grater risks are being involved. The main CSR issues in the sphere of retailing can be defined:
• fair-trade, support of local producers, organic produce,
• protection of natural environment, energy use and waste reduction, recycling,
• product safety, distribution of eco-goods and local produce,
• ethical trading,
• employment policies and working conditions, health and safety at work, discrimination, corruption, foreign labour,
• sustainability, corporate reputation,
• charity, philanthropy, support for local communities, social, educational and environmental programmes,
• consumer loyalty and purchasing behaviour (Jones et al., 2007).
The specific role of retailer is determined by the fact that it assumes a middle position in-between producer and consumer
in the supply chain, therefore, it is important to consider the role of CSR on the part of both producers and consumers.
Thus if the production company displays human rights violations it could (or rather would) spill over to perception of the
retailer, spoil its image, diminish consumer loyalty, thereby reducing the retailers’ performance in the market. One of the
most recent investigations in the field is the one conducted by H. Schramm-Klein and others, entitled Retailer corporate
social responsibility is relevant to consumer behaviour (2016). The authors have developed the conceptual model that can
be described in the following way: perceived CSR activities and perceived retailer attributes lead to the consumer loyalty
and eventually to the change in purchasing behaviour; the process itself is being influenced by the CSR credibility and CSR
orientation. In the result, the authors come to a conclusion that in the sphere of retailing perception of the combined CSR
activities and retailer’s attributes has a greater impact on loyalty rather than purchasing behaviour. The study also reveals
that most consumers are not fully aware of the CSR activities, hence it is very important to inform existing and potential
consumers about company social activities, such as supporting charity, diversity programs, employee support,
environmentally conscious behaviour, fair trade, etc. In consumers’ perception, there are two main aspects of retailers’
social initiatives – the beneficiary of activity (i.e., what are the beneficiary profits) and the retailers’ input (i.e., how much
retailers invest into projects) (Herpen et al., 2003). This means that the best way to relay information about retailers in
order to increase consumer loyalty is speak about activities that both benefit society and require a high level of
contribution. T. Wagner and others (2008) in their research have tried to identify the critical spheres of CSR in retailing, that
is, the spheres that could be perceived as irresponsible by the consumers. They have pinpointed fourteen risk aspects:
societal rules, employee discrimination, local working conditions, dishonesty, pricing policies, natural environment,
employee benefits, foreign labour, employee wages, local businesses, local employment, offensive material, foreign

economies and sales practices. Paying a special attention to these aspects and foreseeing possible negative effects can help
retailers to build company reputation through trust of consumers, producers and investors and, in the results enhance
company’s financial performance in the market.
CSR in Human Resource Management
Focus of the human resource management (HRM) is a ‘people’ side of organization
- interpersonal relations, internal (with employees of a different level) and external (with stakeholders)
communication, all this entail a high involvement with ethical and social issues, such as:
• discrimination (gender, age, racial, professional, etc.),
• lack or overselling of social benefits,
• unfair compensation systems,
• unsafe working conditions,
• pressuring employees to donate to different charities or to volunteer their time against their true intentions,
• violations of employee rights, etc.
At the same time, the modern changing business environment causes shift in organizational forms (e.g. partnerships,
alliances, franchising, subcontracting, outsourcing, self-employment) and power relations within and outside organizations.
Trade unions, non-governmental organizations, governmental agencies pay a special attention to companies’ responsibility
to just and fair treatment of their employees. These new employment relationships result in unstable career patterns, work
stress and exhaustion, and risk is shifted to the workers (Ryan & Wessel, 2015; Stone & Deadrick, 2015). Taking into
account this context, human resource managers paly an instrumental role in helping their organization achieve its goals of
becoming a socially and environmentally responsible company – one which reduces its negative and enhances its positive
impacts on society and the environment. Due to its specific mediating role (employers – employees, company –
community) the HR department can ensure that there is an equilibrium between information disclosed publicly and they
ways company treats its employees. In addition to that, the HR department can provide the management with the tools
and framework for creating an ethical working culture and adopting CSR programs proactively (De Baldo, 2013). Let us
briefly describe the main HR activities related to the CSR.
Implementation and encouragement of green practices involve assistance in environmental waste reduction (closed-cycle
production, industrial recycling, disposable packaging, etc.), as well as promotion of green marketing strategies. The
important thing is to keep both employees and society informed about the company values and nature-conscious activities.
On the individual level green practices can mean working remotely from homes, carpooling, switching off the electrical
appliances after work hours, promotion of brown-bagging in the office to help

employees reduce fat and calories to live healthier lives and reduce packaging waste, too.
Fostering a Culture of Corporate Social Responsibility means fostering attitude of responsibility and sense of participation
and involvement in the CSR programs. Committed employees would enable friendly competition and recognition
programmes.
Social and community connections – company ties with local communities through the following activities:
• Company charitable programs accord to employee interests;
• Volunteering activities;
• Corporate sponsorship of community events;
• Encouraging employees to participate in walkathons, food banks, and so forth.
The HR department, in most cases, is responsible for employee motivation, celebrating success, praising individual and
group initiatives (including the social ones). Of course, all these programs require serious management involvement; the
particular role of the HR department is to be a vehicle of change and a channel of feed-back information.
CSR in Finance and Banking
It is of no surprise, that a great majority of people are affected by the activities of financial organizations, be they
employers, employees, investors, everyday people paying their bills, taking out loans, etc. Characteristically, these are long-
term multivalent relations that are of a high social significance. In other words, irresponsible behaviour on organizations
part affect well-being of clients and of community in general, at the same time the financial sector is influenced and
affected by the indirect impacts of the environmental and social activities of its clients. These impacts in many cases can
outweigh the direct impacts, since they can result in low ranking of country by the international financial institutions, for
instance, World Bank, European Investment Bank and others.
In the realm of consumer banking criticisms regarding social responsibilities are often related to the facts of financial
exclusion of the groups of people or misselling of financial services and products to community, whereas as positive
examples we can mention the financial support of relatively poor consumers and would-be entrepreneurs. According to
Kurtz (2008), CSR in the financial sector refers to the inclusion of ethical, religious, social and/or environmental aspects in
investment decision processes – over and above considerations of financial risk and return. Hence, the main aspects of CSR
in the banking are risk management, protection of customers’ rights, complaint management, strengthening ethics,
combating bribery and corruption (Viganò & Nicolai, 2009; Yeung, 2011).
Applying the classical depiction of the CSR pyramid by A. B. Carroll (1991) it is possible to describe CSR activities in the
banking sector in the following way.

• Economic responsibility. This involves financial innovation – creating new opportunities for customers, developing
new products, applying risk management and mediation of resources. Interaction with stakeholders has a crucial role in
determining these new products.
• Legal responsibility. Regulation is determined by statutes, and its aim is to minimize risk and ensure safety and
confidence in the financial system. This involves also a compliance with the guidance of different supervisory institutions
and trade associations.
• Ethical responsibility. This type of responsibility is the most obvious in the stakeholder dialogue regarding principles
of integrity, fair conduct and transparency. The ethical norms and responsibility of various parties are fixed in the form of
ethics codes (codes of voluntary ethical behaviour).
• Discretionary (philanthropic) responsibility. This responsibility is of a strictly voluntary nature; still, it has become a
common practice of the financial institution, contributing to the welfare of the community, as well as to reputation (Decker
& Sale, 2009).
Bank clients expect secure products, satisfactory and correct information; employees expect having safe workplace lacking
discrimination (gender, age, racial, cultural, social and professional); competitors, on their part, expect a fair competition in
the market. Banks’ engagement in CSR activities indirectly ensure their competitive advantage – reflected in their financial
performance and reputation capital.
CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES
1. What are perceptions and challenges for corporate social responsibility in manufacturing?
2. What are perceptions and challenges for corporate social responsibility in service industry?
3. What are the perceptions and challenges for corporate social responsibility in retail industry?
4. What are the perceptions and challenges for corporate social responsibility in human resources management?
5. What are the perceptions and challenges for corporate social responsibility in banking?

CORPORATE SOCIAL RESPONSIBILITY REPORTING

In the situation of dense competition in the market stakeholders evaluate companies not only by their financial
performance, but also by non-financial indicators. Therefore, companies’ CSR reports become a vital source of information.
Through CSR reporting, companies are trying to present their efforts to reduce the negative impacts of their activities on
the society and environment. According to Corporate Register, the global online directory of corporate responsibility
reports past and present, in 2019 there were 105,627 reports registered across 17,691 organizations worldwide (Corporate
Register, 2019). Although it is just one of global reporting frameworks (some others to be mentioned here are the ones of
the Global Reporting Initiative, AA1000 Accountability Principles, etc.), it demonstrates that reporting is being viewed by
companies as communication of their social involvement, as well as a tool for stakeholder engagement and creation of a
competitive advantage. Another indicator of growing importance of CSR reporting is the KPMG Survey of Corporate
Responsibility Reporting. KPMG is a network of professional service firms and one of the Big Four auditors, along with
Deloitte, Ernst & Young and PricewaterhouseCoopers. In 2017, KPMG member firm professionals reviewed corporate
responsibility and sustainability reporting from 4,900 companies in
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Uand insights for business leaders, company boards, and CR and sustainability professionals. The survey spotted four major
emerging themes in the CSR reporting: climate-related financial risks, UN Sustainable development goals, human right,
carbon reduction (KPMG, 2017). Despite the fact that thousands of CSR reports are being published every year, there is
neither a unified definition, nor a unified format of reporting. Reports are being named differently (sustainability reports,
environmental, health and safety reports, community affairs reports, etc.); they focus on different issues related to the
industry and/or type of company activities (environmental sustainability, communities and giving, people and culture,
ethics and compliance, governance, health and safety, etc.). Nevertheless, the purpose of all reports is to demonstrate
relations between organization and society.
Scope of CSR reporting
CSR report is a possibility to inform society about company values, social initiatives, as well as about products and services.
Regular CSR communication brings the company certain advantages:
• Transparency –awareness of CSR activities,
• Supervision of CSR activities – allows to follow implementation of the CSR strategies and to pinpoint weaknesses,
• Involvement of stakeholders – creates trust and loyalty,
• Cross-sector cooperation – partnerships between businesses, government agencies and non-profit organizations
(Moravcikova et al., 2015).

The form and content of the CSR report can vary, still there are some features allowing classification:
• According to the content, the report can be either a single report or a comprehensive report. Single reports mainly
include environmental, health and safety information, focus is a single aspect. Comprehensive report mainly include CSR,
sustainable development, corporation citizen, corporate social and environmental information, covering economy, society,
environment and other aspects more extensively.
• According to the degree of comprehensiveness, the report can divided into a generalized and narrow social
responsibility report. The generalized CSR reports include all the reports in the formal way, i.e. a single report and
comprehend report. A narrow CSR report generally refers to CSR report (Shin, 2014).
Due to the variety of stakeholder groups, there is a number of ways how CSR reports can be employed. According to
Ojaasoo (2016), there are six possible applications of the CSR reports:
Reading for investment. Reports are regarded as valuable source of information for the financial community. They provide
knowledge about potential social and environmental risks investors may face, such as poor toxic waste management, lack
of attention to labour standards, etc. Potential investors can find information about quality management and staff training
programmes, customer service initiatives and brand loyalty strategies.
Reading for engagement. CSR reports can help identify key practices regarding company’s environmental and social
practices and willingness to construct a dialogue with the community.
Reading for employment. Employees working at the company or seeking employment can get information from the reports
on the following issues: general corporate culture, employment policies, employee benefits, employee and union relations.
Reading for management. CSR reports can help identify spheres that need an improvement, as well as to measure progress,
to carry out an internal and external ethics audit. Figure 6.1 shows main ways how CSR could earn stakeholders interest
through an ethics audit. An ethics audit can identify hidden risks and vulnerabilities, which help direct the company to be
more transparent and open. Through the ethics audit it is possible to gain a view on organizational health and
sustainability, and the extent to which the business is driven by stakeholder interests and CSR principles. It can help to
increase transparency in the organization and identify ethical risks (see Fig.6.1).

Figure 6.1. Relation between theoretical concepts and improved ethics audit (Source: Ojasoo, 2016)

Reading for purchasing. Communication concerning the customer should present how a company manages to integrate
corporate responsibility into everyday practice. Communication with customers may disclose information about product
quality and safety, customer satisfaction, fair trade practices, pricing, compliance with marketing and advertising ethics,
etc. In general, CSR report can be used for building long-time customer loyalty.
Reading for research. For researchers – academic or empirical – CSR reports can provide a unique source of data, that allow
to identify company progress, social and environmental activities, community involvement, etc. If initially CSR was regarded
as public relations tool to inform society about company values and social initiatives, then today the report is considered to
an important component of competitiveness building and strategy implementation. Taking into account various formats of
CSR reports, there is a question – is it possible to summarize main functions of the CSR reporting? Although it is not
possible to give one conclusive answer to this question due to the complexity of the issue, some descriptions of the roles
are viable.
1. CSR report enhances the brand image. The image of socially responsible company can build public trust, attract
new and retain existing customers
2. CSR report can be regarded as annual internal audit that helps to work out future CSR strategy.
3. CSR report reinforces employee loyalty to the company.
4. CSR as non-financial report in combination with the financial report can more comprehensively reflect the
corporation’s performance and development potential.
5. CSR report is an internal dialogue mechanism since it involves various departments, such as marketing department,
research and development and finance ones.
6. CSR report is a new external communication means. CSR report is a new kind of means to transmit information and
communicate responsibly to the

external stakeholders. Moreover, it helps strengthen the relationship and build the trust between the corporation and
consumers and communities.
7. CSR report fulfils a proactive function; through the report corporate executives detect possible problems, thus
preventing such events.
8. CSR report as evaluation tool. The development of CSR report requires evaluating the corporate contribution to
nature and the society, assessing the corporation’s future development.
9. CSR report can increase financial stability. Regular comprehensive report disclosure can help avoiding investor’s
behaviour transition caused by non- disclosure in time or a sudden disclosure, avoiding the acute fluctuation of stock price
and improving the stability of shares and finance (Shin, 2014).
Summarizing all that has been mentioned above, it can be concluded that CSR report is an important instrument of
strategic management (it examines the interaction between the corporation and society and promotes comprehensive
analysis of strategic environment), as well as of daily management practices (procedures, performance, level of service,
etc.). One more important thing to be mentioned here is that CSR report can promote brand image and value. It is helpful
for the establishment of responsible image to make the society recognize the corporation and improvement of its brand
value.
Key elements of CSR report
A complete CSR report has a rich content. At the same time, in order to achieve the role of CSR report and win the
stakeholder’s support, the report should meet the following three features:
• Comprehensiveness. The report contains both a complete concept of CSR and a comprehensive summary of the
practice of CSR. It reflects not only the good side of practice but also the negative impact on the environment, namely, the
deficiencies; reflects the economic value as well and social value and environmental value of the corporation, which is a
comprehensive reflection of relationship between the corporation and society from the perspective of responsibility.
• Systematic feature. The role of the corporation and its responsibility should be systematically revised: positive and
negative impact of the corporation’s operation on the society and environment, interaction between the company and
each stakeholder group, corporate value implementation, corporate governance, etc.
• Continuous innovation. The report provides a new angle of view for understanding the role and mission of the
corporation from outside and inside; it reflects the value of the corporation from the perspective of stakeholder’s
expectations and participation and provides a way to find the existing problems, the improved direction and motivation
(Shin, 2014).

In general, CSR reports all follow a similar format: they describe a social or environmental problem and then report on how
much the company has spent on a range of good causes that aim to address the problem (Vartiak, 2016). The main purpose
of CSR reports is to communicate everything about companies’ social impact.
The responsibility and obligation from the perspective of the role. Corporations control most of the world’s wealth, master
the biggest share of resources and play a central role in the economy, society and even the global development and play an
important role, which determines that the corporation should and must bear the mission and responsibility. In order the
report to be regarded as effective strategic management tool several questions should be answered. These questions are:
• Is this CSR report a community affairs report?
• Does the report provide information about CSR practices as well as policies?
• Does the CSR report provide systematic data?
• Does the report present future goals as well as past practices?
• Does the report include bad news as well as good news?
• Does the report reflect company’s greatest challenges?
• Does the company integrate the CSR report with its business strategy and financial reporting?
• Does this report provide links to secondary sources and additional materials?
Several factors have a significant impact on reporting. One of them is the size of the enterprise. Small and medium-sized
enterprises can have closer contact with their stakeholders than large-scale and multi-national companies (Idowu, 2016). In
addition to the size, the reporting is also influenced by the type of property (private or public company, shareholding
company or joint venture, etc.). The generic content of the CSR report contains several key elements (Table 6.1).

Figure 6.3. AA 1000 Accountability Principles (Source: AA 1000, 2018)

CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES
1. What are the main principles for corporate social responsibility reporting?
2. Who benefits from corporate social responsibility reporting and what types of benefits are there?
3. What are the specific goals for corporate social responsibility reporting?
4. What main elements does corporate social responsibility report contain?
5. What are the core subjects of corporate social responsibility, which are to be outlined during reporting?

CONCEPTUAL FRAMEWORK OF BUSINESS ETHICS

Defining Business Ethics

According to The International Encyclopedia of Ethics’ business ethics is described in the following way: “‘Business ethics’ is
a concise, but in many ways misleading, label for an interdisciplinary field covering a vast range of normative issues in the
world of commerce. The label lends itself most directly to a core set of questions about how individuals in the business
world ought to behave, or what principles they might appeal to in order to negotiate moral dilemmas at work. But if we
consider the array of topics covered in the leading business ethics journals or textbooks, we see that these core issues
about individual virtues and ethical decision-making are surrounded by layers of issues involving organizations and
institutions. In other words, business ethics in the broadest sense also inquiries about the most appropriate or just designs
for firms, markets, market regulations, and political oversight in a democratic society and a globalized economy.” (Norman,
2013).
This is only one definition of many, they varies according to different philosophical perspectives and analytical frameworks,
still it exhausts such significant aspects as: normativity, individual-social relations, organizational behaviour, market and
political conditions. Still, in our opinion, the most efficient way to describe the subject is through the lens of three Cs –
compliance, contribution and consequences.
• Compliance. In order to operate in the socio-economic and legal environment successfully, each company has to
work out its corporate policies regarding its corporate behaviour and adherence to the legal requirements of the given
region. The ethical approach presupposes developing ethically responsible business culture.
• Contribution business can make to the society – to employees, to community, first of all ensuring the service/
product quality standards.
• Consequences regards the impact the business leaves on the environment and society.
Taking into account all that was mentioned above, it can be said that business ethics has twofold objectives, that is, it
evaluates human practices by calling upon moral standards, and also it may give prescriptive advice on how to act morally
in a specific kind of situation.
Levels of Business Ethics
In business, most ethical questions fall into one or more of three categories: individual (a ‘micro-level’), organizational (a
‘mid-level’) and societal (a ‘macro-level’).
• A ‘micro-level’ concerning the behaviour within business organization. It comprises such ethical issues as
leadership, followership, communication, conflict resolution, etc. What rights and obligations do they have, what kinds of
actions are permissible, what virtues and character traits should they

cultivate, how should they resolve dilemmas, and so on? These questions deal with the day-to-day issues of life in any
organization.
• A ‘mid-level’ concerning the activities, policies, and behaviour of organization. This category can be called ‘internal
policy’, it includes the issues of the strategical nature, such as developing codes of ethics (or codes of voluntary ethical
behaviour), corporate social responsibility programs, etc.
• At the societal level, we ask questions about the basic institutions in the society. Companies wishing to do business
there still face a complex set of issues as political, economic, and social dynamics change; the situation can still present an
ethical conundrum for many companies. This level pertains issues of human rights, sustainability, and perception of
corruption, bribery and discrimination. Societal level questions usually represent an ongoing debate among major
competing institutions. A ‘macro-level’ also concerns the structure of markets and their regulation within a democratic
state and an international economy.
Approaches to Business Ethics
There exist several perspectives of business ethics due to the lack of clear definitions of the subject itself, nevertheless it is
possible to delineate two main approaches – the instrumental and the philosophical ones. The basic difference between
them lies in the particular configuration of business and ethics relation, or – in the question which of them is primary and
which is secondary. Ultimately, both perspectives are interconnected. A key function of business ethics is to properly relate
business to its societal contexts, i.e., to the norms and values of stakeholders and the society.
Instrumental Perspective
The instrumental perspective of business ethics considers the function of ethics for business, that is, business demands
come first, ethical treatment follows. It doesn’t mean that ethics is unimportant, still the question is about placing accents.
The question to be asked is: What role ethics play in business? Does it ensure some added value? The task of business
ethics is to develop ethical tools that support business success and to provide knowledge of how to optimally implement
such tools into business strategies, operations, and organizational design (Becker, 2019). Globalization and technical
advancement bring forth ever new ethical challenges, for example, issues related to security and privacy, data storage and
analysis, different normative requirements, legal frameworks. The lack of ethical standards can result in company’s
disadvantageous market position. Serious instances of internal wrongdoings, such as harassment cases, stealing from the
company, and bribery cases, can threaten business success and result in serious legal issues.
Philosophical Perspective
Contrary to the instrumental approach, the philosophical one starts from the ethical vantage point. The questions are:
What is the ethical meaning of business? What is the meaning of business or economic aspects within a broader ethical
context? The ethical theories are derived from the works and thoughts of a number of key

philosophers. Three major theories relevant for the field of business ethics – utilitarianism, deontology and virtue ethics –
are discussed below.
Utilitarianism
Utilitarianism is concerned with consequences and the course of action that benefits the greatest number of people,
regardless who these people are. The most decisive feature of utilitarianism is the one of impartiality the ethically best
action is the one that benefits majority of people. Important original contributions to the development of modern
utilitarianism were made by Jeremy Bentham (1748–1832), John Stuart Mill (1806–1873), and Henry Sidgwick (1838–1900).
It is possible to delineate four basic characteristics common to all theories:
• The grounds for ethical valuation of any given action are consequences.
• Effect on all persons involved should be taken into account.
• Distinction between ethical/unethical on the individual level lies in the harm/benefit inflicted. This does not just
refer to physical pain and pleasure, but to all kinds of pain and pleasure, including psychological and economic ones.
• Fourth, utilitarianism considers the overall happiness of all affected by an action. We need to sum up all pains and
pleasures to evaluate the effect of the action on the overall happiness of all affected (Becker, 2019).
In order to apply the utilitarian method in a business situation four subsequent steps are to be taken:
1. Determination of all possible actions for a given case,
2. Identification of all parties who are affected by each alternative action,
3. Identification of the amount of harm inflicted to all parties,
4. Summing up all harms and benefits resulting from each alternative action, calculation of the impact of each
alternative on the overall happiness of all affected. It can now be easily determined which alternative maximizes the overall
happiness. This action would then be the ethically right one.
Deontology
Deobntologists argue that the ends do not always justify the means. For them only the act (action) is important, not the
consequences or intentions. People should follow rules and never deviate. Despite its strengths, rigidly following
deontology can produce results that many people find unacceptable. Deontology if often associated with German
philosopher Immanuel Kant (1724-1804) who asserted that consequences did not matter in comparison with human
actions. Kant held that it was wrong to consider human beings as means to an end (Bibb, 2010).
Scottish philosopher W. D. Ross (1877-1971) developed the hierarchy of obligations. He identified seven major facie
obligations: fidelity, reparation, gratitude, justice, beneficence, non-maleficence, and self-improvement. Nonetheless,
there can never

be a true ethical dilemma, Ross would argue, because one of the main facie duties in a given situation is always the
weightiest and over-rules all the others. This is thus the absolute obligation or absolute duty, the action that the person
ought to perform.
Virtue Ethics
Virtue ethics is a normative ethical theory about the definition and realization of virtues and human excellence. In contrast
to utilitarianism and Kantian ethics, virtue ethics is not focusing so much on the single ethically right action, but more on
questions such as: What is a good person? What is a good character? What is human excellence? What is a good life? These
are fundamental ethical questions of everyday life. The roots of virtue ethics comes from Aristotle. He proposed 12 virtues
and their corresponding attributes: courage – bravery and valour; temperance – self-control and restraint; liberality –
bigheartness, charity and generosity; magnificence – radiance, joie de vivre; pride – self-satisfaction; honour – respect,
reverence, admiration; good temper – equanimity, level headedness; friendliness – conviviality and sociability; truthfulness
– straightforwardness, frankness and candour; wit – sense of humour – meaninglessness and absurdity; friendship –
camaraderie and companionship; justice
– impartiality, evenhandedness and fairness. Compliance to these virtues signifies a moral life. Do virtues matter for
business? Integrity, honesty, and fairness can be considered general business virtues. These virtues matter for many
business activities: they help individuals get along with customers, co-workers, suppliers, and other stakeholders in an
exemplary way, and, by this, support business and professional success. Loyalty can also be regarded as virtue in business
ethics. Effective leadership presupposes such virtues as courage, responsibility, fairness, or care. Further, there are virtues
that are specific to a profession or a certain job. (Becker, 2017).
Ethical Organization
There are no univocal criteria to determine if the organization is to be regarded as ethical or unethical. For the study
purpose, characteristics of the ethically decoupled and the ethically transformed organizations have been juxtaposed
(Table 7.1).

Table 7.1. Characteristics of Ethically Decoupled and Ethically Transformed Organizations (Source: Johnson, 2012)
Ethically Decoupled Organizations Ethically Transformed Organizations
See ethics as means to an end (profit, better
public image) See ethics as an end in itself
Comply with legal requirements Exceed legal requirements
Exhibit organizational behaviour
inconsistent with the stated values Take actions that reflect collective values;
the transformed organization ‘walks its talk’
Are insensitive to potential moral issues Are highly sensitive to moral dilemmas
Emphasize rules and penalties Emphasize adherence to shared values
Have a low awareness of ethical duties Dysfunctional conflict
Tolerate misbehaviour Have a high awareness of individual and collective ethical responsibilities Functional conflict
Swiftly punish misbehaviour
Rarely discuss ethics; rarely use moral
vocabulary Routinely discuss ethics using moral
vocabulary
Omit ethics from daily decisions and
operations Make ethics part of every decision and
operation
Are driven by practical or pragmatic considerations (the bottom line) Are driven by mission and values
React to destructive behaviours Prevent destructive behaviours
Have ethically inconsistent reward
structures Have reward systems that promote moral
behaviour
Show a high concern for self Show a high concern for others
Sacrifice individual rights for
organizational good Honour and protect individual rights
Engage in self-centred communication
(monologue) Engage in other-centred communication
(dialogue)
Have low to moderate trust and
commitment levels Have high trust and commitment levels
Have teams that routinely fall victims to
unethical group processes Have teams that are rarely victimized by
unethical group processes
Show high concern for the organization Show high concern for stakeholders, society, and the global environment
Hold and build power bases Give power away
Exhibit low-level moral reasoning Base reasoning on universal ethical
principles
Prevent members from making moral
choices Equip members to make moral choices
Respond to changes in the ethical
environment Anticipate changes in the ethical
environment
Invest little in building a positive ethical climate Invest significantly in creating and
maintaining an ethical workplace (i.e., training, socialization, leader involvement)
Are at significant risk of ethical
misbehaviour and scandal Are at low risk of ethical misbehaviour and
scandal

Components of Ethical Culture

Components of ethical work culture can be divided in two categories – formal elements (core values, mission statements,
codes of ethics, structure, reward and performance evaluation systems, reporting and communication systems, ethics
officers) and informal elements (language, norms, rituals and stories, traditions, informal communication).
Formal elements
Core values. Most organizations formulate a few ethical values that form an axis around which the value system is being
developed. The values are the main principles, it is important to communicate them throughout the organization.
Mission (purpose) statements. A mission statement is used by a company to explain, in simple and concise terms, its
purpose(s) for being. It identifies an organization’s

reason for being, its uniqueness and difference from competitors. These statements serve a dual purpose by helping
employees remain focused on the tasks at hand, as well as encouraging them to find innovative ways of moving toward an
increasingly productive achievement of company goals.
Codes of ethics. A code of ethics, also called a code of conduct or ethical code, sets out the company’s values, ethics,
objectives and responsibilities. A well written code of ethics should also give guidance to employees on how to deal with
certain ethical situations without involving lawyers. Every code of ethics is different and reflects the company’s values and
business style. Some codes are short, setting out only general guidelines, and others are large manuals, encompassing a
huge variety of situations. It is important that codes include also the conflict solving mechanisms (Singh & Prasad, 2017).
Codes of ethics typically address six main areas (Hoppen, 2002): conflicts of interest, personal data and confidential
information, records, relations with internal and external stakeholders, other issues, such as health, safety, etc.
The codes of ethics are directed both to the internal and external public; involvement of employees (or building the code
from the ‘bottom up’) is of a high importance, since only in that case the employees participate in the process of
implementation of the document. This can be achieved by consultations, employee meetings, brainstorming. The
implementation guidelines (procedures) is a vital part of the codes as well. The form and formulations of the code is as
important, since employees should internalize and apply its principles (that is virtually impossible in case the code consists
of theoretical concepts only). Furthermore, the code might simply consist of a set of rules that the employees are expected
to follow (‘do it or else’), rather than values-based and providing guidance on how to handle ethical dilemmas (Webley &
Werner, 2008).
Reward and performance evaluation system. Rewards system is a powerful determinant of ethical or unethical behaviour.
It goes hand in hand with a quality management system, plus clear and transparent principles of reward.
Reporting and communication systems. Companies should have open systems (channels) for violation reports.
Organizations also need systems for communicating ethics messages. Constant communication is essential to reinforce the
importance of ethics.
Ethics officers. A number of ethics officers vary from organization to organization depending on its size, industry, etc.
Moreover, in majority of companies there are the so-called ‘ethical commissions’ that analyse ethical misbehaviour cases
and pass their decisions.
Informal elements
Language. The style of day-to-day conversation is an important aspect of the ethical working culture (language can be
offensive, harassing, discriminating, etc.)

Norms. Norms are commonly accepted standards of behaviour in the organization. They can be regarded as some type of
unwritten contract among employees.
Rituals. Rituals are organizational behaviours that are repeated over regular intervals. Rituals serve many functions –
introduction, integration, enhancement, conflict reduction, etc. In general, rituals are informal ways of implementing
organizational values.
Stories. One way to determine the organization’s ethical culture is to analyse its stories. A narrative qualifies as an
organizational story when many people know it; these are stories about company history, heroes, past occurrences. Such
stories can promote employee loyalty to their company, make them be proud members of the company.
Highly ethical organizations make sure that cultural components align and/ or support one another.
CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES
1. Define key features of ethical organizations.
2. What are the core ideas behind instrumental and philosophical approach towards business ethics?
3. What main formal elements of business ethics can you name? How are they implemented?
4. What main informal elements of business ethics can you name? How are they implemented?

BUSINESS ETHICS COMPONENTS

Business ethics can be viewed from different viewpoints (utilitarianism, deontology, virtue ethics, etc.), on different levels
(individual, organizational and societal), in various business sectors (manufacturing and service, retailing, human resource
management, etc.). Nevertheless, there are components that are present on all levels and in all sectors of business
activities. The current chapter covers components of business ethics: (1) leadership ethics (2) followership ethics (3)
communication ethics
(4) ethics of conflict management and negotiations.
Leadership Ethics
Due to the great variation of theoretical approaches to the matter of ethical leadership, as well as the varying depth of
empirical analyses the authors of the present book to apply the three-level leadership model: ethics of the leader, the
means of ethical leadership, and the heart of leadership (Palmer, 2009).
The theories of the ethical behavior of leaders are related to leaders’ personal model standards and role modelling. In
other words, leaders who exhibit high moral standards usually do not violate ethical principles in their business activities
(Bowie, 2005; Zaccaro, et.al. 2008). Though it has to be noted that the standards can be set too high to be able to comply
with them. The second set of theories concerns the means of ethical leadership, that is, specific actions taken in performing
leader’s functions. It can also be described in the terms of leadership styles. But the problem consists in the fact that none
of the leadership styles is inherently moral or immoral, although some of them tend to discern ethical dimensions –
everything goes when the job has to be done. Taking into account the leader’s position on the hierarchic ladder of the
organization, he/she can often be viewed as a model for normative behavior (Mayer et al., 2012; Ghahroodri et al., 2013).
The third set of theories presupposes an existence of common vision within the organization. However, if leader’s vision is
inherently in conflict with the mission of the business or when the vision is centred upon the mission that is inherently
unsupportable, the ethical leadership fails (Bowie, 2005; Kaptein, 1998).
The models of ethical leadership are described in Table 8.1.

Table 8.1. Models of Ethical Leadership (Source: Reed et al., 2011)

Model Similarities Differences

Transformational leadership Concern for others – altruism

Ethical decision-making Integrity
Role modelling Ethical leaders emphasize ethical standards and moral management (more transactional) Transformational
leaders emphasize vision, values, and intellectual
stimulation
Authentic leadership Concern for others – altruism
Ethical decision-making Ethical leaders emphasize moral management (more transactional) and
“other” awareness

Integrity Role modelling Authentic leaders emphasize authenticity and self-awareness (dark side – can have
unrealistic expectations of an unattainable level
of self-knowledge)

Spiritual leadership Concern for others – altruism Integrity

Role modelling Ethical leaders emphasize moral management
Spiritual leaders emphasize visioning, hope/faith, work as vocation

Servant leadership Concern for others – altruism Integrity

Role modelling Moral manager
Transactional/transforma tional

Ethical leaders emphasize the aspect serving others, putting their interests before the self-interest

It is of no surprise that transformational leaders are thought to be ethical one who role-model the ethical conduct (Brown
& Mitchell, 2010), the same regards the authentic leadership (Walumbwa et al., 2008; Yukl, 2008; George, 2003). The
transformational leadership is defined as a process where leaders and followers engage in a mutual process of raising one
another to higher levels morality and motivation. (Turunc et al., 2013) It comprises five leadership dimensions: idealized
attributes, idealized behaviours, inspirational motivation, intellectual stimulation, and individualized consideration. They
influence others by developing collective vision and inspiring them to look for a common good, rather than their self-
interest. The spiritual leadership can be defined as the one that places emphasis upon the moral engagement of the
followers. The servant leadership presupposes a non-hierarchical structure of the organization, where the ethical culture is
based on the serving to common goals by each and every member of the organization.
A set of criteria to distinguish ethical/unethical leadership is developed by G. A. Yukl and G. Yukl in their book Leadership in
organizations (2002) (Table 8.2)

Table 8.2: Criteria for determination of ethical leadership (Source: Yukl & Yukl, 2002)
Criterion Ethical Leadership Unethical leadership
Use of leader power and influence Serves followers and the organization Satisfies personal needs and career
objectives
Handling diverse interests
of multiple stakeholders Attempts to balance and
integrate them Favours coalition partners
who offer the most benefits
Development of a vision for the organization Develops a vision based on
follower input about their needs, values and ideas Attempts to sell a personal
vision as the only way for the organization to succeed
Integrity of leader
behaviour Acts consistent with
espoused values Does what is expedient to
attain personal objectives

Risk taking in leader decisions and actions Is willing to take personal risks and make necessary
decision Avoids necessary decisions or actions that involve
personal risk to the leader
Communication of relevant information operations Makes a complete and timely disclosure of information about
events,
problems and actions Uses deception and distortion to bias follower perceptions about problems
and progress
Response to criticism and dissent by followers Encourages critical evaluation to find better
solutions Discourages and suppresses criticism or
dissent
Development of follower skills and self-confidence Uses coaching, mentoring and training to develop followers
Deemphasizes development to keep followers weak and
dependent on the leader

In sum, the criteria relevant for judging ethical behavior of a leader include individual values, conscious intentions, freedom
of choice, stage of moral development, types of influence used, and use of ethical as well as unethical behavior.
Followership Ethics
Most publications on corporative ethics emphasize the role leaders play in creating and promoting the ethical work culture,
reinforcing ethical behavior in the workplace. Nevertheless, some broadly publicized scandals show that it is often the
leaders who act unethically and demand the same behavior from the followers. (Carsten & Uhl- Bien, 2012). We can
mention here the example of the leaders’ unethical behavior in the case of Volkswagen Diesel emission test in 2015. The
internal investigation revealed that fifty members of staff mostly in Wolfsburg confessed that they were completely aware
of emission scandal activities (Mansoury, 2016). Thus, the significant issue in business ethics is followers’ responses to
unethical requests by their leaders. In such situations, followers must make a decision. They can choose to object to the
unethical request (by refusing to engage in unethical practices) or they can go along with the leader’s request, in essence
agreeing with the unethical behavior. In the contemporary business environment due to such factors as use of high
technologies, specialization, new leadership paradigms, such as networking, the role of followers is growing. Hence,
ignoring followers is short-sighted on the part of management.
To describe the growing role of employees in organization a concept of authentic followership has been developed (Leroy
et al., 2015). The authentic followership describes the process whereby followers come to experience the autonomous
motivation and realize their potential. In this case they would be able to act morally on their own accord rather than being
demanded by the leaderThe authentic followership can be described by the means of three characteristics:
• Psychological ownership is grounded in the sense of belonging to an organization, a sense of an employee self-
identity, accountability, efficacy;

• Trust – the authentic followers own up to their shortcomings, at the same time they encourage their leaders to
follow their example;
• Transparency – the authentic followers are willing to share their thoughts, values and feelings, are ready to build
transparent relations with the management based on honesty, feedback and communication (Johnson, 2012).
At the same time, there are certain challenges the employees face when placed in the situation of choice. These challenges
are the ones of obligation, obedience, dissent, and cynicism (obligation to follow uncritically the leader’s proposed course
of actions, obedience to inherently unethical requirements, ability/inability to express dissent and cynicism arising from
powerlessness).
The authentical followership is an active, relational process, where the followers contribute to organizational goals and
possess a mutually influential relationship with the leader. This relationship must be built on trust and loyalty (Ford and
Harding, 2018). Moreover, the trust is necessary for followers to have confidence in the leader.
Communication Ethics
Organizational communication (both internal and external) can be described as the use of available resources to convey
information, to move, to inspire, to persuade, to enlighten, to connect. Regardless the mode and context of communication
process the ethical communication involves three basic components: choice, values and consequences, that is, the choice
of means of communication, the values to be communicated and, the consequences of the communication process.
(Shockley- Zalabak, 2015)
Internal communication in the workplace occurs at all levels: supervisor to employee, manager to supervisor and
executives to employees – one-on-one and in group settings. It can be of the formal or informal character. In order to
qualify a communicative action within organization as ethical or unethical, Redding’s Typology of Unethical Organizational
Communication (Redding, 1996) can be applied here. The resulting typology of unethical organizational communication
consists of six general categories. Let’s have a brief insight into each category of unethical communication:
• Coercive communication can be characterized as intolerant to any possible dissent, restricting of freedom of
speech, refusing to listen, resorting to formal rules and regulations, etc.
• Destructive communication implies attacking receiver’s self-esteem, reputation, or deeply held feelings; reflecting
indifference toward, or content for, basic values of others. This can be in the form of insults, derogatory innuendoes,
epithets, jokes (especially those based on gender, race, sex, religion, or ethnicity), put-downs, back-stabbing, character-
assassination, and so on. Besides that, it can include concealing information or revealing it to the unauthorized persons. In
the case of destructive communication, information can be used as means of employee manipulation.
• Deceptive communication presupposes the form of relying information, this includes evasive or deliberately
misleading messages, bureaucratic-style euphemisms designed to cover up defects, to conceal embarrassing deeds, or to
‘prettify’ unpleasant facts. The aim of such communication is to distort receiver’s perception and interpretation of reality,
• Intrusive communication gains a special importance in the 21st century in relation to development of modern
technologies that allow to intrude deeply into personal lives of individuals, for example, leaking information.
• Secretive communication includes hoarding information and sweeping under the rug information that could expose
legal or ethical violations
• Manipulative-exploitive communication can be described as the one using different rhetoric technologies in order
to get the desired result by exploiting people’s fears, prejudices, or areas of ignorance (Macau, 2009; Redding, 1996).
In contrary to this typology, the ethical organizational communication can be characterized as free exchange of
information, orientated towards problem solving. It exhibits regard for privacy), honesty (refusal to lie to internal and
external stakeholders), regard for individuality, it is transparent and sincere.
A special importance ethics of communication gains in the light of the new IT paradigm that particularly affects social and
economic transformations is its ‘networking logic’, that is, more complex interactions that are organized by networks.
M. Castells (2010) describes changes that have taken place within last two decades, the most significant of them being the
merger of Internet and wireless technologies (the mobile Internet, the Wi-Fi connections are broadly used today, wherever
we are, wherever we go people sit with their cell phones or tablets and browse the net). According to the authors, new
media exhibits six distinctive characteristics. (1) Every consumer is a producer – the reader creates the content, as in the
case of Wikipedia, that can be developed by everyone (in, on one hand it embodies the very spirit of new media – a free
exchange of information, the, on the other hand, for academic purposes this information can be regarded as
untrustworthy. (2) The new media gains authenticity precisely because content creators are not working for any
professional media organization. (3) The new media allow to choose one or another way of expression, or even different
combinations of tools, for instance, Twitter and Instagram, YouTube and Facebook, etc. (4) It is free of charge for content
creators and readers. (5) The new media is highly compatible (according to the public relation specialists, the organization
today should employ not less than three social media channels). (6) The new media exhibit intrinsically social character and
facilities creation of new communities (Levinson, 2009).
This new social and technological reality brings forth some possible ethical pitfalls, among them we can mention the
following ones (the most significant, in our opinion):
Privacy issues – appropriate or inappropriate handling of privacy settings (people tend to view Facebook as private
conversation while forgetting that information

posted could be used for many causes, including job interviews, prowling, even stalking). The paradox lies in the fact that it
is a public space, but at the same time the account is private. This raises an issue – up to which point officials are entitled to
pry into the private posts, liking histories etc. The landscape of privacy issues was changed drastically by Regulation (EU)
2016/679 of the European Parliament and of the Council1, the European Union’s (EU) new General Data Protection
Regulation (GDPR), regulates the processing by an individual, a company or an organization of personal data relating to
individuals in the EU. Personal data is any information that relates to an identified or identifiable living individual. Different
pieces of information, which collected together can lead to the identification of a particular person, also constitute
personal data. Personal data that has been de-identified, encrypted or pseudonymized but can be used to re-identify a
person remains personal data and falls within the scope of the GDPR. Personal data that has been rendered anonymous in
such a way that the individual is not or no longer identifiable is no longer considered personal data. For data to be truly
anonymized, the anonymization must be irreversible (European Commission, 2018).
Virtual communities and networking. Although formation of communities can be regarded as a positive factor (as discussed
above), at the same time there exists a possibility that virtual communities can substitute the real ones.
Improper anonymity. In the business setting anonymity can take a form of false endorsements of a product or service,
anonymous feedbacks, fake success stories, etc.
Misuse of free expertise and contests. This aspect concerns organizing contests on social media, when the sent in ideas that
have not been rewarded can be used later by the company without consent an an author. This abuse is especially unethical
if the sponsor knowingly gathers superior design ideas from contestants they have no intention of compensating.
Integrity risks involve irresponsible use (or use for purely personal purposes) of company social media channels by the
employee.
Screening services. These services can be an ethical challenge for both employers and employees in case the performance
appraisal is based on personal information drawn from the social media.
Advertising and marketing practices in the era of social media have gained a special ethical importance. The interactive
nature of social media provides companies with the ability to engage with customers more directly than other forms of
media. This poses new ethical challenges, such as, for example, advertising on the private pages of customers, sending
spam messages, etc.
Ethics of Conflict Management
The culture of organization, especially its ethical component, has a strong impact upon success of conflict resolution
policies and practices. While corporate ethics and dispute resolution programmes are often viewed as separate
organizational strategies, it is important to address them in a holistic manner. This approach typically addresses a wide
range of conflicts, such as workplace disputes (for example, harassment,

discrimination, clash of individual interests), disputes with external stakeholders (for example, suppliers and customers)
and disputes with regulatory agencies. Although it is impossible to develop a single conflict resolution matrix, a company
should work specific policies and procedures of conflict resolution, as well as introduce management and employees
training programs (Walker & Deavel, 2008).
The organizational conflict literature has identified three common forms of conflict: relationship conflict or affective
conflict, task or cognitive conflict and process conflict (Panteli & Sockalingam, 2005).
• Relationship conflict in the workplace is related to differences in personality, character, style, etc. People of
different background with different attitudes towards things are often thrown together and must try to get along.
• Task conflict involves issues related to employees’ work assignments, differences of opinion on procedures and
policies, interpretation of situation, etc.
• Process conflict refers work procedures. (Moreno et al., 2009).
Researchers have defined particular steps in ethical conflict management: identification of conflict type, context, personal
conflicting style, working out and applying conflict solution guidelines.
One of the problems closely related to conflict management is the one of workplace harassment. Harassment can be
defined as unwelcomed conduct in the. It can be based on race, colour, religion, gender, national origin, age, or disability.
From the legal point, harassment becomes unlawful in two occasions: when the inappropriate conduct becomes a
condition for employment, or when the conduct creates intimidating, hostile, or abusive work environment (Hejase, 2015).
Recent (2019) sexual harassment scandals involving Hollywood producer Harvey Weinstein have brought forward this type
of harassment, that can appear in the form of gender-based (nonsexual) comments and behaviours in order to demean
women, unwanted sexual attention (verbal or physical), coercion or forcing employees into unwanted sexual activities
against their will. Possible results of the sexual harassment in the workplace can be: hostile work environment, decreased
productivity, feeling of dissatisfaction, distrust and disrespect, bad reputation and so on.
The issue of the sexual harassment has been discussed also on the European level. Thus, European Parliament resolution of
26 October 2017 on combating sexual harassment and abuse in the EU states the principal equality of genders and that
sexual violence and harassment in the workplace is a matter of health and safety and should be treated and prevented as
such (European Parliament, 2017).
If the conflict situation arises, then it is necessary to resolve the situation by taking into account positions of all parties
involved, by activating ethical commissions, by developing conflict solution manual for the given company.
CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES
1. Describe models of ethical leadership.
2. Define the main ethical in contemporary business organizations.
3. What is ethical communication? Define its key features
4. What are the five steps of ethical conflict management?
5. What are the main approaches towards managing ethical negotiations in business environment?

ETHICAL DECISION MAKING PROCESS

The task of the current chapter is to discuss the ethical decision-making process in business. In general, the ethical decision-
making means the process of choosing and evaluating different alternatives against the background of existing ethical
principles. The process involves an identification and elimination the unethical options, and after that – making the
informed (the conscious) choice. This is especially important because employees and managers face ethical issues daily,
potentially leading to misconduct on different organizational levels – from the corporate to the societal ones. Taking into
account the extent of the extent of illegal and unethical business activity that continues to transpire and the resultant costs
to societal stakeholders including shareholders, employees, consumers, and the natural environment, the importance of
ethical decision-making by individual employees and managers in business organizations is no longer in doubt. We can
mention here, for instance, the financial scandals (Enron, WorldCom), the consumer product scandals (Bridgestone/
Firestone tire blowouts), the environmental catastrophes (British Petroleum oil spill in the Gulf of Mexico). In addition to
that, the bribery and corruption scandals arise every year throughout the world. Annual surveys by the Transparency
International demonstrate the high levels of corruption perception within the public sector. The Corruption Perception
Index ranks 180 countries by their perceived level of corruption using the scale from zero (highly corrupt) to 100 (the least
corrupt). The index of 2018 demonstrated that two-thirds of all countries score below 50, with an average score of
47wQbNPTDJp9hMYdvogK2hAUiHsGeiybwaWe36bwtRQ3UTpYV7YuZ8FV5j9nauFCWwcjM6dTzpL5s2N79Rp5unwdMvc8ZK
U corruption. (Corruption Perception Index, 2018)
There are different ways to tackle the problem of ethical/unethical decision-making in business, either from theoretical or
practical viewpoint. If the theoretical analyses evolve around issues of the philosophical (axiological) nature, the practical
approaches are more solution-oriented. The current chapter pays attention to the latter aspect, it is divides into two parts:
(1) the context (individual and organizational) of ethical decisions making; (2) the framework of ethical decision-making.
Still, prior to the discussion it is necessary to give description of the basic terms used in the chapter. An ethical issue can be
defined as a situation in which an individual must reflect upon competing moral standards in determining what is a morally
appropriate decision or action. Ethical dilemmas are to be understood as more challenging situations involving ‘right versus
right’ or ‘wrong versus wrong’ alternatives, such as deciding which employee to lay-off or whether to anonymously report
the misconduct of a manager. Moral temptation, however, involves ‘right versus wrong’ alternatives linked more directly to
our self-interest. Moral judgment is defined as the determination of the most ethically appropriate or the least ethically
objectionable course of action among potential alternatives. Ethical behaviour is behaviour that can be supported by one
or more moral standards (Schwartz, 2017).

Context of Ethical Decision-making

When talking of ethical decision-making in business both the individual and the situational (organizational) factors are of an
equal importance. In order to understand the process, we have to take into account the following factors – first of all, the
person’s moral character, then the situational context (for example, company’s values and norms, moral standards, etc.),
and, finally, - the urgency or intensity of the particular ethical issue for the individual (Figure 9.1).
Figure 9.1. Framework for Ethical Decision-making in Business (Source: Ferrell et al.,
2015)

Any ethical decision-making process requires an individual or group work in choosing among various possible actions that
eventually would be regarded as right or wrong by the stakeholders within and outside the company. Therefore, the first
step is becoming aware that an ethical issue exists at all. Ethical awareness is the ability to perceive whether a situation or
decision has an ethical dimension at all. Costly problems can be avoided if employees are able to first recognize whether a
situation has an ethical component. Nevertheless, in cases when decision-decision making is a part of everyday job routine,
it is easier to overlook certain ethical issues (for instance, when job routine involves hiring and laying off people on daily
basis and something like that). This makes it important for organizations to train employees in recognition of the potential
ethical consequences of their current decisions. The scope of the training programs could vary, but all in all they should
include familiarization with societal and organizational ethical values and norms, possible ethical scenarios (typical
problems and their solution possibilities). In other words, the training could help develop employees’ ethical awareness.
The intensity of an ethical issue relates to its perceived importance to the decision maker. It is personal and temporal in
character to accommodate values, beliefs, needs, perceptions, the special characteristics of the situation, and personal
pressures prevailing at a particular place and time (Ferrell et al., 2015). As research suggests, the individuals, when ethically
challenged, are subjected to influence of their respective reference groups – the workplace, family, religion, legal system,
community, and profession –

and the level of importance of each of these influences varies depending on how important the decision maker perceives
the issue to be. According to McDevitt & Van Hise (2002), as well as to Schwartz (2017), the ethical issue intensity involves
six main components:
1. Total harm/benefit caused by the respective choice (magnitude of consequences),
2. Social consensus (degree of agreement that option is good or evil),
3. Probability of effect (likelihood action will cause expected benefit/ harm),
4. Time (the time period between the present instant and the consequences of the act),
5. Proximity of closeness (the feeling of nearness that the moral agent has for the victims or beneficiaries),
6. The number of people to be affected by the action.
Individual factors of ethical decision-making. Facing ethical issues in their daily lives people, as a rule, ground their decisions
in their personal perceptions, values, stereotypes, superstitions, etc. Usually they learn these values through the
socialization process in family, social groups, formal and informal education. Among the individual factors that govern
ethical decision-making, gender, age, education, culture and relation to power can be mentioned (Figure 9.2).

Figure 9.2. Individual factors of ethical decision-making (Source: Author’s compilation)

Among the individual factors of the ethical decision-making we can mention the following ones: gender (although research
shows that in many aspects there are no differences between men and women, still this aspect should be taken into
account due to the possibility of gender discrimination); education (higher levels of education make it possible to avoid the
ethical pitfalls and take better informed decisions

regarding crucial issues in business or, in other words, higher levels of education might encourage people considering more
fully alternate perspectives or extenuating circumstances rather than judging complex ethical issues in narrow absolute
terms) (Nikoomaram et al., 2013).
One of the significant impacts of globalization is that business organizations operate across cultures. Depending on how
management responds to different values and beliefs, cultural diversity may substantially affect the organization’s
performance. Still, the reality of today is that multinational companies look for businesspeople that make decisions
regardless of their nationality. At the same time, in the case of international or global company, potential problems can
arise if there is resistance to transfer parent company values to the local (national) subsidiaries. In that case there exist only
two possibilities – either to stick to the global ethical standards or to adapt to local ways of living and doing business, still
keeping the ethical values of the company (Simga-Mugan, 2005).
Age is another individual factor researched within business ethics. On one hand, it is related to the work and life
experience, a theoretical consensus appears to support that age improves one's ability to apply relevant ethical standards;
oh the other hand, there exists a problem of age discrimination (ageism) in business. The latter statement could be
illustrated by the research carried out in 2019 by the Insurance company Hiscox “Ageism in the Workplace Study” (Hiscox,
2019). According to this study, the workplace age discrimination is growing and has been largely underreported for various
reasons, chief among them are the fear of creating a hostile work environment arising from a complaint and a lack of
knowledge about the process of filing an age discrimination charge.
Locus of control relates to how people view themselves in relation to power. There are individuals who believe in the
external control; they believe that their ability to make significant ethical decisions are rather low (they believe in “going
with a flow” and feel the most comfortable in the tightly structured and hierarchic business environment). Whereas those
who believe in internal control trust that they control the events in their lives by their own effort and skill and influence
their environment (they are more apt for change).
Organizational factors. The second component is the organizational environment, or, to put it in a different way, the ethical
corporate culture of the organization, the ethical infrastructure or context. This culture consists of both – formal and
informal elements (formal elements – internal communication system, code of ethics, sanctioning and reward systems,
performance standards and ethical training programs; informal elements – organizational culture, traditions, norms,
symbols, etc.). The underlying assumption is that companies with a persistent and strong ethical structure make their
employees to be more aware of ethical issues and ethically appropriate behaviour (the one that could be recognized as
such by the organization). Approach to the ethical issues by employees depend not only on their personal background
(personal values), but also on the exposure to others who behave ethically or unethically within organization.

In addition, one more factor can be mentioned in relation to ethical decision-making, the one of opportunity. The
opportunity can be described as condition than make it possible to behave ethically or unethically by providing rewards or
failing to erect barriers against possible ethical transgressions in the form of punishment. The lack of clearly stated ethical
boundaries allows individuals to engage in such behaviour without fear of consequences. Opportunity also depends on the
individual’s immediate job context – co-workers, clients and nature of the work itself. The management can use positive
reinforcements, such as salary, raises, bonuses and public recognition, and the negative ones – demotions, penalties, public
exposure of unethical behaviour, etc.
Framework of Ethical Decision-making
In general, the ethical decisions making process is viewed as a succession of five particular steps (Figure 9.3).

Figure 9.3. Ethical decision-making process (Source: Markkula Centre for Applied Ethics, 2015)
The first stage involves the recognition of an ethical issue as such. This stage presupposes asking the questions like these:
Could this decision or situation be damaging to someone or to some group? Is it related to choice between a good and bad
alternative? And so on.
The second stage is about gathering all information possible. The questions to be asked are the following: What are the
relevant facts of the case? What facts are not known? Can I learn more about the situation? Do I know enough to make a
decision? What individuals and groups have an important stake in the outcome? Are some concerns more important?
Why? What are the options for acting? Have all the relevant persons and groups been consulted? What are the creative
options?
The third stage, in its turn, is the evaluation of alternatives or alternative actions. The questions posed are the following:
Which option will produce the most good and do the least harm? Which option best respects the rights of all who have a
stake? Which option treats people equally or proportionately? Which option best serves the community as a whole, not
just some members?
The fourth, the most important step is, without any doubts, the decision making, the acting upon the chosen alternative on
the basis of the information gathered.
Finally, the fifth stage is related to the reflection about the outcome of the decision- making process. The questions here
are the following: How can the decision be

implemented with the greatest care and attention to the concerns of all stakeholders? How did the decision turn out and
what must be learned from this specific situation? (Markkula Centre for Applied Ethics, 2015).
Apart from the ethical decision-making framework described above we can mention other frameworks, named “Moral
Compass”, “Foursquare Protocol”, “Plus Model” and “Five I Formula”. Let us take a brief look at them.
Moral Compass
This particular ethical decision-making framework was developed by the Harvard ethics specialist Lynn Paine (2006). The
focus of the framework is quality of the decision-making process and the ethical grounding of each of the steps. The
framework is represented by so-called lenses or frames (four altogether).
Lens 1: Purpose – Will this action serve a worthwhile purpose? The first frame examines the end results of the decision-
making process taking into account the ethical component as well. The questions posed here are related to the short-term
and long-term goals, the efficiency of the taken course of action, the justification of the means used for reaching the goal.
Lens 2: Principle – Is this action consistent with relevant principles? The relevant principles can be ethics codes, ethical
standards, etc. The questions to be asked within this frame are related to the norms of conduct and the compliance of
actions with the norms and standards agreed upon by the organization.
Lens 3: People – Does this action respect the legitimate claims of the people likely to be affected? This lens concerns the
impact of decisions. This process can be described as a possible risk and alternative assessment. The significant aspect this
frame involves is the one of the harm mitigation and compensation to the parties involved (the least harm principle).
Lens 4: Power – Do we have the power to take this action? This lens directs attention to the exercise of power and
influence. The focus of this particular frame is availability of resources (material and intellectual) and ability to act.
Once an issue is identified, the four kinds of questions explicate different features of the situation so they can be inspected
and compared with other features, and then evaluated and addressed. Together the four lenses create
Taken together these four frames (lenses) constitute a a compass for the manager that helps chart a reasonable course
through conflicting demands (Paine, 2006).
Foursquare Protocol
Yet another ethical decision-making framework was developed by Stephen Goldman (2008), it is called protocol as it
describes procedures to reach the ethical consensus. The protocol consists of four elements, it helps responding correctly
in some ethically challenging situations.

Protocol Element One: Close description of the situation. This phase is about full information gathering and presenting all
facts to see if something is not missing out. This is important to ensure the quality of decision.
Protocol Element Two: Gathering accumulated experience in similar situations. The focus here is similar past experiences
within and outside the organization and the steps that were taken to resolve the situation in the most ethical and efficient
way.
Protocol Element Three: Measuring the degree of similarity with past situations. This part of the protocol is about weighing
all pros and cons, all similarities with and differences from between the situations present and past.
Protocol Element Four: Analyse Your Decision-making Situation. This part of the protocol deals with the ability to make the
conscious, appropriate and informed decision under particular circumstances. The protocol proposes three courses of
action: first, identification of any self-interest in the action considered; second, analysis of situation from the viewpoint of
the receiving end (to step into another person’s shoes); third, examination of the moral aspect of the course of actions
chosen.
According to Goldman (2008) organizations, that establish a strong ethical framework, most likely will have a more pleasant
working environment and good corporate reputation. In other words, they can be among the most thought after working
places.
PLUS Ethical Decision-Making Model
PLUS is an acronym of another ethical decision-making framework that strives to create a clear and cohesive approach to
implementing a solution to an ethical problem (Ethics Resource Center). It is a tool for managers to apply the so-called
“ethical filters” to decision-making process. It has to be noted that this particular framework leaves out any issues related
to making a profit in order to focus on values, rather than revenues. In what follows we will decipher each letter
subsequently:
P – Policies and procedures: aligning decisions with the policies and procedures laid out by the company
L – Legal: compliance with the legal parameters or regulations
U – Universal: compliance with organizational core values and organizational culture S – Self: accordance to individual’s
personal standards of fairness and justice
These filters can even be applied to the process, so leaders have a clear ethical framework all along the way. It should also
be used to assess the viability of any decisions that are being considered for implementation.
Five ‘I’ Formula
This formula, developed by C. E. Johnson (2018) is a combination of all previous models. According to the author, the Five
‘I’ formula is useful for practical purposes, when there is no handbook or manual at hand. It describes the steps of ethical
decision-making.

Step 1: Identification. This step involves recognition and formulation of the ethical problem. Setting goals and objectives is
also part of problem identification. The decision maker needs to understand why the problem needs to be solved and what
are the consequences if it remains unsolved.
Step 2: Investigation. This step presupposes situational analysis, data collection, stakeholder identification and introduction
of ethical perspectives.
Step 3: Innovation. The third step - generating a variety of solutions or options. The decision maker needs to weigh the
merits of each solution based on a set of criteria such as its applicability to the problem and its context, suitability to a
particular ethical perspective or theory, and how it can help reach the identified goals and objectives as effectively and
efficiently as possible.
Step 4: Isolation. This step involves reviewing results of step two against the background of the output of step three.
Isolating the solution specifically requires evaluating the data collected and the results of the analysis, examining the pros
and cons of alternative solutions, taking into consideration the context of the problem, and referencing a particular ethical
perspective or theory.
Step 5: Implementation. The final step of the ethical decision-making framework of Johnson involves the actual
implementation of the solution. The decision maker needs to develop an action plan on how to implement the solution.

CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES

1. What is the difference between ethics and morality?
2. What are individual factors of ethical decision-making process?
3. What are formal and informal organizational factors of ethical decision-making process?
4. What ethical decision making frameworks can one use, based on existing theory?
5. What advantages and disadvantages do individual ethical decision-making frameworks studied above have?

BUSINESS ETHICS VERSUS CORPORATE SOCIAL RESPONSIBILITY

Development of Corporate Social Responsibility and business ethics concepts

Existing managerial research has continuously studied Corporate Social Responsibility approaches, policies and actions over
the past decades, using the data from corporations, governments and non-governmental institutions.
Currently the researchers (for example, Heinrich, 2013) define four concise stages of Corporate Social Responsibility
maturity level. The first type (or 1st Generation Corporate Social Responsibility level) is marked by prevalence of single
socially driven measures performed by companies (it can be Corporate Social Responsibility reporting, charity, employees
social safety measures implementation) which develop corporate citizenship, but cannot be considered a strong and
holistic strategy (Carrol, 1999). The disadvantage of this developmental type is that company management at this point
considers Corporate Social Responsibility as an unnecessary part of company development (Walker, 2014).
The second type (2nd Generation Corporate Social Responsibility level) is a structured and holistic approach towards CSR
practices final implementation (a company could develop a strategy based on ISO 26000 or the OECD Guidelines principles)
and becomes a part of corporate routine management. At this point, an organization combines its economically efficient
strategy with CSR strategy (Walker, 2014) and at every decision-making point considers the necessity to carry on these
practices.
The third type (3rd Generation Corporate Social Responsibility level) is described by interrelation between each stage of
managerial decision-making, including its implementation to sub-strategies such as innovation management or HR
management. At this point Corporate Social Responsibility becomes a part of company core business. In existing literature
this approach is referred to as transformational process, when the business intends to solve social problems as well as
traditional ones (Walker, 2014).
Finally, the fourth type is called corporate resilience (4th Generation Corporate Social Responsibility level) when companies
“don’t talk about Corporate Social Responsibility anymore and responsibility evolved into a new self-learning holistic
behaviour. Common sense leads to decisions which are humane and ethical. Responsible leadership, transparency, holist
thinking, stakeholder engagement, social innovations, business innovations, are all part of a proactive behaviour of the
organization” (Walker, 2014). At this point the company ensures Corporate Social Responsibility is an authentic part of
every process and action, and it becomes impossible to distinguish it from routine managerial practices. Some researchers
indicate, that there is a fifth type of Corporate Social Responsibility, integrative corporate robustness (the 5th step)
requires continuous improvement, and a change that involves not just one actor (the company) should be based on
continuous improvement of Corporate Social Responsibility principles implementation as the company develops, and social
outcomes become one of the most important key

performance indicators (KPI) for corporate managers (Zamagni, 1995; Zadeck, 2006).
Commonly accepted structure of Corporate Social Responsibility is shown on Figure
10.1. The concept implies integration of the following elements:
• sustainability (combination of economic, social and environmental outcomes, balanced in the company strategy),
• market (economic feasibility of the product or service based on consumer perception),
• ethics (avoiding unethical managerial behaviour on all stages of product development and within regular consumer
practices),
• sincerity (providing the stakeholders with all the required information, ensuring a high level of transparency),
• resources (ensuring socially and environmentally friendly use of the resources, when it is not necessarily the
cheapest option),
• goals (measuring social goals and implementing them into routine managerial practices),
• long-term (management considers not only short-term outcomes of the developed decisions, but also mid- and
long-term ones, and long-terms goals have a priority),
• responsibility (managers are responsible for the implemented decisions in the long-term perspective).
Figure 10.1. Corporate Social Responsibility concept decomposition (Source: Foodengineering.com)

Business ethics as a concept is inherited from philosophers, and though one can name Aristotle among the first business
ethics researchers, the concept in relation to management gained interest much later, when Corporate Social Responsibility
concept was already being implemented. The majority of contemporary researchers start their studies of business ethics
concept from since 1960s. Although the present research will attempt to trace the history since 1960, it is appropriate to
start by tracing the origins of business ethics thought over the past 100 years. The first managerial textbook on business
ethics was Business Ethics by Frank Chapman Sharp and Phillip
D. Fox (1937). The preface starts off with the statement: “this book deals with the right and wrong of the transactions that
take place in the competitive business world.” (Ferrel & Ferrel, 2009). In business ethics research, “there are three levels of
ethical standards i.e., the law, policies and procedures, and moral standards of employees” (Josephson, 1988):
1. The law, which is the formal side of business ethics implementation, should which actions are permissible within
the society, and which of them are not. Thus, the law becomes a bottom line of acceptable behaviour. This means, in fact,
that not all legal actions are at the same time ethical – hence obedience to the law does not mean that a person is being
ethical.
2. Procedures and policies, which are set at the organizational level and define employee behaviour from the ethical
red lines point of view.
3. The moral decisions made by the employees when they are not identified by company business ethics policy. At
this level, the company culture supports ethical behaviour of the employees.
According to Business Ethics timeline, one can find the following timeline in business ethics research (Table 10.1). In
accordance with existing research, the timeline starts with 1960s, when business ethics concept appeared in managerial
research and practice.

Table 10.1. Business ethics research timeline (Source: Ethics Compliance Initiative)

1960 1970 1980 1990 2000+

Environmental issues Employee militancy (us vs. them) Bribery and illegal contracting practices Unsafe work
practices in third world countries Emerging technology issues: cybercrime,
privacy
Employer
/employee tensions Human rights issues (forced labour, low wages, work
environment) Deceptive advertising Increased corporate liability for personal
damageIntellectual property theft
Civil rights
and race Firms start Financial
fraud Financial
mismanageme International
corruption

relation issues practice of covering up not confronting issues (savings and loan scandals) nt
& fraud
Changing work ethics Federal Corrupt Practices Act passes (1977) Transparenc y issues arise Federal
Sentencing Guidelines for
Org. (1991) Sarbannes Oxley Act (2002)
Drug use escalated Compliance & legal to values orientation Defense Industry Initiatives
(1986) Global Sullivan Principles (1999) UN Convention Against Corruption
(2003)

The elements of modern business ethics model are somewhat overlapping the ones included in Corporate Social
Responsibility model, yet even in this case their interpretation is different:
• responsibility (managers are responsible for making and implementing ethical decisions),
• trust (managers are to ensure trust within horizontal, vertical and outreaching managerial communications),
• behaviour (managers are responsible for following ethical path in their everyday routines and strategies),
• principle (ethical principles are implemented within the decision-making process);
• relationship (the issues of relationship development are an important issue in the decision--making process);
• choice (between a number of alternatives, a choice for the maximum ethical outcome should be made);
• reliability (managers are to be reliable on each stage of decision-making and decision implementation process);
• morality (moral values become one of the measurements in the process of decision evaluation).
As one can see from the above, Corporate Social Responsibility concept is somewhat different from business ethics
concept, first of all in terms of legal acts and frameworks used in both cases. While Corporate Social Responsibility goals
remain quite clear (avoid gender differentiation, child labour etc.), business ethics guidelines are far less concise. To give an
example, one can consider comparison of different cultures based on GLOBE research (Table 10.2).

Table 10.2. GLOBE cultures’ classification: what’s ethical? (Source: Svirina, 2011)

Feature Low level Medium level High level

Self-confidence Sweden, Japan Egypt, France US, Germany
Future orientation Russia, Italy Australia, India Switzerland, Netherlands
Gender egalitarianism Sweden, Hungary Italy, Netherlands India, China, South Korea
Power distance Denmark, South Africa, Israel UK, France Russia, Spain, Thailand
Collectivism Sweden, UK Japan, Israel China, Iran, India
Performance orientation Russia, Greece Sweden, Israel US, Taiwan, Hong Kong
Humane orientation Germany, Singapore US, Sweden, Hong Kong Egypt, Indonesia

Based on the proposed comparison, one can see that certain practices that are considered ethical in a number of countries
would be non-implementable in another. For example, an ethical Chinese practice of asking an employee to do a person
favour to manager would be considered absolutely unethical in, for example, Swedish environment. At the same time, in
both cases such behaviour would be viewed as socially irresponsible from the corporate governance point of view as the
employee wastes his/ her time on managing a task that is not related to company performance. This difference moves us
forward to decision-making process analysis from both points of view.
Managerial decision-making
Firms commit to Corporate Social Responsibility in their decision-making process in order to meet stakeholder needs (Crane
et al., 2008), whilst they innovate to convert demand changes into wealth opportunities (Drucker, 2014) for stakeholders
(Mishra, 2017). In this vein, Herrera (2016) suggests that stakeholder engagement enables business model innovations,
which in turn can create a lasting social impact.
Existing research suggests several approaches towards defining an ethical decision- making process, i.e. the utilitarian, the
justice, the common good and the virtue approach, followed by the rights approach. Each of those has certain specific
features described below.
1. The utilitarian approach suggests the following sequence of actions: (a) define alternative actions that are possible,
and stakeholders, who are affected by the decision; (b) for each alternative, determine benefits and costs; (c) select an
action in the situation in question which produces maximum benefits over minimum costs and (d) determine whether this
action can

become a policy. The limitation of this approach is that it does not identify from whose angle the decision and its outcomes
should be evaluated.
2. The rights approach includes the following actions: (a) identify the right being upheld or violated; (b) explanation
why the status of the full rights should be assigned to a certain activity (why is it essential); (c) assess whether this right
conflicts with other rights and (d) define an optimal decision. The limitation of this approach is that the rights are not
absolute and hence they are vague criteria to make decisions.
3. The justice approach suggests the following sequence of actions: (a) introduce the principle of justice (inequality
can come from differentiation by effort, accomplishment, contribution, need, seniority, contact, social ties);
(b) define what type of distribution is present; (c) assess the fairness of distribution and (d) select a fair process of
distribution. The main limitation of this approach is that fair distribution cannot be clearly defined.
4. The common good approach includes the following actions: (a) identification of common good elements that are
involved; (b) explain why stakeholders are obliged to promote or protect common good and (c) define if action in question
conflict with obligation to promote or protect common good. The core limitation of this approach is that stakeholders can
define common good differently and this approach opposes western individualism and pursuit for self-interest.
5. The virtue approach suggests the following sequence of actions: (a) ask yourself if a certain action represent the
kind of person you wish to be; (b) ask if a certain action is in line with either company reputation or vision, or the desired
structure of the latter, or what it would like to be and (c) define whether the action maintains the balance between
company success and quality. This approach is limited by the change in attitude towards processes and actions as it occurs
over time.
In case of Corporate Social Responsibility the manager would be limited to the use of the utilitarian approach as this type of
decision-making is based on clear key performance indicators, and there is no need to define either common good or
virtues. This managerial development angle suggested development of Porter and Kramer’s (2011) concept of shared value
which identifies core features of Corporate Social Responsibility:
⚫ “reconceiving products and markets – companies can meet social needs while better serving existing markets,
assessing new ones, lowering costs through innovation,
⚫ redefining productivity in the value chain – companies can improve the quality, quantity, cost and reliability of
inputs in order to drive economic and social development,
⚫ enabling local clusters – companies are developing in interrelation with the local community? (Porter and Kramer’s,
2011).

The shared value concept combines features of Corporate Social Responsibility and business ethics, and its core
components can be seen in Figure 10.2.

Figure 10.2. Shared value decomposition. (Source: Author’s compilation)

In this concept one can find elements of CSR concept (environmental consciousness, trust and consideration,
professionalism and fulfilment) and also elements of business ethics approach (high ethical conduct, pioneer spirit, cultural
diversity, team spirit) which together enabled creation of the shared value approach that was an answer to engineering
revolution challenge from ethical and socially responsible point of view. Hence, from the angle of decision-making, CSR and
business ethics in the contemporary setting are to be combined to ensure both economic and social efficiency.
Besides assessing Corporate Social Responsibility concept and business ethics concept as a prepositions to shared value
concept, some researchers draw attention to the fact that the idea of sustainable development also comes from a
combination of these two. The agreed definition for sustainable development is “development that meets the needs of the
present without compromising the ability of future generations to meet their own needs” (United Nations, 2019), which is
in line with both Corporate Social Responsibility and business ethics. The concept had led to creation of sustainable
development goals, which include the following (as defined by United Nations):
Goal 1: no poverty. “Globally, more than 800 million people are still living on less than $1.25 a day; many lack access to
adequate food, clean drinking water and sanitation. rapid economic growth in countries like china and India has lifted
millions out of poverty, but progress has been uneven. Women are disproportionately affected;

they are more likely to live in poverty due to unequal access to paid work, education and property. in their development
the companies should aim to make decision that lead to reducing poverty” (United Nations, 2019).
Goal 2. Zero hunger. Developing countries experience both famine and hunger, and are looking for the solutions to provide
required nutrition to their citizens. The companies should aim to make an input for hunger reduction if possible.
Goal 3. Good health and well-being. This goal aims to eliminate both injustice, lack of resources and possibilities for those
from the developing countries, resulting in decreased level of poor health and development outcomes to which companies
should contribute.
Goal 4. Quality education. “Children from the poorest households are four times more likely to be out of school than those
of the richest households. Disparities between rural and urban areas also remain high.” (United Nations, 2019). The
companies should aim to contribute to its reduction.
Goal 5. Gender equality. “Ensuring universal access to sexual and reproductive health, and affording women equal rights to
economic resources such as land and property, are vital targets to realizing this goal.” (United Nations, 2019). The
companies are to plan their activities to ensure reduction of gender gap.
Goal 6. “Clean water and sanitation. Water scarcity affects more than 40 percent of people around the world, an alarming
figure that is projected to increase with the rise of global temperatures as a consequence of climate change”. (United
Nations, 2019). The companies should aim to reduce the problem.
Goal 7. “Affordable and clean energy. Ensuring universal access to affordable electricity by 2030 means investing in clean
energy sources such as solar, wind and thermal.” (United Nations, 2019). This goal also requires contribution from the
companies.
Goal 8. Decent work for everyone and ensured economic growth. This goal is concerned with decreasing inequality which
should be followed by higher economic growth rate. The companies contribute to this goal due to their nature.
Goal 9. Industry, innovation, infrastructure. Technological progress should enhance lasting solutions to economic and
environmental challenges. This should be done by means of creating sustainable industries, fostering scientific progress and
innovation,
i.e. facilitating sustainable development – and should be facilitated by the companies in the first place.
Goal 10. “Reduced inequalities. It is well documented that income inequality is on the rise, with the richest 10 percent
earning up to
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Utotal global income. In developing countries, inequality has increased by 11 percent if we take into account the growth of
population”. (United Nations, 2019). Innovation development by the companies should ensure inequality reduction.

Goal 11. Sustainable cities and communities. “The rapid growth of cities in the developing world, coupled with increasing
rural to urban migration, has led to a boom in mega-cities. In 1990, there were ten mega-cities with 10 million inhabitants
or more. In 2014, there are 28 mega-cities, home to a total 453 million people”. (United Nations, 2019). Providing their
well-being is part of corporate strategies.
Goal 12. “Responsible consumption and production. Achieving economic growth and sustainable development requires
that we urgently reduce our ecological footprint by changing the way we produce and consume goods and resources”
(United Nations, 2019). This should be a part of companies’ strategy.
Goal 13. “Climate action. The goal aims to mobilize $100 billion annually by 2020 to address the needs of developing
countries and help mitigate climate-related disasters” (United Nations, 2019). The contribution to this goal from the
companies is required.
Goal 14. @Life below water. Oceans absorb about 30 percent of the carbon dioxide produced by humans, and we are
seeing a 26 percent rise in ocean acidification since the beginning of the industrial revolution” (United Nations, 2019), and
it is the goal of the companies to decrease such a negative impact.
Goal 15. “Life on land. Sustainably manage forests, combat desertification, halt and reverse land degradation, halt
biodiversity loss” (United Nations, 2019). This goal is also not possible without companies’ contribution.
Goal 16. “Peace, justice and strong institutions. High levels of armed violence and insecurity have a destructive impact on a
country’s development, affecting economic growth and often resulting in long standing grievances among communities
that can last for generations. Sexual violence, crime, exploitation and torture are also prevalent where there is conflict or
no rule of law, and countries must take measures to protect those who are most at risk” (United Nations, 2019). The
responsible companies are developing solutions to related problems.
Goal 17. Partnership for goals. This requires joint action from the companies in relation to society and government.
The described sustainable development goals are related to both studied concepts.
One more significant issue of implementing social responsibility and business ethics concept is lying in the field of relating
these concepts and the derived ones (shared value concept and sustainable development) to technology and innovation
where the so-called engineering revolution is happening.
Technology, innovation and social responsibility
Both innovation and sustainability are top company’s strategic priorities and may show important complementarities.
Extant literature has demonstrated a relationship between innovation and Corporate Social Responsibility given that some
technological changes implemented to improve products and process may pursue economic interests but also social
responsibility (Bansal, 2005). In response to that, the linkage between innovation and Corporate Social Responsibility has
been widely
analysed and systematically reviewed by Ratajczak and Szutowski (2016). However, the banking sector has been excluded
from most of the empirical studies on Corporate Social Responsibility and innovation. In fact, analyses of Corporate Social
Responsibility determinants are scarce when compared to other sectors, with some exceptions. For example, Chih et al.
(2010) studied the predictors of Corporate Social Responsibility, as did Jizi et al. (2014) for a sample of the US. In turn,
Scholtens (2009) examined the social responsibility the international context, whereas San-José et al. (2011) built a
measure to identify ethical level of corporate performance. Finally, Forcadell & Aracil (2017) focused on institutional
determinants of Corporate Social Responsibility policies in developing host countries. Thus corporate responsibility,
according to existing literature, is integrated into technology and innovation development strategies. The situation with
business ethics is somewhat different; to make sense of it, one must first get acquainted with different types of power (to
evaluate which type is associated with innovation and technology). According to managerial research, there are the
following types of power:
⚫ coercive power – someone is made to do something he/ she does not want to do,
⚫ reward power – a person has an ability to grant another person some things he/ she desires for doing something,
⚫ legitimate power – based upon the formal role of a manager or leader whom people obey,
⚫ referent power – an ability to administer to the other a certain sense of acceptance or personal approval
(charisma),
⚫ expert power – an ability to administer to the other information, knowledge or expertise (ex.: doctors and lawyers),
⚫ informational power – based on ability to utilize information (including manipulation).
Existing research reveals positive correlation between referent, informational and expert power, outlines, that referent
power tend to decrease over time, while expert power and informational power tend to have the same level of influence
and define that expert and informational power remain unchanged in case reward and punishment system changes. These
findings are essential as expert power and information power are the two mainly associated with technology development.
Thus speaking about ethical and socially responsible aspects the researchers are to understand that the power of
technology and innovation are based on these two types, and assess related advantages and disadvantages. This defines
core ethical issues regarding technology development:
⚫ growing role of expert and informational power (the latter in accordance with growing role of Internet),
⚫ problem of ethics and social responsibility insuring after some disastrous event had occurred,

⚫ problem of blaming only ‘bad apples’ for irresponsible technological implementations,

⚫ prejudices and their influence on customer decision-making in the field of technology (experiment with circles) –
searched by socio-economic systems network analysis, including self-personal influence.
An illustration for these problems from an ethical and technological point of view is provided in Table 10.3.

Table 10.3. Comparison of technology and ethics perspectives (Source: Author’s compilation)

Type of
approach Basic ethical theory Main goal Decision-making criteria Assessed content
Merit-based Rule-based ethics (deontology) Punish the unethical ones Fairness Actions
Rights-based Ethics of rights and freedoms ‘Cure’ the unethical ones Existence of
formal right
acceptance by society Actions
Consequences- based Consequences based ethics Provide instrument to prevent unethical
behaviours Efficacy States of affairs (current and perspective)

The above comparison illustrates different approaches technology developers and ethical managers have towards
innovation. At the same time, managerial literature does not provide a necessary overview of ethical issue of innovation
development. An analysis of existing literature on technology innovation reveals that it is mainly focused either on (1)
technology innovation, including key issues of production in innovative economy, analysis of best practices in new product
development process, prepositions to produce successful innovative products in high-velocity environments, and other
issues, or (2) innovative climate and culture as a part of organizational culture, including cultural issues of innovative
process coordination, analysis of cultures supporting new product development etc., with main research focus on
technology innovation and in majority – qualitative and case studies. In terms of experimental testing the studies are quite
limited, and include testing the effect of project characteristics on new product performance, identification of new product
development best practices or creation of path model for workplace innovation. Along this line some of the researchers
had defined key independent variables that influence innovative products performance, structured those as strategy,
resources and process elements of innovation – resulting in integration with the second line of research in terms of
defining innovation structure within organizations as a complex of organizational innovation, innovation climate,

individual and team innovation (McMurray et al., 2013). Still, the quantitative side of joint research, combining technology
innovation, new product development strategy and workplace innovation issues remain very weak both in global context,
and especially in specific economic environments.
In the outskirts of this research the scientists argue about social outcomes of innovation, yet, current managerial practices
lack a foresight vision on technology and innovation relation to managerial efficiency and company performance, as well as
societal impact. Yet, at least the following possible problems with innovation and ethics were outlined by case studies:
⚫ Personalized genetic tests/ personalized medicine. The issue concerns protecting the data, as if this knowledge
leaks out, manipulating person’s behaviour becomes much easier.
⚫ Driverless zipcars. The concern with those is based upon making a decision in paradoxical situations: for instance,
whom the car should prefer to kill – the owner by sending him off the road in case a child ran onto it, or the child who
violated the rules.
⚫ 3-D printing. Giving 3D printing technology out to households means that dangerous and malicious products can
also be printed and get spread around without any authorities controlling the process.
⚫ Low quality and fake pharmaceuticals. That is mainly the problem of emerging markets, where the issue of drug
accessibility is one of the key concerns, building up a huge market for fake, untested or underdeveloped products with
extremely high consumer demand.
⚫ Autonomous management systems. The concern with these ones is – who is to take responsibility for company
actions in this case? Taking into account existing legal procedures, this concern starts to be much more important.
⚫ Human-animal hybrids (chimeras). Futuristic research already indicates that creation of such new species will
probably come up in the upcoming decade. What rights these species are to have? Should they be considered humans with
the same human rights, or should the humans be protected from the representatives of this new species as they will not be
able to compete on the labour market?
⚫ Data collection. The Facebook scandal with passing out private personal information had already happened, and in
the digital world the problem has to become worse and worse, as people themselves are responsible for sharing a lot of
personal information without clearly defined boundaries of violating privacy.
⚫ Human enhancements. The ethical question behind is not new and concerns how long is it necessary to keep
human beings alive despite lethal diseases, when there is no or extremely low chance of recovery. Should it be possible

to allow a person to become a chimera in this case without violating his or her human rights?
⚫ Relying on gadgets. A significant share of people has outsourced their memory functions to gadgets, leaving it
impossible to retrieve information if gadgets fail. The situation sets a question of the boundaries of human decision-
making, and hence requires clarification on where human responsibility ends if a person was relying on gadgets.
⚫ Data computing and statistics. In the age of big data human brain is unable to check the statistical processing of
millions of data units. This creates an incentive for cutting ‘fat tails’ and manipulating conclusions, which might become a
threat to human development.
These problems provided a basement for a specific discipline, technoethics, which itself defines the difference between the
two studied concepts – one can investigate the ethical issue of technology, while the social responsibility can only be
applied to companies and their behaviour (including innovation and technology development policies).
CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES
1. What are the key features of Corporate Social Responsibility concept?
2. What are the key features of corporate business ethics concept?
3. What are shared value concept and sustainable development and how are they related to Corporate Social
Responsibility and business ethics?
4. How were Corporate Social Responsibility and business ethics concepts evolving along the timeline?
5. How would you describe the changes in Corporate Social Responsibility and business ethics concepts in relation to
technology development?

BUSINESS ETHICS AND STRATEGIC MANAGEMENT

2007 global economic crisis highlighted two problems that were understated during pre-crisis period. The first one was
steadily decreasing entrepreneurial activity in the main sectors of economy (and relevant future decrease in employment
possibilities as one sees only a few countries with growing entrepreneurial activity worldwide). The second one came from
real and financial sectors of economy misbalance. The pre-crisis world witnessed sufficient growth of the financial sector,
which was not followed by relevant boost in the real sector. Both tendencies are explainable: for a talented person it is
much less risky to implement his or her abilities in the corporations, rather than start an entrepreneurial journey; and for
the investor it makes more sense to invest in more profitable financial products rather than rely on the ability of an
entrepreneur to deal with the customer-scarce current market. Due to incentives described, one can see that the two
problems are interrelated and connected to the following fact: an entrepreneur is producing not only economic, but also
social outcome; and as the latter can not be measured, it seems rational to eliminate it and focus on economic outcomes
solely. To change this situation, researchers in business ethics and corporate social responsibility had indicated correlation
between responsibility and profitability, but still the issue in not considered a priority in many corporate strategies. Thus in
this chapter we focus on creating a tool to measure social outcome to develop awareness on how ethics and social
outcome are changing in relation to corporate strategy implementation.
Social value creation as a result of ethical strategic management
Social value is a phenomenon that is under research both in Corporate Social Responsibility and Entrepreneurship studies,
and within each of those social and ethical results is being assessed in the framework of company’s strategy. Strategic
background of the social value and ethical behaviour is currently a part of corresponding research, thus proposing the need
to evaluate what has been research in the field at the point.
The majority of relevant research investigates relationship between social responsibility and its effect on company’s
performance, and the results are controversial. Some research indicates positive influence of socially responsible behaviour
on company performance (Carroll, 1979; Collins & Porras, 1994; Porter & Kramer, 2006). Others researchers have identified
that results are fixed, i.e. in some cases socially responsible behaviour leads to negative economic outcomes (Margolis &
Walsh, 2001; De Bakker, Groenewegen & Den Hond, 2005). Some research goes even beyond and outlines that socially
responsible behaviour is bound to lead to negative outcomes as it is some amount of money that is spend by the company
on something that has nothing to do with its original goals (Friedman, 1970). From this point, it seems worth understanding
where do such contradictions come from and require development of an approach that assesses solely social outcome
without mixing it with an economic one.
The other branch of research is dealing with social entrepreneurship that is considered a special type of entrepreneurial
activities (focusing primarily on social value). This

type of business is bound to be economically efficient, and yet it is unclear why social value focused entrepreneurs become
successful (as they are spending large amounts of money on social issues). Within this branch of research one cannot
define social entrepreneurship clearly (by Dacin, Dacin & Matear, 2010) as each entrepreneurial activity is in some way
social (Schramm, 2010; Mair, 2006). From this point of view, all entrepreneurship can be considered social, producing an
incentive to strengthen the approach to measure social outcome for all types of enterprises.
The idea of entrepreneurial social value creation provides an incentive for business- based post-crisis recovery. This
approach was first outlined by Keynes, who paid attention to social outcomes produced by regular business, and not only in
a form or taxes and employment. G. Dees, the founder of term “social entrepreneurship”, went further: “How many
businesses would start from scratch and go to scale if we didn't have venture capital? If we didn't have banking and
financial infrastructure to support business growth? If we didn't have business schools? We have a very elaborate support
structure for business entrepreneurs. Without something similar for social
entrepreneurship, we can't expect to see the same kind of scaling and impact.” (Dees, 2010).
One can point out at least two features, which contradict this statement. First, regulating social value creation by the
government is not in line with the entrepreneurial nature. If such regulation appears, a number of entrepreneurs would
choose social value creation instead of economic efficiency as it had happened with biogas stations in some countries (it
turned out that burning food instead of selling it in the market, which resulted in increased food scarcity in some
countries). The other reason why institutional regulating social value creation might lead to undesirable outcomes is that
there is no common approach towards social results measuring – and hence any assessment of the latter would be
questionable. Thus, the only way to efficiently manage social value creation within the regular strategic management is to
provide a tool for its measuring.
If it can be measures, it can be managed: is it possible to measure social outcome of ethical strategy?
The solution for measuring social value is provided by marginal theory, which approaches social efficiency as a balance of
external and internal social costs and benefits. Within this paradigm, Social Efficiency becomes an output, which is equal to
Marginal Social Cost (MSC) (as suggested by Watkins, 1981). Following this idea, customers would define an acceptable
price of goods and services on the basis of its utility, and increased amount of stock is leading to decrease in utility – thus
marginal utility is what defines the price. Since the suggested way does not provide an assessment tool, the problem of
measuring costs and benefits remains unsolved. Globerman argues: “How are social values of different outputs and inputs
established? After all, consumers are unlikely to have identical tastes and preferences, while workers, landowners, and
other suppliers of inputs are likely to differ in their skill levels and other endowments. Hence, members of society will differ
in their individual valuations of the many different outputs and inputs that characterize economies. In capitalist economies,
the forces of supply and demand establish the

values of outputs and inputs. Specifically, market-clearing prices, that is, prices that equate supply and demand, ordinarily
serve as measures of value. The reliance on market-clearing prices as measures of social value can be conceptually justified
by acknowledging that buyers should be willing to pay, at a maximum, what any quantity of a good is worth to them rather
than go without that good. This implies that the market demand curve for a good should represent the valuation that
consumers, in the aggregate, place on different quantities of the good. Similarly, sellers should be willing to supply to
buyers any given quantity of a good only if the price received at least covers the incremental cost of supplying that
quantity. This, in turn, implies that the market supply curve for a good can be taken to represent the incremental cost of
supplying different quantities of the good in question. Under reasonable assumptions, the market demand curve is
presumed to be downward sloping, while the market supply curve is presumed to be upward sloping.” (Globerman, 2011).
Also, evidence suggests that consumers are not readily buying goods for their social value solely (green products are not
the top sellers for retailers) – which means the choice is being made by customers mainly based on non-social value of the
product or service.
Standard approach towards solving the above mentioned issue is the following. “A standard assumption in the economic
theory of production is free disposability, meaning that if the point (x, y), for an output y and inputs x, is in the producer's
production set, then so too is any point defined on the graph (x',y' ) such that x ' > x and y ' < y . The assumption of free
disposability has been invoked explicitly in some studies of social efficiency and is implicit in other studies. This may be a
defensible assumption for a production process (though it can certainly be questioned in that context). But how can the
application of this assumption be interpreted to (say) life expectancy – as the ‘output’; and public spending on health – as
the ‘input’? There are (thankfully) very few governments in the world that can freely dispose of their citizens so that if the
country initially has a life expectancy of (say) 60 years, and health spending of (say) $100 per person per year, it is equally
feasible for it to have a life expectancy of
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Uefficiency is questionable. Social indicators do not stem from anything one could reasonably think of as a production
function representing a well-defined technology operated by an individual producer with well-defined physical inputs.
While there are production functions under the surface somewhere, there is clearly a lot more going on in determining the
aggregate relationship between measured social outcomes and social spending and/ or national income” (Ravallion, 2003).
Due to problems of social efficiency and efficacy measuring, researchers commonly estimated is an integrated value which
includes quality of life, employment conditions, environmental safety, work-life balance and other relevant issues, aiming
to keep their balance at the peak when each change would lead to decreasing the quality for a certain economic agent (i.e.,
Pareto efficient”). For example, Rizzo (1979) indicates that an action is socially efficient if it meets societal needs without
implementation of overwhelming costs. This thesis is followed by Rothbard: “Not only is ‘efficiency’ a myth, then, but so
too is any concept of social or additive cost, or even an objectively determinable cost for each individual. But if cost is
individual,

ephemeral, and purely subjective, then it follows that no policy conclusions, including conclusions about law, can be
derived from or even made use of such a concept. There can be no valid or meaningful cost-benefit analysis of political or
legal decisions or institutions.” (Rothbard, 2006). If one agrees, social efficiency can be achieved only when the company or
other economic agent follows ethical conduct to a full extend.
Yet there is a significant flow in this argumentation. Social value measuring (an objective assessment) is being substituted
by individual perception of social value (which is subjective in origin). This fact does not mean that social value can not be
measured; it merely means that an individual can not provide an objective assessment of created social value, and this is
proven both by intuition and rationalization. Henceforth, a special mechanism to assess entrepreneurial social output
needs to be created. Dr. Dees puts it that way: “We badly need greater clarity and transparency in performance evaluation
and assessment. That would give sceptics confidence that we're achieving the impact we're claiming to achieve. But that's a
small piece of a larger puzzle. We need improved legal structures, better financial mechanisms, better pipelines for talent,
and more directed education and training. We need all of that, and a culture that understands social entrepreneurship and
supports it.” (Dees, 2010).
Based on these findings, one can develop a tool for assessing social outcome of company’s strategy implementation (the
recommendation for which is implementation of Corporate Social Responsibility and business ethics concepts in managerial
routines and strategic plans).
Developing measuring instrument for social outcome: a base for strategy management
One of the mathematical ways to assess social outcome was suggested by Svirina (2011): “Analysis of real, financial and
virtual sector company’s performance based upon the data assembled from over 170 Russian enterprises have shown that,
in case the company is creating zero social value, approximately 1/10 of its profits is gained because employees and agents
are not being dissatisfied with entrepreneurial venture actions. This figure came out of chronological comparative analysis
of company performance which was provided in cases of relatively stable economic development and different approaches
towards social value creation in different periods taken into consideration for the purpose of analysis. It is also estimated,
that there is a relation between creation of positive social and economic value by an entrepreneurial unit, and this relation
has two specific features: it is non-linear and tends to be reproduced on self-similarity basis both in case of positive and
negative social value creation. Those two features mean that the mathematical framework to be used for social value
modelling should be based on those specific features. Henceforth, fractal theory was chosen as mathematical framework.
Though fractal is not clearly defined by mathematicians nowadays, it is being addressed as a set of fractional dimension.
According to Mandelbrot, the author of fractal theory, fractal is a rough or fragmented geometric shape that can be split
into parts, each of which is (at least approximately) a reduced-size copy of the whole (Mandelbrot, 1982), which means that
fractal is both non-linear and self-similar.

In order to solve the problem of social benefit measurement in value terms, a fractal with interstitial dimension from 1.2 to
1.3 (this dimension is defined by estimated type of relation between social and economic value creation by an
entrepreneurial unit) should be chosen as a basic figure for mathematical modelling. This chosen figure should also have a
feature of continuity and is to be directed into external environment. According to the developed set of features, Koch
snowflake curve has been chosen (Figure 11.1).
When the selected fractal is used in order to solve the problem of social benefit measurement, it can change in four
different ways according to the type and trend of social result created by the entrepreneurial structure (Svirina, 2012):
• in case social value, created by an entrepreneur, is changing simultaneously in the same direction, Koch curve will
have the classical one (Figure 11.1)

Figure 11.1. Koch snowflake (Source: http://mathworld.wolfram.com/KochSnowflake.html)

• in case social value, created by an entrepreneur, is changing unevenly in one direction, Koch curve will be changing
– an example is below (Figure 11.2)

Initial shape period State at the end of 1st period State at the end of 2nd period

Figure 11.2. First 3 iterations of Koch snowflake (uneven iteration change) (Source: Svirina, 2012)

• in case social value, created by an entrepreneur, is changing evenly in opposite directions, Koch curve will be again
changing partially– an example is below (Figure 11.3)

Initial shape period State at the end of 1st period State at the end of 2nd period

Figure 11.3. First three iterations of Koch snowflake (even iteration change) (Source: Svirina, 2012)

• in case the created social value is changing unevenly in opposite directions, Koch curve will be changing partially–
an example is below (Figure 11.4)

Initial shape period State at the end of 1st period State at the end of 2nd period

Figure 11.4. First three iterations of Koch snowflake (uneven opposite directions change) (Source: Svirina, 2012)

The interpretation of the figures and implementation of fractal theory is the following. The length of the initial figure rib in
all cases is 1/20 of entrepreneurial structure profit received in the initial stage, and, henceforth, the area of initial fractal is
equal to the share of the profit received due to creation of social value. The difference between fractal areas at the end of
the current and previous period is the measure of social result produced in value terms. Finally, a single change of Koch
curve in this model occurs when all criteria influencing social value created change by 10% from the initial state. In case the
change is higher (lower) than 10%, the basic length for next Koch curve iteration is changing proportionally. Social value
that is measured in value terms according to the described algorithm becomes a base for social benefit creation regulation
procedures.
Two main mechanisms for social value creation regulation can be suggested. The first one is a modified quota mechanism
(an analogue of the one introduced by Kyoto protocol). In terms of positive social value creation stimulation it could be
used in the

following way. At the first stage, minimum (basic) acceptable social value level (for a region or country, according to
regulation level) is to be estimated. In case the entrepreneur is producing social value which is lower than the basic level,
he/she should buy a quota equal to negative social value created from government authorities or companies producing
positive social value. This would allow launching a compensation mechanism that would allow entrepreneurs who produce
positive social value transform it into income, which should lead to an increase in economic system sustainability. Within
this mechanism the main problem is basic social value level estimation, which can be suggested to be considered equal to
zero at the initial stage of regulation in cases where:
• the level of labour turnover in an entrepreneurial structure is now exceeding normal,
• entrepreneurial unit performance is transparent (according to global standards),
• company’s agents assess information on entrepreneurial unit performance as clear and understandable,
• claim for replacement is not exceeding the rate which is considered normal of the country, region and industry,
• entrepreneurial unit is ecologically safe (according to national and regional requirements),
• the government and the society do not have valid claims on company performance.
Using the same basic level of positive social value creation and suggested mechanism for social value amount estimation in
value terms, the other way of entrepreneurial social value creation stimulation can be implemented. This second
mechanism should imply tax preferences for entrepreneurial structures which are creating positive social value (social
value volume in that case should be subtracted from the taxation base), and tax extras in the opposite case. As it can be
seen, both mechanisms are to be used in order to provide balance between social and economic entrepreneurial value
creation” (Svirina, 2011). This approach provides a number of problems in practice, yet its existence indicates the possibility
to create a measuring approach to be used in strategic KPI systems of the companies.
Existing research also argues that efficient implementation of strategies has to consider the context of social value oriented
managerial policies implementation. To measure it, the following hypotheses were tested:
1. the level of social value creation correlates with the share of rural population and level of economic freedom
(indicators of institutional development),
2. higher social activity rates can be found in countries with well-developed networks,

3. higher social activity rates can be found in the countries with a higher share of rural population.
For measuring social value Social Entrepreneurship Activity ratio (SEA) was used as measured by Global entrepreneurship
monitor.
As it can be seen from Table 11.1, there is a statistically significant negative correlation between the share of rural
population and the level of economic freedom
– which is in line with the existing literature (Porter & Kramer, 2006) and indicates better institutional development
in case of a decreasing share of rural population, and vice versa. It is stated in this study that a low level of institutional
development in the country indicates probable higher spread of networks and, hence, an existing base for network
economy.

Table 11.1. Non-parametric correlation between the SEA rate, the level of economic freedom and the share of rural
population. (Source: Author’s calculations)

Indicator
SEA rate Share of rural population Economic Freedom
Tau-b Kendall SEA rate Correlation coefficient 1.000 -0.108 0.208
Sig. (2-tailed) . 0.281 0.062
N 149 149 139
Share of rural population (RP) Correlation coefficient -0.108 1.000 -0.401**
Sig. (2-tailed) 0,281 . 0,000
N 149 149 139
Economic Freedom (EF) Correlation coefficient 0,208 -0,401** 1,000
Sig. (2-tailed) 0,062 0,000 .
N 139 139 139
Ro Spearman SEA rate Correlation coefficient 1,000 -0,158 0,318*
Sig. (2-tailed) . 0,278 0,048
N 149 149 139
Share of rural population (RP) Correlation coefficient -0,158 1,000 -0,549**
Sig. (2-tailed) 0,278 . 0,000
N 149 149 139
Economic Freedom (EF) Correlation coefficient 0,318* -0,549** 1,000
Sig. (2-tailed) 0,048 0,000 .
N 139 139 139
When Spearman coefficient was assessed for the same dataset, positive correlation was found between the level of
economic freedom and the SEA rate; as it can be seen,

the share of rural population is related to economic freedom, and it can be indicated that at least an indirect interrelation
between the SEA rate and the share of rural population exists. For the purposes of this assessment approach, the share of
rural population is used as an indicator of network communication; however, Global Entrepreneurship Monitor report on
social entrepreneurship studies this type of business in well-developed countries, where the share of rural population is
relatively low, and the networks are mainly Internet-based. For this type of societies the other type of indicator is needed,
which has not been considered here – thus it can be proposed that there is as interrelation between the SEA rate and
network activities, which is partly supported by the analysis in Table 11.1. Thus, hypothesis 1 has been supported, and
institutional development level matters for socially oriented strategy implementation.
To evaluate the stated hypothesis, cluster analysis for 39 countries from the sample has been performed (the ones
assessed in Global Entrepreneurship Monitor report on social entrepreneurship). The final centre of clusters for 4-element
clustering is presented in Table 11.2. These clusters’ centres were acquired during the seventh iteration of the original data.
The first cluster unites 16 countries with relatively low level of rural population and relatively high level of economic
freedom (this cluster includes Germany, Norway, Russia, Malaysia, Italy). Still, the level of the SEA is quite low in this cluster
– in case of well-developed countries due to high level of state input into satisfaction of societal needs within business
models (Norway), and in case of underdeveloped countries – due to inability to evaluate entrepreneurial opportunities
based on social need (Russia, Saudi Arabia). This cluster can be called ‘Friedmanite oriented countries’.

Table 11.2. Cluster centres (final) (Source: Author’s calculations)

Indicator Cluster
Friedmanite oriented countries
Developed countries
Developing countries
Boosting SEA countries
SEA rate 2,09 3,51 2,84 4,12
Share of rural population 24,69 12,71 47,38 86,00
Economic Freedom 63,15 74,30 60,82 59,90

The second cluster features the lowest share of rural population and the highest share of economic freedom – with quite a
high SEA rate. This cluster includes 14 countries, i.e., the US, Netherlands, Switzerland, Republic of Korea, Finland, Belgium,
Chile and others. These countries also demonstrate a high level of networking activity which is not rural based, and an
ability to reveal societal opportunity to further develop business models. This cluster is indicated as ‘Developed countries’.

The third cluster has a higher share of rural population and lower economic freedom level, and unites eight countries,
including Bosnia and Herzegovina, China, Jamaica, Morocco, South Africa. A higher level of networking, which in this case
appears as a result of rural population cooperation, leads to pursuit for societal opportunity to start a business, which
results is a higher SEA rate. This cluster is referred to as ‘Developing countries’.
Finally, the fourth cluster consists of Uganda solely, which shows a high rate of social entrepreneurship and share of rural
population with the lowest level of economic freedom. Thus, cluster analysis supports the second hypothesis. This cluster
can be seen as ‘Boosting SEA countries’.
Thus, one can see that the level of development influences the outcomes of companies’ social orientation and intention to
start such companies; yet there are some outliers, which indicate that institutional development is not the only source of
efficient social strategy implementation, and ethical behaviours might pay out even in case of developing countries.
Finally, the third hypothesis has not been supported either by correlation, or by cluster analysis. As it can be seen from
clustering, the highest SEA rate is indeed found in the country with a higher level of rural population, but the next cluster
with high social entrepreneurship activity consists of well-developed countries with a very low share of rural population.
Thus the possibility of rural population being the driver of social entrepreneurship can be rejected on the basis of
quantitative research, and hypothesis 3 has not been supported.
To illustrate the last statement, some graph analysis has been performed, which can be seen in Figure 11.5. As it can be
seen from Figure 11.5, the highest levels of social entrepreneurship activity lie along the line featured in this figure. This
line indicates that enterprises are socially active if the share population in the overall population of the country is high, but
the level of economic freedom is relatively low – in this case social entrepreneurship seems to be a classical one as
described by Yunus (2008); they also are socially active in case of a low level of rural population, but high level of economic
freedom – in this case social entrepreneurship models are again based on networks, but mainly virtual ones which appear
in well-developed countries among urban population.
To finalize the present research, graph analysis of the SEA rate relation to the level of economic freedom has been
performed (Figure 11.6).
As it can be seen from Figure 11.6, no exact interrelation can be found between the level of economic freedom and social
entrepreneurship activity, which supports existing literature that indicates higher enterprise activity of that type in case of
under- developed institutions.
R square for the linear model of these two factors is equal to 0.56, which means that no direct interrelation can be seen.
Still, the lowest rate of social entrepreneurship activity can be found in case of a very high economic freedom ratio (see
outlier in Figure 11.6).

Similar analysis was performed to estimate interrelation of the SEA rate and the share of rural population (see Fig.11.7). Its
results are similar to the ones performed above: no direct interrelation can be seen; still, the highest level of the SEA is
concentrated where the share of rural population is relatively low (except for an outlier which appeared in cluster analysis
also). Thus, it cannot be stated that either the level of economic freedom or the share of rural population have a direct
impact of the SEA rate for the described sample.

Figure 11.5. Interrelation of the SEA rate and the level of economic freedom (Source: Author’s developed)

The other view of the revealed relationship can be seen below in Figure 11.6. Clustering countries by the level of economic
freedom and the share of rural population explains why institutional development influence on company’s willingness to
pursue social outcomes does not depend solely on institutions – in some cases, where rural communities are producing
indigenous grassroot institutions, implementing ethical strategy might lead to a higher payoff than it might have in
developed countries.

Figure 11.6. Mapping economic freedom with rural population (Source: Author’s developed)

Taking this finding into account, one has to consider that in case of a high rural population level socially oriented strategies
might lead to opposite results. Therefore, it is necessary to consider the quality of social solutions and the share of bottom
of the pyramid population; if both seem to match requirements, socially responsible strategies would be a better choice
despite poor institutional development. The illustration of the absent relationship of rural population share to social
activity based entrepreneurship development is shown in Figure 11.7.

Figure 11.7. Interrelation of the SEA rate and the share of rural population (Source: Author’s developed)

First, the present findings indicate that the level of social entrepreneurship activity is related to network activity, but is not
correlated to both the share of rural population, which was used as an indicator of networks’ power, and to the level of
economic freedom, though in case of non-parametric correlation analysis implementation relation between the latter
exists. In the opinion of the authors of the present research, this supports the findings from existing literature that suggest
specific origins of social businesses, and enriches these findings by quantitative analysis.
Second, the cluster analysis has indicated the presence of four clusters. The first one, ‘Friedmanite oriented countries’
includes countries with a low level of rural population; second, ‘Developed countries’, consists of developed countries with
a high level of social entrepreneurship activity; third, ‘Developing countries’, where the SEA rate is relatively low, as well as
the level of economic freedom is with a tendency of decreasing rural population; fourth, ‘Boosting SEA countries’, feature a
very high share of rural population and low economic freedom ranking together with a high SEA rate. As it can be derived
from this analysis, the most active countries in terms of social entrepreneurship are either the ones with a big share of rural
population and, hence, the ones having well-developed rural networks, or countries with highly developed urban virtual
networks – and thus a relation between network and social entrepreneurship activity has been found.

Third, graph analysis has also indicated no relation between the level of economic freedom and the SEA rate, as well as
between the share of rural population and the SEA rate; however, combination of these two variables seem to have an
impact on social entrepreneurship activity level. This finding alone with the previous one adds value to existing literature by
providing quantitative proof of networks value to the development of social entrepreneurship.
This performed analysis indicates that hypotheses 1 is partly supported, hypothesis 2 is fully supported, while hypothesis 3
is not supported. Hence, for implementation of a socially oriented strategy the institutional setting is important, but not
crucial – that means the manager needs to rely on social effect measuring rather than on the assessment of the context to
understand the expected efficiency of societal orientation strategy implementation.

CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES

1. What is the purpose of ethical strategy in terms of social value creation?
2. What are the main obstacles for measuring social outcome based on ethical strategy implementation?
3. What tools are used to measure social value produced by entrepreneurs? What limitations do they have?
4. How could one evaluate the context in which the company acts to implement a socially responsible strategy?
5. What role do institutions play in achieving efficiency in implementing a socially responsible strategy? Do
underdeveloped institutions mean such a strategy cannot succeed?

CORPORATE SOCIAL RESPONSIBILITY: RESEARCH DESIGN

Corporate Social Responsibility is one of the mainstream research topics in managerial science; almost every professional
association has a branch that deals with social responsibility research, resulting in a number of management concepts that
emerged out of this research (social business, PRME, Millennium Goals etc.). The variety of research directions in the field
means that any researcher would have to deal with a wide range of possible instruments to analyse the situation in the
framework of empirical and practical research.
This chapter covers the main research instruments that are used in Corporate Social Responsibility research, including
qualitative and quantitative, as both types are broadly used by researchers in the field worldwide. At the meantime,
Corporate Social Responsibility research demonstrates high potential in using such newly developed tools as game theory
or neural network analysis, which will be also described in this chapter.
Both quantitative and qualitative research is based on sets of data that have to be collected in relation to research question
and goals. Thus, on the first stage of research one needs to define what sort of question s/he wants to answer, taking into
account that it has to be clear how the researcher intends to measure whether the result is achieved. To do so, first the
main research question has to be identified, followed by its decomposition into a number of research goals and
corresponding hypothesis. It may then appear that for different hypothesis the researcher has to use different research
instruments.
An example of research question in CSR research can be “to estimate the influence of socially responsible behaviour on
company’s profitability”, which proposes a few goals: (1) to measure company’s socially responsible behaviour, (2) estimate
the level of company’s profitability, (3) analyse the interrelation between measured social outcomes and profitability. Each
of these goals will be achievable in case the researcher has clearly defined the measurement for each research object and
revealed relevant instruments for data collection.
The sources of data
The main sources of data in CSR research match those in a broader focus of social sciences, and include field studies,
laboratory studies, observational studies, surveys, self-reports, archival research and simulations. Each of those sources has
its positive and negative sides, which define the possibility to use it for certain research purposes.
One of the most widely used sources of data in CSR research is the data that comes from observations of companies and
their environment. This type of source is called observational research, and the data appears from observing natural
managerial behaviours in various situations; because of its nature, this type of research allows to obtain detailed
information about natural behavioural paths in management decisions, analyse the circumstances within which these
decisions were made, and systematize this data. An example of this research in Corporate Social Responsibility field would
be a longitude observation of ethical code conduct implementation in a multinational

corporation throughout several years of its implementation. In that case observers would analyse the documents provided
by the company during the studied period (related to ethical code implementation and development), observe relevant
dynamics, tape record (or videotape meetings relevant to the field of study). The coded activities and documents would be
used to estimate ideological, economic and organizational changes in ethical code and its implementation within different
geographical structures of the company; thus the goal of the described study could be analysing the factors which influence
existing changes in a multinational corporation’s ethical code. The provided example presents the type of non-participant
observational study, when the researcher him-/herself is not involved in company’s activities and analyses what is
happening in the field of Corporate Social Responsibility from the external perspective. A similar type of observational
research is participant observation, which places the researcher in the setting of his or her intended study, when the
researcher him-/herself is a part of the process. An example of this research type can be found in Freakonomics (Levitt,
Dubner, 2009), which describes interrelations between shadow economy managers and employees, to perform which a
young researcher used his ability to be a part of the process as he was living in the black underdeveloped neighbourhood.
The positive side of participant observation is that the researcher, like in the named example, is involved in the process and
thus has an ability to acquire deeper understanding of how processes are organized. On the negative side, personal
involvement in the process provokes extra bias related to personal perception of the process, its dynamics and specific
features. Observational research provides no control over the studied process or activity, but is being used to obtain a
variety of descriptive information elements that become a base for formal theories, or to test the validity of existing
theories in a different situation or with different dynamics of the process.
An extension of observational research is simulation, an interesting yet rarely used technique when the information is
being gathered by observation of actions and processes that appear in an artificial setting (which allows to get rid of
irrelevant factors and focus on the research-related ones). Usually, the aim of simulation is to assess the subjects’
behaviour in certain circumstances. Simulations are not used frequently in Corporate Social Responsibility research due to
the fact that they require clear identification of the factors which influence socially responsible behaviour and actions, and
existing research does not allow having this clear understanding at the current moment.
An alternative for observational research are surveys and questionnaires, a method widely used in Corporate Social
Responsibility research. Surveys are aiming to obtain data by asking participants questions about facts, behaviours,
attitude, beliefs, values connected to a Corporate Social Responsibility research question. This type of data collection is
used for both qualitative and quantitative research, i.e., for qualitative research scientists mainly use it to find out what
respondents think or plan to do in a certain situation/ setting (in many cases – versus what they really do); while
quantitative research labels each answer with a number or scales it, and these numbers are further used for statistical
analysis. The first type of surveys (focused on verbal information) is called semantic, as they heavily depend on
respondent’s ability to

articulate their beliefs or conclusions. This type of research is used, because one can observe behaviours, but it is quite
problematic to observe internal constructs like beliefs or values. The positive side of surveys is that they are relatively easy
to administer and analyse, and are convenient for respondents since they get to decide the date and time for survey
completion. At the same time the method has a few disadvantages, including lack of respondent’s motivation to answer
the questionnaire (for instance, for e-forms 4.5% of response rate is considered to be a normal one, hence if you need, for
instance, 120 completed questionnaires the original e-form has to be sent to approximately 2700 people. The rate
increases if researchers pay for answering questionnaires, but not too significantly – the response rate raises to 5.5- 7.5%,
which is the described case and means that one still needs to send out over 1700 questionnaires to receive 120
questionnaires back). The other important disadvantage is that respondents’ answers are influenced by a relatively big
number of factors.
In order to develop an efficient questionnaire for data collection, the researcher needs to follow a strict algorithm:
1. Define the set of goals you wish to achieve (in order to eliminate extra questions which you do not need for the
current study).
2. Define the target population (and a number of respondents you will need, taking into account a low response rate).
3. Develop a list of all questions you need to try to focus them on the current, specific and real.
4. Organize the questions in a logical order to prevent a drop in response rate as people can assume the researcher is
going round in circles.
5. Do the first pre-test of the questionnaire, in order to estimate unclear questions and answers which can contribute
to research bias.
6. Adapt the questionnaire to the feedback received.
7. Do a pilot study with a small group with characteristics of the target group.
In order to follow this algorithm one has to keep in mind a few concerns. First, the researcher should keep the
questionnaire as short as possible, and simple, avoid any double meanings within the questionnaire. Also, specific
questions are better than general, force-choice questions are preferable to agree-disagree ones, while multiple questions
on the topic to prevent respondents from manipulating the data (in case a respondent gives different answers to the same
rephrased question, the questionnaire has to be considered invalid). In order to keep the response rate at estimated levels,
one needs to provide a cover letter, explaining what the research is about, and what sort of conclusions should it offer to
general public later; research indicates, that such an approach provokes higher commitment from the respondents and
hence a higher response rate with better-filled questionnaires.
The questionnaires contain the following types of questions (Eiselen et al., 2005):

• Factual questions: consider the facts the respondent knows (Yet a question “How much money did your company
spend on partying last year?” leads to guessing, it is unlikely that an employee keeps track of this spending),
• Opinion-related questions: reveal respondents’ attitudes or perceptions (Yet a question “Do your classmates
consider you an intelligent person?” asks a participant to tell us what s/he thinks the other think, and the answers are
usually irrelevant to the research object),
• Open-ended: contain no pre-coded answers (Still, this is a challenge, as the researcher has to be sure the
respondents understand the question. In one of Corporate Social Responsibility researchers performed in Central Asia the
researchers changed the question “How would you assess your company corporate culture”, as the respondents did not
understand what corporate culture was, to the question “What do you associate your company with” and got the answers
they wanted, about values, but also half of the respondents declared they associate their company with ‘oil’ or ’pipes’
which were out of research scope).
• Closed questions (multiple-choice questions) (Yet a question “How much time per day do you spend watching TV?”
– “a) up to ½ hour, b) from ½ to 1 hour, c) from 1 to 1 ½ hours, d) from 1 ½ to 2 hours, e) from 2 to 2 ½ hours,
f) more than 2 ½ hours” has at the same time too detailed and too broad types of answers),
• Skip, branching or contingency questions: are used when the question is only applicable to a subgroup of
respondents (those are put in to save respondents’ time on irrelevant questions).
Besides biases provoked by unclear questions or questions that touch respondent’s inner feelings, the researcher needs to
consider the types of answer, which can be the following:
• Yes/ no questions (“Have you stopped wearing furs?” – can you see a problem here?),
• Extent of agreement, level of importance or frequency of behaviour (defined by Likert scale, usually a 5 or 7 point
scale where 1 stands for the lowest estimation and 5 (7) for the highest estimation),
• Rankings or ratings (keep track of the number of options).
Below a few concerns on shaping the questions of survey are provided (whether paper-and-pencil or online) that should be
considered to avoid the majority of perception biases:
• The question should address only one issue. For example, if you ask a ‘yes/ no’ question “Would you prefer to get
education relevant to your past experience and future intentions?” the person would be lost if s/he wants his/ her
education to be both relevant to past experience and future intentions.

• The question should be clear and unambiguous. For instance, when one asks “How many friends do you have” it is
not clear what the subject is. Does s/he need to know a number of close friends, a number of acquaintances some can call
friends, or a number of friends as it is said on Facebook page.
• The question should have a clear instruction. For example, if you compare “Should divorce be made easier or more
difficult to obtain in your country, or stay as it is?” with “Should divorce in your country be easier to obtain, more difficult
to obtain, or stay as it is” you will see, that adding an opposite option (easier to obtain) makes respondents consider the
whole variety of answers resulting in less biased answers.
• The question should not address socially appropriate behaviour or emotions. Consider a question “Do you think
people should take care of the elderly?”, which would probably lead to 99% percent of ‘totally agree’ despite what people
might really think – in the majority of cases respondents answer what is expected to hear to such questions.
• The respondent should not be influenced by status or prestige. For example, it would be harder for a respondent to
answer ‘no’ to the question: “Mother Theresa considered charity one of the best inventions of humankind. Do you agree?”
if the respondent knows who Mother Theresa is.
• Evaluate hypothetical questions with care (sometimes they are unavoidable). An example: “Would you buy this
New Coke when it appears in McDonalds?”, this question asked prior to New Coke campaign, was typically answered ‘yes’,
yet then the respondents refused to buy New Coke when it appeared in the stores and McDonalds restaurants.
• The question should cover all possible answers. For instance, a widow would not be able to provide an answer for
the following question: “What is your marital status: single/married/divorced?”
• Response alternatives should exclude each other. Consider a 35-year old person answering a question “What is
your age group in full years? – 18-25; 25-35; 35-45; 45 or older” – and his/ her possibility to choose 2 different age groups.
• The question should not contain assumptions. For example, a question “To what extend are you satisfied with your
company’s ethical code?” (rate from 0 to 10) assumes that each respondents company has an ethical code which is not
necessarily so.
Besides considering the above mentioned issues in case the researcher runs a quantitative study, there is a need to
consider which type of measurements would be used:
• nominal measurements: respondents can be divided into mutually exclusive categories according to this
measurement (gender, country of origin),

• ordinal measurements: besides categorizing, they provide characteristics of intensity (years of study, Likert scale
measures),
• interval measurements: provide equal intervals between different categories, but absolute zero has no meaning
(Doing business and Human resource development index – but you cannot say the country is twice as intelligent as the
other),
• ratio measurements: interval measurements with meaningful absolute zero (income, age).
An extension of questionnaire technique is an interview, when the researcher questions respondents following the
questionnaire line and records the answers. An interview allows going in details with the aspects related to research
question, and in many cases reveals factors which were not taken into account with original questionnaire settings. Yet, an
interview requires much more time from the respondent, and is usually harder to schedule – due to that, mainstream
research indicates that 120+ questionnaires is needed to draw valid solutions, while 15 interviews allow to claim the same
results.
The other angle, the place where research takes place, allows identifying laboratory and field research. Research, which is
conducted in special premises where the necessary software is installed, is called laboratory research. The main reason for
naming it laboratory is that the research takes place out of the real world, the scientists perform their data collection and
processing without the influence of side factors that occur in case of observatory research conducted within the premises
of the research object. The advantage of this approach is allowance of better control, but at the same time research objects
(in Corporate Social Responsibility case – humans) are acting without looking at other factors and influential actions which
are present in real life situations. So the observed behaviour and decisions can differ from what would later appear, when
the same decisions are to be made in real-life context.
On the contrary, field research is conducted in real life circumstances, with full presence of external influence that normally
exists in the environment. The actors in this case evaluate their rights and responsibilities as more ‘real’, taking risks as they
would do if no researchers would be around. Yet, the circumstances of research remain partly artificial (the actors know
they are being a part of scientific research), and hence the results can still be biased, and these biases are harder to reveal
within assessment period.
Finally, the researcher can look up data in some archival sources, and such data collection process is called archival
research. For instance, a number of studies assessing responsible leadership start with the findings from XVII-XVIII century,
and all the data on those can be solely found in archives. Yet for the understanding of theoretical background this type of
research is highly relevant. The disadvantages of this research are provoked by its nature – the researcher has no access to
actual settings, so it is common that conclusions are drawn from prepositions which are not related to actual environment
where managerial decisions were made and implemented.

The researcher makes a decision on what type of data sourcing should be used in relation to the study goals and research
question on the one hand, and to the biases for each data source collection on the other. If possible biases might lead to
invalid study results, one should consider other types of data sourcing to ensure high quality results.
Variables and research planning
The framework of Corporate Social Responsibility research requires definition of dependent and independent variables.
The dependent variable is a measurement of a process or an activity that is influenced by other factors, while an
independent variable is a measurement for the factor which affects the dependent variable. The concept is imported from
natural sciences, where the interrelation of variables is identified in a form of an equation (for instance, V = S : t, where V,
speed, is a dependent variable defined by two independent variables: distance S and time period t, so in order to calculate
speed one needs to know the distance and period of time within which an object passes this distance). In social sciences it
is not always possible to draw an equation from the collected data, still, every process or action which is the goal of
research, is influenced by certain factors, and the researcher aims to understand the interrelation during the research
process. The studied process, concept or action may be abstract and non-observable, but the variable has to be both
observable and measurable. For instance, ‘sustainability’ is a non-observable and complex concept, but its measure,
sustainability index, is defined and one can use it as a variable.
An independent variable (IV) must by controlled by the researcher as a measurable object. If the research is performed as
an experiment, either lab or field, the IV is controlled to ensure it changes so that the researcher can carefully measure
other variables. An example of a Corporate Social Responsibility field experiment can be that the researcher controls the
behaviour of a decision-maker in case of different ethical codes implementation, and the person is not allowed to choose
what type of socially responsible behaviour would be required from him. Such manipulations allow drawing conclusions on
the decision making process and the effect ethical code has on the process of deciding and implementation. The variable
that is affected by the independent variable is called the dependent variable. The researcher intends to measure
dependent variable’s dynamics in relation to manipulated dependent variable.
Dependent and independent variables are defined within research design along with preferable sources of data and
methods of its processing. In order to achieve better results, one has to take into account all the limitations associated with
the chosen aspects of research.
Research Designs
CSR research uses a number of different research design concepts, yet there are three main ones: quasi-experimental
design, correlation design and experimental design all of which are widely used in contemporary research.

The word ‘quasi’ stands for ‘almost’ or ’somewhat’, thus defining the core of this experiment type. In other words, a quasi-
experiment is the case when major requirements to the experiment are met, but the experiment itself is missing. Such a
design requires careful performance, and quasi nature of this experiment provokes a validity thread as the researcher
might catch the effects arising from a certain causal relationship. This research design is considered perspective if the
outcome of the study is important to understand both theory and practice, yet it does not seem possible to run a classical
laboratory experiment, or the process or action the researcher is planning to analyse took place in the past and can be
researched only based on documents.
An example of quasi-experiment in CSR field is a study by Flammer and Luo (2017) which assesses Corporate Social
Responsibility as an employee governance tool. The study examines if companies employ Corporate Social Responsibility in
order to improve employee engagement and hence decrease non-desirable employee behaviour like shirking or
absenteeism. For this study the researchers exploited “plausibly exogenous changes in state unemployment insurance
benefits from 1991 to 2013” (Flammer & Luo, 2017). This is a typical situation for quasi-experiment in Corporate Social
Responsibility, when researchers are exploring what had already happened in order to derive theoretically and practically
important outcomes. The hypothesis researchers had in mind was whether higher unemployment insurance (an instrument
which reduces employee’s possible cost of being unemployed) would provoke adverse behaviour. Yet the study revealed a
moderator – higher unemployment insurance benefits appeared to be related to employee-related Corporate Social
Responsibility practices, and such practices lead to higher employee engagement and reduction of adverse behaviour
(supporting original hypothesis). For the purpose of this study the researchers used two databases – one on employee
unemployment insurance and the other on employee-related Corporate Social Responsibility scores from Kinder, Lindberg
and Domini database (KLD, 2010). At the same time employee positive and adverse behaviour was observed (coming from
companies’ records) to draw conclusions on the relationship outlined in the original hypothesis.
The specific features of quasi-experiment in this case are obvious: the researchers did not create a specific setting, they
were just analysing how the companies were run in relation to the relationship they had stated as a research question. At
the same time one can see the possible biases in this quasi-experiment (also related to its nature) –it is not known if there
was a third factor that affected both dependent variable (employee adverse behaviour) and independent variable
(employee-related Corporate Social Responsibility score) in this study. If the experiment would be run in the lab, this
problem would not occur as researchers would eliminate any third factors which might have an influence on the outcomes;
but in the quasi-experiment it is not possible. Thus in the conclusions of research the researchers have to keep in mind this
possible bias every time they choose a quasi-experiment as a research setting.
One specific type of quasi-experiment, used in Corporate Social Responsibility research, is a case study research design. It
implies that the researcher studies a single

case (for instance, one company), and draws conclusions from this single situation. Besides common biases associated with
quasi-experiment, in this case it is always probable that a certain action, experience, process organization is unique for the
one studied situation and thus the results are not relevant to theory or practice and cannot be used by other organizations.
Still, the case study method is used when the cases are really exceptional (for instance, a company uses open job market,
i.e., is employing everyone who has said s/he wants to work when the vacancy appears without any further interviews or
other procedures). This is being done in order to foster frontier practices to research field.
In quite a few cases with CSR research, one has limited possibilities in controlling or manipulating independent variable to
assess its influence and acquire desired results, so the research goal is to estimate interrelation between two or more
measurable variables (for instance, the answers to survey questions). The researcher might want to know if person’s age is
related to his or her perception of Corporate Social Responsibility practices implemented in the company. One chooses this
research design if the behaviour can only be observed, but cannot be manipulated by the researcher (as in the given
example). This type of research, when the researcher measures statistical correlations between two or more variables with
a vague possibility of defining causality in the relationship, is called correlation design. The main disadvantage of this
research design type is that the researcher can only establish relationships, yet it is hard to prove causality in these
relationships, and it is easier to miss certain specific factors which are causing both assessed factors to change, yet they are
overlooked by the researcher. Even if it is not overlooked (such third factor does not exist), it is often unclear, which of the
studied variables is dependent and which is independent, though statistical algorithms are getting more sophisticated and
sometimes capture causality.
Figure 12.1 represents one of the most famous statistics paradoxes, Anscombe’s quartet (Anscombe, 1973), representing
four very different sets of data with absolutely the same correlation coefficient 0.816. This research has indicated the
weakness of the correlation design – if one uses classical statistics, very different relationships are mathematically
described as similar ones, often misleading the researcher.
Figure 12.1. Anscombe’s quartet: statistical trap in correlation research (Anscombe, 1973)

Still, the correlation research design is widely used in Corporate Social Responsibility research as it allows capturing certain
relationships. An example of efficient a correlation research design can be a study of innovation development relation to
Corporate Social Responsibility practices in the company. In this case the researcher would create a questionnaire, which
includes both questions regarding innovation development in the company, and personal assessment of the implemented
Corporate Social Responsibility practices. Each of the answers is coded (usually by means of Likert scale) and then the
researcher runs statistical analysis of the acquired answers to reveal strong correlation. In cases one uses specific statistical
software (SPSS Statistics or STATA), this software marks statistically significant relationships leaving the researcher to make
sense of it (or to admit that such a relationship does not make sense) and derive related conclusions. In case the researcher
designs his/ her own programme to process the data (using mainly Python or R languages), it is up to him/ her to define the
level of significance. Classical statistics insists that correlation is strong and worth further research if the correlation
coefficient appears to be over 0.7 – but this threshold is designed for natural sciences; in social sciences even correlations
over 0.2 might be considered significant and certain conclusions could be derived from these. Yet, the researcher has to
keep in mind that certain relationship might appear to be purely mathematical, and no sensible causation can be derived
from it. For example, it is possible to find correlation between the number of people dressed in white jeans and stock
exchange indexes, but this does not mean that wearing white jeans drive the stock market up. The process has to be
opposite – first the researcher develops a set of hypotheses, and then tries to prove them by means of correlation
research. Within this process the motto of the researcher has to be ‘correlation is not causation’, and it is researcher’s
responsibility to derive meaning from statistical processing.

An extension of the correlation research design is differential research. In case of differential research one or more
variables which the researcher plans to analyse, cannot possibly be affected by the others (for instance, respondent’s age,
gender, marital status which are set before the research starts and are called differential variables). An example of such
study was the research that assessed employee loyalty to Corporate Social Responsibility practices which revealed that
married employees are more perceptive than single ones. Still, there is a drawback in this method: marital status is not a
single feature of a person; it is rather a set of features. It is likely that married people have higher communication skills,
responsibility, etc., and their employee loyalty is affected more by these characteristics rather than by their marital status.
At the same time, for practical implications marital status assessment is much easier, than estimation of the
communication skills and responsibility level. So, if a differential variable proves to be a significant indication of an
important set of features, this research is considered valid and enhancing both theory and practice. Though the researcher
has to be careful in formulating the conclusions, as the outcomes might differ if culture, history, setting, norms, language
differences and a number of other differences between different groups of respondents are to be taken into account. From
this view point experiments and quasi-experiments are easier to interpret.
Finally, the researcher has to take into consideration the sample he or she is assessing in a framework of correlation or
differential research. In order to see results as valid, the sample must include not less than 120 units, each also considered
valid and unique. For example, if the researcher sees two questionnaires filled out by different people, but containing
absolutely the same answers and these respondents know each other, only one of such questionnaires can be considered
valid for research purposes. Also, if the researcher reveals biased answers in a filled questionnaire, it has to be considered
invalid and excluded from the sample. In case the researcher has less amount of valid questionnaires, the classical
correlation research design cannot be implemented, it would be necessary to use other statistical tools which ensure
validity in case of small or extra small samples.
The outcome of both correlation and differential research is a mathematical model of Corporate Social Responsibility
process or action, which defines clearly the relationship between study’s dependent and independent variable (or
variables). Extra information on development of such models can be found in statistics.
Finally, one of the most complicated, yet highly valued types of a research design in Corporate Social Responsibility
research is experimental design. Experiments are preferable in social sciences research as it is the only research design
which could demonstrate a causal relationship (if this research design was implemented without flaws). To be treated as an
experiment, a study has to fulfil the following requirements:
1. Independent variable has to be under full control of the researcher who performs the experiment. This would allow
the research team to manipulate independent variables in the desired way, and hence derive valid conclusions
on what is happening with the dependent variable as a result of these manipulations.
2. Research participants (or subjects) have to be chosen randomly and at the same time represent the target
audience group of the research. This requirement allows having a full representation of research target population; if this
requirement is not fulfilled, the conclusions cannot be generalized. If the requirement is fulfilled, the findings can be
extrapolated to the full target population.
3. Within the framework of the experiment research participants are assigned randomly to experimental conditions.
This is done to ensure efficient manipulation of the independent variable when all the other conditions are the same within
each iteration of the experiment (otherwise the results are considered invalid.
An etalon experiment in research methods analysis is considered to be a medical study performed with poliomyelitis
vaccination. This was a double blind experiment
– first, there were two groups – patients, who received newly designed vaccination and patients who received water
instead of vaccine. The patient took vaccination without knowing if it was vaccine or water (this allowed to eliminate
placebo effect bias). The vaccine (or water) was given to a broad child population in several states of the USA where
medical authorities agreed to the experiment. Second, the doctors, who prescribed vaccinations, did not know what they
were giving to their patients – they received bottles labelled either ‘vaccine’ or ‘water’, but only the researchers knew what
was in these bottles in reality. This second blind part was done to eliminate doctor’s believes bias and manipulation with
the results. This study revealed that poliomyelitis vaccination led to significant decrease in poliomyelitis spreading – those
who got true vaccination were not infected with the disease, while in the control groups the percentage remained the
same (with the correction to placebo effect and doctor’s manipulation). Unfortunately, such a research design is rarely
possible in social sciences, including CSR research, and the researchers have to rely upon people’s perception accepting the
bias associated with it.
The problem with the experimental design is the cost of realistic setting and the range of phenomena in Corporate Social
Responsibility that can actually be studied within this research framework. Corporate practices can hardly be implemented
in a lab hence researchers are forced to do their research in a form of quasi-experiment or correlation research.
Contemporary scientists see the resolutions of the problems with associated biases in implementation of relatively new
research technologies, such as game theory that derives a number of biases out of correlation research (the mainstream in
Corporate Social Responsibility studies).
Game theory
Game theory was introduced by John von Neumann who studied mixed strategies in the so-called zero-sum games (the
type of game where the outcome of one player can become greater only if other players’ outcome becomes smaller). Game
theory uses the following main terms.

• Game – any interaction between two or more than two people when the result depends on what players do.
• Players – decision makers in the game (can be either people or legal entities such as governments, companies etc.).
• Actions – the steps players can take on the basis of their decision which would lead to a certain change in the game
situation.
• Payoff – the result which motivates players (profit, income, social effect etc.). Games are not played without
payoff.
• Utility function – the function that describes player’s preference between alternatives based on payoff a player can
gain from choosing each alternative.
• Best response – an action that maximizes player’s payoff. The basic game, prisoner’s dilemma, is illustrated on
Figure 12.2.
2

Cooperate

Defect

Cooperate
-1; -1

-3; 0

Defect

0; -3

-2; -2
Figure 12.2. Prisoner’s dilemma (Source: Author’s interpretation)

In prisoner’s dilemma the two prisoners who committed crime together, are being questioned by the police separately, and
either one can cooperate or defect. Numbers represent the utility of each choice for prisoner 1 and prisoner 2
correspondingly. The usual story behind the payoffs in the prisoners’ dilemma is as follows (Jackson, 2005): “The two
players have committed a crime and are now in separate rooms in a police station. The prosecutor has come to each of
them and told them each: “If you confess and agree to testify against the other player, and the other player does not
confess, then I will let you go. If you both confess, then I will send you both to prison for 2 years. If you do not confess and
the other player does, then you will be convicted and I will seek the maximum prison sentence of 3 years. If nobody
confesses, then I will charge you with a lighter crime for which we have enough evidence to convict you and you will each
go to prison for 1 year.” So the payoffs in the matrix represent time lost in terms of years in prison. The term cooperate
refers to cooperating with the other player. The term defect refers to confessing and agreeing to testify, and so breaking
the (implicit) agreement with the other player”.

This finding, that describes people’s behaviour which does not lead to the best result for both agents involved. If they both
cooperate, they will go free after 1 year, but the alternative is for one to go free if the other one defected while he was
cooperating – this mutual cooperation would never happen. This result, which outlined irrational behaviour, was important
as it revealed the following knowledge about social systems.
• Each player maximizes payoffs (egoist’s choice).
• No one is deviating (no player would choose another action given other person’s action).
• If one player is deviating, the equilibrium is not formed.
• A situation considered best not for the players, but for an outside observer.
• One agent strictly prefers this outcome while the other considers it as good as the other outcomes.
This particular game has allowed researchers to define five important conclusions about person’s behaviour that is driven
by egoist desire to maximize personal outcome.
1. If one awaits no punishment, it is highly likely he or she would try to maximize personal outcome without
considering other people’s outcomes. And if the punishment can appear after receiving of a positive payoff, a person or a
company might be driven towards socially responsible behaviour.
2. Efficient management can be based on a clear measurement of the payoffs and redistribution of value according to
the payoffs. Companies cooperate more when their responsible actions are more easily detected (for instance, giving the
poor products for reduced price) and less when actions not easy to capture (for example, giving a longer period warranty).
Thus if irresponsible behaviour cannot be easily detected, the companies would tend to be involved in it.
3. The actors tend to be more irresponsible if they assume other actors are being irresponsible, and vice versa. Hence
the companies would be involved in socially responsible practices more if they would spread to competing companies.
4. The players know that maximum payoffs from irresponsible actions come in the last iteration of the game. Thus
decreasing if the companies are planning to stay and compete in the market, they are more likely to be socially responsible.
5. The leading company sets the behaviour pattern for other players. Thus if the leading company in the industry
supports socially responsible practices, it is likely that the other companies would follow the path.
Also, game theory allows to describe players’ behaviour with clearly defined probabilities – the result which was, for
example, proven in sporting research on the
basis of Spanish football championships (analysed by Palacious-Huerta in 2003 based on kicker and goalie decisions made
in case of assigned penalties) – see Figure 12.3.

Goalie Left Right

Kicker probability p probability (1-p)
Left probability q 0.58; 0.42 0.95; 0.05
Right probability (1-q) 0.93; 0.07 0.70; 0.30
Figure 12.3. Probability matrix for goalie and keeper choosing a direction to kick (jump) when penalty is assigned (Source:
Palacious-Huerta, 2003)

Probabilities of moving to both sides are calculated as follows:

0.58p+0.95(1-p) = 0.93p+0.7(1-p) p = 0.42
Goalie would go left with probability 0.42, and right – with probability 0.58
0.42q+0.07(1-q) = 0.05q+0.3(1-q) q = 0.38
Kicker would kick left with probability 0.38, and right – with probability 0.62
Hence it makes more sense for the goalie to move right as it seems a preferable strategy for the kicker.
The practical implication of this is that in case the researcher can estimate the probability of certain behaviour of different
players, s/he can also define the probability of certain outcome. This is widely used in social sciences research to define
probable outcomes of elections, performance of competitiveness development strategies etc., when the results are defined
by the actions undertaken by each party.
For the purposes of qualitative research, one can use game theory without its mathematical part, by providing only the
descriptions of players’ perception of possible outcomes in the researched setting in regard to estimated circumstances. An
example of such implementation can be seen in Figure 12.4 which assesses the situation between Austro-Hungarian and
Russian empires at the threshold of World War I (Zagare, 2003).

Russia and France

Desert Serbia Back Serbia
A B

Austria- Germany Compromise Compromise with Serbia, Russian influence on Balkans preserved Serbia
saved, Russian influence on Balkans preserved, Austrian empire disintegrates
Attack C D
Russia loses Balkans, Austria gains control over Serbia War
Figure 12.4. Decision-making matrix after assassination of Franz Ferdinand (Source: Zagare, 2003)

Thus, though each side would be better off with an A option, the fear of potential losses had driven the two sides to the
war which had far more devastating outcomes; yet at the start of the war each empire tried to avoid what seemed to them
as the least preferable situation. Analogues can be found in social sciences research, and the method is highly applicable to
Corporate Social Responsibility research, especially to implementation of different socially responsible practices.
Designing research in Corporate Social Responsibility studies requires knowledge of a set of various instruments, their
advantages and disadvantages and research limitations. The most valid results can be acquired from experiential design,
yet it is the one that can rarely be implemented in the field; widely used approaches such as correlation and differential
studies, on the contrary, might have questionable outcomes but are easier to perform. Due to that researchers usually
choose them to investigate the field, but place outcomes carefully assessing research design based biases.

CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES

1. What limitations does a correlation, quasi-experiment and experiment research design have, correspondingly?
2. How do you distinguish quantitative and qualitative research? Would it be different for Corporate Social
Responsibility research?
3. What sources of data does the researcher normally use in Corporate Social Responsibility research?
4. How can game theory be applied to Corporate Social Responsibility research?
5. Develop your research question and research goals for Corporate Social Responsibility research (provide an
example).

UNDERSTANDING HARMONY IN THE FAMILY: THE BASIC UNIT OF HUMAN INTERACTION

Harmony in the family and society refers to peaceful coexistence and individual
cooperation. In human-human relationships, harmony is achieved through mutual
respect, trust, and understanding. This involves recognizing and valuing differences,
effective communication, and resolving conflicts positively and constructively.
Promoting harmony in our relationships can create a supportive and fulfilling
environment where everyone feels valued and heard.

The basic unit of human interaction is considered to be a two-person relationship. It

refers to the smallest social unit in which two individuals interact with each other,
shaping and being shaped by their interactions. This interaction can be in the form of
communication, cooperation, or conflict, and it forms the foundation for larger social
structures like families, communities, and societies. The quality of these two-person
relationships often affects individuals' overall well-being and happiness within a
society.

Harmony in the family is important for several reasons:

1. Provides a stable and secure environment: A harmonious family environment gives its
members a sense of security, comfort, and stability.

2. Promotes mental and emotional well-being: A supportive and loving family environment
can help improve its members' mental and emotional well-being, reducing stress and
promoting happiness.

3. Facilitates communication and understanding: When there is harmony in the family, members
 are more likely to communicate effectively, leading to better understanding and reduced conflicts.

4. Encourages healthy relationships: A harmonious family environment can help foster

healthy relationships among its members, promoting love, respect, and trust.

5. Supports personal growth and development: A supportive family environment can provide the
support needed for personal growth and development, helping individuals reach their full
potential.

Human Interaction
 Human interaction theory refers to a body of research and theory that examines how
individuals interact with each other and the impact that these interactions have on
behavior and emotions. The theory draws on multiple disciplines, including
sociology, psychology, anthropology, and communication, to understand human
interaction's complex and dynamic nature.

Here are some key concepts within human interaction theory:

1. Social exchange theory: This theory suggests that exchanging rewards and costs between
individuals drives human interactions. Interactions are seen as exchanging resources, such as
time, attention, or information, to maximize rewards and minimize costs.
2. Social learning theory: This theory posits that individuals learn through observing and
imitating the behavior of others. Interactions with others can serve as opportunities for social
learning and developing new behavior.
3. Social comparison theory: This theory suggests that individuals evaluate themselves
and their abilities about others. Interactions with others can provide opportunities
for social comparison, leading to feelings of self-esteem and self-worth.
4. Social identity theory: This theory focuses on the role of social groups and social
categories in shaping individuals' behavior and attitudes. Interactions with others can help
shape and reinforce individuals' sense of self and belonging to a particular group.
5. Social influence theory: This theory focuses on how others influence individuals in their
interactions. Interactions with others can shape and change beliefs, attitudes, and behavior
through processes such as persuasion, conformity, or obedience.
These are some of the key concepts within human interaction theory, which highlight
the importance of social relationships and social interactions in shaping human
behavior and emotions.
Benefits of human interaction:
1. Promotes social and emotional well-being: Interacting with others can help improve our
mood, reduce stress, and promote overall emotional well-being.
2. Facilitates learning and personal growth: Interacting with others can provide new
perspectives, experiences, and knowledge that can help us grow and develop as
individuals.
3. Strengthens relationships: Interacting with others can help build and strengthen
relationships, fostering feelings of love, trust, and connectedness.
4. Improves communication skills: Regular interaction with others can help us improve
 our communication skills and better understanding of the perspectives of others.
5. Increases cultural understanding: Interacting with individuals from diverse backgrounds
can broaden our understanding of different cultures, helping to promote empathy and reduce
prejudice.

Disadvantages of human interaction:

1. Can lead to conflicts: Interactions with others can sometimes lead to disputes and
disagreements.
2. Can be stressful: Interacting with others, especially in large groups or tense situations, can
be stressful and overwhelming.
3. Can lead to disappointment: Interacting with others can lead to disappointment if our
expectations are unmet or we experience rejection.
4. Can be time-consuming: Interacting with others can take up a significant amount of time,
leaving less time for other activities or responsibilities.
5. Can be draining: Interacting with others, especially with individuals who are emotionally
demanding or draining, can be mentally and emotionally exhausting.

MEANING OF NYAYA AND PROGRAM FOR ITS FULFILLMENT TO ENSURE UBHAYTRIPTI

"Nyaya" is a Sanskrit term that refers to the principles of logic, reason, and
evidence in Hindu philosophy. It is considered one of the six Hindu philosophical
schools concerned with establishing the truth about the world and our place in it.
Nyaya is based on several key principles and concepts, including the use of
reasoning, the examination of evidence, and the establishment of clear definitions. It
ensures that arguments are sound and well-reasoned and that evidence is examined
and analyzed objectively.
In Hindu philosophy, Nyaya is an essential means of achieving "ubhayatripti,"
which refers to fulfilling both material and spiritual aspirations. Ubhayatripti
encompasses the idea that individuals should strive for happiness and well-being in
both the material and spiritual realms. Pursuing truth through Nyaya is an important
aspect of this process.
To ensure the fulfillment of Nyaya and the achievement of ubhayatripti,
individuals can engage in a number of practices and programs, including:
1. Study and Practice of Logic and Reason: To develop the skills necessary to practice
Nyaya, individuals should study and practice the principles of logic and reason. This may
involve reading and discussing classical works, engaging in critical thinking exercises,
and practicing debate and argumentation skills.
 2. Examination of Evidence: To ensure that arguments are well-reasoned and grounded,
individuals should examine and analyze the evidence supporting their positions. This may
involve researching, conducting experiments, and evaluating data and information.
3. Clear Communication: Individuals should strive to develop clear and practical
communication skills to ensure that arguments and evidence are communicated and
understood. This may involve practicing active listening, explicit language, and avoiding
misunderstandings and confusion.
4. Cultivation of Wisdom: Nyaya requires individuals to deeply understand the world and
the
1. nature of things. To achieve this understanding, individuals should engage in
practices that cultivate wisdom, such as studying philosophy, engaging in
spiritual traditions, and cultivating a deep curiosity and openness to new ideas.
5. Integration of Material and Spiritual Aspirations: To achieve ubhayatripti, individuals
should strive to integrate their material and spiritual aspirations. This may involve
balancing the pursuit of material wealth and success with spiritual practices like
meditation and self-reflection and incorporating spiritual principles into daily life.
6. Service to Others: In Hindu philosophy, serving others is essential to achieving
ubhayatripti. Individuals can engage in acts of service to their communities, such as
volunteering, donating time and resources, and supporting charitable organizations.
Nyaya is a central concept in Hindu philosophy that refers to the principles of logic,
reason, and evidence. By engaging in practices and programs to fulfill Nyaya,
individuals can achieve ubhayatripti, which encompasses the idea of fulfilling both
material and spiritual aspirations. By integrating these practices into daily life,
individuals can develop a deep understanding of the world and their place in it and
achieve a balanced and fulfilling life.

Program for fulfillment to ensure Ubhaytripti

To ensure the fulfillment of ubhayatripti, or the achievement of both material and
spiritual well-being, individuals can engage in a number of practices and programs,
including:
 Mindfulness and Meditation: Engaging in mindfulness and meditation practices can
help individuals cultivate inner peace and balance and enhance their spiritual well- being.
  Service to Others: Engaging in acts of service to others, such as volunteering or
supporting charitable organizations, can help individuals fulfill their spiritual aspirations
by contributing to the well-being of others.
 Personal Growth and Development: Engaging in activities that support personal growth
and development, such as education, self-reflection, and therapy, can help individuals
achieve their material and spiritual aspirations by increasing their knowledge, skills, and
self-awareness.
 Building Strong Relationships: Building strong and supportive relationships with
family, friends, and community members can enhance material and spiritual well- being
by providing a sense of belonging and connection.
 Healthy Habits: Developing and maintaining healthy habits, such as exercise and healthy
eating, contributes to physical and mental well-being, which is essential for achieving
ubhayatripti.
 Integration of Work and Spirituality: Integrating spiritual principles and practices into
daily life, including work and career, can help individuals find meaning and purpose and
achieve balance and fulfillment.
 Community Involvement: Engaging in community activities and events can help
individuals build connections with others and contribute to the well-being of their
community, which can enhance both material and spiritual well-being.

TRUST (VISHWAS) AND RESPECT (SAMMAN) AS THE FOUNDATIONAL VALUES OF RELATIONSHIP

Trust and Respect are two of the most fundamental values that form the
foundation of healthy relationships, whether they are personal or professional. In this
essay, we will explore the meaning of these values, how they contribute to the well-
being of individuals and relationships, and how to cultivate these values in personal
and professional contexts.
Trust is a belief in the reliability, truth, ability, or strength of someone or
something. In relationships, trust is the foundation for individuals to feel confident
and secure in their interactions. When trust is present in a relationship, individuals
can be vulnerable, share personal information, and rely on each other. On the other
hand, when trust is absent, individuals tend to be guarded, and relationships can
become strained, filled with misunderstandings, and lack a sense of connection.
On the other hand, respect is a feeling of admiration and reverence for
someone or something. In relationships, respect involves valuing the thoughts,
opinions, and feelings of
others and treating them with dignity and kindness. When respect is present in a
relationship, individuals feel valued and appreciated, which fosters a positive and
supportive environment. In contrast, when respect is absent, individuals can feel
unheard, disrespected, and dismissed, leading to conflicts and breakdowns in the
relationship.
A relationship's combination of trust and respect creates an environment of
safety and support where individuals can be authentic and freely express themselves
without fear of judgment or rejection. This relationship gives individuals a sense
of connection and belonging and allows them to grow and develop.
To cultivate trust and respect in personal relationships, it is essential to
consistently communicate with each other, listen actively, and make an effort to
understand the perspectives and needs of others. Additionally, practicing honesty,
transparency, and accountability is essential, as these behaviors demonstrate a
commitment to the relationship and build trust over time.
One of the interpersonal communication theories, the Social Penetration
Theory, posits that trust and respect are essential for building deep and meaningful
relationships. The theory suggests that as relationships develop, individuals gradually
reveal more personal and intimate information to each other, which requires a high
degree of trust and respect. When individuals feel safe and valued in their
relationships, they are more likely to open up and build deeper connections with
each other.
Attachment theories also emphasize the importance of trust and respect in
shaping the nature of relationships. The Secure Attachment theory posits that when
individuals have a secure attachment style characterized by feelings of trust and
respect in their relationships, they are more likely to have positive and fulfilling
relationships. On the other hand, individuals with an insecure attachment style,
characterized by a lack of trust and respect, are more likely to have negative and
unsatisfying relationships.
Social Exchange theories, such as the Social Exchange Theory and the
Social Exchange Theory of Relationships, posit that relationships are based on a
series of exchanges between individuals in which each person contributes
resources to the relationship and receives rewards in return. These theories suggest
that trust and respect play a crucial role in shaping the nature of these exchanges, as
individuals are more likely to engage in exchanges with others they trust and respect.
In professional relationships, trust and respect are equally important. A workplace
where trust and respect are present fosters a positive and productive environment
where employees feel valued and motivated to perform at their best. To cultivate trust
and respect in the workplace, fostering a culture of openness, transparency,
and
 inclusiveness and creating opportunities for employees to connect personally is
important. Additionally, it is essential to provide regular employee feedback
opportunities and listen to and act upon employees' suggestions and concerns.

UNDERSTANDING THE MEANING OF VISHWAS

Vishwas, also spelled "Vishvaas", is a Sanskrit word commonly translated as "trust"
or "faith". It refers to a belief or confidence in the reliability, truth, or ability of
someone or something. In a broader sense, Vishwas encompasses a sense of security,
reliability, and certainty that allows individuals to have faith in the world around
them.
Vishwas plays a crucial role in shaping the nature and quality of personal and
professional relationships. When individuals trust each other, they are able to
build deeper and more meaningful connections, share personal and intimate
information, and collaborate more productively and effectively. On the other hand, a
lack of trust can lead to strained and superficial relationships, misunderstandings, and
conflicts.
Vishwas is also an essential component of personal well-being and mental
health. When individuals trust themselves, they are more likely to have a positive
self-image, feel confident and secure, and engage in positive and fulfilling activities.
Similarly, when individuals have trust in the world around them, they are more
likely to feel safe and secure and less likely to experience anxiety, stress, and
depression.
To cultivate Vishwas in relationships, it is essential to consistently
communicate with each other, listen actively, and make an effort to understand the
perspectives and needs of others. Additionally, practicing honesty, transparency,
and accountability is important, as these behaviors demonstrate a commitment to
the relationship and build trust over time.
In professional relationships, Vishwas is equally important. A workplace
where trust is present fosters a positive and productive environment where employees
feel valued and motivated to perform at their best. To cultivate Vishwas in the
workplace, fostering a culture of openness, transparency, and inclusiveness and
creating opportunities for employees to connect on a personal level is essential.
Additionally, it is essential to provide regular employee feedback opportunities and
listen to and act upon employees’ suggestions and concerns.
Theory of Vishwas
The theory of Vishwas, also referred to as the "Theory of Trust," is a concept that
explores the role of trust in shaping relationships and outcomes. According to the
theory, trust is a key
 determinant of the success and effectiveness of relationships and personal and
professional outcomes.
The theory posits that trust is a dynamic and complex construct that develops over
time, through a series of positive interactions and experiences. When individuals
trust each other, they are more likely to engage in positive and constructive behavior,
such as sharing information, collaborating effectively, and supporting each other.
On the other hand, when trust is lacking in a relationship, individuals are more
likely to engage in defensive and destructive behavior, such as withholding
information, sabotaging collaboration, and engaging in harmful competition. To
cultivate trust in a relationship, the theory suggests that it is essential to
consistently communicate with each other, listen actively, and make an effort to
understand the perspectives and needs of others. Vishwas's theory also recognizes
that trust is a multi-dimensional construct that can be influenced by various factors,
including personal values, beliefs, and experiences, as well as contextual factors, such
as the norms and values of the environment.
In conclusion, Vishwas is a crucial value that plays a significant role in
shaping the nature and quality of relationships, personal well-being, and mental
health. By consistently practicing honesty, transparency, and accountability and
creating an environment that fosters trust and security, individuals can cultivate
Vishwas in their relationships, promote positive and fulfilling outcomes, and
enhance their overall well-being.

Difference between Intention and Competence

Intention and competence are two distinct but related concepts crucial in
shaping personal and professional outcomes. Intention refers to an individual's
purpose, motivation, or aim, while competence refers to an individual's ability or
skill to carry out that intention effectively.
Intention is an important factor in shaping personal and professional outcomes,
as it provides a sense of direction and purpose and helps individuals focus their
efforts and resources. Intention can take many forms, from personal goals, such
as improving one's health or relationships, to professional goals, such as advancing
in one's career or starting a business.
Conversely, competence refers to the skills, knowledge, and abilities required
to achieve one’s intentions effectively. Competence encompasses a wide range of
personal and professional skills, such as technical, communication, leadership, and
interpersonal skills.
 The relationship between intention and competence is complex and dynamic. To
achieve one's intentions, individuals must possess the necessary competence, but at
the same time, developing competence often requires individuals to set and pursue
intentional goals. For example, to become a successful professional in a particular
field, individuals must first intend to pursue that career and then develop the
necessary skills, knowledge, and abilities through education and training.
Intention and competence are two important and interrelated factors that shape
personal and professional outcomes. While intention provides a sense of direction
and purpose, competence is essential for effectively achieving one's goals. By setting
intentional goals and developing the necessary competence, individuals can
promote positive and fulfilling outcomes in their personal and professional lives.
The key difference between them is:
 Intention refers to an individual's purpose, motivation, or aim, while competence
refers to an individual's ability or skill to carry out that intention effectively.
 Intention provides a sense of direction and purpose and helps individuals focus their
efforts and resources. Competence encompasses the skills, knowledge, and abilities
required to achieve one's intentions.
 The relationship between intention and competence is complex and dynamic, with
competence being essential for achieving one's goals and developing competence
often requiring individuals to set intentional goals.
Process of intention and competence
The process of intention and competence can be understood as a feedback loop,
where intention drives the development of competence, which supports the
achievement of intentional goals.
The process can be broken down into several steps:
 Setting intentions: The first step is to set clear and meaningful intentions. This can
involve setting personal or professional goals, outlining a plan of action, and identifying
the necessary resources and support.
 Assessing competence: The next step is to assess one's current level of competence about
one's intentions. This can involve identifying areas of strength and weakness and
determining the skills, knowledge, and abilities required to achieve one's goals.
 Developing competence: Once an individual has assessed their level of competence, they
can take steps
  to develop the necessary skills, knowledge, and abilities. This can involve seeking
education and training, feedback and mentorship, and practicing new skills and behaviors.
 Re-assessing competence: As individuals develop their competence, it is essential to
regularly re-assess their skills and abilities and make any necessary adjustments to
their goals and plans.
 Achieving intentional goals: As competence develops, individuals are better equipped
to achieve their goals and experience the positive outcomes of pursuing meaningful
intentions.

UNDERSTANDING THE MEANING OF SAMMAN

Samman is a Hindi word that can be translated to mean "respect" or "dignity"
in English. It refers to recognizing an individual's inherent worth, value, and rights
and treating that individual with dignity, honor, and consideration.
Cultivating Samman involves developing an awareness and appreciation of
the inherent worth and value of others and treating others with kindness,
compassion, and fairness. This can involve actively listening to others, valuing their
opinions and perspectives, and treating them with dignity and respect in all
interactions.
Several theories exist to explain the nature and importance of Samman in
personal and professional relationships. One such theory is social exchange theory,
which posits that individuals form and maintain relationships based on a
perceived balance of rewards and costs. According to this theory, treating others
with Samman contributes to a positive balance of rewards, strengthening the
relationship and promoting mutual satisfaction and fulfillment. Another theory is
the self-determination theory, which posits that individuals have an inherent
need for autonomy, competence, and relatedness, and that satisfying these needs
is essential for well-being and fulfillment. According to this theory, treating
others with Samman and recognizing their inherent worth and value
contributes to their sense of relatedness and promotes positive outcomes for both
parties.
Samman refers to the recognition of an individual's inherent worth and value,
and the treatment of that individual with dignity, honor, and consideration.
Cultivating Samman involves developing an awareness and appreciation of the
inherent worth of others and treating others with kindness, compassion, and
fairness. Theories such as social exchange theory and self-determination theory
highlight the importance of Samman in promoting positive outcomes in personal and
professional relationships.
Advantages of Samman:
1. Improved relationships: Treating others with Samman promotes trust, understanding,
and mutual respect, contributing to stronger and more fulfilling personal and
professional relationships.
2. Increased well-being: Recognizing and treating others with Samman contributes to a
sense of purpose, belonging, and fulfillment and can positively impact physical and
mental well-being.
3. Enhanced reputation: Cultivating a reputation for treating others with Samman can
increase one's social capital and promote positive outcomes in both personal and
professional contexts.
4. Improved communication: Treating others with Samman fosters open and honest
communication, reducing misunderstandings and conflicts and promoting positive
outcomes.
5. Promotes equality and justice: Samman promotes the recognition of the inherent worth
and dignity of all individuals, regardless of differences, and contributes to a fairer and
more just society.

Disadvantages of Samman:
1. Difficult to cultivate: Cultivating Samman can be challenging, especially in situations
where cultural or
1. personal differences create tensions or conflicts.
2. Requires effort: Treating others with Samman requires ongoing effort and commitment
and can be time-consuming and emotionally taxing.
3. Not universally accepted: Samman is not universally accepted, and individuals and
cultures may have differing views on what constitutes respectful and dignified treatment.
4. Can lead to cultural conflicts: Treating others with Samman may conflict with cultural
norms and values, leading to tensions or conflicts.

DIFFERENCE BETWEEN RESPECT AND DIFFERENTIATION; THE OTHER SALIENT VALUES IN

RELATIONSHIP
Respect and differentiation are two concepts often used interchangeably
but have distinct implications and meanings.
Respect refers to recognizing an individual's inherent worth, value, and
rights and treating that individual with dignity, honor, and consideration. It involves
valuing individuals
for who they are, regardless of their background, beliefs, or characteristics, and
treating them with dignity and respect in all interactions. Respect is essential to
healthy relationships, promoting trust, understanding, and mutual fulfillment.
Differentiation, on the other hand, refers to distinguishing or separating
one thing from another. In the context of human relationships, differentiation refers
to the process of establishing and maintaining a sense of self while also respecting
and valuing the individuality and distinctiveness of others. This involves recognizing
and respecting the differences between oneself and others while promoting mutual
understanding and empathy.
The key difference between respect and differentiation is that respect is
focused on an individual's inherent worth and value. In contrast, differentiation
focuses on recognizing and understanding differences between individuals. While
differentiation can contribute to respectful relationships, it is not the same as respect,
which involves treating others with dignity and honor, regardless of their
differences.
Respect is essential to healthy relationships, promoting trust, understanding,
and mutual fulfillment, and is considered a fundamental human right. Conversely,
differentiation can help promote healthy relationships by promoting a deeper
understanding of and appreciation for individual differences.
While respect and differentiation are related concepts, they are distinct and
have different implications and meanings. Respect refers to recognizing an
individual's inherent worth, value, and rights and treating that individual with dignity,
honor, and consideration. Differentiation refers to establishing and maintaining a
sense of self while also respecting and valuing the individuality and distinctiveness
of others. Both concepts are essential components of healthy relationships and play
important roles in promoting trust, understanding, and mutual fulfillment.
Respect and differentiation are two of the most salient values in
relationships. They are essential in promoting trust, understanding, and mutual
fulfillment and help establish and maintain healthy relationships.
Respect is essential in relationships, as it involves recognizing and valuing an
individual's worth, dignity, and rights. When treated with respect, individuals feel
valued, appreciated, and understood, contributing to a positive and fulfilling
relationship. Respectful relationships are characterized by open and honest
communication, mutual trust, and a shared sense of purpose. On the other hand,
differentiation is a value that promotes recognizing and appreciating differences
between individuals. In relationships, differentiation involves recognizing and
respecting the individuality and distinctiveness of others while also
 maintaining a sense of self. By valuing and embracing differences, individuals
can form deeper connections and understand one another more meaningfully,
contributing to a more fulfilling relationship. Both respect and differentiation are
essential components of healthy relationships, and both play important roles in
promoting trust, understanding, and mutual fulfillment. By valuing respect and
differentiation, individuals can form and maintain healthy, fulfilling, and meaningful
relationships with others.

UNDERSTANDING THE HARMONY IN THE SOCIETY (SOCIETY BEING AN EXTENSION OF FAMILY)

Harmony in society refers to cooperation and mutual understanding between
individuals and groups, characterized by a lack of conflict and a sense of unity and
stability. It involves balancing and coordinating diverse interests, values, and beliefs
to create a cohesive and functional community.
The promotion of harmony in society is considered necessary for several reasons.
First, it contributes to the stability and security of society, reducing the likelihood of
conflict and violence. Second, it fosters a sense of community, promoting a shared
sense of purpose and identity and contributing to the well-being of individuals. Third,
it helps to promote equality and justice, reducing discrimination and promoting
fairness and equality of opportunity.
To achieve harmony in society, addressing the underlying causes of conflict
and division, such as inequality, discrimination, and misunderstandings is necessary.
This can involve promoting understanding and cooperation between groups,
addressing systemic inequalities and injustices, and promoting a shared sense of
identity and purpose.
In addition, it is important to promote open and honest communication and
dialogue, so that individuals and groups can understand one another and work
together towards a common goal. This can involve creating opportunities for
discussion and collaboration, fostering mutual respect and understanding, and
promoting transparency and accountability. Another key component of promoting
harmony in society is promoting a culture of tolerance and respect for diversity.
This involves recognizing and valuing individuals' and groups' unique
contributions and perspectives and promoting equality and justice for all.
Harmony in society is essential to a stable, secure, and prosperous community.
To achieve harmony, it is necessary to address the underlying causes of conflict and
division, promote open and honest communication, and foster a culture of tolerance
and respect for diversity. By promoting social harmony, individuals and communities
can work together towards a shared purpose and a more fulfilling and meaningful
future.
Society being an extension of the family
The family is considered to be the building block of society, as it provides the basic
structure for social and emotional development and lays the foundation for an
individual's relationships with others. In this sense, society can be seen as an
extension of the family, with larger social structures and institutions providing a
framework for developing relationships and communities beyond the immediate
family.
In traditional societies, the family is the primary source of support,
protection, and care for individuals and is the main source of socialization and
identity formation. As individuals grow and develop, they form relationships and
interact with others in larger social structures such as schools, religious communities,
and work organizations.
In this sense, the values, norms, and beliefs developed and reinforced
within the family are carried forward into larger social structures, shaping an
individual's relationships with others and the larger community. For example, an
individual's experiences within the family can shape their views on trust, respect, and
cooperation, influencing how they interact with others in the wider community.
In addition, more prominent social structures, such as schools and work
organizations, can also play a role in reinforcing and shaping the values, norms,
and beliefs developed within the family. For example, a person's experiences in
school can shape their views on education, while their experiences in the
workplace can shape their views on work and career.
It is also important to note that the relationship between the family and society
is not a one-way street. Society can also play a role in shaping and influencing the
family. For example, more prominent social structures can impact the family by
affecting the resources and opportunities available to individuals and families and by
influencing the broader cultural norms and values that shape family dynamics.
Society can be seen as an extension of the family, with larger social structures
and institutions providing a framework for developing relationships and communities
beyond the immediate family. The values, norms, and beliefs developed within the
family can shape an individual's relationships and interactions with others in larger
social structures. In comparison, more prominent social structures can also play a
role in shaping and influencing the family. By understanding the relationship
between the family and society, it is possible to gain a better understanding of the
forces that shape individual and collective behavior, and to work towards creating a
more harmonious and fulfilling society.
Samadhan, Samridhi, Abhay, Sah-astitva as comprehensive Human Goals
Samadhan, Samridhi, Abhay, and Sah-astitva are often considered comprehensive
human goals that can lead to a more fulfilling and satisfying life. These concepts
can be understood as follows:
Samadhan:
This refers to finding a resolution or solution to a problem or challenge.
Samadhan can be seen as finding peace and harmony in life, whether through
resolving personal or interpersonal conflicts or finding solutions to larger social and
economic issues.
The components of Samadhan, or resolution, can be understood as follows:
1. Identification of the problem: The first step in the Samadhan process is to accurately
identify the problem or challenge that needs to be addressed. This requires understanding
the situation and the root causes of the problem.
2. Analysis of options: Once the problem has been identified, the next step is to analyze the
various options for resolving it. This can involve brainstorming, evaluating different
solutions, and considering the pros and cons of each option.
3. Selection of the best solution: Based on the analysis of options, the next step is to choose
the best solution that will effectively resolve the problem. This decision should be based
on a thorough evaluation of the various options and the potential outcomes of each.
4. Implementation of the solution: Once the best solution has been selected, the next step
is to implement it. This can involve taking action to resolve the problem and making
necessary changes to the situation.
5. Evaluation of the solution: After the solution has been implemented, it is important to
evaluate its effectiveness and make necessary adjustments. This can involve
monitoring the situation to ensure that the problem has been resolved and making any
necessary modifications to the solution as needed.
6. Maintenance of the solution: It is important to maintain the solution over time to ensure
that the problem does not reoccur. This can involve ongoing monitoring and adjustment
of the solution and making any necessary changes to the situation to prevent the
problem from recurring.
Samridhi:
This refers to the concept of prosperity and well-being. Samridhi
encompasses both financial and material prosperity, as well as emotional and
spiritual well-being. In other
 words, Samridhi refers to a sense of satisfaction and contentment with one's life and
the material resources and stability needed to support that contentment.
The components of Samridhi, or prosperity, can be understood as follows:
1. Setting goals: The first step in achieving Samridhi is to set clear, achievable goals. This
requires understanding what you want to achieve and what is important to you.
2. Developing a plan: Once you have set your goals, the next step is to develop a plan
to achieve them. This can involve breaking down your goals into smaller, more
manageable steps and determining the resources and support you need to reach them.
3. Taking action: Once you have a plan, the next step is to take action and start working
towards your goals. This can involve setting priorities, allocating time and resources, and
taking steps to move forward.
4. Measuring progress: It is important to regularly measure your progress and assess
whether you are on track to achieve your goals. This can involve setting benchmarks and
tracking your progress over time.
5. Making adjustments: If you are not progressing towards your goals, it may be necessary
to adjust your plan. This can involve modifying your approach, changing your goals, or
seeking additional resources or support.
6. Celebrating success: Finally, it is important to celebrate your successes along the
way and acknowledge your hard work and progress. This can help you to stay motivated
and continue to work towards your goals.
Abhay:
This refers to the concept of fearlessness or courage. Abhay encompasses the
physical courage to face challenges and dangers and the emotional courage to
confront and overcome personal fears and limitations. Abhay can be seen as the
foundation for personal growth and development, as it allows individuals to take
risks, overcome challenges, and pursue their goals and aspirations.
The components of Abhay, or fearlessness, can be understood as follows:
1. Understanding the sources of fear: The first step in achieving Abhay is understanding the
sources of fear in your life. This can involve identifying the things that cause you fear and
understanding why they trigger this response.
2. Developing awareness: Once you have identified the sources of your fears, the next step
is to develop greater awareness of your thoughts, feelings, and behavior. This can involve paying
attention to your inner experience, and learning to observe your thoughts and feelings without
judgment.
 3. Challenging negative beliefs: Our fears are often rooted in negative beliefs about
ourselves and the world around us. The next step is to challenge these beliefs and replace
them with more positive and empowering ones.
4. Facing your fears: Once you have challenged your negative beliefs, the next step is to
face your fears directly. This can involve taking small steps to expose yourself to the things that
cause you to feel afraid and learning to manage your fear healthily and constructively. 5. Building
resilience: As you face your fears, building resilience and developing the ability to bounce back
from difficult situations is essential. This can involve practicing self-care, developing healthy
coping skills, and seeking support from others when needed.
6. Embracing a growth mindset: It is important to adopt a growth mindset and
embrace the idea that you can learn and grow through your experiences, even if they
are challenging. This can help you approach difficult situations with curiosity and
openness and see them as opportunities for growth and personal development.
Sah-astitva:
This refers to the concept of self-existence or self-identity. Sah-astitva encompasses
an individual's sense of self-worth, purpose, and direction in life. By developing a
strong sense of Sah-astitva, individuals can find a sense of meaning and fulfillment in
their lives and can feel confident and empowered in their relationships and
interactions with others.
The components of Sah-astitva, or self-existence, can be understood as follows:
1. Understanding self: The first component of Sah-astitva is understanding yourself. This
can involve exploring your thoughts, feelings, and behaviors and developing greater
awareness of your identity and values.
2. Cultivating self-awareness: The next component of Sah-astitva is cultivating self- awareness
and self-reflection. This can involve setting aside time each day to reflect on your thoughts,
feelings, and behavior, and to gain a deeper understanding of your motivations and desires.
3. Developing self-esteem: Developing a strong sense of self-esteem is crucial to Sah-astitva.
This can involve challenging negative self-talk, focusing on your strengths and accomplishments,
and accepting and valuing yourself for who you are.
4. Building self-confidence: Building self-confidence is another important component of
Sah-astitva. This can involve taking small steps to face your fears and overcome challenges, and
learn to trust yourself and your abilities.
 5. Establishing healthy boundaries: Establishing healthy boundaries is a key component of
Sah-astitva. This can involve setting clear limits on what is acceptable in your relationships
and interactions with others, and learning to say no when necessary.
6. Practicing self-care: Practicing self-care is a crucial component of Sah-astitva. This can
involve taking care of your physical, emotional, and mental health through healthy habits,
self-reflection, and engaging in activities that bring you joy and fulfillment.
These comprehensive human goals are interconnected and interdependent,
each building upon and reinforcing the others. For example, by finding Samadhan
and resolution in life, individuals can experience greater Samridhi and prosperity.
Individuals can strengthen their Sah-astitva and sense of self-identity by developing
Abhay and facing personal challenges. By striving for Samridhi and prosperity,
individuals can cultivate a sense of confidence and security that allows them to
pursue their goals and aspirations with greater Abhay.
Ultimately, these comprehensive human goals can provide a framework
for individuals to pursue a more fulfilling and satisfying life. By focusing on
Samadhan, Samridhi, Abhay, and Sah-astitva, individuals can work to create a sense
of balance and harmony in their lives, and can cultivate the qualities and values
needed to build strong and meaningful relationships with others.

Visualizing a universal harmonious order in society

Visualizing a universal harmonious order in society involves imagining a world
where people of all backgrounds and beliefs coexist in peace and prosperity without
discrimination or conflict. This harmonious order can be achieved through several
means, including:
 Mutual respect: Respect for others, regardless of their background or beliefs, is
crucial in creating a harmonious society. This can involve valuing each person's
unique perspective and treating them with dignity and kindness.
 Open-mindedness: Open-mindedness is essential in creating a harmonious society, as
it allows people to see beyond their own biases and perspectives and understand the views
of others.
 Empathy: Empathy is the ability to understand and share the feelings of others. By
practicing empathy, individuals can develop a deeper understanding of the experiences
and perspectives of others, and work towards resolving conflicts in a peaceful and
respectful manner.
  Inclusiveness: Inclusiveness involves creating a society where everyone is valued and
included, regardless of race, religion, ethnicity, or other differences. This can involve
promoting policies and programs that support diversity and eliminate discrimination.
 Cooperation: Cooperation is essential in creating a harmonious society, allowing people
to work together towards a common goal. This can involve promoting teamwork and
collaboration and encouraging people to put aside their interests for the greater good.
 Communication: Effective communication is crucial in creating a harmonious
society. This can involve promoting open and honest dialogue and encouraging people to
listen actively to each other and understand their perspectives.
Several theories attempt to explain how a universal harmonious order in society can
be visualized and achieved. Some of these include:
 Social Contract Theory: This theory posits that individuals enter into an implicit
agreement with each other to give up some individual freedom in exchange for the
protection and benefits the state provides. This agreement creates a harmonious order
where everyone has a shared understanding of their rights and responsibilities.
 Utilitarianism: This theory states that actions and policies should be evaluated based on
their ability to produce the greatest good for the greatest number of people. By focusing
on the well-being of society as a whole, utilitarianism seeks to promote a harmonious
order.
 Libertarianism: This theory emphasizes the importance of individual liberty and limited
government intervention in promoting a harmonious order. By respecting the freedoms
and rights of individuals, society can function effectively and efficiently.
 Communitarianism: This theory emphasizes the importance of community and the
common good in promoting a harmonious order. It holds that individuals have obligations
to each other and to their communities, and that a focus on the common good is necessary
for a healthy and prosperous society.

UNDIVIDED SOCIETY (AKHANDSAMAJ)

Undivided society, also known as Akhand Samaj, is a concept that refers to a
society where individuals are united and live together in peace and harmony. This
type of society is characterized by mutual respect, cooperation, and a shared sense of
purpose. The idea of an undivided society is rooted in the belief that people have a
common humanity and that diversity is a strength, not a weakness.
 Individuals are encouraged to celebrate their differences and work together to
achieve common goals in an undivided society. This is achieved by focusing on
shared values, such as fairness, justice, and equality, which serve as the
foundation for cooperation and collaboration. People are encouraged to engage in
dialogue and build relationships based on mutual respect, regardless of their
background or beliefs.
In an undivided society, people are also expected to be responsible for the
well-being of their community. This means that individuals should be committed to
serving the needs of others and working to create a society that benefits everyone.
People are encouraged to be active citizens and engage in decision-making processes,
whether it is through community meetings, town halls, or other forms of public
engagement.
The concept of an undivided society also emphasizes the importance of
sustainable development. People are encouraged to live in harmony with nature and
to take care of the environment for future generations. This includes reducing waste,
conserving resources, and protecting biodiversity. In addition, an undivided society is
committed to ensuring that economic growth is balanced with social and
environmental considerations to ensure that the benefits of development are shared
equitably.
One of the key features of an undivided society is that it seeks to eliminate the
root causes of social conflict and division. This is achieved by addressing poverty,
inequality, and other social issues. For example, in an undivided society, people
would work together to provide everyone with basic services, such as education,
healthcare, and housing, regardless of their background or circumstances.
Another important aspect of an undivided society is promoting peace and non-
violence. People are encouraged to resolve conflicts peacefully and to avoid violence
or aggression whenever possible. This requires individuals to have a shared
commitment to peace and to be willing to compromise and find mutually acceptable
solutions to problems.
The nature of an undivided society, also known as Akhand Samaj, is
characterized by unity, cooperation, and mutual respect. In this society, individuals
are encouraged to celebrate their differences and work together to achieve common
goals. The focus is on shared values such as fairness, justice, and equality, which
serve as the foundation for cooperation and collaboration.
The benefits of an undivided society are numerous and include:
1. Increased social cohesion: Individuals living in an undivided society are more likely to
feel a sense of belonging and connection to their community. This promotes a sense of
unity and helps to foster a more harmonious and stable society.
 2. Reduced conflict: Individuals are more likely to resolve conflicts peacefully and
avoid violence or aggression in an undivided society. This promotes stability and security
and helps to prevent the escalation of conflicts into more serious situations.
3. Improved well-being: Individuals in an undivided society are more likely to experience
improved well-being by working together to address social and environmental issues.
This includes access to basic services such as healthcare, education, housing, and a
cleaner and healthier environment. Create a prosperous and thriving economy. By sharing
resources and skills, communities are better equipped
4. Increased economic prosperity: In an undivided society, individuals are more likely to
work together to address the challenges of poverty and unemployment and create new
growth and development opportunities.
5. Fostered creativity and innovation: An undivided society provides a supportive
environment for creativity and innovation, as individuals are encouraged to work together
to find new solutions to problems. This can lead to the development of new technologies,
products, and services that can benefit society as a whole.

UNIVERSAL ORDER (SARVABHAUM VYAWASTHA ); FROM FAMILY TO WORLD FAMILY

A universal order refers to a systematic arrangement or organization of
elements within a larger system, such as the universe or society. The idea is that the
universe operates according to principles or laws that govern the behavior of matter
and energy. This order is considered inherent in the universe, and understanding these
principles is believed to help us better understand the world and our place within it.
In society, the idea of a universal order often refers to the belief that there is a natural
and harmonious way of organizing human relationships and institutions. This view
holds that society operates best based on a shared human nature and applies to all
people, regardless of background or culture.
The benefits of a universal order are numerous and include:
1. Increased stability: When society is organized according to a universal order, individuals are
more likely to behave in predictable and stable ways. This helps to create a more orderly and
harmonious society, leading to greater stability and security.
2. Improved decision-making: In a society organized according to a universal order, decision-
making
 processes are more likely to be based on objective fair and just criteria. This helps to
ensure that decisions are made in the best interests of society rather than being
influenced by personal or political interests.
3. Enhanced cooperation: By promoting a shared understanding of the principles that
govern human relationships and institutions, a universal order helps to foster greater cooperation
and collaboration. This leads to more effective and efficient solutions to problems and greater
progress in areas such as social and economic development.
4. Increased understanding: A universal order helps individuals to understand the underlying
principles that govern the world and their place within it. This can lead to a greater
appreciation of the interconnectedness of all things and a deeper understanding of the world and
our place within it.
5. Reduced conflict: By promoting a shared understanding of the principles that govern human
relationships and institutions, a universal order helps to reduce the risk of conflict and promote
peace and stability. This is because individuals are more likely to understand and respect each
other's perspectives and to work together to find mutually acceptable solutions to problems.
However, while the idea of a universal order holds great appeal, it is important to note that it can
also be used to justify oppressive and authoritarian government systems. In these cases, the idea
of a universal order is often used to impose a particular set of values or beliefs on society, limiting
individual freedom and suppressing diversity and dissent.
From family to world family
A "world family" is the belief that all individuals are connected and should
be treated as part of a larger, global community. This concept is based on the idea
that all human beings are part of a shared humanity, regardless of their background,
culture, or nationality. As families work together to support and care for one another,
the entire human race should address society’s common challenges and create a
better future for all.
The idea of a world family is closely related to global citizenship, which
emphasizes individuals’ responsibilities to each other and the world. This view holds
that individuals should act in the best interests of the global community rather than
being solely focused on their interests.
The Benefits of a world family perspective include:
1. Increased understanding and respect: By recognizing the common humanity we share with
others, individuals are more likely to understand and respect each other's perspectives. This can
lead to greater cooperation and collaboration and help reduce conflicts and tensions.
2. Improved well-being: By working together to address global challenges
such as poverty, inequality, and environmental degradation, individuals can
contribute to the overall well- being of the world and future generations.
3. Enhanced cooperation: When individuals view each other as part of a
larger, global community, they are more likely to work together to address
shared challenges and to find common solutions.
4. Greater empathy: The idea of a world family encourages individuals to
recognize the interconnectedness of all things and to understand that the
well-being of others is connected to their own. This can lead to greater
empathy and compassion for others.
5. Increased sense of purpose: By viewing themselves as part of a larger,
global community, individuals are more likely to feel a sense of purpose and
meaning in their lives, as they work to make a positive contribution to the
world.

1
 Corporate Culture

Chapter: 4

Business Ethics

Sem: 4

Marks: 8

Culture: includes knowledge, beliefs, art, morals, laws, customs, and other capabilities and habits
acquired by individuals, thereby distinguishing the members of one group or category from another.

Corporate Culture: may be defined as the shared beliefs possessed by the top management of an
organization about how they should conduct themselves, their employees as well as their business.
Simply it refers to the beliefs and behaviors that determine how the company management and its
employees interact and handle business transactions.

Features of Corporate Culture

1. A strong corporate culture represent corporate ideology and vision of the company.
2. Corporate culture dictates how people should behave when at work, what values should drive their
performance and what practices should be implemented to achieve the company’s vision.
3. A companies corporate culture will be reflected in its dress code, business hours, office set up,
employees benefit, turnover, hiring decisions, client treatment, satisfaction etc.
4. The corporate culture is written formally and forwarded through memos, code of conduct, manuals,
forms etc. The values, norms, customs should be shared and expressed informally.
5. It is the responsibility of the top management of all organization to facilitate a positive work place
environment by valuing the traits of trust, empowerment, consistency, mentorship etc. ethical
behavior shall be rewarded.
6. The culture is demonstrated through employee behavior.
7. Corporate culture is the combination of vision, mission, values and the everyday aspects of
communication, interaction, and operational goals that foster the organizational atmosphere that
permits the manner in which the employee works.
8. It is the backbone of corporate ethics

Functions of corporate culture

1. Corporate culture enhances the goodwill of the organization.

2. It helps in decision making
3. Good corporate culture reduces communication problems between different levels of the
2
 organization
4. Corporate culture promotes organizational coordination and control
5. Esteemed corporate culture gives employee satisfaction
6. Corporate culture promotes consistency in perspective across all levels in the organization.

3
 7. Corporate culture reduces anxiety levels of employees, which simplifies the nature of work.
8. An appropriate corporate culture can offere employees a focus of identification and loyalty, foster
beliefs and values that encourage them to perform.

Case Study of the Google Culture

Google is well known for their ORGANISATIONAL CULTURES distinctiveness and

uniqueness compared to their immediate competitors. On the Google corporate website, they
have listed down 10 core principles that guide the actions of the entire organization. These
are the values and assumptions shared within the organization.

In Google, the daily organizational life is distinctive and is one that thrives on informal culture.
The rituals that portray the organization’s culture as unique and possesses a small-company feel
are portrayed daily at lunchtime, where almost all employees eat together at the many various
while at the same time having an open, relaxed conversations with fellow Googlers that come
from different teams. Also, because one of the Google culture’s main pillars are the pillar of
innovation, every Googler are very comfortable at sharing ideas, thoughts, and opinions with
one another in a very informal working environment. Every employee is a hands-on contributor
and everyone wears several hats. In Google, the motivated employees who ‘live’ the Google
brand and are aligned to the company call themselves ‘Googlers’. Even former employees of
Google have a name which they refer to themselves as ‘Xooglers’. This shows that in Google,
their employees are so involved in the organization that they have their own symbolic name
that mirrors the organization’s name and image, which is a sure sign of existing strong cultural
values that are present within the company.

Elements of Corporate Culture

1. These explain the behavioral traits which the members of the organization believe to be
morally accepted.

2. It refers to various core values which are spread through out an organization

3. Every organizational culture has its own distinct symbols, such as language which
convey core values, which unite the organizational members

4. Every organization has its own style of undertaking activities

Forms of Corporate culture

1. Culture of care: high concern is displayed for individual but not for their performance

2. Culture of exaction: uncaring and unsympathetic attitude towards employees and

4
maximum concern for production and performance

5
 3. Culture of integration: a high concern for employees as well as their performance

4. Culture of apathy: minimum concern for either employees and performance and individual
focus on maximizing their own self interest.

5. Culture of defiance: Low ethical standard, cutting ethical concerns, not abiding by the law,
or intentionally misrepresenting the law.

6. Culture of neglect: organization wants to follow ethical norms but due to various limitations
they are not always successful

7. Culture of compliance: A organization adopting a compliant corporate culture undertakes

activities in accordance with legal and ethical standard.

8. Culture of character: An organization following this form of corporate culture, not only
knows what is right, but it also does and values what is right. Such a culture is characterized
by integrity and fairness.

Factors affecting corporate culture

Some of the major factors that affect corporate culture

1. It refers to the workplace environment that affect corporate culture

2. Whistle blower policy and customer report forms an integral part of organizational
level

3. Effective communication develop a positive attitude among employees and help

them to promote an environment of open and constructive environment

4. In its recruitment and selection drives, recognition and selects performance in a

manner that promote good conduct of employees

5. Remuneration and incentive structure drive employees and motivate them and
reinforce ethical behavior

Globalization and cross cultural issues

Globalization means integrating the economy of a country with th world economy. It means
adopting a global outlook for the business and business strategies aimed at enhancing a global
competitiveness.

The policy of globalization includes:

6
 1. Reduction of trade barriers so as to permit free flow of goods and services across national
frontiers.

2. Creation of an environment in which free flow of capital can take place

3. Foreign exchange management act

4. Creation of an environment permitting free flow of technology among nation states

5. Creation of an environment in which free movement of labour can take palce in different
counties of the world.

Cross cultural issues in ethics

Cultural ethics deals with the morality, integrity, principles, and values of a culture
including religion which helps to understand cross cultural issues better.

1. Cross cultural issues have implication for international marketing

2. All marketers face different face different challenges due to cultural diversity and cross
cultural issues.

3. Different cultures have different rules of conduct which poses challenges in business
ethics practices of different organizations belonging to different countries.

4. In international marketing two different ethical standards meet in business transactions

which create serious problems in cross cultural issues in ethics

5. Different ethical norms are derive from different concepts of human nature are rule based
culture and relationship based culture

Significance of corporate culture in making ethical decisions:

1. Corporate culture encompasses certain predefined policies which guide the employees
and give them a sense of direction in the work place.

2. Corporate culture dispatches and controls the behavior of employees through its standard
and procedure which aid in decision making process

3. A strong corporate culture helps to interact and address each other and how to conduct
personal relationship

4. When employees are valued for their contribution to the organization they experience
high morale and favorable attitude towards the organization
7
 5. A stronger corporate culture offers a sense of pride and identify to the organizational
members who feel motivated to work more harder

6. A good corporate culture cultivates a sense of belongingness

7. Corporate culture is the social glue that helps bind the organization by providing
appropriate ethical standards for how the employees should conduct themselves

8. Corporate culture helps distinguish an organization from its rival either based on strong
ethical standard and high customer centric.

9. A robust corporate culture encourages workers to deliver quality products and services

Implementing effective corporate ethics and programs

1. Identify the purpose and mission of the corporate ethics programs and ensuring compliance
with regulatory requirements nationally and internationally as well as promote internal
control mechanism.

2. Understand the ethical culture of the organization that ensures comprehensive reporting,
clear accountability and effective supervision by the top management , thereby developing
a corporate culture.

3. Identify the organizational goals and the organization can develop an effective ethics
programs that complies with national and international laws and identifies the boundaries
of legal and ethical behavior that affects the organization internally or externally.

4. Implement a continuous monitoring and improving programs that ensures that the corporate
ethics program with the organizational goals. Organizations can develop strategies needs to
improve its effectiveness and responsiveness.

Corporate code of ethics

A code of ethics is a guide compromising ethical principles established by an organization. It is

designed to help professionals conduct their business with honesty and integrity.

Corporate code of ethics is a statement of business guidelines that defines ethical standard of
conduct for its top management and employees. With a well defined code of ethics and a strong
reward system, the top management has all the measures needed to create and demonstrate an
ethical company culture.

Features of corporate code of ethics

8
 1. Policy statement of a company provides information about employees behavior and
prevents behavior that does not comply with the company’s mission and greater objective

2. Corporate code of ethics are usually voluntary in nature as they are usually not
enforceable by law

3. These are flexible in the sense that the code of ethics can adopt several formats and
address any issues such as workplace issues and employee rights.

Benefits of corporate code of ethics

1. It helps the organization to communicate its expectations to its stakeholders starting from
the employees t its suppliers and customers

2. A strong corporate code of ethics helps guide employees in situations where the ethical
course of action is not immediately apparent

3. A code of ethics helps the organization reinforce and acquaint new employees with its
culture and values thereby creating a climate of integrity and excellence

4. Due to the presence of a well defined and well implemented corporate code of ethics trust
can built among the members of the public and brand identity can be enhanced.

MCQS

1. A set of values , beliefs, goals, norms and ways of solving the problem of the
organization as well as the employees is called CORPORATE CULTURE’

2. A corporate culture can be created by a FOUNDER OF THE COMPANY

3. One corporate house can be distinguished from other corporate house in terms of
CULTURE

4. It is a set of written guidelines that are needed to realize the goals of the company CODE
OF CONDUCT

5. Strong corporate culture teaches employees of the organization to WORK IN TEAMS

6. The tone and tenor of corporate culture which moves down to the level employees is set
up TOP LEVEL EXECUTIVES

7. What is the impact of corporate culture on business performance INCREASE

PRODUCTIVITY

9
8. The culture of sales department is going to influence customer satisfaction and similarly
customer satisfaction is going to increase satisfaction of sales department. This is a example
of HEALTHY CORPORATE CULTURE

9. It means integrating the economy of a country with the world economy. It refers to
GLOBALISATION

10. It is written document that outlines the principles of conduct to be used in making decisions.
It refers to CODE OF ETHICS

11. This code of ethics set guideline for the conduct of the employees of the company and also
determines penalties for its violations. This refers to Compliance based code of ethics

12. For which of the following reasons corporate code of ethics is developed GOOD
CORPORATE GOVERNANCE

13. Ethics focuses on principles of right or wrong

14. Which of the following is least likely t be held by utilitarianism government should
actively promote social goals

15. Ethical business behavior includes all by one of the following. Strive above all to a
maximize profits

16. Which of the following is not one of the challenges associated with ageing societies.
Equal opportunities for all ethnic and religious minorities

17. Applying Hofstede cultural dimensions which of the following combines high power
distance and collectivism? Asian Societies

18. Which of the following religious is polytheistic? Hinduism

19. National culture is based on the sense of belonging of a people

20. Characteristic of organizational culture include all but which one of the following?
Sustainability policies

21. In marketing a distinctive group of consumers is known as segment

22. The PEST analysis is used to represent Multiple dimensions of the external
environment

23. Process culture applies to rapid feedback and high risk

1
0
24. Which of the following is the least appropriate in describing the ethnocentric
organizationthe management welcomes new ideas from other cultures

25. Which of the following is not part of the point of view espoused by Milton Friedman
Companies must be concerned with the enviornment

1
 A CORPORATE CULTURE PATTERN TO MANAGE
BUSINESS ETHICS

Abstract
Within the general frame of proposals for an adequate management
of business ethics, this paper is based on the vision of corporate
culture as a pattern to achieve such purpose. If we consider ethics as a
specific value ofcorporate culture, we may resort to the mechanism of
cultural change and implementation in order to manage ethics. Despite
the difficulties it entailsin terms of time and money investment, this
procedure is one of the safestways to reach ethical values which are
known, shared and then practiced by all the members of a
corporation, whatever the category. From this central standpoint, and
basing ourselves on our own proposal for themanagement of culture,
we shall describe which specific steps must be taken in order to
achieve a set of ethical values which are both realistic and
furthermore shared by all collaborators of an organization.

Keywords
Organizational Culture. Business Ethics. Organizational Change and
Behaviour.

Author's Biography:

* Dr. Enrique Claver, full Professor of Business Management at the University

of Alicante, Spain. Head of the Department of Business Management at the
said University. His current research interests include Strategic Management
and Human Resources Management.

* Dr. Juan Llopis, Senior Lecturer in Business Management at the University of

Alicante, Spain. Secretary of the Faculty of Economics and Business Studies
at the said University. His current research interests include Organizational
Culture and Business Ethics.

* Dr. José L. Gascó, Senior Lecturer in Business Management at the University

of Alicante, Spain. His current research include Human Resources
2
Management and the role of Human Resources Managers.

3
I. Corporate culture as a way to understand the ethical values of a
corporation.
As Vogel (1991) reminds us, the present interest in business ethics
results from the need to offer new answers to old problems, which
have existed since ethics began to be studied as a part of business
activity, when market economy started to emerge 750 years ago.

In this perspective, Donaldson & Dunfee (1994) believe that

research in corporate ethics may be carried out by means of empirical
research, thatis, through notions describing and explaining issues like
motivation or theconnection between ethical behavious and financial
results; the question would be "what ethics is". On the other hand,
research may be based on conceptual aspects, which, although they
are not necessarily present in business practice, guide us towards
"what ethics must be". Unfortunately, neither of these trends have
fostered a culture model for business.

An initial approach to assess the influence of culture upon ethics,

and vice versa, lies in analyzing how the sociological culture causes,
for instance, that firms located in different geographic environments
should have ethical beliefs which are valid for each of them, although
there are differences between such beliefs. Interesting work on this
topic can be found in Armstrong (1996), Gundling (1991) and Puffer
& McCarthy (1995).

Nevertheless, it is the study of corporate culture that offers us a

closer vision of how to improve the ethical behaviour of
corporations. If weconsider that corporate culture is a set of values,
symbols and rituals shared by the members of a certain firm,
describing the way things are done within an organization when
solving internal managerial problems, together with those related to
customers, suppliers and environment, we may easily observe that
business ethics is a component of organizational culture, and a very
important one at that. From this point of view, Deetz (1985) has
stated that cultural research does not only include theoretical and
epistemological issues, but also ethical ones.
4
 Once ethics is seen within the framework of corporate culture,
Sinclair(1993) points out that there are two ways of managing culture
so that an organization is ethical:
A. Creating a strong, individualized culture with ethical values.
B. Generating subcultures by departments and groups of persons with ethical
values.

It is our belief that any of the previous methods is perfectly valid,

for what matters is the results obtained, i.e. the achievement of an
ethical culture which is suitable for an organization and as widely
shared aspossible, in such a way (Lozano, 1996) that ethics may
account, in global terms, for the specific culture and the decision-
making process of the corporation.

At the same time, since we are talking about an ethical culture, it

is a basic requirement that these values should be shared by all the
members of a corporation, and not only present in the mind of some
manager in charge of the “ethical issues” of the organization. In this
line of thought, we can perfectly understand that authors like Ackoff
(1987) and Sashkin (1984) should attach so much importance to the
involvement of employeesin the ethical issues of the firm.

However, the problem arises when the ethical behaviour is not a

shared one, and there are both managers and employees that do not
have the desired ethical attitude, which results in an extremely weak
set of beliefs. In this case (Dobson, 1990), the existence of a non
ethical culture will lead to changes which will stem from economic
needs and not from ethical ones.

In this environment, we now propose a methodology for an

efficient management of ethics, based on organizational culture
notions. This is a methodology that should be valid, both to modify a
non desired ethical culture, and to implement an ethical culture which
is widely shared by all members of a corporation.

5
II. A methodology for the management of the cultural values of business
ethics.
If we see business ethics as a component of corporate culture, any
serious prospect of changing, implementing or improving ethics may
be supported by techniques that permit a management of culture.
From this central standpoint, and basing ourselves on our own
proposal for the managementof culture, we shall now describe which
specific steps must be taken in order to achieve a set of ethical values
which are both realistic and furthermore shared by all collaborators of
an organization.

1. Finding out which ethical values are currently accepted.

The logic of this lies in the fact that it is pointless to start a
process of rectifying or improving a phenomenon which is not known
in depth. Besides, it is necessary not only to define the ethical values
which exist within a corporation, but it is is also a must to detect to
which extent they are shared.

The importance of this is due to the fact that, perhaps, there

might be some department or section whose behaviour deviates from
the current cultural orientation and resembles, to some extent, the
desired corporate ethical spirit. In this case, by encouraging and
rewarding the said group, its way of doing things would spread to the
whole corporation. However, these steps can only be made when
there has been a previous analysis of the qualitative situation which
prevails in the firm; in this respect, Allen et al. (1987, based on
Human Resources Institute, 1979) show an interesting questionnaire
for a diagnosis of the kind of ethics existing in an organiza- tion.

Nevertheless, if we bear in mind that business ethics as a value is

a component of organizational culture, its existence as such will be
conditioned by those values being shared by all members of a firm.
Therefore, this kind of questionnaire must be answered not only by
managers, but by all collaborators of the organization, thus showing
the views and opinions of shareholders, suppliers and customers of
the organization concerning the ethics of their business relationships
6
with thefirm.

7
 In this way, we can see that it is not so simple to make a
diagnosis of the ethical values of a corporation, for they involve
many people, and not only the opinion of those who occupy the
position of managers.

2. Determining whether it is necessary to supplement or modify ethical beliefs.

It should be emphasized here that ethical reorientations will be
approved of when there are large profits, whatever their nature, and
in absolute terms the advantages involved will be grater than any
obstacles suchoperation entails.

In this sense, we should remind that, despite the growing

importance attached to ethical values by all scholars and also by
managers, there are still those who believe that ethics is not necessary
in business. According to Melé (1991), the reasons argued for this are
the following:

A. Firstly, there are those who believe that the aim of a firm is earning and
winning (money, markets, power...) beyond any ethics.

B. Others will not go so far, and see business as a sort of game which demands
different ethics than that ruling the behaviour of people in their social lives. Thus,
within a firm there would be a number of principles about what is good, which
would differ from those in force in other walks of life. Actually, those “rules of the
game” would no longer be considered ethics, since ethics by definition would
indicate the basic principles guiding a correct behaviour, whatever the context.

C. The third argumentation is based on the notion that the only thing afirm, and
those working for it, should be concerned about is earningmoney. The mechanisms
of market economy will regulate the best ethical results, or public bodies will seek
to solve (by means of suitable laws) the social problems that may arise, without
the firm needing to worry about ethical issues.

8
 This third view has been subject to criticism, due to its simplistic
character. Indeed, abiding by the law (supposing that the law is a fair
one),respecting agreements and being honest, are necessary
conditions for an ethical behaviour, but they are not enough.
Dumpling dangerous waste in places where it may endanger the
health of other people, abusing natural resources, using subliminal
advertising, selling not very safe products or treating workers in an
inconsiderate way, are not always activities which are legally
forbidden and neither do they go against any contract; however,
everybody will realize the lack of ethics in these practices.

Given this view, we may wonder if an ethical behaviour will be

profitable for a firm, both regarding employees and third parties
(customers, suppliers, competitors and the whole of society).

In this respect, Gómez (1990) has suggested a number of reasons

why we should be ethical when managing a firm:
-An awareness of solidarity, and therefore, that any harm which is done willalways
result in somebody suffering it.
-An awareness of alterity (alter ego), i.e., a new vision of the traditional principle
“do not do unto others what you do not want anyone to do to you”;
-Fear of the negative consequences affecting the honour and respectability of the
firm;
-Fear of legal sanctions.

In addition to this, we must remember that we are analyzing ethics

in abusiness environment, which means that, as Hosmer (1994) points
out, ethics must be included within strategic planning, in order to
build a set ofbeliefs that are valid for all members of a firm. The
reason for this is clear:beliefs generate a compromise, a compromise
involves an effort, and any effort which is cooperative, innovating
and strategically directed, is essential for success within a global
competition economy. Ethics must be acentral issue, and not a
secondary one, in anything related to business management.

9
 Therefore, we should progressively “permeate” the staff with the
idea that, in order to achieve the purposes desired, all must
simultaneously accept that the present ethical values are not adequate,
or simply, non existent. As a reinforcing measure, it would be
positive that those incharge of the firm should challenge the whole
set of values, and furthermore, that such acknowledgment should be
made in public, so as tostart creating an awareness among the
members of the economic unit.

It is clear that, once this process has started, it should continue

until the end because, if after criticizing the present situation, the
managers fall back and content themselves with what there was
before, the confusion created would be so serious that the damage
could be irreparable. To sum up, so far we know the existing values,
the definition of the ethical purposes of the firm and the degree of
confrontation between the two. If there is no contradiction, the
methodology should stop here; otherwise, wewould proceed to the
next stage.

3. Clearly defining the kind of ethical culture which is needed and creating an
ethical code.
This is a vital step, because it will eventually determine all the steps
whichare taken. Besides, as the present situation is already known,
the intensity of the correcting effort may be quantified. On some
occasions a global change in the orientation of ethical values is
required, as would be the caseof a firm acting in an unethical way in
all its activities; in other circumstances, it will be enough to
encourage or modify only some aspect.

It must be remembered that ethical values must be useful for

future activities, which have not been explicitly stated, but the
content of which will be related to this qualitative orientation. It is
unthinkable, for reasonsof cost and time, to keep changing the values
in order to implementdifferent projects. Besides, the unstable
corporate personality that would be created in between the processes
would be a clearly negative one, for, in this adaptation stage, the
10
organization suffers a void in ethical values that spreads confusion
over all business tasks.

11
 The clearest way to define ethical values is through the
elaboration of an ethical code, which permits a quick visualization of
which are thepurposes desired. In this sense, it would be suitable to
distinguish, alongside with Murphy (1989) between corporate creed
and ethical code. The former establishes, in a general way, the
organizational ethical values,whereas the latter is a specific set of
guidelines which must be kept to and developed in all functional
areas of a firm. It is obvious (Vitell et al., 1993)that, in principle,
individuals are more ethical if a corporation has a written, formal
code, and less ethical otherwise.

As for the effects of the presence of an ethical code, Gellerman

(1989) points out three of them, the first two positive and the third one
negative:

A. It allows us to explain ethical aspects which were not understood or were

not clear enough. This is also the view held by Smith (1995), for whom one way
of making business ethics more relevant for decision-making is by admitting that
many ethical issues in a firm may be specified more exactly.
B. Employees know which actions are likely to get them into trouble.
C. The ethical code shifts the responsibility of the firm's bad behaviourtowards
one or several individuals. Thus, an ethical code may be a way in which a firm
may wash its hands and shift the ethical responsibility of bad actions towards its
employees.

In this line of thought, Gélinier (1991) is much more specific,

when he lists the main advantages of the existence of such document:
A. It allows employees to be aware of a number of legal or contract duties
which, should this document not exist, they would not be aware of: confidentiality,
conflicts of interests, non discrimination, presents, etc.
B. It informs the staff about the practices and values of the firm, a clear
understanding of which will increase the employees' job efficiency and motivation.
C. It helps the newly arrived to integrate within the organization, for bymeans
of this code they become aware, through the right process, which their position
must be in certain situations.

12
 D. If the code contains those actions which are not only unethical, but also
illegal, it will have a greater power as a deterrent, which will be even greater if
there is a legal department with enough jurisdiction to ensure itsimplementation.

To these advantages, we may add that stated by Jones (1995),

which lies in the fact that employees will not generate cost transaction
situations,because they will not take advantage of the chances that
arise to provoke them.

Moving on to a different aspect, we agree with Ciulla (1991) that

ethical codes are very similar in many firms, and they involve issues
such as staff behaviour, community and environment, customers,
shareholders,suppliers, political interests and technology and
innovation. Also, firms usually carry out research on others' codes
before writing their own.

However, if we bear in mind the central idea of this paper, which

statesthat business ethics is a part of corporate culture, we must say
that a literal extrapolation of the ethical code of a firm to
another does notguarantee the same results. This is due to the fact
that culture is to a corporation what personality is to an individual, or
in other words, it is unique, and hence the specific ethical
manifestation cannot be identical.

Concerning this point, Koontz & Weihrich (1993) have warned

that, despite the existence of these declarations of what ethical
principles must be followed, the mere fact of presenting a code is not
enough, and it is essential to create an ethics committee in order to
institutionalize anethical behaviour. Even Mathews (1988) has
observed that ethical codes bythemselves cannot offer real answers to
the ethical dilemmas raised by people within corporations.

Following all these ideas, we may say that ethical behaviour

constitutesa cultural behaviour of a company, and therefore, if the
creation of an ethical code is an essential step to generate a
favourable attitude towards the new principles, such principles will
13
become shared ethical values when

14
 the whole process of implementation or modification of the ethical
culturehas been developed satisfactorily. This leads us to the
following stage.

4. Involving managers within the transformation or implementation ofethical values.

Since the decision to modify the ethical values in an organization is
made initially at a higher level, managers should be the first group to
accept it (Argandoña 1991). This point of view coincided with that by
Stoner (1989),who states that managers play a key role in the
achievement of an ethical business culture.

This stage possesses such an importance, that if these beliefs are

not spread among those who make critical decisions within a
company, such beliefs will hardly be reflected in them. This is well
illustrated by Hunt et al. (1989), who underline that corporate ethical
values are considered to bea combination of both the ethical values of
managers and the formal and informal policies of the corporation
concerning ethics.

Indeed, on many occasions employees imitate their managers; if

the latter are well aware of the new ethical values, changes are more
likely to take place. By introducing and developing strategic plans
which agree withthe desired ideals, the rest of managers may realize
to which extent their effors may converge. This emulation technique,
which is valid for those which occupy the highest posts in the
organizational board, is still more useful at operational levels.

Until the managers do not accept as a group, even if it is only by

a simple majority, the ethical conceptions needed to promote future
projects,it is to be expected that the introduction of these values
among operationalgroups runs the risk of failure, as there may be
some manager wrongly explaining or interpreting them.

Therefore, it does not suffice to say that there is an ethical code

and it is a positive step, but also managers must agree with these
principles and put them into practice. Badaracco & Webb (1995) are
15
very explicit in this respect, when they state that, in terms of
business culture, statements by

16
 senior managers on business ethics are of little import, for actions are
what matters. When a senior manager chooses what is ethically
correct, it is easier to sell a signal which is clearly understood.

On many occasions, having to accept a previously elaborated

ethical code may be beneficial, for it leads to a reflection on oneself.
In this way, asthe managers put it into practice, it may result on some
of its parts being modified; this constitutes an enrichment, and it
shows that it is a live document which can be constantly improved.

So far, we may talk about the existence of a managerial ethical

culture.It is a culture, for it is a set of shared values, accepted by a
specific group; it is ethical, for such beliefs are of that nature; and it
is managerial, for it concerns exclusively the highest organizational
level within the corporation.

5. Transmitting to collaborators the desired ethical culture.

Although the previous stage is fundamental for the modification of
the paradigm we are dealing with, this is also a basic one, for shared
beliefs are above any organizational hierarchy. We must not forget
that, for an ethical culture to be meaningful, it must incorporate a
complete acceptance by all members of the company.

Looking at the subject from a different point of view, we must

admit that, as this is now a much larger group, whose ideas are in
principle different from those of a higher hierarchical level, the exact
flow of information may be catalized contrary to what is expected. In
addition to this, the degree of perception changes from one person to
another. Therefore, it is fundamental that, when ethical values are
transmitted, theyrepresent the point of view of both managers and
employees.

Going back to the notion that managers must exemplify the new
common ideology, we consider that, as the origin of this wide variety
of perceptions, the interpretations may be different. If, in addition to
this, themanagers start out with very different ideals, it can be
17
understood to whichextent communication may be distorted.
However, as Hosmer (1995) has

18
 remarked, ethical beliefs are based on firstly transmitting ethical
principles.

In a similar way, this communication must possess an

unavoidable feature, i.e. only offering and asserting what is really
likely to happen within a corporation; this is due to the fact that,
should it not happen like this, disappointments may arise which will
indirectly result in an increaseduncertainly, thus creating a certain
mistrust among employees. Hence the importance of the previous
stage concerning the compromise of managers in the ethical field.

In a few words, this communication must be as direct as possible,

and no promises must be made if they cannot be fulfilled later. At the
same time, the reasons for these ethical values will be explained,
together with the benefits they will entail. The immediate effect will
be that a greater ease to change beliefs, but above all the elimination,
either complete or partial, of the tensions deriving from the staff not
knowing how to behave and carry out their tasks within a firm. A
parallel view is that the communication of these values in itself
constitutes, in turn, an ethical imperative. Jones (1985) explains that
manipulation is unethical when individuals are not informed
immediately about the nature of anexperiment or business activity
that affect them; it would also be unethicalif the experiment may
harm the person that takes part in it, or when participation is
compulsory.

So far, after all these stages, all the members of an organization

shouldknow which is the ethical orientation desired; a different matter
is whetherthey accept it or not. For this purpose, the following points
are listed, in order to inspire a certain degree of shared conviction.

6. Managing the ethical symbology.

As a rule, the mere statement of the desired values will not suffice;
this is why the modification or implementation of ethical beliefs must
be supported by an approach to the symbols that allow an
identification of the right ethical behaviour. Due to the specific nature
19
 of ethics, these symbols will be basically non-material ones. Thus, it
is logical to believe that the
fundamental symbol would consist in managers showing in their
daily activity with employees, customers, suppliers, shareholders, etc.
an absolute consistency with ethical values, for after informing the
staff aboutthe priorities in this field, one must act accordingly.

In this sense, Butcher (1985) considers that the symbols of

business culture suggest that they can be a powerful source of
motivation. More precisely, they may manage the behaviour and
determine the aims of a business. The right symbols may rule the
organizational culture to such an extent, that an unethical behaviour
would be unthinkable.

Together with these appreciation, a likely boost would be given

by rewarding, even if it is by way of mere verbal recognition, those
who followthe desired ethical behaviour. However, it must be
remembered that, as every organization has its own personality, the
specific materialization of, for instance, a monetary reward, will not
be the same for every firm.

7. Reformulating training procedures in such a way that they include the desired
ethical values.
The logic of this is that it is more feasible to train the staff in a
cultural ethics than modifying it. The advantage of this lies in the fact
that it is not necessary to restructure the ideas of new collaborators
concerning the firm, but rather, as the starting point is an immature
conception, it becomes possible to accept a number of beliefs without
suffering personal confusion. On the contrary, when a way of
working has been alreadyaccepted within a company, the
transformation of ethical values implies the recognition that the
previously accepted foundations were not the best ones, which results
in a higher degree of anxiety. This should be solved by intensifying a
socialization effort, based on the ideal ethical beliefs.

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 In addition to structuring ethical values alongside all training
procedures, whatever the nature, one must consider the organization
of specific courses on ethics, which would amount to following the
advice given by Drake and Drake (1988) on the development of
training programmes to implement corporate values. These
programmes must

21
 explain the legal and ethical principles and show practical examples
whichcan be used as guidance.

However, and after all that has been said so far, Allen et al.
(1987) warn us that there are an increasing number of corporation
organizing in-company ethics courses. This activity may be beneficial
initially, but unlessthis effort is used to strengthen the cultural
foundations, the chance will belost.

It is not a question of forcing the staff to “digest” ethical values,

but rather assuming them as our own, so that they are useful for the
staff and the organization, because otherwise, as Willmott (1993) has
pointed out onthe subject on ethical renovation, cultural strengthening
programmes mayhinder the achievement of democratic values.

8. Periodically bearing in mind which ethical culture supports the whole structure of
the corporation.
Although ethical values may appear to have settled, due to the short
time elapsed since their introduction and acceptance, they are still
fragile. Therefore, it is necessary to constantly evoke them, in order
to strengthen progressively the shared personality which is desired.

If, after efficiently following all the preceding steps, the issue is
neglected, there may be negative effects endangering the whole
process; hence the importance of this point, which would represent the
culmination of all this procedure.

By means of a chronological enumeration of the steps which

must be taken to create or modify the corporate ethical culture of a
specific organization, we have also shown that the management of
organizational culture is a powerful instrument to achieve suitable
ethical values, which are furthermore shared by all members of a
company. Now we can understand the idea put forward by Waters &
Bird (1987): it is easier to influence upon ethical behaviours and
attitudes through culture than through bureaucratic formulae.

22
 In this line of argumentation, Akaah (1993) has added that
professionals working for organizations with bureaucratic cultures
have worse ethical values than those who live within a democratic,
innovating corporate culture.

III. Conclusion.
It is possible to manage business ethics, to a very high degree, if we
consider it a component of corporate culture. For this purpose, the
culturalimplementation and modification procedures must be used
and applied to the specific organizational values of corporate ethical
culture. The processis, however, much more complex than the mere
statement and formulation of an ethical code; as we have analyzed in
this paper, it is necessary to make a diagnosis of the present ethical
values in order to, through a step- by-step method, making the
suitable ethical beliefs known and then shared by all members of an
organization. Of course, this should be done regardless of the post
they hold or the department they belong to, building in this way an
adequate corporate ethical culture.

23
 Business Ethics and Firms’ Value

Professor Haitham Nobanee

Abstract

Business ethics is a type of professional ethics that looks at the ethical principles and moral or
ethical problems that occur in a business setting. This refers to many facets of business conduct
and is applicable to the actions of individuals and business entities. The purpose of this report
is to discuss the significance of business ethics, global ethics, and applications of ethics. The
main point is to underline the importance of social responsibility, theory of firm, corporate
governance and business relationship. This report gives the implication of global ethics on
Islamic market, and its importance building strong ethical culture with respect to Global crisis
2008. In the last stage, we emphasize on production, selling and developing a single code of
ethics. Based on the analyzed aspects of ethics in the corporate firms, it is safe and intellectual
to assume that having any type of ethical conduct has a positive impact on the workplace.
Implementation of ethics irrespective of the approach is heavily as impactful proved from
successful organizations mentioned in this report as they dynamically adapt the ethical
guidelines. Lastly, all research conclusively among distinct sources firmly suggests that having
ethics is a strong asset for the success of the company. A company’s integrity, reputation, and
survival is built upon the hardcore base of ethics.

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Introduction:

Business ethics could be defined as the state of behavior within an organization whether

good or bad business ethics have become the talking point of the business world. Stakeholders

are pushing for more ethical operations and for business ethics to be the core part of the business

strategy. (Bint Tariq, 2020) Firms are being asked to find the right balance between ethicality and

profitability, as being ethical plays a part in financial success. A lot of business lost fortunes of

money out of being unethical and lying to their stakeholders, a perfect example would be

Volkswagen, Volkswagen had an all-time low car sale in 2015 because they simply lied to the

public about their cars’ gas emission. (Sizik, 2012) Business ethics has taken a serious toll on

businesses as they now are required to be ethical and could face some legal complications if they

don’t, this has especially clear when you look at all the applications mentioning every little detail

in their terms and services to avoid such complications. Question is asked is how can a firm

maintain its financial profitability while being ethical? And the answer is in the short run firm

profitability will take a hit, but in the long run, it will have a great positive impact on the business.

For example, a company that donates a pair of shoes after every sale that they make, in the short

run they will lose money, but long term it’ll help attract customers and maintain a good reputation

for the business which will increase their profitability. In this research, we focus on the impact

of business ethics on firms while also shedding some light on the other aspect of our world such

as how companies are implementing ethics in their organizations. The various definition of ethics

among many others. We also highlight the various advantages of maintaining good business

ethics and why all firms should include it as part of their business strategy.

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Literature Review:

Importance of Business Ethics and Corporate social responsibility

There is difference between greed and self-interest. Greed is ridiculous. Rational and reasonable

willingness to promote individual best priority upon the expense of others. As it was pointed out

by Smith, moral self-interest also makes the world go around. (The Economist, 2005).

(Robinson, 2007) announced in an opening address called "Morality and Economics" that the

theory of Adam Smith had been altered through the time. Adam smith never sought for profit and

never rallied around having self-interest at best. Instead, Adam Smith believed in morality and

virtue as being essential.

Alan Greenspan, the Federal Reserve's then-Chairman, expressed his view on the simplicity of

CEOs to prepare financial statements in ways that will deceive the public. He said that there is

too much cheating in the system. Free market capitalism cannot work. The system of capitalism

has gone corrupt (Suskind, 2008). The "maximizing shareholder value" theory, which is taught

in almost every finance course, is very consistent with a greedy ideology. Nonetheless, the US

has still not recovered from the financial crisis of 2008. (Yau & Brutoco, 2012), (Dobbin & Jung,

2010). In seeking gain in the name of shareholder value maximization more shareholder value

has been lost than for any other cause. The maximization of shareholders has not only failed in

the run-up to the Great Recession from 2008 to 2009, the shareholder capital has been eroded on

a large scale. Therefore, generating social costs that will be suffered for the next several

generations. (Yau & Brutoco, 2012), (Dobbin & Jung, 2010). In seeking gain in the name of

26
shareholder value maximization more shareholder value has been lost than for any other cause.

The maximization of shareholders has not only failed in the run-up to the Great Recession from

2008 to 2009, the shareholder capital has been eroded on a large scale. Therefore, generating

social costs that will be suffered for the next several generations. (Yau & Brutoco, 2012).

Many companies now understand that Corporate Social Responsibility (CSR) must be a

company's concern. (Hollender & Fenichell, 2004) cites one concept of corporate social

responsibility (CSR): ... an ongoing obligation on the part of business to act ethically and

contribute to economic growth by showing respect for individuals, communities, society as a

whole and the environment. In short, CSR is combining social citizenship principles the steady

sustainable growth of the company.

Companies should work with every member of the organization from staff to customers. They

can’t just concentrate all their attention on shareholders (Porter & Kramer, 2006) .Corporate

social responsibility could be a way of competition, and opportunity for employees to establish

themselves. (Porter & Kramer, 2006)

A company needs full committed and innovative workers in today's knowledge economy. While

companies have valued loyalty and reliability in the past, today's businesses recognize that

employees who are the ideal employee are constantly looking for challenging learning

opportunities. (Crim & Seijts, 2006).

Apple has been shown interest and value in employees’ creativity. Apple has established a great

engagement with its employees. Part of the company success is that they have instilled a

philosophy of innovation and loyalty to employees. The Moto of the company is Creativity alone

is not enough; commitment means the willingness of workers and executives to face

difficult decisions.
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Business ethics and theory of the firm

While the firm's contractual theory has been developed for the purposes of interpretation in these

fields of financial economics and corporate law, it also provides an important context for business

ethics analysis, conducted from both a descriptive and normative perspective Alnuaimi and

Nobanee, 2019). Business ethics is mainly concerned with protecting or representing the interests

of the various stakeholders or stakeholder groups that shape the contract firm nexus. Apart from

specific contracts, other means exist for safeguarding the rights of these groups. Philosophical

ethics offers its own viewpoint and discusses flaws in the philosophy of contracts for

understanding and discussing business ethics. Nevertheless, lack of the firm's contract theory

deprives business ethics study of a theoretically valuable context that could combine its results

with work in financial economics and corporate legislation. However, business ethics researchers'

inability to operate within the contractual theory-or to establish a competing theory of the same

theoretical rigor and explanatory power-diminishes the importance of their operate to such other

disciplines. (R.Boatright, 1996) .

Inter-Relationship between Business Ethics and Corporate Governance

Corporate governance is important for growing success and reputation. In the last four decades,

public interest in corporate ethics increased. In the West, corporate governance has grown

systematically in the past 10 years. In the wake of several industrial controversies such as Enron
28
and World.com, the global financial markets have been rattled and consumer confidence shaken.

Corporations have recognized that seeking self-interest would kill not just the atmosphere but

also our social order. The age of short-sighted corporate autocracy is ending slowly. Now high

ethical standards are regarded as a company's asset. (Prof. R Ramakrishnan, 2017).

Global Ethics

Importance of building strong ethics

Plenty of businesses want to be sustainable but to achieve sustainability they need to have good

business ethics. As the world continues to grow, maintaining a good business ethics has become

a popular demand from stakeholders as there are a lot of advantages of building strong business

ethics. first of all, being ethical makes you stand out over the competition, and help build trust

between the business and its customers. This has especially shown with new companies who

have managed to build a good reputation from operating ethically. Furthermore, building strong

business ethics can help with profitability as being ethical is the trend nowadays and

maintaining that will assist the business in multiple sectors. (Azmi, 2007)

Global Business and its implication on Islamic culture

29
A lot of people wonder do Islamic and western cultures have the same business ethics, and if

they don’t then what are the differences between the two cultures? Both Islamic and western

business ethics follow the bases of value exchange, however, some believe that when it comes

to Islam mostly everything has to follow the (Quran and Sunna) and if any business or marketing

concept doesn’t fall under (Quran and Sunna) then it has to be deserted and forgotten about.

Like many when it comes to Islamic business ethics the goal is to balance between humanism

and commercialism when conducting business. (Friedrich, 2018)

Global Crises

Global crises are a disaster that impacts all aspects of our world economies fall, people lose their

jobs, and life becomes uncertain, however, a lot of people tend to ask what is the reason for

global crises? or what can cause it? To start with a global crisis could have multiple reasons

behind it, but one reason that people tend to ignore is business ethics if all nations and societies

can be honest with each other and think about the world as whole many global crises could

have been prevented. Unethical behavior contributes a lot into global crises, many countries

are greedy and fear that speaking out or standing up against potential crises may affect their

economic situation, so instead of thinking about the greater world they focus on themselves

and neglect the rest of the world this is especially clear over the current crises we’re living now

in 2020 and the global crises from 2008. (Hershey H. Freidmann, 2009)

Corporate take on Ethics

30
Approach Ethic in Organization

University of New Orleans Dinah Payne and Milton Pressley tackled the ethical issue that

corporate face by creating a single code of ethics that could be used to help people working in

the marketing profession (Almansoori and Noabnee, 2019). The researchers used a historical

known theory of codes created from American Marketing Association (AMA), and Sales and

Marketing Executive International (SMEI) to find out what’s the most efficient way of creating

a single code of ethics for marketers, educators, and practitioners. (Payne & Pressely, 2009)

The single code of ethics was inspired by old methods of Hunt-Vitell Model and Lacizniak-

Murphy model. (Payne & Pressely, 2009)

 Hunt-Vitell model (1986,2006); Theory of Ethics consist of two types

A) Substantive category: a basic decision in ethical principle: religion, politics, and the legal

system.

B) Procedural category: describes as “elements relating to mechanism by which decision are

made.” It’s a model that looks at the perception of ethical problems, protentional solutions and

any associated consequences it may have.

 Lacizniak (1983)// Lacizniak and Murphy (1993)

Lacizniak and Murphy proposed rules for making justifiable moral judgements.

A) Rules of Thumbs:

-Golden Rule: treat others by the way you want to be treated.

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- Utilitarian Approach: an approach that looks to deliver the greater good while trying to avoid

the least harm. (Lacizniak, 1983)

- The Kantian analysis: consistency; the action that is repeatedly good for a long period of time.

B) Deontological and Teleological Approach:

Deontological approach takes a look at whether or not a political, social and moral law would be

violated when making a decision. While Teleological approach is about whether people would

be better or worse from the results taken by the ethical decision. (Laciniak, 1993)

Payne and Pressley believed implementing Hunt-Vitell and Lacizniak-Murphy models to create

a single code of ethics will help anyone dealing with ethical marketing issues and will lay answers

to anyone struggling with ethical dilemma in marketing.

Production of Ethics

Guido Hülsmann's research paper focuses on how to deal with problems of business ethics.

Hülsmann's methodology looks at what ways’ ethics can have an effect on business firms.

Furthermore, Hülsmann believes that the definition of ethics varies from one organization to

another. To prove his point, Hülsmann used comparative analysis to show a difference between

how companies operate in regard to ethics. Such an example is (Hazlitt, 2001) Hazlitt is about

how every individual is “free to use his body and his material belongings as he sees fit.” (Hazlitt,

2001) On the other hand, Lynn Paine believes that there has to be a relationship between ethics

and the economy. Adding that ethical norms of the business are dependent on the political

32
climate. While Ronald Coase always believed that ethics and individuality don’t fit in the

corporate landscape. Stating that “human cooperation is coordinated by hierarchy while in the

latter it is coordinated through contract. ( (Coase, 1988)

Applying Ethics

Marilyn Neimark question how the economic system often pits profit against people. The

researcher examines the ways in which boundaries of business ethics are being established.

Neimark disapproves of how business is dealt with in our society claiming it’s a disruptive

approach and challenges that profit shouldn’t come before people. Morality should be the key to

how you conduct yourself in business. Michael C. Jensen a professor at Harvard business school

coincides with Neimark's beliefs. Jensen believes that having integrity and ethical value in

workshops enhances employee’s performance and quality of life. To support his point of view,

Jensen created a positive model of integrity that shows how having integrity has a positive effect

on the workplace. Model shows that having integrity “provides an actionable pathway to earning

the trust of others.” (Jensen, 2009) Having integrity also empowers other important values;

morality, ethics, and legality.

Conclusion:

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As we have analyzed aspects of ethics in business firms, it is safe to assume that having any sort

of ethical conduct has a positive impact on the workplace. Embracing ethics whether that is by

following the Utilitarian principle, implementing the “Deontological” approach or standing firm

behind Hazlitt's beliefs. Ethics vary in definition from one organization to another. but every

successful organization follows the ethical guideline. Ethics has proven to be a strong feature for

a company’s success. As we discussed in the literature review, ethics improve quality of life for

the employee which in return improves the quality of work that the individual provides in the

workplace. It also has increased many company’s profitability’s. Robert C McMurrian and Erika

Mataulich developed a study that illustrates how many company’s profitability’s increased with

ethics. Hershey Food, a company in which the essence of its foundation is having an ethical

culture. Hershey foods have enjoyed consistent and successful sales exceeding $4 billion. Home

Depot is another company its success is contributed to its ethical values with annual sales of over

$ 20 million. Other companies who were falling behind their ethical value have created a single

code of ethics to remedy the company past issues (Bint-Tariq and Nobanee,2020). Waste

Management, Inc. is an example of such a company, that was known for its antitrust violation

and violation of pollution. However, the company creation of a single code of ethics (teaching

the employees of the consequences and purpose of ethics, fairness, honesty, integrity, and trust)

has increased the level of satisfaction internally amid the organization (McMurrian, Mataulich

2016). To sum up, all research among different sources strongly suggests that having ethics is a

strong asset for company success. Being ethical is what is best for a company’s reputation,

integrity, and survival.

34