Corporate Social Responsibility and Business Ethics

1. What is business ethics ?

2.
Business ethics refers to implementing appropriate business policies and practices with regard to arguably
controversial subjects.
Some issues that come up in a discussion of ethics include corporate governance, insider trading, bribery,
discrimination, social responsibility, and fiduciary responsibilities.
The law usually sets the tone for business ethics, providing a basic guideline that businesses can choose to follow to
gain public approval.
Business ethics involve a guiding standard for values, behaviors, and decision-making.
Ethics for business have changed over time but they're important for every company.
Running a business with ethics at its core from the top down is essential for company-wide integrity.
Behaving in a consistently ethical manner can lock in a solid reputation and long-term financial rewards for
companies.
Employees tend to remain loyal to, and perform more effectively for, a company with a high standard of ethics.

Business ethics are important for every company.

They keep workers safe, help trade and interactions between companies remain honest and fair, and generally
make for better goods and services.
Distinguishing what a company will and won’t stand for is not always the same for each organization, but
knowing basic ethical guidelines is a key component of company management
 Importance of Business Ethics
• Brand recognition and growth
• Increased ability to negotiate
• Increased trust in products and services
• Customer retention and growth
• Attracts talent
• Attracts investors

Or
Business ethics and corporate governance of an organization go hand in hand. In fact, an organization that follows
ethical practices in all its activities will, in all probability, follow best corporate governance practices
as well.
• Corporate governance is meant to run companies ethically in a manner such that all stakeholders including
creditors, distributors, customers, employees, the society at large, governments and even competitors are
dealt with in a fair manner.
• Good corporate governance should look at all stakeholders and not just the shareholders alone. Corporate
governance is not something which regulators have to impose on a management, it should come from within
A business organization has to compete for a share in the global market on its own internal strength, in particular
on the strength of its human resource, and on the goodwill of its other stakeholders.
• While its State-of-the-art technologies and high level managerial competencies could be of help in meeting the
quality, cost, volume, speed and breakeven requirements of the highly competitive global market, it is the value-
based management and ethics that the organization has to use in its governance.
• This would enable the organization to establish productive relationship with its internal customers and lasting
business relationship with its external customers.

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• Credo is a Latin word which means “a set of fundamental beliefs or a

guiding principle.” For a company, a credo is like a mission statement.Most
companies skip the important part of developing the company’s credo.
• A good credo gives the company a reason to exist; it develops the spirit of
employees motivating them at all times.
• It is a statement of common values that allows employees to understand
the importance of the stakeholders and services provided. It is the force
which makes them work together to achieve a consistent high standard.
• Sam Walton, founder of Wal-Mart, established the “Three Basic Beliefs” as
his company’s credo.
• They are: – Respect for the Individual – Service to our Customers – Strive for
Excellence

3.
4.
The stakeholder theory of corporate governance focuses on the effect of corporate activity on all identifiable
stakeholders of the corporation. This theory posits that corporate managers (officers and directors) should take
into consideration the interests of each stakeholder in its governance process. This includes taking efforts to reduce
or mitigate the conflicts between stakeholder interests. It looks further than the traditional members of the
corporation (officers, directors, and shareholders) and also focuses on the interests of any third party that has
some level of dependence upon the corporation. Stakeholders are generally divided into internal and external
stakeholders.
Internal Stakeholders - Are the corporate directors and employees, who are actually involved in corporate
governance process.
External Stakeholders - May include creditors, auditors, customers, suppliers, government agencies, and the
community at large.
These stakeholders exert influence but are not directly involved in the process. Key to the stakeholder theory is the
realization that all stakeholders engage in some manner with the corporation with the hope or expectation that the
corporation will deliver the type of value desired or expected. The benefits may include dividends, salary, bonuses,
additional orders, new jobs, tax revenue, etc.

OR
proper corporate governance needs to be used to ensure corporates continue operating on a normal track. In
theory, corporate governance is a kind of system that could direct and control companies. The object of corporate
governance is to make maximum profit for shareholders in the past. Unfortunately, it has been considered one of
the most root causes of the governance crisis in recent times.

Stakeholder theory usually including internal and external stakeholders. Managers, employees, and owners are
included in internal stakeholders, and customers, suppliers; competitors are included in external stakeholders.
Additionally, governments and local communities are considered as a legal or rule responsibility. Specifically, these
stakeholders have the following characteristics in the theory.

Shareholder: According to the act and the constitution of corporations, shareholders could exercise a serious of
power such as voting and transfer ownership. When shareholders received better dividends from a company, they
will buy more shares and help the company maintain stability through their rights. In general, shareholders only
passively react company’s operation rather than actively participate in corporate governance.
Employees: Company gives employees more attention such as good training and generous welfare, they will work
more effectively to bring better profit to the company. Moreover, employees could own a part of the shares in the
company. As long as the company’s stock price rises, employees can benefit from it.
Bank and financial institution: When a company provided a confident financial report with them, these financial
institutions will not recall funds and would lend the company more money in the future. In addition, the company
is able to borrow funds at a low rate.
Government: The government collects a large amount of fiscal revenue through tax collection, while at the same
time providing a convenient trading environment for enterprises. Even the government will give allowance to
support company improvement.
Community: Local residents will provide the company with a large number of labor resources, and the company can
rely on them for efficient production. Local residences will also prefer to purchase the company’s products or
services when the company supports community building through charity activities such as help the community
develops local traditional culture.
Environment: A number of environmental lobby groups considered as one part of the stakeholders and these lobby
groups requested all companies to meet environmental standards during production. If the company is outstanding
in the field of environmental protection, the environmental protection organization actually has a propaganda role
for the company. These stakeholders can affect the company in many ways and become a significant role in
corporate governance. Companies have the responsibility to treat these stakeholders equally and consider their
interests. Because these companies need stakeholders to support their operations so that profit from it. Thus,
stakeholder theory is significant in the practical application of corporate governance.

Significance of Stakeholder Theory in Modern Corporate Governance

Stakeholder theory can help companies maintain stability in a turbulent environment, conducive to the company’s
long-term sustainable development, and reduce conflicts between various groups in the decision-making process.

When stakeholders are treated well by an organization or company, they are more likely to return positive
attitudes and behaviors. For example, customers will be buying more products due to better services and
shareholders will buying more stock because share prices increase. In addition, it is more useful and effective in a
complex and turbulent environment. Because stakeholders prefer to provide better information to companies that
give priority to stakeholders. These companies could have a more flexible decision to responding uncertainly
market and this advantage is not available for other competitions that not manage stakeholders. This is significant
for corporate governance in the modern company due to the globalization process and uncertainty increased.
 Therefore, a company that applies stakeholder theory well could obtain better information in a complex business
environment.
The company actively participates in social activities, taking social responsibility can help to enhance its image and
reputation. The public will be more inclined to buy products or services from companies with a positive social
image. In addition, Companies with a sense of social responsibility tend to have a high profile, which will leave a
deep impression on the public and make it easier to recruit and retain talented people. The benefits to the
company are savings in recruitment, training, and management costs, and lower operating costs. This shows that
the positive interaction of the company with stakeholders can promote their long-term sustainable development.
Stakeholders participate in a company’s decision-making process could reduce conflicts between different
stakeholder groups and improve decision quality to ensure competitive advantage. The company will consider all
stakeholders’ interests during making decisions, which could balance the demands of individual groups to reduce
economic losses. For example, when a company only give priority to profitability and neglect environment factor,
the company could face a series of punishment from governments. This will not only affect the company’s income
but also affect the company’s normal operations. Thus, stakeholders participate in the decision-making process
could help the company reduce management costs and risks. These are three key features of stakeholder theory in
corporate governance, which proves that stakeholder theory has unique advantages in maintaining a company’s
long-term sustainable development.

5.

Philanthropic responsibility
Philanthropic responsibility can include things such as funding educational programs, supporting health initiatives,
donating to causes, and supporting community beautification projects.
Ethical responsibility
Ethical responsibility refers to a company’s commitment to operate their business in an ethical manner that
upholds human rights principles, such as fair treatment of all stakeholders, fair trade practices and equal pay.
Environmental contribution:
These initiatives aim to reduce pollution and greenhouse gas emissions and the sustainable use of natural
resources.
Economic responsibility
Economic responsibility initiatives involve improving the firm’s business operation while participating in sustainable
practices – for example, using a new manufacturing process to minimize wastage.

Q 5. List out 6-factor customer corporates

The Five Driving Forces of CSR:

Increased Affluence: CSR becomes more relevant as economies grow and stabilize. Therefore, the greatest
attention to CSR is found in developed countries. Stable work and security provide the luxury of choice and socially
responsible activism. No such luxury exists when basic needs are in question.
Ecological Sustainability: Perhaps the most obvious and most talked about of the drivers, concerns over pollution,
waste, natural resource depletion, climate change and the like continue to fuel the CSR discussion and heighten
expectations for proactive corporate action. After all, it is in the best interest of firms to protect for the sustainable
future the long-term availability of the resources on which they depend.
Globalization: Globalization has had considerable impacts. First, the increased wealth and power of multinational
corporations has led to questions on the decreased authority of the nation-state, especially in developing areas.
Further, cultural differences have added to the complexity of CSR as expectations of acceptable behavior vary
regionally. With increased power comes increased responsibility and globalization has fueled the need to filter all
strategic decisions through a CSR lens to ensure optimal outcomes for diverse stakeholders.
Free Flow of Information: Yes, blame the bloggers, but through the Internet and other electronic mediums the flow
of information has shifted back to the stakeholders, especially in the case of three important groups: consumers,
NGOs and the general media. Easily accessible and affordable communication technologies have permanently
changed the game and only truly authentic and transparent companies will profit in the long term.
The Power of the Brand: Brands are today the focal point of corporate success and much of the health of the brand
depends on public perception of the corporation. In other words, reputation is key and honest CSR is a way to
protect that reputation and therefore the brand.
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The concept of CSR can be analysed and understood in its six dimensions as stated below.

1. ISO 26000
The first dimension is the global understanding of the CSR. There is a global understanding of social responsibility
as defined under the international standard on social responsibility issued by the International standard
organisation on 1st November 2010, as ISO 26000. Seven guiding principles are covering the seven core subject and
community development is just one of the core subject guided by seven principles. Adopting the process
prescribed in ISO 26000 will result in a different approach of identifying an activity as CSR or non-CSR activity.

The social responsibility is defined as: An organization's responsibility for the impacts of its decisions and activities
on society and the environment, through transparent and ethical behaviour that:

Contributes to Sustainable Development, including health and the welfare of society

Takes into account the expectations of stakeholders
Complies with applicable law and consistent with international norms of behaviour
Is integrated throughout the organization and implemented in its relations.

2. NGRBC
The second dimension is to evaluate with the lens of NGRBC. The National Guidelines on Responsible Business
Conduct (NGRBC) released by the Union Ministry of Corporate Affairs, Government of India on March 13, 2019,
includes the community development under Principle 8. NGRBC is the revision of the first ever guideline on
responsible business named “National Voluntary guidelines on Social, Environmental and Economic REsposnibilities
of Business (NVG) released on July 8, 2011. This may give a different result to the identification of a CSR activity or
non-CSR activity based on the NGRBC.

The nine principles of responsible business are as below:

Principle 1: Businesses should conduct and govern themselves with integrity, and in a manner that is ethical,
transparent, and accountable.
Principle 2: Businesses should provide goods and services in a manner that is sustainable and safe.
Principle 3: Businesses should respect and promote the well-being of all employees, including those in their value
chains.
Principle 4: Businesses should respect the interests of and be responsive to all its stakeholders.
Principle 5: Businesses should respect and promote human rights.
Principle 6: Businesses should respect and make efforts to protect and restore the environment.
Principle 7: Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is
responsible and transparent.
Principle 8: Businesses should promote inclusive growth and equitable development.
Principle 9: Businesses should engage with and provide value to their consumers in a responsible manner.

3. Stakeholders engagement
The third dimension is to evaluate the principles of stakeholders accountability. The company act, as well as the
NGRBC, also support the concept of stakeholder to whom a company is responsible and accountable. Looking from
the lens of stakeholder will result in a different approach and perception of what is CSR and what is not CSR. A
stakeholder is a party that has a concern or an interest in a company and can either affect or be affected by the
business. It is important to understand how a company understand and address that interest or concern. In CSR,
the primary stakeholder is the community that can either affect or be affected by the company, while the
secondary statkeholder are the government and the implementing agency.

4. Ethics
The fourth dimension is to analyze an activity through the lens of ethics. Ethics is defined as the approach dealing
with what is good and bad and with moral duty and obligation. It is dependent on the perception of the company
or individual stakeholder or the community and will vary with time and place. The company may use it as a
principle for finding out what is an appropriate or non-appropriate activity for the purpose of CSR.

5. Sustainable Development Goals

The fifth dimension is analysing through the lens of vision, mission, goals, purpose and values set by the company.
It defines the future position of the company after 15 years, the outcome as seen after five or 10 years of
implementing the activity. The company could set specific goals in the domain of its social responsibility keeping in
view the United Nations-mandated sustainable development goals (SDG) or the national development goals (NDG).
The SDG were released by the UN Sustainable Developpment Summit held on 25 – 27 September 2015 at New
York, USA.

The 17 goals identified by the United National under SDG are as below:

GOAL 1: No Poverty
GOAL 2: Zero Hunger
GOAL 3: Good Health and Well-being
GOAL 4: Quality Education
GOAL 5: Gender Equality
GOAL 6: Clean Water and Sanitation
GOAL 7: Affordable and Clean Energy
GOAL 8: Decent Work and Economic Growth
GOAL 9: Industry, Innovation and Infrastructure
GOAL 10: Reduced Inequality
GOAL 11: Sustainable Cities and Communities
GOAL 12: Responsible Consumption and Production
GOAL 13: Climate Action
GOAL 14: Life Below Water
GOAL 15: Life on Land
GOAL 16: Peace and Justice Strong Institutions
GOAL 17: Partnerships to Achieve the Goa

6. The Company Act

The sixth dimension which is being deliberated here is to look at from the perspective of compliance to the
provision made in the company act in letter and spirit, differentiating between the donation and responsibility. The
Compnay Act 2013 came into force on September 12, 2013. There are several provisions under the company act
which demarcate what activities are permissible or not-permissible under the company act.
This has been prescribed through the provisions made under Section 135 and Schedule 7 of the Act 2013. There
have been subsequent rules and circulars to further clarify what is permissible or what is not-permissible and under
the company act.

The evaluation matrix will be as follows

SN Belief Citeria (A to E) Points (10 to 90)

1 A normal course of business

2 Benefit to employees

3 Not in project mode

4 One-off activity

Total points

The list of activities covered in Schedule VII are as given below

eradicating extreme hunger and poverty

promotion of education
promoting gender equality and empowering women
reducing child mortality and improving maternal health
combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases
ensuring environmental sustainability
employment enhancing vocational skills
social business projects
contribution to the Prime Minister's National Relief Fund or any other Fund set up by the Union or state
governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes,
Scheduled Tribes, other backward classes, minorities and women
such other matters as may be prescribed.

LONG ANS

Q1. Code of Business Conduct in MNC

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A code of conduct is a set of values, rules, standards, and principles outlining what employers expect from staff
within an organization.
A code of conduct is closely related to a code of ethics, to the extent where the phrases are often interchangeable
A code of ethics is broader, providing a set of principles that affect employee mindset and decision-making.
A code of conduct offers principles defining the ethics of a business, but it also contains specific rules for employee
actions and behavior.

Your code of conduct should include information in some form regarding:

The values your organization believes in

Guidelines for behavior
Day-to-day business practices
How employees should interact with outside parties

the OECD has issued a basic statement on foreign investment, The Declaration on
International Investment and Multinational Enterprises,23 which is a general statement of policy
regarding the rights and responsibilities of foreign investors.

The United Nations lists ten major principles that are recognized by international declarations and
agreements that have been developed by the three main organizations, the UN, the ILO, and the
OECD. These main principles comprise the UN Global Compact which covers four main areas:
human rights; labor standards; environment; and anti-corruption. The ten principles of the UN
Global Compact are:
1. Businesses should support and respect the protection of internationally
proclaimed human rights.
2. Businesses should make sure that they are not complicit in human rights abuses.
3. Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining.
4. Businesses should uphold the elimination of all forms of forced and compulsory
labor.
5. Businesses should uphold the effective abolition of child labor.
6. Businesses should uphold the elimination of discrimination in respect of
employment and occupation.
7. Businesses should support a precautionary approach to environmental challenges.
8. Businesses should undertake initiatives to promote greater environmental
responsibility.
9. Businesses should encourage the development and diffusion of environmentally
friendly techniques.
10. Businesses should work against corruption in all its terms, including extortion
and bribery.

The code of conduct is structured using Visa’s six leadership Principles:

We lead by example – Be accountable, Treat others with respect, and Demonstrate a passion for our business
We communicate openly – Promote a shared vision, Communicate effectively, Value other’s perspectives
We enable and inspire – Inspire Success, Remove barriers, and Value inclusivity and diversity
We excel with partners – Build strong relationships inside and outside of Visa, Provide excellent customer service,
and Take a solutions oriented approach
We act decisively – Challenge the status quo, Decide quickly, Learn from our mistakes
We collaborate – Break down silos, Engage with our colleagues, and Deliver as One Team at One Visa

Primary functions of Audit committee