Assignment Code: MCO-024/TMA/2022-2023

Course Code: MCO-24

Assignment Name: Business Ethics and Corporate Social Responsibility

Year: 2022-2023

Verification Status: Verified by Professor

1. Discuss the two dominant views of business namely: (20)

(a) Miton Friedman shareholders’ value

Ans) The Friedman Doctrine is also referred to as the Shareholder Theory. American economist Milton Friedman developed the doctrine as a theory of business ethics that states that “an entity’s greatest responsibility lies in the satisfaction of the shareholders.” Therefore, the business should always endeavour to maximize its revenues to increase returns for the shareholders.

Friedman believes that the shareholders form the backbone of the entity, and they should be treated with the utmost respect. Profits maximization requires the entity to find ways of generating additional revenues through value addition and creating more products and services while minimizing costs. Friedman also stated that shareholders should be in charge of key decisions such as social initiatives rather than getting an outsider to make the decision on their behalf.

The Friedman Doctrine first appeared in the New York Times in 1970 as an essay by Milton Friedman. In the essay, the economist explained that an entity does not have any social responsibility to the society around it whatsoever. Instead, he stated that the only responsibility that an entity should abide by is its shareholders.

Friedman justified his claim by explaining that any executives in business are employees of the owners, and they are, therefore, required to deliver quality service to the employer first before any other party. Individuals employed in corporate entities are required to conduct their roles in the business according to the expectations of the employer. The Friedman Doctrine holds that decisions concerning social responsibility rest on the shoulders of the shareholders, not the executives of the company.

He argues that an entity is not obligated to any social responsibilities unless the shareholders decide to such an effect. Any social responsibilities to the society require resources and should, therefore, be arranged before they are executed. The use of a company’s resources is subject to approval by the shareholders, who are the final decision-makers on important decisions such as the use of financial resources.

Social responsibility activities such as the development of social amenities for the community are capital-intensive and will affect the financial resources of the entity. Friedman insisted that such responsibilities should not be forced on the company, and the final decision on whether or not to carry them out depends on the shareholders. As an indication of the Friedman Doctrine’s influence in the business arena, many business owners believe that companies should focus on maximizing shareholder value rather than focusing on other activities such as corporate social responsibility.

The primary goal for any entity should be to increase the profitability of the business since that is what the shareholders are interested in. Other activities that are not central to maximization of shareholder value should not be given priority when allocating financial resources. The influence of the Friedman doctrine has been confirmed by various researchers and academicians. Joseph Bower and Lynn Paine, both long-time professors at Harvard University, confirmed that the doctrine has had an influence on the financial community, and business owners have been seen to practice the Friedman Doctrine and its principles. The doctrine also elaborates on a number of topics, including shareholder rights compensation, performance appraisal and measurement, corporate responsibility, and the role of directors in the business world.

Criticism of the Friedman Doctrine: Despite its success, the doctrine faces its own fair share of criticism from the surrounding society. The doctrine is seen, to a large extent, as individualistic, especially from the societal perspective. Critics consider the doctrine as defective from many fronts, including legally, morally, economically, socially, and financially. Most critics hold that the doctrine gives shareholders an upper hand while neglecting the society surrounding the entity. In as much as the shareholders are the financial engine for the business, the entity also needs the community for it to be successful. The business sells its products and services to the community. Its success depends on the goodwill from the community to purchase the products and services. Therefore, both parties have a mutual relationship, and the business has a responsibility towards the community.

In her book “The Shock Doctrine,” Canadian social activist Naomi Klein states that the Friedman Doctrine impoverishes the community while enriching the few corporate elites. Paine and Bower, who partly support the Friedman Doctrine, acknowledge that the doctrine comes with negative effects, which may include organizational attacks from shareholder activists and management burnout due to pressure to maximize shareholder returns.

(b)Edward Freeman’s stakeholder approach

Ans) Edward Freeman’s stakeholder theory holds that a company’s stakeholders include just about anyone affected by the company and its workings. That view is in opposition to the long-held shareholder theory proposed by economist Milton Friedman that in capitalism, the only stakeholders a company should care about are its shareholders - and thus, its bottom line. Friedman’s view is that companies are compelled to make a profit, to satisfy their shareholders, and to continue positive growth.

By contrast, Dr. Freeman suggests that a company’s stakeholders are "those groups without whose support the organization would cease to exist." These groups would include customers, employees, suppliers, political action groups, environmental groups, local communities, the media, financial institutions, governmental groups, and more. This view paints the corporate environment as an ecosystem of related groups, all of whom need to be considered and satisfied to keep the company healthy and successful in the long-term.

Dr. Freeman’s books describe how a healthy company never loses sight of everyone involved in its success. Stakeholder theory says that if it treats its employees badly, a company will eventually fail. If it forces its projects on communities to detrimental effects, the same would likely happen. “A company can’t ignore any of its stakeholders and truly succeed,” Dr. Freeman said in an interview. “There might be short-term profits, but as stakeholders become dissatisfied, and feel let down, the company cannot survive.”

“If you can get all your stakeholders to swim or row in the same direction, you’ve got a company with momentum and real power,” Freeman says. “Saying that profits are the only important thing to a company is like saying, ‘Red blood cells are life.’ You need red blood cells to have life, but you need so much more.”

Stakeholder theory is even more important in the new global economy, Freeman notes. An organization needs to be mindful not only of those who hold stock in the company, but also of those who work in its stores, those who work and live near its factories, those who do business with it, and even of competitors, as the company may shape the landscape in its industry.

“Even some older companies like Unilever are re-inventing themselves to use stakeholder theory with very strong results,” Freeman says. And the results if a company doesn’t subscribe to stakeholder theory? “Enron,” he says, of the energy company that was brought down by corruption and other scandals in the early 2000s.

Assess a Company’s Stakeholders under Stakeholder Theory

Let’s consider a hypothetical company that builds condos in an American city. That company has gone public, so its shareholders are eager to see a rise in the value of their stock. Under stakeholder theory, however, those shareholders could be joined by several other types of stakeholders, each with its own interests relative to the company. Here are a few possible stakeholders with interest in this company and its projects:

Employees: The employees want to be treated and compensated fairly and work reasonable hours. If the company underpays the employees, or gives them lengthy and difficult work shifts, the employee attitude and buy-in in the company is going to erode. There will be turnover, bad word-of-mouth among the potential workforce in the area, and a weakened company.

Suppliers: Suppliers for this condo project also want to be treated and compensated fairly, or similar results as those with employees could be seen. However, under stakeholder theory, suppliers should also be operating their own businesses ethically, fairly, and equitably. If the condo company truly wants long-term success, stakeholder theory holds, it should treat suppliers and vendors well, but also do due diligence on how the supplier companies themselves do business.

Manufacturers: In a global economy, sometimes parts or even whole products are manufactured in other countries, far away from the main marketplace or the location of  the project. But for this condo company to do well, it must think of its manufacturers and their employees - as stakeholders too. So, working conditions and wages must be fair and equitable for them as well.

Governmental Bodies: The city, county, and state likely have density, environmental, and other concerns. Even with governmental approval, a construction project needs regular check-ins with governmental bodies, regulated agencies like gas and electric companies, and more. For instance, there may be design restrictions in a historic part of town, or height restrictions in a mostly single-family-home area.

This is by no means a complete list, but as you start to think of your company and its projects in terms of the full ecosystem of potential stakeholders, you can see how far-reaching your impact can be. Some will have a financial interest in your project. Some will have an emotional interest. Many may have both. And stakeholder theory holds that all these stakeholders, as well as their interests, are critical to your project’s success.

2. What are the different perspectives of business ethics? Differentiate between the following: (20)

Ans) There are different ways of thinking about ethical behaviour. Some situations offer clean-cut ethical choices. Stealing is unethical. There is no debate about it. There are other situations where two or more values, rights, or obligations conflict with each other and a choice has to be made.

Teleological approach: Also known as consequentiality approach, it determines the moral conduct on the basis of the consequences of an activity. Whether an action is right or wrong would depend upon the judgement about the consequences of such an action. The idea is to judge the action moral if it delivers better than harm to society.

Deonotological approach: While a “teleologist” focuses on doing what will maximize societal welfare, a “deonotologist” focuses on doing what is “right” based on his moral principles. Accordingly, some actions would be considered wrong even if the consequences of these actions were good.

Emotive approach: This approach is proposed by A.J. Ayer. He suggests that morals and ethics are just the personal viewpoints and “moral judgements are meaningless expressions of emotions.” The concept of morality is personal in nature and only reflects a person’s emotions.

Moral-rights approach: This approach views behaviour as respecting and protecting fundamental human rights, equal treatment under law and so on. Some of these rights are set forth in documents such as Bill of Rights in America and U.N. Declaration of Human Rights. From ethical point of view, people expect that their health and safety is not endangered by unsafe products.

Justice approach: The justice view of moral behaviour is based on the belief that ethical decisions do not discriminate people on the basis of any types of preferences, but treat all people fairly, equitably and impartially, according to established guiding rules and standards.

(a) Personal and business ethics

Ans) Personal and business ethics aren't entirely similar as there are some differences, typically most dependent on the circumstances. The basic difference between the two is that personal ethics refers to a person's morals or values in any aspect of life. In contrast, business ethics refers to an individual's values within their work environment and how they conduct themselves professionally. Here are some differences between personal and business ethics:

Role-specificity: Sometimes, business ethics can differ depending on your role and industry. For instance, an accountant and a sailor might prioritize their values differently. However, your personal ethics remain the same regardless of your location or activity.

Structure: The structure of business ethics is usually organized and formalized as a mission statement. Personal ethics are usually flexible or informal.

Collective vs. individualized: The point to which groups of people share personal and business ethics can sometimes differ. This is because people can share personal ethics with a social group, family, or community, depending on how those groups develop the shared values. Business ethics refers to the standard procedures of an organization that all members must follow.

Situational nature: The types of values a person prioritizes often overlap between personal and business ethics. The fundamental difference is how they use them and in which situations they choose to apply them.

(b)Moral and non-moral standards

Ans) Morality may refer to the standards that a person or a group has about what is right and wrong or good and evil. Accordingly, moral standards are those concerned with or relating to human behaviour, especially the distinction between good and bad (or right and wrong) behaviour. Morality is an innate sense, instinctively practiced, of what is in the best interests of individuals nations, and the planet. It seeks to preserve, and perpetuate, freedom, happiness, and innocent life. Technically, religious rules, some traditions, and legal statutes (i.e., laws and ordinances) are non-moral principles, though they can be ethically relevant depending on some factors and contexts.

The following characteristics of moral standards further differentiate them from non-moral standards:

Moral standards involve serious wrongs or significant benefits. Moral standards deal with matters which can seriously impact, that is, injure or benefit human beings. It is not the case with many non-moral standards. For instance, following or violating some basketball rules may matter in basketball games but does not necessarily affect one’s life or wellbeing.

Moral standards ought to be preferred to other values. Moral standards have overriding character or hegemonic authority. If a moral standard states that a person has the moral obligation to do something, then he/she is supposed to do that even if it conflicts with other non-moral standards, and even with self-interest.

Moral standards are not the only rules or principles in society, but they take precedence over other considerations, including aesthetic, prudential, and even legal ones. A person may be aesthetically justified in leaving behind his family in order to devote his life to painting, but morally, all things considered, he/she probably was not justified. It may be prudent to lie to save one’s dignity, but it probably is morally wrong to do so. When a particular law becomes seriously immoral, it may be people’s moral duty to exercise civil disobedience.

3. Discuss the applicability of CRS provisions and the activities listed out under schedule VII. (20)

Ans) Corporate social responsibility is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically oriented practices.

Applicability

Every company having Net worth of Rs 500 cr. Or more or Turnover of Rs 1000 cr. or more or Net profit of Rs 5 cr. or more, during immediately preceding financial year shall constitute a separate Corporate Social Responsibility committee. However, where the amount to be spent for CSR activities does not exceed Rs 50 lakhs, there is no requirement for constitution of CSR committee, function of such committee can be done by the board of the company.

Composition of CSR Committee

CSR committee comprises of three or more directors out of which one shall be the independent director. (Provided where the appointment of independent director is not applicable to any company, it can form CSR committee with other directors)

Function of CSR Committee

CSR committee shall formulate CSR policy and recommend activities to be undertaken by the company, amount to be spent in such policy and also monitor the CSR policy of the company.

CSR Expenditure

Company to spend at least 2% of its average net profit of the company during the three immediately preceding years.

Disclosure of CSR Policy

Company shall disclose composition of CSR committee and contents of its CSR policy in the board report and on the website of the company and in case the company fails to spend amount on CSR activities, then also disclose the reason of such failure in the board’s report.

CSR Activities

CSR policy should be inconsistent with activities given under schedule VII of The Companies Act 2013:

1. Towards eradicating poverty, hunger and malnutrition, sanitation, and making available clean drinking water.

2. Promoting education, vacation skills, special education for children, women and elderly.

3. Promote gender equality, women empowerment, setting up old age homes, hostels, orphans, day care centres and other facilities for senior citizens and economically backward people.

4. Ensure sustainable environment, protection of flora and fauna, animal, soil, air water and all other natural resources.

5. Protect national heritage, art and culture, setting up libraries, protection and development of traditional art and handicrafts.

6. Measures towards Development of widows of armed forces people.

7. Promote rural sports, Olympics and Paralympic sports

8. Contribution towards prime minister national relief fund or any other fund set up by the central government.

9. Contribution towards research and development projects in the field of science technology or medicines.

10. Contribution to public funded universities, IITs, DRDO, AYUSH and ICMR etc.

11. Rural development projects.

12. Towards disaster management activities.

CSR Amount Shall not be Spent for the Following Activities

1. Activities undertaken by the company in the normal course of the business.

2. Activities undertaken by the company outside India except for training of Indian sports personnel.

3. Contribution to any political party directly or indirectly.

4. Activities benefitting employees of the company.

5. Activities carried out for fulfilment of any other statutory obligations under any other law.

6. Activities supported by the companies on sponsorship basis for deriving marketing benefits for its own products and services.

4. What is the process of CSR reporting? Discuss the different reporting tools and techniques.(20)

Ans) Checklist before Preparing the Report is as follows:

Before beginning the actual report preparation, it is crucial to take into account some general and fundamental factors, such as the objectives, organisational embedding, resource allocation, focus, target group definition, scope, purpose, and strategy for involving stakeholders, as well as the definition of the method. In this stage of the process, management has a unique responsibility for establishing the broad strategies and structure.

Objective of the Report: The reporting obligations are clear according to the terms of the applicable law if the report is being prepared as required by local law. For instance, a business may create a CSR report in accordance with the 2013 Companies Act's regulations. The National Guidelines on Social, Economic, and Environmental Responsibilities of Business, 2011, state that BSE-listed 500 businesses may also be required to report in accordance with the business responsibility reporting (BRR) format. On the other hand, firms may create reports based on pertinent CSR/sustainability criteria, which may be required by law or optional. It is possible to properly write reports if the purpose is kept clear in accordance with reporting rules.

Resources and Organisational Embedding: A crucial component of achieving the goal is allocating enough resources to the reporting work. The themes of corporate social responsibility may change from one organisation to the next, but in general, it will be a very good idea to designate one person or a small interdisciplinary group with members from several business divisions to be in charge of creating the report.

Identifying Target Groups: The effectiveness of the report will largely depend on whether it conveys the information that the stakeholders have asked, as the report on corporate social responsibility is essentially only one of the many ways that a business communicates with its stakeholders. In other words, it would be a good idea if the report's development involved some identification of and communication with stakeholders to learn about their goals for the local economy. This can be a lengthy procedure, particularly for companies producing their first report. Therefore, it could be a good idea to focus the report on the most important stakeholders first. The report can be expanded to encompass a larger target group and, consequently, more areas as the company gains expertise.

Method Definition: We must choose our approach to the report-writing process. There are many standards, rules, frameworks, and initiatives that can be used to report on corporate social responsibility and sustainability, so you might not need to come up with your own procedures and apparatus. The UN Global Compact, G3 Guidance from the Global Reporting Initiative (GRI), AA1000's guidelines on incorporating stakeholders, and ISO 26000 - Guidance on Social Responsibility are a few of the regularly utilised standards/frameworks. The preceding measures can help to ensure the quality of the report and open up the possibility of comparison with other companies in the same or different industries.

Different Reporting Tools and Techniques

Frameworks of Reporting: Corporate sustainability reporting frameworks are crucial instruments for assisting firms in creating their sustainability reports. The global carbon disclosure project (CDP), the SIGMA project, the DPSIR framework, the world business council for sustainable development (WBCSD), the greenhouse gas protocol (GHG Protocol), broad concept based frameworks, the SEBI framework, and many others are among the major frameworks.

Standards of Reporting: Sustainability standards are essential for facilitating disclosure procedures and serving as a roadmap for implementing globally recognised policies and practises in the corporate world that promote sustainability. As a result of industry-specific requirements, many sustainability standards have been produced by various organisations, including intergovernmental organisations, standard organisations, consulting firms, etc.

For commercial sectors including textile and apparel, automotive, agrobusiness, electronics, etc., there are a number of sustainability standards that are industry specific. There are several sustainability standards, but some of the most popular ones are AA1000, SA8000, ISO 14001, ISO 9001, AS/NZS 4801, EMAS, OHSAS 18001, the New York Exchange and Deloitte, and ISO 26000. Additionally, voluntary sustainability standards (VSS) and private sustainability standards can be used to categorise sustainability requirements (PSS).

Ratings and Indices of Corporate Sustainability Reporting: Various groups have created a number of ratings and indices. The Dow Jones Sustainability Index (DJSI), the Asian Sustainability Rating (ASR), the Dow Jones EIRIS, the SAM, the MSCI ESG indices, the FTSE4Good index, the Bloomberg ESG disclosure scores, Trucost, and the Boston Consultancy Groups are a few of these.

5. Write short notes on the following: (4×5)

(a) Utilitarianism

Ans) In ethical philosophy, utilitarianism is a family of normative ethical theories that prescribe actions that maximize happiness and well-being for all affected individuals. Although different varieties of utilitarianism admit different characterizations, the basic idea behind all of them is, in some sense, to maximize utility, which is often defined in terms of well-being or related concepts. For instance, Jeremy Bentham, the founder of utilitarianism, described utility as:

That property in any object, whereby it tends to produce benefit, advantage, pleasure, good, or happiness or to prevent the happening of mischief, pain, evil, or unhappiness to the party whose interest is considered.

Utilitarianism is a version of consequentialism, which states that the consequences of any action are the only standard of right and wrong. Unlike other forms of consequentialism, such as egoism and altruism, utilitarianism considers the interests of all humans equally.

Proponents of utilitarianism have disagreed on a number of issues, such as whether actions should be chosen based on their likely results (act utilitarianism), or whether agents should conform to rules that maximize utility (rule utilitarianism). There is also disagreement as to whether total utility (total utilitarianism), average utility (average utilitarianism) or the utility of the people worst-off[3] should be maximized.

Though the seeds of the theory can be found in the hedonists Aristippus and Epicurus, who viewed happiness as the only good, and in the work of the medieval Indian philosopher Śāntideva, the tradition of modern utilitarianism began with Jeremy Bentham, and continued with such philosophers as John Stuart Mill, Henry Sidgwick, R. M. Hare, and Peter Singer. The concept has been applied towards social welfare economics, the crisis of global poverty, the ethics of raising animals for food, and the importance of avoiding existential risks to humanity.

(b)Responsibility and Work Place Challenges

Ans) Responsibility: Work responsibility is when an employee completes all of their job duties stated within the job description and adheres to company policy and procedures professionally and to the best of their ability. When you are responsible at work, you establish yourself as a valuable employee and a dependable co-worker. Your daily actions at work, your behaviour at special work-related events, and how you treat other employees all play a role in responsibility at work. The type of job-specific responsibilities you have, and the expectations placed on your behaviour at work depend on your workplace environment and your specific role.

Work Place Challenges: The following are some common workplace challenges you may face and how you can deal with them:

1. Lack of communication: Healthy communication is essential at all levels and aspects of the workplace, and a lack of communication is a common workplace problem.

2. Performance issues: A decrease in performance is an issue that managers often see in their teams. If your team members don't perform well, it can impact your performance and targets as well.

3. Lack of employee recognition: It can be uplifting and motivating for employees when their manager appreciates their hard work.

4. Lack of transparency in leadership: Transparency is essential to the success of any business. Leaders who aren't transparent with their employees about changes or problems in the company can create a sense of uncertainty and negatively impact the workplace culture.

5. Motivation and engagement levels: When working as a leader, you might have difficulty keeping team members motivated and engaged in their tasks.

6. Conflict management: Conflicts and disputes may arise between team members with divergent perspectives and viewpoints.

(c) Swachh Bharat Abhiyan

Ans) Swachh Bharat Abhiyan is not something that happened overnight. India is a big country and improving it requires meticulous planning. Before the Swachh Bharat Mission, the previous two cleanliness missions in India paved the path for the most successful cleanliness drive of 2014–2019.

The campaign was conceived in a conference organised by UNICEF and the Indian Institute of Technology in March 2014. Later that year, on the birthday of the father of our nation, Mahatma Gandhi, the Swachh Bharat Mission was flagged off. It was a daunting project that required the construction of 90 million toilets across the country. The seriousness of the mission can be judged when we see that the government earmarked 1.96 crore rupees for the project.

A primary goal of the campaign is to eliminate the practice of open defecation and provide basic sanitation facilities by providing toilets, solid–liquid waste disposal systems, clean drinking water, etc. It aims to clean streets, roads, towns, and infrastructure in 4041 statutory towns and cities across the country. According to UNICEF, a single gram of faeces can host millions of viruses and parasites. These viruses and parasites are the reason that every year one lakh children die of diarrhoea.

While making India open defecation-free by 2014 was the main aim of the mission, it also aimed at making people more aware of the problems created by solid and liquid wastes when garbage management is not done properly. The Swachh Bharat Mission aimed to make rivers, drainage system, buses, offices, and streets cleaner. It is also among the objectives of Swachh Bharat Abhiyan to make the citizens of the country aware of their utmost responsibility to maintain cleanliness and prevent filth from spreading around the country.

(d)Annual Reporting on CSR

Ans) A CSR, corporate social responsibility or sustainability report is a periodical (usually annual) report published by companies with the goal of sharing their corporate social responsibility actions and results. The report synthesizes and makes public the information organizations decide to communicate regarding their commitments and actions in social and environmental areas. By doing so, organizations let stakeholders (i.e., all parties interested in their activities) aware of how they are integrating the principles of sustainable development into their everyday operations.

The main intention of a CSR or sustainability report is to improve the transparency of organizations’ activities. The goal is twofold:

On one hand, CSR reports aim to enable companies to measure the impact of their activities on the environment, on society and on the economy (the famous triple-bottom-line). In this way, companies can get accurate and insightful data which will help them improve their processes and have a more positive impact in society and in the world.

On the other hand, a CSR or sustainability report also allows companies to externally communicate with their stakeholders what are their goals regarding sustainable development and CSR. This allows stakeholders such as employees, investors, media, NGOs, among other interested parties, to get to know better what the short, medium and long-term goals of companies are and make more informed decisions.

According to the Global Reporting Initiative, a CSR report can be defined as:

“A sustainability report is a report published by a company or organization about the economic, environmental and social impacts caused by its everyday activities. A sustainability report also presents the organization’s values and governance model and demonstrates the link between its strategy and its commitment to a sustainable global economy.”