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BBA 1st Year Business Ethics Corporate Social Responsibility Long Question Answer

Q.9. “If you don’t have honesty and integrity, you won’t be able to develop effective relationships with any of your stakeholders.”Explain this statement in relation to the social responsibility of business with respect to different stakeholders.

Ans. Stakeholders and Corporate Social Responsibility: Stakeh1der groups form the basis of success and failure of the business. Stakeholders are individuals or groups that have interests, rights, or ownerships in an organisation and its activities. Customers, suppliers’ employees, and shareholders are example of primary stakeholder groups. Each one of these has in erest in how an organisation performs or interacts with them. These stakeholder groups can benefit rom a company’s success and can be badly affected by its mistakes.

Secondary stakeholders are also important because they can tahe action that can damage or assist the organisation. Secondary stakeholders include governments (especially through regulatory agencies), unions, non-governmental organisations (NGOs), activitiel234s, political action groups, and the media.

In order to serve their stakeholders in an ethical and social manner, more and more organisations are adapting the model of corporate social responsibility. The term Co’porate Social Responsibility

goes by many other terms such as corporate citizenship, responsible business or simply corporate responsibility.

Stakeholders of Organisation: When an organisation builds ethical and social elements in its operating philosophy and integrats them in its business model, it is said to have possessed a self-regulating mechanism that guides, monitors and ensures its adherence to law, ethics, and norms in carrying out business activities that ensure serving the interest of all external and internal stakeholders. In other words, the objective of being socially responsible business is achieved when its activities meet or exceed the expectations of all its stakeholders.

Here is a model for evaluating an organisation’s social performance. The model indicates that total corporate social responsibility can be subdivided into four criteria—economic, legal, ethical and discretionary responsibilities.
These responsibilities are ordered from bottom to top in the following illustration. Let’s discuss each one of them briefly.

(1) Economic Responsibilities The first criterion of social responsibility is economic responsibility. The business institution is, above all, the basic economic unit of society. Its responsibility is to produce goods and services that a society wants and to maximise profit for its owners and shareholders. Economic responsibilities, carried to the extreme, is called

profit-maximizing view; it was advocated by Nobel economist Milton Friedman. This view argued that a company should be operated on a profit-oriented basis, with its sole mission to increase its profits so long as it stays within the rule of the game.

The purely profit-maximising view is no longer considered an adequate criterion of performance in the world in general. Treating economic gain in the society as the only social responsibility can lead companies into trouble.

(2) Legal Responsibilities : All modern societies lay down ground rules, laws and regulations that businesses are expected to follow. Legal responsibility defines what society deems as important with respect to appropriate corporate behavior. Businesses are expected to fulfil their economic goals within the legal framework. Legal requirements are imposed by local councils, state and federal governments and their regulating agencies. Organisations that knowingly break the law are poor performers in this category. Intentionally manufacturing defective goods or billing a client for work not done is illegal. Legal sanctions may include embarrassing public apologies or corporate ‘confessions’

(3) Ethical Responsibilities : Ethical responsibility includes behaviour that is not necessarily codified into law and may not serve the organisation’s direct economic interests. To be ethical, organisation’s decision makers should act with equity, fairness and impartiality, respect the rights of individuals, and provide different treatments of individual only when differences between them are relevant to the organisation’s goals and tasks. Unethical behaviour occurs when decisions enable an individual or organisation to gain expense of society.

(4) Discretionary Responsibilities : Discretionary responsIbility is purely voluntary and guided by an organisation’s desire to make social contributions not mandated by economy, laws ole thics. Discretionary activities includ e generous philanthropic contributions that offer no payback to the organisation and are not expected. Discretionary responsibility is the highest criterion of social responsibility, because it goes beyond societal expectations to contribute to the community’s welfare.

Q.1O. How do you achieve good corporate governance?

Ans. Ways to Achieve Good Corporate Governance: Since the voluntary compliance to sound corporate practices have failed in large measure, there is a need to codi1y the good practices as law. There is a need to institute checks and balances in the functioning of the Management and the Board. Thus, Kumar Mangalam Birla Committee was appointed by SEBI to make recommendations. The committee made number of recommendations, some being for mandatory compliance (Suffixed with “M” in following text) and others being non mandatory (suffixed with “V”). Kumar Mangalam Birla Committee laid a great emphasis on Board of Directors for ensuring Corporate Governance. Even among the directors, it trusted independent directors to be the real watch dogs for ensuring corporate governance. Independence has been unambiguously defined in the report and following are the salient recommendations of Birla Committee:

(1) Number of Non-Executive Directors (M) The Non-Executive Directors brought external and wider perspective and independence to the decision making. Committee recommended that minimum 50% of the directors should be non-executive directors.

(2) Increasing the Number of Independent Directors (M) : Even though non-executive directors are expected to bring in better objectivity and independence in decision making there is still ample. room for bigotry since every non executive director is not an independent director (Nominee Directors are not independent directors). Therefore, it recommended following minimum number of independent directors in the board:

 (a) In case Chairman of the Board of directors is a Non-Executive Director, one third of the total directors should be independent directors.

(b) If Chairman is an Executive Director, half the directors should be independent directors.

(3) Attractive Financial Remuneration (V) : Committee recommended attractive financial remuneration to ensure that people of merit are attracted to take up the directorship of the companies.

(4) Nominee Directors (M) : Nominee directors do not represent their own company but also the general stakeholders as well. They, thus, have same responsibility and accountability towards general shareholders as any other director has. They are, therefore, prohibited from communicating material information to any department of parent company which they could use to play in stock market.

(5) Audit Committee (M) : It should consist of at least 3 members and all non executive directors with majority being independent directors. The Chairman should be an Independent Director. The committee should meet at least thrice a year. Committee has powers to investigate any activity within its terms of reference.

(6) Frequency of Board Meetings (M) The Committee recommended that board meetings should be held at least four times in a year, with a maximum time gap of four months between any two meetings.

(7) Limit on Number of Directorships (M): The Committee recommended that a director should not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a director.

(8) Transparency in Declaring Remuneration of all Directors (M).

(9) Accounting Standards and Financial Reporting (M)

(a) Consolidation of Accounts of Subsidiaries : The companies should be required to give consolidated accounts in respect of all its subsidiaries in which they hold 51 % or more ofthe share capita].

(b) Segment Reporting: Financial reporting in respect of each product segment should be available to shareholders and the market to obtain a complete financial picture of the company.

(c) Disclosure and treatment of related party transactions.

(10) Disclosure of Interest by Directors (M) : The Committee recommended that disclosures must be made by the management to the board relating to all material, financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (e.g. dealing in company shares, commercial dealings with bodies which have shareholding of management and their relatives etc.).

(11) Report on Corporate Governance (M) : The Committee recommended that there should be a separate section on Corporate Governance in the Annual Reports of companies, with a detailed compliance report on Corporate Governance.. Unfortunately, there is more of lip service than real intent in this field. The industry, Company Law Board, SEBI and even government have all been less than keen on achieving good corporate governance. Despite the reports on corporate governance being available with every implementation agency for over 10 years, little has been done to implement these recommendations. While there is a talk of SEBI issuing a guideline— increasing the number of independent directors, there is virtually no talk in any quarter on the suggestions to introduce a random appointment of auditor from a selected pool of auditors.

Q.11. What do you mean by corporate social responsibility? Discuss the social responsibility of business with respect to different stakeholders. (2011)

Ans. Corporate Social Responsibility: Corporate Social Responsibility (CSR) is becoming an increasingly important activity to businesses nationally and internationally. As globalization accelerates and large corporations serve as global providers, these corporations have progressively recognized the benefits of providing CSR programs in their various locations. CSR activities are now being undertaken throughout the globe.

Social Responsiblity of Business to Different Stakeholders

Social responsibilities of business for various interests groups can be divided under two broad categories:

1. Internal interest groups.

2. External interest groups.

Various interest groups which have stake in the businessare explained in this figure:

1.Internal Interest Groups

(a) Social Responsibilities towards Owners: It is to be ensured hat owners, shareholders, partners get fair dividend or a fair return on the capital invested by them n the company. Fair return has to be more than bank rate and it should be reasonable.

Further, shareholders expect security of investment and share in capital appreciation as bonus shares.

(b) Social Responsibility towards Employees The traditional oncept of “master servant relationship has to change to the concept of partnership” between labour and management.”

The major areas of relationship are as follows:

(i) Wages : These should be need based and productivity related.

(ii) Salaries for managerial personnel are to be linked to responsibilities. Ceiling on managerial remuneration by government to be adhered strictly.

Besides, it is to be seen that there are not much disparities betweep wages of employees and salaries of managerial personnel.

(iii) Relationship between Employee and Employees : These are various lapses on the part of employees which include:

Unsympathetic treatment to employees by supervisors.

Favouritism in promotions etc.

Lack of communication between management and workers.

Lack of appreciation for meritorious achievement and no condemnation of neglect and lethargy of employees.

Delay in settling grievances/disputes with employees.

Lapses on part of employees, i.e. indiscipline in carrying out orders.

Lack of desire by employees to improve efficiency.

Role of political inspired trade unions frequent strikes, gheraos etc.

(iv) Industrial legislation, i.e. laws relating to employees to be followed strictly.

(v) Welfare of employees, employer to provide health, safety, working condition and welfare measures for conducive work environment.

1. External Interest Groups

(a) Soda] Responsibility towards Consumers and Community: These are as follows:

(I) The consumer and the community are the ultimate judge of business and its products. So, it has to be ensured.

(ii) Products should meet the needs of consumers.

(iii) Prices are fair. There is no hoarding — cornering of products to raise prices.

(iv) After sale service is available.

(v) Consumer associations are to be vigilant and to report falling of standards.

(vi) Quality and standards (ISI, Agmark) are adhered to.

(b) Businessmen’s Responsibilities towards Government: These are as follows:

(i) Employer has to be law abiding, follow laws relating to trade, factory and labour.

(ii) To pay his dues like taxes fully and honestly.

(iii) Not to purchase political support by unfair means.

(iv) Avoid adulteration.

(v) Not to corrupt public servants.

(vi) To maintain fair trade practices and avoid hoarding aid concering of products.

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