Business Ethics and Professional Values

Unit – I - Introduction

Definition –

The word ‘Ethics’, which is latin is called ethicus and in greek is called ethikos has come
from the word ethos, meaning character or manners.

The character of a man is expressed in terms of his conduct. Conduct of a person is a

series of actions, which when taken together, can be termed as ‘good’ or ‘bad’, ‘right’ or
‘wrong’, ‘moral’ or ‘immoral’ . However they may be amoral as well, which means that
they are beyond the sphere of morality.

Thus, ethics can also be termed as the science of character of a person expressed as right
or wrong conduct or action.

Nature –
1. It deals with human beings only
2. set of systematic knowledge about moral behaviour and conduct
3. it is a normative science
4. it deals with human conduct which is voluntary.
Objectives –
1. Studies human behaviour and makes evaluative assessment about them as moral
or immoral ( a diagnostic goal)
2. establishes moral standards and norms of behaviour
3. makes judgments upon human behaviour based on these standards and norms
4. prescribes moral behaviour and makes recommendations about how to or how not
to behave
5. expresses an opinion or attitude about human conduct in general
Business Ethics –
Business ethics is nothing but the application of ethics in business. Business ethics
proves that businesses can be, and have been, ethical and still make profits. Today,
more and more interest is being given to the application of ethical practices in
business dealings and the ethical implications of business.

However, at most times profit maximization and discharging of social

responsibilities at the maximum limit, cannot be carried on simultaneously.
Business ethics are rules of business conduct, by which the rightness of business
activities may be judged.
 Relationship between business and ethics
1. The Unitarian View
This view is of the opinion that business is only a sub set of moral
structure of the society. According to this view, business and morality
cannot be separated and business must play by the rules of morality and
ethics of the community which guides the activities of the community.
2. The Separatist View
Dramatically opposite to the Unitarian view, classical economist like
Adam Smith and Milton Friedman asserted that the only goal of business
should be profit maximization; and that ethics and morality plays no part
in business conducts.
3. The Integrated View
This view was proposed by Talcott Parsons, wherein he sought to integrate
ethical behaviour and business in a new area called business ethics. This
view states that business is an economic entity and it has the right and the
need to make profits, but it must also discharge its obligations to the
society where it exists and operates.

#3 C’s of Business Ethics

C- Compliance

The need for compliance of rules including laws, principles of morality, the
customs of community, policy of company and fairness

C-Contribution
The contribution business can make to society through – the core values, quality
of one’s products and services, by providing jobs to employees, usefulness of activities to
surrounding community and Quality of Work life influenced by ethical and moral values.

C-Consequences
The consequences of business activity towards environment inside the plant and
outside the organisation and community, social responsibility towards shareholders,
bankers, suppliers, customers, employees of organization, good public image, sound
business practices so that public image is not tarnished

Need for Business Ethics

1. As subsystem of society, business must function for the welfare of the society.
2. to earn social sanction
3. to earn loyal customers
4. to have long run existence and sustained profitability of the firm
Moral Development of and Individual

Kohlberg's stages of moral development are planes of moral adequacy conceived by

Lawrence Kohlberg to explain the development of moral reasoning.

Stages

Kohlberg's six stages were grouped into three levels: pre-conventional, conventional, and
post-conventional.[7][8][9] Following Piaget's constructivist requirements for a stage model
(see his theory of cognitive development), it is extremely rare to regress backward in
stages - to lose functionality of higher stage abilities.[10][11] Even so, no one functions at
their highest stage at all times.[citation needed] It is also not possible to 'jump' forward stages;
each stage provides a new yet necessary perspective, and is more comprehensive,
differentiated, and integrated than its predecessors.[10][11]

Level 1 (Pre-Conventional)
1. Obedience and punishment orientation
(How can I avoid punishment?)
2. Self-interest orientation
(What's in it for me?)
Level 2 (Conventional)
3. Interpersonal accord and conformity
(Social norms)
(The good boy/good girl attitude)
4. Authority and social-order maintaining orientation
(Law and order morality)
Level 3 (Post-Conventional)
5. Social contract orientation
6. Universal ethical principles
(Principled conscience)

Pre-Conventional

The pre-conventional level of moral reasoning is especially common in children,

although adults can also exhibit this level of reasoning. Reasoners in the pre-conventional
level judge the morality of an action by its direct consequences. The pre-conventional
level consists of the first and second stages of moral development, and are purely
concerned with the self in an egocentric manner.

In Stage one (obedience and punishment driven), individuals focus on the direct
consequences that their actions will have for themselves. For example, an action is
perceived as morally wrong if the person who commits it gets punished. "the last time I
did that I got spanked so I will not do it again" The worse the punishment for the act is,
the more 'bad' the act is perceived to be.[12] This can give rise to an inference that even
innocent victims are guilty in proportion to their suffering. In addition, there is no
recognition that others' points of view are any different from one's own view.[citation needed]
This stage may be viewed as a kind of authoritarianism.[citation needed]
Stage two (self-interest driven) espouses the what's in it for me position, right behavior
being defined by what is in one's own best interest. Stage two reasoning shows a limited
interest in the needs of others, but only to a point where it might further one's own
interests, such as "you scratch my back, and I'll scratch yours".[3] In stage two concern for
others is not based on loyalty or intrinsic respect. Lacking a perspective of society in the
pre-conventional level, this should not be confused with social contract (stage five), as all
actions are performed to serve one's own needs or interests. For the stage two theorist, the
perspective of the world is often seen as morally relative.

Conventional

The conventional level of moral reasoning is typical of adolescents and adults. Persons
who reason in a conventional way judge the morality of actions by comparing these
actions to societal views and expectations. The conventional level consists of the third
and fourth stages of moral development.

In Stage three (interpersonal accord and conformity driven), the self enters society by
filling social roles. Individuals are receptive of approval or disapproval from other people
as it reflects society's accordance with the perceived role. They try to be a good boy or
good girl to live up to these expectations,[3] having learned that there is inherent value in
doing so. Stage three reasoning may judge the morality of an action by evaluating its
consequences in terms of a person's relationships, which now begin to include things like
respect, gratitude and the 'golden rule'. "I want to be liked and thought well of;
apparently, not being naughty makes people like me." Desire to maintain rules and
authority exists only to further support these social roles. The intentions of actions play a
more significant role in reasoning at this stage; 'they mean well...'[3]

In Stage four (authority and social order obedience driven), it is important to obey laws,
dictums and social conventions because of their importance in maintaining a functioning
society. Moral reasoning in stage four is thus beyond the need for individual approval
exhibited in stage three; society must learn to transcend individual needs. A central ideal
or ideals often prescribe what is right and wrong, such as in the case of fundamentalism.
If one person violates a law, perhaps everyone would - thus there is an obligation and a
duty to uphold laws and rules. When someone does violate a law, it is morally wrong;
culpability is thus a significant factor in this stage as it separates the bad domains from
the good ones. Most active members of society remain at Stage four, where morality is
still predominantly dictated by an outside force.

Post-Conventional

The post-conventional level, also known as the principled level, consists of stages five
and six of moral development. Realization that individuals are separate entities from
society now becomes salient. One's own perspective should be viewed before the society.
It is due to this 'nature of self before others' that the post-conventional level, especially
stage six, is sometimes mistaken for pre-conventional behaviors.
In Stage five (social contract driven), individuals are viewed as holding different opinions
and values. Along a similar vein, laws are regarded as social contracts rather than rigid
dictums. Those that do not promote the general welfare should be changed when
necessary to meet the greatest good for the greatest number of people.[8] This is attained
through majority decision, and inevitably compromise. In this way democratic
government is ostensibly based on stage five reasoning.

In Stage six (universal ethical principles driven), moral reasoning is based on abstract
reasoning using universal ethical principles. Laws are valid only insofar as they are
grounded in justice, and that a commitment to justice carries with it an obligation to
disobey unjust laws. Rights are unnecessary as social contracts are not essential for
deontic moral action. Decisions are not met hypothetically in a conditional way but rather
categorically in an absolute way (see Immanuel Kant's 'categorical imperative').[13] This
can be done by imagining what one would do being in anyone's shoes, who imagined
what anyone would do thinking the same (see John Rawls's 'veil of ignorance').[14] The
resulting consensus is the action taken. In this way action is never a means but always an
end in itself; one acts because it is right, and not because it is instrumental, expected,
legal or previously agreed upon. While Kohlberg insisted that stage six exists, he had
difficulty finding participants who consistently used it. It appears that people rarely reach
stage six of Kohlberg's model.

Unit – II – Theories related to Socio-Ethical Systems

1. Jainism – traditionally known as Jain Dharma is one of oldest religion in the

world. It is religion and philosophy originated in Ancient India. They follow the
teaching of 24 Jinas who are also known as ‘Tirthankaras’ There are two sects
- Digamber and Shwetamber
There are five basic ethical principles (vows) prescribed. The degree to which
these principles must be practiced is different for renunciant and householder. Thus:

• Non-violence (Ahimsa) - to cause no harm to living beings.

• Truth (Satya) - to always speak the truth in a harmless manner.
• Non-stealing (Asteya) - to not take anything that is not willingly given.
• Celibacy (Brahmacarya) - to not indulge in sensual pleasures.
• Non-possession (Aparigraha) - to detach from people, places, and material things.

Five Mahavratas

• Ahimsa: Non-violence in thought, word and deed

• Satya: Truth which is (hita) beneficial, (mita) succinct and (priya) pleasing
• Acaurya: Not accepting anything that has not been given to them by the owner
• Brahmacarya: Absolute purity of mind and body
• Aparigraha: Non-attachment to non-self objects

Three Guptis
 • Managupti: Control of the mind
• Vacanagupti: Control of speech
• Kayagupti: Control of body

Five Samitis

• Irya Samiti: Carefulness while walking

• Bhasha Samiti: Carefulness while communicating
• Eshana Samiti: Carefulness while eating
• Adana Nikshepana Samiti: Carefulness while handling their fly-whisks, water
gourds, etc.
• Pratishthapana Samiti: Carefulness while disposing of bodily waste matter

Islam

Islam is a monotheistic, Abrahamic religion originating with the teachings of the Islamic
prophet Muhammad, a 7th century Arab religious and political figure. The word Islam
means "submission" or the total surrender of oneself to God. An adherent of Islam is
known as a Muslim, meaning "one who submits [to God]". The word Muslim is the
participle of the same verb of which Islām is the infinitive. There are between 1 billion
and 1.8 billion Muslims, making Islam the second-largest religion in the world, after
Christianity.

Five Pillars

The Five Pillars of Islam are five practices essential to Muslims:

• The shahadah, which is the basic creed or tenet of Islam. "I testify that there is
none worthy of worship except God and I testify that Muhammad is the
Messenger of God." This testament is a foundation for all other beliefs and
practices in Islam. Muslims must repeat the shahadah in prayer, and non-Muslims
wishing to convert to Islam are required to recite the creed.
• Salah, or ritual prayer, which must be performed five times a day. Each salah is
done facing towards the Kaaba in Mecca. Salah is intended to focus the mind on
God, and is seen as a personal communication with him that expresses gratitude
and worship. Salah is compulsory but flexibility in the specifics is allowed
depending on circumstances. In many Muslim countries, reminders called Aazan
(call to prayer) are broadcast publicly from local mosques at the appropriate
times. The prayers are recited in the Arabic language, and consist of verses from
the Qur'an.
• Zakat, or alms-giving. This is the practice of giving based on accumulated wealth,
and is obligatory for all Muslims who can afford it. A fixed portion is spent to
help the poor or needy, and also to assist the spread of Islam. The zakat is
considered a religious obligation (as opposed to voluntary charity) that the well-
off owe to the needy because their wealth is seen as a "trust from God's bounty".
 The Qur'an and the hadith also suggest a Muslim give even more as an act of
voluntary alms-giving.
• Sawm, or fasting during the month of Ramadan. Muslims must not eat or drink
(among other things) from dawn to dusk during this month, and must be mindful
of other sins. The fast is to encourage a feeling of nearness to God, and during it
Muslims should express their gratitude for and dependence on him, atone for their
past sins, and think of the needy. Sawm is not obligatory for several groups for
whom it would constitute an undue burden. For others, flexibility is allowed
depending on circumstances, but missed fasts usually must be made up quickly.
Some Muslim groups do not fast during Ramadan, and instead have fasts different
times of the year.
• The Hajj, which is the pilgrimage during the Islamic month of Dhu al-Hijjah in
the city of Mecca. Every able-bodied Muslim who can afford it must make the
pilgrimage to Mecca at least once in his or her lifetime. When the pilgrim is about
ten kilometers from Mecca, he must dress in Ihram clothing, which consists of
two white seamless sheets. Rituals of the Hajj include walking seven times around
the Kaaba, touching the Black Stone, running seven times between Mount Safa
and Mount Marwah, and symbolically stoning the Devil in Mina. The pilgrim, or
the hajji, is honored in his or her community, although Islamic teachers say that
the Hajj should be an expression of devotion to God instead of a means to gain
social standing.

3. Marxism

Marxism is the political philosophy and practice derived from the work of Karl Marx
and Friedrich Engels. Marxism holds at its core that class struggle is the central
element of social change in Western society. Since the tension between social classes
is deemed to be the cause of political unrest, Marxism attempts to solve this problem
by establishing public ownership as its dominant feature

Main ideas

The following are key ideas used by most Marxists. Different Marxists emphasize
different terms, and many Marxists have argued over the interpretation and application of
these ideas:

• Exploitation: Marx refers to the exploitation of an entire segment or class of

society by another. He sees it as being an inherent feature and key element of
capitalism and free markets. Marx emphasises that exploitation takes place in
capitalist production, not in circulation. He distinguishes between labour (the
activity) and labour-power - a person's ability to labor. The worker's labour-power
is, under capitalism, a commodity, which can be bought and sold. When the
capitalist hires the worker, the capitalist pays not for a certain labor but rather for
the worker's labor-power, because anything the worker produces during the time
under contract belongs to the employer. Marx argued that the wage - the price of
the labor-power - should reflect the price of the commodity produced when sold
 on the market. However, the price of the commodity produced, and the price of
commodified labor, is determined by two different markets (e.g. the market for
sweaters and the market for labor). Since Marx believed that capitalists will
always invest in mechanization, capitalists will always depend on unskilled labor.
Moreover, Marx felt that the supply of unskilled labor will almost always far
exceed the demand for unskilled labor, thus leaving the price of labor low.
Observing the conditions of industrial workers at the time he wrote, Marx
concluded that capitalists will pay workers only what workers need to survive and
reproduce. Marx is at pains to emphasize that capitalism does not cheat the
worker. The capitalist pays the worker for the commodity labour-power at its
market price. The capitalist's profit comes from the fact that the worker will
labour for more hours than are needed to produce the commodities used to
reproduce the worker. Marx calls this 'surplus labour' and, when embodied in a
commodity 'surplus-value,' this surplus value is what becomes the capitalist's
profit.
• Alienation: Marx refers to the alienation of people from aspects of their "human
nature" ("Gattungswesen", usually translated as 'species-essence' or 'species-
being'). He believes that alienation is a systematic result of capitalism. Under
capitalism, the fruits of production belong to the employers, who expropriate the
surplus created by others and in so doing generate alienated labour. Alienation
describes objective features of a person's situation in capitalism - it isn't necessary
for them to believe or feel that they are alienated.
• Base and superstructure: Marx and Engels use the “base-structure” metaphor to
explain the idea that the totality of relations among people with regard to “the
social production of their existence” forms the economic basis, on which arises a
superstructure of political and legal institutions. To the base corresponds the
social consciousness which includes religious, philosophical, and other main
ideas. The base conditions both the superstructure and the social consciousness. A
conflict between the development of material productive forces and the relations
of production causes social revolutions, and the resulting change in the economic
basis will sooner or later lead to the transformation of the superstructure. [6] For
Marx, though, this relationship is not a one way process - it is reflexive; the base
determines the superstructure in the first instance and remains the foundation of a
form of social organization which then can act again upon both parts of the base-
structure metaphor. The relationship between superstructure and base is
considered to be a dialectical one, not a distinction between actual entities "in the
world".
• Class consciousness: Class consciousness refers to the awareness, both of itself
and of the social world around it, that a social class possess, and its capacity to act
in its own rational interests based on this awareness. Thus class consciousness
must be attained before the class may mount a successful revolution. Other
methods of revolutionary action have been developed however, such as
vanguardism.
• Ideology: Without offering a general definition for ideology Marx on several
instances has used the term to designate the production of images of social reality.
According to Engels, “ideology is a process accomplished by the so-called thinker
 consciously, it is true, but with a false consciousness. The real motive forces
impelling him remain unknown to him; otherwise it simply would not be an
ideological process. Hence he imagines false or seeming motive forces”.[8]
Because the ruling class controls the society's means of production, the
superstructure of society, as well as its ruling ideas, will be determined according
to what is in the ruling class's best interests. As Marx said famously in The
German Ideology, “the ideas of the ruling class are in every epoch the ruling
ideas, i.e. the class which is the ruling material force of society, is at the same
time its ruling intellectual force”.[9] Therefore the ideology of a society is of
enormous importance since it confuses the alienated groups and can create false
consciousness such as commodity fetishism (perceiving labor as capital ~ a
degradation of human life).
• Historical materialism: Historical materialism was first articulated by Marx,
although he himself never used the term. It looks for the causes of developments
and changes in human societies in the way in which humans collectively make the
means to live, thus giving an emphasis, through economic analysis, to everything
that co-exists with the economic base of society (e.g. social classes, political
structures, ideologies).
• Political economy: The term "political economy" originally meant the study of
the conditions under which production was organized in the nation-states of the
new-born capitalist system. Political economy, then, studies the mechanism of
human activity in organizing material, and the mechanism of distributing the
surplus or deficit that is the result of that activity. Political economy studies the
means of production, specifically capital, and how this manifests itself in
economic activity.

Gandhism

(or Gandhianism) is a collection of inspirations, principles, beliefs and philosophy of

Mohandas Karamchand Gandhi (known as Mahatma Gandhi), who was a major political
and spiritual leader of India and the Indian Independence Movement.

It is a body of ideas and principles that describes the inspiration, vision and the life work
of Gandhi. The term also encompasses what Gandhi's ideas, words and actions mean to
people around the world, and how they used them for guidance in building their own
future. Gandhism also permeates into the realm of the individual human being, non-
political and non-social. A Gandhian can mean either an individual who follows, or a
specific philosophy which is attributed to, Gandhism.

Gandhi stated that “I have nothing new to teach the world. Truth and non-violence
are as old as the hills.

The pivotal and defining element of Gandhism is satya, a Sanskrit word usually translated
into English as truth, whose literal meaning is 'what actually is' (deriving from the root
verb as meaning 'to be'). Truth must pervade all considerations of politics, ego, society
and convention. Gandhi did not consider himself to be a pacifist, socialist or on any
definable spectrum of politics. He professed to adhere to the pure, existing facts of life to
make his decisions.

Gandhi’s commitments to non-violence, human freedom, equality and justice arose from
his personal examination.

Truth is interpreted subjectively. Gandhism does not demand that its adherents agree to
Gandhi’s own principles to the letter, but in spirit. If one honestly believes that violence
is sometimes necessary, it is truthful to believe in it. When Gandhi returned to India in
the middle of World War I, he said he would have supported the British in the war. It
would have been wrong, according to Gandhi, to demand equal rights for Indians in the
Empire, and not contribute to its defence. On the other hand, by the time of the advance
of the Japanese in World War II, Gandhi had given up notions of fighting alongside the
British and argued for nonviolence instead.

The concept of nonviolence (ahinsa) and nonresistance has a long history in Indian
religious thought and has had many revivals in Hindu, Buddhist, Jain, Islam and Christian
contexts. Gandhi explains his philosophy and way of life in his autobiography, The Story
of My Experiments with Truth. He was quoted saying:

"What difference does it make to the dead, the orphans, and the homeless, whether the
mad destruction is wrought under the name of totalitarianism or the holy name of liberty
and democracy?

"An eye for an eye makes the whole world blind”.

"It has always been easier to destroy than to create”.

"There are many causes that I am prepared to die for but no causes that I am prepared to
kill for”.

At the age of 36, Gandhi adopted the vow of brahmacharya, or celibacy. He committed
himself to the control of the senses, thoughts and actions. Celibacy was important to
Gandhi for not only purifying himself of any lust and sexual urges, but also to purify his
love for his wife as genuine and not an outlet for any turmoil or aggression within his
mind.

Ahimsa, or non-violence, was another key tenet of Gandhi's beliefs. He held that total
non-violence would rid a person of anger, obsession and destructive impulses.

Gandhi's basic advice was "don't rush into technologically oriented development; first
make sure what impact it will have on employment and through this on the well-being of
the poor people." This principle completely stands on its head the usual assumption of
capitalist economics, namely that the primary aim is to maximize the efficiency of the
production of goods, almost regardless of whether the goods produced are basic
necessities for the poor or luxury goods for the rich. The basic principle of Stalinist
economics was to maximize the production of capital goods, such as heavy machinery, so
that future generations could enjoy a plenitude of consumer goods. Both capitalist and
socialist economies were based on technology-intensive rather than labor-intensive
production. Gandhian economics reverses this preference. (Incidentally, technology also
tends to increase environmental damage.)

The basic aim of Gandhian economics is to provide full employment for the poor,
really for all potential members of the work force, so that these workers can provide
for their own necessities by their own efforts, in dignity, without depending on
charity. Gandhi was not opposed to technology, but advocated a proper mix (depending
on prevailing conditions) of technology-intensive and labor-intensive production. The
economist's task should be to determine what the proper mix is; econometric calculations
based on facts can help determine this. In short, the amount of available investible
resources must keep pace with the population increase of employable workers. This is the
basic principle, on which the economist must base his/her other recommendations, e.g.
how much external trade the country should engage in.

Capitalist economics does not care about the fate of the unemployed, because they cannot
buy the luxury goods being produced anyway. If not enough people buy the luxury
goods, which could happen if too many are poor, leaders of capitalist businesses put on
expensive and wasteful advertising campaigns, to convince people that the luxuries are
really necessities. Many, especially in experienced young people, fall for this, and get
themselves deeply into debt. This also applies to whole countries, which acquire debts so
horrendous that they can never hope to repay them, and bankrupt themselves just keeping
up with interest payments.

While capitalism leads to very skewed distribution of goods and services (some get too
much and most get too little), and real-existing socialism tends to under-produce
consumer goods because of the inefficiency of large-scale planning and the postponement
of consumer goods production, Gandhian economics would strive for income and wealth
equalization by providing productive meaningful work for every one, even if the full use
of the latest industrial technology is provisionally postponed. After all, what is the benefit
of being on the cutting edge of technology if it increases human misery?

Under Gandhian economics, fewer luxury goods would be produced, because the
emphasis would be on producing enough necessities for everyone. This would simplify
life styles, which could be of benefit in causing people to focus on the real values that
produce happiness, such as family solidarity devotion to the arts and sciences, and
spiritual pursuits. Gandhi defined "happiness" as the ratio between want satisfaction and
the number of wants. We can increase this ratio (and therefore happiness) either by
increasing want satisfaction (as we are doing under capitalism) or by decreasing wants,
i.e. living lives of voluntary simplicity.

Technology, like fire, is a good servant, but a poor master. Gandhi, like E.F. Schumacher
("Small Is Beautiful") later, advocated "economics as if people mattered."
Indian Ethos in Management

Inspite of Indian having an ancient culture and philosophy about worklife, we in India
have not yet managed to develop our own management styles in consonance with our
own cultural ethos and have been systematically importing management systems and
styles from foreign countries. While successful countries like the USA, UK,Germany are
rediscovering Indian ethos, we in India are in the process of losing it. While the success
of Japan in managing her economy and enterprise lies in Japanising the management
process within the framework of Japanese ethos, culture and value system. Indian
companies will find in India itself, an ancient tradition and an unique heritage to draw
from, all that they need for their management styles and practices. Indian philosophy
regards work as worship and the customer as God himself. Such Indian tradition and
heritage, its culture and philosophy, ethos and values are a treasure house, where the
richest and the rarest of gems are stored.

Indian Ethos for the worklife

• Man’s Unique inner resource

Indian ethos states that all human beings and indeed, all creatures are but a
spark of the Divine. We all are a part of the same God. Even animals and
plants have the potential of God so we worship them. This divinity in man has
immense perfection in knowledge, wisdom and power with this capacity,
human beings can achieve all impossible goals.

• Holistic Relationship between man and nature

Indian ethos emphasizes the holistic aspect between man and the cosmic. This
view states that all human beings and nature are interconnected and
interdependent. Thus, the only law {dharma} of life is service to each other. If
man protects environment in turn will provide amn with shade, firewood, food
and like. There is emphasis on both spirit and matter. These both are
interlinked in holistic approach. This means that man is permitted to enjoy
both the internal as well as the external quality of life. That is why there
existed ashrama system. (Balaka, grihastha, vanaprastha, sanyasa)

• Cooperation with each other

Indian ethos stress upon cooperation amongst others at work and otherwise;
integration, synthesis and team-spirit for peaceful co-existence and mutual
interdependence team work reduces stress can lead to all round prosperity and
success for everyone concerned
 .

• Self Management

Indian ethos prescribes that a man should be able to control himself first before he
can control anybody. He must know himself - his strengths, weaknesses, his
dreams and desires, his goals and ambitions before he can be an effective
manager. Self management through control, harmony and integration between the
body, mind, emotions, intellect and soul is the essence.

• Yoga and meditation

Yoga basically stands for excellence. Excellence at work can also be achieved
through yoga. Similarly meditation stands for concentration means to reflect
upon deeply on anything or to contemplate upon something. This method can
be used for focusing the eye of wisdom can be opened. It helps to solve many
complex problems of the organisaton demanding higher consciousness. A
karma yogi who practices the technique of meditation can end up with a calm
and serene mind which is not perturbed and perplexed with every day worries
of the workplace through intuition and creativity.

• Dharma

Dharma in Indian philosophy means ‘duty’ and is almost synonymous with

integrity and righteousness. Dharma stands for all those ideals, philosophies,
purposes, influences, teachings and experiences that shape our character.
Dharma is spiritualism and is essentially divinity. Each organisation in Indian
ethos is considered to be a living entity, having its own dharma and character.
Thus, an orgnisation is supposed to inculcate within itself, all essential human
and ethical values, like courage, fairness, justice, righteousness, self-
discipline, fearlessness etc. Everyone should perform own’s duty to the best
ones capacity.

• The spirit of Renunciation

The spirit of renunciation, also known as the spirit of sacrifice of worldly

goods and all material possessions is advocated by Indian philosophy and
ethos. The spirit of ‘tyaga’ is epitomized in Indian philosophy as a very great
virtue. There are two levels of human consciousness. – the lower level through
five senses, the higher level through vision of inner mind. Spiritually a refined
state of the mind, is one of the resources of consciouness. It is the ability to
transcend oneself, to see oneself from a distance in a detached way to analyse
one’s action and intentions, and to correct them, if necessary.
Unit – III Entrepreneurial Risks and Accountability to Stakeholders

and
Unit – IV Business Practices in India

Business ethics is a form of applied ethics that examines ethical principles and moral or
ethical problems that arise in a business environment.

In the increasingly conscience-focused marketplaces of the 21st century, the demand for
more ethical business processes and actions (known as ethicism) is increasing.[1]
Simultaneously, pressure is applied on industry to improve business ethics through new
public initiatives and laws

Professional ethics

Professional ethics covers the myriad practical ethical problems and phenomena which
arise out of specific functional areas of companies or in relation to recognized business
professions. Ethics of accounting information

Creative accounting, Creative accounting and earnings management are euphemisms

referring to accounting practices that may follow the letter of the rules of standard
accounting practices, but certainly deviate from the spirit of those rules. They are
characterized by excessive complication and the use of novel ways of characterizing
income, assets, or liabilities and the intent to influence readers towards the interpretations
desired by the authors. The terms "innovative" or "aggressive" are also sometimes used.

The term as generally understood refers to systematic misrepresentation of the true

income and assets of corporations or other organizations. "Creative accounting" is at the
root of a number of accounting scandals, and many proposals for accounting reform -
usually centering on an updated analysis of capital and factors of production that would
correctly reflect how value is added.

Newspaper and television journalists have hypothesized that the stock market downturn
of 2002 was precipitated by reports of accounting irregularities at Enron, Worldcom,
and other firms in the United States.

One commonly accepted incentive for the systemic over-reporting of corporate income
which came to light in 2002 was the granting of stock options as part of executive
compensation packages. Since stock prices reflect earning reports, stock options could be
most profitably exercised when income is exaggerated, and the stock can be sold at an
inflated profit.
earnings management, misleading financial analysis.

Financial analysis of an organization is misleading when it is used to misrepresent the

organization, its situation or its prospects.

This type of deceit is sometimes used to obtain money by misdirecting people to invest in
a stock market bubble, profiting (or assisting others to profit) from the increase in value,
then removing funds before the bubble collapses, for instance in a stock market crash.

Regulators exist to try to prevent such fraud. Corporate accounting scandals are
political and business scandals which arise with the disclosure of misdeeds by trusted
executives of large public corporations. Such misdeeds typically involve complex
methods for misusing or misdirecting funds, overstating revenues, understating expenses,
overstating the value of corporate assets or underreporting the existence of liabilities,
sometimes with the cooperation of officials in other corporations or affiliates.

In public companies, this type of "creative accounting" can amount to fraud and
investigations are typically launched by government oversight agencies, such as the
Securities and Exchange Commission (SEC) in the United States.

In 2002, a wave of separate but often related accounting scandals became known to the
public in the U.S. All of the leading public accounting firms—Arthur Andersen, Deloitte
& Touche, Ernst & Young, KPMG, PricewaterhouseCoopers— and others have admitted
to or have been charged with negligence in the execution of their duty[citation needed] as
auditors to identify and prevent the publication of falsified financial reports by their
corporate clients which had the effect of giving a misleading impression of their client
companies' financial status.[citation needed] In several cases, the monetary amounts of the fraud
involved are in the billions of USD.

• Insider trading, Insider trading is the trading of a corporation's stock or other

securities (e.g. bonds or stock options) by individuals with potential access to
non-public information about the company. In most countries, trading by
corporate insiders such as officers, key employees, directors, and large
shareholders may be legal, if this trading is done in a way that does not take
advantage of non-public information. However, the term is frequently used to
refer to a practice in which an insider or a related party trades based on material
non-public information obtained during the performance of the insider's duties at
the corporation, or otherwise in breach of a fiduciary duty or other relationship of
trust and confidence or where the non-public information was misappropriated
from the company. "insiders" are not just limited to corporate officials and major
shareholders where illegal insider trading is concerned, but can include any
individual who trades shares based on material non-public information in
violation of some duty of trust. This duty may be imputed; for example, in many
jurisdictions, in cases of where a corporate insider "tips" a friend about non-public
information likely to have an effect on the company's share price, the duty the
 corporate insider owes the company is now imputed to the friend and the friend
violates a duty to the company if he or she trades on the basis of this information.

Liability for insider trading

Liability for insider trading violations cannot be avoided by passing on the information in
an "I scratch your back, you scratch mine" or quid pro quo arrangement, as long as the
person receiving the information knew or should have known that the information was
company property.

For example, if Company A's CEO did not trade on the undisclosed takeover news, but
instead passed the information on to his brother-in-law who traded on it, illegal insider
trading would still have occurred.[5]

Some economists and legal scholars (e.g. Henry Manne, Milton Friedman, Thomas
Sowell, Daniel Fischel, Frank H. Easterbrook) argue that laws making insider trading
illegal should be revoked. They claim that insider trading based on material nonpublic
information benefits investors, in general, by more quickly introducing new information
into the market.

Milton Friedman, laureate of the Nobel Memorial Prize in Economics, said: "You want
more insider trading, not less. You want to give the people most likely to have knowledge
about deficiencies of the company an incentive to make the public aware of that."
Friedman did not believe that the trader should be required to make his trade known to
the public, because the buying or selling pressure itself is information for the market.[18]

Other critics argue that insider trading is a victimless act: A willing buyer and a willing
seller agree to trade property which the seller rightfully owns, with no prior contract
(according to this view) having been made between the parties to refrain from trading if
there is asymmetric information.

Legalization advocates also question why activity that is similar to insider trading is legal
in other markets, such as real estate, but not in the stock market. For example, if a
geologist knows there is a high likelihood of the discovery of petroleum under Farmer
Smith's land, he may be entitled to make Smith an offer for the land, and buy it, without
first telling Farmer Smith of the geological data.[12] Nevertheless, circumstances can occur
when the geologist would be committing fraud if he did not disclose the information, e.g.
when he had been hired by Farmer Smith to assess the geology of the farm.

Advocates of legalization make free speech arguments. Punishment for communicating

about a development pertinent to the next day's stock price might seem to be an act of
censorship. If the information being conveyed is proprietary information and the
corporate insider has contracted to not expose it, he has no more right to communicate it
than he would to tell others about the company's confidential new product designs,
formulas, or bank account passwords,
There are very limited laws against "insider trading" in the commodities markets, if, for
no other reason, than that the concept of an "insider" is not immediately analogous to
commodities themselves (e.g., corn, wheat, steel, etc.). However, analogous activities
such as front running are illegal under U.S. commodity and futures trading laws. For
example, a commodity broker can be charged with fraud if he or she receives a large
purchase order from a client (one likely to affect the price of that commodity) and then
purchases that commodity before executing the client's order in order to benefit from the
anticipated price increase.

• Securities fraud, bucket shops, Bucket shop is a brokerage firm that “books" (i.e.,
takes the opposite side of) retail customer orders without actually having them
executed on an exchange.[1] These brokerages are also often called boiler rooms.
The term is a defined term under the criminal law of many states in the United
States which make it a crime to operate a bucket shop. [2] Typically the criminal
law definition refers to an operation in which the customer is sold what is
supposed to be a derivative interest in a security or commodity future, but there is
no transaction made on any exchange. The transaction goes 'in the bucket' and is
never executed. Without an actual underlying transaction, the customer is betting
against the bucket shop operator, not participating in the market. Operating a
bucket shop would also likely involve violations of several provisions of US
federal securities or commodity futures laws[3].

forex scams: concerns (criminal) manipulation of the financial markets. A forex scam is
any trading scheme used to defraud individual traders by convincing them that they can
expect to gain a high profit by trading in the foreign exchange market. Currency trading
"has become the fraud du jour" as of early 2008, according to Michael Dunn of the U.S.
Commodity Futures Trading Commission. [1] But "the market has long been plagued by
swindlers preying on the gullible," according to the New York Times [2]. "The average
individual foreign-exchange-trading victim loses about $15,000, according to CFTC
records" according to The Wall Street Journal. [3]. The North American Securities
Administrators Association says that "off-exchange forex trading by retail investors is at
best extremely risky, and at worst, outright fraud." [4]

“In a typical case, investors may be promised tens of thousands of dollars in profits in
just a few weeks or months, with an initial investment of only $5,000. Often, the
investor’s money is never actually placed in the market through a legitimate dealer, but
simply diverted – stolen – for the personal benefit of the con artists.”[5]

In August, 2008 the CFTC set up a special task force to deal with growing foreign
exchange fraud.”

The forex market is a zero-sum game , meaning that whatever one trader gains, another
loses, except that brokerage commissions and other transaction costs are subtracted from
the results of all traders, technically making forex a "negative-sum" game.
These scams might include churning of customer accounts for the purpose of generating
commissions, selling software that is supposed to guide the customer to large profits,
improperly managed "managed accounts", false advertising, Ponzi schemes and outright
fraud. It also refers to any retail forex broker who indicates that trading foreign exchange
is a low risk, high profit investment.

The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the
foreign exchange market in the United States, has noted an increase in the amount of
unscrupulous activity in the non-bank foreign exchange industry.

An official of the National Futures Association was quoted as saying, "Retail forex
trading has increased dramatically over the past few years. Unfortunately, the amount of
forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S.
Commodity Futures Trading Commission has prosecuted more than 80 cases involving
the defrauding of more than 23,000 customers who lost $350 million. From 2001 to 2007,
about 26,000 people lost $460 million in forex frauds. CNN quoted Godfried De Vidts,
President of the Financial Markets Association, a European body, as saying, "Banks have
a duty to protect their customers and they should make sure customers understand what
they are doing. Now if people go online, on non-bank portals, how is this control being
done?"

• Executive compensation: concerns excessive payments made to corporate CEO's

and top management. Executive compensation (also, director remuneration) is
how top executives of business corporations are paid. This includes a basic salary,
bonuses, shares, options and other company benefits for work on the board of
directors. Over the past three decades, director remuneration has risen
dramatically beyond the rising levels of an average worker's wage.

The board of directors is the controlling organ of the company, so responsibility for the
levels of pay for all company employees is ultimately theirs. Pay is just one element in
the wide range of spending and resource allocation decisions by the heads of firms.
Others include investment decisions, which suppliers to use, which business partners to
contract with, how to distribute capital and dividends to shareholders, and so on. While
various committees, or "human resource" departments will usually be delegated the task
of setting pay levels, a particular problem arises for executive compensation. When
responsibility for executive compensation levels is ultimately the executives', there could
be, what management scientists call, significant agency costs.

• Bribery, kickbacks, facilitation payments: while these may be in the (short-term)

interests of the company and its shareholders, these practices may be anti-
competitive or offend against the values of society. Bribery, a form of pecuniary
corruption, is an act usually implying money or gift given that alters the behaviour
of the recipient in ways not consistent with the duties of that person or in breach
of law. Bribery constitutes a crime and is defined by Black's Law Dictionary as
the offering, giving, receiving, or soliciting of any item of value to influence the
actions of an official or other person in discharge of a public or legal duty. The
 bribe is the gift bestowed to influence the recipient's conduct. It may be any
money, good, right in action, property, preferment, privilege, emolument, object
of value, advantage, or merely a promise or undertaking to induce or influence the
action, vote, or influence of a person in an official or public capacity.

One must be careful of differing social and cultural norms when examining bribery.
Expectations of when a monetary transaction is appropriate can differ from place to
place. Tipping, for example, is considered bribery in some societies, while in others the
two concepts may not be interchangeable. In Spanish, bribes are referred to as "mordida"
(literally, "bite"), in Arab countries they are Backshish or Bakshish. However, Bakshish
is more akin to tipping and is socially permissible.

The offence may be divided into two great classes: the one, where a person invested with
power is induced by payment to use it unjustly; the other, where power is obtained by
purchasing the suffrages of those who can impart it. Likewise, the briber might hold a
powerful role and control the transaction; or in other cases, a bribe may be effectively
extracted from the person paying it, although this is better known as extortion.

The forms that bribery take are numerous. For example, a motorist might bribe a police
officer not to issue a ticket for speeding, a citizen seeking paperwork or utility line
connections might bribe a functionary for faster service. In Eugene, Oregon, bribery is an
important aspect of the local SLUG Queen pageant that sets it apart from other pageants.
The Slug Queens set the rare example of creating an environment where bribery is both
accepted and encouraged. The moment a new queen is crowned, the old queens are open
to bribery.

Bribery may also take the form of a secret commission, a profit made by an agent, in the
course of his employment, without the knowledge of his principal. Euphemisms abound
for this (commission, sweetener, back-kick etc.) Bribers and recipients of bribery are
likewise numerous although bribers have one common denominator and that is the
financial ability to bribe.

Bribery around the world is estimated at about $1 trillion (£494bn).[1] The burden of
corruption falls disproportionately on the bottom billion people living in extreme poverty
who cannot afford to pay and who thus receive sub-standard treatment from officials.

Cases: accounting scandals, Enron, WorldCom

Ethics of human resource management
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.

• Discrimination issues include discrimination on the bases of age (ageism),

gender, race, religion, disabilities, weight and attractiveness. See also: affirmative
action, sexual harassment.
• Issues surrounding the representation of employees and the democratization of the
workplace: union busting, strike breaking.
• Issues affecting the privacy of the employee: workplace surveillance, drug testing.
See also: privacy.
• 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: slavery,[4] indentured servitude,
employment law.
• Occupational safety and health.

Ethics of sales and marketing

Main article: marketing ethics

Marketing which goes beyond the mere provision of information about (and access to) a
product may seek to manipulate our values and behavior. To some extent society regards
this as acceptable, but where is the ethical line to be drawn? Marketing ethics overlaps
strongly with media ethics, because marketing makes heavy use of media. However,
media ethics is a much larger topic and extends outside business ethics.

• Pricing: price fixing, price discrimination, price skimming.

• Anti-competitive practices: these include but go beyond pricing tactics to cover
issues such as manipulation of loyalty and supply chains. See: anti-competitive
practices, antitrust law.
• Specific marketing strategies: greenwash, bait and switch, shill, viral marketing,
spam (electronic), pyramid scheme, planned obsolescence.
• Content of advertisements: attack ads, subliminal messages, sex in advertising,
products regarded as immoral or harmful
• Children and marketing: marketing in schools.
• Black markets, grey markets.

See also: memespace, disinformation, advertising techniques, false advertising,

advertising regulation

Cases: Benetton.
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 acceptable risk.

• Defective, addictive and inherently dangerous products and services (e.g. tobacco,
alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).
• Ethical relations between the company and the environment: pollution,
environmental ethics, carbon emissions trading
• Ethical problems arising out of new technologies: genetically modified food,
mobile phone radiation and health.
• Product testing ethics: animal rights and animal testing, use of economically
disadvantaged groups (such as students) as test objects.

See also: product liability

Cases: Ford Pinto scandal, Bhopal disaster, asbestos / asbestos and the law.

Ethics of intellectual property, knowledge and skills

Knowledge and skills are valuable but not easily "ownable" as objects. Nor is it obvious
who has the greater rights to an idea: the company who trained the employee, or the
employee themselves? The country in which the plant grew, or the company which
discovered and developed the plant's medicinal potential? As a result, attempts to assert
ownership and ethical disputes over ownership arise.

• Patent infringement, copyright infringement, trademark infringement.

• Misuse of the intellectual property systems to stifle competition: patent misuse,
copyright misuse, patent troll, submarine patent.
• Even the notion of intellectual property itself has been criticised on ethical
grounds: see intellectual property.
• Employee raiding: the practice of attracting key employees away from a
competitor to take unfair advantage of the knowledge or skills they may possess.
• The practice of employing all the most talented people in a specific field,
regardless of need, in order to prevent any competitors employing them.
• Bioprospecting (ethical) and biopiracy (unethical).
• Business intelligence and industrial espionage.

Cases: private versus public interests in the Human Genome Project

International business ethics and ethics of economic systems

The issues here are grouped together because they involve a much wider, global view on
business ethical matters.

International business ethics

While business ethics emerged as a field in the 1970s, international business ethics did
not emerge until the late 1990s, looking back on the international developments of that
decade. Many new practical issues arose out of the international context of business.
Theoretical issues such as cultural relativity of ethical values receive more emphasis in
this field. Other, older issues can be grouped here as well. Issues and subfields include:

• The search for universal values as a basis for international commercial behaviour.
• Comparison of business ethical traditions in different countries.
• Comparison of business ethical traditions from various religious perspectives.
• Ethical issues arising out of international business transactions; e.g.
bioprospecting and biopiracy in the pharmaceutical industry; the fair trade
movement; transfer pricing.
• Issues such as globalization and cultural imperialism.
• Varying global standards - e.g. the use of child labor.
• The way in which multinationals take advantage of international differences, such
as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-
wage countries.
• The permissibility of international commerce with pariah states.

Corporate governance
Corporate governance is the set of processes, customs, policies, laws and institutions
affecting the way a corporation is directed, administered or controlled. Corporate
governance also includes the relationships among the many stakeholders involved and the
goals for which the corporation is governed. The principal stakeholders are the
shareholders, management and the board of directors. Other stakeholders include
customers, creditors (e.g., banks, bond holders), employees, suppliers, regulators, and the
community at large.

Corporate governance is a multi-faceted subject.[1] An important theme of corporate

governance is to ensure the accountability of certain individuals in an organization
through mechanisms that try to reduce or eliminate the principal-agent problem. A related
but separate thread of discussions focus on the impact of a corporate governance system
in efficiency,with a strong emphasis on shareholders welfare. There are yet other aspects
to the corporate governance subject, such as the stakeholder view and the corporate
governance models around the world (see section 9 below).
Definition

In A Board Culture of Corporate Governance business author Gabrielle O'Donovan

defines corporate governance as 'an internal system encompassing policies, processes and
people, which serves the needs of shareholders and other stakeholders, by directing and
controlling management activities with good business savvy, objectivity and integrity.
Sound corporate governance is reliant on external marketplace commitment and
legislation, plus a healthy board culture which safeguards policies and processes'

Principles

Key elements of good corporate governance principles include honesty, trust and
integrity, openness, performance orientation, responsibility and accountability, mutual
respect, and commitment to the organization.

Of importance is how directors and management develop a model of governance that

aligns the values of the corporate participants and then evaluate this model periodically
for its effectiveness. In particular, senior executives should conduct themselves honestly
and ethically, especially concerning actual or apparent conflicts of interest, and disclosure
in financial reports.

Commonly accepted principles of corporate governance include:

• Rights and equitable treatment of shareholders: Organizations should respect

the rights of shareholders and help shareholders to exercise those rights. They can
help shareholders exercise their rights by effectively communicating information
that is understandable and accessible and encouraging shareholders to participate
in general meetings.
• Interests of other stakeholders: Organizations should recognize that they have
legal and other obligations to all legitimate stakeholders.
• Role and responsibilities of the board: The board needs a range of skills and
understanding to be able to deal with various business issues and have the ability
to review and challenge management performance. It needs to be of sufficient size
and have an appropriate level of commitment to fulfill its responsibilities and
duties. There are issues about the appropriate mix of executive and non-executive
directors. The key roles of chairperson and CEO should not be held by the same
person.
• Integrity and ethical behaviour: Ethical and responsible decision making is not
only important for public relations, but it is also a necessary element in risk
management and avoiding lawsuits. Organizations should develop a code of
conduct for their directors and executives that promotes ethical and responsible
decision making. It is important to understand, though, that reliance by a company
on the integrity and ethics of individuals is bound to eventual failure. Because of
this, many organizations establish Compliance and Ethics Programs to minimize
the risk that the firm steps outside of ethical and legal boundaries.
 • Disclosure and transparency: Organizations should clarify and make publicly
known the roles and responsibilities of board and management to provide
shareholders with a level of accountability. They should also implement
procedures to independently verify and safeguard the integrity of the company's
financial reporting. Disclosure of material matters concerning the organization
should be timely and balanced to ensure that all investors have access to clear,
factual information.

Issues involving corporate governance principles include:

• internal controls and the independence of the entity's auditors

• oversight and management of risk
• oversight of the preparation of the entity's financial statements
• review of the compensation arrangements for the chief executive officer and other
senior executives
• the resources made available to directors in carrying out their duties
• the way in which individuals are nominated for positions on the board

• dividend policy

Nevertheless "corporate governance," despite some feeble attempts from various quarters,
remains an ambiguous and often misunderstood phrase. For quite some time it was
confined only to corporate management. That is not so. It is something much broader, for
it must include a fair, efficient and transparent administration and strive to meet certain
well defined, written objectives. Corporate governance must go well beyond law. The
quantity, quality and frequency of financial and managerial disclosure, the degree and
extent to which the board of Director (BOD) exercise their trustee responsibilities
(largely an ethical commitment), and the commitment to run a transparent organization-
these should be constantly evolving due to interplay of many factors and the roles played
by the more progressive/responsible elements within the corporate sector. In India, a
strident demand for evolving a code of good practices by the corporation, written by each
corporation management, is emerging.[citation needed]

Mechanisms and controls

Corporate governance mechanisms and controls are designed to reduce the inefficiencies
that arise from moral hazard and adverse selection. For example, to monitor managers'
behaviour, an independent third party (the auditor) attests the accuracy of information
provided by management to investors. An ideal control system should regulate both
motivation and ability.

Internal corporate governance controls

Internal corporate governance controls monitor activities and then take corrective action
to accomplish organisational goals. Examples include:
 • Monitoring by the board of directors: The board of directors, with its legal
authority to hire, fire and compensate top management, safeguards invested
capital. Regular board meetings allow potential problems to be identified,
discussed and avoided. Whilst non-executive directors are thought to be more
independent, they may not always result in more effective corporate governance
and may not increase performance.[5] Different board structures are optimal for
different firms. Moreover, the ability of the board to monitor the firm's executives
is a function of its access to information. Executive directors possess superior
knowledge of the decision-making process and therefore evaluate top
management on the basis of the quality of its decisions that lead to financial
performance outcomes, ex ante. It could be argued, therefore, that executive
directors look beyond the financial criteria.
• Balance of power: The simplest balance of power is very common; require that
the President be a different person from the Treasurer. This application of
separation of power is further developed in companies where separate divisions
check and balance each other's actions. One group may propose company-wide
administrative changes, another group review and can veto the changes, and a
third group check that the interests of people (customers, shareholders,
employees) outside the three groups are being met.
• Remuneration: Performance-based remuneration is designed to relate some
proportion of salary to individual performance. It may be in the form of cash or
non-cash payments such as shares and share options, superannuation or other
benefits. Such incentive schemes, however, are reactive in the sense that they
provide no mechanism for preventing mistakes or opportunistic behaviour, and
can elicit myopic behaviour.

External corporate governance controls

External corporate governance controls encompass the controls external stakeholders

exercise over the organisation. Examples include:

• competition
• debt covenants
• demand for and assessment of performance information (especially financial
statements)
• government regulations
• managerial labour market
• media pressure
• takeovers

A corporate stakeholder is a party who affects, or can be affected by, the company's
actions. The stakeholder concept was first used in a 1963 internal memorandum at the
Stanford Research institute. It defined stakeholders as "those groups without whose
support the organization would cease to exist."[1] The theory was later developed and
championed by R. Edward Freeman in the 1980s. Since then it has gained wide
 acceptance in business practice and in theorizing relating to strategic management,
corporate governance, business purpose and corporate social responsibility (CSR).

Stakeholder theory and Stakeholder engagement

•
Unit VI – Globalization and its impact on Business

Globalization (globalisation) in its literal sense is the process of transformation of local

or regional phenomena into global ones. It can be described as a process by which the
people of the world are unified into a single society and function together. This process is
a combination of economic, technological, sociocultural and political forces.
Globalization is often used to refer to economic globalization, that is, integration of
national economies into the international economy through trade, foreign direct
investment, capital flows, migration, and the spread of technology.

Effects of globalization

Globalization has various aspects which affect the world in several different ways such
as:

• Industrial - emergence of worldwide production markets and broader access to a

range of foreign products for consumers and companies. Particularly movement
of material and goods between and within national boundaries.
• Financial - emergence of worldwide financial markets and better access to
external financing for borrowers. Simultaneous though not necessarily purely
globalist is the emergence of under or un-regulated foreign exchange and
speculative markets.
• Economic - realization of a global common market, based on the freedom of
exchange of goods and capital.
• Political - some use "globalization" to mean the creation of a world government,
or cartels of governments (e.g. WTO, World Bank, and IMF) which regulate the
relationships among governments and guarantees the rights arising from social
and economic globalization. Politically, the United States has enjoyed a position
of power among the world powers; in part because of its strong and wealthy
economy. With the influence of globalization and with the help of The United
States’ own economy, the People's Republic of China has experienced some
tremendous growth within the past decade. If China continues to grow at the rate
projected by the trends, then it is very likely that in the next twenty years, there
will be a major reallocation of power among the world leaders. China will have
enough wealth, industry, and technology to rival the United States for the position
of leading world power..
• Informational - increase in information flows between geographically remote
locations. Arguably this is a technological change with the advent of fibre optic
communications, satellites, and increased availability of telephone and Internet.
• Language - the most popular language is English.
o About 75% of the world's mail, telexes, and cables are in English.
o Approximately 60% of the world's radio programs are in English.
o About 90% of all Internet traffic uses English.
• Competition - Survival in the new global business market calls for improved
productivity and increased competition. Due to the market becoming worldwide,
 companies in various industries have to upgrade their products and use
technology skillfully in order to face increased competition.
• Cultural - growth of cross-cultural contacts; advent of new categories of
consciousness and identities which embodies cultural diffusion, the desire to
increase one's standard of living and enjoy foreign products and ideas, adopt new
technology and practices, and participate in a "world culture". Some bemoan the
resulting consumerism and loss of languages. Also see Transformation of culture.
• Ecological- the advent of global environmental challenges that might be solved
with international cooperation, such as climate change, cross-boundary water and
air pollution, over-fishing of the ocean, and the spread of invasive species. Since
many factories are built in developing countries with less environmental
regulation, globalism and free trade may increase pollution. On the other hand,
economic development historically required a "dirty" industrial stage, and it is
argued that developing countries should not, via regulation, be prohibited from
increasing their standard of living.
• Social (International cultural exchange) - increased circulation by people of all
nations with fewer restrictions.
o Spreading of multiculturalism, and better individual access to cultural
diversity (e.g. through the export of Hollywood and Bollywood movies).
Some consider such "imported" culture a danger, since it may supplant the
local culture, causing reduction in diversity or even assimilation. Others
consider multiculturalism to promote peace and understanding between
peoples.
o Greater international travel and tourism
o Greater immigration, including illegal immigration
o Spread of local consumer products (e.g. food) to other countries (often
adapted to their culture).
o Worldwide fads and pop culture such as Pokémon, Sudoku, Numa Numa,
Origami, Idol series, YouTube, Orkut, Facebook, and MySpace.
Accessible to those who have Internet or Television, leaving out a
substantial segment of the Earth's population.
o Worldwide sporting events such as FIFA World Cup and the Olympic
Games.
o Incorporation of multinational corporations in to new media. As the
sponsors of the All-Blacks rugby team, Adidas had created a parallel
website with a downloadable interactive rugby game for its fans to play
and compete. [16]

• Technical
o Development of a global telecommunications infrastructure and greater
transborder data flow, using such technologies as the Internet,
communication satellites, submarine fiber optic cable, and wireless
telephones
o Increase in the number of standards applied globally; e.g. copyright laws,
patents and world trade agreements.
 • Legal/Ethical
o The creation of the international criminal court and international justice
movements.
o Crime importation and raising awareness of global crime-fighting efforts
and cooperation.

Whilst it is all too easy to look at the positive aspects of Globalization and the great
benefits that are apparent everywhere, there are also several negative occurrences that can
only be the result of or major motivating factors that inspire some corporations to
globalize.

Globalization – the growing integration of economies and societies around the world –
has been one of the most hotly-debated topics in international economics over the past
few years. Rapid growth and poverty reduction in China, India, and other countries that
were poor 20 years ago, has been a positive aspect of globalization. But globalization has
also generated significant international opposition over concerns that it has increased
inequality and environmental degradation.

Business

Globalization has had extensive impact on the world of business. In a business

environment marked by globalization, the world seems to shrink, and other businesses
halfway around the world can exert as great an impact on a business as one right down
the street. Internet access and e-commerce have brought small-scale coops in Third
World nations into the same arena as thriving businesses in the industrialized world, and
visions of low-income workers handweaving rugs on primitive looms that compete with
rug dealers in major cities are not totally far-fetched.

Globalization has affected workforce demographics, as well. Today's workforces are

characterized by greater diversity in terms of age, gender, ethnic and racial background,
and a variety of other demographic factors. In fact, management of diversity has become
one of the primary issues of 21st-century business.

Trends such as outsourcing and offshoring are a direct offshoot of globalization and have
created a work environment in which cultural diversity can be problematic. A U.S.
company where punctuality is important and meetings always start on time faces
adjustments if it opens an office in South America or France, where being 10 to 15
minutes late to a meeting is considered acceptable: being on time is called 'British
Time'[18]
Sweatshops

It can be said that globalization is the door that opens up an otherwise resource poor
country to the international market. Where a country or nation has little material or
physical product harvested or mined from its own soil, an opportunity is seen by large
corporations to take advantage of the “export poverty” of such a nation. Where the
majority of the earliest occurrences of economic globalization are recorded as being the
expansion of businesses and corporate growth, in many poorer nations globalization is
actually the result of the foreign businesses investing in the country to take advantage of
the lower wage rate: even though investing, by increasing the Capital Stock of the
country, increases their wage rate.

One example used by anti-globalization protestors is the use of “Sweatshops” by

manufacturers. According to Global Exchange these “Sweat Shops” are widely used by
sports shoe manufacturers and mentions one company in particular – Nike.[19] There are
factories set up in the poor countries where employees agree to work for low wages. Then
if labour laws alter in those countries and stricter rules govern the manufacturing process
the factories are closed down and relocated to other nations with more liberal economic
policies.[citation needed]

There are several agencies that have been set up worldwide specifically designed to focus
on anti-sweatshop campaigns and education of such. “The Decent Working Conditions
and Fair Competition Act” is a legislation passed by the National Labor Committee in the
USA. The legislation now suggests that companies are legally obligated to respect human
and worker rights by prohibiting the import, sale, or export of sweatshop goods . There
are very strict standards set out by the International Labor Organization and any
violations shall be banned from the US market.

Specifically, these core standards include no child labor, no forced labor, freedom of
association, right to organize and bargain collectively, as well as the right to decent
working conditions. [20]

Tiziana Terranova has stated that globalization has brought a culture of "free labour". In a
digital sense, it is where the individuals (contributing capital) exploits and eventually
"exhausts the means through which labour can sustain itself". For example, in the area of
digital media (animations, hosting chat rooms, designing games), where it is often less
glamourous than it may sound. In the gaming industry, a Chinese Gold Market has been
established. [21]
Culture

One powerful source has blown down cultural boundaries around the entire world. What
is this influential tool? It is the Internet and its endless margin of discovery. With the
Internet people can easily access someone half way across the world. They could
converse with someone living a completely different lifestyle yet still have something in
common, the Internet. If language is a barrier then a website like Flickr, a photo sharing
site, lets people from Singapore and Germany alike communicate without words. The
Internet in essence makes the world a smaller place. Someone in America can be eating
Japanese noodles for lunch while someone in Sydney Australia is eating classic Italian
meatballs. One classic culture aspect is food. India is known for their curry and exotic
spices. Paris is known for its smelly cheeses. America is known for its burgers and fries.
McDonalds was once an American favorite with its cheery mascot, Ronald, red and
yellow theme, and greasy fast food. Now it is a global enterprise with 31,000 locations
worldwide with locations in Kuwait, Egypt, and Malta. This restaurant is just one
example of food going big on the global scale. Meditation has been a sacred practice for
centuries in Indian culture. It calms the body and helps one connect to their inner being
while shying away from their conditioned self. Before globalization Americans did not
meditate or crunch their bodies into knots on a yoga mat. After globalization this is a
common practice, it is even considered a chic way to keep your body in shape. Some
people are even traveling to India to get the full experience themselves. Another common
practice brought about by globalization would be Chinese symbol tattoos. These specific
tattoos are a huge hit with today’s younger generation and are quickly becoming the
norm. With the melding of cultures using another countries language in ones body art is
now considered normal. Culture is defined as patterns of human activity and the symbols
that give these activities significance. Culture is what people eat, how they dress, beliefs
they hold, and activities they practice. Globalization has joined different cultures and
made it into something different. As Erla Zwingle, from the National Geographic article
titled “Globalization” states, “When cultures receive outside influences, they ignore some
and adopt others, and then almost immediately start to transform them.” [22]
TQM Definition

TQM is composed of three paradigms:

• Total: Involving the entire organization, supply chain, and/or product life cycle
• Quality: With its usual definitions, with all its complexities [1]
• Management: The system of managing with steps like Plan, Organize, Control,
Lead, Staff, provisioning and organizing[citation needed].

As defined by the International Organization for Standardization (ISO):

"TQM is a management approach for an organization, centered on quality, based

on the participation of all its members and aiming at long-term success through
customer satisfaction, and benefits to all members of the organization and to
society."

The FDA has identified in the QS regulation the essential elements that a quality system
shall embody for design, production and distribution, without prescribing specific ways
to establish these elements. These elements include:

Quality System

• personnel training and qualification;

• controlling the product design;
• controlling documentation;
• controlling purchasing;
• product identification and traceability at all stages of production;
• controlling and defining production and process;
• defining and controlling inspection, measuring and test equipment;
• validating processes;
• product acceptance;
• controlling nonconforming product;
• instituting corrective and preventive action when errors occur;
• labeling and packaging controls;
• handling, storage, distribution and installation;
• records;
• servicing;
• statistical techniques;

all overseen by Management Responsibility and Quality Audits.

Stress Management
Stress management is the need of the hour. However hard we try to go beyond a stress
situation, life seems to find new ways of stressing us out and plaguing us with anxiety
attacks. Moreover, be it our anxiety, mind-body exhaustion or our erring attitudes, we
tend to overlook causes of stress and the conditions triggered by those. In such unsettling
moments we often forget that stressors, if not escapable, are fairly manageable and
treatable.

Stress, either quick or constant, can induce risky body-mind disorders. Immediate
disorders such as dizzy spells, anxiety attacks, tension, sleeplessness, nervousness and
muscle cramps can all result in chronic health problems. They may also affect our
immune, cardiovascular and nervous systems and lead individuals to habitual addictions,
which are inter-linked with stress.

Like "stress reactions", "relaxation responses" and stress management techniques are
some of the body's important built-in response systems. As a relaxation response the
body tries to get back balance in its homeostasis. Some hormones released during the
'fight or flight' situation prompt the body to replace the lost carbohydrates and fats, and
restore the energy level. The knotted nerves, tightened muscles and an exhausted mind
crave for looseners. Unfortunately, today, we don't get relaxing and soothing situations
without asking. To be relaxed we have to strive to create such situations.

Crisis of excessive Government Control

India continues to pay the price for not undertaking fundamental monetary policy reform.
The mess that we are in is a reflection of an inconsistent monetary policy framework.
Merely raising rates will not solve the problem. The way forward lies in breaking the
INR/USD peg, as was done in early 2007, and having a 10% rupee appreciation.

When inflation spikes, the single focus of the government becomes controlling inflation.
This is not how mature market economies work. In all mature market economies, the task
of controlling inflation - and only the task of controlling inflation - is placed with the
central bank. In mature market economies, inflation crises do not arise, because the full
power of monetary policy is devoted to this one task.

In their depths of anguish from dealing with this inflation crisis, the Prime Minister and
the Finance Minister should channel their attention to RBI reforms. We are suffering
from these problems because of the blunders of monetary policy. The possibility of such
blunders needs to be eliminated by rewriting the RBI Act. The text of this Act is
completely wrong in the light of the monetary economics that we know today. With a
sound monetary policy framework, inflation would be stabilised, inflation crises like this
would not periodically hijack the government, and distortionary short-sighted initiatives
such as banning exports of certain goods would not arise.

India is in a big mess on monetary policy. The attempt that is underway consists of
pegging the rupee to the dollar at a time when the dollar has dropped sharply. Dollar
prices of many commodities have risen since producers do not like being short-changed
with the same number of dollars. Holding Rs.40 a dollar intact, the global increase in
commodity prices has been imported into India.

With increasing de facto convertibility, pegging the exchange rate to the US dollar leads
to pressure to adopt the monetary policy of the US. The US has cut rates sharply. A
massive interest rate differential has built up, and inspired a flourishing "dollar carry
trade" involving borrowing in the US and bringing money into India. RBI has been
swamped with capital flows owing to this interest rate differential.

In fighting to implement the pegged exchange rate, RBI has done market manipulation on
a massive and unprecedented scale on both the spot and forward markets. The fiscal costs
of this are rapidly building up. In a grim dogfight with the private sector, RBI artificially
engineered a rupee depreciation, from Rs.39.12 on 1 Feb to Rs.40.46 on 17 March, in
trying to break expectations of a one-way bet on the rupee. This is one of the factors
which has helped to drive up inflation.

What is to be done? Raising interest rates while leaving the exchange rate regime intact is
a poor answer for three reasons:

1. The US 90-day rate is 1.28% and the Indian 90-day rate is 7%. With this massive
interest rate differential, RBI's currency trading in January alone was over $20
billion! If this is done for a year, we will add $240 billion to reserves and start
suffering an interest cost on MSS of over 2% of GDP. The bigger the interest rate
differential, the bigger the pressure of capital inflows will be.
2. Further, a perceptible slowdown in the world economy is visible. To a smaller
extent, a slowdown is visible in India also. This is not a good time to raise rates.
3. Finally, the impact of interest rates on inflation is slow and remote. Owing to
policy blunders, we lack the bond-currency-derivatives nexus, the system of
financial markets through which interest rate decisions by a central bank at the
short-term rate are propagated into all interest rates in the economy. RBI's
strategy of preventing sophisticated finance whereever it can has yielded
ineffectiveness of RBI.

The answer is to be found in not tinkering with the existing policy framework but
questioning it. The existing stance of monetary policy is ultimately inconsistent because
it engenders inflation that Parliament will not tolerate. The key element of the policy that
has to break is the rupee-dollar peg at Rs.40 per dollar.
 The right combination of
policy for the short-term involves:

1. An appreciation to Rs.36 per dollar with

2. A reduction in the short rate to 4%.

This would simultaneously hit at all the problems that we face today. A 10% rupee
appreciation would yield a nice dent on inflation, as happened in March 2007 (see graph).
By reducing the mispricing of the rupee, it would reduce pressure from capital flows. In
addition, a 300 bps reduction in interest rates would reduce the flow of money coming
into the country seeking interest rate arbitrage. To the small extent that the monetary
transmission does work, this rate cut would help bolster the economy in what appears to
be shaping up as a difficult time.

This combination of policies - a stronger rupee, lower rates, lower inflation - would
restore the balance of a consistent monetary policy framework.

Who would gain and who would lose? The broad population would benefit from lower
inflation. Exporters would suffer owing to a stronger rupee. But as we saw in 2007, the
impact of the exchange rate on the WPI is sharp and visible. Exports were unaffected
despite a slowing world economy: Gross earnings on the current account grew by 19% in
the June quarter, 23% in the September quarter and 33% in the December quarter.
Compare these against the values of 27%, 29% and 24% for the three quarters before the
rupee appreciation and the world economic slowdown.

The political economy of an exchange rate appreciation is much like that of cutting
customs duties. The beneficiaries of cutting customs duties are diffused and widespread.
The losers are focused and engage in lobbying. Just as India found the political resources
to cut customs duties despite this lobbying, the same must now be done with rupee
appreciation.

Such political contests are, of course, highly distressing. The long-term answer lies in
depoliticising the rupee-dollar market by focusing the central bank on inflation and
getting it out of currency manipulation. An immature market economy is one where the
exchange rate is stable, and where inflation and GDP growth are unstable. A mature
market economy is one where inflation and GDP growth are stable, and the exchange rate
is unstable. Getting there requires rewriting the RBI Act.

New Values in Indian Industries after Economic Reforms of 1991

No single person is indispensable. It is important that you give challenging

engagements to deserving people, whether they are young or new in the organization.
Youth and empowerment are the keys to scalability and longevity.

Every situation is what you make it to be. Confidence is half the battle, and leadership is
making the impossible look possible. Speed, imagination and excellence in execution
are the only three context-invariant and time-invariant attributes for success.

The trust of employees is the most important ingredient for successful leadership. To
gain the trust of people, there is no more powerful leadership style than leadership by
example. The world respects performance and action, not rhetoric.

***

All the best for exams