Section-I

Systems thinking:

 Systems Thinking is any process of estimating or inferring how local policies,

actions, or changes influences the state of the neighboring universe. It is an
approach to problem solving that views "problems" as parts of an overall system,
rather than reacting to present outcomes or events and potentially contributing to
further development of the undesired issue or problem.

 Systems thinking is a framework that is based on the belief that the component
parts of a system can best be understood in the context of relationships with
each other and with other systems, rather than in isolation. The only way to fully
understand why a problem or element occurs and persists is to understand the
part in relation to the whole.

 Standing in contrast to Descartes's scientific reductionism and philosophical

analysis, it proposes to view systems in a holistic manner. Consistent with
systems philosophy, systems thinking concerns an understanding of a system by
examining the linkages and interactions between the elements that compose the
entirety of the system.

 Systems thinking attempts to illustrate that events are separated by distance and
time and that small catalytic events can cause large changes in complex
systems. Acknowledging that an improvement in one area of a system can
adversely affect another area of the system, it promotes organizational
communication at all levels in order to avoid the silo effect. Systems thinking
techniques may be used to study any kind of system — natural, scientific,
engineered, human, or conceptual.

The concept of a system:

Both systems thinkers and futurists consider that:

 a "system" is a dynamic and complex whole, interacting as a structured

functional unit;
 Energy, material and information flow among the different elements that
compose the system;
 a system is a community situated within an environment;
 energy, material and information flow from and to the surrounding environment
via semi-permeable membranes or boundaries
 systems are often composed of entities seeking equilibrium but can exhibit
oscillating, chaotic, or exponential behavior.
 A holistic system is any set (group) of interdependent or temporally interacting
parts. Parts are generally systems themselves and are composed of other parts,
just as systems are generally parts or holons of other systems.

The systems approach:

The Systems thinking approach incorporates several tenets:

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  Interdependence of objects and their attributes - independent elements can
never constitute a system
 Holism - emergent properties not possible to detect by analysis should be
possible to define by a holistic approach
 Goal seeking - systemic interaction must result in some goal or final state
 Inputs and Outputs - in a closed system inputs are determined once and
constant; in an open system additional inputs are admitted from the environment
 Transformation of inputs into outputs - this is the process by which the goals
are obtained
 Entropy - the amount of disorder or randomness present in any system
 Regulation - a method of feedback is necessary for the system to operate
predictably
 Hierarchy - complex wholes are made up of smaller subsystems
 Differentiation - specialized units perform specialized functions
 Equifinality - alternative ways of attaining the same objectives (convergence)
 Multifinality - attaining alternative objectives from the same inputs (divergence)

ENVIRONMENT INTERFACE AND ANALYSIS

1. Outer environment (macro environment)

There are some factors in the lives of organizations that affect them, but they don‘t have
any control over them (much like in our own life). We can define three major areas, but
these are just the large groups, they just give a general outline.

Political-legal environment:
The effects of this are quite visible. Just think of the effect of changing taxes, or raising
interest rates. If the legal system, pushed by politics lowers he acceptable emission
rates, companies may have to invest in new equipment or close down.

Technological state (R+D):

Technology can bring millions to one company and take millions from another.
Organizations on the frontier usually experience a boom, with many following, but some
rivals may go bankrupt. A good manager has to be aware of change and embrace
technology to gain an edge on competition.

Social-Cultural environment
This is a very important but also very diverse category. Think of a company in China and
a company in Hungary. A Hungarian company only has to produce for a potential market
of about 10 million. A Chinese company has a potential market of 1.3 billion., which is
130 times as much! That alone is a huge difference, and we haven‘t even touched
cultural differences. For example in India, McDonalds probably wont sell any
hamburgers made from beef because they don‘t eat that there. A manager has to keep
all these in mind when leading an organization!

2. Outer microenvironment

2
This is the environment that an organization can influence. It may not be able to correct
all flaws in the microenvironment, but it has a much better control over it than the macro
environment. The microenvironment consists of seven larger parts:

Employees
Organizations have to find the right people for each job. This means finding some highly
specialized people and generally trained workers. Organizations are limited by their
money supply and the constraints of the general workforce.

Owners and the board

The investment mood is a primary question for every organization. A positive mood
means funds, while a negative mood means extra costs. It is important that the owners
are satisfied with the company, but this doesn‘t always mean large profits have to be
shown all the time. Many companies can choose between keeping profits and investing
them. It is the manager‘s job to balance the aims if the company and the owners
(although many times this can be the same).

Consumers
Another important goal of the company is to keep the consumers happy. Today,
competition is so large that for every product, there are ten of the same, but different
brands. Organizations recognize that it is in their own interest to keep consumers happy.

Contractors
The inputs of organizations are supplied by its contractors. Depending on size the
contractors may race to keep the organizations happy, but it may happen vice-versa.
The main objective here is sustaining a well oiled input supply system.

Competition
Competition, or rather the observation of it, is important if the company wants to keep its
position on the market. It is also possible for organizations to buy a part of their
competition, or they can try to outsmart them.

Financial organizations
Their effect is possibly the most visible. For example, the exchange rate difference
between two banks could mean millions of extra loss or profit. Their guarantee may be
needed for large projects, but aside all that, the most important thing is that they insure
functionality day to day.

The government
Governments may have a direct or indirect effect. They may subsidize, giving money
directly to the organizations. They can also give extra tax-refunds or they may punish
unlawful behavior

3. BUSINESS AS INTERNAL ENVIRONMENT SYSTEM:

A business system at the organizational level is a dynamic evolutionary entity because it

operates in a more dynamic business environment. It behaves as an open but complex
system which gets resources from the environment and supplies its services to the
environment. There are different layers of environmental interactions- some are close
and internal in nature whereas others are external entities. External forces may go
beyond national to regional to international to universal levels. These external
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environmental forces provide opportunities or threats to the business operations. Every
business unit tends to grasp the available opportunities and face the threats that emerge
from the surrounding business environment.

I. Inputs

Business system inputs involve primarily Land, Labor, Capital, as well as Management.
These contribute to the structuring of the business and are involved in movements
across the business's boundary. Structural arrangements and processes must be
created to receive and deal with such inputs, determining which are important and how
they should be tackled.

The inputs for business can be broadly represented by:

 Entrepreneurial thought
 Capital
 Market information
 Technology (tools, machines, methods)
 HR Capabilities

II. Conversion/ Transformation Processes

4
Transformation Processes are system arrangements and mechanisms - human and
technical - which are designed and implemented to realise the business's purposes.
They may be

 Functional/ Transformational
 Information-based,
 Service based
 Regulative and control-oriented.

Inputs are processed (transformed) to produce outputs (Goods, Services, Profits, Image,
Result) which others within the system or external to the system appreciate and value.
Thus we may seek to study the decision-making and creative processes of a business
organisation of performing transformation.

III. Outputs

System outputs result from the internal operational and transformational processes of
the organization. The outputs may be

 Physical and Non-physical (goods, services, profits, image etc.) or

may also be -
 Conceptual (Ideas, influences, information-based outputs)

These outputs flow from the business into the external environment where they are
received by concerned "stakeholders". Within an organizational system and sub-
systems, the outputs from one sub-system e.g. production become the inputs to another
e.g. marketing and sales.

3.2. BUSINESS AS EXTERNAL SYSTEM:

NOW, In order to achieve business Integration, management must not only conceive of
any business as a internal ‗system‘ but more as ‗external system‘ that coordinates the
components of the external environmental system (Social, Technological,
Demographics, International, Natural etc.) with that of the Internal business systems
(Internal processes, resources and strategies). Once such system integration is
accomplished, one can rest assured of sailing smoothly along and amidst the dynamic
changes of business environment. Hence, there is a greater need of looking at
‗Business‘ or for that matter any socio-economic system from a systems-perspective. As
it can be easily realized that improving the efficiency of individual components such as
material inputs, conversion process or even external variables is useless if the efficiency
of the individual function throws the total system out of balance. The systems thinking
thus helps decision makers to take holistic view of the business problem and situation in
order to arrive at effective set of probable solutions.

Three Levels of Organizational Environment

In order to perform an environmental analysis, one must thoroughly understand how
organizational environments are structured. For purposes of environmental analysis, one
can divide the environment of the organization into three distinct levels: Internal
environment, operating environment (Micro), and general environment (Macro).

5
  The internal environment consists of organizational strategies, resources (HR,
Capital, Technological, marketing etc.) , policies and structure.
 The micro environment consists of different types of stakeholders - customers,
suppliers, creditors, Intermediaries, Media, Social groups, competitors .
 The macro environment consists of factors which are beyond the control of the
business STEP – (Social, Technological, Economical and Political),
demographical, natural, international.

Changes in the micro environment will directly affect and impinge on the firm's activities.
Changes in the macro environment will indirectly affect the business but will nonetheless
affect it. For example, a change in legislation such as the smoking ban indirectly affects
pubs and restaurants.

This form of environmental analysis looks at the external or macro business

environment. It helps in examining the impact of each of these factors (and their
interplay with each other) on the business operation and policy making institutions. The
resultant insight would facilitate taking advantage of opportunities and to make apt
decisions for mounting threats while preparing business and strategic plans of short,
medium and short term.

These factors don't operate in a vacuum, and many structural changes in business result
from changes in the nature and direction of these environmental variables. For instance,
although trade policies are generally decided by the legal-political establishment of a
country, they also can be viewed though the prism of socio-cultural, technological and
economic considerations prevailing in a country. Like in the case of European Union,
though it appears to be a political decision on the face of it and basically the political
leadership of those 16 nations (Euro is the single currency shared by (currently) 16 of
the European Union's Member States, which together make up the euro area) drove the
introduction of the euro currency but the impacts include economic factors: cross-border
pricing, European interest rates, bank charges, price transparency and so on. Other
economic factors include exchange rates, inflation levels, income growth, debt & saving
levels and consumer & business confidence.

The social angle is that Euro is the currency of the 329 million people who spread across
the 16 euro-area countries and it also makes very good economic and political sense.
The framework under which the euro is managed makes it a stable currency with low
inflation and low interest rates, and encourages sound public finances. A single currency
is also a viable complement to the single market which makes it more efficient. Using a
single currency increases price transparency, eliminates currency exchange costs, oils
the wheels of the European economy, facilitates international trade and gives the EU
government and people a more powerful voice in the world stage. The size and strength
of the euro area with all its regilatory agencies, people and econoic enterprises also
better protect it from external shocks, such as oil price crisis, political uncertainty, social
security or other such turbulence in the world markets. It gives the entire Europe a
tangible and intangible symbole of their european indentity of which they can be
incresingly proud of.

The Macro Environment- Matrix

Macro environmental scanning thus, involves analyzing:

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  Economic  Technological
o GDP/ PCI- per capita income o Innovation
o Economic growth o Acquisition & Absorption
o inflation rate (CPI, WPI) o Transfer of Technology/
o Flow of capital Diffusion
o Exchange rates o Industrial productivity
o Trade policy o Manufacturing processes
o Industrial Policy o New products and services
o Global Trends

 Political-Legal  Socio-Cultural
o Political climate o Demographic factors
o Forms of Government o Materialism/ Individualism
o Political stability and risk o Role of Family
 Legal o Religion
o laws o Language
o Regulatory Mechanism o Social class and Structures
o Legal Activism o Custom & Value system

Natural/ Ecological

o Natural resources
o Ecological Health and Balance
o Global Conventions & Programs

3.3. P-E-S-T-N Interface:

Set of these environmental factors is mostly referred by five major factors Political-legal,
Economic, Socio-cultural, Natural and Technological. This is on account of the
pervasiveness of the global impact which directly affects these four sectors more than
any other. Fast paced technological innovation, evolution of developing economies,
growing dominance and spread of multinational companies and aggressive global and
regional trading alliances have made the world business a global trend. In this way,
effect of international environment in the selective four major components of general
environmental factors is natural.

The organization is a productive system. It interacts with its environment, drawing certain
inputs from the environment and converting these to outputs that are offered to the
environment. The attainment of its preferred state is dependent on the efficiency with
which the firm carries out this production process.

In order to analyze a system it is necessary to establish the relationships between the

system and its environment. The organization's environment is itself a higher order

7
system composed of its own subsystems. The five major subsystems in the environment
are

1. Economic system;
2. Technological system;
3. Socio-cultural system;
4. Politico-legal system.
5. Natural/ Ecological System

The influence of these major factors must be taken into account when studying the
intrinsic and extrinsic dynamics of business environment.

At the individual organizational level, in order to cope with the environment in and
around, the firm must therefore be able to cope with the dynamics the economic system
which defines the functionality of its procurement and marketing of economic resources
or capabilities. To acquire technical capability, a firm should concentrates primarily on
the transformation processes and hence, interact with the technological system of the
environment. It has to then, interacts with the socio-cultural system to decide about the
issues concerning personnel and public relations function of the firm. For the purposes
of internal-external control and regulations, it also interacts with the politico-legal system.
And, very importantly, particularly in the current context of global climatic crisis, a firm
must be responsive and sensitized enough to meet out and mitigate the challenges
posed by the natural environment.

It must be reiterated here that although in the popular press, the environmental scanning
usually refers just to the macro environment, but it can also include market, industry and
competitor analysis, consumer analysis, product innovations, and the company's internal
environment. Scanning these macro environmental variables for threats and
opportunities requires that each issue be rated on two dimensions.

Section-II

Business: Conversion Process (A Systemic Approach)

__________________External Environemnt & Influences____________________________

8
In order to achieve business Integration, management must conceive of any business as a ‗system‘ that
coordinates the components of the external environmental system (Social, Technological, Demographics,
International, Natural etc.) with that of the Internal business systems (Internal processes, resources and
strategies). Once such system integration is accomplished, one can rest assured of sailing smoothly along
and amidst the dynamic changes of business environment. Hence, there is a greater need of looking at
‗Business‘ or for that matter any socio-economic system from a systems-perspective. As it can be easily
realized that improving the efficiency of individual components such as material inputs, conversion process
or even external variables is useless if the efficiency of the individual function throws the total system out of
balance. The systems thinking thus helps decision makers to take holistic view of the business problem and
situation in order to arrive at effective set of probable solutions.

Business Environment:

An environment can be defined as anything which surrounds a system. Therefore, the business
environment is anything which surrounds the business organisation or business system. It affects
the decisions, strategies, processes and performance of the business.

Environmental analysis is the study of the organizational environment to pinpoint environmental

factors that can significantly influence organizational operations.1

Why Environmental Analysis?

Environmental analysis will help understand what is happening both inside and outside an
organization and to increase the probability that the organizational strategies developed will
appropriately reflect your organizational environment.

Three Levels of Organizational Environment

In order to perform an environmental analysis, one must thoroughly understand how

organizational environments are structured. For purposes of environmental analysis, one can
divide the environment of the organization into three distinct levels: Internal environment,
operating environment (Micro), and general environment (Macro).

 The internal environment consists of organisational strategies, resources (HR, Capital,

Technological, marketing etc.) , policies and structure.
 The micro environment consists of different types of stakeholders - customers, suppliers,
creditors, Intermediaries, Media, Social groups, competitors .

9
  The macro environment consists of factors which are beyond the control of the business
STEP – (Social, Technological, Economical and Political), demographical, natural,
international.

Changes in the micro environment will directly affect and impinge on the firm's activities. Changes
in the macro environment will indirectly affect the business but will nonetheless affect it. For
example, a change in legislation such as the smoking ban indirectly affects pubs and restaurants.

Environmental scanning:
Environmental scanning is a concept from business management by which businesses gather
information from the environment, to better achieve a sustainable competitive advantage. To
sustain competitive advantage the company must also respond to the information gathered from
environmental scanning by altering its strategies and plans when the need arises.
There are three ways of scanning the business environment:

 Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis

 Periodic scanning - Studies done on a regular schedule (say, once a year)
 Continuous scanning - (also called continuous learning) - continuous structured data
collection and processing on a broad range of environmental factors

Most commentators feel that in today's turbulent business environment the best scanning method
available is continuous [Link] allows the firm to act quickly, take advantage of
opportunities before competitors do, and respond to environmental threats before significant
damage is done.
Process:

Major Scanning Techniques:

 Interpretive structural scanning

 DELPHI
 Morphological analysis
 Scenario Building
 Modeling & Simulation

 The Delphi method is a very popular technique used in Futures Studies. It was developed
by Gordon and Helmer in 1953 at RAND. It can be defined as a method for structuring a
group communication process, so that the process is effective in allowing a group of
individuals, as a whole, to deal with a complex [Link] uses the iterative, independent
questioning of a panel of experts to assess the timing, probability, significance and
implications of factors, trends and events in the relation to the problem being considered.

10
 Panelists are not brought together but individually questioned in rounds. After the initial
round, the panelists are given lists of anonymous answers from other panelists which
they can use to refine their own views.
 Morphological analysis is a technique developed by Fritz Zwicky (1966, 1969) for exploring
all the possible solutions to a multi-dimensional, non-quantified problem complex. As a
problem structuring and problem solving technique, morphological analysis was designed
for multi-dimensional, non-quantifiable problems where causal modeling and simulation
do not function well or at all. Zwicky developed this approach to address seemingly non-
reducible complexity. Using the technique of cross consistency assessment (CCA), the
system however does allow reducing the number of possible solutions through the
elimination of the illogical solution combinations in a grid box. The technique involves
mapping options in order to attain an overall perspective of possible solutions. A Fish
bone diagram could be cited here as a method to arrive to key problem-solutions or
cause-effects.
 Scenarios are one of the most popular and persuasive methods used in the Futures
Studies. Government planners, corporate strategists and military analysts use them in
order to aid decision-making. The term scenario was introduced into planning and
decision-making by Herman Kahn in connection with military and strategic studies done
by RAND in the 1950s. It can be defined as a rich and detailed portrait of a plausible
future world, one sufficiently vivid that a planner can clearly see and comprehend the
problems, challenges and opportunities that such an environment would present. A
scenario is not a specific forecast of the future, but a plausible description of what might
happen. Scenarios are like stories built around carefully constructed plots based on
trends and events. They assist in selection of strategies, identification of possible futures,
making people aware of uncertainties and opening up their imagination and initiating
learning processes. One of the key strengths of the scenario process is its influence on
the way of thinking of its participants. A mindset, in which the focus is placed on one
possible future, is altered towards the balanced thinking about a number of possible
alternative futures.
 Simulation and modelling are computer-based tools developed to represent reality. They
are widely used to analyse behaviours and to understand processes. Models allow
demonstration of past changes as well as the examination of various transformations and
their impact on each other and other considered factors. They can help to understand the
connections between factors and events and to examine their dynamics. Simulation is a
process that represents a structure and change of a system. In simulation some aspects
of reality are duplicated or reproduced, usually within the model. The main purpose of
simulation is to discern what would really happen in the real world if certain conditions,
imitated by the model, developed. Although modelling and simulation became even more
popular with the development of computing technology, application of these techniques
have certain limits. Models represent a simplification of a system that is being examined;
therefore the results need to be carefully considered. As the complexity of real systems
increases models need to be more and more complex to represent the reality most
accurately. In result, they may become increasingly difficult to understand and to be
operated. Their complex nature can cause problems with using and managing results.

 Application of systems science in business has lately emerged as an exciting area of applied
research. It has been an exercise which mainly aims to study the asymptotic behavior of complex
business systems. One of the branches of applied system science through formal modeling and
simulation is ―System Dynamics‖. This approach lies in modeling complex real world systems as
flow rates and accumulations linked by information feedback loops involving delays and non-
linear relationships. System Dynamics modeling and simulation as a decision-support tool, allows
managers to mathematically try out various options to see how they might play out over time, and
test the sensitivity of results to changes in key variables. For a business decision maker, the goal
is to leverage this added understanding to design and implement more efficient business
processes and policies.

11
  On the other hand, in the area of soft computation based dynamic modeling researches, artificial
neural network-popularly coined as ANN or NN (Neural Nets) has also emerged as a
computational model based on biological neural network. Also referred as Neuromorphic
systems, artificial neural networks (ANNs) are an attempt at mimicking the patterns of the human
mind. An artificial neuron is simply an electronically modeled biological neuron (Figure 1) and the
framework of ANN consists of an interconnected group of such artificial neurons that processes
information using a connectionist approach to computation.


 Figure 1: Artificial Neuron

 Soft computational neural research has set to be an expanding and interdisciplinary field bringing
together mathematicians, physicists, neurobiologists, brain scientists, engineers, computer
scientists and quite lately so, business analysts. Seldom has a field of study coalesced from so
much individual expertise, bringing a tremendous momentum to neural network research and
creating many challenges.

Business System Dynamics:

System dynamics can take credit for being the first branch of mathematical research that can effectively
investigate complex and non-linear business scenarios and suggest solution optimization. Its tools prove to
be a powerful, yet simple and cost-effective methodology for developing deep insights in the working of
various kinds of systems and providing management flight simulators for policy design and process-
integration based on the optimum solutions generated through the calibrated computer models. The
purpose of modeling and simulation is to mimic any business system under study so that its future behavior
can be understood and controlled in the desired direction and since nonlinear dynamical systems do not
have exact analytical solutions, their behavior can only be determined through simulation.

Most modern-day system dynamics software packages allow a system dynamicist to create a model by
placing icons (stocks, flows, feedback links, etc.) on an electronic piece of paper displayed on a computer
screen, and connecting them together with the computer‘s mouse. While this is occurring, the software
automatically generates equations that correspond directly to each of the icons. The stock icon in the
following figure, for example, corresponds directly to a mathematical equation that tells a computer how to
calculate the amount that has flowed into it during a particular period of time.

STOCK

INFLOW

Figure 3: A Typical SD-Construct

In general terms, this equation is: Stockt = Stock(t-DT) + DT * Flow(t-DT) -> t

System dynamics construct of Innovation dynamics:

12
In the present work, dynamic and interactional relationships have been traced in the form of innovation
system variables in order to first construct a system dynamics model with the intent to generate simulation
results for their later integration with appropriate neural architect.

Now, looking at the complexity and the inherent dynamics of industrial innovation process, decision
making in managing innovation in a corporate entity is fairly tough and challenging. In addition to
numerous interactions with the exogenous environmental variables, the complexity gets compounded
once we interrelate various internal or local variables pertaining to product or process innovations in a
company. In the present study, various system variables have been identified and classified with respect
to their nature and pattern of influence that they exert over other variables of an innovation system (Table
1). The subsequent stock-flow diagram has been constructed using system dynamics framework
(inclusive of feedback loops with varying polarity) to reflect their interdependencies and impact dynamism.
Further, a simulation graph has been generated over a dynamic time-track of 25 years based on the
mathematically defined interrelations. This gives out the first impression into the dynamic consequences
of decision-actions in managing innovation and allows testing different innovation strategies under an
alterable decision-pretext.

Table 1: Stock-Flow variables

Stock Flow
 Innovation (INNOV)  Development (DEV)
 Organization Resources (RES)  Abandonment (ABND)
 Development rate (DR)
 Decline rate (DCR)
 Resources per team(RPT)

The following model (Figure 8) basically explores how an organization develops (DEV) and abandons
(ABND) innovations at varying rates of development (DR) and Decline (DEC) by consuming vital
organizational resources deployed to the organizational innovation teams (RPT).

INNOVATION

INNOV
DEV ABND
+ + -
+
+

RESOURCES
- - ~
DR DEC

RPT

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 Figure 8: Feedback based Business Innovation System

1: INNOV 2: DEV 3: ABND 4: DR 5: RPT

1: 500
2: 175
3:
4: 1
5: 50
1

1: 250 1
2: 89 3
3:
4: 1
5: 25 5 2
2

1 4 4 4 4
1: 0 1
2: 2 3
3: 3 3
4: 0 5 2
3 5 5
5: 0
1.00 7.00 13.00 19.00 25.00
Page 1 Y ears 2:10 PM Thu, Jan 01, 2009
DY NAMIC SIMULATION (INNOVATION)

Section III
Social Accounting & Auditing:

Social accounting and auditing is a way of measuring and reporting on an organisation's

social and ethical performance. An organisation which takes on an audit makes itself
accountable to its stakeholders and commits itself to following the audits
recommendations.

 Social accounting (also known as Social and Environmental Accounting,

Corporate Social Reporting, Corporate Social Responsibility Reporting, Non-
Financial Reporting, Sustainability Accounting) is the process of communicating
the social and environmental effects of organisations' economic actions to
particular interest groups within society and to society at large.
 Social accounting is commonly used in the context of business, or corporate
social responsibility (CSR), although any organisation, including NGOs, charity
and government agencies may engage in social accounting.
 Social accounting emphasises the notion of corporate accountability. D. Crowther
defines social accounting in this sense as "an approach to reporting a firm‘s
activities which stresses the need for the identification of socially relevant
behaviour, the determination of those to whom the company is accountable for its
social performance and the development of appropriate measures and reporting
techniques."[2]
 Social accounting is often used as an umbrella term to describe a broad field of
research and practice. The use of more narrow terms to express a specific
interest is thus not uncommon. Environmental accounting may e.g. specifically
refer to the research or practice of accounting for an organisation's impact on the
natural environment. Sustainability accounting is often used to express the
measuring and the quantitative analysis of social and economic sustainability.

14
Purpose of Social Accounting

Social accounting challenges conventional accounting, in particular financial accounting,

for giving a narrow image of the interaction between society and organisations, and thus
artificially constraining the subject of accounting.
Social accounting, a largely normative concept, seeks to broaden the scope of
accounting in the sense that it should:

 concern itself with more than only economic events;

 not be exclusively expressed in financial terms;
 be accountable to a broader group of stakeholders;
 broaden its purpose beyond reporting financial success.

It points to the fact that companies influence their external environment (both positively
and negatively) through their actions and should therefore account for these effects as
part of their standard accounting practices. Social accounting is in this sense closely
related to the economic concept of externality.

 Social accounting offers an alternative account of significant economic entities. It

has the "potential to expose the tension between pursuing economic profit and
the pursuit of social and environmental objectives".[3]
The purpose of social accounting can be approached from two different angles,
namely for management control purposes or accountability purposes.

Business Ethics:

 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. Simultaneously, pressure is applied on industry to improve business
ethics through new public initiatives and laws (e.g. higher UK road tax for higher-
emission vehicles).
 Business ethics can be both a normative and a descriptive discipline. As a
corporate practice and a career specialization, the field is primarily normative. In
academia descriptive approaches are also taken. The range and quantity of
business ethical issues reflects the degree to which business is perceived to be
at odds with non-economic social values. Historically, interest in business ethics
accelerated dramatically during the 1980s and 1990s, both within major
corporations and within academia. For example, today most major corporate
websites lay emphasis on commitment to promoting non-economic social values
under a variety of headings (e.g. ethics codes, social responsibility charters). In
some cases, corporations have redefined their core values in the light of
business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).

SOCIO-CULTURAL ENVIRONMENT:

Social organisation

15
Social organization refers to the ways in which people relate to one another, form groups and
organize their activities, teach acceptable behavior and govern themselves. It thus comprises the
social, educational and political systems of a society.

The exporter's ability to communicate depends to some extent, on the educational level of the
foreign market. If the consumers are largely illiterate, advertising materials or package labels may
have to be adapted to the needs of the market. In this regard, however, a company marketing
baby food in a certain African country put the picture of a smiling child on the outside of the jar.
The local resident assuming there were preserved babies inside, avoided the product! In addition,
there are unspoken signals which identify cultural differences, from certain taboos to less obvious
practices like the time taken to answer a letter. In some societies, for instance, an important issue
is dealt with immediately; in others, promptness is taken as a sign that the matter is regarded as
unimportant, the time taken corresponding with the gravity of the issue.

In a culture where great importance is attached to the family unit, promotional efforts should be
directed at the family rather than the individual. The size of the family unit differs from one culture
to another. It can range from the nuclear family, i.e. mother, father, and children, to the extended
family which includes many relatives and whose role is to provide protection, support and
economic security to its members. In the extended family, characteristic of developing countries,
consumption decision-making takes place in a larger unit and purchasing power patterns may be
different from those evident in western cultures.

In any society, certain occupations carry more prestige, social status and monetary reward than
others. In India, for example, there is a strong reluctance amongst people with university
education to perform 'menial' tasks using their hands, even answering the telephone. In many
countries, including France, Italy and Singapore, financial independence is considered essential
for occupation-related prestige. In Japan, however, the majority of university-educated
professionals tend to prefer working for large multinational firms than for themselves.

Social organisation is also evidenced in the operation of the class system, e.g. the Hindu caste
system and the grouping of society members according to age, sex, political orientation, etc.

Religious beliefs, attitudes, values, space and time

While language, material culture, aesthetics and social organisation are outward manifestations
of a culture, it is a society's religious beliefs, attitudes and values that dictate the behaviour of its
members.

Religious beliefs

A religious system refers to the spiritual side of a culture or its approach to the supernatural.
Western culture is accepted as having been largely influenced by the Judeo-Christian traditions,
while Eastern or Oriental cultures have been strongly influenced by Buddhism, Confucianism,
Taoism and Hinduism. Although very few religions influence business activities directly, the
impact of religion on human value systems and decision-making is significant. Thus, religion
exerts a considerable influence on people's actions and outlook on life, as well as on the products
they buy. In certain part of the world, such as Latin America, the influence of religion extends
even beyond the individual or family and is manifested in a whole community's deep involvement
in, and devotion to, the church.

A society's religious belief system is often dependent on its stage of human or economic
development. Primitive tribesmen tend to be superstitious about life in general while people in
technologically advanced cultures seem to have dismissed the notion of traditional religious
worship and practice in favour of a more scientific approach to life and death.

16
To disregard the significance of religious beliefs or superstitions evident in a potential export
market could result in expensive mistakes.

The failure to consider specialised aspects of local religions has created a number of difficulties
for firms. Companies have encountered problems in Asia when they incorporated a picture of a
Buddha in their promotions. Religious ties are strong in this area, and the use of local religious
symbols in advertising is strongly resented - especially when words are deliberately or even
accidentally printed across the picture of a Buddha. One company was nearly burned to the
ground when it ignorantly tried such a strategy. The seemingly minor incident led to a major
international political conflict remembered for years.

(Source : D.A. Ricks, Big business Blunders)

Attitudes

Attitudes are psychological states that predispose people to behave in certain ways. Attitudes
may relate, for example, to work, wealth, achievement, change, the role of women in the
economy, etc.

Western cultures, for example, value individualism and promote the importance of autonomy and
personal achievement needs. In contrast, in many eastern and developing countries, there is a
strong sense of collectivism and the importance of social and security needs. For instance, the
Hindu religion imparts a type of work ethic that considers work central to one's life but maintains
that it must be performed as a service to others, not for one's own personal achievement.

Stereotypes are sets of attitudes in which one attributes qualities or characteristics to a person on
the basis of the group to which that person belongs. An international businessperson's tendency
to judge others by his or her personal and cultural standards instead of attempting to understand
others in the context of their unique historical, political, economic and social backgrounds could,
for example, be termed an undesirable attitude.

Values

Values are judgements regarding what is valuable or important in life, and they vary greatly from
one culture to another. People who are operating at a survival level will value food, shelter and
clothing. Those with high security needs, on the other hand, may value job security, status,
money, etc. From its value system, a culture sets norms, i.e. acceptable standards of behaviour.

Pepsodent reportedly tried to sell its toothpaste in regions of south-east Asia through a promotion
which stressed that the toothpaste helped enhance white teeth. In this area, where some local
people deliberately chewed betel nut in order to achieve the social prestige of darkly stained
teeth, such an ad was understandably less than effective. The slogan "wonder where the yellow
went" was also viewed by many as a racial slur.

Some time ago, an American lost a major contract in Greece because he did not appreciate the
Greek concept of time. The Greek executive could not understand the American's insistence on
setting time limits on the length of their business meetings - he and his colleagues were prepared
to spend as much time in discussion as they felt was necessary. The American also insisted that
the senior managers involved in the transaction be responsible only for working out the general
principles of the deal, with the actual details being left to subordinates. Suspicious that this
represented a lack of commitment on the part of the American, the Greek called off the deal.

17
Many factors continuously produce cultural changes in a society - new technology, population
shifts, availability of scarce resources and changing values regarding the role of education or
women. Culture is thus dynamic, and exporters, particularly those involved in international travel
and marketing, need to regularly assess what new products and service needs have been
created, who the potential buyers and users are, and how best to reach them.

Non-linearity in Business:

Language

Language is central to the expression of culture. Within each cultural group, the use of words
reflects the lifestyle, attitudes and many of the customs of that group. Language is not only a key to
understanding the group, it is the principal way of communicating within it.

A language usually defines the parameters of a particular culture. Thus if several languages are
spoken within the borders of a country, that country is seen to have as many cultures. In Canada,
for instance, both English and French are spoken; in Belgium, French and Flemish; while in South
Africa there are 11 official languages with a number of other African languages also spoken by the
population. In addition, there are often variations within a language - different dialects, accents,
pronunciations and terminology may distinguish one cultural group from another, e.g. English-
speaking South Africans, the British, Americans and Australians.

Learning some of the subtleties of a language can assist greatly in avoiding confusion:
Several brief examples of mistranslated English idioms or expressions can be cited to
illustrate how often blunders have been made. One European firm certainly missed the point
when it translated the expression "out of sight, out of mind" as "invisible things are insane" in
Thailand. There is also the story of the phrase "the spirit is willing, but the flesh is weak" being
translated to "the liquor is holding out all right, but the meat has spoiled". And consider, finally,
a translation of "Schweppes Tonic Water" to the Italian "ii water". The copy was speedily
changed to "Schweppes Tonic" because 'il water" idiomatically indicates a bathroom.

(Source: D A Ricks, Big Business Blunders)

The importance of being able to understand other languages cannot be over-emphasised - this is
particularly relevant when executives travel abroad and are negotiating with people of different
language groups. Because English is the predominant language of business in the western world,
people with English as a home language are usually reluctant to learn foreign languages and tend
to expect others to converse with them in English. In contrast, European and Far Eastern
businesspersons have been willing to learn and converse in the language of their trading partners,
leading inevitably to a better understanding and better rapport between the parties concerned. If
exporters do not speak the language of the country they plan to visit, they should at least establish
the extent to which their own language is spoken there and, if necessary, engages the services of
an interpreter during discussions or negotiations.

18a foreign language, it is important to ensure that

If promotional material needs to be prepared in
none of the meaning is lost or distorted when the information is translated. Thus, translations
should be undertaken within the country concerned or at least by a native of the country in
question.
Case:

LONDON: Looking for high returns on your investments? Follow the new moon,
says a new study. A team of 14 senior market analysts from across five major
financial centres of Macquarie Securities scrutinised data from 32 leading indices
over several decades and found the two days on either side of the new month
represent most of the positive returns on equity markets for next four weeks.

―Using data since 1988 for a wide variety of indices, it is quite clear that a strong

NREGA: From accounts to accountabilityThe Hindu, December 6,

2008

Bank payments alone are not an adequate protection against corruption in NREGA.

The ghost of corruption has haunted many public interventions in India, and the National
Rural Employment Guarantee Act (NREGA) is no exception. Bank payments of NREGA
wages were recently introduced on a mass scale, and projected as a foolproof remedy
against corruption. Recent evidence, however, suggests that the banking system itself is
not above corruption — corrective steps are urgently needed.

Rush to bank payments

The main technique of embezzlement in public employment programmes, including

NREGA, is to fudge the ―muster rolls‖ (attendance sheets): fake names or inflated
attendance figures are entered in the muster rolls, and middlemen pocket the difference.
This used to be possible, indeed very simple, because of the cloud of secrecy that
surrounded the muster rolls. The NREGA sought to change that based on a range of
safeguards, starting with the transparency of muster rolls. For instance, NREGA muster
rolls are supposed to be available at the worksite and filled there every day in the
presence of the workers, giving them an opportunity to check the details at any time.
Similarly, payment details from the muster rolls are supposed to be entered in the
workers’ ―job cards‖, enabling them to monitor these payments.

Another factor that facilitated corrupt practices in the past was that the same person or
agency was in charge of maintaining muster rolls and paying the wages. Since both
functions were in the same hands, fudging muster rolls was both easy and profitable. The
separation of these two functions is a powerful safeguard against embezzlement. Even
before NREGA, this was the norm on drought relief programmes in Rajasthan. There,
muster rolls were prepared by Gram Panchayat functionaries with the help of the ―mate‖
(worksite supervisor), whereas wages were paid by the patwari (a Panchayat level
employee of the revenue department). This makes it harder to siphon off funds by
fudging muster rolls, unless the different actors collude with each other.

The need to separate payment agencies from implementation agencies was an important
argument for the recent introduction of bank (or post office) payments of NREGA wages.

19
There are other good reasons for introducing bank payments. For instance, paying wages
directly into the workers’ accounts reduces the risk of harassment by payments officials.
Further, it encourages saving habits and the use of bank facilities.

However, there are also significant drawbacks with bank payments. The coverage of
banks and post offices in rural India is still patchy, which means that labourers have to
travel some distance to collect their wages (as opposed to getting cash in hand in their
own village). In some states at least, bank payments have been associated with delays in
the disbursement of wages, as the relevant transactions work their way through the
system. There is also a danger of women being excluded, if bank accounts are opened in
the names of men only, as has happened in some districts.

From a long-term perspective, the payment of wages through banks is probably a move in
the right direction. However, the transition to bank payments has been made in a very
rushed and haphazard manner. And the results have often been sobering. The Deoghar
social audit

A social audit of 17 NREGA works in five Gram Panchayats of Karon Block in Deoghar
District (Jhardhan), conducted on 12-16 October 2008, unearthed some alarming facts
related to bank payments. Briefly, the loot is far from over: funds are siphoned off
through manipulated bank accounts of NREGA workers, in collusion with bank staff. In
Deogarh, banks are rapidly being integrated in the system of corruption.

Consider the case of the construction of two NREGA wells in Ranidih Panchayat: one on
Koka Baori’s land and the other on Paane Hembrahm’s. Both were approached by the
Panchayat Sevak, who offered to get a well constructed on their land. Once the well was
sanctioned, a contractor took charge (an infraction under the Act). When cheques arrived
in the name of the beneficiaries, they were asked to collect it from the bank and hand it
over to the contractor to pay for material costs.

As far as wage payments were concerned, it was a simple matter for the contractor. Two
years earlier, he had kindly opened bank accounts for many NREGA labourers (often
without their knowledge), with a little help from the rather cooperative staff of the
Deoghar-Jamtara Central Cooperative Bank. The contractor and Panchayat Sevak
manufactured muster rolls with wages adding up to the labour component sanctioned for
the wells. Whenever money is transferred to the labourers’ accounts, the trio of bank
officials, contractor and Panchayat Sevak step in: they coolly pocket the excess money
after giving their due to the labourers who actually worked. Most of the labourers we
spoke to said that they had never been to the bank, and that they were paid in cash at the
worksite by the contractor.

While other banks in the area did not have the audacity to indulge in such open loot, their
practices were not entirely above board either. In some cases, we heard that labourers had
been made to sign withdrawal slips in bulk at the time of opening their bank accounts, to
facilitate proxy withdrawals later on. In the case of Allahabad Bank and Vananchal Bank,
bank officials said that labourers came in person to withdraw their wages, but usually

20
accompanied by men who ―do not look like labourers‖. These men, believed to be the
contractors’ cronies, stand outside the bank and force the labourers to hand over the
excess money that has been claimed in their name. For us, this story was a nightmare
come true: one year earlier, a master (or rather mistress) contractor in Orissa had told us
that if bank payments of NREGA wage were introduced, ―the contractors will become
dacoits.‖

Magic bullet or shot in the foot?

How typical Deogarh’s experience is we do not know. But this experience certainly
shows that bank payments alone are not an adequate protection against corruption. In
fact, in Jharkhand’s anarchic environment (not unique to Deogarh), they have even
facilitated embezzlement in several ways. First, while all NREGA-related documents
(e.g. muster rolls, job cards, measurement books) are supposed to be in the public
domain, it is not clear whether banks are going to accept this principle for their own
records, including the details of NREGA accounts. Meanwhile, the rush to bank
payments has led to reduced transparency by withdrawing key documents from public
scrutiny.

Second, payments through banks and post offices introduce new players into the
corruption game — the staff of these institutions. It is not clear how these officials (who
are often employees of the Central government, rather than of the State governments or
Panchayati Raj Institutions) are to be held accountable for NREGA-related matters. They
tend to be more difficult to ―catch‖ than other functionaries such as the Panchayat Sevak
or Gram Rozgar Sevak.

Third, embezzlement of wages paid though bank accounts typically requires the
involvement or cooperation of the labourers themselves, in one way or another.
Labourers generally have a stake in blowing the whistle against corruption, but when they
become part of the nexus of corruption, this voice is effectively silenced.

Last but not least, bank payments have led to an alarming neglect of other transparency
safeguards. For instance, muster rolls are no longer signed by workers at the time of wage
payment, since wages are paid directly through banks. In fact, in Deogarh we found that
muster rolls had been reduced to a naked attendance sheet, without any payment details.
The only person who signs is the person who fills the muster roll in the first place, and
his or her ―supervisor‖, often acting in collusion. Apparently, a similar setback is
happening in Rajasthan. This is unfortunate since Rajasthan had largely stamped out the
embezzlement of NREGA wages based on more ―conventional‖ safeguards such as the
transparency of muster rolls.

This is not to say that the transition to bank payments should be reversed. But this
transition certainly requires great caution (including strict monitoring of banks and post
offices), and must be combined with strict enforcement of all the transparency norms.
The Central government seems to regard bank payments as a ―magic bullet‖ against
corruption, but the bullet is in danger of ending up in its own foot.

21
TATA CODE OF CONDUCT

Clause:1
National interest
The Tata group is committed to benefit the economic development of the
countries in which it operates. No Tata company shall undertake any project or
activity to the detriment of the wider interests of the communities in which it
operates.

A Tata company‘s management practices and business conduct shall benefit the
country, localities and communities in which it operates, to the extent possible
and affordable, and shall be in accordance with the laws of the land.

A Tata company, in the course of its business activities, shall respect the culture,
customs and traditions of each country and region in which it operates. It shall
conform to trade procedures, including licensing, documentation and other
necessary formalities, as applicable.

Clause:2
Financial reporting and records
A Tata company shall prepare and maintain its accounts fairly and accurately
and in accordance with the accounting and financial reporting standards which
represent the generally accepted guidelines, principles, standards, laws and
regulations of the country in which the company conducts its business affairs.

Internal accounting and audit procedures shall reflect, fairly and accurately, all of
the company‘s business transactions and disposition of assets, and shall have
internal controls to provide assurance to the company‘s board and shareholders
that the transactions are accurate and legitimate. All required information shall be
accessible to company auditors and other authorised parties and government
[Link] shall be no willful omissions of any company transactions from
the books and records, no advance-income recognition and no hidden bank
account and funds.

22
Any willful, material misrepresentation of and / or misinformation on the financial
accounts and reports shall be regarded as a violation of the Code, apart from
inviting appropriate civil or criminal action under the relevant laws. No employee
shall make, authorise, abet or collude in an improper payment, unlawful
commission or bribing.

Clause:3
Competition
A Tata company shall fully support the development and operation of competitive
open markets and shall promote the liberalisation of trade and investment in
each country and market in which it operates. Specifically, no Tata company or
employee shall engage in restrictive trade practices, abuse of market dominance
or similar unfair trade activities.

A Tata company or employee shall market the company‘s products and services
on their own merits and shall not make unfair and misleading statements about
competitors‘ products and services. Any collection of competitive information
shall be made only in the normal course of business and shall be obtained only
through legally permitted sources and means.

Clause:4
Equal opportunities employer
A Tata company shall provide equal opportunities to all its employees and all
qualified applicants for employment without regard to their race, caste, religion,
colour, ancestry, marital status, gender, sexual orientation, age, nationality,
ethnic origin or disability.

Human resource policies shall promote diversity and equality in the workplace,
as well as compliance with all local labour laws, while encouraging the adoption
of international best practices.

Employees of a Tata company shall be treated with dignity and in accordance

with the Tata policy of maintaining a work environment free of all forms of

23
harassment, whether physical, verbal or psychological. Employee policies and
practices shall be administered in a manner consistent with applicable laws and
other provisions of this Code, respect for the right to privacy and the right to be
heard, and that in all matters equal opportunity is provided to those eligible and
decisions are based on merit.

Clause:5
Gifts and donations
A Tata company and its employees shall neither receive nor offer or make,
directly or indirectly, any illegal payments, remuneration, gifts, donations or
comparable benefits that are intended, or perceived, to obtain uncompetitive
favours for the conduct of its business. The company shall cooperate with
governmental authorities in efforts to eliminate all forms of bribery, fraud and
corruption.

However, a Tata company and its employees may, with full disclosure, accept
and offer nominal gifts, provided such gifts are customarily given and / or are of a
commemorative nature. Each company shall have a policy to clarify its rules and
regulations on gifts and entertainment, to be used for the guidance of its
employees.

Clause:6
Government agencies
A Tata company and its employees shall not, unless mandated under applicable
laws, offer or give any company funds or property as donation to any government
agency or its representative, directly or through intermediaries, in order to obtain
any favourable performance of official duties. A Tata company shall comply with
government procurement regulations and shall be transparent in all its dealings
with government agencies.

24
Clause:7
Political non-alignment
A Tata company shall be committed to and support the constitution and
governance systems of the country in which it operates.

A Tata company shall not support any specific political party or candidate for
political office. The company‘s conduct shall preclude any activity that could be
interpreted as mutual dependence / favour with any political body or person, and
shall not offer or give any company funds or property as donations to any political
party, candidate or campaign.

Clause:8
Health, safety and environment
A Tata company shall strive to provide a safe, healthy, clean and ergonomic
working environment for its people. It shall prevent the wasteful use of natural
resources and be committed to improving the environment, particularly with
regard to the emission of greenhouse gases, and shall endeavour to offset the
effect of climate change in all spheres of its activities.

A Tata company, in the process of production and sale of its products and
services, shall strive for economic, social and environmental sustainability.

Clause:9
Quality of products and services
A Tata company shall be committed to supply goods and services of world class
quality standards, backed by after-sales services consistent with the
requirements of its customers, while striving for their total satisfaction. The quality
standards of the company‘s goods and services shall meet applicable national
and international standards.

A Tata company shall display adequate health and safety labels, caveats and
other necessary information on its product packaging.

25
Clause:10
Corporate citizenship
A Tata company shall be committed to good corporate citizenship, not only in the
compliance of all relevant laws and regulations but also by actively assisting in
the improvement of quality of life of the people in the communities in which it
operates. The company shall encourage volunteering by its employees and
collaboration with community groups.

Tata companies are also encouraged to develop systematic processes and

conduct management reviews, as stated in the Tata ‗corporate sustainability
protocol‘, from time to time so as to set strategic direction for social development
activity.

The company shall not treat these activities as optional, but should strive to
incorporate them as an integral part of its business plan.

Clause:11
Cooperation of Tata companies
A Tata company shall cooperate with other Tata companies including applicable
joint ventures, by sharing knowledge and physical, human and management
resources, and by making efforts to resolve disputes amicably, as long as this
does not adversely affect its business interests and shareholder value.

In the procurement of products and services, a Tata company shall give

preference to other Tata companies, as long as they can provide these on
competitive terms relative to third parties.

Clause:12
Public representation of the company and the group
The Tata group honours the information requirements of the public and its
stakeholders. In all its public appearances, with respect to disclosing company

26
and business information to public constituencies such as the media, the
financial community, employees, shareholders, agents, franchisees, dealers,
distributors and importers, a Tata company or the Tata group shall be
represented only by specifically authorised directors and employees. It shall be
the sole responsibility of these authorised representatives to disclose information
about the company or the group.

Clause:13
Third party representation
Parties which have business dealings with the Tata group but are not members
of the group, such as consultants, agents, sales representatives, distributors,
channel partners, contractors and suppliers, shall not be authorised to represent
a Tata company without the written permission of the Tata company, and / or if
their business conduct and ethics are known to be inconsistent with the Code.

Third parties and their employees are expected to abide by the Code in their
interaction with, and on behalf of, a Tata company. Tata companies are
encouraged to sign a non-disclosure agreement with third parties to support
confidentiality of information.

Clause:14
Use of the Tata brand
The use of the Tata name and trademark shall be governed by manuals, codes
and agreements to be issued by Tata Sons. The use of the Tata brand is defined
in and regulated by the Tata Brand Equity and Business Promotion agreement.
No third party or joint venture shall use the Tata brand to further its interests
without specific authorisation.

Clause:15
Group policies

27
A Tata company shall recommend to its board of directors the adoption of
policies and guidelines periodically formulated by Tata Sons.

Clause:16
Shareholders
A Tata company shall be committed to enhancing shareholder value and
complying with all regulations and laws that govern shareholder [Link] board
of directors of a Tata company shall duly and fairly inform its shareholders about
all relevant aspects of the company‘s business, and disclose such information in
accordance with relevant regulations and agreements.

Clause:17
Ethical conduct
Every employee of a Tata company, including full-time directors and the chief
executive, shall exhibit culturally appropriate deportment in the countries they
operate in, and deal on behalf of the company with professionalism, honesty and
integrity, while conforming to high moral and ethical standards. Such conduct
shall be fair and transparent and be perceived to be so by third parties.

Every employee of a Tata company shall preserve the human rights of every
individual and the community, and shall strive to honour commitments.

Every employee shall be responsible for the implementation of and compliance

with the Code in his / her environment. Failure to adhere to the Code could
attract severe consequences, including termination of employment.

Clause:18
Regulatory compliance
Employees of a Tata company, in their business conduct, shall comply with all
applicable laws and regulations, in letter and spirit, in all the territories in which
they operate. If the ethical and professional standards of applicable laws and

28
regulations are below that of the Code, then the standards of the Code shall
prevail.

Directors of a Tata company shall comply with applicable laws and regulations of
all the relevant regulatory and other authorities. As good governance practice
they shall safeguard the confidentiality of all information received by them by
virtue of their position.

Clause:19
Concurrent employment
Consistent with applicable laws, an employee of a Tata company shall not,
without the requisite, officially written approval of the company, accept
employment or a position of responsibility (such as a consultant or a director)
with any other company, nor provide freelance services to anyone, with or
without remuneration. In the case of a full-time director or the chief executive,
such approval must be obtained from the board of directors of the company.

Clause:20
Conflict of interest
An employee or director of a Tata company shall always act in the interest of the
company, and ensure that any business or personal association which he / she
may have does not involve a conflict of interest with the operations of the
company and his / her role therein. An employee, including the executive director
(other than independent director) of a Tata company, shall not accept a position
of responsibility in any other non-Tata company or not-for-profit organisation
without specific sanction.

The above shall not apply to (whether for remuneration or otherwise):

a) Nominations to the boards of Tata companies, joint ventures or associate
companies.
b) Memberships / positions of responsibility in educational / professional bodies,
wherein such association will benefit the employee / Tata company.
c) Nominations / memberships in government committees / bodies or

29
organisations.
d) Exceptional circumstances, as determined by the competent authority.

Competent authority, in the case of all employees, shall be the chief executive,
who in turn shall report such exceptional cases to the board of directors on a
quarterly basis. In case of the chief executive and executive directors, the Group
Corporate Centre shall be the competent authority.

An employee or a director of a Tata company shall not engage in any business,

relationship or activity which might conflict with the interest of his / her company
or the Tata group. A conflict of interest, actual or potential, may arise where,
directly or indirectly…
a) An employee of a Tata company engages in a business, relationship or activity
with anyone who is party to a transaction with his / her company.
b) An employee is in a position to derive an improper benefit, personally or to any
of his / her relatives, by making or influencing decisions relating to any
transaction.
c) An independent judgement of the company‘s or group‘s best interest cannot
be exercised.

The main areas of such actual or potential conflicts of interest shall include the
following:
a) An employee or a full-time director of a Tata company conducting business on
behalf of his / her company or being in a position to influence a decision with
regard to his / her company‘s business with a supplier or customer where his /
her relative is a principal officer or representative, resulting in a benefit to him /
her or his / her relative.
b) Award of benefits such as increase in salary or other remuneration, posting,
promotion or recruitment of a relative of an employee of a Tata company, where
such an individual is in a position to influence decisions with regard to such
benefits.
c) The interest of the company or the group can be compromised or defeated.

Notwithstanding such or any other instance of conflict of interest that exist due to
historical reasons, adequate and full disclosure by interested employees shall be
made to the company‘s management. It is also incumbent upon every employee

30
to make a full disclosure of any interest which the employee or the employee‘s
immediate family, including parents, spouse and children, may have in a family
business or a company or firm that is a competitor, supplier, customer or
distributor of or has other business dealings with his / her company.

Upon a decision being taken in the matter, the employee concerned shall be
required to take necessary action, as advised, to resolve / avoid the conflict.

If an employee fails to make the required disclosure and the management of its
own accord becomes aware of an instance of conflict of interest that ought to
have been disclosed by the employee, the management shall take a serious view
of the matter and consider suitable disciplinary action against the employee.

Clause:21
Securities transactions and confidential information
An employee of a Tata company and his / her immediate family shall not derive
any benefit or counsel, or assist others to derive any benefit, from access to and
possession of information about the company or group or its clients or suppliers
that is not in the public domain and, thus, constitutes unpublished, price-sensitive
insider information.

An employee of a Tata company shall not use or proliferate information that is

not available to the investing public, and which therefore constitutes insider
information, for making or giving advice on investment decisions about the
securities of the respective Tata company, group, client or supplier on which
such insider information has been obtained.

Such insider information might include (without limitation) the following:

 Acquisition and divestiture of businesses or business units.

 Financial information such as profits, earnings and dividends.
 Announcement of new product introductions or developments.
 Asset revaluations.
 Investment decisions / plans.
 Restructuring plans.

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  Major supply and delivery agreements.
 Raising of finances.

An employee of a Tata company shall also respect and observe the

confidentiality of information pertaining to other companies, their patents,
intellectual property rights, trademarks and inventions; and strictly observe a
practice of non-disclosure.

Clause:22
Protecting company assets
The assets of a Tata company shall not be misused; they shall be employed
primarily and judiciously for the purpose of conducting the business for which
they are duly authorised. These include tangible assets such as equipment and
machinery, systems, facilities, materials and resources, as well as intangible
assets such as information technology and systems, proprietary information,
intellectual property, and relationships with customers and suppliers.

Clause:23
Citizenship
The involvement of a Tata employee in civic or public affairs shall be with
express approval from the chief executive of his / her company, subject to this
involvement having no adverse impact on the business affairs of the company or
the Tata group.

Clause:24
Integrity of data furnished
Every employee of a Tata company shall ensure, at all times, the integrity of data
or information furnished by him/her to the company. He/she shall be entirely
responsible in ensuring that the confidentiality of all data is retained and in no
circumstance transferred to any outside person/party in the course of normal
operations without express guidelines from or, the approval of the management.

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Clause:25
Reporting concerns
Every employee of a Tata company shall promptly report to the management,
and / or third-party ethics helpline, when she / he becomes aware of any actual
or possible violation of the Code or an event of misconduct, act of misdemeanour
or act not in the company‘s interest. Such reporting shall be made available to
suppliers and partners, too.

Any Tata employee can choose to make a protected disclosure under the
whistleblower policy of the company, providing for reporting to the chairperson of
the audit committee or the board of directors or specified authority. Such a
protected disclosure shall be forwarded, when there is reasonable evidence to
conclude that a violation is possible or has taken place, with a covering letter,
which shall bear the identity of the whistleblower.

The company shall ensure protection to the whistleblower and any attempts to
intimidate him / her would be treated as a violation of the Code.

Note:

The TCoC does not provide a full, comprehensive and complete explanation of
all the rules that employees are bound to follow. Employees have a continuing
obligation to familiarise themselves with all applicable laws, company policies,
procedures and work rules.

All JVs could adopt TCoC or a joint code of conduct incorporating all elements of
the TCoC.

This version of the TCoC supersedes all earlier versions and associated
documents and stands effective from October 1, 2008.

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34
Clause:1-25
National interest
Financial reporting and records
Competition
Equal opportunities employer
Gifts and donations
Government agencies
Political non-alignment
Health, safety and environment
Quality of products and services
Corporate citizenship
Cooperation of Tata companies
Public representation of the company and the group
Third party representation
Use of the Tata brand
Group policies
Shareholders
Ethical conduct
Regulatory compliance
Concurrent employment
Conflict of interest
Securities transactions and confidential information
Protecting company assets
Citizenship
Integrity of data furnished
Reporting concerns

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Toyota Recall: Five Critical Lessons
Posted by Michael Connor • January 31, 2010 • Printer-friendly

by Michael Connor

Toyota’s announcement of a technical fix for its sticky gas pedals – which can lead to
sudden acceleration problems - is not likely to bring a quick end to the company’s current
recall nightmare.

Having already halted sales and production of eight of its top-selling cars in the U.S. -
and recalled more than 9 million cars worldwide, in two separate recalls – Toyota faces
the prospect of billions of dollars in charges and operating losses. The Toyota brand, once
almost synonymous with top quality, has taken a heavy hit.

While all the facts are not yet in, it’s clear that Toyota’s crisis didn’t emerge full-blown
overnight. Fixing the problem and ensuring that something like it doesn’t happen again
will require an all-out effort, from assembly line to the boardroom. Even then, there are
no guarantees. Maintaining a good corporate reputation in the 21st century is tricky
business indeed.

Toyota’s case offers a number of valuable lessons for other business people and
companies to consider. Here, for starters, are five:

Aggressive growth can create unmanageable risk. Toyota’s desire to supplant General
Motors as the world’s number-one car-maker pushed it to the outer limits of quality
control.

―The evidence that Toyota was expanding too much and too quickly started surfacing a
couple of years ago. Not on the company's bottom line, but on its car-quality ratings,‖
writes Paul Ingrassia, a Pulitzer Prize-winning former Detroit bureau chief for The
Wall Street Journal.

Ingrassia, who has just authored a new book on the auto industry, notes that in 2005
Toyota recalled more cars and trucks than it sold; by 2007, Consumer Reports magazine
stopped automatically recommending all Toyota models because of quality declines on
three models.

One wonders if, when accepting management’s plan for aggressive growth, Toyota’s
board of directors exercised appropriate diligence to ensure that growth could be
achieved without betting the entire franchise. Were quality control and safety part of the
discussion? Maybe gaining market share wasn’t worth the trade-off. Quick tip to
directors of other high-growth-oriented companies: read up on Merrill Lynch’s
experience with dominating the sub-prime mortgage market.

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Get the facts quickly and manage your risks aggressively. One of the more troubling
aspects of Toyota’s recalls (there have been two) has been the company’s differing
accounts of the source of the problem. The current recall, covering 4.1 million cars,
involves potentially sticky gas pedals. Late in 2009, Toyota also recalled 5.4 million cars
whose gas pedals could get stuck on floor mats. Plus, Toyota says there are some cars
affected by both problems. (For an interesting technical analysis of some of the issues
involved, go here.)

Uncertainty is not an asset, especially when lives could be at stake. A Los Angeles
Times investigation, for example, casts doubt on Toyota’s explanation, quoting one auto
safety consulting group as saying, "We know this recall is a red herring." (Read Toyota’s
position here.)

And the questioning is just beginning. A U.S. Congressional committee headed by

Rep. Henry Waxman has already requested copies of emails and other documents
from both Toyota and the National Highway Traffic Safety Administration, which
regulates Toyota with regard to the recalls. Congressional hearings are scheduled for
Feb. 25.

In cases such as this, investigators almost always start with two time-worn questions.
What did you know? And when did you know it? Answers to those questions provide the
groundwork for analysis of a company’s response and handling of a problem. Were
employees encouraged to flag safety issues to senior management? Were sufficient
resources devoted to investigating the problems? When did the board become aware of
the situation and what did it do about it?

Companies generally can’t predict when crises might occur. However, good internal risk
assessment programs can help identify those areas of the business where management
should be on the alert. Robust risk management programs help a company address
problems as they pop up on the internal corporate radar screen – and before they explode
in public.

Your supply chain is only as strong as your weakest link. The reality is that auto
companies make hardly any of their parts. They assemble cars from parts made by
others. In this case, the offending gas pedal assembly was made for Toyota by a
company called CTS of Elkhardt, Indiana.

It’s far from certain how much blame the parts supplier deserves. In fact, CTS says
Toyota’s acceleration problems date back to 1999, years before CTS began
supplying parts to Toyota. (And the replacement gas pedal parts Toyota has announced
as a fix for the problem will be made by CTS, suggesting a degree of confidence in the
supplier.)

Nonetheless, ―(if) you are outsourcing for your entire vehicle line, [and] the outsourced
component is defective, the recall and the embarrassment is much greater,‖ iconic car
company critic Ralph Nader told Toronto’s Globe and Mail last week. ―The overall

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message is that quality control [means] daily vigilance,‖ Nader said. ―You can't coast on
your reputation because it can fail very quickly.‖

Supply chain monitoring is a critical factor for companies that rely on third-party
suppliers. That’s increasingly true for a broad variety of industries, not just automobiles,
as business grows ever more global. Smart companies will know their suppliers and their
respective strengths and weaknesses.

Accept Responsibility. This is one area where Toyota seems to be doing a good job,
albeit maybe a year or more too late.

Toyota's National Ad on Recall - January 31, 2010

Two decades ago, when Audi encountered a safety issue similar to Toyota’s, Audi took
the position that ―it was the driver’s fault,‖ David Cole, Director of the Center for
Automotive Research, told Design News. Coles says that reaction ultimately hurt
Audi’s reputation.

Toyota seems to be avoiding the appearance of passing the buck. When pressed by the
New York Times about problems that might have been caused by supplier CTS, for
example, Toyota spokesman Mike Michels said: ―I don’t want to get into any kind of a
disagreement with CTS. Our position on suppliers has always been that Toyota is
responsible for the cars.‖

Accountability matters enormously. Johnson & Johnson’s 1982 recall of its painkiller
Tylenol, following the deaths of seven people in the Chicago area, has earned it a
permanent place in the annals of crisis management. But that recall stemmed from the
deadly act of an outsider (who has never been caught), not any problem with the product
itself, as is the case with Toyota.

Take the Long View. The three leading factors burnishing corporate reputation these
days are "quality products and services, a company I can trust and transparency of
business practices,‖ writes public relations executive Richard Edelman, who last week
released his corporate “Trust Barometer” survey for 2010.

That’s unfortunate news for Toyota, given the hand that it’s currently playing. But the
company doesn’t have much choice. By one estimate, auto industry recalls
conservatively cost an average of $100 per car - suggesting that Toyota might be on the
hook for at least a one billion dollar charge. That doesn’t include lost revenue to Toyota
and its dealers from the production shutdown. And competitors are already trying to woo
customers away and capitalize on Toyota’s misfortune. Disgruntled investors and Wall
Street analysts will make the company aware of their feelings; class action lawsuits are
almost a certainty (one lawyer is already searching for Toyota customers as clients).

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Reputation can be easily lost – and Toyota’s reputation is indeed threatened – but it’s
highly unlikely the company will collapse completely. And that may be one of the one of
the biggest lessons for other companies as they study how Toyota emerges from this
recall crisis. The reality is that Toyota is positioned for recovery about as well as it could
be – owing, in large measure, to the reputation for quality products and corporate
responsibility it has developed over the last two decades. That reputation is a valuable
asset, and one that Toyota will undoubtedly be citing and calling upon, in the weeks and
months ahead

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