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Module-II Part 3

Management and Society –Concept, External

Environment, CSR,Corporate Governance,Corporate Governance,

Ethical StandardsEthical Standards

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Corporate Governance 

CG is the relationship of the company to its shareholders and thesociety. It ensures that the long term strategic o!ectives andplans are estalished and that the proper management structureis in place to achieve those o!ectives "hile at the same timema#e sure that the structure functions to maintain the corporate$s

integrity.CG is the system y "hich usiness corporations are directed and

controlled.

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Importance of CG• % strong demand for good governance is emerging from the corporate

sector itself.

•

 &he oard ensures that its memers discharge their trustee responsiilitiesand run a transparent organi'ation.

• (rgani'ations have "itnesses fre)uent violations of organi'ational andgovernmental regulations to prevent increase in unethical and corruptpractices.

• Shareholders demand e*cient management, good governance, high pro+t

and large dividends. &hey loo# for maximi'ing shareholder$s value yimproving pulic image.

• Institutional investors are an important segment of the company and havea great inuence on company management and CG. Investors li#e to seethe rise in stoc# value and constantly monitor the frame"or# and systemof CG that should address - ma!or issues of an organi'ation/

 – 0hat is the purpose1

 – 0hom the organi'ation should serve1

 – 2o" est to serve the interests1

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• CG start "ith organi'ationalo!ectives "hich have moregovernance orientation

• CG is primarily guided y theshareholders "hich results ingood returns on theirinvestments.

• CG concentrates on organi'ationalstructure, rules, procedures andsystems for etter governance.

• CG attempts to streamlineoperations for good governance.

•  &he guiding force ehind CG isdictated y the shareholders ando"ners.

• E3ectiveness of CG is !udged y+nancial results in addition tosome social responsiilities.

• CS starts "ith organi'ationalo!ectives "hich have morestrategic focus

• CS focuses more on mar#et share,long term gro"th anddevelopment.

• CS is also concerned "ith

structures and systems utfocuses more on strategic planningand resource allocation.

• CS depends more on strategicfunctions li#e manufacturing,+nance, mar#eting and 2R.

• CS is dictated y the mar#etcompetition and consumers.

•E3ectiveness or success of CS isassessed in terms of oth +nancialand non +nancial indicators ormeasures of performance li#ealanced scorecard includesalancing +nancial performance"ith strategic performance.

Relationship et"een CorporateGovernance CG and Corporate Strategy

4CS5

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EthicsEthics refers to the principle of right6 "rong, moral duty and oligation

that are accepted y individuals and social groups.

• % code of ethics is a formal statement that acts as a guide "hichdescries the general value system, ethical principles and speci+c

ethical rules that people "ithin an organi'ation are expected to follo".

•  &he determination of ethical conduct is su!ective and vague, varyingamong di3erent cultures and di3erent environmental conditions.

•  &he concept of right and "rong, fair and unfair, !ust and un!ust is

reected y the manager$s o"n ethical standards as "ell as yorgani'ational policies and social reactions to such politics.

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Personal ethics relate to the rules and values that individualsfollo" to live and lead their life. %ll individuals irrespective oftheir vocation are concerned "ith ethics.

Business Ethics relates to true and honest practices that areadhered to in the conduct of usiness in various areas ofoperation such as advertising, competition, pulic relation,

social responsiilities, consumer lierty and independenceand ehavioral attriutes of a corporate entity in itsoperations in home country and aroad.

Ethics

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Code ofCode of

EthicsEthicsEvery profession and organi'ation should have "ell/de+nedcode of ethics. % code means a statement of policies,

principles and rules that de+ne the oundaries "ithin "hichan individual should ehave or other"ise for all professions.

Steps in Ethical Decision-Steps in Ethical Decision-

MakinMakin

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heories of Ethics &here are typically - types of moral theories pertaining to normative ethics/

• !tilitarian theor" – 7ased on rights and theory of !ustice. &his emphasi'es thatdecision ma#ers$ approach to prolem solving should e ased on and guided y

fairness, e)uity and o!ectivity. &he utilitarian vie" focuses on the "elfare of the greatestnumer of people as a criterion for "eighing and evaluating decisions.

• #ights heor"- &his theory emphasi'es the that all people have rights "hile "or#ing inan organi'ed group or governmental ody y la" or tradition or nature. &he rights vie"focuses on the premise that individuals have asic rights that must e protected,irrespective of associated cost to the society or to the organi'ation. 8rotection of

individual rights is primary concern of rights vie".

•  $ustice %ie&- &he theory of !ustice emphasi'es that decision ma#ers$ approach toprolems/solving should e ased on and guided y fairness, e)uity and o!ectivity. &he

 !ustice vie" is grounded in the idea that rules of organi'ational or societal existencemust e imposed e)uitaly to all. &he focus is on decision ma#ing that is "ithoutpre!udice to emotions .

ETHICS

Utilitarian View Rights View Justice View

Di'erent %ie& Pointsof Ethics

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EthicalEthical

ClimateClimateIt refers to the "ays and means y "hich decisions areevaluated and made #eeping in vie" "hat is right and "rong.

 &he ethical criteria used to !udge the decisions in anorgani'ation create a climate and culture in the organi'ation.Ethical climate in the organi'ation should help in explicitlyde+ning its corporate standards and expectations from itsemployees. &hey need to dovetail their personal ethical codes"ith that of organi'ational standards and expectations so as to

contriute their est to the achievement of organi'ational goals.

#elation (et&een CG and Ethical Standards#elation (et&een CG and Ethical Standards(rgani'ations that follo" CG practices move continuously

to"ards raising their ethical standards. &o ensure strictadherence to ethical codes, organi'ations ma#e due provisionsto ensure their e3ective implementation and enforcement.Managers "hile performing their roles in pursuit of achievementof corporate goals have to compete for getting information andresources and inuence employees and other sta#eholders.

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Ethical Standards ) a program forEthical Standards ) a program for

actionaction7uilding a high level of ethical standards of management is a prere)uisite to high positive social involvement. % plan for action can ecategori'ed into di3erent levels "here each level has a signi+cantcontriution to"ards the formation of the ethical environment.

• Individual *evel- Ethics at an individual level is a product of personalupringing, schooling, religious a*liation and organi'ation groupdynamics.

• +rganiational *evel- &his is the most important level "here themanagement can play an important role in shaping the ethical climateof the organi'ation. &he ethical aspect of goals, priorities and activitiesshould e provided to all employees through a "ritten code of ethicsthat are o!ectively achievale.

• Societal *evel- Ethics can e shaped y la" that are meant to protectthe health and values of society.

• International *evel-  &he ethical codes of doing usiness atinternational level re)uire a closer loo# and analysis. 8ayments made yusinesses as a commission to the government of developing nations isa common practice, should e standardi'ed universally develop a an

ethically sound relationship and morally stale environment.