Good Governance, Corporate Social Responsibly (CSR) & EthicsJayadeva de Silva.M.Sc,FIPM,FITD

In todays lecture we shall discuss the following:

1 Good Governance2 Corporate Social Responsibilities (CSR)3 Business Ethics4 Professional Ethics

GOVERNENANCE what is it?The manner in which the state exercises its authority to provide public with goods and services

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What is poor governance?

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Basic characteristics of good governance?

1 Participation2 Transparency3 Equity4 Effectiveness & Efficiency5 Responsiveness6 Accountability7 Access to information8 Rule of Law

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What is Corporate Social responsibility (CSR?)

Corporate social responsibility (CSR) is the process by which businesses negotiate their role in society.

What are “Ethics?”

In the business world, ethics is the study of morally appropriate behaviors and decisions, examining what "should be done”

Although the two are linked in most firms, CSR activities are no guarantee of ethical behavior

Reasons for CSR Activities

CSR activities are important to and even expected by the public and they are easily monitored worldwide .CSR activities help organizations hire and retain the people they want. CSR activities contribute to business performance

Dilemma with CSRCSR are Grounded by Opposing Objectives (Maximize Profits to Balance Profits with Social Responsibility) and so CSR Activities Range Widely

Maximize firm’s profits to the exclusion of all else Do what it takes to make a profit; Skirt the law; fly below social radar Fight CSR initiatives Comply with legal requirements Do more than legally required, e.g., philanthropy

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Articulate social (CSR) objectives Integrate social objectives and business goals Lead the industry on social objectives

Businesses CSR Activities• Philanthropy– give money or time or in kind to charity– Integrative philanthropy—select beneficiaries aligned with company interests• Philanthropy will not enhance corporate reputation if a company – fails to live up to its philanthropic image or – if consumers perceive philanthropy to be manipulative

Business Ethics

Just Look at the following cases

-Promoting Sales of a harmful product to school children through exclusive contracts with schools.

-Negative implications of Advertisements on School Children.

-Moral and Ethical obligations of a company to be honest about its product and services.

Understanding religious, moral and health concerns of different classes of customers across the entire product range and geographic operations by a fast food company.

The concept of monopolistic practices Forming an opinion on whether Microsoft’s monopolistic behavior is ethical or not.

Maltreatment of employees and sweatshop conditions in Nike’s Asian Factories

Role of non-profit organizations/special interest groups in creating awareness of malpractices of a multinational company.

Music piracy and its impact on the music industry Legal and ethical aspects of how Super Cassettes built up a successful business empire by promoting music piracy.

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Role of Government of India and Madhya Pradesh government in the Bhopal Gas Disaster and response of Union Corporation after the disaster.

Political, Economic and social consequences of liquor on society Ethical dilemma of the liquor business for the Government, Industry and Society.

Johnson & Johnson's public relations campaign after the Tylenol crisis in 1982.

What are Ethics...

A set of Rules that help to tell us the difference between right and wrong and encourages us to do the right thing. Ethics help people decide best actions to take in a situation.

Ethical Behaviour-What are the factors that influence ethical behaviour? What Shapes Ethical Behavior at Work?

-Individual factors-Organizational factors-The boss’s influence-Ethics policies and codes-The organization’s culture

An Individual’s Ethical behaviour is based on….

-Good character-Trustworthiness-Respect -Responsibility-Caring for others-Good citizenship-Moral rules-values

Bad Ethics Increases Transaction Costs Write down ways by which transaction costs go up due to bad ethics

SecurityChecking-------------

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Factors affecting ethical decisionsNormative judgments-Judging something as good or bad, right or wrong, better or worse.

Moral standards (Morality)-Society’s accepted standards for behaviors that have serious consequences to its well-being.-Behaviors that cannot be established or changed by decisions of authoritative bodies.-Behaviors that override self-interest.

Ethics and the law

- behavior may be legal but unethical.- behavior may be illegal but ethical.- behavior may be both legal and ethical.- behavior may be both illegal and unethical.

Consider the following situations

Situation -1Your Friend asks you to add a few extra hours to a work time sheet for him, but you know that he did not put in the time. What would you do? Who wins and who loses if you agree to put down the time? How do you feel about it?

Situation -2A salesperson in an electronics store offers to sell you an iPod after hours at a very much lower price. What would you do? Who wins and who loses if you agree to buy it? How do you feel about it?

Ethics in Business-Business ethics are tied to both society’s ethics and the ethics of individuals. -Employees, customers, suppliers shareholders etc.

Situation -3You work for a company that makes cyanide gas. You know this is harmful to people. Is it unethical for you to make the gas, knowing it is used to poison people? What about helping the company make a

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profit? What if workers health is at risk? Shouldn’t you follow employer’s instructions?

How can Businesses Solve Ethnical Dilemmas?-Dilemmas- situation with difficult choice or 2 or more options-Positive and Negative points for every option.

A Code of Ethics-Business creates a document that explains how employees and management should respond in different situations.

Principal Causes of Ethical Compromises What are some of the causes for ethical comprises?-----

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Employees and Ethical Dilemmas(Questions employees should ask when faced with ethical dilemmas

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-Is the action legal?-Is it right?-Who will be affected?-Does it fit the company’s values?-How will it “feel” afterwards?-How will it look in the newspaper?-Will it reflect poorly on the company?

Ethical Issues Relating to Business

Honesty—communication and behavior consistent with facts-Disclosure of information-Promises/commitments-Laws and professional standards-Representation of others like shareholders (applies to board members)

Unfair competition-Refrain from bribes and excessive gifts (that sway judgment)-Comply with “anti-trust” laws (these relate to pricing, monopolistic practices)

Just compensation-Respect intellectual property (product piracy)-Treat employees fairly

Respecting rights of others-Treat others with fairness and respect regardless of age, religion, ethnic group, sex, economic status, etc., especially children, women, and subordinates-Respect the community you operate in by paying fair share of economic costs you create-Respect others and future generations by treating the environment well

Ethical Behavior Adds Value. Explain how?

Better information-Trust from investors-Lower costs for audits, controls, investigations-Better allocation of resources-Customers will be more loyal

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-Lower costs from suppliers -Attracting and retaining better employees

Fair competition-Lowers cost of business in economy-to better decision-making (do what’s best for firm, not one individual)-Improves competitive nature of a country’s economy

Just compensation-Creates a more vibrant, entrepreneurial economy-Attracts and retains better employees

Rights of others-Draws upon talents of wider set of individuals-Develops long-term respect from the community -Maintains the environment for long-term value to all

Some guidelines for ethical conduct (Food for thought)

-To increase productivity, provide safe and healthy working conditions

-To inspire trust, make your performance transparent -Downsizing labor force is only beneficial when you respect each

stakeholder. -To establish your brand name, act as a fair player -Reduce the gap between the rich and poor by developing a new

social security system -If you act against discrimination, you will increase your

productivity and profitability -If you protect intellectual property, all stakeholders will receive

their due share -Ongoing changes in information technology require new forms

of loyalty -Your public relations strategy will only secure your reputation if

it witnesses your drive for quality and excellence. -Your economic achievements will only stand on firm ground if

you diminish corruption -Long-term success urgently calls you to constantly care for the

environment. -To become a refined player, sharpen your discernment and

cultivate good manners Care for your business by caring for society.

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It’s the right thing to do! Is There Evidence that Ethical Behavior Yields Increased Value?

Study of 2,100 firms with very strong, well-governed boards of directors outperformed overall market 15% vs. 12.5% in 2005 .Firms with high level of “democracy” outperformed “dictatorial” firms by 8% per year in the decade of the 1990’s.Philanthropy: Firms that contribute a higher portion of their assets to the communities in which they reside fare better in an economic downturn.

How Important is Integrity in a Leader?In a survey of 54,000 people Integrity was by far the number one attribute desired in a leader

What is Integrity?-------

All religions have taught these before us

Judaism: What you hate, do not do to anyone.Islam: No one of you is a believer until he loves for his brother what he loves for himself.Hinduism: Do nothing to thy neighbor which thou wouldst not have him do to thee.Sikhism: Treat others as you would be treated yourself.Buddhism: Hurt not others with that which pains thyself.Confucius: What you do not want done to yourself, do not do to others.Aristotle: We should behave to our friends as we wish our friends to behave to us.Plato: May I do to others as I would that they should do unto me.

Here is the Golden Rule

TREAT PEOPLE THE WAY YOU WANT THEM TO TREAT YOU

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Your additional Notes

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