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Unit-1

Values

Values are beliefs that guide, actions and judgments across variety of situations.

Milton Rokeach

Values are the constellations of likes and dislikes, viewpoints, inner inclinations, rational and irrational judgements, prejudices and

association patters that determine a person’s view of the world.

Edward Springer

Values represent basic conviction that specify mode of conduct is socially preferable to an opposite mode of conduct

Values are manifested in thoughts, speech and actions

Values are inherent in all cultures and societies

Values guide people to take specific positions on societal issues

Values are relatively stable and enduring as these are passed from one generation to another

Values are the most central to the core of a person

Values provide standards of morality

Types of values

Graves has identified seven values ranging from the lowest (reactive) to the highest (existential)

1 Reactive : Unaware of oneself and others as human beings, reacts to basic physiological need

2Tribalistic: High degree of dependence, strongly influenced by tradition and the power exercised by authority figures: wants strong

directive leadership

3 Egocentrism: Believes in rugged individualism, aggressive and selfish, responds primarily to power, desires individual;

responsibilities, wants to work alone in an entrepreneurial style

4 Conformity: Lower tolerance for ambiguity, difficulty in accepting people with divergent values, desires

5 Manipulative: Strives to accomplish goals by manipulating things and people, materialistic, actively seeks status and recognition

6 Sociocentric:Desires to be liked and go along with others rather than get ahead, dislikes materialism, manipulation and conformity,

seeks primarily the social relationship which a job provides

7 Existential: High tolerance for ambiguity and for people with divergent values, outspoken on inflexible systems, seeks full

expression of growth

8 Terminal

o Is an ultimate goal or aim of a person, it might include comfortable life, family security, sense of accomplishment, self respect,

freedom

A Comfortable Life a prosperous life

An Exciting Life a stimulating, active life

9 Instrumental

o Relates to the means for achieving the desired outcome or end

Obedient dutiful; respectful

Broad-minded open-minded

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Formation of values

People indoctrinate values from their parents, teachers, friends, media, television, radio, newspaper and all those whom they admire

and thus, try to follow

Family factors: parents

Social factors: school, religious, political

Cultural factors

Personal factors: intelligence, ability

Organizational Factors: peers, boss, subordinate

Ethics & Behavior

Greek root ‘ethos’ meaning character, guiding beliefs, standards or ideals that pervade a group, community or people

“Ethics refers to a set of moral principles which should play a very significant role in guiding the conduct of managers and employees

in the operation of any enterprise”

It is normative and perspective, not neutral

Utilitarian –proposed course of action should be judged from the standpoint of the greatest good for the greatest number of people

Moral indicates what people do, while ethics represent what people should do

Impact of Values on behavior of managers

Perception of manager about the situation he faces

Solutions faced by business enterprise

Way in which manager interacts with other individuals

Degree to which a business enterprise accepts the pressure from external forces

Values of Indian Managers

As decision makers, managers have more opportunities than others to set ethical tone for company

Man in the manger comes first. So, for proper human development along with leadership, negotiation, counselling, teaching healthy

human values carries more importance

Assertiveness

Future orientation

Gender differentiation

Uncertainty avoidance

Power distance

Individualism/collectivism

In-group collectivism

Performance orientation

Human orientation

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Managerial excellence through human values, development of ethics

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Ethical decision making

Ethical decision making involves taking into consideration ethical issues at various stages of decision making process

The basic step involved in ethical decision making are the same as in normal decision making process

PLUS APPROACH

P=Policies

L=Legal

U=Universal

S=Self

8 Steps to Ethical Decision Making In Business

Step 1: Gather the Facts

Asking questions about the issue is important!

?) How did the situation occur?

?) What issues do both sides bring to the table?

?) Is there any background information I am given?

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Step 2: Define the Ethical Issues

?) Why are people upset?

In most cases, one side or the other does not agree on what the issue really is. You need to define the ethical issue for yourself before you can

make a sound decision.

Step 3: Identify the Affected Parties

The affected parties are anyone who is effected by the consequence of the ethical issue. Sometimes not all of the effected parties are

mentioned, however, they still need to be considered.

?) Who are all of the effected parties

STAKEHOLDER: Those who have a stake in the organization and how it performs. These can include: Owners, managers, customers,

employees, suppliers, the community, the government, the natural environment, and of course stockholders.

Step 4: Identify the Consequences

After you identify each party involved, identify the consequences for each party.

?) How does each party’s consequences fair when compared with the outcome?

Long Term vs. Short Term Consequences

?) How will the ethical decision effect the parties in the long term… and the short term.

Symbolic Consequences

Every decision and action sends a message.

?) What message will be sent by the ethical decision?

?) What will happen if it is misunderstood?

Consequence of Secrecy

Sometimes a decision is made in private to avoid confrontation or negative reaction.

?) Is it a sound ethical decision if the decision must be hid from some stakeholders?

Step 5: Identify the Obligations

When determining an ethical issue it is important to look at the obligations of the stakeholders and make sure that each is justified.

?) What are each parties obligations?

Step 6: Consider Your Character and Integrity

Society defines what ethics is for us, however, the community of the stakeholders may have a different view than you. When making an

ethical decision you must consider the following…

?) Disclosure Rule: If you do not want others to know about it… then you should not be doing it!

Step 7: Think Creatively about Potential actions

Before a final decision is rendered make sure you have unnecessarily forced yourself into a corner. Many ethical decision are not A or B

choices, get creative about other ways to solve the problem.

?) What is another way to solve the problem?

Step 8: Check your Gut

?) How do you feel about the ethical decision?

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?) Was the conclusion easy for you to come up with?

Stakeholder Management Approach Defined

The stakeholder approach provides a framework that enables users to map and ideally, manage the corporation’s relationships, both

present and potential, with groups to reach win-win collaborative outcomes.

It does not have to result from a crisis or controversial situation.

It can be used as a planning method to anticipate and facilitate business decisions, events, and policy outcomes.

Business units, teams, and groups can use this approach.

Three Issues Management Approaches

First Approach: 6-Step Issue Management Process

Most straightforward

More appropriate for companies or groups trying to understand, manage, and control their internal environments

Involves the following steps:

Environmental scanning and issues identification

Issues analysis

Issues ranking and prioritizing

Issues resolution strategizing

Issues response and implementation

Issues evaluation and monitoring

Second Approach: 7-Phase Issue Development Process

Issues are believed to follow a developmental life cycle

Life-cycle stages suggested for tracking an issue:

A felt need arises

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Media coverage is developed

Interest group development gains momentum

Policies are adopted by leading political jurisdictions

The federal government gives attention to the issue

Issues and policies evolve into legislation and regulation

Issues and policies enter litigation

Third Approach: 4-Stage Issue Life Cycle

Thomas Marx observed that issues evolve from social expectations to social control through the following steps:

Social expectations

Political issues

Legislation

Social control

Two Crisis Management Approaches

First Approach: Precrisis Through Resolution

According to this model, a crisis consists of four stages:

Prodromal (precrisis)

Warning stage

Acute

Damage has been done

Chronic

Clean-up phase

Resolved

The crisis management goal

Second Approach: Reaction Through Accommodation

Five phases of corporate social response to crises related to unsafe products, or product crisis management include:

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Reaction

A crisis has occurred

Defense

The company is overwhelmed by public attention

Insight

Most agonizing time

Accommodation

Addressing public pressure and anxiety

Agency

Company attempts to understand the causes

Suggestions that corporations can follow to respond more effectively to crises include:

Face the problem

Take your lumps

Recognize that there is no such thing as a secret or private crisis

Stage war games

Use the firm’s philosophy, motto, or mission statement

Use the firm’s closeness to customers and end users for early feedback

Issues and crisis management methods and preventive techniques are effective in corporations only if:

Top management is supportive and participates

Involvement is cross-departmental

The issues management unit fits with the firm’s culture

Output, instead of process, is the focus

Relevance of Business Ethics

Arguments against Bringing Ethics into Business

The Milton Friedman’s Argument

o The managers should single-mindedly pursue profit to the exclusion of all else (morality included)

The Argument from Incentives

o The only practical way to encourage ethical behavior is to install financial and legal incentives

o Bs people do not respond o ethical lectures

The Gut Feeling Argument

o One cannot study ethics in any meaningful sense anyway.

o It is something you feel not something you think about

The Moral Development Argument

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o Moral character is formed in early childhood not while sitting in ethics class.

o It’s too late by the time students enter the college

Loyal Agent's Argument

o A loyal agent's duty is to serve his/her employer as the employer wants to be served.

o An employer wants to be served in whatever ways will advance his/her self-interest.

o Therefore, as loyal agents of their employers (stockholders) managers have a duty to serve their employers in whatever

ways advance their employers self-interest.

Business ethics is essentially just obeying the law

o Wrongful business practices are those forbidden by law.

o Therefore following the law is sufficient to prevent wrongful conduct in & by businesses

o There is a prima facie moral obligation to obey the law

The Case For Ethics in Business

Simple Argument

o Ethics should govern all human activities.

o Business is a human activity.

o Therefore, ethics should govern business too.

Argument from Businesses Need for Ethics

o Businesses can't survive without ethics

business requires at least a minimal adherence to ethics on the part of those involved in the business: e.g., the

honoring of contracts by customers, managers, & employees

business requires a stable society in which to carry on its dealings: morality is a stabilizing force in society.

o Therefore it is in the best interests of businesses to promote ethical behavior (and practicing it is the best way to promote

it).

Argument from the Consistency of Ethical Considerations with Business Pursuits (of profit)

o Observed evidence

Business can have exemplary ethics & still be very profitable

No studies have found a negative correlation between socially responsible behavior and profits.

o Reasons behind the profitability of ethical behavior: ethical behavior cultivates good will & loyalty

among customers

among employees

Game theoretic considerations: "the prisoner's dilemma" lesson: "when people deal with each other repeatedly, so that each can

later retaliate against or reward the other party, cooperation is more advantageous than continually trying to take advantage of the

other party."

Unethical businesses become targets of moral outrage which works to their detriment.

Spiritual Values

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Ethical issues & dilemmas

Feedback about performance

Truth telling to peers

Fair treatment of customers

Pressure from Management

Each company's culture is different, but some companies stress profits and results above all else. In these environments,

management may turn a blind eye to ethical breaches if a worker produces results, given the firm's mentality of "the end justifies the

means." Whistle-blowers may be reluctant to come forward for fear of being regarded as untrustworthy and not a team player.

Therefore, ethical dilemmas can arise when people feel pressured to do immoral things to please their bosses or when they feel that

they can't point out their coworkers' or superiors' bad behaviors.

Ambition and Discrimination

Individual workers may be under financial pressure or simply hunger for recognition. If they can't get the rewards they seek through

accepted channels, they may be desperate enough to do something unethical, such as falsifying numbers or taking credit for another

person's work to get ahead.

Though diversity is an important part of business, some people may not be comfortable with people from different backgrounds and

possibly be reluctant to treat them fairly. This kind of discrimination is not only unethical but illegal and still remains common.

Negotiation Tactics

While these factors can cause ethical dilemmas for workers within their own companies, doing business with other firms can also

present opportunities for breaches. Pressure to get the very best deal or price from another business can cause some workers to

negotiate in bad faith or lie to get a concession. Negotiators may also try to bribe their way to a good deal. While this is illegal in the

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U.S., it still sometimes happens; in other nations, it is more common, and sometimes even expected, which can put negotiators in a

difficult position.

Solutions

These ethical dilemmas can be difficult for workers to grapple with, especially if they don't know what the company's official

guidelines are. Therefore, it is in an organization's best interest to provide ethical training to its employees, to help them identify

unethical behavior and give them tools with which to comply. Every company should have an ethical policy that spells out its

penalties for infractions. Moreover, management must lead by example, showing that the company takes ethics seriously and that

violators will be punished according to the organization's policies, including possible suspension or termination.

Corporate Social Responsibility

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Ethical Principles for Managers

1. HONESTY. Be honest in all communications and actions. Ethical executives are, above all, worthy of trust and honesty is the cornerstone of

trust. They are not only truthful, they are candid and forthright. Ethical executives do not deliberately mislead or deceive others by

misrepresentations, overstatements, partial truths, selective omissions, or any other means and when trust requires it they supply relevant

information and correct misapprehensions of fact.

2. INTEGRITY. Maintain personal integrity. Ethical executives earn the trust of others through personal integrity. Integrity refers to a

wholeness of character demonstrated by consistency between thoughts, words and actions. Maintaining integrity often requires moral

courage, the inner strength to do the right thing even when it may cost more than they want to pay. The live by ethical principles despite great

pressure to do otherwise. Ethical executives are principled, honorable, upright and scrupulous. They fight for their beliefs and do not sacrifice

principle for expediency.

3. PROMISE-KEEPING. Keep promises and fulfill commitments. Ethical executives can be trusted because they make every reasonable effort to

fulfill the letter and spirit of their promises and commitments. They do not interpret agreements in an unreasonably technical or legalistic

manner in order to rationalize non-compliance or create justifications for escaping their commitments.

4. LOYALTY. Be loyal within the framework of other ethical principles. Ethical executives justify trust by being loyal to their organization and

the people they work with. Ethical executives place a high value on protecting and advancing the lawful and legitimate interests of their

companies and their colleagues. They do not, however, put their loyalty above other ethical principles or use loyalty to others as an excuse for

unprincipled conduct. Ethical executives demonstrate loyalty by safeguarding their ability to make independent professional judgments. They

avoid conflicts of interest and they do not use or disclose information learned in confidence for personal advantage. If they decide to accept

other employment, ethical executives provide reasonable notice, respect the proprietary information of their former employer, and refuse to

engage in any activities that take undue advantage of their previous positions.

5. FAIRNESS. Strive to be fair and just in all dealings. Ethical executives are fundamentally committed to fairness. They do not exercise power

arbitrarily nor do they use overreaching or indecent means to gain or maintain any advantage nor take undue advantage of another’s mistakes

or difficulties. Ethical executives manifest a commitment to justice, the equal treatment of individuals, tolerance for and acceptance of

diversity. They are open-minded; willing to admit they are wrong and, where appropriate, they change their positions and beliefs.

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6. CARING. Demonstrate compassion and a genuine concern for the well-being of others. Ethical executives are caring, compassionate,

benevolent and kind. They understand the concept of stakeholders (those who have a stake in a decision because they are affected by it) and

they always consider the business, financial and emotional consequences of their actions on all stakeholders. Ethical executives seek to

accomplish their business objectives in a manner that causes the least harm and the greatest positive good.

7. RESPECT FOR OTHERS. Treat everyone with respect. Ethical executives demonstrate respect for the human dignity, autonomy, privacy,

rights, and interests of all those who have a stake in their decisions; they are courteous and treat all people with equal respect and dignity

regardless of sex, race or national origin. Ethical executives adhere to the Golden Rule, striving to treat others the way they would like to be

treated.

8. LAW ABIDING. Obey the law. Ethical executives abide by laws, rules and regulations relating to their business activities.

9. COMMITMENT TO EXCELLENCE. Pursue excellence all the time in all things. Ethical executives pursue excellence in performing their duties,

are well-informed and prepared, and constantly endeavor to increase their proficiency in all areas of responsibility.

10. LEADERSHIP. Exemplify honor and ethics. Ethical executives are conscious of the responsibilities and opportunities of their position of

leadership and seek to be positive ethical role models by their own conduct and by helping to create an environment in which principled

reasoning and ethical decision making are highly prized.

11. REPUTATION AND MORALE. Build and protect and build the company’s good reputation and the morale of it’s employees. Ethical

executives understand the importance of their own and their company’s reputation as well as the importance of the pride and good morale of

employees. Thus, they avoid words or actions that that might undermine respect and they take affirmative steps to correct or prevent

inappropriate conduct of others.

12. ACCOUNTABILITY. Be accountable. Ethical executives acknowledge and accept personal accountability for the ethical quality of their

decisions and omissions to themselves, their colleagues, their companies, and their communities.

UNIT-2

Corporate Governance

Corporate governance

Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the

distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers,

shareholders, creditors, auditors, regulators, and other stakeholders) and specifies the rules and procedures for making decisions in corporate

affairs. Governance provides the structure through which corporations set and pursue their objectives, while reflecting the context of the

social, regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions of corporations.

Governance involves the alignment of interests among the stakeholders

Principles of corporate governance

Rights and equitable treatment of shareholders:[15][16][17] Organizations should respect the rights of shareholders and help

shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating

information and by encouraging shareholders to participate in general meetings.

Interests of other stakeholders:[18] Organizations should recognize that they have legal, contractual, social, and market driven

obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and

policy makers.

Role and responsibilities of the board:[19][20] The board needs sufficient relevant skills and understanding to review and challenge

management performance. It also needs adequate size and appropriate levels of independence and commitment.

Integrity and ethical behavior:[21][22] Integrity should be a fundamental requirement in choosing corporate officers and board

members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible

decision making.

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Disclosure and transparency:[23][24] Organizations should clarify and make publicly known the roles and responsibilities of board and

management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify

and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should

be timely and balanced to ensure that all investors have access to clear, factual information

IMPORTANCE OF CORPORATE GOVERNANCE

1. Changing Ownership Structure : In recent years, the ownership structure of companies has changed a lot. Public financial

institutions, mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on

the management of the companies. They force the management to use corporate governance. That is, they put pressure on the

management to become more efficient, transparent, accountable, etc. The also ask the management to make consumer-friendly

policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate

governance.

2. Importance of Social Responsibility : Today, social responsibility is given a lot of importance. The Board of Directors have to protect

the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate

governance.

3. Growing Number of Scams : In recent years, many scams, frauds and corrupt practices have taken place. Misuse and

misappropriation of public money are happening everyday in India and worldwide. It is happening in the stock market, banks,

financial institutions, companies and government offices. In order to avoid these scams and financial irregularities, many companies

have started corporate governance.

4. Indifference on the part of Shareholders : In general, shareholders are inactive in the management of their companies. They only

attend the Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak in the meetings.

Shareholders associations are not strong. Therefore, directors misuse their power for their own benefits. So, there is a need for

corporate governance to protect all the stakeholders of the company.

5. Globalisation : Today most big companies are selling their goods in the global market. So, they have to attract foreign investor and

foreign customers. They also have to follow foreign rules and regulations. All this requires corporate governance. Without Corporate

governance, it is impossible to enter, survive and succeed the global market.

6. Takeovers and Mergers : Today, there are many takeovers and mergers in the business world. Corporate governance is required to

protect the interest of all the parties during takeovers and mergers.

7. SEBI : SEBI has made corporate governance compulsory for certain companies. This is done to protect the interest of the investors

and other stakeholders.