Business Ethics and Corporate Social Responsibility (English Version)-munotes

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1Unit-1
INTRODUCTION TO BUSINESS ETHICS
Unit Structure :
1.0 Introduction to Business Ethics
1.1 Ethics
1.2 Approaches to Business Ethics
1.3 Gandhian approach of Trusteeship
1.4 Emergence of new values in Indian industries after economic
reforms of 1991
1.5 Summary
1.6 Exercise
1.0INTRODUCTION TO BUSINESS ETHICS
Business Ethics –The concept came into existence in 60’s in the
USA which denotes fundamental or principle values in business.
When business practices and more associated with consumers
then most of the consumer centric corporations in US showed
concerns about business environment, social values. It directs
ultimately to the welfare of the society as a whole.
ETHICS
The word “Ethics’ means fundamental values or moral rights.
Itempha sies values or character that leads to the category of the
segment or group or society of the segment, or group or society as
a whole. It studies what is right or wrong in leading a good Li fe
based on certain concrete assumptions . Such assumptions are
interch angeable.
Inreality there is a difference between ethics and morality.
Morality is one of the aspects of ethics and study of ethics will
enhance the outcome of morality. Morality basically consist on what
is right or wrong through a process of justifica tion or valid
reasoning. So ethics follow the process of justification whereas
morality gives us an idea or attempt of moral judg ement.
DEFINITION OF BUSINESS ETHICS
a) Andrew Crave :
“Busines ethics is a study of business situations, activities
anddecisions where issues of right and wrong are addressed.”munotes.in

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2b) Robert Ginner :
“Busines ethics may be defined as those principles,
practices and philosophies that are concerned wih moral
judgements and good conduct as they are applicable to bu siness. ”
c)Krik O Hanson :
“Busines ethics is the study of standards of business
behaviour which promote Human Welfare and the good. ”
d) Investopedia :
“Busines ethics is the study of proper business policies and
practices regarding potentially controversial issues such as
Corporate Governance, insider trading bribery, discrimination,
Corporate Social responsibilities.
FEATURES OF BUSINESS ETHICS
a.Ethical Values
b.Code of conduct
c.Subjective Term
d.Protection of Interest of the Stakeholders
e.Respect with dignity
f.Proper set -up
g.Based on Principles
h.Universal Applications
i.Self Discipline
j.Different Approach from CSR
k.Different from Business Law practices
a.Ethical Values :-
Morality is the soul of business ethics. Modern world is more
aware about the rights, duties, buying ,selling process is legal
awareness has increased tremendously; so business world has
tried its level best to attain the welfare of the society therefore
business render its acti vities on self conscious ‘ethical’ values.
b.Code of conduct :-
Morality and quality judgement are the core factors for
conduct of business activiti es. Ethical business will lead the
foundation for moral business. Self check and self control are other
two parameter which will carry out compa ny’s mission successfully.
c.Subjective Term :-
Ethics differs from business to business. Its perceptions are
based on moral and social grounds while conducting the business.
There are no concreate rulesa n dr e g u l a t i o n s for business
activities. The soul aim is to attain welfare of the society as a whole.munotes.in

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3d.Protection of theInterest of the Stakeholders :-
Every business should give priority to the Society’s Welfare.
After attaining the interest of t he society, it has social binding to
protect the interest of macro environmental factors such as
Stakeholders government, suppliers etc.
e.Respect with dignity :-
Business should not discriminate society on the grounds of
income, class, creed, religi onetc. Ethical business should create
confidence in the society about opinions, equality etc.
f.Proper set -up:-
Business community is bound by social, ethical rules and
regulations within t hel e g a l framework they should operate
administer their bus iness policies. The ultimate aim is to achieve
the interest of the society.
g.Based on Principles :-
Like code of conduct, professional ethics business
communities are based on legal, social, cultural, environmental
principles. Once principles arelaid down properly , it will be easy to
pursue plans and policies of business effectively and efficiently
h.Universal Applications :-
Business operations in the world are more or less based on
Standard Operating Procedure (SOP). Irrespective of size of
business, plans, policies, legal frame work etc. are generally based
on proper code of conduct ;In some cases business ethics may
differ from country to country because of the forces of macro
environmental factors.
i.Self Discipline :-
Initial ly business system was mainly focused to the general
welfare of the Stakeholders but afterwards awareness respect to
social attitude, environmental aspects human relations etc. was
very much inculcated among business communities. Ultimately at
one point of time majority business communities started taking
precautionary measures about business and concerned aspect of
awareness.
j.Different approach from CSR
CSR is mainly associated with the functioning of administrative
aspects of the enterprise wherea sbusiness ethics are mainly
focusing on motivational and behavioural aspects. This goes on
changing as social and environmental factors gets changed.
k.Different from Business Law :-
Ethics provides set of guidelines based upon v alue
judgement and morality. As business laws stress on fair conduct ofmunotes.in

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4business practices which is mandatory whereas practices of ethical
business is optional. Apart from this ethics are abstract in gen eral
and laws are expressed and published in proper format.
NEEDS AND I MPORTANCE OF BUSINESS ETHICS
Need& importance of Business Ethics .Real need of
business ethics is felt in recent years following are the points which
will stress out need & importance of business ethics : -
1.Survival : -
Business needs to follow mora l values and ethics for its
survival and growth. Unethical gains are for short term they are not
viable or fruitful for survival. To make business prosporous, ethical
values and its implementation is essentials.
2.Consumer rights :-
Implementation ofconsumers rights itself is an ethical way of
conducting the business. This gives strength of individual consumer
against the powerful business. Implementation of consumer rights
will get control on unethical malpractices in business such as food
adulterati on,malpractices on weights and measurement.
3.Welfare of the Society : -
Ethical business always profect societal interest. Production
of goods and services are produced deli vered with the intention of
social welfare, business will always protect con sumer interest by
taking possible efforts by producing eco friendly products.
4.Protection of S.S.I. & Cottage Industry: -
In India SSI and Cottage Industry plays on active role. To
safeguard the interest of SSI and cottage industries big business
units should handle their business operations ethically so as to
safeguards the interest of SSI & cottage industries.
5.Mutual benefits: -
B. E. benefits business and society . By rendering ethical
services for the society business firms gain goodwill andr e p u t a t i o n .
Society also recognises the importance of fair & ethical business
practices.
6.Growth and Expansions: -
B. E. encourages for growth and expansion of business. It
enables for the firm to gain reputation and goodwill, trust and
confidence ofmicro and macro environmental forces .
7.Decision making: -
After adopting /accepting to implement ethical pract ices, it
will enable the busin essfirms to incorporate ethical values based
on moral consideration for eco -social environment. It ultimate lymunotes.in

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5leads to quality improvement and economies of scale in operation
system.
8.Boosting Economy: -
Ultimately incorporating ethical practices in business will
lead to increment in overall productivity which inturn leads to
increase in national income. Acceleration in economy will enhance
more circulation of goods and services more economic fluctuations
will result in positive income and its distribution.
INDIAN ETHOS
The Greek word “Ethos” denotes character. It characterises
guiding beliefs for th e community.
Itemphasises spirit and beliefs of the community which may
vary from culture to culture of the society.
Itis moral ideas or attitude that particular community or
society observes. It examines individual morality or ethical
standards wh ereparticular society exists.
Other side of the ethos speaks about expected values of
standards that individuals or group must observe to attain social
welfare. It is based on set of beliefs ideas attitude of individuals; so
itdiffers from person to per son.
InIndia, in general society believes the following standards
or norms of ethics.
-Accepting accommodative attitude rather than conflicts.
-More focus on duties rather than always asking for rights.
-More dependence on self control rather than external control.
-Instead of materialistic attitude there is willingness for
spirituality.
-Instead of ego assertion , accepting ego sublimation.
-Accepting flexibility rather than static approach.
-No dominance over nature, accept smooth living conce pts.
-Respecting elders and avoid conflicts with them.
-More inputs should be given for substance rather than form.
-Instead of sceptical approach adopt the concept “Trust”.
FEATURES OF INDIAN ETHOS AND VALUES
1.Meani ngful Living:
Indian ethos str ongly believes on Supreme Power. Ideology
ofsupreme power is having different perception in the society asmunotes.in

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6Indian culture is having multidimensional face. Everything is
interconnected with two types of truth.
1.Love
2.Sacrifice
After creating the bas eo f there truth it emerges in
meaningful living.
2.Godliness of Individual:
Divinity of human being is not idea or belief. It is a truth that
every individual experiences.
3.Understanding Self:
It is a vital concept individual has to understand se lf by
keeping away selfishness. Person has to be focused about
individual ideology, concepts and its acceptance.
4.Cosmic Consciousness:
It is based on divine element of an individual .I n d i a ne t h o s
speaks about the element of interconnectivity which gi ves us an
idea of universal concepts.
1.Give respect take respect.
2.Give support accept support.
5.Values:
Indian ethos speaks about spiritual values. The base of such
values is Indian scriptures which provide us eternal truth or
knowledge. Each and every work or job is respectable one has to
maintain its dignity. It also stresses on duties to be performed and
responsibilities lying with it.
6.Work worthiness:
Each job or work is worthy and it should be honoured by
everyone .A p a r tf r o mas m a l l or big job or occupation dignity
simplifies its worth.
7.Result oriented:
Indian ethos focuses more on process associated work
culture rather result or outcome oriented work culture. To achieve
the end result should be the aim.
8.Base of Indian scriptures:
Base of Indian ethos isIndian scriptures. It provides eternal.
Knowledge ,D i g n i t yo f work; its value is worthy and widely
acceptable. No work is underestimated as per Indian ethos.munotes.in

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79.More focus on rights, duties and responsibilities:
The span of Indian ethos is acceptable to all walks of Life.
Right from business, educational, socia l, political organisations,
Indian ethos emphasis on rights duties and responsibilities. With
proper discipline all ethical values are applied from time to tim e.
ETHICS & VALUES
As we have seen ethics deal with the ideas of good and bad
behavioural aspects.
Values are standards orprinciples on one’s judgement are
based. Values are important in every walk of life.
About right or wrong behaviour values deter mine whereas
ethics relate.
Value is a belief and ethos are guideline for ideal behaviour
butethical values are prescriptive belief or idea. Values are based
on belief or perceived outcomes. Itgives shape for perceptions,
attitudes, and actions in tur n personality of individual.
Difference in Ethics and Values: -
Sr.
No.EthicsSr.
No.Values
(1) MEANING
(i) It is moral code of conduct
which decides good or
bad behaviour(i) Values are guidelines or
principles on which
individuals’ value system
is based.
(2) JUSTIFICATION
(ii) Ethics are uniform for
entire society.(ii) Values differ from person
to person, society,
community.
(3)APPROACH
(iii)It restricts person or
individual from doing
unethical things and
directs.(iii)It motivate s or directs to
act in a better way in the
society.
(4)FORMULATION
(iv)Ethics are guidelines set
up for the organisation or
society after thoughtful
process.(iv)Individual can formulate
his own set of values or
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8(5)NATURE
(v)It is a branch of
philosophical science
which deals with wellbeing
of the human behaviour.(v) It isan embodiment of
individual standards .It is
the basis for the
behavi our.
(6)OUTCOME
(vi)It formulates harmony in
society as they form a set
ofpolicies, rules etc. for
sustainable development(vi)It brings harmony in
relationship which leads o
proper balance in day to
day life.
(7) SOURCES
(vii) Indian scriptures , cultural
taboos, ethical laws etc.
are the sources for ethics.(vii)Gener icsources, micro
andmacro environmental
forces, behaviouristic .
Pattern of elders etc. are
thesources for values.
(8) EXAMPLES
(viii) Fair deals in day to day
business activities, ethical
advertising, fair pricing
etc.(viii) Human values
judge mental aspects
which motivates individual
to act in right way.
WORK ETHOS
Meaning:
Itrefers to the norms of the behaviour of an employee in the
organisation to achieve organisational goals a ndo b j e c t i v e s .It is
applicable to all level of employees i n the organisation. It is a set of
moral approaches or principles which are acceptable to workers. It
isvalue based on hard work and diligence .
Factors / features of work ethos: -
Workers in the organisation should work on the basis of
common –sense and wholehearted devotion for the work which
they carry out. They should work i n discipline dmanner which will
be helpful for both organisation and workers. It increases moral
inturn productivity of the organisation .I tg i v e s recognition and
reward for th eir sincere efforts for the organisation.
Loyalty and integrity:
At w orking place employees should be loyal to the
organisation .T h e y should always take creative efforts to increase
thereputation and goodwill of the organisation . This will be possible
when they are self -disciplined and sense of belonging. Employees
should work with integrity in the interest of the organisation. Loyaltymunotes.in

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9and integrity will develop the trust at every level in organisation al
set up.
Attitude:
Employees should always carry positive attitude while
working in the organisation. Attitude is a tendency or way of
behaviour having positive attitude will help to bring punctuality,
dedication in work -life balance.
Passion:
Work ershaving enthusiastic attitude may work with passion.
It brings novel ideas, concepts, principles which will help to boost
up the organisation to achieve goals.
Humility:
It brings group cohesiveness in the organisation . Accepting
drawbacks is very important because it is a basic step for pos itive
learning. Giving appreciation for others work is also very important.
Humility brings life long learning process.
Equity:
To have fair and just treatment every manager must adopt
the principle of equity. Itis totally different from equality. Justice a nd
kindness are the pillars of equity. Equity policy can be changed
depending upon the circumstances.
Team spirit:
Top level management must take initiative for team spirit
among the subordinates . It leads to commitment , dedication, and
loyal tyof the org anisation. Itbrings group cohesiveness and avoids
conflicts in the organisation.
Ethical administrative and perso nnelpolicies:
Proper administrative and personnel policies will bring
harmony in work culture ethical policies will have a p ositive impact
especially in Recruitment and selection, placement and training,
promotion and performance appraisal incentives and compensation
etc.
Function alarea and ethical practices:
Right from production till distribution ethical practices will
bring sincerity, loyalty, dedication etc. which results in reputation
and goodwill of the organisation.
Work culture:
Managers should adopt complete profes sionalism in
decision making process to come for the right conclusion .I ti s
essential to have proper data, its suitable analysis .munotes.in

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101.1ETHICS
So for we have seen ethics means a system of good and
bad, moral and immoral, fair and unfair code of conduct within the
set up of organisation.
Ethics -Sources:
Following are the sources of ethics: -
Religion
-Oldest foundation of standards of ethics.
-It istestimony of divine.
-It draws a line of demarcation between good and bad.
Itdepends upon religious influence which varies from time to
time. There are different segments in religion -
a)orthodox
b)Moderates
Under the segment of orthodox degree of influence of
religion is very high and vice a versa in case of moderates.
Every religion speaks about ethical and unethical norms in
all walks of life. Exchanging things with others for mutual bene fits is
seen or observed in all religions. This is known as “Principle of
Reciprocity .”
From childhood everyone follows religion and it is deeply
rooted in the behaviour of individual . One can understand the
difference between ethical and unethical.
Allthe religion sp r e a c ht h en e e df o r orderly social system
which mainly focuses on sens e of social responsibility and sense of
behaviour which helps to attain welfare of the society.munotes.in

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11Every religion has its own code of conduct which gives
emphasis on soc ial responsibility ,sense of behaviour al
understanding and we lfare of the society in general.
Culture: -
Itisanother source of business ethics which every individual
follows as per certain guidelines prevalent in the society.
Itisa set of values b eliefs, expectations, atti tudes , rituals,
social norms etc.
Allmembers in the community learn and share it from
generation to generation. Cultur altaboos are different from religion
to religion hence it shows distinctiveness among the groups in the
societyculture gives.
guidelines
shapes the behaviour
Develop st h ea t t i t u d e of the people in the society.
In organisations; it reflects values and beliefs, mission as
well as goals of the organisations.
It gives -
Sense of identity of to the members of the organisation.
Individual standing is based on the cultural merits of the
organisation.
Culture teaches us -
What is acceptable, in general for the society?
Moral code of conduct.
Sense of belonging , understanding and virtues.
Law: -
It is a statutory code of conduct by the statutory body say
government which has to be followed by individual as well society
for maintaining social interest. It guides about laws and order a nd
human behaviour in the society as a whole.
Ethical principles which the law defines are binding on the
people in the society. Business organisations in India must adhere
tovarious laws which are applicable while conducting business
activities .
- Partnership Act 1932
- Foreign Exchange Management Act 1999
- Indian Contract Act 1872 etc.
It is expected that Business firm must follows these acts in
day to day busine ss activities. In practice we observed that many
business units are engaged in unethical practices such as tax
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12CONCEPT OF CORP ORATE ETHICS
Corporate ethics are also known a sbusiness ethics which
examines ethical principles which are applicable in day to day
business practice s.
It refers to applica tion of ethical values on the part of
organisat ion units. It involves:
- Cooperate citizenship behaviour
- Dependency
- Concern about society
- Caring approach
- Good governance
- Honesty, equity –Integrity
- Social respect
- Social Responsibility
- Trustworthiness
From ma cro level indicates various sections of the society
where corporate ethics are to be fulfilled.
It can bevisualised byt r e ed i a g r a m asfollows: -
It refers to application of ethical values on the part of
organisation units. It involves:
Corporate ethics
TREE DIAGRAM
Employers Customers Dealers Fin.
InstitutionGovt.
AgencyShareholders
&
StakeholdersSociety
social
responsibilit
y
-Proper
wages
-Service
conditions
-Working
conditions
-Proper
selection
-Approval
-Training &
Dev.
-Placement
-
Performance
Appraisal
-
Promotions,
transfer
-Career
Development-Quality
Production
-Right Price
-After Sales
Service
-Specific
handling
instruction
about
production
-Quick
consideration
about queries-Stock
online
-Proper
Payment
-
Assistance
in case of
need-Regular
periodic
-Payment
of loans
and
interest.
-Proper
records of
financial
statement
-
Approved
sets of
financial
records-Proper
records
-Authentic
registration
process
-Periodical
tax payment
-
Compliance
with SEBI
-DGFT etc.-Proper
payment of
dividend
supply of
-Proper and
valid reports
from time to
time-
Sponsorship
-Assistance
to weaker
section of the
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13Employers
-Proper wages
-Service conditions
-Working conditions
-Proper selection
-Approval
-Training & Dev.
-Placement
-Perfor mance Appraisal
-Promotions, transfer
-Career Development
Customers
-Quality Production
-Right Price
-After Sales Service
-Specific handling instruction about production
-Quick consider ation about queries
Dealers
-Stock online
-Prope rP a y m e n t
-Assistance in case of need
Fin. Institution
-Regular periodic
-Payment of loans and interest.
-Proper records of financial statement
-Approved sets of financial records
Govt. Agency
-Proper records
-Authentic registration proce ss
-Periodical tax payment
-Compliance with SEBI
-DGFT etc.
Shareholders & Stakeholders
-Proper payment of dividend supply of
-Proper and valid reports from time to time
Societys o c i a l responsibility
-Sponsorship
-Assistance to weaker section of the s ervice
CODE OF ETHICS
It isset of guidelines or principles which are observed in day
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14Itworks in conjunction with company’s vision and mission.
These principles are designed to help the business
professiona lsto conduct business honesty with proper dedication
and integration.
Code of ethics is a set of principles of ethics which designs
the outline of vision and mission. It results inculcating the value of
business practices. It governs the principles and guidelines
governing the behaviour of individuals and organisations in internal
auditing.
It gives us the guidelines about minimum requirement for
conduct and behaviour al aspects.
Ethical codes are adopted by companies to explain the
distinction betwee n“correct” and “incorrect”.
The set of documents under code of ethics is based on
codes of:-
-Business ethics
-employees
-Professional practices
It isimportant because it clearly lines upon lay out the rules
forbehaviour and it provides pre-emptive instructions ‘Violation so f
Code of business ethics results in strict action such as termination
or dismissal from the company.
Generally the ethical code is broadly divided into two
groups: -
-Compliance based ethics
-Value based code of ethics
Guidelines ford e v e l o p i n g code of ethics:
Ingeneral code of ethics is prepared by top level
management .T o p officials should understand the genuine
problems faced by middle level and lower level management .S o
while drafting the code of ethics it is essential to have consideration
towards employees in drafting code of ethics.
Code of ethics may vary from organisation to organisation
but in general following guidelines should be considered while
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15Business Ethics & CSR: -
Orderliness: -
1) Customiza tionof Code of ethics: -
As per the specifications of organisation code should be
custom –made. In this suppose if deviations are found, then
necessary charges are to be made.
2) Employee Involvement: -
Officials who will be instructed or guid ed by the code of
ethics should be actively involved in writing it.
In case of wide span of an organisation each & every
employee should be activ elyinvolved. This is essential because
documentation should be of that worth where higher level of
acceptan ce can be easily acquired.
3) Consul tation with stakeholders: -
Stakeholders such as customer’s suppliers and low
community groups should be consul tedbefore drafting code of
ethics. It helps to expedite Key oblig ations, ideas ,r a n g eo f issues
that migh tconfront the organisation.
4) Careful outsourcing: -
When organisation appoints consultant s,it is expected that
there should be value additions in respect of knowledge
experience .I th e l p s then to remove discrepancies from the
organisation and then onl yi tw i l l represent clearly organisation’s
principles, goals, objectives, vision, mission and aspiration.
5) Clarity about vision and mission: -
Code of ethics should cover each & every aspect from lower
level to top level management everyone should foll owit seriously
and sincerely. It is not to betaken lightly as it ultimately focuses on
goals and objectives of the organisation .
6) Revision of code: -
In due course it is essential to revise the code. As times
changes it reflects different aspects conn otations, principles in
different ways . New issues, concept should get proper weightage in
the organisation . Generally the compliance officer is monitoring the
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16ETHICS MANAGEMENT PROGRAMME
It consists of
-Plan
-Policies
-Procedures
-Education
-Training and Development
Which explains the importan ceof org anisation s code of
ethics.
Every organisation should have best ethics management
programme to ensure that worke rsfrom the organisation and
understanding properly its va lue and comply the code of ethics so
as to maintain harmony in the organisation.
Apparently we find i fsomewhat easy but in reality the
implementation of ethics program me is most difficult aspect.
If its execution is done systematically it can lea d to positive
influence on the organisations overall performance. Involvement of
customers ,stakeholders is very critical for successful
implementation of ethics programm egroup cohesiveness and
positive contribution from executive management will show
contribute improvement of good gove rnance of the organisation.
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17Elements of Best Practices Ethics Programme: -
Vision Statement
Mission Statement
Value
Statement
Organisational code of ethics
Ethics compliance officer
Ethics Committee
Ethics Comm unication procedure
Ethics Training
Ethics grievance solving
Measurement and rewards
Monitoring programme
Evaluation
Ethical leadership
Following is the discus sion in brief for effective practices
ethics programme.
Vision and mission statement:
Vision statement defines long-term desirable goals of the
organisation .I t gives guidelines for problem solving approach
decision making.munotes.in

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18ETHICS COMMITTEE
Ther e are no specific guidelines laid down in companies Act
2013 or listing agreements and SEBI regulations .Organisation of
its own should use itsdiscrete powers to constitute ethics
committees.
It is advisable that ethics committee should constitute with
the independent non executive directors to ensure employees
compliance with reference to code of ethics.
Iti s always suggested that there should be stand alone
committee toensure optimise implementation so as to judge its
effectiveness.
Purpose of ethi cscommittee: -
Toinculcate ethical values throughout organisation.
To create awareness among directors about ethics and values
of the organisation.
To inculcate seriousness among employees about administering
ethic sa n dv a l u e s .
Tobuilt upconstant rapeor communication and demonstrations
To built reinforcement of an ethical culture.
General responsibilities of Ethics Committees in nutshell: -
It frames with necessary inputs about Code of Ethics which
must be adhered to by all employees.
Relating to ethical values and business practices of an
organisation; effective training has to be ensured.
Effective dialogues or communication reinforces ethical values
andbusiness practices.
It is the sole responsibility of an ethical committee to ensure
proper s etting up of monitoring, reporting and concern
accountability systems.
It creates helplines and proper mechanism to provide
assistanc erelating to implementations of code of ethics.
It has proper assessment reports, if any deviation sare
observed; subsequ ent actions are taken in connection with
violations of code of ethics, allegations of misconduct etc.
It is essential to review the effectiveness and updating
effectiveness .
It acts as aliaison with stakeholders to ensure that various
macro environment factors are observing code of ethics while
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19It ensures due dilige ncerelating to ethics prior to mergers or
acquisitions .
It creates conducive environment to implement principles of
ethics.
It is responsible for presenting and p romoting ethical policies
and practices.
1.2APPROACHES TO BUSINESS ETHICS
There are different approaches to business ethics; indifferent
control different theories arise as problems differ from organisation
to organisation they also state some et hical principles in general.
ETHICAL THEORIES
In general there exist two major kinds of ethical theories.
1)Deontological theories which emphasizes more in duly.
2)Teleological ethical theories which focus on consequences.
(1) Deontological theories which emphasize more in duly:-
Under these theories actions are judged on ethical or
unethical basis and this is based on duty or intentio nsof a door.
The reasoning of deontology is based on the rule.
“Do unto others as you would have them to unto you .”
Important defender of deontological ethics was Immanuel
Kant who developed this theory in 1788. It includes: -
-Duly without regard to human happiness
-Human being as having the unique capacity for nationality.
-Noother animal possesses such a prope nsityforrationale
thought.
(2) Teleological ethical theor ies which focus on
consequences: -
Teleology,t h ew o r di sd e r i v e df r o m ‘Greek Language ’‘telos’
which means end sorpurposes. This theory holds that
consequences of an act determine whether the act i sg o o do rb a d .
This is also known as consequential ethics. Business community
thinks this approach from the M.B.O. (Management byObjective)
point of view. It gives full considerations ofstakeholders in any
business decision for entire corporate structure i.e. from top lend to
lower level of management.
(3) Utilitarian Approach: -
Itis an ethics of welfare. Mr. Jeremy Bentham is considered
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20particular approach mainly focuses on behaviour and its results. It
prescribes ethical standards for managers in the area of goals of
theorganisation. Such as profit maximisation, optimum utilisation of
resources ,p r o d u c t i v i t y , efficiency etc. It prescribes moral worth of
an action. It is correlated wit h happiness and satisfaction .This
approach holds an evaluation of actions and policies on the basis of
costs. Maximisation of utility is the fundamental feature of
utilitarianism.
(4) Virtue Theory: -
Itisvery old concept since the time of Aristotle a nd under
this theory there are variety of theories which are more concerned
with how to line best life and how to be ahumanitarian.
According to Aristotle “Virtue is a character trait that
manifests itself in habitual action.”
Example: -Ia ma lovin g person means it is not simply for telling
others but it is truth which can be observed in general practice.
Virtues should contribute to the ideas for better life. It is one
of the constituents for happiness.
(5)Modern Virtue Theory: -
After Kantianism and utilitarian ism’sadvent; virtue theory
went out of favour. In 1958 Elizabeth Anscombe published her
paper stating following facts -
-What we ought to do is an obligation.
-Thisobligation now should be waived out and ethics and
practices shou ld be reinst ated.
-‘Ought’ needs to be emphatic and it should be therefore
replaced as an act of performance in a right way and one can
find out the difference between ‘Just’ and ‘Unjust’.
-Virtues can’t be applied for day to day business unconditionally.
-Concealment is justified and acceptable in every business
organisation.
-Honesty in business will not be same in other Spheres of Life.
(6)Justice Theory: -
Main points to be noted: -
-Itisalso known as fairness approach.
-All equals to be treated equally. Here one shou ld note that all
equals not all persons.
-Justice depends on principle of equity not on consequences.
-Later on John Rawls defends the conce ption of fairness
approach.
-According to him justice can not be measured on utilitarianism
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21with a particular aspect whereas minority may be deprived from
this.
-Each person should have an equal right to the most extensive
basic liberty compatible with similar liberty for others.
-Social and economic inequalities are to be rearranged on the
grounds of greatest benefit and fair equality of opportunity.
(7) Theory ofegoism: -
Main points :-
-‘I’m e a n s ego.
-It holds that good is based on pu rsuit of self-interest approach.
-It counts, harms, benefits and rights for individual welfare.
Any act which is morally correct and if it is benefic ialfor
individual but not harming others and such benefits are
counterbalance without unintentional harms that ensue.
Example :-College grants scholar ship for students for 3 years;
then students are expected to work for college for 3 years as per
requirements for college and the student ’scapacity.
(8)Theory of Relativism: -
-It inculcates the idea of elements culture.
-Itconsiders that there arenoabsolute truths inethics.
-What is morally right or wrong varies from person to person.
-Killing animals in a particular religion is not acceptable whereas
in other religion it is acceptable and believable.
FRIEDMAN’S ECONOMIC THEORY
Pointuise Explanatio n-
- Introduction -
‘Milton Friedma n-an American economist whose research
is based on consumption analysis monetary history and complexity
of stabilization policy.
- He promoted two principles.
-Capitalism
&
-Freedom
-Capitalism isconnec ted with proper role and use of
company’s profits.
-Freedom is directed for moral foundation for stable society.
* It is to be noted that capitalism is accepted in general without
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22- Hestatedfurther: -
-Social responsibility of business is to increase the profits of
company.
-Social aspectswithout the element of profit should not be
considered.
-There is only one social responsibility is to say, engages in open
and free competition without any deception orfraud.
-Companies should focus effectively an activities related to
company’s profit and effectively exclude charitable activities. It
at all charity is concerned then legitimate activities should be
done with government apex bodies
-avoid deception a nd fraud can be done through effective
implementation ofmonetary aspects for the society wit hin
jurisdiction of laws. It does not means that directors of the
company can act in any way to follow for maximisation of profits.
They have to act within ethical custom.
-Itexcludes corporate social responsibility on ethical spending -
by-
-Wisely spent.
-Spend wisely but it should be challenging .
-Spend society’s money on yourself and give v aryrare
incentives to economies.
-Heproclaimed on Rate of Investment.
-Directors of the company should always give fair and
enough justice to Stakeholders investment.
- Counterpoint of his theory is socio -economic school. It states
that business community should oversee the operation of an
economic system whi chfulfils the expect ations of the society
in general.
-Conclusion of this theory: -
-Share holder ’sfund should not be mis-utilised on the grounds
of CSR.
-Company should do best with its capacity to fulfil the socio -
economic norms.
-Directors can not cross the boundaries of their pursuit for
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23Kant’s Deontological Theory: -
Theory in points -
Introduction: -
Kant was aG e r m a n philosopher who proposed duty based
theory which states that what is morally right that perso ns h o u l d
perform.
-One should have moral duties to one -self and others such as
developing one’s talent, and fulfilling promises made to others.
It provides following elements: -
-Method for deriving moral rules and guidelines.
-For moral values and human action, he provided justification
and criteria.
-He promoted Principles of Categorical Imperative: -It is nothing
but an appeal to reason based on certain conditions .
These conditions are:-
-Act according to ethical guidelines which can become in due
course universal law.
-One can act as per the needs of requirement.
-Treat Humanity always as means as well as an end.
Utilitarian ismTheory:
Points aretobediscussed with two angles: -
1)Jerry Bentham’s view.
2)J. S. Mill’s view.
(1)J.Bentham’s approach: -
-Recognition the fundamental role of pain and pleasure in human
life.
-approve or disapprove the action on the basis of above aspects.
-equates good with pleasure and evil with pain.
-Ascertainment of capacity of pl easure and pain.
-Pleasure and pain are merely types of sensations they may
differ on the following grounds -
Extent, intensive ness, time duration, propinquity , certainty,
fecundity and purity.
(2)J. S. Mill’s view :-
Hisviews are based on:-
-Hedonism -means -pleasure is supreme end of life and it is
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24etc. will ultimately lead to happiness. He classified hedonistic
description of good and evil.
-Psychological hedonism :-
According to him what is implied is that we always desire only
thatobject which is pleasant.
-Logic of eth icalhedonism :-
-The only proof that a sound is audible is that if people will hear
it.
-Altruism :-
It means standard ofutilitarianism isnot maximum pleasure but
it is maximum yield. He criticised the Bentham’s approach of
general happiness is an ultimate end.
-Person’s happiness is good to that person and gene ral
happiness is ag gregate of all people .H ee x p l a i n s this statement
with the h elp of Human Psychology.
1.3GANDHIAN APPROACH OF TRUSTEESHIP
Introduction
Trusteeship is a socio -economic philosophy where Trustee
is the holder of property in trust for others. It is an application to the
law of human society. It provides means by which rich people will
be trustee s of ‘Trust’ which should always look after as a form of
welfare of the society .
Here, according to him making money should be fair and
ethical but on what grounds this has been accumulated should also
be taken into consi deration by way of returning of wealth in certain
proportion to the society.
Analytical review of Trusteeship
Analytical review of Trusteeship on the ground of
Do’s:-
-Be fair in dealing with internal and external constituents i.e.
micro and macro business environmental factors.
-Do protect the interest of investors, stakeholders and ultimate
efforts and care should be taken to create wealth for them
through legitimate means.
-Behonest in financial accounting and reporting upto the mar kin
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25-Beactwithin the jurisdiction of the law in respect of operations ,
suggestions, modification etc.
-Beactive in social development process and disclose fully,
actual facts as they are.
-Befaithful towards, society where you operate your business.
Don’ ts:-
-Noindulgement indeception ,poaching into created wealth.
-Noviolation of rights of employees, society and pre -empt
workplace harassment and safety breaches.
-Do not be cruel towards animals and non-human’s in fact give
caring treatment to ensure least pain to animals.
-Donot make anydamage in any form to the environment on the
grounds of development; do seek concurrence from the affected
transparent disclosures.
-Do not keep and maintain sil ence against injustice, within your
means try to make efforts to overcome them or bring it before
judicial systems.
Doctrine of ‘Satya’ and ‘Ahimsa’
Mahatma Gandhi’s principle of Ahimsa is based on ethics of
ahimsa propounded by Lord Gautam Buddha. Itgives a new
outlook onlife based on social, economic and political problems. It
gives new orientation to the problems that face humanity today with
new solutions.
-presenting for acceptance is truth andAhimsa in day to day life.
Principle of Life is based on truth as per his philosophy.
-The word ‘Satya’ is combination of
‘Sat’ being
andnothing exists in reality except ‘Truth’.
Truth always follows pure knowl edgeand it leads to bliss.
-According to Mahatma Gandhi jiGod i s an impersonal ,
omnipresent power .G o di sT r u t h , lone andbliss. God is an end.
He can be known through truth and love.
Ahimsa : -
-It issupreme kind approach and self sacrifice. It is neither denial
from killing nor doing harm. It is an abstinence from causing
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26-ill words
-thoughts
-resentment
-It isnon violence in every form.
-Ithaspositive aspect with overflowing love and affection with
each one.
-Itisbased on non injury and love.
-Itis the basis of sear ch of truth. The only resource for
realisation of truth is Ahimsa.
1.4EMERGENCE OF NEW VALUES IN INDIAN
INDUSTRIES AFTER ECONOMIC REFORMS OF 1991
Introduction :
After 1991, Industrial sector has drastically changed on
account of LPG. Following one th e main aspects.
-Tiny and small sectoral entrepreneurship was promoted.
-micro finance and self help group came into force.
-Initiatives such as ‘Make in India’, ‘Start -up India’, ‘ and Digital
India’ came into action force.
Measures introduced by Government
Apart from these r eforms, Government of India has
introduced several measures for -
-Improvement in efficiency
-face the competition
-curbed corruption in the indus trialsector.
-Emergence of new values in indust ries came into force. Th ey
are as under : -
(1)Professionalism : -
Mana gers or top level management adopted this concept for
their day to day admin istrati on. They have adopted systematic
approach in decision making and coordination and controlling
through obtaining right ideas, research apt, analytical approach,
right decision for the interest of the organisation.
(2)Systematic personnel policies :-
After 1991 ,Managers adopted following practices with
respect to -
-Recruitment and selection.
-Training and Development aspect
-Proper placement
-Performance Appraisal at 360omunotes.in

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27-Promotion based on merit at the higher levels and seniority at
the lower levels.
-Compensation with regards to wages, salaries and incentives
etc.
(3)Ethical practices in functional areas :-
Itisan important part for improvement in efficiency and
productivity of an organisation with respect to -
-Production process
-Marketing aspects
-Financial areas
-H R Policies
(4)Employee -Rewards and recognition :-
Positive reinforcement was observed through this for
ensuring constant improvement with quality performance. These
can be in form of financial benefits such as, increment merit pay ,
promotion, high status and pay etc. while recognition may be in
form of thanks rewards, award of merit, hosting lunch and dinner
declaring best reviews etc.
(5)Customer oriented :-
Manager s,a f t e r1 9 9 1 emphasised on their internal and
external customers internal customers include -employees,
whereas external customers includes macro suppor ters. Focus of
marketing Research, R & D, etc.
(6)Zero defect Approach :-
Defect free approach was the prime activity of managers for
most of the time Basic idea behind this is to stress for perfection in
work, efficiency and increment in productivity .
(7)Team Spirit :-
Nowadays after 1991, synergy in team work is generally
behind by ma nagers from top to lower level all look upon on equals
and communicate easily and can create synergetic partnership.
(8)BPR Concept :-
It is Business Proces sRe-engineering of practicing,
rethinking and redesigning the work, culture. It is essential to
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28(9)Proper Administrations :-
Managers ,nowadays have adopted systematic approach for
managing business and i mproving efficiency and performance of
the organisation.
(10)Good Governance :-
Nowadays managers believe to give more emphasis on
good corporate governance which involves : -
-Balancing interest of company affairs.
-Proper attainm entin micro and macro business environmental
factors.
-Good practices to be incorporated for avoiding financial frauds
andscams.
(11)Provide Best Work Cultures :-
Nowadays employees are treated a sp a r t ners of the
business organisation s, corporations tries their level best to
balance between working conditions andservice conditions for their
employees. It leads to satisfaction, efficiency and productivity and
inturn increment of profit of organisation.
Releva nce of Trusteeship Principle
Introduction : -
Principl eofTrusteeship is relevant and important for
business firms for long term. After distributing reasonable profits
among stakeholders; balance of profits should be utilised for
productive purposes; which may be classified as follows : -
(1)Corporate Image :-
Corporation may lead to improve its overall efficiency and
performance on this base. It can create favourable image in the
minds of micro and macro business environmental factors.
(2)Customer’s loyalty :-
Onthe basis of trusteeship customers can k eep trust and
show confidence on such firms by -
-Repeat purchases.
-Repeat orders.
-Recommendations to others.
(3)Competitive advantage :-
Int h e market, on the basis of trusteeship ,i te n a b l e st h ef i r m
to enjoy competitive advantage by having optimum utilisation of
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29very well go for R & D, training and develop ment ,Upgradation of
techniques of productions which results in improvement in overall
quality.
(4)C. S. R. :-
Corporat eSocial Responsibility enables the firm to create
integrated business model. It ensures active compliance with the
spirit of law, ethical standards and international norms.
(5)Good Corporate Governance :-
Byaccepting ap a t ho f trusteeship firmcan show healthy
signs towards c orporate governance. It implies that company or
firm should utilise its reserves and surplus for the interest of the
society as well shareholders.
(6)Growth and expansion of business :-
This principle enables the organisation to expand its
business activities by way of conducting R & D, marketing research
etc. By doing so, companies can enter into new ventures or can
expand the markets as well.
(7)Employee Welfare :-
Trusteeship path make progressive use of resources for its
internal customers by way of providing best working conditions and
service conditions.
(8)Survival :-
Trusteeship ensures business survival in ethical manner,
such organisation can gain goodwill and reputation in long run and
can ga in the confidence and trust among, customers and other
stakeholders.
1.5SUMMARY
This module discusses the evolution of ethics and its
importance in corporate scenario. It also throws light on classical
theories of ethics and trusteeship and how it is applicable to
governance in corporates. Religion, culture and ancient literatures
also form an evitable part of bu siness ethics. This helps the
organizations to align its decisions with the human values. The
module also underlines the effects of ethical practices on fairness,
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301.6EXERCISE
Q.1. What are features of ethics?
Q.2. What are needs and importance for ethics?
Q.3. What are features of Indian ethos?
Q.4. Compare ethics and value.
Q.5.What are the sources of ethics?
Q.6. What is meaning of code of ethics? How to develop such
codes?
Q.7. Briefly explain ethics management programme.
Q.8. Briefly explain the ethical theories.
Q.9. Briefly explain the Doctrine of ‘Satya’ and ‘Ahims a’
Q.10. State the relevance of Trusteeship principle in Business.

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31MODULE -II
Unit -2
INDIAN ETHICAL PRACTICES &
CORPORATE GOVERNANCE
Unit Struct ure :
2.0 Objectives
2.1 Introduction
2.2 Ethics in Functional areas
2.3 Corporate Governance
2.4 Regulatory Framework in India
2.5 Summary
2.6 Exercise
2.0 O BJECTIVES
Afterstudyingthis chapterthestudentwillbeableto:
DefinethetermEthics in Marketing and Advertising
ExplaintheimportanceEthics in Functional Areas .
DefinetheconceptCorporate Governance
UnderstandthesignificantofCorporate Governance.
Understand the meaning and Significance of Regulatory
Framework in India.
2.1INTRODUCT ION
Marketing is a vital functional area of a business
organisation. The success of a business largely depends on the
performance of marketing departments. Marketing is about
identifying the needs of the customers and satisfying their
requirements. Advertising is a tool in Marketing and is used to
promote goods and services to the customers. Ethics promotes
honesty, fairness and maintaining valu es in various advertising and
marketing efforts of the organisation.
Business ethics is the behavior that a business adheres to in
its daily dealings with the world. The ethics of a particular business
can be diverse. They apply not only to how the busine ss interacts
with the world at large, but also to their one -on-one dealings with a
single customer. Many businesses have gained a bad reputation
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32interested in making money, and that is the bottom li ne. Making
money is not wrong in itself. It is the manner in which some
businesses conduct themselves that brings up the question of
ethical behaviour . Many global businesses, including most of the
major brands that the public use can be seen not to think too highly
of good business ethics. Many major brands have been fined
millions for breaking ethical business laws. Money is the major
deciding factor. If a company does not adhere to business ethics
and breaks the laws, they usually end up being fined. Man y
companies have broken anti -trust, ethical and environmental laws
and received fines worth millions. The problem is that the amount of
money these companies are making outweighs the fines applied.
2.2 ETHICS IN FUNCTIONAL AREAS
I) Ethical Marketing
Ethical marketing is less of a marketing strategy and more of
a philosophy that informs all marketing efforts. It seeks to promote
honesty, fairness, and responsibility in all advertising. Ethics is a
notoriously difficult subject because everyone has subj ective
judgments about what is “right” and what is “wrong.” For this
reason, ethical marketing is not a hard and fast list of rules, but a
general set of guidelines to assist companies as they evaluate new
marketing strategies. American Marketing Associati on promotes the
professional ethical norms and values for its members. Norms are
established standards of conduct and values for its members.
All marketing communications share the common standard of
truth.
Marketing professionals abide by the highest sta ndard of
personal ethics.
Advertising is clearly distinguished from news and entertainment
content.
Marketers should be transparent about who they pay to endorse
their products.
Consumers should be treated fairly based on the nature of the
product and the nature of the consumer (e.g. marketing to
children).
The privacy of the consumer should never be compromised.
Marketers must comply with regulations and standards
established by governmental and professional organizations.
Ethics should be discussed openly and honestly during all
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33II) Ethical Issues in Advertising
Advertising constitutes a vital stream among the marketing
functions of a business; it being a major driver of the firm's
integrated promotions for pushing sales in today's highly
competitive business environment. Sales and especially advertising
are two areas which are directly connected to the external network
of a firm. While most companies revere the pursuit of their
businesses on a regular moral understanding, there are some firms
which continue to follow both good and bad business practices. The
issue of ethics in advertising bears great concern to all firms
engaged in business worldwide, and to consumers likewise.
Advertising is the medium that conveys an organization's
communications about its offerings to the market available for a
sale, and hence, it possesses the innate ability to influence the
consumer. Ethical Issues in Advertising is a highly visible business
activity and any lapse in ethical standards can often b e risky for the
company. Some of the common examples of ethical issues in
advertising are given below:
1.Vulgarity / Obscenity used to gain consumers’ attention:
Nowadays many a times, advertisements use false statements
and misrepresentations about thei r products. They show such
scenes or ads which are not very rightfully projected and should
not be watched.
2.Misleading information and deception
3.Puffery
4.Racial issues
5.Controversial products (e.g. alcohol, gambling, tobacco etc.)
III) Et hics in Human Resource Management
Human resource management (HRM) plays a decisive role
in introducing and implementing ethics. Ethics should be a pivotal
issue for HR specialists. The ethics of human resource
management (HRM) covers those ethical issues a rising around the
employer -employee relationship, such as the rights and duties
owed between employer and employee.
The issues of ethics faced by HRM include:
Discrimination issues i.e. discrimination on the bases of age,
gender, race, religion, disabilit ies, weight etc.
Sexual harassment.
Affirmative Action.
Issues surrounding the representation of employees and the
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34Issues affecting the privacy of the employee: workplace
surveillance, drug testing.
Issues a ffecting the privacy of the employer: whistle -blowing.
Issues relating to the fairness of the employment contract and
the balance of power between employer and employee.
Occupational safety and health.
Companies tend to shift economic risks onto the shoul ders
of their employees. The boom of performance -related pay
systems and flexible employment contracts are indicators of these
newly established forms of shifting risk.
IV) Ethics in Finance and Accounting
Finance and Accounting Ethics is prima rily a field of
business ethics. To prevent fraudulent accounting, various
accounting organisations and governments have developed
regulations and remedies for improved ethics among the
accounting profession.
Importance of Finance and Accounting Ethics:
The nature of the work carried out by the accountants and
auditors requires a high level of ethics. Shareholders and other
users of financial statements rely heavily on the yearly financial
statements of the company as they can use this information to
make proper decisions on investments. Accountants serve as
financial reporters and intermediaries in the capital markets and
owe their primary obligation to the public interest. In the currents
scenario multiple scandals were reported on by media and resulted
in fraud charges and closure of companies and accounting firms.
Unethical practices in Finance and Accounting
The following are some of the unethical practices in finance
and accounting.
Misuse of funds
Window dressing of financial statements
Insider tradi ng
Conflicts of Interests
V) ETHICS OF PRODUCTION
This area of business ethics deals with the duties of a
company to ensure that products and production processes do not
cause harm. Some of the more acute dilemmas in this area arise
out of the fact that t here is usually a degree of danger in any
product or production process and it is difficult to define a degree of
permissibility, or the degree of permissibility may depend on the
changing state of preventative technologies or changing social
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35Defective, addictive and inherently dangerous products.
Ethical relations between the company and the environment
include pollution, environmental ethics, and carbon emissions
trading.
Ethical problems arising out of new technologie sf o re g .
Genetically modified food.
Product testing ethics.
The most systematic approach to fostering ethical behavior is to
build corporate cultures that link ethical standards and business
practices.
VI) ETHICS IN INFORMATION TECHNOLOGY
Information Te chnology is considered as a branch of
Information and Communication Technology. It is the usage of
technology which leads to ethical issues. The pace of technology
can raise questions on Ethics as newer products make their way
replacing the existing ones. In fact increasing advances in the
technological innovations are adding up to environmental
degradation such as computer screens, Keyboards, printers are
already polluting the environment. All these wastes produce toxins
that cannot be decomposed easily. O nt h eo t h e rh a n dm a n y
technological developments have occurred. New manufacturing
processes that are outsourced either are replacing the manpower
there or exploiting workers by engaging them at cheaper prices.
Although we cannot control technology and inno vation, the better
way is to adapt and change. The role of ethics in technology is of
managing it rather than controlling the same. Public issues in IT
are:-
Plagiarism
Software Piracy
Hacking
Computer Crimes
Viruses
Job displacement
Digital Divide
Nanot echnology and IT
Netiquette
Cookies and spyware
Public has not realized the critical importance of ethics to IT.
Business men should take the responsibility for these decisions.
They must create a working environment in which ethical dilemmas
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36VII) EHTICS IN COPYRIGHTS AND PATENTS
Intellectual Property (IP) is a legal term covering various
forms of valuable business assets. The three broad primary areas
of IP are trademarks, copyrights and patents. Copyright r efers to
the legal right of the owner of intellectual property”. In simpler
terms, ‘copyright is the right to copy’. This means that the original
creator of a product and anyone he gives authorization to are the
only ones with the exclusive right to reprod ucethe work. Copyright
law gives creators of original material, the exclusive right to further
develop them for a given amount of time, at which point the
copyrighted item becomes public domain.
A copyright gives the owner of a work of expression the
exclusive right to:
1. Reproduce the work.
2. Distribute copies of the work to the public.
3. Display copies of the work in public.
4. Perform the work in public.
5. Create derivative works based on the original work.
A copyright is collection rights which c an be given away,
sold, leased, or licensed.
Copyright Infringement
Copyright infringement is the violation, piracy or theft of a
copyright holder's exclusive rights through the unauthorized use of
a copyrighted material or work. It includes unauthorized use of a
work or material is any unauthorized reproduction, distribution,
performance, public display or transfer to a derivative work without
the copyright owner's permission.
An infringement occurs under all of the following three conditions:
The owner must hold a valid copyright.
The alleged infringer must be able to access the copyrighted
work.
Duplication of the copyrighted work must occur beyond
exceptions. If an exception does not apply, permission is
requested by the person seeking to use the work .
There are three terminologies associated with copyright
infringement:
Piracy: The term "piracy" has been used to refer to the
unauthorized copying, distribution and selling of works in
copyright.
Theft: It is an instance where a person exercises one of t he
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37Freebooting: The term “freebooting” has been used to describe
the unauthorized copying of online media, particularly videos,
onto websites such as Facebook, You Tube or Twitter.
2.3 CORPOR ATE GOVERNANCE
Corporate Governance is the basic frame work of rules,
guidelines and practices through which the board of directors
ensures accountability, fairness and transparency in a company's
relationship with its all stakeholders i.e. investors, cus tomers,
management, employees, government and the community. The
corporate governance framework is there to encourage the
efficient use of resources and equally to require accountability for
the stewardship of those resources.
The concept of governance has been known in both
political and academic circles for a long time, referring generally
to the task of running a government, or any other appropriate
entity for that matter.
Corporate governance is therefore the process whereb y
people in power direct, monitor and lead corporations, and
thereby either create, modify or destroy the structures and
systems under which they operate.
The primary purpose of corporate leadership is to create
wealth legally and ethically.
Objectives o fC o r p o r a t eG o v e r n a n c e
To align corporate goals of its stakeholders (society,
shareholders, etc.)
Corporate governance a way of Life rather than a Code
To strengthen corporate functioning and discourage
mismanagement
To achieve corporate goals by making in vestment in profitable
investment outlets.
To specify responsibility of the B.O.D and managers in order
to ensure good corporate performance.
There is a global consensus about the objective of ‘good’
corporate governance: maximising long -term shareholder
value.”
Corporate Governance is a system of structuring, operating and
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38(i) Fulfilling long -term strategic goals of owners;
(ii) Taking care of the interests of employees;
(iii) A consideration for the environment and local community;
(iv)Maintaining excellent relations with customers and suppliers;
(v) Proper compliance with all the applicable legal and regulatory
requirements.
Evolution Of Corporate Governance
Corporate ownership structure has been considered as
having a strongest influence on systems of corporate governance,
although many other factors affect corporate governance, including
legal systems, cultural and religious traditions, political
environment s and economic events. All business enterprises need
funding in order to grow, and it is the ways in which companies are
financed which determines their ownership structures. It became
clear centuries ago that individual entrepreneur and their families
could not provide the finance necessary to undertake developments
required to fuel economic and industrial growth. The sale of
company shares in order to raise the necessary capital was an
innovation that has proved a cornerstone in the development of
economi sts worldwide. However, the road towards the type of stock
market seen in the UK and US today has been long and
complicated. Listed companies in their present form originate from
the earliest form of corporate entity, namely the sole trader. From
the middl e ages, such traders were regulated by merchant guilds,
which over saw a diversity of trades. The internationalization of
trade, with traders venturing overseas, led gradually to regulated
companies arising from the medieval guild system. Members of
these early companies could trade their own shares in the
company, which lead ultimately to the formation of the joint stock
companies.
The Fiscal Crisis of 1991 and resulting need to approach the
IMF induced the Government to adopt reformative actions for
econ omic stability through liberalisation. The momentum gathered
slowly once the economy was pushed open and the liberalisation
process got initiated.
The CII Code
The report of the Cadbury committee on the financial
aspects of the government in UK had given rise to the debate of
Corporate governance in India. With the help of the CII, Indian
Companies both in private and public sectors, Banks and Financial
sectors adopted and followed a Corporate Governance in 1997.
The final Code called 'Desirable Corporate Governance Code' was
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39Kumar Managalam Birla Committee, 1999
The Securities and Exchange Board of India (SEBI) in 1999
set up a Committee under Shri Kumar Managalam, member SEBI
Board to promote and raise the standards of good corpor ate
Governance. The Primary objective of the Committee was to view
corporate governance from the prospective of the Investors and
shareholders.
Importance of Corporate Governance
Corporate Governance is intended to increase the
accountability of your company and avoid massive disasters before
they occur. Failed energy giant Enron, and its bankrupt employees
and shareholders, is a prime argument for the importance of solid
Corporate Governance. Well -executed Corporate Governance
should be similar to a police department’s internal affairs unit,
weeding out and eliminating problems with extreme prejudice. The
Need, Significance or Importance of Corporate Governance is listed
below.
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. They also ask the management to
make consumer -friendly policies, t o 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 has 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 every day 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
irregulari ties, 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.
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40in 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. Globalization
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. Take Overand 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 c orporate governance compulsory for
certain companies. This is done to protect the interest of the
investors and other stakeholders.
PRINCIPLES OF CORPORATE GOVERNANCE
Corporate governance refers to all laws, regulations, codes
and practices, which defines how institution is administrated and
inspected, determines rights and responsibilities of different
partners, attracts human and financial capital, makes institution
work efficiently, provides economic value to stack holders in the
long turn while respect ing the values of the community it belong.
For corporate governance, the management approach should be in
accordance with the following principles.
1. Governance structure:
All Organizations should be headed by an effective Board.
Responsibilities and acc ountabilities within the organization should
be clearly identified.
2. The structure of the board and its committees:
The board should comprise independent minded directors. It
should include an appropriate combination of executive directors,
independent directors and non -independent non -executive directors
to prevent one individual or a small group of individuals from
dominating the board’s decision taking. The board should be of a
size and level of diversity commensurate with the sophistication
and scale of the organization. Appropriate board committees may
be formed to assist the board in the effective performance of it s
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413. Director appointment procedure:
There should be a formal, rigorous and transparent process
for the appointment, election, induction and re -election of directors.
The search for board candidates should be conducted, and
appointments made, on m erit, against objective criteria (to include
skills, knowledge, experience, and independence and with due
regard for the benefits of diversity on the board, including gender).
The board should ensure that a formal, rigorous and transparent
procedure be in place for planning the succession of all key
officeholders.
4. Directors duties, remuneration and performance:
Directors should be aware of their legal duties. Directors
should observe and foster high ethical standards and a strong
ethical culture in thei r organization. Each director must be able to
allocate sufficient time to discharge his or her duties effectively.
Conflicts of interest should be disclosed and managed. The board
is responsible for the governance of the organization’s information,
informa tion technology and information security. The board,
committees and individual directors should be supplied with
information in a timely manner and in an appropriate form and
quality in order to perform to required standards. The board,
committees and indi vidual directors should have their performance
evaluated and be held accountable to appropriate stakeholders.
The board should be transparent, fair and consistent in determining
the remuneration policy for directors and senior executives.
5. Risk governan ce and internal control:
The board should be responsible for risk governance and
should ensure that the organization develops and executes a
comprehensive and robust system of risk management. The board
should ensure the maintenance of a sound internal con trol system
6. Reporting and integrity:
The board should present a fair, balanced and
understandable assessment of the organization’s financial,
environmental, and social and governance position, performance
and outlook in its annual report and on its web site.
7. Audit
Organizations should consider having an effective and
independent internal audit function that has the respect, confidence
and cooperation of both the board and the management. The board
should establish formal and transparent arrangements to appoint
and maintain an appropriate relationship with the organization’s
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428. Relations with shareholders and other key shareholder:
The board should be responsible for ensuring that an
appropriate dialogue takes place among the organization, its
shareholders and other key stakeholders. The board should respect
the interests of its shareholders and other key stakeholders within
the cont ext of its fundamental purpose.
BENEFITS OFCORPORATE GOVERNANCE
The Benefits to Shareholders
Good CORPORATE GOVERNANCE can provide the proper
incentives for the board and management to pursue objectives
that are in the interest of the company and shareholders, as well
as facilitate effective monitoring.
Better CORPORATE GOVERNANCE can also provide
Shareholders with greater security on their investment.
Better CORPORATE GOVERNANCE also ensures that
shareholders are sufficiently infor med on decisions concerning
fundamental issues like amendments of statutes or articles of
incorporation, sale of assets, etc.
The Benefits to the National Economy
Empirical evidence and research conducted in recent years
supports the proposition that it p ays to have good CORPORATE
GOVERNANCE. It was found out that more than 84% of the
global institutional investors are willing to pay a premium for the
shares of a well -governed company over one considered poorly
governed but with a comparable financial reco rd.
The adoption of CORPORATE GOVERNANCE principles –as
good CORPORATE GOVERNANCE practice has already
shown in other markets –can also play a role in increasing the
corporate value of companies.
Proponents of corporate governance say there is a
direct correlation between good corporate governance
practices and long -term shareholder value. Some of the key
benefits are:
High performance Boards of Directors;
Accountable management and strong internal controls;
Increased shareholder engagement;
Better manag ed risk; and
Effectively monitored and measured performance.munotes.in

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43RESPONSIBILITIES OF THE BOARD OF DIRECTORS
Establish corporate values and governance structures for the
company;
Ensure that all legal and regulatory requirements are met and
complied with fully and in a timely fashion;
Establish long -term strategic objectives for the company;
Establish clear lines of responsibility and a strong system of
accountability and performance measurement;
Hire the chief executive officer, determine the compensation
pack age, and periodically evaluate the officer’s performance;
Ensure that management has supplied the board with sufficient
information for it to be fully informed and prepared to make the
decisions that are its responsibility, and to be able to adequately
monitor and oversee the company’s management;
Meet regularly to perform its duties;
Acquire adequate training.
RULES OF CORPORATE GOVERNANCE
As we have iterated, this part of the report explains our view
of best corporate governance practice and the holistic approach by
which we believe an organisation can ensure that a state of good
corporate governance exists, or is brought into being if its existence
is uncertain. It takes the view that there is an over -riding moral
dimension for running a business and tha t the standard of
governance will depend on the moral complexion of the operation.
The business morality or ethic must permeate the entire
operation from top to bottom and embrace all stakeholders best
corporate governance practice is an integral part o fg o o d
management practice also permeating the entire operation, and not
an esoteric specialism addressed by auditors and shareholders.
The principles of this approach are therefore framed in relation to
the conventional way of looking at how a business sh ould be
properly run.
Our Five Golden Rules of best corporate governance practice
is:
1.Ethics : Clearly ethical practices applied to the business
2.Align Business Goals : appropriate goals, arrived at through
the creation of a suitable stakeholder participation in decision
making model
3.Strategic management : an effective strategy process which
incorporates stakeholder value
4.Organisation : an organisation suitably structured to give effect
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445.Reporting : reporting systems s tructured to provide
transparency and accountability.
This approach recognizes that the interests of different
stakeholders carry different weight, but it does not, by any means,
suggest that those with a majority interest matters and the rest
don’t. On t he contrary, best corporate governance practice dictates
that all stakeholders should be treated with equal concern and
respect.
For obvious reasons, although the methodology we will
propose involves taking major stakeholders into greater account
when for mulating strategy, it is designed to generate all round
support because of the fact that every stakeholder, no matter how
small, is given the opportunity to express a view, through the
continuous monitoring of stakeholder perceptions.
The regulatory appro ach to the subject would regard
governance as something on its own, to do with ensuring a balance
between the various interested parties in a company’s affairs, or
more particularly a way of making sure that the chairman or chief
executive is under control , producing transparency in reporting or
curbing over -generous remuneration packages etc.
The essence of success in business is:
having a clear and achievable goal
having a feasible strategy to achieve it
creating an organization appropriate to deliver
having in place a reporting system to guide progress.
2.4 REGULATORY FRAMEWORK ON CORPORATE
GOVERNANCE IN INDIA
Corporate Governance brought the need for the Indian
companies to adopt corporate governance standards, consistent
with the international po licies and principles. Corporate Governance
refers to practices by which organisations are controlled, directed
and governed. The fundamental concern of Corporate Governance
is to ensure the conditions whereby organisation’s directors and
managers act in t he interest of the organisation and its
stakeholders and to ensure the means by which managers are held
accountable to capital providers for the use of assets. To achieve
the objectives of ensuring fair corporate governance, the
Government of India has put in place a statutory framework.
Regulatory framework on corporate governance .The legal
framework relating to Corporate governance is broadly covered in
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45a)Indian Companies Act 1956
b)the directives issued by the security market regulator, SEBI
c)regulators such as RBI and the IRDA (Insurance Regulatory
Development Authority) guidelines for banking and Insurance
Companies.
The Indian statutory framework has, by and large, been in
consonance with the international best practices of corporate
governance. Broadly speaking, the corporate governance
mechanism for companies in India is enumerated in the following
enactments/ regul ations/ guidelines/ listing agreement:
1.The Companies Act, 2013 :inter alia contains provisions relating
to board constitution, board meetings, board processes,
independent directors, general meetings, audit committees, related
party transactions, discl osure requirements in financial statements,
etc.
2.Securities and Exchange Board of India (SEBI) Guidelines :
SEBI is a regulatory authority having jurisdiction over listed
companies and which issues regulations, rules and guidelines to
companies to ensu re protection of investors.
3.Standard Listing Agreement of Stock Exchanges :F o r
companies whose shares are listed on the stock exchanges.
4.Accounting Standards issued by the Institute of Chartered
Accountants of India (ICAI): ICAI is an autonomous b ody, which
issues accounting standards providing guidelines for disclosures of
financial information. Section 129 of the New Companies Act inter
alia provides that the financial statements shall give a true and fair
view of the state of affairs of the comp any or companies, comply
with the accounting standards notified under s 133 of the New
Companies Act. It is further provided that items contained in such
financial statements shall be in accordance with the accounting
standards.
5.Secretarial Standards issued by the Institute of Company
Secretaries of India (ICSI) : ICSI is an autonomous body, which
issues secretarial standards in terms of the provisions of the New
Companies Act. So far, the ICSI has issued Secretarial Standard
on “Meetings of the Board o f Directors” (SS -1) and Secretarial
Standards on “General Meetings” (SS -2). These Secretarial
Standards have come into force w.e.f. July 1, 2015. Section
118(10) of the New Companies Act provide that every company
(other than one person company) shall obse rve Secretarial
Standards specified as such by the ICSI with respect to general
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46II)SEBI Guidelines and CLAUSE 49
Clause 49 of the Listing Agreement to the Indian Stock
exchange comes into effect from 31December 2005.The company
agrees to comply with the following provisions:
I. Board of Directors
Composition of Board
The board of directors of the company shall have an
optimum combination of executive and non -executive directors with
not less than fifty percent of the board of directors comprising of
non-executive directors. The number of independent directors
would dep end on whether the Chairman is executive or non -
executive. In case of a non -executive chairman, at least one -third of
board should comprise of independent directors and in case of an
executive chairman, at least half of board should comprise of
independent directors.
Independent Director: Independent Director shall however
periodically review legal compliance reports prepared by the
company as well as steps taken by the company to cure any taint.
In the event of any proceedings against an independent dire ctor in
connection with the affairs of the company, defence shall not be
permitted on the ground that the independent director was unaware
of this responsibility. ii. The considerations as regards remuneration
paid to an independent director shall be the s ame as those applied
to a non -executive director
Non-executive directors’ compensation and disclosures :A l l
compensation paid to non -executive directors shall be fixed by the
Board of Directors and shall be approved by shareholders in
general meeting. Lim its shall be set for the maximum number of
stock options that can be granted to non -executive directors in any
financial year and in aggregate. The stock options granted to the
non-executive directors shall vest after a period of at least one year
from the date such non -executive directors have retired from the
Board of the Company.
Code of Conduct: It shall be obligatory for the Board of a company
to lay down the code of conduct for all Board members and senior
management of a company. This code of conduc t shall be posted
on the website of the company. All Board members and senior
management personnel shall affirm compliance with the code on an
annual basis. The annual report of the company shall contain a
declaration to this effect signed by the CEO.
III)R O L EO FI N D E P E N D E N TD I R E C T O R S
The need for independent directors cab be ascertained from
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47management and act as the trustees of shareholders. This means
that they are responsible to be fully aware of conduct of which is
going on in the organization and also to take a stand as and when
necessary on relevant issues. As per section 149 (6) of The
Companies Act, 2013, Independent Director means any director
other than a managing director or whole -time director or a nominee
director.
Certain conditions need to be fulfilled, before appointing any
person as an independent director.
1.) clause (a) of Section 149(6), of the Act, states that any person
who is to be appointed must in the opinion of the Board, be a
person of integrity and must possess relevant expertise and
experience;
2.) clause (b) along with clause (c) of Section 149( 6), states that the
person who is to be appointed must neither be a promoter of a
company nor must be related to the promoters or directors of that
company. Further, clause (d) along with clause (e), states that, he
must have no pecuniary relationship with the company, and that
none of his relatives must have been having any pecuniary
relationship with the company.
3.) clause (e) of the Section talks about his relationship with the
company. It states that for a person to be appointed as an
independent dire ctor, neither he nor any of his relative must hold
following positions in a company:
i)the position of key managerial personnel
ii)employee or proprietor or a partner, in any of the three financial
years, proceeding.
iii)Holds together with his relat ive two percent or more of the total
voting power of the company; or
iv)Chief Executive or director, of any non -profit organization.
So these were the conditions which need to be followed
while appointing any independent director as per The Companies
Act, 2013. However, the next question which needs to be answered
is that why these independent directors should be appointed and be
included in the Board.
IV) AUDIT COMMITTEE
The Chairman of the audit committee, or in his absence, a
designated member of the audit committee who is an independent
director shall be present at Annual General Meeting to answer
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48(A) A qualified and independent audit committee shall be set up
and shall comply with the following:
i. The audit committee shall have minimum three members. All the
members of audit committee shall be non -executive directors, with
the majority of them being independent. ii. All members of audit
committee shall be financially literate and at least one member shall
have accounting or related financial management expertise
ii: A member will be considered to have accounting or related
financial management expertise if he or she possesses experience
in finance or accounting, or requisite professional certificati on in
accounting, or any other comparable experience or background
which results in the individual’s financial sophistication, including
being or been a chief executive officer, chief financial officer, or
other senior officer with financial oversight resp onsibilities.
iii. The Chairman of the Committee shall be an independent
director;
iv. The Chairman shall be present at Annual General Meeting to
answer shareholder queries;
v. The audit committee should invite such of the executives, as it
considers appropriate to be present at the meetings of the
committee, but on occasions it may also meet without the presence
of any executives of the company. The finance director, head of
internal audit and when required, a representative of the external
auditor sh all be present as invitees for the meetings of the audit
committee;
vi. The Company Secretary shall act as the secretary to the
committee.
(B) Meeting of Audit Committee :The audit committee shall meet at
least thrice a year. One meeting shall be held b efore finalization of
annual accounts and one every six months. The quorum shall be
either two members or one third of the members of the audit
committee, whichever is higher and minimum of two independent
directors.
(C)Powers of Audit Committee: The au dit committee shall have
powers which should include the following:
1. To investigate any activity within its terms of reference.
2. To seek information from any employee.
3. To obtain outside legal or other professional advice.
4. To secure attendance of outsiders with relevant expertise, if it
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49(D)Role of Audit Committee:
1.Oversight of the company’s financial reporting p rocess and the
disclosure of its financial information to ensure that the financial
statement is correct, sufficient and credible.
2.Recommending the appointment and removal of external
auditor, fixation of audit fee and also approval for payment for
anyother services.
3.Reviewing with management the annual financial statements
before submission to the board, focusing primarily on
4.Reviewing with the management, external and internal auditors,
and the adequacy of internal control systems.
5.Reviewing the adequacy of internal audit function, including the
structure of the internal audit department, staffing and seniority
of the official heading the department, reporting structure
coverage and frequency of internal audit.
6.Discussion with internal auditors any significant findings and
follow up there on.
PROTECTION OF STAKE HOLDERS
Stakeholders can be affected by the organisation’s action ,
objectives and policies. So me examples of key stakeholders are
creditors, directors, employees, government, shareholders and the
community from which the business draws the resources.
1. Shareholders
The shareholders are the collective owners of a company
and as such, they have a wide array of rights. Some of their basic
rights include the right to timely and accurate receipt of information
about working of the organisation and their appropriate use of their
funds. Accountability in this respect must be ensured through the
submissio n of annual and quarterly reports. Shareholders votes are
shared on all important matters of the company such as those
related to mergers and acquisitions, major investments in assets
and appointment of the board.
2. Creditors
Organisations may raise mone yi nt h ef o r mo fl o a n sf r o m
banks or bonds issued to investors. The rights of creditors are
generally protected by a document called bond indenture which
contains positive and negative covenants that state the activities
that a company should indulge or sh ould not indulge. This bond
indenture is enforceable by law on the organisation. The rights of
the creditors are also protected by their preference over
shareholders. The profits of the organisation are either used to pay
dividends to shareholders or saved for future use. But before the
profits are shared to the shareholders, they must be used to repay
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503. Consumers
Organisations earn their income from the customers and
must therefore be sensitive towards their rights. There fore they
should maintain transparency in their operations. Most of the
companies have Customer service team to handle the complaints
of the customers. The government plays a central role in ensuring
the customer rights are not violated through the Consume r
Protection Act.
4. Employees
All employees, workmen, have the right to form Trade
Unions. The Industrial Disputes Act, the Factories Act and the
Contract Labor Act say that the workers cannot be fired, retrenched
and laid -off without due cause and with out following due
processes.
5. Government
Under Corporate Governance, every organisation must take
care of higher authority i.e. Government, also follow the rules and
regulations strictly, pay the taxes in time, abide with the various
laws and not to br eak the law in any unethical purpose.
6. Community/Society
A Community is commonly considered a social unit or group
of people who share something in common such as norms, values,
identity that is shown in a geographical area.
ELEMENTS OF GOOD CORPORATE GOVERNANCE
Good governance has 8 major characteristics. It is
participatory, consensus oriented, accountable, transparent,
responsive, effective and efficient, equitable and inclusive, and
follows the rule of law. Good governance is responsive to the
prese nt and future needs of the organization, exercises prudence in
policy -setting and decision -making, and that the best interests of all
stakeholders are taken into account. Corporate governance refers
to the role that company boards or executive teams play i n
leadership and oversight. While the specific elements of corporate
governance are many, they generally involve emphasis on
creating and maintaining company direction and promoting
goodwill with shareholders and other stakeholders.
1. Direction Providing overall direction for the business, its
leaders and employees is a major part of corporate governance.
Making strategic decisions and discussing current and future
concerns of the company are tactics of this element. Company
mission and vision st atements stem from the governance role of
business. These statements provide a sense of purpose and
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512. Oversight
The corporate governance role also provides some level of
leadership oversig ht in companies. In publicly owned companies,
for instance, company boards monitor and evaluate decisions and
actions of CEOs and other executive officers. This ensures that
leaders act in the best interest of shareholders and other
stakeholders. In smalle r businesses, executive teams normally
assume this role of preventing too much power falling to one
person. Without a governing board, though, this is more of a
challenge.
3. Stakeholder Relations
Corporate governance encompasses a business's
accountabili ty to each of its stakeholder groups. Traditionally, this
role has largely centered on investor relations and communication
of company decisions. Investors can often find contact information
for board members on company websites. In the early 21st
century, there is more emphasis on balancing investor interests
with concern for other stakeholders, such as customers,
employees and business partners. Governance web pages often
indicate specific things companies do to meet expectations of
each.
4. Corporate Citizenship
Another major evolution in the early 21st century is
increased focus on corporate citizenship. Companies commonly
include a corporate citizenship statement on corporate
governance or investor relationships web pages. Such statement s
communicate the business's intent to act with social and
environmental responsibility. Philanthropy and other charitable
contributions are among common things noted within corporate
citizenship statements. In general, governance includes
awareness that c ompanies should balance profit -generating
activities with responsible policies and practices.
5. Clear Organizational Strategy
Good corporate governance starts with a clear strategy for
the organization. For example, a furniture company’s management
team might research the market to identify a profitable niche, create
a product line to meet the needs of that target market and then
advertise its wares with a marketing campaign that reaches those
consumers directly. At each stage, knowing the overall strateg y
helps the company’s workforce stay focused on the organizational
mission: meeting the needs of the consumers in that target market.
6. Effective Risk Management
Even if your company implements smart policies,
competitors might steal your customers, unex pected disasters
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52erode the buying capabilities of your target market. You can’t
avoid risk, so it’s vital to implement effective strategic risk
management. For example, a company’s management mig ht
decide to diversify operations so the business can count on
revenue from several different markets, rather than depend on just
one.
7. Discipline and Commitment
Corporate policies are only as effective as their
implementation. A company’s management ca n spend years
developing a strategy to push into new markets, but if it can’t
mobilize its workforce to implement the strategy, the initiative will
fail. Good corporate governance requires having the discipline and
commitment to implement policies, resolut ions and strategies.
8. Regular Self -Evaluation
The key is to perform regular self -evaluations to identify and
mitigate brewing problems. Employee and customer surveys, for
example, can supply vital feedback about the effectiveness of your
current polici es.
FAILURE OF CORPORATE GOVERNANCE AND ITS
COSEQUENCES
Despite the regulatory Framework on Corporate
Governance, there are several cases of failures in India and other
countries. The List of corporate governance failures includes
Satyam, Enron, Wal -Mart, Cadbury etc. It doesn’t happen overnight
and there are several warning signs which a firm must take note of
in order to avoid such failures. Some of the governance issues
faced by the firms which eventually lead to corporate governance
failures are –
Ineffective governance mechanisms, for example, lack of board
committees or committees consisting of few or a single member.
Non-independent board and audit committee members, for
example where a CEO fulfilled multiple roles in various
committees
Management, who deliberately undermines the role of the
various governance structures by circumventing the internal
controls and making misrepresentations to auditors and the
Board.
Inadequately qualified members, for example, audit committee
members not h aving appropriate accounting and financial
qualifications or experience to analyses key business
transactions, family members holding board positions without
appropriate knowledge or qualifications.munotes.in

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results and red flags.
2.5 SUMMARY
The size of functional areas varies from business to
business and it is the functional areas which form the pillar of an
organization. The module discusses the ethical practices in these
functional areas and it s cascading effect on the organization’s
performance. It also discusses the evolution of corporate
governance and contribution of various committees and statutory
bodies towards its development. It collates the various ethical
theories and streamline it wi th the corporate governance.
2.6 QUESTIONS
1.Explain Ethical practices in Marketing
2.Discuss unethical practices in advertising.
3.Explain the importance of Ethics in advertising
4.Explain the ethical practices in Human Resource Management
5.Discuss the Ethical Practices in Finance & Accounting
6.Discuss the ethical practices in Production
7.Discuss the ethics in Information Technology
8.Write a note on Ethics in Copyrights& patents
9.Define Corporate Governance. Explain its features.
10.Explain importan ce of Corporate Governance
11.Regulatory Framework of Corporate Governance in India
12.Discuss SEBI guidelines with reference to Clause 49 of listing
agreement
13.Note on Audit Committee
14.Write a note on protection of stakeholders under Corporate
Governance
15.Discuss the elements of Good Corporate Governance
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MODULE -III
Unit -3
INTRODUCTION TO CORPORATE
SOCIAL RESPONSIBILITY
Unit structure:
3.0 Objective
3.1 Introductions
3.2 Scope, Relevance and Importance
3.3 Corporate Philanthropy
3.4 Models forImplementation of CSR
3.5 Drivers of CSR
3.6 Prestigious Awards for CSR in India
3.7 CSR and Indian corporation
3.8 Legal Provisions and Specifications on CSR
3.9 A score card
3.10 Future of CSR in India
3.11 Role of NGO’s and international agenci es in CSR
3.12 Integrating CSR into Business
3.13 Summary
3.14 Exercise
3.0 OBJECTIVE
After studying the unit students will know:
What is the relevance and importance of CSR?
Understand the corporate philanthropy models for the
implementation of CSR.
To know the drivers of CSR and awards for CSR.
To understand the legal provisions of CSR, a scorecard, and
the future of CSR.
Get to know the role of NGOs and the integration of CSR in
business.
3.1INTRODUCTION
Corporate social responsibility is not just a norm set by
the law of the country, that certain percentage of company’ sn e t
profit to give as a CSR but it is a form of corporate self -
regulation integrated into a business model.
Corporate Social Responsibility (CSR) can be defined as
a Company’s sense of responsibility towards the community and
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Companies can fulfill this responsibility through waste and
pollution reduction processes, by contributing educational and
social programs, by being environmentally friendly, and by
undertaking activities of similar nat ure. CSR is not charity or
mere donations. CSR is a way of conducting business, by which
corporate entities visibly contribute to the social good. Socially
responsible companies do not limit themselves to using
resources to engage in activities that increa se only their profits.
They use CSR to integrate economic, environmental, and social
objectives with the company’s operations and growth. CSR is
said to increase the reputation of a company’s brand among its
customers and society
The term CSR has been def ined under the CSR Rules
which includes but is not limited to: Projects or programs relating
to activities specified in the Schedule; or Projects or programs
relating to activities undertaken by the Board in pursuance of
recommendations of the CSR Committe e as per the declared
CSR policy subject to the condition that such policy covers
subjects enumerated in the Schedule. (Companies Act 2013)
3.2 RELEVANCE AND IMPORTANCE
The business firm must operate in a way that
demonstrates social responsibility. Alt hough it is not a legal
requirement, it is seen as good practice for a business firm to
take into account social and environmental issues. Due to
increase competition and reach of internet facilities in remote
areas make business firms to be proactive in C SR activities,
does not matter whether it is mandatory or not.
The relevance and importance of CSR are as follow:
CSR helps business firms to achieve the above three
broad elements whiling conducting business ac tivities. People
refer to employees, communities, and regions in which business
firms conduct their activities. Business firms must keep in mind
and practice the social betterment of the employee, community,munotes.in

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and region in which they conduct business activi ties. In the area
of the planet, business firms need to practices environmentally
sustainable activities. The business firm must emphasize eco -
friendly production, a technique such as 3R (Reduce, Reuse,
and Recycle), etc. the surplus -value after the deduct ion of the
cost of raw material, labour, and capital is called profit. Business
firms need to create economic value to survive and prosper
society as a whole.
Improved public image -This is crucial, as consumers
assess the firms' image when deciding whe ther to buy from
the firm. Something simple, like staff members volunteering
an hour a week at a charity, shows that the firm's brand is
committed to helping others. As a result, firms' economic
activities appear much more favorable to consumers. Ex.
Padhe ga India, Badhega India" -A P&G Initiative while selling
FMCG products.
Increased brand awareness and recognition -when a
business firm committed to ethical practices while conducting
business activities such as sustainable use of natural
recourse, this news will spread. More people will therefore
hear about the firm's brand, which helps business firms to
increase thei r market share and to maintain the positive
image of the firm's brand in the mind of prospective
customers.
Greater employee engagement -Similar to customer
engagement, the business firm also needs to ensure that
employees know its CSR strategies. It is proven that
employees enjoy working more for a firm that has a good
public image. Furthermore, by showing that firm is committed
to things like human rights, environmentally sustainable
production, and then the firm in the position to attract and
retain th e top candidates.
An advantage over competitors -By endorsing CSR while
conducting business activities, the firm stands out from
competitors in the industry. The firm established itself as a
company committed to going one step further by considering
social and environmental factors. The firm comes in a
position to control a large market share due to a reduction in
competition.
Cost savings -Many simple changes done by the business
firm in favour of environmental sustainability, such as using
less pack aging, reuse of material, and engagement of locally
available manpower will help to decrease firm’s production
costs. As the reduction in the cost of production of firms,
leads to more production at less cost, will helps employees in
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Economic and social objective –business entity needs to
maintain the balance between economic and social
objectives while conducting business activities. To earn profit
it is a prerequisite for any business entity but not at the cost
of society in which t hey conduct business activities. It is
important to produce quality goods at an affordable price,
hygienic and workable environment for the employees, etc.
Increase financers –socially responsible business entity
increase their business capital by attrac ting like -minded
financers not only within the country but also from foreign
countries. Socially aware business entity reflects
economically and environmentally good management
policies and reputation in the market. So business entities
must follow the pri nciples of social and environmental
responsibility.
Government interference –self-regulated socially and
environmentally business policies help the business entity to
reduce government interference in business. Business
entities take steps such as healt h and safety standards at the
workplace, proper hygienic conductions while production of
goods and services and taking care of biodiversity at time of
disposable of industrial waste, etc. may convince the
government that they are a good corporate entity.
Ensure the supply of raw material –business entity by
following the best CSR policy helps in ensures the supply of
raw material. As business entity maintains relations with
those suppliers which follow the CSR policies to society
oriented. By establishing a strong supply chain with selected
suppliers, the firm in a position to reduce the cost of
production and improve its standard of production.
Growth and survival of business –Any business growth
and survival depend on the constant support of several
factors such as consumer, employees, investors, lawmaking
body and society, etc. therefore, a business entity should
fulfill its social and environmental responsibilities towards all
the supporting factors. Ex. Timely paying of taxes,
international standar ds of production, etc.
Scope of CSR
Corporate social responsibility (CSR) in India is
mandatory as per the company act 2013. When any business
entity deals in its business it comes into contact with every
component of its business environment. The busine ss
environment covers all those factors which could or would be
affected by the business entity. The business environment is
included, customers, employees, society, the environment,
government, and shareholders, etc. Business needs to be
considered every stakeholder of its business environment while
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business is depending on the well -being of all the factors of the
business environment.
Scope of (CSR) as follows:
Corporate social responsibility is am u t u a lw a yf o r
companies to benefit society while benefiting them in the
process. We cannot expect CSR to eliminate the world’s
problem at once because practically that’s too much to expect
but it can do countless good to the community in which the
compa ny is operating. CSR initiatives can be the best way to
contribute to society and its people. Through local or national
charitable contributions businesses can help society.
Businesses can get involved in society and help it to progress by
taking social in itiatives on behalf of the company such as
investing in education programs for the poor and street children
and homeless care activities for homeless people or refugees.
Improved employee satisfaction:
Remember that the way a company serves its community
tells how it is going to treat its employees. People who feel that
they are respected and supported in their jobs are likely to more
productive as well as satisfied at work. When a company gives
its employees opportunities to volunteer during working hour s
then it helps in creating a sense of community with the
organization. Through these personal -development
opportunities, employees often gain motivation and pride in their
work.
Ability to have a positive impact on the community:
When social responsibil ity is kept in front of the mind then
it helps to encourage businesses to act ethically as well as
consider the social and environmental impacts of the business.
When this is done, an organization often starts to avoid the
damaging impacts of its business on the community. Many
organizations will start finding ways to change their service or
value chain which delivers the benefit for the community.
Therefore, CSR has a positive impact on the community.
Enhanced public image:
In this digital era, companies that are demonstrating
corporate social responsibility are obtaining exposure as well as
praise for their involvement. Remember that your brand’s name
will only benefit when you do good actions in your community.
Consumers often feel good and proud when th ey buy products
as well as services from the companies that are contributing to
the betterment of their community. This can be done by
tweeting, posting, or sharing your social programs. Your brand’s
public image will increase when you let the public know about
your good deeds.
Supports being an employer of choice:
Being an employer of choice mainly translates into the
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According to one of the researches, it was revealed that a robust
corpora te social responsibility framework will assist a company
to turn more attractive to potential future employees who are in
search of workplaces with socially responsible practices, sound
ethics, and also community -mindedness. The above stated are
the advant ages of corporate social initiatives to organizations.
Attracts new investors:
Remember that the reputation of the organization in the
market is going to decide whether an organization will receive
new investments or not. The image of a company can be
boosted, with CSR programs. Therefore, the moment
organization starts grabbing enough eyeballs, it also attracts
several investors.
ISO 14001 –Environmental management system:
The ISO 14000 family of standards provides practical
tools for companies and org anizations of all types and sizes, be
they private, non -profit, or governmental, who are trying to
regulate their environmental responsibilities. By implementing
the standards of ISO 14001:2015 companies may set up the
frame for sustainable operations with the involvement of
management, employees, as well as external stakeholders in
the process. The standardization enables theme assuring of
environmental impact and as a result of it adopting appropriate
activities for improving the utilization of resources, reducing air
pollution, protection of water sources, solid waste management,
and climate change mitigation. By introducing this standard the
companies gradually improved environmental impact.
Environmental sustainability:
Pollution prevention, energy eff iciency, eco -friendly
design, and industrial ecology are emerging as top priorities for
companies across all industrial sectors. Water, waste,
packaging, energy, and transport are being integrated into
mainstream operations to facilitate sustainability. Re duction in
the amount of packaging and use of eco -friendly packaging
material provides an attractive opportunity to promote
environmental sustainability. The use of clean energy for in -
house power requirements is also emerging as an attractive
proposition for companies to reduce carbon footprint and project
a‘ g r e e n ’i m a g e .
Scope of environmental initiatives for corporate social
responsibility includes:
1.Organizing programmes on environmental management
2.Pollution control
3.Green belt development
4.Animal care
5.Land Restoration
6.Job development related to agro products
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CSR and Customers:
Customers appreciate the CSR efforts of a company and
consider the company to be doing CSR on their behalf. They are
psychologically con nected to the company and positive feelings
of attachment are evoked. Customers’ feeling of association with
the company makes them engaged with the company. Engaged
customers want to remain in the relationship and become more
loyal to the company. They co nstrue themselves as a member of
the company and like to play a role for it and spread word of
mouth. Engaged customers want the betterment of the company
and want to experience its better services. Instead of switching,
they want a solution if any problem with the service is generated.
Thus, they are more likely to give feedback.
CSR attracts customers in many ways. When customers
observe the CSR initiatives of a company, they feel that the
company is performing on their behalf and become emotionally
attached to the company. They believe that the objectives of the
company and its owners are the same. They like to be
associated with the company and feel them as part of it
considering the company and themselves as one entity. CSR
creates confidence in custom ers that the company will not
exploit their interests and they feel confident to develop a close
relationship with the company. Thus, CSR makes customers
more engaged by creating feelings of affection, oneness, and
trustworthiness. Customers feel warm for socially responsible
companies and become emotionally attached. Customers feel
that the benevolent company is acting on their behalf for the
welfare of society and such feeling strengthens the emotional
relationship with the company
CSR and Government:
The government has widened the scope of CSR activities
and companies can now contribute towards research across
various fields such as science, technology, medicine.
According to the companies act, firms with a net worth of
Rs.500 crores or more, or turnove ro fRs.1,000 crores or more,
or net profit of Rs.5 crores or more, are required to spend 2% of
the average net profit of the preceding three years on corporate
social responsibility activities.
These include initiatives that would have a social,
economic , and environmental impact or a way to give back to
the society, such as promoting gender equality, empowering
women, promoting education, eradicating hunger, poverty,
malnutrition, rural development projects, conserving natural
resources, among others.
Now CSR 2% fund can be spent on incubators funded by
central or state government or any agency or public sector
undertaking of central or state government, and, making
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laboratories and autonomous bodies (established under the
auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of
Electronics and Information Technology) engaged in conducting
research in science, technology, engineering and medicine
aimed at promoting SDGs (sustainable development goals)
The thrust towards research -based innovation is a much -
needed step in the right direction. Integration with established
private enterprises in key sectors will provide the required
impetus for a future -ready economy. Additional focus to drive
social enterprise to drive localised enterprise and employment
opportunities, especially around key social services should be
encouraged.
CSR spending between 2014 -15 and 2017 -18 was the
highest in education, health, fight against poverty and
malnutrition, a ccess to clean drinking water, livelihood, and for
the differently -abled.
3.3 CORPORATE PHILANTHROPY
Philanthropy has covered a wider field than charity the
problems of the poor have not been philanthropy’s only or even
primary concern. The aim of phil anthropy in its broadest sense is
the improvement in the quality of human life whatever motives
animate individual philanthropist, the purpose of philanthropy
itself to promote welfare, happiness, and culture of mankind. We
all are indebted to philanthropi c reformers who have called
attention to and agitated for the abetment of the barbarities
inflicted by society on its weaker members. We are all, to some
degree, beneficiaries of philanthropy whenever we attend the
temple, go to college, visit museums or c oncert halls, draw
books from libraries, obtain treatment at the hospital or spend
leisure hours in parks. Most of us use or may have occasion to
use institutions and services now tax -supported, which
originated as philanthropic enterprises. We continue to rely on
philanthropy for support of scientific research, for
experimentation in the field of social relations, and diffusion of
knowledge in all branches of learning.
The word philanthropy comes from the Greek word
‘philanthropos ’ which includes two wor dsphilos ( loving) and
anthropos (human being). Thus, philanthropy implies giving or
donating for the well -being of human beings.
The giving away of money, especially in large amounts, to
organizations that help people is called philanthropy.
We often ge t confused or interchangeably use the word
charity as philanthropy but there is a difference between the two
words. Charity is the hands -on response to helping meet
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Philanthropy is a more stra tegic process of giving that seeks to
identify the root causes of systemic issues and make the world a
better place by tackling societal problems at their roots.
Corporate philanthropy is the act of a corporation or
business promoting the welfare of othe rs, generally through
charitable donations of funds or time. There is a difference
between CSR and corporate philanthropy, CSR is the overall
attitude of firms towards society at large while corporate
philanthropy is the small version of CSR.
As shown in the above diagram, these are the five ways
of corporate philanthropy. Business entities may use other ways
as available in the corporate world. Corporate philanthropy can
also include product and service donations.
For example, Digital servic es and consulting
conglomerate Infosys Limited spent INR 342 crores as against
its prescribed CSR expenditure of 340 crores (2% of the net
profit of INR 17,018 Cr) towards various schemes of Corporate
Social Responsibility in the financial year 2019.
Com munity grants -
Most large corporations have either created a foundation
to handle their charitable giving programs or handle them
internally. Through community grant programs, companies can
support the needs of their local communities by providing
fundin g to support organizations that work to improve the lives of
employees, customers, and local neighborhoods. Eligible
organizations can apply for community grants by submitting a
grant request that explains how the funds will be used.In most
cases, these gr ants are restricted to organizations where
companies have a physical presence. For example, In the
financial year 2018 -19, Tata Capital implemented 58 projects
with 51 partners and was able to reach 1,25,054 beneficiaries
from economically underprivileged communities.
Some of the unique initiatives undertaken include :
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Education of tribal children in Vikramgad, Sudhagad and
Jalpaigudi ‘JalAadhar’ –An integrated watershed management
program at Pimpalegaon Rotha in associati on with Bhartiya Agro
Industries Foundation (BAIF) ‘Green Switch’ Project –Providing
unelectrified tribal hamlets with solar micro grids Pankh
Scholarship Program –Mentoring of meritorious underprivileged
students by our very own employees, Dhangyan –Thee-
learning module for Financial Literacy, Skilling –Training
underprivileged youth with skills that will help them gain
employment, in the BFSI, Solar and Healthcare sector, Health –
Assisting the underprivileged gain better access to quality
healthcar e to combat Cancer and blindness.
Employee volunteer grants –
“Dollars for Doers” programs, also known as Volunteer
grant programs, are donations giving programs created by
industries, in which the company provides a monetary donation
to eligible nonprof its (NGOs) as a way to recognize employees
who volunteer.
Team volunteer grants –
In this case, the incentive for employees to organize joint
team building/volunteer events is given by the company. In
these cases, monetary grants are given to nonprofits (NGOs) by
the company, in which the company's employees volunteer the
activities undertaken by nonprofits. For example, When IBM
employees and retirees volunteer individually they are eligible
for up to $3,500 in technology grants or $1,000 in cash awards a
year for organizations where they regularly volunteer.
Employees must volunteer for a minimum of 8 hours a month for
five months.
Individual volunteer grants –
In these grants, employee volunteers certain activities
which are set by the corporations for the nonprofits. An
employee is supposed to volunteer for certain hours as per the
corporation's policy. Once the employee is performing the task
as per the predefined norms, a donation will be given to the
nonprofits. For example, Through Advanced Micro D evices’
Grant Incentives for Volunteer Efforts (GIVE), the company
provides grants of $15 per hour volunteered when individual
employees volunteer with a nonprofit.
Employee matching gifts -
The company matches donations made by employees to
eligible non profit organizations are called corporate matching gift
programs. This is a donation -given program of corporations
considered philanthropy. When an employee donates, they will
request the matching gift from their employer, who then makes
their donation. Co mpanies usually match donations at a 1:1
ratio, but some will match at a 2:1, 3:1, or even a 4:1 ratio. There
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makes sure before donating what kind of employee matching
gifts program offered by their employer.
Corporate sponsorships –
In these cases, corporations are giving donations to
certain associations in return for publicity. It is a kind
advertisement program. In corporations, th ere is a department to
look after big events which are taken place in the future. By
doing these twine objectives of corporation fulfills corporate
philanthropy and donations to the desire section. For example,
Nike, Adidas, Reebok are sponsors who sponsor large sports
events such as Olympic, Asiatic games, etc.
Non-cash contribution –
Corporations that donate in -kind are called non -cash
donations. In this case instead of monetary grants, emphasis on
physical goods or services. These can include old compu ters,
furniture, office supplies, or services. To make the most out of
your donations, first of all, pick the right organization to donate
to. For a small business that is tied to the community, it often
makes sense to pick a local group. For example, adop tar e m o t e
village for education expenses; provide computer facilities to
panchayat schools, etc.
Know your progress
1-Define employee volunteer grants
2-What do you understand by corporate philanthropy?
3-Write a note on one of the Indian company’ sp h i l a n t h r o p y
activities
4-Define corporate sponsorship
5-Explain the community grants
3.4 MODELS FOR IMPLEMENTATION OF CSR
Over the years, scholars have defined, interpreted, and
understood CSR in many different ways. Some have perceived it
as a hierarchical model while others have illustrated it in the
form of inclusive concentric circles. Just when one presumes
that closure to this has been achieved, new jargon like
‘corporate sustainability’, ‘corporate social responsiveness’, and
‘corpor ate social performance’ spring up and complicate the
already existing dilemma. Bowen often regarded as the father of
CSR, who provided the first sets of literature on the subject,
defined CSR as ‘obligations of businessmen to pursue those
policies, to make those decisions, or to follow those lines of
action which are desirable in terms of the objectives and values
of our society. The concept has evolved since then to form two
very different streams: the stockholder theory (as postulated by
Friedman) and the social contract theory. Following these two
non-identical streams of theory, many models have come up
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Friedman model
Ackerman Model
Carroll Model
Stockholders & Stakeholders Model
Friedman model -In his article which appeared in the New York
Times in 1970, American economist Milton Friedman discussed
the social responsibility of business organizations. He
straightforwardly argued: the social responsibility of a business
is to increase its profits. He first prese nted this argument in his
book “Capitalism and Freedom” published in 1962. He described
business owners who talked about “ social conscience ”a s
“unwitting puppets of the intellectual forces that have been
undermining the basis of a free society these past decades.”
while addressing social issues; he argued that this is the
responsibility of governments and other nonprofit organizations
and not of business organizations. However, although
businesses have a sole responsibility toward their shareholders,
they must remind compliant with legal standards. The
profitability of a business promotes an environment conducive to
investment that, in turn, fosters capitalism and the creation of
free-market enterprises. Besides, a thriving business would
result in the intr oduction of competitive products and the creation
of jobs, as well as in the payment of taxes to the government.
Hence, Friedman explained that the profitability and success of
a business would eventually benefit society.
ACKERMAN MODEL (1976) -the model has emphasized the
internal policy goals & their relation to CSR. There are four
stages involved in CSR. Managers of the company get to know
the most common social problem & then express a willingness
to take a particular project which will solve some soc ial
problems.
These are the four stages model; according to Ackerman
companies tend to pass through these stages to solving any
social issue. Awareness, at this stage management, recognizes
the social issue or pro blems existing in society and
acknowledges the corporate obligation to deal with it. Polices
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awareness. Planning, at this stage analysis, is done to observe
the issue and formulate a strategy to de al with the problem.
Management appoints specialists/experts for this purpose.
Implementation, at this stage implementation of policies,
strategically takes place. Evaluation, this the last stage where
continuous evaluation is required to keep the situatio nu n d e r
control.
Carroll’s model -(1983) according to him “corporate social
responsibility involves the conduct of a business so that it is
economically profitable, law -abiding, ethical and socially
supportive. To be socially responsible then means that
profitability and obedience to the l aw are foremost conditions
when discussing the firm’s ethics and the extent to which it
supports the society in which it exists with contributions of
money, time, and talent.
Philanthropic This represents the ultimate objective of
business to work for the betterment of
society
Ethical This represents the responsibility of the
business to be morally right and practice
fair business
Legal The business should abide by laws and
regulatory norms to any legal complications
in work
Economic The basic res ponsibility of any business to
be profitable for longer survival in a
competitive market
Stockholders & Stakeholders Model -According to this
theory, which was first introduced by Milton Friedman in the
1960s, a corporation is primarily responsible to its stockholders
due to the cyclical nature of business hierarchy. Stockholder
theory, also known as shareholder theory, says that a
corporation’s managers have to maximize shareholder returns.
Stakeholder theory says that business managers have an ethical
duty to the corporation’s stockholders, as well as those
individuals or groups that contribute to the company’s profits and
activities and those who could benefit from or be harmed by the
company.
Ethical model -The origin of the first ethical model of corporate
responsibility lies in the pioneering efforts of 19thCentury
corporate philanthropists such as the Cadbury brothers in
England and the Tata family in India. The pressure on Indian
industrialists to demonstrate their commitment to social
developm ent increased during the independence movement
when Mahatma Gandhiji developed the notion of trusteeship,
whereby the owners of the property would voluntarily manage
their wealth on behalf of the people. Gandhiji’s influence
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nation -building and promoting socio -economic development
during the 20th century. The history of Indian corporate
philanthropy has encompassed cash or kind donations,
community investment in trusts, and provision of essential
services such as schools, libraries, hospitals, etc. Many firms,
particularly family -run businesses, continue to support such
philanthropic initiatives.
Statist model -A second model of CSR emerged in India after
independence in 1947, when India adopted th e socialist and
mixed economy framework, with a large public sector and state -
owned companies. The boundaries between the state and
society were clearly defined for the state enterprises. Elements
of corporate responsibility, especially those relating to
community and worker relationships, were enshrined in labour
laws and management principles. This state -sponsored
corporate philosophy still operates in the numerous public sector
companies that have survived the wave of privatization of the
early 1990s
Liberal Model -Indeed, the worldwide trend towards
privatization and deregulation can be said to be underpinned by
a third model of corporate responsibility that companies are
solely responsible to their owners. This approach was given by
the American econom ist Milton Fried -man, who in 1958
challenged the very notion of corporate responsibility for
anything other than the economic bottom line. Many in the
corporate world and elsewhere would agree with this concept,
arguing that it is sufficient for the busine ss to obey the law and
generate wealth, which through taxation and private charitable
choices can be directed to social ends.
Philanthropic model –in this model business firms focus on
philanthropic activities, Such as corporate donations to the
health p rogram, education program, eradication of poverty,
training to rural unskilled and semi -skill youth, etc. by doing this
kind of activities business firms fulfilled their responsibility
towards society. As per the Indian company act, 2% of the
company's net profit is required to set aside for CSR.
Check your progress…..
1-Comment on the importance of CSR
2-Write a note on the Ackerman model
3-How the Friedman model is different from the Carroll model
of CSR
4-Suggest a model for CSR implementation
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3.5 DRIVERS OF CSR
Numerous factors help to increase CSR activities in India
and worldwide. In recent years, there has been a trend,
particularly among large organizations, to adopt a more socially
respon sible approach to their business activities. It shows
companies transition from a marketing concept to what is known
as a societal marketing concept. In the latter concept,
companies seek to add value to the overall society and in the
communities in which they operate -Examples of Corporate
Social Responsibility in Action, Reducing carbon footprints,
Improving labor policies, Participating in fair -trade, Charitable
giving, Volunteering in the community, Corporate policies that
benefit the environment, Social ly and environmentally conscious
investments.
Driving forces as follow
VALUES:
A pragmatic value shift has taken place within
businesses, as a result of which they now not only feel
responsible for wealth creation but also social and
environmental benefits. Reliance, Infosys, TATA groups these
industries are set to market examples by making huge social
philanthropy.
INCREASED AFFLUENCE:
CSR becomes more relevant as economies grow and
stabilize. Therefore, the greatest attention to CSR is found in
developed countries. Stable work and security provide the luxury
of choice and social ly responsible activism. No such luxury
exists when basic needs are in question.
GLOBALIZATION:
Globalization leads to a drastic change in the firm's
business activities. The increased wealth and power of MNC’s
have led to questions on the decreased autho rity of the nation -
state, especially in developing areas. Further, cultural
differences have added to the complexity of CSR as
expectations of acceptable behavior vary regionally. With
increased power comes increased responsibility and
globalization has fu eled the need to filter all strategic decisions
through CSR policies to ensure optimal outcomes for diverse
stakeholders.
GOVERNMENT LEGISLATION –
In many countries across certain industries, the
government has imposed legislation that requires companie st o
conform and behave in a certain manner. In this case, however,
the organizations impacted by this legislation are only complying
with various requirements because of regulation. They may or
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into their day -to-day operations of an overall strategy. Examples
here would include legislation relating to the environment,
pollution, use of workers and conditions, product disposal,
materials used in production, and so on. Therefore, this is not
necessarily a driver of corporate social responsibility but is
adopted and followed by companies as it is a requirement
imposed upon them by the government.
CUSTOMERS’ EXPECTATIONS OF FIRMS –
Consumers are becoming more aware of social and
environmental issues and the consideration of the future is
becoming slightly more important when consumers consider
purchase decisions. As a result, some consumers will expect
that certain companies behave appropriately, relate to society
and the communities. The chan ging expectations of consumers
have resulted in firms being more responsive to consumer
issues and adopting a more corporate responsible outlook.
FREE FLOW OF INFORMATION –
At one touch availability of information especially to
consumers, NGOs and the g eneral media has changed the way
of doing business activities of firms. Easily accessible and
affordable communication technologies have permanently
changed the game and only truly authentic and transparent
companies will profit in the long term. Through t he Internet and
other electronic mediums, the flow of information has shifted
back to the stakeholders, especially in the case of three
important groups -company, consumer, and the shareholders.
ENVIRONMENTAL SUSTAINABILITY –
It is important among drive rs. Concerns over pollution,
waste, natural resource depletion, climate change and the like
continue to fuel the CSR discussion and heighten expectations
for proactive corporate action. After all, it is in the best interest of
firms to protect for the sust ainable future the long -term
availability of the resources on which they depend.
THE POWER OF THE BRAND –
In today’s competitive business world success of a
corporate largely depends on its brand. The true test of viability
and well -being of a brand is t he market perception of the brand.
In other words, reputation is a key and honest CSR is a way to
protect that reputation and therefore the brand. That’s because
several business firms have been surveyed cause and effect
marketing.
POTENTIAL FOR A COMPETITIVE ADVANTAGE BY
IMAGE –
Some companies are attempting to build their core image
or at least parts of their brand association around their socially
responsible behavior. Some companies will highlight that they
are ethical manufactur ers –TATA group is one such
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practicing the societal marketing concept. They are foregoing
some profitability to contribute to society or target communities.
PUBLIC PRESSURE –
Pressure g roups, consumers, media, the state, and other
public bodies are pressing organizations to become more
socially responsible. Organizations are often driven by one of
the above, but see a shift into other spheres over time. In the
main, it has been public pr essure centered on three key areas
that have driven the CSR agenda. These comprise the
environment, labour standards, and human rights.
Check your progress
1-Define the power of brand
2-How would ‘information’ impact the company’s image?
3-What do you understand by values?
3.6 PRESTIGIOUS AWARDS FOR CSR IN INDIA
Before the Government of India starts awarding
companies for their corporate social activities by the national
award, other non -government entities and personalities have
been awarded by corporate entities for their achievements in the
social wellbeing of the society at large. It is not at all mean that
the government is ignorant of these entities, but directly or
indirectly government has been provided its helping hand for
these entities for their social activities. Finally, the Government
of India has mad eal a wf o rt h er e c o g n i t i o no fn o b l ew o r kt h a t
has been undertaken by corporate as per the law of the country.
In India process of CSR will take place in the year 2007
as the 11thfive-year plan which was called the inclusive growth
plan. After this plan , the next step in process of legalization of
CSR took in the year 2009 by the Ministry of Corporate Affairs
by issuing voluntary guidelines for corporate social
responsibility. This was further refined subsequently, as
'National Voluntary Guidelines on So cial, Environmental and
Economic Responsibilities of Business, 2011 by the parliament
of India. The National Voluntary Guidelines (NVGs) on Social,
Environmental, and Economic Responsibilities of Business
released by the Ministry of Corporate Affairs (MCA) in July 2011,
is essentially a set of nine principles that offer Indian businesses
an understanding and approach to inculcate responsible
business conduct. These nine principles are: i.conduct and
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ii.Provide goods and services that are safe and that contribute
to sustainability throughout their life cycle. iii.Promote the well -
being of all employees. iv.Respect the interests of, and be
responsive towards all stakeholders, especially those who are
disadvantaged, vulnerable, and marginalized. V.respect and
promote human rights. vi.Protect and make efforts to restore
the environment. vii.When engaged in influencing public and
regulatory policy, they should do so in a responsible manner viii.
Support inclusive growth and equitable development. ix.Engage
with and provide value to their customers and consumers in a
responsible manner. These guidelines not being prescriptive,
nevertheless seek to guide Indian businesses to take into
account In dian social and business realities and the global
trends, while promoting their businesses. Principle (viii) of the
NVGs on 'inclusive growth and equitable development' focuses
on encouraging business action on national development
priorities, including co mmunity development initiatives and
strategic CSR based on the shared value concept. This principle
of NVG was subsequently translated into a mandatory provision
of Corporate Social Responsibility (CSR) in Section 135 of the
Companies Act 2013.
National Corporate Social Responsibility Awards (NCSRA) –
On 29th October 2019 The President of India, Shri Ram
Nath Kovind, will present the first National Corporate Social
Responsibility Awards (NCSRA) to select companies for their
outstanding contribution in the area of Corporate Social
Responsibility (CSR).
Ministry of Corporate Affairs, Government of India has
instituted National Corporate Social Responsibility (CSR)
Awards to recognize companies that have made a positive
impact on society through their innova tive & sustainable CSR
initiatives.
The National CSR Awards seek to:
Recognize the companies that have positively impacted both
business and society by taking a strategic approach to CSR
through a collaborative program.
Recognize the companies that are l eading transformation by
integrating sustainability in their core business model.
Recognize companies for implementing measures for
conservation and sustainable management of the biodiversity
and ecosystem in the value chain.
Identifying innovative appro aches and employing application
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National CSR Awards seeks to recognize outstanding CSR
projects /programmes in the following three categories:
Four awards for Excellence in CSR, based on CSR spend
Five awards for CSR projects in Aspirational Districts/ difficult
terrains
Eleven awards for CSR projects in National Priority Areas
Three awards, one each in the above three categories are
reserved for Micro, Small, and Medium Enterprises (MSMEs)
Check your progress……
1-National CSR award explains.
2-Write a note on corporate philanthropy.
3.7 CSR AND INDIAN CORPORATION
India is the first country in the world to make corporate
social responsibility (CSR) mandatory, following an amendment
to the Companies Act, 2013 in April 2014. Businesses can invest
their mandated share of profit in areas such as education,
poverty, gend er equality, and hunger as part of any CSR
compliance.
Tata Chemicals Ltd. –
Although the prescribed CSR for 2018 -2019 was 19.86
Crores, the company went on to spend 25.68 crores this year.
Improving the quality of life and fostering sustainable and
integrated development in the communities where it operates is
central to Tata Chemicals’ corporate philosophy. Tata Chemicals
spends INR 12 crores on CSR annually, and wildlife
conservation accounts for 30 percent of the budget of the
TCSRD.
Infosys Ltd –
The company implements social development projects
primarily through its CSR trust, the Infosys Foundation
established in 1996. The major works of the Foundation included
the introduction of Aarohan Social Innovation Awards,
restoration of water bodies in K arnataka, supporting the
construction of a metro station in partnership with Bangalore
Metro Rail Corporation Limited, enabling the pursuit of access
and excellence in sports through the Go Sports Foundation, and
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Bharat Petroleum Corporation Limited (BPCL) –
It is Government of India -controlled Maharatna oil and
Gas Company headquartered in Mumbai. The CSR budget of
INR 146.87 crores from the financial year 2017 -18 was carried
forward next year (FY 201 8-19).Under the umbrella of “enabling
quality education”, the focus is on imparting holistic education,
preferably through the usage of technology apart from catering
to adequate infrastructural facilities, access to education, and
improvement of educatio n systems.
Mahindra & Mahindra Ltd. –
Mahindra & Mahindra spent INR 93.50 crores on CSR
initiatives during the financial year 2018 -19, according to the
annual report published by the company. The company spent
INR 8.36 crore on Project Nanhi Kali which p rovides educational
support to underprivileged girls in India through an after school
support programme.
ITC Ltd. –
ITC Limited is an Indian multinational conglomerate
company headquartered in Kolkata, West Bengal. The Company
hasspent more than the prescribed CSR budget in the last three
financial years. In FY 2018 -19, ITC Limited spent INR 306.95
Crores. The Company partnered with BAIF Development
Research Foundation, Pratham Education Foundation,
Ramakrishna Mission, Bandhan Ko nnagar, SEWA Bharat,
Foundation for Ecological Security, ITC Sangeet Research
Academy (ITC SRA), ITC Rural Development Trust, and CII –ITC
Centre of Excellence for Sustainable Development to implement
CSR programmes.
Ambuja Cement Ltd. –
Ambuja Cement Fo undation (ACF) –the corporate social
responsibility arm of Ambuja Cement –has been pivotal in
advancing the company’s objective to be a socially responsible
corporate citizen. It aims to ‘Energise, Involve and Enable
Communities to Realise their Potentia l’ through its initiatives.
These development initiatives address the needs of the people
by working with the beneficiaries, NGOs, and the government.
Tata Motors Ltd -
Auto brand Tata Motors Limited went beyond compliance
and spent INR 22 crores (stand alone) towards various schemes
of CSR. The CSR spend amount excludes INR 2.99 crore
donated to Tata Community Initiative Trust (TCIT) for the repair
of infrastructure which was affected during the flood in Kerala
(August 2018), the company said in its Inte grated Annual Report
for the FY 2018 -19. Health, Education Employability, and
Environment are the major area of works where most of the
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Vedanta Ltd. –
Vedanta Limited on a consolidated basis spent INR 309
crores on social investments and CSR (Corporate Social
Responsibility) activities. The Nandghar Project is among the
flagship initiatives, which aims to re -build Anganwadis for
ensuring the health and learning of children in rural areas, and
also for becoming a platform of women’s empowerment and
skilling.
Hindalco Industries Ltd. –
Hindalco Industries Limited is the metals flagship
company of the Aditya Birla Group. With a consolidated turnover
of US$18.7 billion, Hindalco is the world’s largest aluminum
rolling company and one of Asia’s biggest producers of primary
aluminum. Hindalco Industries went beyond compliance and
spent INR 34.14 Cr, which is a higher figure than the prescribed
INR 29.97 Cr. The Company supports education, healthcare,
sustainable livelihood, infr astructure development, and social
reformation under Corporate Social Responsibility (CSR) with 12
Lakh beneficiaries in more than 730 villages across 11 states in
India. Hindalco has spent the highest amount of INR 10.99 crore
on the education sector amon g all its CSR initiatives.
Wipro Ltd. –
This technology company helmed by philanthropist
tycoon Azim Premji has always been dedicated to CSR
activities. Wipro has spent more than the prescribed CSR
budget in the last three financial years. The implementat ion of
the CSR programmes happens through multiple channels –
Wipro Foundation, a separate trust set up in April 2017, Wipro
Cares, the trust for employee contribution, and in some cases,
directly through functions and groups within Wipro Ltd e.g.
Biodiver sity projects for their campuses is executed directly by
the Operations group of Wipro Ltd. The implementation
approach of Wipro is to primarily work through partners with
established track records in the respective domains. The
majority of the projects ar el o n g -term multi -year programmes.
The state is the guardian of its subject. The state has
done its work in all spare from rural to urban by number
schemes for up -gradation of the last person of the pyramid. To
cater to a large population such as India is not a single person
task, it is the collective work of society as a whole. In some
extent corporate philanthropy or CSR, it has been work parallel
with the government agencies for the betterment of the citizen of
our country.
3.8 LEGAL PROVISIONS AND S PECIFICATIONS ON
CSR
The term ‘Corporate Social Responsibility’ (CSR) means
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origination of CSR happened long back in ancient In dia which
lasted till 1850 and Charity and Philanthropy were the main
drivers of that time.
APPLICABILITY:
Section 135(1) of the Companies Act, 2013 is a trigger point for
the applicability of CSR Provisions and constitution of CSR
Committee. The constitu tion of the CSR committee is mandatory
in company having:
Net Worth of Rs. 500 Crore
Turnover of Rs. 1000 Crore
Net Profit of Rs. 5 Crore
during any financial year.
NET WORTH:
As per Section 2(57), ‘NW’ = (Paid Up Share Capital + All
Reserves Created Out of Profits + Securities Premium Account)
–(Accumulated Losses + Deferred Expenditure and
Miscellaneous Expenditure not Written Off)
TURNOVER:
As per Section 2(91), ‘Turnover’ means the aggregate
value o ft h er e a l i z a t i o no ft h ea m o u n tm a d ef r o mt h es a l e ,
supply, or distribution of goods or on account of services
rendered, or both, by the company during a financial year
NET PROFIT:
As per Rule 2(f) of the Companies (CSR Policy) Rules,
2014,‘Net Profit’ me ans the net profit of a company as per its
financial statement prepared by the applicable provisions of the
Act, but shall not include the following namely:
i) any profit arising from any overseas branch or branches of the
company, whether operated as a separate company or
otherwise; and
ii) any dividend received from other companies in India, which
are covered under and complying; with the provisions of
section 135 of the Act;
Provided that net profit in respect of a financial year for
which the relevan t financial statements were prepared under the
provisions of the Companies Act, 1956, (1 of 1956) shall not be
required to be re -calculated under the provisions of the Act.
Provided further that in case of a foreign company
covered under these rules, net profit means the net profit of such
company as per profit and loss account prepared in terms of
clause (a) of sub -section (1) of section 381 read with section 198
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COMPOSITION OF CSR COMMITTEE:
As per Section 135(1), three or more Directors i ncluding
at least one Independent Director shall form the CSR
Committee. However, the companies which are not required to
have Independent Director shall constitute CSR Committee
without Independent Director, and the private companies having
only two Direc tors shall constitute CSR Committee only with two
such Directors as provided in Rule 5(1) of the Companies (CSR
Policy) Rules, 2014.
DISCLOSURE IN BOARD REPORT:
As per Section 135(2) read with Rule 8, the Board’s
Report prepared under Section 134 shall co ntain the disclosures
of the Composition of CSR Committee as per prescribed
Annexure under Companies (CSR Policy) Rules, 2014.
ROLE OF CSR COMMITTEE:
As per Section 135(3), the following are the roles and
responsibilities of CSR Committee: Formulate a CSR Policy
indicating the activities as per Schedule VII to the Act;
Recommend the policy to Board of the Company; Recommend
the amount of expenditure on the activities, and Monitor CSR
Policy by way of instituting a transparent monitoring mechanism
for imple mentation of CSR projects or programmes or activities
undertaken by the company as provided in Rule 5(2).
ROLE OF BOARD OF DIRECTORS:
As per Section 135(4), the following is the role of the
Board of Directors Approve the CSR Policy; Disclose the
contents of policy on the company’s website, if any; Ensure that
activities, as included in CSR Policy, have been undertaken.
CSR EXPENDITURE:
As per Section 135(5), at least 2% of the average net
profits of the company during three immediately preceding
financial years must be spent against CSR as provided in CSR
Policy.”
FAILURE TO SPEND CSR FUND:
If a company fails to pay the amount allocated for CSR,
then such company shall make such disclosure in the Board’s
Report. Such a company shall also specify the reason for the
failure to spend the CSR Fund.
CSR Policy:
As per Rule4, the following points must be considered
while drafting the CSR Policy:
1)CSR policy shall specifically provide activities which are to be
undertaken by the Company during the financ ial year;
2)CSR Policy shall not include the activities which are in the
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3)CSR policy shall provide for the activities to be executed in
India only to be covered under Section 135;
4)CSR policy may provid e for the activities which are for the
benefit of the employees of the company. However, such
expenditure on such activity will not consider as CSR
expenditure;
5)The companies can build the capacities of their personnel as
well as those of their impleme nting agencies through
Institutions with established track records of the last three
financial years. However, administrative overhead, in any
case, shall not exceed 5% of total CSR expenditure in one
financial year.
As per Rule 6, the following shall be included in the CSR Policy:
1)The list of programmes or projects which finds their place in
the purview of Schedule VII;
2)The modalities for exaction of CSR projects;
3)The schedules for implementation of CSR projects;
4)Monitoring process of such projects;
5)Specific declaration to the effect that surplus arising out of
the CSR projects shall not form part of the business profit of
a company.
CSR ACTIVITIES:
As per Rule 4, the following points must be considered
while taking decisions on the ac tivities to be undertaken by the
Companies:
1)CSR activities shall be undertaken as per its formalised CSR
Policy;
2)Any activity which is undertaken in the normal course of
business cannot be termed as CSR activities of the
Company;
3)Two or more co mpanies can also come together and
collaborate to undertake projects or programmes under their
CSR Policy in such a manner that the CSR Committees of
respective companies are in a position to report separately;
4)To term any activity as ‘CSR activity’, the same shall be
undertaken in India only;
5)The companies can have CSR activities that will benefit the
employees of such companies. However, such activities will
not be considered as CSR Activities according to Section
135 of the Act;
6)Political c ontribution shall not be considered as CSR
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CSR THROUGH TRUST, SOCIETY, AND SECTION 8
COMPANY:
As per Rule 4(2), Companies can spend their CSR
expenditure through registered trust, society, or section 8
companies.
1. The law has granted com panies to come together to form a
trust, society, or section 8 company for this purpose. Such
companies coming together not necessarily required having
some relations with each other such as associates, holding -
subsidiary relation, etc., and hence, even un related companies
can come together for this purpose.
2. The Companies can also undertake CSR activities through a
company established under section 8 of the Act or a registered
trust or a registered society established by the Central
Government or State Government or any entity established
under an Act of Parliament or a State Legislature. However, if a
company does not opt for any of the aforesaid options for
undertaking CSR activities and decide to undertake CSR
activities through a company established under section 8 of the
Act or a registered trust or a registered society other than those
specified above then:
1.Such a company or trust or society shall have an established
track record of three years in undertaking similar programs or
projects;
2.The Companies have specified the projects or programs
which shall be undertaken with their funds;
3.Modalities of the utilization of funds; and
4.Monitoring and reporting mechanism.
Schedule VII of the companies Act 2013
Activities which may be included by companies in their
Corporate Social Responsibility Policies Activities relating to: —
i)eradicating extreme hunger and poverty;
ii)promotion of education;
iii)promoting gender equality and empowering women;
iv)reducing child mortality and improving maternal health;
v)combating human immunodeficiency virus, acquired immune
deficiency syndrome, malaria, and other diseases;
vi)ensuring environmental sustainability;
vii)employment enhancing vocational skills;
viii)social business projects;
ix)contribution to the Prime Minister's National Relief Fund or
any other fund set up by the Central Government or the State
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funds for the welfare of the Scheduled Ca stes, the
Scheduled Tribes, other backward classes, minorities and
women; and
x)such other matters as may be prescribed.
Check your progress…
1.The composition of the CSR committee elaborates.
2.Explain any one of Indian's corporate philanthropic activities.
3.9 A SCORE CARD
Corporate Social Responsibility (CSR) for companies has
been mandated through legislation in India. Ministry set up a
High -Level Committee on 03.02.2015 under the chairmanship of
Shri. Anil Baijal, to recommend suitable methodologies for
monitoring compliance with the provisions of Section 135 of the
Act. High -Level Committee submitted its report in September
2015 and one of the recommendations of the Committee inter
alia was to conduct the review of the programme, after three
years as the first couple of years would appropriately be a
learning experience for all stakeholders including the
companies, implementing agencies, auditors, etc.; and
information relating to the implementation of CSR by the
companies is expected to be available by the end of the year
2015. Keeping in view the above recommendation, Steering
Committee on CSR as well as Legal Sub -Committee and
Technical sub -committee has been constituted by the Ministry to
revisit & reviewing the existing framework of CSR provisions.
The 21st Report of the Parliamentary Standing Committee on
Finance is one of the prime movers for bringing the CSR
provisions within the statute.
The Ministry of Corporate Affairs constituted a High -Level
Committee on 3rd February 2015 to suggest measures for
monitoring the progress of implementation of Corporate Social
Responsibility (CSR) policies by companies.
The Committee has submitted its report along with its
recommendations on 22nd September 2015 (Annexure V). Inter -
alia the follo wing are the recommendations of the committee:
The ceiling on administrative overhead cost should be increased
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Definition of the term “net profit" used under the Act and
Rules need to be clarified Re -examination of reference to any
financial year' in section 135 (1) of -the Act to make necessary
amendment either in Section 135 (1) or in the relevant rule.
The unspent balance out of the CSR fund should be
allowed to be carried forward with a sunset clause of five years,
after which the unspent balance should be transferred to one of
the funds listed in Schedule VII.
An omnibus clause may be included in Schedule VII of
the Act to suggest that CSR activities must be for the larger
public good and for any activity that Serves a public purpose and
/or promotes the wellbeing of the people, with special attention
to the needs of underprivileged.
Government is sue guidelines for Sensitization workshops
have been organized by the offices of Regional Directorate
under MCA, IICA, and Institutes to ensure effective compliance
of CSR provisions by companies.
Ministry launched the National CSR Data Portal on
19.01.20 18 for driving accountability and transparency in
corporate India. This portal has been created to achieve a high
level of compliance as well as to institutionalize and
consolidating CSR activities. It is also expected to facilitate the
social audit of CSR projects, besides bringing together CSR
contributors, implementers, and beneficiaries thus bridging the
information asymmetry presently prevailing on CSR matters.
3.10 FUTURE OF CSR IN INDIA
In India, several business firms have started realizing that
it is a rational move to take up CSR activities and integrate them
with their business process. Corporations are becoming
increasingly aware of their role in society. They are responsible
bodies that feel a sense of duty towards the common welfare
and the e nvironment. This comes with a growing realization that
they, as an integral part of this society themselves, can
contribute to its upliftment and empower of the entire country in
turn. Thus Companies now are setting up specific departments
and teams that d evelop policies, strategies, and goals which are
for their CSR programs and allocate separate budgets to
support them. In the modern era, the new generation of
corporate leaders considers the optimization of profits as the
key, rather than the maximization of profit. Companies conduct
events like health camps, population control measures, support
a few sick persons, give some scholarships, organize a few
SHGs, a few sports events, impart training for some livelihood
practices without linking them to further growth in the process of
conducting CSR. Some corporate found to work on disability,
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are either time -bound projects of institution -run activities or
supports to some NGOs. They also meet the deficiencies of
Government -run schemes or programs intending to enhance the
quality of the programme. Short -term activities are mostly eye
washing efforts by corporate where sustainable development
approaches are usually missed. Government authorities and
people’s representatives are mostly invited in such programs to
grace the occasions and their visibility in the public is taken care
of in such a way that the corporate get continuous illegal and
quick legal favour and ultimately the profit multiplies.
Aninsight into the history of CSR reveals that till the
1990s it was exclusively dominated by the idea of philanthropy.
Considering CSR as an act of philanthropy, businesses often
constrained themselves to one -time financial grants and did not
commit their resources for such projects. Moreover, businesses
never kept the stakeholder in mind while planning for such
initiatives, thereby reducing the worth and efficiency of CSR
initiatives. However, over the last few years, the concept of CSR
has been changing. There has been a clear transition from
giving as an obligation or charity to giving as a strategy or
responsibility. A review of the case studies and work done on
CSR by companies in India suggests that CSR is slowly moving
away from charity and dependence and starting to build on
empowerment and partnership. Nowadays corporates are
treating CSR as a separate entity and dedicate attention to it.
Most of the corporates have a vision and mission statements
often at the corporate level or sometimes at the CSR level that
compel their CSR initiative. Discussions are made to choose
specific issues and initiatives. It has been observed that the
areas they choose somewhere relate to their core values.
Companies today are increasingly sensitive about their social
role. The companies not only concentrate on how they will
position their product or how they will sell it but also they have a
social strategy because they have started feeling that brands are
built not only around good quality of the product; but also around
emotions and values that people ascribe to those products.
Business firms in India are increasing in realizing their stake in
society and engaging in various social and environmental
activities. CSR holds a very important place in the development
scenario of India today and can create an alternative tool for
sustainable development. As companies have shown great
concerns for their immediate community and the stakeholders, it
can be safely concluded that much of the fate of society lies in
the hands of the corporate. A successfully implemented CSR
strategy calls for aligning these initiatives with business
objectives and corporate responsibility across the business
principles to make CSR sharper, smarter, and focused on what
really matters. The study of vari ous reports of government and
other entities provides insights into an area of the growing
concern of firms towards society. Firms have been doing a great
effort for the achievement of business goals and matching the
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come a long way in India. From responsive activities to
sustainable initiatives, corporate have clearly exhibited their
ability to make a significant difference in society and improve the
overall quality of life. In the current social situation in India, it is
difficult for one single entity to bring about change, as the scale
is huge. Corporations have the expertise, strategic thinking,
manpower, and money to facilitate wide social change. Effective
partnerships between corporate, NGO s, and the government will
place India’s social development towards tremendous growth.
As per the changing market demands need of the hour is for the
development of a holistic CSR framework that has been
imposed by the government. So, we can contribute to making a
better planet to live on.
3.11 ROLE OF NGO’S AND INTERNATIONAL
AGENCIES IN CSR
An o n -profit organization (NGO) is established at local,
national, and international levels with goals and objectives for
the betterment of society. They run their ac tivities parallel to the
government. NGOs reach the area in which sometimes the
government finds it difficult to fulfill the needs. Profit is a
prerequisite for the survival of any business firm. Business firms
earn their profits by using the resources whi ch is available
naturally for mankind. It is moral as well as ethical for business
firms to give back to society a certain percentage of profit for the
betterment of society. In this case, NGOs have been played their
role as intermediaries.
International agencies such as the United Nations
development organization, UN industrial development
organization has been played a key role in the implementation of
funds, which are collected by way of CSR and philanthropic
activities at the world level. UN organizat ion has segmented the
countries on basis of its national income, as least developed,
underdeveloped, developing, and developed one. As of now,
South African least developed countries get the highest amount
of funding for developmental activates.
India possibly is home to the world's largest number of
active not -for-profit NGOs. At last count, India had 31 lakh NGO
-one NGO for about 400 Indians. With the boom in CSR
funding, this number can cross 40 lakh -considering that there
are thousands of public and private sector companies worth
Rs.15,000 to 18,000 crores annually. This number does not
even include India's actual number of NGOs, as many are not
formally registered under the Societies Registration Act 1860, or
any other Acts pertaining to n on-profit organizations.
Following are the steps that NGOs take while dealing with
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Identification of need:
NGO’s works at the grass -root level at various geographic
locations. They have local contacts, which helps the NGOs to
identify the nee ds. The needs also depend on priorities. NGOs
have become active in a wide range of specialized roles as an
emergency response, democracy conflict resolution, human
rights works, cultural preservation, environmental activities,
policy analysis, and researc h and information provision based
on priorities.
Design of Strategy Formulation:
The change in the working pattern of NGOs and the
collaboration with corporates, which has encouraged and
engaged them in various activities like relational marketing,
advert isement, CSR projects for which they need to design a
proper strategy. As it is collaboration with corporates, which is a
dual process i.e. fundraising & profit -making for NGOs and
corporates respectively.
Implementation of Strategy:
Strategy implementati on and execution is a very crucial
task because it directly affects the collaboration motto of the
NGOs and corporates. Depending on the design of strategy
implementation is done. But Proper execution will be responsible
for the motto of achievements. As t he NGOs are helping
corporates in marketing, advertisement, and CSR -related
projects and related works like audit, assessment, and others.
Assessment and Success Rate of the Program:
As the social alliance with the corporate have become
major activities i n NGOs. The program like sustainable business
models, including small -medium, and social enterprises in the
supply chain, and various activities that need to be mapped. So
the assessment is done by NGOs on the various parameters
and success rate of the pro ject has calculated which is in direct
ratio with the profit maximization.
Role of international agencies
ISO 26000: 2010 provides guidance rather than
requirements, so it cannot be certified to, unlike some other well -
known ISO standards. Instead, it hel ps clarify what social
responsibility is, helps businesses and organizations translate
principles into effective actions, and shares best practices
relating to social responsibility, globally. It is aimed at all types of
organizations regardless of their a ctivity, size, or location.
The standard was launched in 2010 following five years
of negotiations between many different stakeholders across the
world. Representatives from government, NGOs, industry,
consumer groups, and labour organizations around the world
were involved in its development, which means it represents an
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Governance: Governments and intergovernmental bodies, such
as the UN, the Organization for Economic Co -operation and
Development (OECD), and the International La bour
Organization (ILO) have developed various compacts,
declarations, guidelines, principles, and other instruments that
outline norms for what they consider to be acceptable business
conduct. CSR instruments often reflect internationally -agreed
goals and laws regarding human rights, the environment, and
anti-corruption.
Sustainable Development: In the past, the role of a corporation
has been understood in terms of a commercial business
paradigm of thinking that focuses purely on economic
parameters of success. However, over the past few decades,
thanks to globalization and pressing ecological is sues, the
perception of the role of a corporate has undergone a sea
change. Stakeholders today are redefining the role of corporate,
taking into account the corporate responsibility beyond
economic performance -its role towards society and the
environment. Corporate social responsibility is really about
building sustainable businesses.
Empowerment of weaker section: international agencies have
been actively participating by contributing to the developmental
activities. The United Nations Development Progra mme works in
nearly 170 countries and territories, helping to eradicate poverty,
reduce inequalities, and build resilience so countries can sustain
progress.
Inclusive growth: growth in one region and undergrowth in
another region is created developmental issues in the world. For
inclusive development, it requires proper allocation of resources.
Certain extent issue of unfair practice, lobbing and restrictive
trade practice has been assessed and takes legal action by the
world trade organization. Therefore it leads to inclusiveness of
least developed countries.
CSR rating: CSR report of companies has played an important
role at a global level. Due to the free flow of communication,
what are companies done in a financial year as part of the
society, gains weightage. The rapid industrialization of western
countries has created environmental issues, coordination with
nations governments by international agencies have assessed
data and set a minimum program of action, which will help to
protect the environment and society in general. Ultimately it will
lead to rate the overall performance of companies.
3.12 INTEGRATING CSR INTO BUSINESS
The growth of CSR programmes has the potential to help
both businesses and society if the corporations can make their
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company culture. Corporate Social Responsibility (CSR)
became mandatory for businesses in India in 2014. The initial
scramble to fulfill the letter of the law has given way to an
attempt to understand and embrace CSR initiatives to make it a
part of the corporation's culture and DNA.
The company Act 2013, has made CSR mandatory for
companies, and change in the buying pattern of socially aware
consumers, leads to change in the way companies were though t
to be. Before CSR takes place as legally mandatory for
companies, philanthropy or charity activities are conducted by
large firms as per their will.But now to sustain strategically in an
ever-growing market, by fulfilling legal mandates such as CSR,
comp anies need to be coordinate with NGOs or philanthropic
institutions which match with its organisational goals and
objective is necessary.
Following are the initiative which may lead to a proper
collaboration of CSR into business firms.
Establish corporate social responsibility values and
relevancy -it is important to establish a company's values and
relevance towards corporate social responsibility. This can
become the basis for any employees or talent who is on -
boarded as you grow. They can look at your values and better
understand the reasoning behind behaviors that promote
corporate social responsibility.
Determine the skills related to social responsibility -If a firm
has limited resources to participate in social responsibility
programs, fo cus on those activities that can rely on the firm's
time and talent. This includes specific skills that management
can put to work within the company, as well as volunteer
activities outside of the company.
Identification of potential projects -By networ king,
researching, and studying available needs and initiatives, a firm
may be able to identify potential projects where they can assist.
Accordingly, the firm has to allocate resources to each
programme. A firm must keep in mind its core value while
selec ting a project.
Environmental sustainability -By focusing on specific
initiatives related directly to the envi ronment, which is one of the
pillars of CSR, firms may find that they can save more money in
terms of overhead costs. For example, the firm can focus on
initiatives directed at lowering the company's impact on the
environment through solar -based energy use and smaller office
spaces
Implementation of projects -while implementing CSR projects
in a selected area, the firm has to conduct a pilot study. Any step
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the environment at large. The firm may develop the CSR
program parallel to its development. It shows firms do more than
just making a profit.
Review of the project -after proper implementation of CSR
projects, it requires a timely review of the same. Accordingly, the
firm can take correct ive steps. Reallocate the resources to need
one. Therefore the firm can achieve its desire goals. For
example, the reshuffling of the tasks that are assigns to the
team.
3.13 SUMMARY
The whole discussion of the topic of CSR shows it is the
topmost conce rn of the business firms. Also, the company act
2013 and CSR rules 2014 made it mandatory for corporations to
invest 2% of their net profit as CSR. Business activities of firms
have been continuously affected by society, community, and
environment at large , positively as well as negatively. In this
case, CSR has played the role of intermediaries. the fund
contributed by the corporations as CSR ultimately use in the
betterment of society at large, that returns to the corporations in
the mode of increasing re liance of stakeholders, government,
and consumers.
3.14 EXERCISE
Select the most appropriate alternative.
Q1. CSR is mandatory for Indian companies to form which
year…… (2013, 2014, 2012, 2015)
Q2. What percentage of net profit of companies is required to
be used as CSR……. (2%, 1.5%, 3%, 2.5%)
Q3. Who is regarded as the father of CSR….
(Bowen, Friedman, Ackerman, Carroll)
Q5. Companies Act 2013 schedule …….mentioned about CSR
activities. (VII, VI, V, VIII)
Q6. The company matches donations made by employees to
eligible nonprofit organizations are called………
(Employee matching gift, employee reimbursement
scheme, employee guarantee scheme)
Q7. (CSR) can be defined as a Company’s sense of
responsibility towards the____ and____ in which it
operates. (community, environment, world, state )
Q8. It is proven that employees enjoy working more for a firm
that has a good____ (public image, local image, self -
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Q9. After the proper implementation of CSR projects, it requires
at i m e l y _ _ _ _ of the same
(Review, alteration, modification, delegation)
Q10. The ISO 26000 standard was launched in the year_____
(2010, 2011, 2012, 2013)
Answer the following questions.
Q1. Write a note on corporate philanthropy.
Q2. Elaborate schedule VII.
Q3. Comment on the future of CSR from an Indian perspective.
Q4. How the integration of CSR into business took place?
Q6. Discuss the drivers of CSR.
Q7. Explain the Corrall model of CSR
Q8. What is the relevance of CSR in today's competitive
business world?
Q9. Comment on the scope of CSR
Q10. Elaborate CSR and Government

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MODULE -IV
Unit -4
AREAS OF CSR AND CSR POLICY
Unit Struct ure:
4.0 Objectives
4.1 Introduction
4.2 CSR andEnvironmental Concerns
4.3 Factors Influencing CSR Policy
4.4 Role of HR Professionals in CSR
4.5 Global Recognitions of CSR -ISO14000
4.6 Summary
4.7 Exercise
4.0 OBJECTIVES
After studying this chapter the student will be able to:
Understand CSR Policies
Explain Environmental Concerns.
Explain CSR Codes
Understand the significance of CSR & sustainable
Development.
Unders tand the meaning and Significance of Regulatory
Framework in India.
4.1 INTRODUCTION
A company can be admired or perceived as socially
responsible when it fulfills its obligations towards the
stakeholders. Stakeholders are the individuals or groups t ow h o ma
business has obligations . The stakeholders of a business are its
employees, its customers, the general public, and its investors,
society and government etc.
4.2CSR AND ENVIRONMENTAL CONCERNS
Nowadays, there is growing concern towards environme ntal
sustainability .Professional business firms follow strict
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environmental requirements of each country where they do
busin ess. Business firms actively work to protect natural resources
by doing the following
1.Conservation of Natural Resources: Professional business
firms adopt environmental policy of conserving, reusing, and
recycling natural resources. When it is feasible , firms conserve
natural resources by using recycled materials and supplies,
efficiently using energy, and participating in recycling programmes
for their products after they have served their useful life.
Companies encourage and support the sustainable us eo f
renewable natural resources.
2Reducing and Disposing of Waste: Companies reduce and
wherever possible eliminate waste through source reduction and
recycling at company facilities. All waste is safely and responsibly
handled and disposed of. Some fir ms adopt Zero Waste -No
Waste Policy. Therefore, such firms develop attitude and
consciousness towards Zero Waste Policy through training
3.Developing Safe and Sustainable Products :C o m p a n i e s
develop, produce, and market products that are safe for their
intended use. Environmental policies and practices aim to protect,
conserve, and sustain the world's natural resources and also
protect the companies’ customers and the communities where they
live and operate.
4.Environmental Principles and Business Relationships:
Companies strive to incorporate environmental principles into
business relationships. Professional firms seek similar commitment
to the environment from their major supplier. They participate in
industry groups to set industry standards on envi ronmental
practices. They also strive to keep the customers informed about
their efforts, and they welcome customers' feedback.
5.Improvement in Performance: Companies set objectives and
targets to ensure continuous improvement in their environmental
performance. Companies value employee contributions towards the
firm's environmental initiatives. Companies regularly review the
business activity and assess the environmental programmes,
practices, and goals to evaluate progress and to identify areas in
which they can make further improvement.
6.Communicating Environmental Progress to Stakeholders:
Firms demonstrate their environmental responsibility to their
stakeholders. They engage the stakeholders about their objectives
and targets. They periodically co mmunicate their environmental
activities and progress thereof, to employees, shareholders,
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7.Environmental Audit Business firms need to conduct
environmental audit. Environmental audit is an independent third
party a ssessment of the current status of an organization's
compliance with local environmental laws and regulations
Environment audit checks into the environmental performance of an
existing operation or an activity. The main purpose of an
environmental audit is the systematic scrutiny of environmental
performance throughout a company's existing operations.
8. Pollution Control: Environment is deteriorating day by day due
to industrial pollution, toxic chemicals, automobile emission and
natural resource depletio n. Pollution in its various forms -air
pollution, water pollution, soil pollution, noise pollution, etc., is
increasing tremendously. Therefore, professional minded business
firms in India take necessary measures to reduce air, water, soil,
and noise poll ution.
9. Environmental Reporting: Business firms must report on the
environment sustainability with respect to their operations.
Environmental reporting is a public disclosure by a firm of its
environmental performance information, similar to the publica tion of
its financial performance information. However, environment
sustainability reporting is not a mandatory requirement in India.
Except for some high performing, visible companies, a lot of
organisations in India haven't started using the GRI sustaina bility
reporting framework effectively.
10. Environmental Education and Training: Environmental
education is the best programme to deal with the environmental
problems. It is most fundamental in our efforts to combat and
control pollution, over -population and misuse of natural resources.
Environmental education includes the following objectives:
(i) Creating awareness of the environmental problems.
(ii) Providing knowledge to deal with the problems.
DESIGNING CSR POLICY
The success of the CSR policy to achieve its objectives
depends upon design and the steps that are followed to implement
it. Companies need to design and implement systematically CSR
policy.
Corporate Social Responsibility Committee shall,
i) Formulate and recommend to the Board, a Corp orate Social
Responsibility Policy which shall indicate the activities to be
undertaken by the company as specified in Schedule VII;
(b) Recommend the amount of expenditure to be incurred on the
activities referred to in clause (a); and (9 Monitor the Cor poratemunotes.in

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Social Responsibility Policy of the company from time to time.
Identify the Focus Areas: Schedule VII of CA 2013 lists out about
38 activities grouped under eleven categories to be included in
CSR policy of a company. Some of the activities are:
1)Eradica ting extreme hunger and poverty
2) Promotion of education:
3) Reducing child mortality
4) Combating human immunodeficiency virus,
5) Ensuring environmental sustainability
6) Employment enhancing vocational skills
It is to be noted that a co mpany cannot undertake all the
activities listed under Schedule VII of the CA 2013. Therefore a
company must focus on two or three such activities for the purpose
of CSR
3.Determine Costs: The Company must determine the costs of
implementing the selected CSR activities. If the costs are beyond
the budget of the company, the company may reduce the number
of activities which the company wants to focus.
4.Alliance with Foundation/NGO: A corporate firm that intends to
implement CSR policy may set up its Fou ndation or Trust to look
after CSR activities. Some firms may tie up with an NGO to
undertake CSR activities on behalf of the company. An advantage
for an alliance is that the company's employees can focus on core
business activities of the firm, and the N GO or Trustee will look
after the CSR activities.
5.Involve the Employees: Organisations that are successful in
implementing CSR involve their employees. They encourage
employees to use their skills to help the cause. For instance
marketing staff may be encouraged to help the NGO with
promotional efforts. Also, the company's IT staff can help the NGO
relating to IT facilities.
6Draft the Policy: The Company must draft a suitable CSR policy.
The policy provides guidelines to implement the CSR policy. The
policy must indicate:
(a)The type of CSR project.
(b)The amount of funds to be spent for the CSR project.
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(d)The key personne l to implement the CSR project.
(e)The outcome expected of the CSR project, etc.
7.Approval of the Policy : After taking into account the
recommendations made by the Corporate Social Responsibility
Committee, the Board of Directors will approve the Corporate social
Responsibility Policy for the company and disclose contents of such
Policy in its report and also place it on the company's website, if
any, in such manner as may be prescribed; and ensure that the
activities as are included in Corporate Social Responsibility Policy
of the company are undertaken by the company
8.Communicate with Stakeholders: A company implements the
CSR policy to benefit the projects recipients, and the organisation
as a whole. Information about the corporate efforts must be
communicated to all the stakeholders -shareholders, customers,
employees, business partners and the community .A company may
promote its CSR activities through news releases, social media
sites, networking events and public relations opportunities. Such
communication may help to improve the corporate image of the firm
in the minds of var ious stakeholders.
9, Implementation of the Policy: After effective communication lo
all stakeholders, the CSR policy will be implemented depending
upon the modalities. Generally, in India large business firms set up
their own foundation/trust to undertak e CSR activities. Some of the
employees of the company may list the foundation/trust to
implement the various CSR activities.
4.3FACTORS INFLUENCING CSR POLICY
The formulation and implementation of CSR are influenced
by a number of factors. Some of the factors are internal to the
organisation such as management philosophy and commitment of
the employee whereas, other factors such as Companies Act,
2013.globalisation, are external factors inter -government bodies,
etc. The various factors influencing CSR P olicy are as follows
1.Management Philosophy: The management philosophy is the
major factor influencing the formulation and implementation of CSR
policy of a business organisation. The management of professional
and progressive business firms places lot of emphasis on corporate
society responsibility. They allocate part of the profits, whether
mandatory or not, towards CSR activities such as eradication of
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2.Competitive Advantage: Nowa days, business firms are
concerned with their brand image and corporate image to gain
competitive advantage. One of the ways to enhance brand image
and corporate image is to influence positively the minds of various
stakeholders towards the organisation. T herefore, professional
business firms undertake CSR activities to create a positive
influence on the minds of stakeholders
3.Commitment and Dedication of Employees: For successful
formulation and implementation of CSR policy, there is a need for
commitme nt and dedication on part of the employees. A company
may implement the CSR policy either by itself or by setting up a
trust/foundation or by entering into an alliance with an NGO.
Irrespective of the modalities of implementing
4.Globalisation: On accoun t of globalisation, the MNCs and their
u global subsidiaries are expanding their business worldwide
Therefore, the international agencies are raising concern relating to
human rights, labour practices, corruption, environmental
protection, ethical values a nd standards in H business dealings,
etc. Such concerns have prompted business in firms to focus on
CSR initiatives
5.Consumers and Investors: Nowadays, consumers and
investors are showing increasing interest in supporting responsible
business practices. Therefore, the consumer and investor groups 1
are demanding more information on how the companies are
addressing risks and opportunities related to social and
environmental issues.
6.General Public: The members of the society in several
countries, espec ially, in the developed countries are concerned
about environmental issues not only the current generations but
also for the future generations. The public interest groups are
demanding that the corporations should meet standards of social
and environmenta l care, regardless of their area of operations -
whether in developed countries or in developing countries.
7.Communications Technology: Advances in communications
technology such as internet, cellular phones and other technology
based instruments, are m aking it easier to monitor CSR activities of
companies and disseminate information about them. Non -
governmental organisations now regularly draw attention through
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4.4ROLE OF HR PROFESSIONALS IN CSR
CSR is the balanced integration of social and environmental
consideration into business decisions and operations. Many
organizations have invested heavily in CSR programmes in a bid to
restore trust among their shareholders, emplo yees and customers
and improve their corporate brand,
Human resource professionals have a key role to play to
help a company achieve its CSR objectives. Employee involvement
is a critical success factor for CSR performance HR professionals
should play a k ey role in ensuring that employees implement the
strategy consistently across the organization. Sustainable human
resource management (HRM) can be defined as using the tools of
HR to create a workforce that has the trust, values, skills and
motivation to a chieve a profitable triple bottom line.
The role of HR professionals in CSR is briefly explained as follows:
1.CSR Policy Formulation: The HR professionals must be
involved in designing the CSR policy. HR professionals must assist
the company in drafti ng effective CSR policy. The policy provides
guidelines to implement the CSR policy. The policy must indicate:
The type of CSR project.
The amount of funds to be spent for the CSR project.
The start date and the completion date of the CSR project.
The key personnel to implement the CSR project.
The outcomes expected of the CSR project, etc.
2Communications on CSR: A company implements the CSR
policy to benefit the beneficiaries of CSR projects, and the
organisation as a whole. Information about the cor porate efforts
must be communicated to all the stakeholders -shareholders,
customers, employees, business partners and the community. HR
professionals must assist the company to promote its CSR
activities through news releases, social media sites, network ing
events and public relations opportunities. Such communication may
help to improve the corporate image of the firm in the minds of
various stakeholders.
3. CSR Policy Implementation: The HR professionals must be
involved not only in formulation of CSR policy /strategy, but they
must take active part in its implementation as well. After effective
communication to all stakeholders, the CSR policy will be
implemented depending upon the modalities. Generally, in India
large business firms set up their own f oundation/trust to undertakemunotes.in

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CSR activities. Some of the employees of the company may assist
the foundation/trust to implement the various CSR activities.
4. Training of Employees: The HR manager must play an active
role in training the employees relatin g to CSR activities. There is a
need to impart knowledge, to develop attitude, to improve skills and
social behaviour through training. Training must be effective so that
the employees work with application and dedication to achieve the
objectives of CSR p rojects.
5. Recognizing and Rewarding: HR manager needs to play an
important role in recognizing and rewarding the employees for their
efforts to make the CSR strategy a big success story. The HR
manager must identify the right employees to recognize andmotive
them The HR manager must not take his own decision to reward.
6.HR support to Alliance Partners: HR manager may provide
necessary support to the alliance partners in implementing the CSR
project, if the CSR project is assigned to them. The HR mana ger
may provide the expertise in selection and training and reward the
right employees.
4.5GLOBAL RECOGNITIONS OF CSR -ISO 14000
The purpose of, The International Organization for
Standardization (ISO) is to date international trade and cooperation
in c ommercial, intellectual, scientific economic endeavors by
developing international standards. ISO originally was u sed on
industrial and mechanical engineering standards. Now, it has
ventured setting standards for an organization's processes,
policies, and CSR practices. Technical Committee 207 is
responsible for the ISO 14000 series of standards.
Features
1. ISO family :The ISO 14000 is one of the ISO families which are
a protocol that has been introduced for implementing various
environmental management p rogrammes such as life cycle
assessments and approaches to eco -labeling
2. Related to Environment: The ISO 14000 family of standards
helps to provide practical tools for companies and organizations of
all kinds who are willing to fulfill their environment al responsibilities.
3. Management of Environment :T h e actual environmental
standards of ISO 14000 deal with how a company manages the
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4. Analysis of PLC:The standards also call for analysis of the
entire life cycle of a product, from raw material to eventual disposal.
These standards do not mandate a particular level of pollution or
performance, but focus on awareness of the processes and
procedures that can affect the environment.
5. No release from local rules :It should be noted that adherence
to the ISO 14000 standards does not in any way release a
company from any national or local regulations regarding specific
performance issues regarding the environment.
6. ISO series
Som e of the standards in the ISO 14000 series are:
ISO 14001 -Specification of Environmental Management
Systems.
ISO 14004 -Guideline Standard.
ISO 14010 through ISO 14015 -Environmental Auditing and
Related
Activities
ISO 14020 through ISO 14024 -Enviro nmental Labeling.
ISO 14031 through ISO 14032 Environmental Performance
Evaluation
ISO 14040 through ISO 14043 -Life Cycle Assessment.
ISO 14050 -Terms and Definitions.
7. Advantages
If ISO 14000 is similarly successful, the companies who are
already I SO 4000 certified will have an advantage in global
markets. Also, producers of consumer goods may find that many
consumers not only try to purchase goods from environment -
friendly companies, but will spend a little more if they feel they are
helping the en vironment. In order to reap this benefit, a company
must make their environmental efforts known through advertising
and labeling
8. ISO 14001: 2015
ISO 14001:2015 and its supporting standards such as ISO
14006:2011 focus on environmental systems to achiev et h i s
purpose. The other standards in the ISO 14000 family focus on
specific approaches such as audits communications, labelling and
life cycle analysis as well as certain environmental challenges such
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SA8000
SA 8000 is an auditable certification standard was
developed in 1997 by Social Accountability International (SAI)
formerly the Council on Economic Priorities that encourages
organizations to develop, maintain, and apply socially acceptable
practices in the workplace. It is one of the world's first auditable
social certification standards for decent workplaces, across all
industrial sectors.
Features
1. Based
It is based on the UN Declaration of Human Rights,
conventions of the ILO UN and national law, and spans industry
and corp orate codes to create a common language to measure
social performance.
2. Auditing procedure
It provides certain auditing procedures rather than
frameworks for a report. It has been included in the frameworks
section because as an auditing procedure, it h elps to serve the
function of disclosure.
3. Code of conduct
It enables manufacturing businesses to monitor whether the
goals of its code of conduct are being met or not. It could also be
used for managing a supply chain's compliance with a code of
conduc t. However, it is neither a set of frameworks for a CSR report
nor a code of conduct.
4. Principles
The SA 8000 has incorporated many of the principles of the
International Labour Organization (ILO) as standards for auditors to
verify. The SA 8000 is one of the world's first auditable social
certification standards for decent workplace across all industrial
sectors.
5. Management systems approach
SA 8000 takes a management systems approach by setting
out the structure and procedures that organizations mus ta d o p ti n
order to ensure that compliance with the standard is continuously
reviewed. Those organizations seeking to con with SA8000 have
adopted policies and procedures that help to protect the human
rights of workers.
AA1000
AA1000 is the first organis ation that has emerged to help
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Features
1.AA1000 Training, Certification, and Licensing
Accountability helps individuals and organisations develop
the knowledge and skills needed to understand and implement the
Accountabi lity principles as well as effective stakeholder
engagement, and sustainability reporting and assurance through
practitioner certification. (Certified Sustainability Assurance
practitioner -CSAP) and training provider certification
2. Governance
The AA10 00 Series of Standards have an independent
governance structure designed to provide broad stakeholder
representation from the public and private sectors, civil society and
the standards community.
3.Stakeholder interaction
AA1000 has facilitated stakehol der interaction in which the
design policies and indicators for a report are decided upon as part
of an interactive process.
4. Principles
AA1000 series are principles that are based on certain
standards so as to help organisations become more accountabl e,
responsible and sustainable. They address issues affecting areas
like governance, business models and organizational strategy as
well as provide operational guidance on sustainability assurance
and stakeholder engagement.
5. Integration
The AA1000 stan dard has been designed for the integrated
thinking that is required by the low carbon and green economy, and
also to support integrated reporting and assurance. These
standards are developed through a multi stakeholder consultation
process which helps to e nsure that they are written for those they
impact and not just those who may gain from them.
6. Used by all
These standards are used by a broad spectrum of
organisations such as multinational businesses, small and medium
enterprises, governments as well a s civil societies
UNDP: (UNITED NATIONS DEVELOPMENT PROGRAMME)
The United Nations Development Programme (UNDP) is the
United Nations i development network, established by 1965 and
headquartered in New York UNDP advocates for change and
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1.Message of UNDP
UNDP is committed to minimizing the environmental impact
of its operations and to achieving overall climate neutrality. By
demonstrating that we run our operations in a resou rce efficient,
sustainable, and, accountable way, UNDP strengthens its global
position as a strong and reliable partner."
2. Mission
UNDP works in more than 170 countries and territories,
helping to achieve the eradication of poverty, and the re duction of
inequalities and exclusion. We help countries to develop policies,
leadership skills, partnering abilities, institutional capabilities and
build resilience in order to sustain development results
3. Help by UNDP
It provides expert advice, train ing, and grants support to
developing countries with increasing emphasis on assistance to the
least developed countries. The strategic plan focuses on key areas
including poverty alleviation, democratic governance and peace
building, climate change and dis aster risk, and economic inequality.
4. "Walk the talk" aspect
As a leading agency in the fight against climate change,
UNDP is committed to "walk the talk by demonstrating that the
operations run in a resources -efficient sustainable and accountable
way
5. Emphasizing on natural resources
UNDP is working towards minimizing the environmental
impact associated with the operations, from green building
renovations and use of photovoltaic power to generate electricity to
staff training and bicycling programs. They are providing
importance to fossil fuels and natural resources.
6. Climate Neutrality and Sustainability Plan
Recently UNDP adopted a 'Climate Neutrality and
Sustainability Plan for Global UNDP Operations committing UNDP
to reduce Greenhouse Gas emis sions by 10% over 5 years and
achieving climate neutrality for global operations effective 2014
7. The Sustainable Development Goals (SDGS)
It is also known as the Global Goals, are a universal call to
action to end poverty, protect the planet and ensure that all people
enjoy peace and prosperity UNDP provides support to governments
to integrate the SDGs into their national development plans and
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8. 17 Goals
These 17 Goals build on the successes of the Millennium
Development Goals. While includ ing new areas such as climate
change ,economic inequality ,innovation, sustainable consumption,
peace and justice, among other priorities.
MAJOR CODES ON CSR
1.UN Guiding Principles on Business and Human Rights
These principles provide the guidelines to governments and
business enterprise to fulfill their obligations towards human rights,
fundamental freedom and the existing laws. These principles act as
global standards for addressing human rights violation related to
business activity. These principles focus on the protection of human
rights by both the state and the business enterprise.
2. OECD CSR Policy Tools
Organization for Economic Co -operation and Development
(OECD) guidelines contains recommendations on core labor,
environmental standards, huma n rights, competition, taxation,
science and technology combating corruption and safe guarding,
consumer rights. The OECD CSR Policy tool helps the companies
to assess and evaluate their CSR projects. It guides the companies
to determine other CSR activiti es that can be undertaken. The
policy tool provides guideless regarding action plan, tasks,
responsibilities, monitoring, communication strategy based on the
OECD guidelines and the ISO 26000 implementation guidelines.
3. UN Millennium Development Goals
The largest gathering of world leaders adopted the UN
Millennium Declaration the Millennium Summit in September 2000.
These have become known as the Millennium Development Goals
(MDG's). The MDG's set time bound targets, by which progress in
reducing pover ty, hunger, disease, lack of adequate shelter and
exclusion -while promoting gender equality, health, education and
environmental Sustainability -can be measured .
4. Equator Principle
Equator principle is a set of environmental and social
benchmarks for ma naging environmental and social issues in
development project finance globally. They were developed by
private sector banks -led by Citigroup. ABN AMRO, Barclays and
West LB and were launched in June 2003.
5. Role of International Labor Organization (ILO)
ILO seeks the promotion of social justice and internationally
recognized human and labor rights. It formulates international labor
standards in the form of conventions and recommendations setting
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6. GAAP
Financial accountants follow Generally Accepted Accounting
Principles (GAAP) in order to ensure that reports reflect the
condition and performance of the organization and its activities.
There are seven factors that contribute to the usefulness of
information ident ified by GAAP are relevance, timeliness, reliability
verifiability, neutrality, comparability and consistency.
CSR AND SUSTAINABLE DEVELOPMENT
1. History
Brundtland Commission defines sustainable development as
"development that meets the needs of the pr esent without
compromising the ability of future generations to meet their own
needs." The Section 135 of the Companies Act gives legal backing
to Corporate Social Responsibility as a welcomed step towards
holistic development of the nation.
2. Relation
Corporate Social Responsibility plays a vital role in attaining
sustainable development. Organizations have a social and moral
responsibility towards protecting the environment. Nowadays, many
organizations are focusing on environmental issues for their CSR
activities.
3. Examples
Organizations like Sony, Panasonic and orchard hotels are
now focusing on issues that are related to the environment such as
toxic gases, waste production and water contamination, etc.
4. CSR for Stakeholders
In India there is lo t of opportunities for sustainable
development as poor development in many areas, hence acquiring
CSR for variety of stakeholders.
5. Need of CSR and SD
The results of this extensive analysis showed progressive
damage and degradation of the country's natu ral resources
including forests, biodiversity, water resources, clean air and
healthy soils. On the basis of the economic estimation of this
damage, it was concluded that India was losing over 10% of its
GDP annually in the form of depletion of natural res ources. Such a
trend at some stage will start imposing major costs on business and
industry, and therefore there is a clear conformity of interest
between shareholders in business enterprises and stakeholders in
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6.Advantages: Itincludes: In India, according to section 135 of
Companies Act 2013 has been enacted to give effect to various
commitments with respect to corporate social responsibility.
CSR has encouraged private participation in the development of
society.
Fulfilling CSR obligations helps both the company as well as
society. It helps the company on one hand to build its brand
image and the society on the other hand is also benefited by
CSR activities thereby promoting holistic development
The Section 135 of The Indian Companies Act 2 013 encourages
voluntary compliance on the part of the organizations and no
sanction has been imposed for not spending the amount.
7.Disadvantages: It includes:
There is no sanction for not spending CSR amount and the
punishment is imposed only for not reporting the CSR
expenditure
The object clause of CSR has not been defined properly.
Maximum limit of CSR expenditure is not mentioned in Section
135 of the Indian Companies Act.
CSR expenditure is not a deductible ex penditure under The
Income Tax Act
CSR THROUGH TRIPLE BOTTOM LINE IN BUSINESS
Triple bottom line is a phrase introduced in 1994 by John
Elkington and later used in his 1997 book "Cannibals With Forks:
The Triple Bottom Line Of Century Business," which seeks to
broaden the focus on the finan cial bottom line by businesses to
include social and environmental responsibilities. A triple bottom
line measures a company's degree of social responsibility, its
economic value and its environmental impact. A key challenge with
the triple bottom line, ac cording to Elkington, is the difficulty of
measuring the social and environmental bottom lines which
necessitates the three separate accounts being evaluated on their
own merits. The Triple Bottom Line is an accounting framework that
incorporates three dim ensions of performance :social,
environmental and financial. The financial performance of a
business is one aspect of its triple bottom line and therefore CSR
reports share the principles for financial accounting. In addition,
CSR reports are issued in a v oluntary regime and therefore, it
enables the reporting entity to follow the additional principles of
transparency, clarity and completeness put forth by the GRI.
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1. Consistency
Two characteristics that contribute to consistency in a
voluntary regime are prevalence of use and the probability that a
framework will become prevalent in the future. A study done by
KPMG revealed that GRI is the most prevalent fram ework in use.
Out of 1,600 companies that were surveyed use the GRI whereas
less than 1% uses the AA1000.
2. Comparability
A framework that covers social, environmental and economic
performance as well as allows the business to expand its reporting
in a p redictable way will also contribute to comparability over time.
The GRI covers the economic, social and environmental
performance and thereby provides for categories and indicators. It
also includes a protocol for topics that are not covered, thereby
allow ing a reader to predict where to find such information in the
future.
3. Relevance
The relevance of a report depends on the users or
stakeholders. The AA 1000 has been built on incorporating
stakeholders into an iterative process of setting goals, perform ance
and gathering data. AA8000 and the SA8000 aim at social
performance and the report readers looking for environmental
performance information may not find a report relevant CERES and
the ISO 14000 family includes procedures for stakeholder
interactions and focuses on environmental performance.
4. Reliability
A report is said to be reliable when it is accurate. The use of
indicate particularly quantitative indicators can help to increase the
accuracy of a rep The GRI'sG3 and G4 provide indicators that a re
both qualitative as well quantitative. Auditing is one of the indicators
but however, it is not a part of process for accreditation. The ISO
14000 family provides only a method identifying the indicators but
does not provide indicators. The SA8000 and A A10 on the other
hand use qualitative indicators.
5. Verifiability
A report is verified once it is audited. The SA8000 and
AA1000 include certain auditing procedures for accreditation. The
GRI includes auditing as one of indicators. However, GRI leaves it
to the business to decide whether to internal audit, hire neutral third
parties or rely on stakeholder interaction in lieu of auditing process.
The ISO 14000 also includes auditing as part of its process but
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6. Timeliness
It is a framework that specifies the frequency of CSR
reporting and also se the terms for the information reported. The
GRI is the only framework that specific reporting based on goal
performance that should be included with data from pa
performance.
7. Neutrality
A report is said to be neutral when it is issued with the
purpose to inform and not to influence decisions of report readers.
The AA1000, SA8000 and ISO 1400 focus on certain aspects of
CSR. A repor t formed under these tools may have limited scope.
The GRI covers the widest range of activities and also responds the
widest range of interests of all the frameworks.
8. Transparent
A report is transparent when there is complete disclosure of
information .T AA1000 has incorporated a depth of stakeholder
interaction wherein the stakeholders are active in goal making
decisions, measuring performance and report formation. This
enables to ensure transparency. The SA1000 and AA100 can
include a third party aud iting process which also helps to ensure
transparency The GRI provides for greater detail in its reports in all
the areas of the triple bottom line which also increases
transparency.
4.6 SUMMARY
Stakeholders contribution gets the organization into workin g.
Catering to each group of stakeholders is of utmost importance.
Organization frames Corporate Social Responsibility Policies
towards stakeholders like Customers, employees, government,
environment and society at large. The module discusses not only
theCSR policies but also the International Standards Organization
Certification in the same direction. The unit also throws light on
major codes on CSR given by bodies like UNDP, UN, OECD, ILO,
GAAP etc are other global bodies which emphasize on sustainable
development.
4.7EXERCISE
1. Explain the CSR towards various Stakeholders.
2. Explain the CSR towards Government .
3. Describe the designing about CSR Policy.
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5. Explain the Role of HR Professiona ls in CSR.
6. Discuss the Global Recognitions of CSR.
7. What is ISO -14000? Explain its functions.
8. What is SA 8000? Discuss its role in the CSR.
9. What is AA 1000? Explain its work in the CSR.
10. Write a note on UNDP.
11. Elucidate the Global R eporting Initiative.
12. Explain the various major codes on CSR.
13. Write a note on CSR and Sustainable Development.
14. Explain the CSR through Triple Bottom Line in Business
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