Module-II Part 3

Management and Society

Concept, External
Environment, CSR,
Corporate Governance,
Ethical Standards

Corporate Governance
CG is the relationship of the company to its shareholders and the
society. It ensures that the long term strategic objectives and
plans are established and that the proper management structure
is in place to achieve those objectives while at the same time
make sure that the structure functions to maintain the corporates
integrity.
CG is the system by which business corporations are directed and
controlled.

Importance of CG

A strong demand for good governance is emerging from the corporate

sector itself.
The board ensures that its members discharge their trustee responsibilities
and run a transparent organization.
Organizations have witnesses frequent violations of organizational and
governmental regulations to prevent increase in unethical and corrupt
practices.
Shareholders demand efficient management, good governance, high profit
and large dividends. They look for maximizing shareholders value by
improving public image.
Institutional investors are an important segment of the company and have
a great influence on company management and CG. Investors like to see
the rise in stock value and constantly monitor the framework and system
of CG that should address 3 major issues of an organization: What is the purpose?
Whom the organization should serve?
How best to serve the interests?

Relationship between Corporate

Governance CG and Corporate Strategy
(CS)

CG start with organizational

objectives which have more
governance orientation
CG is primarily guided by the
shareholders which results in
good returns on their
investments.
CG concentrates on organizational
structure, rules, procedures and
systems for better governance.
CG attempts to streamline
operations for good governance.
The guiding force behind CG is
dictated by the shareholders and
owners.
Effectiveness of CG is judged by
financial results in addition to
some social responsibilities.

CS starts with organizational

objectives which have more
strategic focus
CS focuses more on market share,
long term growth and
development.
CS is also concerned with
structures and systems but
focuses more on strategic planning
and resource allocation.
CS depends more on strategic
functions like manufacturing,
finance, marketing and HR.
CS is dictated by the market
competition and consumers.
Effectiveness or success of CS is
assessed in terms of both financial
and non financial indicators or
measures of performance like
balanced scorecard includes
balancing financial performance
with strategic performance.

Ethics
Ethics refers to the principle of right/ wrong, moral duty and obligation
that are accepted by individuals and social groups.
A code of ethics is a formal statement that acts as a guide which
describes the general value system, ethical principles and specific
ethical rules that people within an organization are expected to follow.
The determination of ethical conduct is subjective and vague, varying
among different cultures and different environmental conditions.
The concept of right and wrong, fair and unfair, just and unjust is
reflected by the managers own ethical standards as well as by
organizational policies and social reactions to such politics.

Ethics
Personal ethics relate to the rules and values that individuals
follow to live and lead their life. All individuals irrespective of
their vocation are concerned with ethics.
Business Ethics relates to true and honest practices that are
adhered to in the conduct of business in various areas of
operation such as advertising, competition, public relation,
social responsibilities, consumer liberty and independence
and behavioral attributes of a corporate entity in its
operations in home country and abroad.

Code of
Ethics
Every profession and organization should have well-defined
code of ethics. A code means a statement of policies,
principles and rules that define the boundaries within which
an individual should behave or otherwise for all professions.

Steps in Ethical DecisionMaking

Theories of Ethics
There are typically 3 types of moral theories pertaining to normative ethics: Utilitarian theory Based on rights and theory of justice. This emphasizes that
decision makers approach to problem solving should be based on and guided by
fairness, equity and objectivity. The utilitarian view focuses on the welfare of the greatest
number of people as a criterion for weighing and evaluating decisions.

Rights Theory- This theory emphasizes the that all people have rights while working in
an organized group or governmental body by law or tradition or nature. The rights view
focuses on the premise that individuals have basic rights that must be protected,
irrespective of associated cost to the society or to the organization. Protection of
individual rights is primary concern of rights view.

Justice View- The theory of justice emphasizes that decision makers approach to
problems-solving should be based on and guided by fairness, equity and objectivity. The
justice view is grounded in the idea that rules of organizational or societal existence
must be imposed equitably to all. The focus is on decision making that is without
prejudice to emotions .
ETHICS

Different View Points

of Ethics

Utilitarian View

Rights View

Justice View

Ethical
Climate

It refers to the ways and means by which decisions are

evaluated and made keeping in view what is right and wrong.
The ethical criteria used to judge the decisions in an
organization create a climate and culture in the organization.
Ethical climate in the organization should help in explicitly
defining its corporate standards and expectations from its
employees. They need to dovetail their personal ethical codes
with that of organizational standards and expectations so as to
contribute their best to the achievement of organizational goals.

Relation between CG and Ethical Standards

Organizations that follow CG practices move continuously
towards raising their ethical standards. To ensure strict
adherence to ethical codes, organizations make due provisions
to ensure their effective implementation and enforcement.
Managers while performing their roles in pursuit of achievement
of corporate goals have to compete for getting information and
resources and influence employees and other stakeholders.

Ethical Standards a program for

action
Building a high level of ethical standards of management is a pre

requisite to high positive social involvement. A plan for action can be

categorized into different levels where each level has a significant
contribution towards the formation of the ethical environment.
Individual Level- Ethics at an individual level is a product of personal
upbringing, schooling, religious affiliation and organization group
dynamics.
Organizational Level- This is the most important level where the
management can play an important role in shaping the ethical climate
of the organization. The ethical aspect of goals, priorities and activities
should be provided to all employees through a written code of ethics
that are objectively achievable.
Societal Level- Ethics can be shaped by law that are meant to protect
the health and values of society.
International Level- The ethical codes of doing business at
international level require a closer look and analysis. Payments made by
businesses as a commission to the government of developing nations is
a common practice, should be standardized universally develop a an
ethically sound relationship and morally stable environment.