Mb321 - April 05

Question Paper Business Ethics & Corporate Governance (MB321): April 2005 Section A : Basic Concepts (30 Marks) • This section consists of questions with serial number 1 - 30. • Answer all questions. • Each question carries one mark. 1.

Which of the following branches of ethics deals with specific controversial issues like capital punishment, cloning and nuclear war? (a) Meta ethics (d) Virtue ethics

2.

(b) Normative ethics (e) Teleological ethical theory.

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(c) Applied ethics

Vinay, President of Bharathi Infotech Ltd. expresses this view of social responsibility: “Our company believes in helping the community. The community provides us employees, favorable tax benefits, roads, security, and schools for our children. In return, we want to do our part to help the community solve some of its most pressing problems. That is why we are helping the community eliminate pollution.” Which view of social responsibility does this refer to? (a) Corporate citizenship (d) Stakeholder interests

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(b) Moral minimum (c) Maximizing profits (e) Ethical relativism.

According to which of the following committee reports, listed companies with either a turnover of over Rs.100 crore or a paid up capital of Rs.20 crore should set up audit committees within 2 years? (a) Kumara Mangalam Birla Committee report (c) Cadbury committee report (e) WTO report.

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(b) CII committee report (d) OECD report

Which of the following is not a function of the corporate audit committee set up by the board?

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(a) (b) (c)

To discuss with independent auditors about the problems they experience in completing the audit To review the interim and final accounts To inform the board about the effectiveness of internal control and the quality of financial reporting as pointed out by the independent auditors (d) To make recommendations regarding the audit fee, selection and replacement of auditors (e) To select the new non-executive directors to the board. 5.

A Brazilian NGO Reciclar-t3 makes clothes out of recycled clothes. This is an example of (a) Blue initiative (d) Value added engineering

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(b) Duties towards stakeholders (e) Values of Corporate Responsibility.

(b) Macro social contract (e) Paranorms.

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(c) Hypernorms

(c) Management philosophy statements 1

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(c) Corporate mission

Which of the following is not a format in which a corporate code can be developed? (a) Compliance codes (b) Corporate credos (d) Employee bonds (e) Circulated letters.

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(c) Remuneration committee

Principles that apply equally to all human beings such as basic human rights are called (a) Moral values (d) Micro social contract

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(b) Nomination committee (e) Ethics committee.

An organization is considered to be ethical if its espoused values are the same as its (a) Values in practice (d) Code of ethics

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(b) Unitarian view of ethics (c) Integration view of ethics (e) Stakeholder concept.

Which of the following committees is usually set up to select new non -executive directors? (a) Audit committee (d) Steering committee

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(c) Community relations

Which of the following emphasize that business should concentrate on society and it has a major role to play in serving the society and ushering in society welfare? (a) Separatist view of ethics (d) Law of the jungle

7.

(b) Global warming (e) Green initiative.

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11.

Which of the following is a consistent set of universal rules that are widely published, generally accepted and usually enforced? (a) Moral standards (d) Compliance codes

12.

(c) Corporate credos < Answer >

The anxiological approach is (a) (b) (c) (d) (e)

13.

(b) Business ethics (e) Law.

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A moral responsibility to preserve the environment A moral responsibility to protect animals A radical approach to environmental responsibility An attempt to frame green policies to curb disasters A program for the upliftment of the poor. < Answer >

Which of the following influence a company’s decision to go green? I. Gaining economic benefits through increased efficiency. II. Enhancing public image. III. Gaining competitive advantage through innovation. IV. Increasing profits. (a) Only (II) above (d) (I), (II) and (III) above

14.

(b) Only (III) above (e) (I), (II) and (IV) above.

In the event of a takeover threat, which of the following techniques force the target company to buy back shares at a premium? (a) Blackmail (d) Going private

15.

(b) Share repurchase (e) Leveraged buy-out.

17.

(b) Utilitarianism

(b) Industrial espionage (d) Rapport with government officials

(c) Altruism

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(d) Humanity (e) Pragmatism.

Which of the following is not a categorization of boards based on their function, commitment to effective decision-making and concern for interpersonal relations? (a) Rubber stamp board (d) Country club board

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Which of the following consequentialist theories considers an action to be morally right if the consequences of that action are more favorable than unfavorable to everyone except the individual? (a) Egoism

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(c) Greenmail

Which of the following is not an unethical practice at the work place? (a) Drug and alcohol abuse (c) Discrimination (e) Misuse of proprietary information.

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(c) Both (II) and (III) above

(b) Representative board (e) Professional board.

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(c) Two-tier board

Which of the following is an unethical practice with respect to pricing of products?

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I. Charging a higher price for a product, which has a great demand. II. Charging a higher price for a product of good quality. III. Charging a higher price because of the consumer’s ignorance. IV. Charging a low price so as to edge out smaller players. (a) Only (III) above (d) (I), (III) and (IV) 19.

(b) Sandbag (e) Golden parachute.

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(c) Corporate raiding

Which of the following is true about deontological theory? (a) (b) (c) (d) (e)

21.

(c) Both (III) and (IV) above

Which of the following is a defensive management strategy, that makes a takeover prohibitively expensive for the bidders? (a) Poison pills (d) People pill

20.

(b) Only (IV) above (e) (I), (II), (III) and (IV).

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It is associated with the Greek philosopher Aristotle The duties upheld include duties to God, honoring him and praying to him It emphasizes character development rather than articulation of abstract moral principles It deals with facing moral controversial issues It is the study of the origin and meaning of ethical concepts.

What ought to be/ought not to be done by individuals and compelling individuals to act in the ‘right’ desired manner is the difference between 2

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desired manner is the difference between (a) Corporate governance and corporate management (c) Management philosophy and law (e) Moral standards and corporate credos. 22.

(b) Moral standards and law (d) Ethics and compliance codes < Answer >

Which of the following with regard self-regulation of ethical codes is not true? (a) (b) (c)

Self-regulators are directly accountable to the members of their group Self-regulations are less comprehensive when compared to official regulations Self-regulation operates in an environment where there is a willingness to accept regulations formulated from within for the common good of the group (d) Self-regulation has an built-in system of checks and balances (e) Self-regulation is easier to operate and implement.

23.

Which of the following unethical practices were prevalent in China in the early 1990s’? I. Child labor.

II. Prison labor.

(a) Only (I) above (d) (I), (II) and (III) above 24.

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(b) Only (II) above (c) Only (III) above (e) Both (I) and (II) above.

(b) Environmental tasks (e) Economic tasks.

(b) Social responsibility (e) Utilitarianism.

Which of the following is not a characteristic of corporations that attracts investors?

(a) Only (I) above (d) Both (I) and (II) above 28.

29.

II. Efficiency contract.

(b) Only (II) above (c) Only (III) above (e) (I), (II) and (III) above.

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Which of the following advertisements is/are unethical?

(c) Only (III) above

Which of the following is not a practice that Multinational companies are often accused of? (a) (b) (c) (d) (e)

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(b) Forward buying (c) Just-in-time delivery (e) Piling up of stocks.

I. Junk food advertising for children. II. Advertisements that attack competitors’ products. III. Advertisements whose claims are exaggerated. (a) Only (I) above (b) Only (II) above (d) Both (I) and (III) above (e) (I), (II) and (III). 30.

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III. Psychological contract.

The objective that ‘nothing will be produced until it is needed’ is applicable to the concept of (a) Procurement (d) Total quality management

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(c) Transferability

For the smooth functioning of a business, a leader needs to maintain a healthy relationship with stakeholders, which is based on I. Knowledge contract.

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(c) Cause-related marketing

(a) Limited liability (b) Organization Structure (d) Legal personality (e) Centralized management. 27.

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(c) Maintenance tasks

Even though companies take up projects to fulfill social responsibilities, the primary expectation of stakeholders’ remains maximum return on investment. According to the enlightenment matrix, if expectations of a major in a company reflect low self-interest and low philanthropy, it is called (a) Pure philanthropy (d) Enlightened self-interest

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III. Remuneration discrimination.

Which of the following tasks does a business perform to ensure the normal flow of communication in society? (a) Adaptive tasks (d) Management tasks

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Use of technology that is unsuitable in the host country Not respecting human rights Paying protection money to terrorist groups Destabilizing national governments of which they do not approve Paying bribes to secure political influence. END OF SECTION A

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Part B : Caselets (50 Marks) • • • • •

This part consists of questions with serial number 1 – 7. Answer all questions. Points are indicated against each question. Detailed explanations should form part of your answer. Do not spend more than 110 - 120 minutes on Part B.

Caselet 1 Read the caselet carefully and answer the following questions: 1.

What is Corporate Social Responsibility? Discuss a company’s responsibilities towards its customer and the community or society in which it operates. ( 9 marks) < Answer >

2.

Private companies face certain limitations in taking up social upliftment projects. Explain the systematic approach of “Community involvement choice flow” to sustain projects. (7 marks) < Answer >

3.

Corporate social responsibility (CSR) has become the password to not only overcome competition but to ensure sustainable growth. What are the various CSR activities/projects that companies can undertake? What could be the benefits of CSR for NTPC? (5 marks) < Answer >

NTPC is a socially committed organization and a socially responsible corporate citizen that believes in growth with a human face, and pursuing people-centered development. The company attaches great importance to discharging its overall social responsibilities to the community and the society at large where its projects and stations are located. In this regard, Resettlement and Rehabilitation (R&R) program becomes an area of sharp focus, a program that addresses people affected directly or indirectly in the wake of the projects undertaken by NTPC. Sensitive to the social issues since its inception, the organization framed guidelines for the facilities to be given to the project affected. The organization was the first Public Sector Undertaking (PSU), and in that way the pioneer, in having such a policy. The R&R program aims at improving the overall economic status of Project Affected Persons (PAPs). This is achieved by providing opportunities in the fields of sustainable income, health, education, sanitation, communication and other such areas. Community development activities are carried out in a transparent and participative manner. Each program is based on the specific local requirement and guided by the extensive Socio Economic Surveys (SES). This helps meet the objective of ensuring that the Project Affected Persons (PAPs) improve or at least regain their previous standard of living. The PAPs are systematically categorized on the basis of loss of livelihood on an individual basis, thereby bringing into its fold agricultural laborers, tribals, and landless laborers cultivating government land and tenant tillers. The Resettlement and Rehabilitation program is meticulously worked out for each PAP. The R&R policy options and entitlements include: Resettlement • Developed alternate free house plot in resettlement colony with necessary infrastructure facilities. • Free transport arrangement for belongings and reusable material. • Infrastructure to be provided includes primary school, dispensary, panchayat ghar, drinking water well/hand pumps, WBM roads, drainage, etc Rehabilitation • • • • •

“Land for land” Self-employment such as dairy, poultry, handicraft etc. Shops Award of petty contracts Jobs

The rehabilitation plans are finalized in a consultative manner with the PAPs and the State administration and soon they translate into viable projects. The plans primarily aim at resettling PAPs in resettlement colonies, providing them infrastructure facilities and also ways and means of rehabilitation. 4

infrastructure facilities and also ways and means of rehabilitation. The rehabilitation process is attuned to the local conditions and the needs of the people. With an eye on long-term development, vocational training has been built into the rehabilitation process. Programs like tailoring, carpet weaving, papad making, bee keeping etc augment the family earning capacity. The plans are implemented within a definite time frame and a specified budget. There is sharp focus on all round development of the community, which is why the efforts do not stop at the individual or family level redressal but take a holistic approach. Improving the roads, health care, education, vocational training, infrastructure development and sports are major activities. The Education program is a priority. Each resettlement colony is provided with a primary school. NTPC plants address the need of Secondary and Senior Secondary education. Besides setting up the infrastructure, NTPC provides books, dress, scholarship etc with a view to making the facility really sustainable. The areas of adult education, formal and non -formal education are also taken care of. Recognizing the importance of sound institutional framework to achieve the desired results NTPC has set up dedicated R&R cells. The R&R cells operate at projects, Regional Headquarters and the Corporate Centre. At the project level, the cell is responsible for coordinating and implementing the R&R plans and activities. The regional R&R cells are responsible for monitoring the progress of implementation of R&R plans and follow up of the respective R&R activities. At Corporate level, it oversees consistent application of policies and facilitates the projects and the regions in planning, scheduling and budgeting etc. The right skill mix has also been provided by associating people with social expertise and philanthropic thoughts, consultants, facilitators, social scientists wherever and whenever required. Professional NGOs capable of undertaking income generating projects have been engaged at times to achieve the desired results. In an endeavor to not just meet its promise but transcend, innovative practices are used from time to time depending on the project.

Caselet 2 Read the caselet carefully and answer the following questions: 4.

Discuss the possible measures the management trainees could recommend to take care of the company was currently facing.

problems

the

(7 marks) < Answer > 5.

Is accepting gifts and personal obligations by employees unethical? Justify. (7 marks) < Answer >

Ingles Supermarkets Ltd. is a corporate food retailing chain set up in Chennai recently. With food retailing becoming more organized, especially in South India, there has been a transformation in food provisions and groceries buying habits of customers. Tapping this opportunity, Ingles has set up a number of food retail stores in Chennai. Furthering its expansion plans to open up similar stores in other cities, and also enter into a joint venture with Global Dairy Farm, a US based retail giant operating in the Asia-Pacific markets. Ingles provides customers with a wide range of quality products at a reasonable price all under one roof, in a convenient location, in a clean, bright and functional ambience. The self-service format of Ingles follows the service of clearly marking on the shelf, relevant details of the product displayed, including the name, grammage and price. This provides immense convenience to the shopper. The corporate setup governs the stores through all aspects of retail management. Being new and still on the learning curve, the company is still in the process of standardizing its procedures across various functions. This has not been an easy task and the company has been facing certain problems. At the front-end operations, the company has established good controls for maintaining good billing standards. However, cashiers found loopholes in the billing system and started pocketing money from the cash counters. The billing system provides for subtracting an amount wrongly billed to the customer. Cashiers would bill for an item and taking advantage of the customers’ ignorance regarding the billing process would also subtract the same amount that would be pocketed. This pilfering occurred despite the presence of a checkout manager. The store hierarchy included the manager at the top, assisted by duty managers and supervisors. Cashiers and other front line staff serviced the customers. At the back-end operations, Mr. Bhasker is the merchandising officer for the processed foods category. Companies have to route through him to stock their products in the stores. His responsibilities include negotiating for margins, display income, placement of products etc. In short, for manufacturers and wholesalers he is the key to getting their products shelf space and desired locations in the stores. Mr. Bhasker is also very result oriented and succeeded in getting the best deals for the company. Many representatives of companies in order to fulfill their objectives and build better rapport started offering Mr. Bhasker gifts and obliging in many other ways. As a policy, Ingles allows employees to accept items gifted as part of 5

Bhasker gifts and obliging in many other ways. As a policy, Ingles allows employees to accept items gifted as part of promotional campaigns of companies that display their products in Ingles’ stores. However, as a policy employees are dissuaded from accepting personal obligations and gifts in general. Despite the existence of such policies, the company practically found it difficult to monitor their implementation. Hence, Mr. Bhasker continued to accept such gifts and obligations from representatives of sellers. The situation worsened when Mr. Bhasker started demanding monetary returns from company representatives and higher margins of which he would keep a part as commission. With the increase in pilferage and complaints from representatives of companies, these malpractices came to the notice of the management. To deal with these specific problems and similar problems in future, the company recruited two management trainees to standardize front-end operations like billing as well as back-end procedures.

Caselet 3 Read the caselet carefully and answer the following questions: 6.

7.

Consumerism may be the bread and butter of marketers, but this does not empower them to start converting kids to consumerism at the age of three or five. Justify. (8 marks) < Answer > Children being increasingly targeted, there is a need for responsible advertising. What could be the elements of responsible advertising?

(7 marks) < Answer > There is not much Atul Bendre, an engineer with Indian Airlines, can do when both his children demand the latest gizmos and fancy foodstuff they get to see on television. “My 15-year-old daughter demanded a cell phone when she passed out of school. I had to buy one for my 12-year-old son too, otherwise he would have got a complex,” he says. “It’s difficult for me to manage a household, but today parents are helpless. Our children are constantly comparing us with neighbors.” That sums up the dilemma of parents – and the new-age marketing mantra. “Pester Power” is the new buzzword in marketing circles and the country’s business houses have realized that the child is the key to loosen his parents’ pursestrings. No wonder then that a number of children’s channels are waiting to take off in the next few months – they’re sure to find brands eager to advertise on them, which means good money. Skeptical adults may wonder who’s going to watch all these kid channels, but a survey by AC Nielsen, UTV’s research partner, showed that, the time spent in front of television goes up with age and apart from the programs, the children also view a lot of the advertisements. “Kids are better consumers of advertising,” says Samit Sinha of Alchemist Brand Consultancy. “Their minds are not as cluttered as adult minds and so they can assimilate the message faster.” That receptiveness translates into pester power. Schools were considered to be a place where children could be prevented from the horde of advertisements. However, in order to make their brands more visible, companies are targeting children through in-school promotions. Budget shortfalls are forcing school boards to allow corporations access students in exchange for badly needed cash, computers and educational materials. A study conducted by Millward Brown and IMRB showed that kids influence decision-making on categories beyond those just meant for kids. Marketers realize that if they can get tweens (children in the 8-14 age-group) inclined to their brand, they could literally have consumers for life. The research also showed that six out of 10 children pester an average of nine times even after their parents say ‘no’ to a particular request, and that 80 per cent of all brand purchases by parents with tweens are controlled by their children. Pester Power research indicates that 30 per cent of fast-moving consumer goods (FMCG) purchase decisions are influenced by kids, they also influence selection of brand for non-kids category like refrigerator, music system, car etc. “Kids in India have always had the pressure vote: by sheer dint of either child-like nagging or persuasion they can get doting parents to get them what they want”, says adman Suhel Seth. “The situation today is even more delicate because today they can effect purchase with increased pocket money. Preteens are thus definitely having a greater say in the whole buying decision-making and they should, since the borders of consumption are no longer age-restricted,” he says. A degree of advertising to kids may be inevitable. But children are under more pressure from marketing messages these days. They feel they genuinely have to have the latest products in order to talk on a like -to-like basis with their friends. Parents reportedly feel they need to limit the amount of advertising exposure their children are faced with, so it doesn't become an insurmountable goal for the child to have that particular item. Children nowadays are more demanding and television provides them an opportunity to decide what they want. There is focus upon advertising and children for two broad reasons. First, it is because children are children, and are considered separately. Second, it is because children will become adults. Advertising therefore effects behavior during 6

considered separately. Second, it is because children will become adults. Advertising therefore effects behavior during childhood and continues to do so into adulthood. Advertising to children rarely receives a good press, and it remains a controversial topic in the wider domain. Subsequently the issue has evolved to question whether there should be advertising to children, and if so whether it should be regulated. Whilst there are compelling arguments on both sides, advertising to children remains an economic necessity in need of adjustment and regulation.

END OF PART B

Part C : Applied Theory (20 Marks) • • • • 8.

This part consists of questions with serial number 8 - 9. Answer all questions. Marks are indicated against each question. Do not spend more than 25 -30 minutes on Section C.

An ethical organization treats with justice and fairness its important resource of human Capital. Explain the ethics related to retrenchment of employees. (10 marks) < Answer >

9.

Good corporate governance brings value to a company and attracts strategic financial investment. Discuss the issues in implementing corporate governance practices. (10 marks) < Answer >

END OF PART C END OF QUESTION PAPER

Suggested Answers Business Ethics & Corporate Governance (MB321): April 2005 1.

Answer : (c) Reason : Applied ethics deals with specific often controversial moral issues such as abortion, female feticide and infanticide, displacement of tribal people due to huge hydro electrical projects, cloning, testing drugs on animals etc. Business too face many controversial moral issues such as misleading advertising, insider trading, bribery and corruption etc. (a)Meta ethics is the study of the origin and meaning of ethical concepts. (b) Normative ethics is the branch of ethics that guides human conduct. (d) Virtue ethics is concerned with attaining these dispositions of character or personality that an individual desires in himself or others. (e) Teleological ethics states that an action is considered morally correct if the consequences of that action are more favorable than unfavorable.

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2.

Answer : (a) Reason : Vinay’s view of social responsibility is described by ‘Corporate citizenship theory’. It proposes a higher level of ethical consciousness and redefines the mission of business in society. (b) Moral minimum theory does not describe Vinay’s view of social responsibility. (c) Maximizing profits will not describe Vinay’s view of social responsibility. (d) Stakeholders interests will not describe Vinay’s view of social responsibility. (e) Ethical relativism argues that there is no universal set of principles of which to judge morality. 7

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principles of which to judge morality. 3.

Answer : (b) Reason : According to CII committee report companies with either a turnover of over Rs 100 crores or a paid-up capital of Rs 20 crore should set up audit committees within two years. Audit committees should consist of at least three members, all drawn from a company’s non-executive directors, who should have adequate knowledge of finance, accounts and basic elements of company

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4.

Answer : (e) Reason : Selecting non-executive directors to the board is not the responsibility of the corporate Audit committee. Some of the functions of a corporate audit committee are: (i) to discuss with independent auditors any problems that they experience in completing the audit, (ii) to review the interim and final accounts in toto, (iii) to inform the board about the effectiveness of internal controls and the quality of financial reporting as pointed out by the independent auditors. To make recommendations regarding the audit fee, selection and replacement of auditors.

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5.

Answer : (e) Reason : When a company adopts an anti-pollution environment policy, it is said to be ‘going green’ . Green initiatives in business range from environmentally friendly technological innovation, green tourism, green community, environmental campaigning and environmental counseling. Options (a), (c), (d) and (e) are irrelevant.

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6.

Answer : (b) Reason : The Unitarian view of ethics implies that if businesses want to exist, survive and flourish, morality and ethics cannot be separated from the operation of the business in the long run. Therefore, business should concentrate on society and it has a major role to play in serving the society and ushering in society welfare. (a) The separatist view endorses that the only aim of business is to generate profits. (c) The integration view expresses that business being an economic entity has the right to make profits, but at the same time, it should discharge the social obligations. (d) Law of jungle and (e) stakeholder concept, are two stages of the ethical consciousness in business.

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7.

Answer : (b) Reason : The nomination committee carries out the selection of new non-executive directors of company. (a) Audit committees act as a link between the board and the external auditors. Remuneration committees are set up to objectively review the remuneration packages of executive directors and other top-level managers. Options (d) and (e) are not committees of board.

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the (c) the the

8.

Answer : (a) Reason : An organization is considered to be ethical if its espoused values are the same as its values in practice. For example, if a company’s mission states that it considers its customers as king and in practice it follows the same then its espoused values are same as values in practice.

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9.

Answer : (c) Reason : Universal norms such as basic human rights of personal freedom, physical security, and well being, political participation, informed consent, ownership of property an the right to subsistence that apply equally to all human beings are called hypernorms.

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10.

Answer : (d) Reason : Corporate code refers to those policy statements that lay down a company’s ethical standards. Employee bonds are not a format in which a corporate code can be developed. Options (a), (b), (c) and (e) all are formats in which a corporate code can be developed. Other formats include special documents, compliance certificates and purchase orders.

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11.

Answer : (e) Reason : Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. (a) Moral standards deal with desired right or wrong human behavior. (b) Business ethics deal with following ethical values in conducting businesses. (c) Corporate credos are broad general statements of corporate commitments relating to constituencies, values and objectives. (d) Compliance codes are directive statements providing guidance on conduct to be adopted.

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12.

Answer : (b) Reason : The anxiological approach is a moral responsibility to protect animals. (a) A moral responsibility to preserve the environment is referred to as the anthropocentrism approach. (c) A radical approach to environmental responsibility is referred to as the eco-centric approach. Options (d) and (e) do not refer to any specific approaches. 8

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and (e) do not refer to any specific approaches. 13.

Answer : (d) Reason : Gaining economic benefits through increased efficiency, enhancing public image and gaining competitive advantage through innovation influence a company’s decision to go green. Increasing profits are not a factor influencing a firm’s decision to go green. Therefore, option (d) is the correct answer.

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14.

Answer : (c) Reason : Greenmail is the technique that forces the target company (under threat of a takeover), to buy back shares at a premium. (a) No such concept exists. (b) Share repurchase involves buying back by the company of some fraction of its shares of common stock. (d) Going private involves purchase of entire equity interest in a former public corporation by a small group of investors. (e) Leveraged buy-outs involve financing from third parties through substantial borrowing by the private company.

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15.

Answer : (d) Reason : Building a rapport or good relationship with government officials is not an unethical practice at the workplace. Options (a), (b), (c), and (e) are all unethical practices/issues related to the workplace.

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16.

Answer : (c) Reason : The consequentialist theory of altruism considers an action to be morally right if the consequences of that action are more favorable than unfavorable to everyone except the individual. (a) Egoism considers an action to be morally right if the consequences of that action are more favorable than unfavorable to that individual. (b) Utilitarianism considers an action to be morally right if the consequences of that action are more favorable than unfavorable to everyone. There are no such consequentialist theories as mentioned in options (d) and (e).

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17.

Answer : (c) Reason : A two tier board is a type of board structure. Options (a), (b), (d) and (e) are board styles categorized based on function, commitment to effective decision-making and concern for interpersonal relations.

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18.

Answer : (d) Reason : Charging a higher price for a product, which has a great demand is unethical. For example, a consumer may be willing to pay more for a food product he consider to be healthy. This when priced higher due to the increase in demand becomes unethical. Charging a higher price for a product of good quality is not unethical. Charging a higher price because of the consumer’s ignorance about the price being right or not is unethical. Charging a low price so as to edge out smaller players who do not have the money to cope with strategies of bigger competitors is unethical. Therefore option (d) is the correct answer.

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19.

Answer : (a) Reason : Poison pill is an anti-takeover device used by a company’s management to make a takeover prohibitively expensive for the bidder. The company under target changes the articles of association so that a group of shareholders have special rights, which are evoked by a takeover. (b) Sand bag is another tactic the company uses to stall the attempts of a takeover in the hope that another more favorable company will try to take them over. (d) People pill is a defensive strategy for warding off a hostile takeover. (e) Golden parachute is a strategy where top executives who lose their jobs after a takeover are given lucrative benefits. Option (c) is not applicable.

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20.

Answer : (b) Reason : The duties upheld by the deontological theory include duties to God, honoring him and praying to him. (a) Virtue ethics are associated with the Greek philosopher Aristotle and (c) emphasizes character development rather than articulation of abstract moral principles. (d) Applied ethics deal with facing moral controversial issues. (e) Meta ethics is the study of the origin and meaning of ethical concepts.

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21.

Answer : (b) Reason : What ought to be/ought not to be done by individuals and compelling individuals to act in the ‘right’ desired manner is the difference between moral standards and law. There is an overlap between the two but law always does not represent collective moral judgements.

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22.

Answer : (b) Reason : Self-regulations are more comprehensive when compared to official regulations. Therefore, option (b) is not true with regard to self-regulations. All other options about self-regulation are true. 9

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(b) is not true with regard to self-regulations. All other options about self-regulation are true. 23.

Answer : (e) Reason : Many countries entered China in the early 1990s’ to take advantage of cheap labor. Children were exploited and paid much less than adults. Workers in prison were also used to produce these goods. Therefore option (e) is the correct answer.

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24.

Answer : (c) Reason : Maintenance tasks help in ensuring the normal flow of communication in society. Activities that help shape the society and culture by transmitting knowledge fall in this category. (a) Adaptive tasks involve an organization’s’ efforts that respond to changes in the society. (b) Environmental tasks are those tasks directed at protecting the environment. For example, pollution regulations etc. (d) Management tasks that ensure that a company fulfills its corporate social responsibility fall under management or political tasks. (e) Economic tasks are related to the creation and maintenance of wealth.

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Answer : (d) Reason : According to the enlightenment matrix, if expectations of a major of a company reflect low selfinterest and low philanthropy, it is called enlightened self interest. (a) If self-interest is low and philanthropy is high, it results in pure philanthropy. (b) If self-interest is high and philanthropy is high, it results social responsibility. (c) If self-interest is high and philanthropy is low, it results in cause related marketing. (e) Option is not relevant.

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Answer : (b) Reason : Structure of the organization is not a characteristic that attracts investors. (a) Limited liability implies that a corporation is distinct from its owners and employees. Thus, if a corporation became bankrupt, and was sued by creditors, members of the corporation were not held liable individually. (c) Transferability of stock holding attracts investment. (d) A corporation is a legal person and continues to exist as long as it has capital. (e) The board of directors is empowered to plan the company’s overall direction, in other words power is centralized.

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Answer : (e) Reason : For the smooth functioning of a business, a leader needs to maintain a healthy relationship with stakeholders, which is based on knowledge contract, efficiency contract and psychological contract. Knowledge contract enables managers to use their competence and skill for the benefit of the organization. Efficiency contract helps managers to make decisions that minimize wastage and at the same time maintain a consistent effort in reward standards. Psychological contract is aimed at motivating employees and giving recognition to stakeholders.

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Answer : (c) Reason : ‘Nothing will be produced until it is needed’ is the concept of just in time delivery. It implies that materials arrive ‘just in time’ when they are needed. (a) Procurement simply refers to the process of obtaining raw materials. (b) In order to ensure availability of raw materials, buyers often resort to ‘forward buying’ or buying the stocks to meet the future requirements. This is forward buying. (d) Simply put, total quality management is a management approach to long-term success through customer satisfaction. TQM is based on the participation of all members of an organization in improving processes, products, services and the culture in which they work. (e) Piling up of stocks apparently means accumulating stocks.

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Answer : (e) Reason : Junk food advertising that targets children results in harmful effects on health therefore is unethical. Advertisements that attack competitors’ products are not in good taste and are unethical. Advertisements whose claims are exaggerated are misleading, hence are unethical. Therefore, option (e) is the correct answer.

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Answer : (a) Reason : Use of technology that is unsuitable in the host country is not a practice that multinational companies (MNCs) are often accused of. Options (b), (c), (d) and (e) are all practices that find criticism with regard to the functioning of MNCs.

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Part B : Caselets 1.

Consumers/customers exchange resources for the products of the firms and in return receive the benefits of the products. They provide the lifeblood of the firm in the form of. revenue. Since corporations reinvest these earnings, customers can be said to be paying indirectly for the development of new products and services. By paying attention to customer needs, management automatically addresses the needs of suppliers and owners. The five R’s - the right quality, right quality, right time, right place and right price, sum up the responsibilities of business corporations towards their consumers. A few of these responsibilities are: • Producing goods according to the specific needs of consumers, their purchasing power etc. • Offering quality goods at reasonable prices. • Providing prompt and adequate service to consumers. • Improving the standard of living by producing goods and services of high quality. • Treating customers fairly in all aspects of business transactions • Ensuring the health and safety of customers Customers' satisfaction is essential for the success of a, corporation. Customers increase sales .of a product by spreading positive 'word-of-mouth' about the company, product or a brand. Owing to the active role played by consumers, they are looked at from different angles. From one angle, consumers are understood as demanding and are likely to be avoided. On the other hand, consumer is considered as a king and consumer's delight has become a credo for many organizations. Sometimes, consumers need the help of the law. In 1988, the UK government destroyed 700,000 chickens because of the spread of salmonella infection. This affected the sales and long-term investment in the business. In this case, exaggerated publicity on the infection proved to be a bare bone for egg producers, because the fact was not proved scientifically.

Community The community gives the business the right to build or rent facilities, benefit from the tax revenues raised in the form of local services, infrastructure etc. In return for their services, the firm should act in a responsible way. The firm cannot expose the community to unreasonable hazards in the firm of pollution and toxic waste. A firms responsibility towards the society include: • Respecting human rights and democratic institutions • Supporting public policies and practices that promote human development through harmonious relations between business and other segments of society • Collaborating with such activities that aim at improving the standards of health, education, workplace safety and economic well-being • Promoting and stimulating sustainable development and playing a leading role in preserving and enhancing the physical environment and conserving the earth's resources • Supporting peace, security, diversity and social integration; respecting the integrity of local cultures • Encouraging charitable donations, educational and cultural contributions and employee participation in community and civic affairs. < TOP >

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Private sector organizations cannot perform effectively in all the corporate responsibility activities like social tasks, economic tasks that include creation of jobs etc. Not all organizations can perform effectively in fulfilling their tasks to the community. There are shortages in certain areas and limitations on application elsewhere. But their scope can be expanded by mutually beneficial partnerships between companies and non-profit organizations for improving the community. In fulfilling these social responsibilities, companies must select projects carefully and then ensure that sustained involvement and quality management backs them. Clutterbuck has proposed a systematic approach for managing such activities. It is called the '’Community involvement Choice flow’'. The various steps a company that adopts this approach can take are as follows: A Company should first audit its resources and capacity so that it can add real value to its activities. It means that its policies are: • Set practical, clear and achievable objectives. • Identifying the primary aim of the programs that the organizations want to be involved. • Have some well-defined criteria for choosing beneficiary organizations like healthcare, education etc. • Clearly, identify what 'not' to support • Have fixed budgets for specific programs • Appoint specialists and other required staff for organizing and delivering the support. 11

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Install systems for report evaluation, feedback and change. Processed information obtained form these activities have to be updated on a regular basis. < TOP >

3.

Corporate social responsibility focuses on the social, environmental, and financial success of a company - the socalled triple bottom line - with the aim to achieve social development while achieving business success. Many companies are taking up social initiatives to attain the objective of being socially responsible and also as they have come to believe that this would be a competitive advantage. Some of the activities companies can get involved in are as follows: • Medical and health services in the rural and semi-urban areas • Promotion of sports and cultural events • Women’s health and education • Water harvesting and tribal development • Relief and rehabilitation and income generation • Rural adults literacy • Disaster management activites • Human rights • Environmental issues Some benefits of CSR • Improved financial performance • Enhanced brand image and reputation • Increased sales and customer loyalty • Customer satisfaction • Increased ability to attract and retain employees • Brand Visibility, recognition and awareness • Favorable positioning • Competitive mileage • More engaged investors • Environmental sustainability • Forging of partnerships

4.

It is important that the company deals with these problems at the initial stages, especially since it has massive expansion plans. Some of the recommendations given by the management trainees include: • Establish controls at every point • Manager intervention in case any cashier wanted to subtract an amount from the bill, thereby reducing the possibility of intentional subtraction. • Educating customers about billing procedure as well as encouraging the habit of checking bills after making purchases. • Institute customer complaint handling mechanisms to report discrepancies. • Monetary penalty for cashiers. • Rotate the duty of cashiers during a shit so that the possibility of such offences is reduced. • Offer performance related compensation and incentives to cashiers.

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5.

Accepting gifts is certainly unethical. Firstly, it creates ground for graver acts of bribery. One may argue that gifts of nominal value may be acceptable but then in such case one may not know where to draw the line. It is the professional responsibility of the merchandiser to get business for the company. Gifts and obligations create a conflict in the minds of employees. They would obviously lead the merchandisers to favor those companies that would offer more commission rather than concentrating on getting products of good quality. The whole purpose of providing value to the customer through corporate principles of streamlined operations would be lost. There would be no difference between a kirana store and a professionally run organization. Obviously, quality would also be affected. Standardizing procedures would be of no meaning. The key function of merchandising would be governed by personal greed rather than a fair practice and procedure of procurement.

6.

The issue of whether it’s fair to target children as consumers is only beginning to be debated. Commercials are getting more and more sophisticated and children don’t have the power to rationalize. Today’s advertisements interfere with the traditional value system of our children. In our country, there are no standards as yet as far as advertising for children is concerned, making it all the more difficult.

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In-school promotions have evolved from just dumping products on kids to promotions that are relevant to them. There are educational and entertainment events designed to make children more informed about brands and 12

There are educational and entertainment events designed to make children more informed about brands and choices. But criticism could be abounding as this could lead to ‘undesirable’ pester-power. The result of aiming children is not only an epidemic of materialistic values among children, but also convincing them that they're inferior if they don't have an endless array of new products. Deeper still, what are some of the destructive messages contained in commercials? Personal hygiene products promise to not only cure bad breath and dandruff, but also guarantee that people who use these products will get the guy or girl of their dreams. And increasingly, people who buy all the right products are portrayed as hip and with-it, while those who don't are branded as hopeless dorks. While older children and adults understand the inherent bias of advertising, younger children do not, and therefore tend to interpret commercial claims and appeals as accurate and truthful information and are easy targets for commercial persuasion. Kids' minds are vulnerable, impressionable, easy to influence. This exposes them to the temptations such as toys that are not educative, drinks that are nutritionally questionable, fast foods and snack foods that are laden with fat, promotional material that promotes western teen values or encouraging them to pester their parents for high -end durables and automobiles. This is a critical concern because the most common products marketed to children are sugared cereals, candies, sweets, sodas and snack foods. Such advertising of unhealthy food products to young children contributes to poor nutritional habits that may last a lifetime and be a variable in the current epidemic of obesity among kids. < TOP > 7.

With children’s advertising failing to reflect social values such as diversity and respect, there is a greater need for responsible advertising. Freedom to advertise brings with it special responsibilities, especially towards children. These responsibilities include protecting and helping children to understand and interpret advertising in the context of their daily lives. Responsible advertising of products and services normally used by children, and the depiction of children in advertising in general, can serve not only to inform children of these products and services but also about many aspects of society and the world in which they live. Calls for a responsible approach to business have been particularly loud in the area of marketing to children. In addition to being a highly emotive issue for parents, advertising to children is increasingly linked to the wider anti-capitalist movement against global brands and the anti-advertising backlash. The arguments against include that it breeds new generations of ‘must have’ consumers and that in some cases it has a negative impact on children’s health and welfare. The arguments in favor are based on the need to encourage children – who are surrounded by advertising and brands – to be more critical of what they see and hear and thereby to make more informed choices. The debate about advertising to children now has two distinct strands. First is the so-called ‘moral debate’ which is focused on the ethics of advertising to children, in particular whether this causes increased materialism, commercialism and ‘pester power’. Second is the role of advertising in the health debate which increasingly attempts to link food advertising with obesity and challenges the advertising of snack foods and fast food brands. < TOP >

Part C: Applied Theory 8.

The turn of the new millennium saw the world economies slump. Many industries faced the heat of recessionary trends in the world economy. This has compelled many businesses to retrench or layoff people. Many businesses did not have the expertise to handle the issue of retrenchment and ended up in sullying their corporate image. In times of recession, it has become common for businesses to reduce their size and overhead costs by discharging some of the employees, and creating a “lean and mean” style of management. Organizations usually resort to downsizing in response to an increase in competitive pressures. Firing Employers at times include an “at-will” clause in the employment contract that enables them to fire their employees "at-will" or for a “cause.” Firing may have a devastating effect on employee morale, but it is considered ethical when the dismissal is aimed at maximizing long-term owner value. Firing, to be ethical, should be honest, fair, legal and without coercion or physical violence. In fact firing is a critical decision, which affects the reputation of the business. Many organizations follow arbitrary firing practices and the reputation of such organization will suffer if word gets out that the organization is discriminatory, unfair, or vindictive in its hiring and firing practices. Arbitrary firing practices like firing “at will” or for unjust reasons are considered to be unethical, as it will lower the morale of the remaining employees, and result in decreased long term owner value. Firing at will for unjust reasons has a devastating impact on the performance of an organization. It is very difficult to measure the negative effect of firing on the basis of "at-will" clause in an employment contract. But, clearly, when esprit de corps declines, productivity will inevitably be affected. Thus, firing at-will for unjust reasons do not serve the purpose of enhancing long-term owner value, as it will create an atmosphere off ear and uncertainty. 13

It is unethical as it depletes the trust, which is essential for business to survive and make profits. Firing is considered to be ethical when it is a result of a particular cause. This cause may be related to a worker's poor performance, acts of sabotage, dishonesty or misuse of authority, which are considered to have an effect on the long-term owner value. Organizations come under criticism when they opt for layoffs, right-sizing, downsizing or delayering. An organization can answer it critics effectively when it makes it clear to them that the purpose of business is to enhance the long-term owner value. In difficult times who should be fired first? This is a difficult question because the decision whether or not to fire an employee has nothing to do with his age or years of association with the organization. The ethical decision would be to fire the employees who are least productive or those who contribute the least towards long-term owner value. Even though dismissing employees is correct according to law, when it is not carried out in the right manner would result in spread of fear in the employees. This atmosphere of fear and mistrust within an organization would make it difficult for the organization to attract fresh talent and retain the experienced employees. Thus, it is very important for business to adopt and practice ethical retrenchment that is directed towards enhancing the longterm owner value. < TOP >

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Corporate governance practices are a set of structural arrangements that are emerging in free market economies to align the management of companies with the interests of their shareholders (in particular) and other stakeholders, and society at large. Corporate governance addresses three basic issues: Ethical issues - Ethical issues are concerned with the problem of fraud, which is becoming wide spread in capitalist economies. Corporations often employ fraudulent means to achieve their goals, They form cartels to exert tremendous pressure on the government to formulate public policy, which may sometimes go against the interests of individuals and society at large. At times corporations may resort to unethical means like bribes, giving gifts to potential customers and lobbying under the cover of public relations in order to achieve their goal of maximizing long-term owner value. Efficiency issues - Efficiency issues are concerned with the performance of management. Management is responsible for ensuring reasonable returns on investment made by shareholders. In developed countries, individuals usually invest 'money through mutual, retirement and tax funds. In India, however, small shareholders are still an important source of capital for corporations as the mutual funds industry is still emerging. The issues relating to efficiency of management is of concern to shareholders as there is no control mechanism through which they can control the activities of the management, whose efficiency is detrimental for returns on their (shareholders) investments. Accountability issues - The management of a corporation is accountable to its various stakeholders. "Accountability issues" emerge out of the stakeholders' need for transparency of management in the conduct of business. Since the activities of a corporation influence the workers, customers and society at large, some of the accountability issues are concerned with the social responsibility that a corporation must shoulder. The growing scale of corporations and their style of functioning have raised many new issues that must be addressed by corporate governance. Some of these issues are: • The growth of private companies • The magnitude and complexity of corporate groups • The importance of institutional investors • Rise in hostile activities of predators (take over) • Insider trading • Litigations against directors • Need for restructuring of boards • Changes in auditing practices < TOP >

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