Mb321 - Jan 04

Question Paper Business Ethics and Corporate Governance (MB321) – Jan 04 Section A : Basic Concepts (30 Marks) •

This Section consists of questions with serial number 1 30. • Answer all questions. • Each question carries one mark. • Maximum time for answering Section A is 30 Minutes. 1.

The concept that different treatment of people should not be based on arbitrary characteristics < Answer > is referred to as a. b. c. d. e.

2.

A manager's social responsibility is to make decisions that promote the welfare and well being of I. Society II. Government III. Stakeholders a. b. c. d. e.

3.

b. c. d. e. 5.

6.

< Answer >

Utilitarianism says we should consider everyone's interests, whereas ethical egoism says people should act in their own self-interest There is none, since "utilitarianism" and "ethical egoism" are different names for the same theory Utilitarianism is a consequentialist theory and ethical egoism isn't Utilitarianism concerns how people should act, while ethical egoism concerns how people do act Both (b) and (c) above.

The practice of Virtue ethics attempts to create a. b. c. d. e.

< Answer >

Social audit Code of ethics Ethical audit Letter to stockholders Software audit.

Which of the following is an important difference between utilitarianism and ethical egoism? a.

< Answer >

Only (I) above Both (I) and (III) above Both (I) and (II) above Both (II) and (III) above All (I), (II) and (III) above.

Which of the following is often reported in a company’s annual report and serves as a guide to ethical decision-making? a. b. c. d. e.

4.

Eternal law Personal liberty Altruism Distributive justice Coercion.

< Answer >

The greatest good for the greatest number A set of laws that will yield a virtuous society An individual who knows and follows the correct moral rules A human being of good character The greatest good for one individual.

Management takeover defenses include

< Answer >

a. b. c. d. e. 7.

Which of the following is not an internal governance mechanism in the modern corporations? a. b. c. d. e.

8.

b. c. d. e.

e.

< Answer >

It provides the legal infrastructure for electronic commerce in India It recognizes the validity of digital signatures It defines hacking It proposes legal framework for the authentication of electronic records/communications All of the above.

13. As per the CII Code of Governance, a person may hold Directorship in a. b. c.

< Answer >

SEBI regulations Peer Regulation Mandated regulations under various Laws Self Regulation Both (b) and (c) above.

12. Which of the following statement(s) is/are true regarding the Indian Information Technology Act 2000? a. b. c. d.

< Answer >

Kumara Mangalam Birla Rahul Bajaj Adrian Cadbury D.R.Mehta Bimal Jalan.

11. In order to ensure Ethics in advertisements given by companies it is best to adopt a. b. c. d. e.

< Answer >

Integration view of ethics Unitarian view of ethics Metaethics Utilitarian ethics Applied ethics.

10. The Committee whose recommendations have been brought into force by SEBI for Corporate Governance was chaired by a. b. c. d. e.

< Answer >

Their actions are within reasonable ethical and legal limits and hence are not illegal or unethical Their actions are aimed at the individuals or corporation’s best interest Their actions will not be disclosed or published and hence there is no danger to them or their company They will be protected by their company They will be protected by their community.

Which of the following theory propounds that Moral structure and Moral ethics are part of business? a. b. c. d. e.

< Answer >

Ownership concentration Audit committees Executive compensation Multidivisional structure Ethical audit.

Which of the following is not a rational assumption that managers make to justify their behavior in resolving ethical dilemmas? a.

9.

Golden parachutes, greenmail and poison pills White knights, golden parachutes and poison pills Poison pills, dark knights and golden parachutes Greenmail, poison pills and white knights None of the above.

20 Companies 10 companies 15 Companies

< Answer >

d. e.

12 companies 18 companies.

14. Unethical acts are the result of which of the following factors? a. b. c. d. e.

Insensitivity to issues Selfishness Faulty reasoning Both (a) and (c) above (a), (b) and (c) above.

15. Generally, which of the following type of director is appointed by the Financial Institutions on the Board of directors of a company? a. b. c. d. e.

< Answer >

Nominee Director Representative director Alternate director Shadow director Associate director.

16. The approach of environmental ethics which enjoins the responsibility to protect animals is known as a. b. c. d. e.

< Answer >

< Answer >

Anxiological approach Eco-centric approach Anthropocentrism Environmental counseling Green community.

< Answer > 17. Which of the following is not an objective of ethical audit? a. To determine the extent to which the decisions taken at all the levels of an organization are towards maximizing long-term ownership value and how well they are framed towards achieving distributive justice b. To help in scrutinizing the basis on which accounts are drawn and also evaluate whether management has reliable information for running the business c. To measure business conduct against the varied moral or religious standards of a community in which it operates d. To help the business establish ethical conduct e. To improve the quality of governance by evaluating the performance and ensuring that financial information is both available and reliable. < Answer > 18. The recent corporate happenings internationally and nationally concerning Enron, Tata Finance, Xerox and so on, point to the a. Increasing gap between values and practices b. Congruity in what is professed and practiced c. High commitment to value based practices d. Both (b) and (c) above e. None of the above. < Answer > 19. According to integration view of ethics, which of the following factors are inter-related and guided by external factors like government, market system, law and society? a. Moral structure and moral ethics b. Business and morality c. Morality and ethics d. Ethics and business e. Business and profit. < Answer > 20. Ethical issues at work place encompasses a. b. c. d. e.

Thefts Bribery Insider trading Coercion All of the above.

21. Green initiatives by business is primarily because of

< Answer >

a. b. c. d. e.

Increasing consumer awareness Business compulsion rather than choice Public image and positioning Increase the profit Organizational concern and commitment to environment.

22. Which of the following is the main dilemma a multinational company faces in its global operations? a. b. c. d. e.

Differences in ethical beliefs and value systems in its home country and the host country Balancing the company’s own economic interest with the interests of the host country Differences in legal controls Issue of transfer pricing Issue of CEO’s remuneration.

23. Which of the following factor is considered as the hallmark of ethical performance? a. b c. d. e.

b. c. d. e.

< Answer >

Corporate raiding Corporate competition Corporate governance Corporate control Corporate strategy.

27. The anti-take over technique, where the company stalls the attempts in the hope that another more favorable company will try to take over them is referred to as a. b. c. d. e.

< Answer >

Universalism Utilitarianism Ethical relativism Consequentialism Ethical subjectivism.

26. Which of the following occur(s) when a company engages in soliciting and hiring certain highly productive or successful employees from one of its’ competitors? a. b. c. d. e.

< Answer >

Ethical decisions are much more difficult to make when a person is directly involved in the situation Ethical decisions are easier to make when a person is directly involved in the situation It does not make any difference to the ease or difficulty of an ethical decision whether a person is directly involved in a situation or not It is never difficult to make an ethical decision None of the above.

25. In real world the implementation of ethical principles in business suffers most from which of the following? a. b. c. d. e.

< Answer >

Popularity Integrity Profitability Publicity Intensity.

24. Which of the following statements is true with respect to ethical decisions? a.

< Answer >

< Answer >

Sandbag Poison pill People pill Green mail Golden Parachute.

28. Which of the following theories states that Mangers/employees cannot be trusted to act in the best interests of the shareholders, and should be monitored and controlled to ensure that they follow the set policies, procedures and plans of the corporation?

< Answer >

a. b. c. d. e.

Stewardship theory Agency theory Theory of corporate moral excellence Ethics and stake holder theory Ethics and corporate governance theory.

29. Who among the following has defined Corporation as ‘an instrument through which capital is assembled for the activities of producing and distributing goods and services and making investments’? a. b. c. d. e.

John Marshall Melvin Avon Eisenberg Ambrose Bierce Black stone Anderson.

30. Boards play a major role in guiding the strategic decision making process of the company. Which of the following strategy of board is concerned with decisions regarding the structure of the company and the business that it should enter? a. b. c. d. e.

< Answer >

Systematic level strategy Implementation strategy Structure and portfolio strategy Accountability strategy Profit maximization strategy. END OF SECTION A

< Answer >

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

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

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

What are the ethical dilemmas faced by Mr.Dorson in making a plant relocation decision? (7 marks) < Answer >

2.

What are the various issues Mr.Dorson has to consider while taking the plant relocation decision? (6 marks) < Answer >

3.

Which country do you think that Richmond should choose to relocate its operations? Justify your answer on ethical grounds. (8 marks) < Answer > Richmond Ltd., an electronics company manufactures computer chips that are used in automobiles. It was started in 1969 by Fred Dorson in a small town in North Carolina, USA. By 1990, Richmond had nine production plants (all located in USA), which manufactured a variety of electronic components for different industries. The production plants used complex hydrocarbon solvents to clean the chips and other parts used in various computer components. By 1990, various factors have led to the increase in the production cost at Richmond. The first factor was that the workers went on a lightning strike at all the 9 plants forcing the management to increase the wages from $12 per hour to $15 per hour. In addition to the wage bill Richmond had to spend huge amounts to comply with the stringent environmental and safety regulations existing in USA. As some solvents used for cleaning are carcinogens, company had to spend considerable amounts on safety procedures. It was also mandatory for Richmond to put its waste through an expensive affluent treatment process before disposing it at a special facility. All these factors added to the operational costs of Richmond. Its troubles compounded as its shareholders questioned the management as to why it was not moving the operations to less-developed countries when all of its competitors moved off-shore in early 1990s. When this issue came up for discussion at the board meeting, Dorson gave various reasons for why the company had not moved its operations to off-shore locations where the cost of production is less. He said that Richmond being a major employer in each of the U.S cities where it is located, closure of the production plants would result in economic dislocation of these communities. In addition, it would be very difficult for the thousands of retrenched employees to find an equivalent job as the entire industry has already moved offshore. But the board of directors felt that the company would prosper by moving to a country where the cost of production is less apart from liberal environmental and safety regulations. Richmond had three countries (Mexico, Philippines and South Africa) on list for relocating its operations. The pros and cons selecting each of these countries is as follows:

Mexico Many cities in Mexico would be cost-efficient relocation sites considering both labor, and health and safety/environmental factors. The prevailing wage of workers in similar production plants is $3 per day. The employee turnover is more as they feel that the wages are low and they migrate to work illegally in United States. However, a ready supply of workers takes their place. Mexican health and environmental laws are also favorable to Richmond. The level of toxic chemicals in the workplace is permitted at higher levels than in the United States, allowing corporations to dispense to some degree with costly procedures and equipment. Mexico's environmental laws are less strict than those of the United States, and the production plants are not required to put in place a solvent recovery system,

used to reduce the toxicity of the waste before dumping them. The rate of birth defects has been high in many of these towns where similar plants are in operation. Many environmental and citizen health groups have begun protests, accusing the production plants of polluting the environment leading to many ailments. Philippines Philippines was the best location as labor is cheap at $1 per day. The company can also employ child labor and pay them below $1 per day. The environmental and safety regulations are equivalent to that of Mexico, but there are no protests from the public regarding ailments resulting from these industries. The Philippines is a place where bribery and corruption is the norm. Bribery, favoritism kickbacks.... are so complex, deeprooted and rampant that eradication is almost impossible. South Africa The economic gains that Richmond can gain from relocating to South Africa are not as lucrative as in Mexico or the Philippines because the prevailing wage in South Africa is about $10 per day. In addition, there may be future demands for increases in wages and benefits as the unions are very strong. Exposure to toxic chemicals in the workplace is not permitted at as high a level as in Mexico and the Philippines. The production plants are required to follow safety and environmental regulations as in USA.

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

What ethical guidelines for managers are relevant to this situation? (6 marks) < Answer >

5.

What steps should Mr. Ameer take to clarify himself in this situation? (7 marks) < Answer > Mr. Ameer shadab was a 39year-old manager facing an ethical dilemma. Three years earlier he had received his MBA from a leading business school, but he had not yet established a stable work history. He lost his first job when he, along with a small group of fellow MBA students got caught in the crossfire between two warring executives in an aerospace firm. Mr. Ameer shadab’s mentor left the company as a result of the battle, and shortly after, Mr. Ameer shadab did too. He had hoped to find a job with another large firm in the same industry, but his lack of private-sector track record seemed to be a liability. After a prolonged and disappointing job search, Mr. Ameer shadab was appointed director of marketing for a small firm that manufactured undifferentiated, inexpensive but critical – parts for industrial equipment. Once again Mr. Ameer shadab discovered he was trapped between two warring executives. The company was displeased with the performance of the current vice president of marketing. During Mr. Ameer shadab’s job interview, the president had said to Mr. Ameer shadab that he could hope to replace the vice president, who meanwhile was Mr. Ameer shadab’s direct boss. One of Mr. Ameer shadab’s first assignments from the vice president was to acquire information about a competitor by pretending to be an executive recruiter. Mr. Ameer shadab at first protested, but remembering his recent job search and the fact that the assignment came after only one month on the job, he reluctantly performed the task. Next, the president and the marketing vice-president, who were both strong-willed individuals and frequently did not see eye to eye, joined forces when Mr. Ameer shadab expressed reluctance to sign to distribute what he believed was an illegal and unethical price list. Mr. Ameer shadab’s employer, as it turned out, had been illegally setting prices in collusion with its major competitor for years, yielding a handsome profit. One of the competing firms had invested this monopoly profit back into R&D and developed a process for manufacturing the same product line at 40 percent of the current cost. The competitor was passing on the savings to customers and devouring the market, especially for new customers. Mr. Ameer shadab’s firm, anxious to maintain its market share with less competitive goods, developed a fictitious product line that would sell at the competitor’s price. The lower-priced items were exactly the same as the higher-priced products, but they were labeled differently and were made available only to new customers. The purchasing engineers of old customers were too loyal and lazy to run the certification tests necessary to switch to a new product line or supplies.

The deception in Mr. Ameer shadab’s company would involve lab technicians, phone-order clerks, and the company sales force. Mr. Ameer shadab did not support this practice. He suggested that the only way to compete effectively in an industry with an undifferentiated product was by being a cost leader. Mr. Ameer shadab’s bosses however defended their proposed action as common industry practice and asked Mr. Ameer shadab not to be so “negative”. Mr. Ameer shadab consulted with a local lawyer, a friend, who confirmed the illegality of the proposed pricing scheme but also emphasized, that “small companies were known for this kind of stuff”. The probability of apprehension and any kind of legal action was negligible, the lawyer said. In addition, Mr. Ameer shadab hired an outside marketing consultant to advise the company on broad strategic issues. In a meeting attended by the consultant, Mr. Sanjeev, and his superiors, Mr. Ameer shadab raised this matter. His bosses looked on in horror as he described the pricing decision. Mr. Ameer shadab had to obtained forged lab test results from the company’s R&D engineers to implement the pricing scheme. Although they complied promptly, one of the engineers commented, “Mr. Ameer shadab, I know you’re just caught in the middle, but I’ve been around here 39 years and have never been able to like these things any better”. The dilemma was increased when Mr. Ameer shadab’s bosses asked him to sign the cover sheet of the new price list. He confined to a friend: “I still think I know what’s right, but with all these other voices telling me to sign the price list, may be I’m just making a mountain out of molehill. Then again, may be I compromised myself though the executive headhunter intrigues. And if I leave, how do I explain my short job tenure to any potential employer?”

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

Keeping in view that ethics is a priority at Windsor International, what do you think Mr. Wilson should do? (8 marks) < Answer >

7

Can a CEO of a company expect his/her employees to be ethical if he himself/herself employs unethical means in carrying on the business? (8 marks) < Answer > Windsor International Inc. is one of the leading manufacturers of integrated circuits and related software for such specialty markets as communications and mass storage, as well as PC-based audio, video and multimedia. With a focus on innovation, Windsor is committed to “ technology leadership in the new millennium”. Its long- standing strategy has been to anticipate changes in existing and emerging growth markets and to have hardware and software solutions ready before the market needs them. The company has also made significant strides in wireless communication. The systems and products of Windsor’s’ wireless business have been selling well in its already existing markets in the United States, Japan and Europe. But, like any other company, Windsor is eager to grow the business. At a strategy session with the Wireless Division, Windsor’s CEO Mr. Wilson and division managers decide to explain the potential of expanding their business to china. Initial research indicates that China is likely to develop in to a huge market for wireless because its people do not currently have this capability and the government has made spending on wireless a priority. Wireless is really the only choice for china because of the high cost of laying the communications cables necessary in wired systems; further, in underdeveloped countries; copper wires are often stolen and sold in the black market. Subsequent research does raise one concern for Windsor wireless managers. They tell Mr. Wilson, “We have this problem. China allocates frequencies and makes franchise decisions city-by-city, district-bydistrict. A ‘payoff is usually required to get licenses’. The CEO says, “A lot of companies are doing business with China right now. How do they get around the problem?” His managers have done their homework: “We believe most other companies contract with agents to represent them in the country and to get the licenses. What these contracts do is their own business, but apparently it works pretty well because all those companies are able to sign the disclosure statement required by law saying that they know of no instance where they bribed for their business”. “I wonder if paying someone else to do the crime is the same as our doing the crime,” Mr. Wilson says. “I am just not very comfortable with the whole question of payoffs. So, let me ask you, if we don’t expand to China, how much business will we lose, potentially?”

His wireless Division Manager responds, “It will be huge not to do business in all the countries expecting payoffs. China alone represents easily $ 100 million of business per year. It’s not life and death, but it is a sizeable incremental opportunity for us, not to mention potential Japanese partners who will make significant capital investments. All we have to do is add our already-existing technology. When you consider all that, we have a lot to gain. What will we really lose if our local contractors are forced to make payoffs every now and then?” Mr. Wilson wants his company to succeed, he wants to maximize shareholder value, he wants to keep his job, and he wants to model ethical leadership. He has made an effort to build a corporate culture characterized not only by aggressive R&D and growth but also by integrity, honesty, teamwork and respect for the individual. As a result, the company enjoys an excellent reputation among its customers and suppliers. Employee morale is high, and ethics is a priority at the company. Windsor International has always placed a high premium on its relationship with its employees. It has laid out that although the nature of its business and markets may change as the company evolves to meet different market conditions, a strong emphasis on ethical behavior and respect for each other will remain constant. The company’s aim to create value for its customers and create long-term successful customers. It aims to think beyond boundaries to leverage activity. The company’s behavior is guided by simple but important values: Integrity and Intellectual Honesty.

END OF SECTION B

Section C : Applied Theory (20 Marks) • • • •

8.

This Section 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 ideal board of directors consists of individuals who have expertise in varied functions such as marketing, finance, law, human resources etc. In this context, do you agree that “A group of outstanding individuals always make an effective board.” Justify. (10 marks) < Answer >

9.

You are one of the Dealers in fragile products of a company for 10 years. The Regional Manager who knows you for the last 3 years asks you to send some "B" grade items as "A" grade items. He promises that the price differential can be claimed by you as breakage in handling since the amount to be passed would be within "his authority", he would pass the claim. He also assures that this is a ‘one time’favor required. Should you whistle blow? What factors you would take into consideration? (10 marks) < Answer >

END OF SECTION C END OF QUESTION PAPER

Suggested Answers Business Ethics and Corporate Governance (MB321) – Jan 04

Section A : Basic Concepts 1. (d)

2. (b)

Answer: < TOP > Reason: According to Distributive justice moral standards are based on the primacy of single value, which is justice. Everyone should act to ensure a more equitable distribution of benefits for this promotes individual self-respect, which is essential for social cooperation. (a)

According to Eternal law moral standards are given in an Eternal law, which is revealed in scripture or apparent in nature and then interpreted by religious leaders or humanist philosophers.

(b)

According to personal liberty moral standards are based on primacy of single value, which is liberty.

(c)

Altruism states that an action is morally right if the consequences of that action are more favorable than unfavorable to everyone except the individual performing the act.

(e)

The use of threat or force to prevent sellers from dealing with certain customers and buyers from purchasing from certain sellers amounts to coercion. Answer

:

< TOP > Reason : Social responsibility implies the responsibility of a corporation to treat its employees, customers ,suppliers and community in unbiased manner. A manager's social responsibility is to make decisions that promote the welfare and well being of both society and stakeholders.

3. (b)

Answer

:

< TOP > Reason : Code of ethics refers to those policy statements that lay down a company’s ethical standards. They are designed to govern the conduct of the employees. (c)

An ethical audit assesses businesses structures, procedures, systems and policies.

(e)Software audits are computer programs used by audits to examine an enterprise’s computer files. 4. (a)

5. (d)

Answer

< TOP > Reason : Utilitarianism theory states that an action is morally right if the consequences of that action are more favorable than unfavorable to everyone whereas Ethical egoism treats self-interest as the foundation of morality. Answer : < TOP > Reason :

.6.

:

The practice of Virtue Ethics attempts to create A human being of good character.

Answer : (a) Reason Management takeover defenses include ‘ Golden parachutes, greenmail, and poison pills’.

7. (b)

Answer Reason :

8. (e)

:

< TOP > Audit committees is not an internal governance mechanism in the modern corporations Answer

:

< TOP > Reason : They will be protected by their community is not a rational assumption that managers make to justify their behavior in resolving ethical dilemmas.

9. (b)

Answer Reason :

:

< TOP > According to Unitarian view, business is a part of moral structure and moral ethics. If businesses wants to exist, survive and flourish in the long-run, morality and ethics cannot be separated from operation of business.

10. (a)

Answer Reason :

< TOP > Kumara Mangalam Birla headed the committee appointed by SEBI on May 7, 1999. The committee was formed to promote and raise the standards of corporate governance.

11. (d)

Answer

12. (e)

In order to ensure Ethics in Advertisements given by companies it is best to adopt ‘Self regulation’. Answer

:

< TOP > Reason : Indian Information Technology Act 2000 provides the legal infrastructure for electronic commerce in India; recognizes the validity of digital signatures; defines Hacking; and proposes legal framework for the authentication of electronic records/communications through digital signature.

13. (b)

Answer Reason :

:

< TOP > According to CII committee report no single person should hold directorships in more than ten companies .This ceiling excludes directorships in subsidiaries or associate companies.

14. (e)

Answer

: < TOP >

Reason :

Unethical acts are the result of all of the following activities i.e. i. ii. iii.

15. (a) Reason : 16. (a)

Insensitivity to issues Selfishness Faulty reasoning Answer

17. (c)

:

< TOP > Nominee directors are those who are appointed by the board of directors by the major share holders or financial institutions like banks, mutual funds etc. Answer

Reason :

19. (b)

: < TOP >

Reason :

18. (a)

:

:

< TOP > According to Anxiological approach it is the moral responsibility to protect animals. It implies the responsibility of environment with regard to preservation of animals and animal’s rights. Answer

:

< TOP > Reason : The main purpose of an ethical audit is to check the actions of a firm, which are directed at maximizing long-term owner value and the extent of distributive justice. It is often believed that an ethical audit measures business conduct against the varied moral or religious standards of a community. But this is not true, as it measures a businesses standards and procedures against principles of maximizing owner value, distributive justice Answer

:

< TOP > Reason : The recent corporate happenings internationally and nationally concerning Enron, Tata Finance, Xerox and so on, point to the Increasing gap between values and practices. Answer

:

< TOP > Reason : Talcot parsons has proposed the Integration view of ethics. According to this view, business and morality are inter-related and are guided by external factors like government, market system, law and society.

20. (e)

Answer

: < TOP >

Reason :

Ethical issues at work place includes all of the above factors i.e.

i.

Employee thefts: Theft compels the marketer or supplier to increase his product price to make up for his losses due to theft. Major power transmission companies are the major victims of theft.

ii.

Bribery: Bribery is the offering or receiving something of value for the purpose of influencing the

action of an official in the discharge of his or her public or legal duties. iii.

Insider trading: It refers to trading on price sensitive information.

iv.

Coercion: The use of threat of force to prevent sellers from dealing with certain customers and buyers from purchasing from certain sellers amounts to coercion.

21. (e)

Answer

< TOP > Reason :

22. (a)

Green initiatives by business is primarily because of Organizational concern and commitment to environment. Green Initiatives in business range from environmentally friendly technological innovation green tourism, green community, environmental campaigning and environmental counseling. Answer

Reason :

Answer

24. (a)

Integrity is considered as hallmark of ethical performance. Answer

Reason :

27. (a)

: < TOP >

Reason :

26. (a)

:

< TOP > The main dilemma a multinational company faces in its global operations is the differences in ethical beliefs and value systems in its home country and the host country

23. (b)

25. (c)

:

:

< TOP > All of the following statements are false with respect to ethical decisions except ‘a’ i.e. Ethical decisions are much more difficult to make when a person is directly involved in the situation Answer

:

< TOP > Reason : People who support the concept of ethical relativism argue that there is no universal set of principles by which to judge morality. Each society has its own rules and it is inappropriate to compare the ethical rules of one society with that of another. (a)

Universalism principle states that everyone should act to ensure that similar decisions would be reached by others, given similar circumstances.

(b)

According to Utilitarian principle moral standards are applied to the outcome of an action or decision; the principle is that everyone should act to generate benefits for the largest number of people.

(d)

There are two ideas associated with consequentialism. The first idea is the concept of value and the second that of maximization of value.

(e)

Ethical subjectivism argues that what is ethically right or wrong for an individual depends on the ethical principles he or she has chosen. Answer

:

< TOP > Reason : Corporate raiding occurs when a company engages in soliciting and hiring certain highly productive or successful employees from one of its’ competitors Answer

:

< TOP > Reason : Takeovers are labeled as ‘hostile’ because they are against the interests of stakeholders, or because they are damaging. Hostile takeovers are those that elicit opposition from the boards or employees of the target company. Sandbag is the anti-takeover technique where the company stalls the attempts in the hope that another more favorable company will try to take over them

28. (b)

Answer Reason :

:

< TOP > Agency theory assumes that the agent manager will not always take decisions that will maximize long-term owner value. Managers often take decisions, which further their own interests but are detrimental to the interests of the organizations. This theory states that agents/managers/employees cannot be trusted to act in the best interests of the shareholders and should be monitored and controlled to ensure that they follow the set policies, procedures and plans of the corporation

29. (b)

Answer Reason :

30. (c)

< TOP > Melvin Avon Eisenberg defined a corporation as an instrument through which capital is assembled for the activities of producing and distributing goods and services and making investments. Accordingly, a basic premise of corporation’s law is that a business corporation should have as its objective the conduct of such activities with a view to enhancing the corporation’s profit and the gains of the corporation’s owners, that is the shareholders. Answer

Reason :

:

:

< TOP > Structural and portfolio strategy of a board is concerned with decisions regarding the structure of the company and the businesses that it should enter in to. The board addresses the issues like what changes can be done in the structure of the company to achieve the growth aspirations of the board.

Section B - Caselets 1.

2.

The root cause of the ethical dilemma faced by Dorson is that there will be many people who will be affected by whatever decision he takes (to move or not to move). The first dilemma is whose interests are to be protected while making the relocation decision. In this case Dorson must ask himself to whom do Richmond owe its loyalties, and at what costs. Who has an interest in the outcome of his decision and whose rights may be violated by his decision? Are there ethical lines that he must not cross regardless of the cost? The rights of those that will be most directly affected by Dorson decision will be the shareholders, the employees, and the surrounding communities. The shareholders have the right to expect the maximum gain from their investment in the company. The employees have the right to expect job security in place of their continued loyalty and devotion to the corp. The community as well deserves the right to stability and continued employment for their citizens in place of the services they provide, and hazards they may have been exposed to, because of the corp. At the same time the country to which they move should not also be effected negatively by its operations. < TOP > While making a decision Dorson should consider the rights of all the a groups and select a course of action which ensures that it has fully and properly discharged its moral duty of accountability to all its stakeholders (i.e. all those who affect or are affected by its activities). If Dorson decides to relocate in favor of the stakeholders, he should take care to minimize the damage done to other stakeholders. The employees should be given prior notice in order to allow them the opportunity to find new jobs and readjust their lives in light of the plant closures. The management should also consider the option of closing the plant gradually rather than abruptly in order to make the transition easier on the community. Richmond should also offer retraining programs for those employees who need it in order to find new jobs. The company may consider trying to place some workers in other jobs or give them nice severance packages to help lessen the blow of unemployment. These and other such programs should be looked into in order to minimize the damage done to others. When making the decision to move, the costs of such programs need to be incorporated into the decision making process to see if the move is truly profitable. < TOP >

3.

Richmond is under pressure from its shareholders who were complaining about the declining profits due to rising production costs. As a corporation Richmond's first responsibility is towards its shareholders as its existence depends on their continued support. Hence it is inevitable for the company to move to off shore locations to keep itself profitable and competitive. But profit should not only be the criteria for selecting a country for relocation. In this case the Philippines seems to be a best place to relocate in terms of the costs. But Dorson should ask himself as to what extent the company could pollute the global environment taking advantage of the relaxed environmental and labor regulations of the developing countries. To be known as an ethical company even after moving to a country like Philippines, Richmond can set its own environmental and labor standards, which are in compliance with its own code of ethics. It can pay its employees in Philippines around 4 to 5 $ per day, which would be considered as a good living wage. At the same time it should also try to install safety systems in accordance to its home country norms. < TOP >

4.

The ethical guidelines for managers relevant to this situation are i. ii.

Obey the law, Adhere to the golden rule “

iii. 5.

6.

7.

“Do unto others as you would have others do unto you”, and

< TOP > Mr. Ameer shadab should make it very clear to the top management that the only way to compete effectively in an industry with undifferentiated product was by being a cost leader. He should try his best to persuade the top management to follow the ethical guidelines in its operations. Mr. Ameer shadab who was against unethical practices was compelled to do something that was illegal and unethical. Mr. Ameer shadab should have made his stand very clear to the top management. He shouldn’t have been part of unethical practices adopted by his organization < TOP > Windsor International Inc. is planning to expand in to a country where bribe taking is considered a normal part of doing business. The company has discovered that a “Pay off” is necessary to get the required licenses to start the business. The company has been placing a strong emphasis on ethical values and behavior. By trying to expand the business through “Pay offs” the CEO of the company, Mr. Wilson would be undermining the fundamental values of Windsor’s – Integrity, honesty, and trust. Whether the payoffs are made outright or indirectly be an agent it would be considered unethical. Moreover, the CEO signing a contract stating that he has no knowledge of bribery would also be unethical. When the employees and customers become aware of the payoffs, they would not have the same trust and belief in the company’s integrity. < TOP > The CEO has the responsibility for setting an example for the employees of the company. By being unethical in carrying on the business the CEO can in no way expect his/her employees to be unethical. The behavior of the top management is an important influencer of ethical behavior of the employees. In any organization unethical behavior can be discouraged and ethical behavior can be encouraged by the actions of the top management. Furthermore, from the perspective of the firm ethical behavior is a necessary component of developing and maintaining trust. When the employees become aware that their CEO has made use of unethical means to expand the business of the company or to enable the company to make more profits, they would lose their trust in the CEO and the company. This would prove detrimental for the company in the long run < TOP >

Section C: Applied Theory 8.

9.

The board of directors is considered to be the heart and soul of a corporation, which contains promoters, directors, professional directors and institutionally nominated directors from varied areas of expertise like marketing, finance, law, human resources, etc. Ideally, a board should consist of people from varied fields who can render their expert services to the organization in developing its corporate strategies. According to Sir Robert Brown, A board should be responsible for: Laying down the matters of principles of accounting, statistics and management procedures Deciding on what products to make, which markets to enter and determining the manufacturing capacity of the organization Achieving a balance between the competing interests of the shareholders, customers, lenders, promoters and directors. A group of outstanding individuals can form an exemplary board, only when, they share their expertise and knowledge with other members of the board. The success of such boards can be guaranteed only when the members Share a common and clear vision about the organization Have mutual trust and respect to complement each other's responsibilities and contributions. Are committed to realistic strategy to achieve the vision. < TOP > You as a Dealer has 10 year relationship with the company. Yes, it is the line executives like Regional Managers who are in touch with you in the day-to-day business and not the top Executives of the company. However, if you agree to the proposal of supplying "A" grade material as "B" grade material and get the price differential through false claim of "breakage", you are also taking part in the unethical activity of the Regional Manager. • • •

The transaction is secretive and should be avoided. Before whistle blowing, make sure that the situation warrants Examine the motive of the Regional Manager, verify whether this being done with the connivance of

the top Executives also. If this is not properly assessed retaliation may occur. • If not satisfied, discretely, inform the top Executives ensuring confidentiality. • Avoid sensationalism. • Consult a lawyer if any legal aspects are involved with regard to your Agency agreement with the company. < TOP > < TOP OF THE DOCUMENT >