Mb321 - July 06

Question Paper Business Ethics & Corporate Governance (MB321) : July 2006 Section A : Basic Concepts (30 Marks) • • • •

1.

2.

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.

Which of the following is not a feature of an ‘all-executive board’? (a)

It is commonly adopted by many family owned businesses and completely owned subsidiary companies

(b)

There is no separation between the owner and the management

(c)

The board does not have even one single outside director

(d)

The owner’s interests are automatically safeguarded

(e)

The board is divided into the supervisory board and the executive management board.

Which of the following statements is/are true about the ‘integration view’ of ethics? I. II.

Business is a part of moral structure and moral ethics. Business should focus on profits and social problems should be tackled by the government and concerned individuals. III. Ethical behavior and business should be combined in a new area called business ethics.

3.

4.

(a)

Only (I) above

(b)

Only (II) above

(c)

Only (III) above

(d)

Both (I) and (III) above

(e)

Both (II) and (III) above.

An organization is considered to be ethical if its (a)

‘Espoused values’ are same as ‘values in practice’

(b)

‘Espoused values’ are better than ‘values in practice’

(c)

‘Values in practice’ are better than the ‘espoused values’

(d)

‘Espoused values’ are not the same as ‘values in practice’

(e)

‘Espoused values’ are not the same as ‘values in practice’ but have some overlap.

Which of the following are directive statements, which provide guidance and prohibit certain kind of conduct? (a)

Special documents

(b)

Management philosophy statement

(c)

Compliance codes

(d)

Corporate credos

(e)

Compliance certificates.

5.

6.

As per the enlightenment matrix, a company that is low in philanthropy and low in self-interest is involved in which of the following? (a)

Social responsibility

(b)

Pure philanthropy

(c)

Cause-related marketing

(d)

Enlightened self-interest

(e)

Community involvement.

Which of the following is/are roles performed by ‘purchasing managers’? I. Procuring materials at reasonably low costs. II. Passing on information regarding purchasing to other departments. III. Ensuring proper remuneration. IV. Ensuring supply of quality materials.

7.

8.

(a)

Only (I) above

(b)

Both (I) and (IV) above

(c)

Both (II) and (III) above

(d)

(I), (II) and (IV) above

(e)

All (I), (II), (III) and (IV) above.

In which of the following corporate governance models do financial institutions have a major say in governance mechanism? (a)

Anglo-American model

(b)

German model

(c)

Japanese model

(d)

Indian model

(e)

Russian model.

Which of the following practices are not necessarily illegal? I. Improper financial management. II. Insider trading. III. Money laundering. IV. Fund embezzlement. V. Management buy-out.

9.

(a)

Both (I) and (V) above

(b)

Both (II) and (III) above

(c)

Both (II) and (IV) above

(d)

(I), (II) and (V) above

(e)

(II), (III) and (IV) above.

Which of the following is/are true with respect to ‘Consequentialism?’ I. It revolves around the concept of value and maximization of that value. II. It revolves around the implications for an organization due to illegal acts. III. An act, even though it does not maximize happiness, is ethically permissible. IV. People who support it believe that the morally correct decision often depends on the circumstances of the person making it. V. Teleological theories are also called consequentialist theories.

(a)

Only (I) above

(b)

Both (I) and (V) above

(c)

Both (II) and (IV) above

(d)

(I), (III) and (V) above

(e)

(II), (III) and (IV) above.

10. Ethical dilemmas at work do not relate to which of the following aspects? (a)

Power

(b)

Trust

(c)

Confidentiality

(d)

Loyalty

(e)

Punctuality.

11. Which of the following environmental laws in India gives some protection to backwaters and estuaries? (a)

The Easement Act

(b)

The River Boards Act

(c)

Indian Fisheries Act

(d)

The Water Act

(e)

Coastal Regulation Zone Notification.

12. Which of the following ethical systems believes that moral standards are revealed in the scriptures or are apparent in nature and then interpreted by religious leaders/philosophers? (a)

Eternal law

(b)

Utilitarian theory

(c)

Universalistic theory

(d)

Distributive justice

(e)

Personal liberty.

13. Which of the following is not an unethical practice of MNCs in the area of human resource management? (a)

Refusal to recognize trade unions

(b)

Encouraging ‘brain drain’ from poorer countries

(c)

Using expatriate staff for all significant managerial positions

(d)

Not ensuring equal opportunity policies

(e)

Exploiting host country labor.

14. Which of the following is/are true with respect to norms, beliefs and values? I. II. III.

Norms, beliefs and values have the same weightage or importance at all times. Both norms and beliefs can have follow-up actions. Norms are the criteria for behavior, belief refers to the way an individual expects people to think and values are the priorities a person establishes for his or her norms.

(a)

Only (I) above

(b)

Only (II) above

(c)

Only (III) above

(d)

Both (II) and (III) above

(e)

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

15. Which of the following involves purchase of the entire equity interest in a former public corporation by a small group of investors? (a)

Exchange offers

(b)

Share repurchase

(c)

Going private

(d)

Corporate raiding

(e)

Leveraged buy-out.

16. Which of the following is true about deontological theory? (a)

It is associated with the Greek philosopher Aristotle

(b)

The duties upheld include duties to God, honoring him and praying to him

(c)

It emphasizes character development rather than articulation of abstract moral principles

(d)

It deals with facing moral controversial issues

(e)

It is the study of the origin and meaning of ethical concepts.

17. The stakeholder theory opposes the ___________ ethics mentality, which results from the business community seeing itself as doing its best to survive in a hostile environment. (a)

Bolt-on

(b)

Pro-active

(c)

Reactive

(d)

Relativism

(e)

Loyalty contract.

18. Which of the following pertains to the ‘conformance role’ of a director? (a)

It is a tricky role as it involves the director monitoring and evaluating his own performance

(b)

The director acting as a source of know-how expertise and external information

(c)

Outside directors sometimes playing the role of specialists

(d)

The outside directors representing the company on public forums or committees

(e)

The director catering to the needs of the corporation for networking, representing and adding status.

19. Which of the following is/are cyber crimes? I. Hacking. II. Unauthorized access into a network. III. Dissemination of harmful programs or viruses. IV. Software piracy.

(a)

Only (I) above

(b)

Both (I) and (II) above

(c)

Both (III) and (IV) above

(d)

(II), (III) and (IV) above

(e)

All (I), (II), (III) and (IV) above.

20. For which of the following reasons can ‘firing’ an employee be considered just/fair? (a)

Inclusion of firing ‘at will’ clause in the employment contract

(b)

Layoffs

(c)

Downsizing

(d)

Rightsizing

(e)

Act of sabotage by an employee.

21. Various factors/principles are involved in ethical decision making. Which of the following factors/principles implies that a manager may adopt that decision which is beneficial to him or those affected socially, culturally, psychologically or physically by the decision? (a)

Magnitude of consequence

(b)

Probability of effect

(c)

Concentration of effect

(d)

Proximity

(e)

Time interval.

22. Which of the following statements is/are true? I. Law can be used to regulate every aspect of business. II. An activity that is legal is morally permissible. III. The law does not employ moral judgments. IV. Law is universal in nature. (a)

Only (I) above

(b)

Only (IV) above

(c)

Both (I) and (II) above

(d)

Both (II) and (III) above

(e)

(I), (II) and (IV) above.

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

Meta ethics

(b)

Normative ethics

(c)

Applied ethics

(d)

Virtue ethics

(e)

Teleological ethical theory.

24. Which of the following powers of the board of directors can be delegated to any committee of directors, managing director, the manager or any other principal officer of the company by a resolution passed at a meeting? I. Power to grant loans. II. Power to borrow money otherwise than on debentures. III. The power to fill casual vacancies in the board. IV. Power to invest funds of the company. V. Power to appoint sole selling agents. (a)

Both (I) and (III) above

(b)

Both (II) and (V) above

(c)

(I), (II) and (IV) above

(d)

(I), (III) and (V) above

(e)

(II), (IV) and (V) above.

25. The first cyber law passed in India in order to curb growing unethical practices in the field of information technology (IT) is (a)

Cyber law

(b)

Anti hacking law

(c)

The ITR Act

(d)

Information Technology Act

(e)

E-commerce law.

26. Which of the following statements is/are true with respect to poison pills? I.

The company under target changes the ‘articles of association’ so that a group of shareholders have special rights, which are evoked by a shareholder. II. It is used by a company to make a takeover prohibitively expensive for bidders. III. They are prohibited in Britain. (a)

Only (I) above

(b)

Only (II) above

(c)

Only (III) above

(d)

Both (I) and (II) above

(e)

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

27. In the field of marketing research, which of the following is/are ethical issues/rights pertaining to the ‘research profession’? I. Certification. II. Use of accepted research procedures. III. Protection against misleading presentation of data. IV. Protection against improper solicitation of proposals. (a)

Only (II) above

(b)

Both (I) and (II) above

(c)

Both (III) and (IV) above

(d)

(I), (II) and (IV)

(e)

(I), (III) and (IV) above.

28. As per analysis by Hellriegel, Slocum and Woodman, which of the following principles implies that managers are trained to automatically think about the company first, rather than their own personal needs? (a)

Professional ethics principle

(b)

Intuition principle

(c)

Utilitarian principle

(d) (e)

Organizational ethics principle Distributive justice principle.

29. Which of the following is/are rights that a corporation enjoys as a legal personality? I. Making donations to political parties. II. Owning property. III. In case of bankruptcy, members of the corporation are not held liable individually. IV. The board of directors is empowered to plan the company’s overall direction. (a) (b) (c) (d) (e)

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

30. Which of the following is not a characteristic of the Indian model of corporate governance? (a) (b) (c) (d) (e)

Corporations can be grouped as private companies, public companies, banks and others In case of public enterprises, the central and state governments choose the members of the board In case of public enterprises, stakeholders are given low priority It is a mix of the Anglo-American and Russian models of corporate governance The founder and his family closely hold private companies and exercise maximum control over the activities.

END OF SECTION A

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

This section consists of questions with serial number 1 – 6. 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.

Assume that the board decided to continue selling to the pacemaker company. What are the factors that would have driven them to make such a decision? Can they balance their business goals with their virtues? Explain.

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(7 marks) 2.

Deciding whether or not to continue to sell was a strategic decision for the transistor company. Explain (i)

The ethical decision-making model/process.

(ii)

The principles underlying an ethical approach to management.

< Answer >

(5 + 5 = 10 marks) The heart pacemaker is a modern wonder. The device has a timer that resets itself every time the patient's heart beats. If the heart does not beat on schedule (say, within 1.2 seconds), the pacemaker gives a stimulus that causes a heartbeat. But the technology was not always so sophisticated, and had many limitations in its early stages. It's 1975, and you are on the board of directors of a company that makes transistors. Among the many companies with whom you have a contract is one that makes heart pacemakers. Pacemaker technology is in its infancy. When doctors implant a pacemaker, the patient's normal heartbeat is disabled, and he or she relies entirely on the device. If it fails, the patient's heart stops. Doctors are not very adept at installing the pacemakers, which are extremely delicate; there is even a story of a person yawning deeply, pulling the pacemaker wire in his chest, and dying. After that and many similar incidents, the board begins to reconsider whether your company should sell to the pacemaker company. Members of the board feel this situation is a major lawsuit just waiting to happen and your company, as well as the company you supply, will be liable. In addition, you feel the specs the pacemaker company uses to test the transistors are not very strong. You and the board decide to get out of the business before it's too late. You tell the pacemaker company representatives about your conclusion, and they respond, "You can't stop selling us the transistors. You are the sole remaining supplier for us. Everyone else has backed out for the same reasons you're giving. If you don't sell us the product, we'll go out of business. Pretty soon, no one will be making heart pacemakers, and many people need them. Without the pacemaker, people don't even have a chance." You take that information back to the board. You find that people around the table have different opinions. The founders were the children of blue-collar parents. Their fathers were plumbers, electricians, and carpenters, who had passed on a core set of values to their children and who belonged to an era where there was no greed. One person says, "This is a bad deal, and it isn't our problem. We don't make enough on this sale to make the risk worthwhile." Another person says, "We don't know how other companies use the transistors we sell them; why should we be concerned about this one? What about that baby who died when the transistor in the incubator failed? We didn't know how that company was using the transistor." Another person says, "I think we're missing the real issue here. Don't we have an ethical obligation to sell the product to the pacemaker company? What will happen if we don't sell to them?" Another person says, "Give me a break. Our only obligation is to our shareholders. And how did we get so stupid that we're the last source? I'm telling you, we don't need this." In other words, legal was saying, "This is a time bomb waiting to happen. Why are we even talking about this? " Engineering was bemoaning the lack of standards for testing the electronics of pacemakers, and the majority of the Board understood that they had a problem with no easy solution. Finally, the chair of the board says, "OK. Let's make a decision." You wonder if the board can really find a way out without sacrificing business and still live out their parents’ virtues.

Caselet 2 Read the caselet carefully and answer the following questions: 3.

What are the factors that pose ethical issues in pharma marketing? How can these issues be dealt with?

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(7 marks) 4.

Code of ethics guide the functioning of business in any industry. As per the code of ethics laid down by the American Marketing Association (i) What are the responsibilities of a marketer? (ii) What are the rights and duties of parties in the marketing exchange program? (4 + 5 = 9 marks)

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How does your medical representative present himself to the doctor? Does he promise the moon to get them to promote your products? What kind of gifts do you offer your doctors? Do you offer them medical journals, magazines and other medical literature or do you gift them Parker pens and leather planners? How do you go about marketing your products to the final consumer? Do you promote your product's features or contradict claims made by the rival brand? These questions cannot be easily answered and often companies have to rely on their own judgement for solutions. "Currently, the regulatory authority in our country has controls in place in the areas of compliance of labels, formulations, packaging and distribution of the medicinal products. There is no law that regulates Direct to Consumer (DTC) advertisements or marketing to doctors via different media," reveals Dr Swashraya Shah, Vice President, Medical & Regulatory Affairs of the Bangalore-based AstraZeneca Pharma India. There is a provision under The Drugs & Magic Remedies (Objectionable Advertisements) Act, 1954, that caters to the marketing aspect of various drugs. The Act refers to drug advertising in certain cases and prohibits the advertisement of certain remedies alleged to possess magic qualities. An area that requires specific regulatory attention is medical sales or marketing to doctors. Many leading doctors have expressed the need for a regulation that monitors pharma marketing. According to Dr. Sanjeev Mallik, President-elect, IMA Delhi, "All over the world, the relationship between pharma marketing and doctors is that of a client-provider relationship. We are dealing with an aspect of human life. Therefore it is extremely essential to ensure that there is no conflict of interest between the pharma company and the doctor. There has to be a regulatory mechanism." Many companies follow their own norms or the ones laid down by professional bodies like ‘The Organization of Pharmaceuticals Producers of India (OPPI).’ “We have asked the government to come up with formal guidelines. They can form a part of a separate schedule in the Drugs Act. For instance, we have Scheduled M that gives guidelines for Good Manufacturing Practices. Similarly, the government can consider the OPPI code as a guideline or a base to frame their own regulations that can form part of the Drugs Act,” says Dr Ajit Dangi, Director General, OPPI. The organization has a mechanism to address complaints of violation of this unofficial code. As far as marketing to doctors is concerned, it is important that companies train medical representatives in such a way that they can present accurate information to the doctors, in terms of dosage, efficacy and safety of the product. Medical representatives should be trained to highlight product features without making false claims. While promoting a prescription drug to a consumer directly, companies should restrict themselves to building awareness about a particular ailment or disease and inform the consumer that a solution is available and he should consult the physician. This is a basic tenet that can be adopted by various marketers across the country. Companies like AstraZeneca and Cadila Pharmaceuticals undertake rigorous training programs to train their representatives as they are the ones who eventually make or break the image of a pharmaceutical company in the eyes of a doctor. "We regularly undertake training on sales and marketing practices for all employees who are in contact with health professionals and personnel who are responsible for the production of materials or activities," says Shah. Associations like the IMA and OPPI are ready to offer their services to and partner with the government to formulate such a code. IMA is also looking at partnering with various industrial bodies to sort issues like pricing of drugs and marketing of drugs to consumers as well as doctors. In fact, IMA has come up with a document that deals with ethical aspects of pharma marketing and has also submitted it to the Government of India, with a view to get the government to include relevant parts of it as a law. Thus as the industry is ready to partner with the government in drafting the mandatory code, it is now up to the government to take the necessary initiatives to set things in motion. In the meantime, the industry is conducting events on its own to spread the faith. Dangi says, "In the post-IPR era consultative selling will become important. The area of consultative marketing will focus on intensive training for the sales personnel as well as the medical professional." For instance, OPPI has organized various conferences and seminars, in association with McKinsey, AstraZeneca, and Sudler & Hennessey, a healthcare communication agency. These events were aimed at developing skills and strategies for marketing original research molecules, and training Medical Directors and Marketing Directors in responsible and ethical marketing. As government and industry join hands over good marketing practices, one can look forward to a favorable competitive environment in the pharma industry.

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

Employees are key internal stakeholders for a company. Explain the importance of employees and the responsibilities of employers towards employees. In what sense has Standard Chartered bank fulfilled its responsibilities towards its employees?

5.

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(9 marks) What are the various tasks an organization should perform in society? Which task/s can Standard Chartered’s initiatives be classified as?

6.

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(8 marks) As part of Group's commitment to employee well being, and as the first internal initiative for Believing in Life - Standard Chartered's global community program - Living with HIV was launched in India in 2003. This program is an extension of the Staying Alive HIV/AIDs education program which was successfully rolled out in Africa in 2000. This pandemic is not confined to Africa and the bank believes that it has a duty to educate all of its staff globally. This program will place the Group at the forefront of corporate employee health education and as a leader in tackling the global problems associated with HIV/AIDs. Officially launched by John Kivits in October 2002 at the World Economic Forum in Kuala Lumpur, Living with HIV was introduced to over 29,000 employees across 55 countries. The program utilizes Staff Champions with a passion for the subject. Champions were asked to volunteer and were selected by the Country CEO's to be trained at regional conferences/workshops. Cultural differences and sensitivities were taken into account while conducting these training programs. Champions were then asked to prepare training programs in-country and work out plans towards their responsibility for educating staff in their own country about HIV/AIDS with the support of their MANCOMS. The 'Living with HIV' program is based on peer to peer communication. The bank acknowledges that HIV/AIDs is a complex issue and has not been accepted or recognized by some of the governments and societies in which it operates. However, it believes it has a duty to care for its employees and as an internal program; Living with HIV is likely to be praised rather than criticized. The roll out of Living with HIV has demonstrated the bank’s values of being courageous and of using its international status to ensure that it is all prepared for the future. Specifically, the 2003 program dealt with: •

Introducing the Group's policy on HIV/AIDS

•

Creating awareness of the size and impact of the problem

•

Educating the staff to minimize and control the problem

•

Providing information and local support facilities for staff and their families

•

Providing opportunities to promote Living with HIV to governments, customers and communities

Post, the Champions workshop in Mumbai, in April 2003, the program commenced in a phased manner across the country on 19 may 2003 in Chennai, where the India local champions and external facilitators trained 24 additional champions. This initiative was further fuelled in other cities, which kicked off in June 2003. From smaller cities like Bhopal, Jalandhar to major cities like Delhi and Mumbai, almost all staff and participants of the workshop were excited to be part of this great initiative. Through the year 2003, all staff in India across 69 offices in the country were taken through these workshops. Champions created a detailed presentation adapting, localizing and sensitizing the details to the country statistics. The last leg of the India program was completed by 30 November 2003. The target was to get all employees educated by 1 December 2003, World Aids Day. More than 5930 employees were covered in 223 workshops conducted across India achieved through the dedicated efforts of our champions who spread their energy and enthusiasm to all participants. "This training has united all of us against one cause", says Chandini Lamba, one of the champions who conducted several workshops in the Western Cities of India.

END OF SECTION B

Section C : Applied Theory (20 Marks) •

This section consists of questions with serial number 7 - 8.

• • •

7.

Answer all questions. Marks are indicated against each question. Do not spend more than 25 -30 minutes on section C.

The importance of ethics in business has grown manifold. There are many theories that guide the study of business ethics. Explain the elements of the ‘Integrative Social Contract Theory’ proposed by Thomas Donaldson and Thomas Dunfee.

< Answer >

(10 marks) 8.

The purpose of a ‘corporation’ is to perform a wide range of activities, including production of various essential goods and services. In the context of the purpose of a corporation, explain the various activities of a ‘Corporation’. (10 marks) END OF SECTION C END OF QUESTION PAPER

Suggested Answers Business Ethics & Corporate Governance (MB321) : July 2006 Section A : Basic Concepts 1.

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< Answer : (e) TOP Reason: In a two-tier structure, the board is divided into the non> executive supervisory board and the executive management board. Hence option (e) is not a feature of the all executive board. < Answer : (c) TOP Reason: Statement (III) – ethical behavior and business should be > combined in a new area called business ethics is true about the ‘integration view’ of ethics. Statement (I) – business is a part of moral structure and moral ethics is a part of unitarian view of ethics. Statement (II) – business should focus on profits and social problems should be tackled by the government and concerned individuals is true about the separatist view of ethics. < Answer : (a) TOP Reason : Espoused values refer to a company’s statements credos and > code of ethics. They describe the organizations purpose and ethical perspective. An organization is considered to be ethical if its ‘Espoused values are same the ‘Values in the practice’. < Answer : (c) TOP Reason: Compliance codes are directive statements, which provide > guidance and prohibit certain kind of conduct. < Answer : (d) TOP Reason: As per the enlightenment matrix, a company that is low in > philanthropy and low in self-interest is involved in enlightened self-interest.

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enlightened self-interest. Answer : (d) Reason: The following are roles performed by ‘purchasing managers’ I. Procuring materials at reasonably low costs. II. Passing on information regarding purchasing to other departments. IV. Ensuring supply of quality materials. Statement (III) – ensuring proper remuneration – is a role played by the human resources function. Answer : (c) Reason : In the Japanese model of corporate governance, the financial institutions have a major say in the governance mechanism. The shareholders, along with the banks, appoint the members on the board. In this model even the president is appointed on the basis of a consensus between the shareholders and the banks. Answer : (a) Reason: Improper financial management and management buy-out include offenses that are unethical, but not always illegal. Answer : (b) Reason: Statements (I), which deals with two central ideas – the concept of value and the maximization of that value is true about consequentialism. Statement (V) is also true about consequentialism. Statement (II) is not relevant to this theory. Statement (III) is false as an act which does not maximize happiness is not ethically permissible. Statement (IV) relates to ethical subjectivism, therfore is not true about consequentialism. Answer : (e) Reason: Ethical dilemmas at work relate to the following aspects: (i) Power (ii) Trust (iii) Confidentiality (iv) Loyalty Therefore, option (e) is the answer. Answer : (e) Reason: The Coastal Regulation Zone Notification gives some protection to backwaters and estuaries. Answer : (a) Reason: As per the eternal law moral standards are revealed in the scriptures or are apparent in nature and then interpreted by religious leaders/philosophers. Answer : (b) Reason: Encouraging ‘brain drain’ from poorer countries is an unethical practice related to technology. Answer : (c) Reason: Statement (III) Norms are the criteria for behavior, belief refers to the way an individual expects people to think and values are the priorities a person establishes for his or her norms is true. Statement (I) is not true as norms, beliefs and values do not have the same weightage or importance at all times Statement (II) isnot true as beliefs do not have any follow-up actions and hence are diferent from norms.

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Going private involves purchase of the entire equity interest in a former public corporation by a small group of investors. (b) 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. (a) The stakeholder theory opposes the bolt-on ethics mentality, which results from the business community seeing itself as doing its best to survive in a hostile environment. (a) The conformance role is a tricky role as it involves the director monitoring and evaluating his own performance. (e) The following are cyber crimes: I. Hacking. II. Unauthorized access into a network. III. Dissemination of harmful programs or viruses. IV. Software piracy. Therefore, option (e) is the answer. (e) When an employee is fired for an act of sabotage ‘firing’ can be considered just/fair. (d) Proximity implies that a manager may adopt that decision which is beneficial to him or those affected socially, culturally, psychologically or physically by the decision. (b) The statement (IV) ‘law is universal in nature’ is true. The term universal implies being applicable to all. The requirement how to act or not to act in a given situation has to be universal, as law is applicable to every one who faces similar circumstances. Statement (I) is not true as some aspects of business are better regulated through custom than through law. Statement (II) is not true because not all legal actions are morally appropriate. Since the law uses moral terms like ‘good faith’ law does employ moral judgements. Therefore, statement (III) is also not true. (c) 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

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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. < (c) TOP The following powers of the board of directors can be > delegated to any committee of directors, managing director, the manager or any other principal officer of the company by a resolution passed at a meeting: I. Power to grant loans. II. Power to borrow money otherwise than on debentures. IV. Power to invest funds of the company. < (d) TOP The first cyber law passed in India in order to curb growing > unethical practices in the field of IT is the Information Technology Act, 2000. < (e) TOP All the three statements are true with respect to poison pills. >

24.

Answer : Reason:

25.

Answer : Reason :

26.

Answer : Reason:

27.

Answer : (b)

28.

29.

30.

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Reason: The following are rights/issues pertaining to the research profession: I. Certification. II. Use of accepted research procedures. Statement (III) – protection against misleading presentation of data – is a right/isseus pertaining to the client. Statement (IV) – protection against improper solicitation of proposals – is a right/isseus pertaining to the researching firm < Answer : (d) TOP Reason: The organizational ethics principle implies that managers are > trained to automatically think about the company first, rather than their own personal needs. < Answer : (b) TOP

> Reason: The following are rights that a corporation enjoys as a legal personality: I. Making donations to political parties. II. Owning property. Statement (III) – in case of bankruptcy, members of the corporation are not held liable individually – relates to a corporation’s characteristic of limited liability. Statement (IV) – the board of directors is empowered to plan the company’s overall direction – relates to a corporation’s characteristic of centralized management. < Answer : (d) TOP Reason: The Indian model of corporate governance is a mix of the > Anglo-American and German models of corporate governance. Therefore, option (d) is not true and is the answer.

Section B : Caselets 1.

The members of the board took seriously their responsibility and duty to protect the rights of people who needed pacemakers at the same time as they balanced their fiduciary responsibility to the current company. This sense of responsibility stemmed from the fact that they inherited a core set of values from their fathers who were the founders of the company. They understood that "doing the right thing" did not have to be stupid, and that they could both do the right thing and do well for the company ("DO RIGHT" AND "DO WELL," rather than having to choose one or the other.) So, they continued to sell to the pacemaker company. They should also have instructed their engineers to develop more rigorous testing and technical standards they could hold the other company to. They could reserve the right to stop selling if the other company did not improve its technical standards. They should have taken steps to be sure they did not have a legal liability down the line and then turned it over to the other company to improve the quality of its products. In these ways they would reduce harms and maximize utility. It would be fair to single out the industry because it was new and standards were developing, an equal way of treating start-up industries. They should have shown compassion without sacrificing business, and thereby live out their parents' other virtues. In this way they would serve the common good, protecting people's rights to a promising new medical technology, the pacemaker.

2.


Ethical Model Making Decision Businesses are characterized as complex and ambiguous. In spite of such complexities, managers have to strike a balance between right and wrong decisions and identify the right course of action. At this stage, most organizations make use of an ethical decision-making model, which provides a framework for tackling ethical issues. The ethical decision making model is not a substitute for moral or business leadership; only guides managers in making ethical decisions. It helps managers to identify the business problems and helps them to work out the best way of resolving these problems. The ethical decision-making recommends a four step: • • • •

Evaluating the decision Judging the decision Establishing a moral intent Engaging in ethical behavior

The first step is to identify the stakeholders who will be affected by the decision. Managers need to determine whether the proposed decision will violate the fundamental rights of its shareholders. The second step is to judge the decision on the basis of certain moral principles. This implies, the principles stated in the mission statements and moral principles of the company forms the basis for the judgment. The third step is establishing the moral intent. This implies that the organization must prioritize those activities, which arc aimed at resolving moral concerns. While resolving the moral concerns, organizations should ensure the involvement of top and middle management. Because, the involvement of only top-level managers tend to narrow down the 'economic interest' of the shareholders. The fourth step is to ensure that all participants engage in ethical behavior. If an organization wants to behave in ethical manner, then it should be directed to behave it so. Usually corporate code guides the employees to behave in an ethical manner.
Principles Underlying Ethical Approach Strategic Management There are three principles for efhica1 approach to strategic management. They are: Stakeholder Theory, Strategy and Ethics The stakeholder theory is rooted in the belief that business is an activity of society, and hence business has responsibilities to a much wider range of stakeholders than merely its shareholders, directors, and creditors. The stakeholder theory opposes a 'bolt-on' ethics mentality, which stems from the fact that the business community sees itself as doing its best to survive in a hostile environment. With this kind of an attitude business strategy becomes merely a matter of reaching to internal and external threats. In such a situation, ethically correct decisions are acceptable only when they make good sense.

Loyalty and Psychological Contract The relationship between employer and employee based on a 'psychological contract'. The employees' loyalty to the organization is a key element of this contract. Employees have certain expectations about how they will be treated, and in turn, are willing to make certain sacrifices for the organization. Every strategic change calls for some sacrifice by the employees. A successful strategic change requires the commitment of all the organization members; The ethical issue here is that efforts must be made to convince people that the change is legitimate. Employees will continue to remain loyal to the organization only if they are sure that their psychological contract with the firm is not undermined. Cultural Relativism There are no worldwide standards for the conduct of business, Cultural norms and values vary within the country and also between countries, What is considered as unlawful in one country may be considered a normal business practice in some other country. Differences in culture often pose problems for firms that operate in foreign countries. One way of dealing with this problem is to adopt cultural relativism. The term cultural relativism implies, adopting the norms of the country, in which an organization operates its business. 3.


The factors that pose ethical issues in pharma marketing are: In order to promote drugs sales representatives offer gifts to doctors, gift them Parker pens and leather planners etc. • In marketing products to the final consumer marketers go to the extent of making false claims and contradict claims made by the rival brands • There is no law that regulates Direct to Consumer (DTC) advertisements or marketing to doctors via different media. All over the world, the relationship between pharma marketing and doctors is that of a client-provider relationship. It is the question of human life. Therefore it is extremely essential to ensure that there is no conflict of interest between the pharma company and the doctor. However, in the absence of regulatory mechanism there is nothing curbing faulty marketing claims in pharma marketing. •


These issues are being dealt with in the following ways: Many companies follow their own norms or the ones laid down by professional bodies like ‘The Organization of Pharmaceuticals Producers of India (OPPI). • As far as marketing to doctors is concerned, it is important that companies train medical representatives in such a way that they can present accurate information to the doctors, in terms of dosage, efficacy and safety of the product. Medical representatives should be trained to highlight product features without making false claims. While promoting a prescription drug to a consumer directly, companies should restrict themselves to building awareness about a particular ailment or disease and inform the consumer that a solution is available and he should consult the physician. This is a basic tenet that can be adopted by various marketers across the country. Companies like Astra-Zeneca and Cadila Pharmaceuticals undertake rigorous training programs to train their representatives. • Associations like the IMA and OPPI are ready to offer their services to and partner with the government to formulate regulatory codes. • OPPI has organized various conferences and seminars, in association with McKinsey, Astra-Zeneca, and Sudler & Hennessey, a healthcare communication agency. These events were aimed at developing skills and strategies for marketing original research molecules, and training Medical Directors and Marketing Directors in responsible and ethical marketing. •

4.

As per the code of ethics laid down by the American Markegin Association: (i) The following are the responsibilities of a marketer Marketer’s Professional Conduct must be guided by: • The basic rule of professional ethics: not knowingly to do harm • The adherence to all applicable laws and regulations • The accurate representation of marketers education, training and experience • The active support, practice and promotion of this Code of Ethics (ii) Rights and duties of parties in the Marketing Exchange Process are: Participants in the marketing exchange process should be able to expect that products and services offered are sare and fit for their intended uses, communications about offered products and services are not deceptive, all parties intend to discharge their obligations, financial and otherwise, in good faith. The associate drights and

parties intend to discharge their obligations, financial and otherwise, in good faith. The associate drights and duties are as follows: •

•

•

• •

5.

In the area of product development and management: disclosure of all substantial risks associated with product or service usage; identification of any product component substitution that might materially change the product or impact on the buyer;s purchase decision; identification of extra cost-added features. In the area of promotion: avoidance of false and misleading advertising; rejection of high pressure manipulations, or misleading sales tactics; avoidance of sales promotions that use deception or manipulation. In the are of distribution: not manipulating the availability of a product for the purpose of exploitation; not using coercion in the marketing channel; not exerting undue influence over the reseller’s choice to handle a product. In the area of pricing: not engaging in price fixing; not practicing predatory pricing; disclosing the full price associated with any purchase. In the area of marketing research: prohibiting selling or fund raising under the guise of conducting research; maintaining research integrity by avoiding misrepresentation and omission of pertinent research data; treating outside clients and suppliers fairly.

A legal contract of employment governs the relationship between the organisation and the employee. This relationship is considered to be important by society, because employees contribute their efforts and time towards the development of the organisation, which in turn improves society. The employment contract places certain responsibilities towards their employees. In return for their work employees expect wages, benefits and security. And it is the responsibility of the organisation to meet their expectations. Some specific responsibilities of organisations towards their employees are: To provide adequate compensation. To provide working conditions that respect each employee's health and dignity To be honest in communications with employees and open in sharing information. To listen to and, where possible, act on employee suggestions, ideas, requests, and complaints To engage in negotiations when conflict arises To avoid discriminatory practices and guarantee equal treatment arid opportunity regardless of gender, age, race, and religion • To protect employees from avoidable injury and illness in the workplace • To encourage and assist employees in developing skills and knowledge that are required for accomplishing the task .

• • • • • •

A key point that can be made in this information driven world is that with knowledge rather the effort being the main currency of business, it is the people (employees) who work in the organisation and their skills and knowledge really count. Therefore, treating employees badly will inevitably hurt the companies in the long run. Standard Chartered’s ‘Living with HIV’ program placed the Group at the forefront of corporate employee health education and as a leader in tackling the global problems associated with HIV/AIDs. The 'Living with HIV' program is based on peer to peer communication. The bank acknowledges that HIV/AIDs is a complex issue and has not been accepted or recognized by some of the governments and societies in which it operates. However, it believes it has a duty to care for its employees and as an internal program, The roll out of Living with HIV has demonstrated the bank’s values of being courageous and of using its international status to ensure that it is all prepared for the future. Specifically, the 2003 program dealt with: • • • • • 6.

Introducing the Group's policy on HIV/AIDS Creating awareness of the size and impact of the problem Educating the staff to minimize and control the problem Providing information and local support facilities for staff and their families Providing opportunities to promote Living with HIV to governments, customers and communities

Present day businesses are expected to shoulder much more social responsibility. As a result, organizations have evolved overtime to perform a number of functions or tasks in society. These tasks include: Financial tasks: With the rise of corporations and establishment of joint stock corporations, companies have realized the need to assure shareholders that they are acting in their interests. The auditing profession adopted the generally accepted accounting principles; likewise stock exchanges have established the rules and regulations for governing the functioning and trading of shares. These rules and regulations help investors to

regulations for governing the functioning and trading of shares. These rules and regulations help investors to invest their savings with confidence. Economic and production tasks: All the tasks that are related to the creation and maintenance of wealth are referred to as economic and production tasks. They include production and manufacture of goods and services, distribution of the goods, and the identification of new products. Manufacturers, distributors, retailers, service providers and all business that make up the commercial world are associated with the economic and production tasks. Maintenance tasks: These tasks help in ensuring the normal flow of communication in society. Activities that help shape the society and culture by transmitting knowledge fall into this category. The best examples of such activities are educational, religious, and health and welfare service. These institutions are helpful in transmitting information to society, communicating knowledge and shaping the culture of the society Adaptive tasks: The task by which a society responds to change is referred to as the adaptive function. It also means the way organizations adapt to the changes in the society. Organizations respond to these changes by stepping up their R&D activities. Organizations create products that are useful for society and these products are designed in accordance with changes in consumer preferences. Managerial or political tasks Social tasks: Corporations are expected to (l) support and promote human rights (2) not to suppress basic freedom of speech, association, etc. Political responsibility is a difficult task to perform in comparison to financial, social, and environmental where human rights are respected and freedom of speech is allowed. In some countries, businesses encounter problems because of the violation of human rights. Since the primary responsibility of any business is to operate efficiently, respecting the interests of the stakeholders, it should now become more proactive in seeking solutions to global problems and in developing the necessary increased cooperation with governments and other institutions. Companies can achieve if they uphold local laws in which their business is operating. A business must frame policies that are towards corporate social responsibility and these should be made available to all the stakeholders of the organization. It is often seen that the list of companies that exploit labor, cause environmental destruction and ride roughshod over human rights (often with the complicity of Various governments) is immense. Environmental task: Environmental laws and agencies are necessary to curb certain unethical practices. Most companies have now established regulations to limit pollution by their factories. These are essential to prove a company's commitment corporate social responsibility. Companies should adopt self-regulations so that a business operates with corporate responsibility. .Most of the industry associations have also established environmental codes of conduct. Companies have to develop detailed guidelines policies to govern their activities and behaviors. These standards have to be become a part of a company's everyday practice. Environmentally responsible businesses, Non-profit organizations and activists have joined hands to create voluntary codes of conduct or principles that businesses can adopt. Social Responsibility: A corporation is said to be socially responsible if its treatment of employees, customers, suppliers and community is unbiased. For example in employee relations, a corporation is said to be socially responsible if it does not discriminate against women, minority groups and' the disabled and adopts policies that ensure, equitable treatment of the employees. And by getting involved in community building activities like providing healthcare, promoting education or civic amenities it company shows that it is a socially responsible corporation. Providing employees with a healthy and safe working environment also demonstrates a company's commitment to social responsibility. Companies that have established regulations limiting pollution and voluntary codes of conduct have always been recognized internationally. International institutions have also been playing a crucial role in promoting socially responsible corporation. Standard Chartered can be said to have involved in the social tasks as it has enhanced employee health education. And also put in place policy with respect to awareness of AIDS. Further it has taken up extensive program with the participation of employees for the spread of AIDS awareness and dealing with the disease.

Section C: Applied Theory 7.

Integrative Social Contract Theory Thomas Donaldson and Thomas Dunfee proposed the Integrative Social Contract Theory. A social contract is an informal agreement concerning behavioral norms that are developed from shared goals, beliefs and attitudes of groups of people or communities. Donaldson held that 'business organizations gain legitimacy through a social contract with society. According to Donaldson, a productive organization is one, which ensures customer satisfaction and protects the interests of its workers, and thereby enhances the welfare of the society of which it is a part. He argues that social contract can be used as a tool to measure the performance of productive organizations. If the

social contract can be used as a tool to measure the performance of productive organizations. If the organization fulfills the terms of the contract, it has performed well. If it does not, then society is morally justified in condemning it. The main elements of the Social Contract Theory are • • •

Hypernorms Macro social contract Micro social contract

Hypernorms Hypenorms are universal norms that apply equally to all individuals. These include • Basic human rights, including right to personal freedom, physical security and well-being, political participation, informed consent, ownership of property and the right to subsistence . • The duty to respect the dignity of every human being. Macro Social Contract Macro social contracts provide global norms. Some of the terms of macro social contract are as follows: • Local communities must be allowed 'moral free space’ to spell out obligatory ethical norms for their members; • The macro social contract must be based on the free consent of the parties involved, all of whom have the right to exit when they please; • All macro social contracts must be compatible with hypernorms; • If conflict arises among various micro social contracts, these must be resolved through priority rules that are compatible with the three principles listed above. Micro Social Contract Micro social norms are developed for a community, a group and organization. Cc nll11unities may be economic or social. A firm or an industry and non-profit and service organizations are all communities. The norms of a macro social contract must not violate hypernorms. If there is a conflict of norms when the members of one community decide to do business in another community, a set of priority rules must be used to detern1ine which norm must be honored. The following are the priority rules, proposed by Donaldson and Dunfee: The host community's norms should govern all transactions within that particular community as long as they do not have significant adverse effects on individuals or communities. Community norms for resolving priority should be applied, as long as they do not have significant adverse effects on other individuals or communities. The more extensive or global community norm is, the greater the priority that should be given to its norms. Norms that help preserve the economic environment in which the transactions occur, should have priority over norms that could damage the economic environment. 8.

Purpose of a Corporation Corporations perform a wide array of activities, ranging from production of various types of goods and services that are essential for leading a normal life. Corporations serve to fulfill a number of purposes. In essence, corporations, to a very large extent determine the quality of life. Some of the activities of corporations are given below. Human Satisfaction: Business corporations help human beings satisfy their basic needs of security, success and fulfillment. Corporations enable individuals to market their skills and experience and get due rewards. In a corporate environment, ambitious individuals can achieve, enterprising individuals can prosper, and ingenious individuals can enrich themselves. A well-designed corporation enables individuals to create more wealth. Social Structure: Social structures were created in primitive days, to develop cooperation and specialization. But there was no clear financial goal behind these structures. For example, western man was organized under the single church, during the Dark and the, Middle Ages. Toward the end of the medieval era, signs of the "church triumphant" system abounded. Subsequently, many important events took place. Henry VIII clearly demonstrated the supremacy of civil authority over religion by appointing himself the head of the "Church of England. Until the end of World War I, the west was dominated by a civil order that was based on hereditary rulers. The end of World War I saw a gradual shift' in power from hereditary rulers to a new social structure i.e. the corporation. Corporations were able to produce goods and services desired by the citizens backed by purchasing power.

Efficiency and Efficacy: The quality of work put in by corporations for achieving their objectives determines their efficiency and efficacy. Efficiency is the productivity of person which is achieved with minimum effort. Efficacy implies the ability to produce the desired result. Thus, efficiency and efficacy are associated with words like "professional", "enterprise", and "business like." It has now become inevitable to follow a corporate structure, in order to fulfill the needs of society. Thus, governments emphasize on special purpose of corporations for achieving a particular objective. For example, in 1980 the United States Synthetic Fuels Corporation was created by the US Congress to assure better control by America of its fuel needs. The US Congress also tried to use private sector personnel to solve a public problem. Ubiquity and Flexibility: Corporations provide flexibility to individuals enabling them to perform better, as they do not maintain limit in time or space. Corporations are perpetual entities and can carry out their business activities anywhere in the world. Corporations are also movable, and with a revision of legal or financial structures, they can be transformed. The place of incorporation can also be changed nearer to other existing business locations and new businesses can be opened without rea1l ting the capital amount. Unlike individuals, corporations cannot be jailed, though they may be fined. Effectively, such aberrations are transferred to society. As corporations are considered to be a major source of employment, they command respect in the competitive world Identity: Corporations are living entities, exercising rights and powers like normal citizens. As “persons", corporations are given protection for the safety of their property. They can also contribute money to political parties. Corporations also playa crucial role in deliberations leading to the enactment of various laws. < TOP OF THE DOCUMENT >