BGS Module 1-7

GCEM

Business, Government & Society 14MBA24

Mr. SRINIVAS S, Assistant Professor, Department of MBA

2016

GOPALAN COLLEGE OF ENGINEERING MANAGEMENT

AND

Business, Government & Society

14MBA24

BUSINESS, GOVERNMENT AND SOCIETY

Subject Code : 14MBA24 No. of Lecture Hours / Week : 04 Total Number of Lecture Hours : 56 Practical Component : 01 Hour / Week

IA Marks : 50 Exam Hours : 03 Exam Marks : 100

Objectives: • To enable students to understand the challenges and complexities faced by businesses and their leaders as they endeavor maximize returns while responsibl y managing their duties to stakeholders and society. • To help students to understand the rationale for government interventions in market systems. • To help students develop an understanding of Social Responsibility and make their own judgments as t o the proper balance of attention to multiple bottom lines. • To help students develop the skills needed to work through ethical dilemmas Module 1: (8 Hours) Managers – Models Models of The Study of Business, Government and Society (BGS): Importance of BGS to Managers – BGS relationships – Market Capitalism Model, Dominance Model, Countervailing Forces Model and Stakeholder Model – Model – Global Global perspective – perspective – Historical Historical Perspective. Module 2: (8 Hours) Corporate Governance: Introduction, Definition, Market model and control model, OECD on corporate governance, A historical perspective of corporate governance, Issues in corporate governance, relevance of corporate governance, need and importance of corporate governance, benefits of good corporate governance, the concept of corporate, the concept of governance, theoretical basis for corporate governance, obligation to society, obligation to investors, obligation to employees, obligation to customers, managerial obligation, Indian cases Module 3: (4 Hours) Public Policies: The role of public policies in governing business, Government and public policy, classification of public policy, areas of public policy, need for public policy in business and levels of public policy. Module 4: (8 Hours) Environmental concerns and corporations: History of environmentalism, environmental preservationrole of stakeholders, international issues, sustainable development, costs and benefits of environmental regulation, industrial pollution, role of corporate in environmental management, waste management and pollution control, key strategies for prevention of pollution, environmental audit, Laws governing environment. Module 5: (8 Hours) Business Ethics: Meaning of ethics, business ethics, relation between ethics and business ethics, evolution of business ethics, nature of business ethics, scope, need and purpose, importance, approaches to business ethics, sources of ethical knowledge for business roots of unethical behaviour, ethical decision making, some unethical issues, benefits from managing ethics at Workplace, ethical organizations

Department of MBA, GCEM

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14MBA24

BUSINESS, GOVERNMENT AND SOCIETY

Subject Code : 14MBA24 No. of Lecture Hours / Week : 04 Total Number of Lecture Hours : 56 Practical Component : 01 Hour / Week

IA Marks : 50 Exam Hours : 03 Exam Marks : 100

Objectives: • To enable students to understand the challenges and complexities faced by businesses and their leaders as they endeavor maximize returns while responsibl y managing their duties to stakeholders and society. • To help students to understand the rationale for government interventions in market systems. • To help students develop an understanding of Social Responsibility and make their own judgments as t o the proper balance of attention to multiple bottom lines. • To help students develop the skills needed to work through ethical dilemmas Module 1: (8 Hours) Managers – Models Models of The Study of Business, Government and Society (BGS): Importance of BGS to Managers – BGS relationships – Market Capitalism Model, Dominance Model, Countervailing Forces Model and Stakeholder Model – Model – Global Global perspective – perspective – Historical Historical Perspective. Module 2: (8 Hours) Corporate Governance: Introduction, Definition, Market model and control model, OECD on corporate governance, A historical perspective of corporate governance, Issues in corporate governance, relevance of corporate governance, need and importance of corporate governance, benefits of good corporate governance, the concept of corporate, the concept of governance, theoretical basis for corporate governance, obligation to society, obligation to investors, obligation to employees, obligation to customers, managerial obligation, Indian cases Module 3: (4 Hours) Public Policies: The role of public policies in governing business, Government and public policy, classification of public policy, areas of public policy, need for public policy in business and levels of public policy. Module 4: (8 Hours) Environmental concerns and corporations: History of environmentalism, environmental preservationrole of stakeholders, international issues, sustainable development, costs and benefits of environmental regulation, industrial pollution, role of corporate in environmental management, waste management and pollution control, key strategies for prevention of pollution, environmental audit, Laws governing environment. Module 5: (8 Hours) Business Ethics: Meaning of ethics, business ethics, relation between ethics and business ethics, evolution of business ethics, nature of business ethics, scope, need and purpose, importance, approaches to business ethics, sources of ethical knowledge for business roots of unethical behaviour, ethical decision making, some unethical issues, benefits from managing ethics at Workplace, ethical organizations


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Module 6: (6 Hours) Corporate Social Responsibility: Types and nature of social responsibilities, CSR principles and strategies, models of CSR, Best practices of CSR, Need of CSR, Arguments for and against CSR, CSR in Indian perspective, Indian examples. Module 7: (14 Hours) Business Law: Law of contract - meaning of contract, agreement, essential elements of a valid contract. Law of agency- meaning, creation and termination of agency. Bailment and Pledge - meaning, rights and duties of bailor and bailee. Sale of Goods Act 1930: Definition of Sale, Sale v/s Agreement to Sell, Goods, Condition and Warranties, Express and Implied Condition, “Doctrine of Caveat Emptor”, Right and duties of Unpaid Seller. Meaning, scope and objectives of - Intellectual property law, law relating to patents, law relating to copyrights, law relating to trade mark. Practical Components: • Students are expected to study any five CSR initiatives by Indian organizations and submit a report fo r the same. • A group assignment on “The relationship between Business, Government and Society in Indian Context and relating the same with respect t he models studied in Module 1. • Case studies/Role plays related ethical issues in business with respect to Indian to Indian context.


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MODULE 01 BUSINESS, GOVERNMENT AND SOCIETY

Th e Study of Bu sin ess, Gover nm ent and Society (BGS): I mportan ce of B GS to M anager s – M odel s of BGS relation shi ps – M arket Capitali sm M odel, D ominance Model, Coun tervail in g F orces M odel and Stakehol der M odel – Gl obal per spective – H istori cal Perspective.

Introduction to BGS Wh at i s the busin ess-gover nment-society (BGS) f i eld and wh at i s its impor tance?

In the universe of human endeavor, we can distinguish subdivisions of economic, political, and social activity — that is, business, government, and society — in every civilization throughout time. Interplay among these activities creates an environment in which businesses operate. The business – government – society (BGS) field is the study of this environment and its importance for managers. To begin, we define the basic terms. Business is a broad term encompassing a range of actions and institutions. It covers management, manufacturing, finance, trade, service, investment, and other activities. The fundamental purpose of every business is to make a profit by providing products and services that satisfy human needs. Government refers to structures and processes in societies that authoritatively make and apply policies and rules. Like business, it encompasses a wide range of activities and institutions at many levels, from international to local. The focus of this book is on the economic and regulatory powers of government as they affect business. A society is a network of human relations that includes three interacting elements: (1) Ideas, (2) institutions, and (3) material things.  I deas: or intangible objects of thought include values and ideologies. Values are enduring beliefs about which fundamental choices in personal and social life are correct. Cultural habits and norms are based on values. Ideologies — for example democracy and capitalism — are bundles of values that create a certain world view. They establish the broad goals of life by defining what is considered good, true, right, beautiful, and acceptable. Ideas shape every institution in a society.  Institutions are formal patterns of relations that link people together to accomplish a goal. They are essential to coordinate the work of individuals who have no personal relationship with each other. In modern societies, economic, political, cultural, legal, religious, military, educational, media, and familial institutions are salient. There are multiple economic institutions including financial institutions, the corporate form, and markets. Collectively, we call this business.  Material things are the tangible artifacts of a society. 

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To succeed in meetings its objectives a business must be responsive to both its economic and its noneconomic environment. Recognizing that a company operates not only within markets but within a society is critical.   A basic agreement or social contract exists between the business institution and society. Managers must respect and adhere to society’s expectations.   This contract defines the broad duties that business must perform to retain society’s support, but these duties are often ambiguous.


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FOUR MODELS OF THE BGS RELATIONSHIP Interactions among business, government, and society are infinite and their meaning is open to interpretation. Faced with this complexity, many people use simple mental models to impose order and meaning on what they observe. These models are like prisms, each having a different refractive quality, each giving the holder a different view of the world. Depending on the model (or prism) used, a person will think differently about the scope of business power in society, criteria for managerial decisions, the extent of corporate responsibility, the ethical dutie s of managers, and the need for regulation.

The following four models are basic alternatives for seeing the BGS relationship. As abstractions they oversimplify reality and magnify central issues. Each model can be both descriptive and prescriptive; that is, it can be both an explanation of how the BGS relationship does work and, in addition, an ideal about how it should work.

Market Capitalism model

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The market capitalism model depicts business as operating within a market environment, responding primarily to powerful economic forces. The market acts as a buffer between business and nonmarket forces. The market capitalism model depicts the relationship as a set of arrangements in accord with the assumptions of classical capitalism. It is assumed that social responsibility is measured primarily as economic performance that enhances social welfare.

Criticism of market capitalism model  It leads to inequalities of wealth and income.  It encourages exploitation of workers.  Capitalist nations engage in imperialism to spread markets.  Markets erode virtue.  Money and material objects get too much emphasis.  Conspiracies and monopoly appear.  It is characterized by environmental pollution and resource exploitation.


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Important assumptions of the market capitalism model:  Government interference in economic life is slight (laissez-faire).  Individuals can own private property and freely risk investments.  Consumers are informed about products and prices and make rational decisions.  Moral restraint accompanies the self-interested behavior of business.  Basic institutions such as banking and laws exist to ease commerce.  There are many producers and consumers in competitive markets. Critiques of the Market Capitalism Model:  Increased prosperity comes at the cost of increased inequality.  Results in base values being energized and virtue being eroded. The BGS relationship according to the Market Capitalism Model:  Government regulation should be limited.  Markets discipline private economic activity to promote social welfare.  The proper measure of corporate performance is profit.  The ethical duty of management is to promote the interests of shareholders.

Expl anation of market capitali sm model

The market capitalism model, shown in Figure depicts business as operating within a market environment, responding primarily to powerful economic forces. There, it is substantially sheltered from direct impact by social and political forces. The market acts as a buffer between business and non market forces. To appreciate this model, it is important to understand the history and nature of markets and the classic explanation of how they work. Markets are as old as humanity, but for most of recorded history they were a minor institution. People produced mainly for subsistence, not to trade. Then, in the 1700s, some economies began to expand and industrialize, division of labour developed within them, and people started to produce more for trade. As trade grew, the market, through its price signals, took on a more central role in directing the creation and distribution of goods. The advent of this kind of market economy, or an economy in which markets play a major role, reshaped human life. Classic explanation of how a market economy works comes from the Scottish professor of moral philosophy Adam Smith (1723 – 1790). In his extraordinary treatise, The Wealth of Nations, Smith wrote about what he called “commercial society” or what today we call capitalism. He never used that word. It was adopted later by the socialist philosopher Karl Marx (1818 – 1883), who contrived it as a term of pointed insult. But it caught on and soon lost its negative connotation. Smith said that the desire to trade for mutual advantage lay deep in human instinct. He noted that the growing division of labour in society led more people to try to satisfy their self-interests by specializing their work, then exchanging goods with each other. As they did so, the market's pricing mechanism reconciled supply and demand, and its ceaseless tendency was to make commodities cheaper, better, and more available. The beauty of this process, according to Smith, was that it coordinated the activities of strangers who, to pursue their selfish advantage, were forced to fulfill the needs of others. In Smith's words, each trader was “led by an invisible hand to promote an end which was no part of his intention,” the collective good of society. Through markets that harnessed the constant energy of greed for the public welfare, Smith believed that nations would achieve “universal opulence.” His genius was to demystify the way markets work, to frame market capitalism in moral terms, to extol its virtues, and to give it lasting justification as a source of human progress. The greater good for society came when businesses competed freely. Department of MBA, GCEM

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In Smith's day producers and sellers were individuals and small businesses managed by their owners. Later, by the late 1800s and early 1900s, throughout the industrialized world, the type of economy described by Smith had evolved into a system of managerial capitalism. In it the innumerable, small, owner-run firms that animated Smith's marketplace were overshadowed by a much smaller number of dominant corporations run by hierarchies of salaried managers. These managers had limited ownership in their companies and worked for shareholders. This form of capitalism has now spread throughout the world. Nowhere does it work exactly like Smith's theory. Nevertheless, the market capitalism model continues to exist as an ideal against which to measure practice. The model incorporates important assumptions. One is that government interference in economic life is slight. This is called laissez-faire, a term first used by the French to mean that government should “let us alone.” It stands for the belief that government intervention in the market is undesirable. It is costly because it lessens the efficiency with which free enterprise operates to benefit consumers. It is unnecessary because market forces are benevolent and, if liberated, will channel economic resources to meet society’s needs. It is for governments, not businesses, to correct social problems. Therefore, managers should define company interests narrowly, as profitability and efficiency. Another assumption is that individuals can own private property and freely risk investments. Under these circumstances, business owners are powerfully motivated to make a profit. If free competition exists, the market will hold profits to a minimum and the quality of products and services will rise as firms try to attract more buyers. If one enterprise tries to increase profits by charging higher prices, consumers will go to a competitor. If one producer makes higher-quality products, others must follow. In this way, markets convert selfish competition into broad social benefits. Other assumptions include these: Consumers are informed about products and prices and make rational decisions. Moral restraint accompanies the self-interested behavior of business. Basic institutions such as banking and laws exist to ease commerce. There are many producers and consumers in competitive markets. The perspective of the market capitalism model leads to these conclusions about the BGS relationship: Government regulation should be limited Markets discipline private economic activity to promote social welfare The proper measure of corporate performance is profit The ethical duty of management is to promote the interests of shareholders.    

These tenets of market capitalism have shaped economic values in the industrialized West and, as markets spread, they do so increasingly elsewhere. There are many critics of capitalism and the market capitalism model. As promised by its defenders, capitalism has created material progress. Yet there is trade-offs: It is argued that capitalism creates prosperity only at the cost of rising inequality. Karl Marx believed that owners of capital exploited workers and used imperialist foreign policies to spread markets. Others believe that markets erode virtue. The avarice, self-love, and ruthlessness that energize them are base values that drive out virtues such as love and friendship. Another enduring fear is that markets place too much emphasis on money and material objects. Pope John Paul II, for example, cautioned against a “domination of things over people.” Critics see these problems as inherent to markets. Still other criticisms focus on the flaws that sometimes, perhaps inevitably, appear in them. Without correction they may reward conspiracies and monopoly. Also, the profit motive has led companies to pollute and plunder the earth. All these criticisms of capitalism are pronounced today, but none are new. They represent a series of recurrent attacks that wind through the Western philosophical tradition. Adam Smith himself had some reservations and second thoughts. He feared both physical and moral decline in factory workers and the unwarranted idolization of the rich, who might have earned their wealth by unvirtuous methods. In his later years, he grew to see more need for government intervention. But Smith never envisioned a system Department of MBA, GCEM

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based solely on greed and self-interest. He expected that in society these traits must coexist with restraint and benevolence. The ageless debate over whether capitalism is the best means to human fulfillment will continue. Meanwhile, we turn our discussion to an alternative model of the BGS relationship that attracts many of capitalism's detractors.

The Dominance Model The dominance model is a second basic way of seeing the BGS relationship. It represents primarily the perspective of business critics. In it, business and government dominate the great mass of people. This idea is represented in the pyramidal, hierarchical image of society shown in Figure 1.3. Those who subscribe to the model believe that corporations and a powerful elite control a system that enriches a few at the expense of the many. Such a system is undemocratic. In democratic theory, governments and leaders represent interests expres sed by the people, who are sovereign.

Proponents of the dominance model focus on the defects and inefficiencies of capitalism. They believe that corporations are insulated from pressures holding them responsible, that regulation by a government in thrall to big business is feeble, and that market forces are inadequate to ensure ethical management. Unlike other models, the dominance model does not represent an ideal in addition to a description of how things are. For its advocates, the ideal is to turn it upside down so that the BGS relationship conforms to democratic principles. In the United States, the dominance model gained a following during the late nineteenth century when large trusts such as Standard Oil emerged, buying politicians, exploiting workers, monopolizing markets, and sharpening income inequality. Beginning in the 1870s, farmers and other critics of big business rejected the ideal of the market capitalism model and based a populist reform movement called populism on the critical view of the BGS relationship implied in the dominance model. Populism is a recurrent spectacle in which common people who feel oppressed or disadvantaged in some way seek to take power from ruling elite that thwarts fulfilment of the collective welfare. In America, the populist impulse bred a socio-political movement of economically hard-pressed farmers, miners, and workers lasting from the 1870s to the 1890s that blamed the Eastern business establishment for a range of social ills and sought to limit its power. This was an era when, for the first time, on a national scale the actions of powerful business magnates shaped the destinies of common people. Some displayed contempt for commoners. “The public Department of MBA, GCEM

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be damned,” railroad magnate William H. Vanderbilt told a reporter during an interview in his luxurious private railway car. The next day, newspapers around the country printed his remark, enraging the public. Later, Edward Harriman, the aloof, arrogant president of the Union Pacific Railroad, allegedly reassured industry leaders worried about reform legislation, saying “that ‘could buy Congress’ and that if necessary he ‘could buy the judiciary.’” It was with respect to Harriman that President Theodore Roosevelt once noted that “men of very great wealth in too many instances totally failed to understand the temper of the country and its needs. The populist movement in America ultimately fell short of reforming the BGS relationship to a democratic ideal. Other industrializing nations, notably Japan, had similar populist movements. Marxism, an ideology opposed to industrial capitalism, emerged in Europe at about the same time as these movements, and it also contained ideas resonant with the dominance model. In capitalist societies, according to Karl Marx, an owner class dominates the economy and ruling institutions. Many business critics worldwide advocated socialist reforms that, based on Marx's theory, could achieve more equitable distribution of power and wealth. In the United States the dominance model may have been most accurate in the late 1800s when it first arose to conceptualize a world of brazen corporate power and politicians who openly represented industries. However, it remains popular. Ralph Nader, for example, speaks its language. Over the past 20 years, big business has increasingly dominated our political economy. This control by corporate government over our political government is creating a widening “democracy gap.” The unconstrained behavior of big business is subordinating our democracy to the control of a corporate plutocracy that knows few self-imposed limits to the spread of its power to all sectors of our society. The Countervailing Forces Model The countervailing forces model, shown in Figure 1.4, depicts the BGS relationship as a flow of interactions among the major elements of society. It suggests complex exchanges of influence among them, attributing dominance to none. This is a model of multiple or pluralistic forces. Their strength waxes and wanes depending on factors such as the subject at issue, the power of competing interests, the intensity of feeling, and the influence of leaders. The counter- with democratic traditions. It differs from the market capitalism model, because it opens business directly to influence by non market forces. Many important interactions implied in it would be evaluated as negligible in t he dominance model.


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What overarching conclusions can be drawn from this model?

1. Business is deeply integrated into an open society and must respond to many forces, both economic and non economic It is not isolated from its social environment, nor is it always dominant. 2. Business is a major initiator of change in society through its interaction with government, its production and marketing activities, and its use of new technologies. 3. Broad public support of business depends on its adjustment to multiple social, political, and economic forces. Incorrect adjustment leads to failure. This is the social contract at work. 4. BGS relationships continuously evolve as changes take place in the main ideas, institutions, and processes of society.

The Stakeholder Model The stakeholder model in Figure 1.5 shows the corporation at the center of an array of mutual relationships with persons, groups, and entities called Stakeholders. Stakeholders are those whom the corporation benefits or burdens by its actions and those who benefit or burden the firm with their actions. A large corporation has many stakeholders. These can be divided into two categories based on the nature of the relationship. But the assignments are relative, approximate, and inexact. Depending on the corporation or the episode, a few stakeholders may shift from one category to the other.

Primary stakeholders are a small number of constituents for which the impact of the relationship is immediate, continuous, and powerful on both the firm and the constituent. They are stockholders (owners), customers, employees, communities, and governments and may, depending on the firm, include others such as suppliers or creditors. Secondary stakeholders include a possibly broad range of constituents in which the relationship involves less mutual immediacy, benefit, burden, or power to influence. Examples are activist groups, trade associations, and schools. Exponents of the stakeholder model debate how to identify who or what is a stakeholder. Some use a broad definition and include, for example, natural entities such as the earth's atmosphere, oceans, terrain, and living creatures because corporations have an impact on them. Others reject this broadening, since natural entities are represented by conventional stakeholders such as environmental groups. Some include competitors because, although they do not work to benefit The firm, they have the power to affect it. At the furthest reaches of the stakeholder idea lie groups such as the poor and future generations. But in the words of one stakeholder advocate, stakeholder theory should not be used to weave a basket big enough to hold the world's misery.” If groups such as the poor were included in the stakeholder network, managers would be morally obliged to run headlong at endless problems, taking them beyond any conceivable economic mission. The stakeholder model reorders the priorities of management away from those in the market capitalism model. There, the corporation is the private property of those who contribute its capital. Its immediate priority is to benefit one group — the investors. The stakeholder model, by contrast, is an ethical theory of management in which the welfare of ea ch stakeholder must be considered as an end.


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Stakeholder interests have intrinsic worth; they are not valued only to the extent that they enrich investors. Managers have a duty to consider the interests of multiple stakeholders, and because of this, “the interests of share owners . . . are not always primary and never exclusive.” Stakeholder management, then, creates duties toward multiple constituents of the corporation — duties not emphasized in the practice of market capitalism, which tends toward domination of the environment and enrichment of share owners Management must raise its gaze above profits to see and respond to a spectrum of other values. One group of scholars, for example, urges that corporations “should adopt processes and modes of behavior that are sensitive to the concerns and capabilities of each stakeholder constituency.” The stakeholder model is intended to redefine the corporation. It rejects the shareholder-centered view of the firm in the market capitalism model as “ethically unacceptable.” Not everyone agrees. Critics of the stakeholder model argue that it is not a realistic assessment of power relationships between the corporation and other entities.


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It seeks to give power to the powerless by replacing force with ethical duty, a timeless and often futile quest of moralists. In addition, it sets up too vague a guideline to substitute for the yardstick of profits for investors. Unlike traditional criteria such as return on capital, there is no single, clear, and objective measure to evaluate the combined ethical/economic performance of a firm. According to one critic, this lack of a criterion “would render impossible rational management decision making for there is simply no way to adjudicate between alternative projects when there is more than one bottom line.” 35 In addition, the interests of stakeholders so vary that often they conflict with shareholders and with one another. With respect to corporate actions, laws and regulations protect stakeholder interests. Creating surplus ethical sensitivity that soars above legal duty is impractical and unnecessary. Some puzzles exist in stakeholder thinking. It is not clear who or what is a legitimate stakeholder, to what each stakeholder is entitled, or how managers should balance competing demands among a range of stakeholders. Yet its advocates are compelled by two arguments. First, a corporation that embraces stakeholders performs better. A corporation better sustains its wealth-creating function with the support of a network of parties beyond shareholders. Put bluntly by one advocate of the stakeholder perspective, executives ignore stakeholders at the peril of the survival of their compa nies.” Second, it is the ethical way to manage because stakeholders have moral rights that grow from the way powerful corporations affect them. Irrespective of academic debates, in practice many large corporations have adopted methods and processes to analyze their stakeholders and engage them.


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MODULE 02 CORPORATE GOVERNANCE

Introduction, Definition, Market model and control model, OECD on corporate governance, A historical perspective of corporate governance, Issues in corporate governance, relevance of corporate governance, need and importance of corporate governance, benefits of good corporate governance, the concept of corporate, the concept of governance, theoretical basis for corporate governance, obligation to society, obligation to investors, obligation to employees, obligation to customers, managerial obligation.

Introduction: In the beginning of the new millennium, several companies in the USA and elsewhere faced  collapse because of corporate misgovernance and unethical practices they indulged in.  In India, the governance of most of the country’s industrial and business organisations thrived on unethical practices at the market place and showed scant regard for the timeless human and organisational values while dealing with their shareholders, employees and other sta keholders.  An overwhelmingly large number of Indian corporations used several illegal tactics such as cornering of industrial licenses with a view to keeping away competitors, using import licenses to make a quick profit, illegally holding money abroad, and indulging in bribery, corruption and other unethical practices.  The reasons for the corporate misgovernance in India for over 40 years – 1951 to 1991, are: A closed economy o o A sheltered market Limited need and access to global business o o Lack of competitive spirit o Inefficient regulatory framework. In the aftermath of the economic liberalisation in India, corporate governance gained greater  importance in the country. Definition of corporate governance Corporate governance is typically perceived by academic literature as dealing with “problems that result from the separation of ownership and control.” From the perspective, corporate governance wo uld focus on: - the internal structure and rules of the board of directors, the creation of independent audit committees, rules for disclosure of information to shareholders and creditors, and control of the management. Corporate governance has also been defined as "a system of law and sound approaches by which corporations are directed and controlled focusing on the internal and external corporate structures with the intention of monitoring the actions of management and directors and thereby justifying agency risks which may stem from the misdeeds of corporate officers.


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Market model of corporate governance

The market model is efficient, well-developed equity markets and dispersed ownership, something common in the developed industrial nations such as USA, UK, Canada and Australia. Corporate governance is basically how companies deal fairly with problems that arise from “separation of ownership and effective control.” This model illustrates conditions and governance practices that are better understood and appreciated and as such highly valued by sophisticated global investors. Control model of corporate governance

The control model is represented by underdeveloped equity markets, concentrated ownership, less shareholder transparency and inadequate protection of minority and foreign shareholders, a paradigm more familiar in Asia, Latin America and some east European nations. In such transitional and developing economies there is a need to build, nurture and grow supporting institutions such as a strong and efficient capital market regulator and judiciary to enforce contracts or protect property rights. Department of MBA, GCEM

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OECD on Corporate governance

The organisation for economic cooperation and development was one of the earliest nongovernmental organisations to work on the spell out principles and practices that should govern corporate in their goal to attain long – term shareholder value. Rights and equitable treatment of shareholders : Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings. 

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Interests of other stakeholders : Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers. Role and responsibilities of the board : The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment. Integrity and ethical behavior : Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. Disclosure and transparency : Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.


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A historical perspective of corporate governance – from a narrow to a broader vision

Corporate governance has focused traditionally on the problem of the separation of ownership by shareholders and control by management. It is now accepted that firms should respond to the expectations of more categories of stakeholders, the wide range of corporate governance practices include business ethics, social responsibility, management discipline, corporate strategy, life-cycle development, stakeholder participation in the decision-making processes and promotion of sustainable economic development. Firms can achieve long run value maximization only if they respond to the externalities such as product safety, job safety, and environmental impacts have increased the importance and significance of better governance of corporations to achieve these ends.

Issues in Corporate Governance Corporate governance conveys different meanings to different people. But to all, corporate governance is a means to an end, the end being long term shareholder value, and more importantly, stakeholder value. Thus, all authorities on the subject are one in recognising the need for good corporate governance practices to achieve the end for which corporate are formed. They identify some governance issues being crucial and critical to achieve these objectives. These are: 

Distinguishing the roles of board and management The responsibility for managing the business is delegated by the board to the CEO, who in turn delegates the responsibility to other senior executives. Thus board occupies a key position between the shareholders and company’s management. As per this arrangement, the board has the following functions: o Select, decide the remuneration and evaluate on a regular basis, and when necessary, change the CEO o Review corporate plans and objectives o Render advice and counsel top management All other functions required by law to be performed o

Composition and Balance of the Board A feature of many corporate governance scandals has been boards dominated by a single senior executive or small ‘cabinet of kitchen’ with other member of board who are working just as a robot toy. It is possible that a single person may bypass the board directions to meet his own personal interests. The report on the UK Guinness case suggested that the Earnest Saunders’ chief executive paid himself a reward of £3million without the consent of other directors. In the case where the organization is not dominated by a single person, there may be other problem in the composition of board of directors. The organization may be run by a minority group revolve around CEO or CFO and recruitment and appointments may be done by personal recommendations rather than formal system. So in order to run a smooth business a board must be balanced in sense of talents, skills, and competence from numerous specialism related to the organization’s situation and also in terms of age (in order to ensure that senior directors are bringing on newer ones to assist in the planning of succession). 

Remuneration and Reward of Directors Directors being paid excessive bonuses and salaries have been identified as significant corporate abuses for a large number of years. It is, however, unavoidable that the corporate governance codes have been targeted this significant issue. The key issues are:o Transparency 


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Pay for performance Process for determination Pension for non-executive directors

Reliability of Financial Reporting and External Auditors Financial reporting and auditing issue are seen more critical to corporate governance by the investors because of their main consideration in ensuring management accountability. It is the reason that they have been must debated and the focus of serious litigation. Whilst considering the corporate governance debate only on reporting and accounting issues is insufficient, the greater regulation of practices such as off-balance sheet financing has directed to greater transparency and a reduction in risks faced by investors. The necessary questioning may not be carried out by external auditor from senior management because the auditors may have threat of loosing audit assignment. In the same way internal auditor may not ask an alien question to senior member because their employment matters are determined by the CFO. 

Board’s Responsibility for Risk Management and Internal Control If the board does not arrange the regular meetings in order to consider the organizational activities systematically show that the board is not meeting their responsibilities. But this thing also occurred sometime when the board is not provided by full information to properly oversight on business activities. All this mess results in the poor system that may unable to report and measure the risks associated with business. 

Shareholders’ Rights and Responsibilities Shareholders’ role and rights is subject of particular importance. They should be info rmed about all those information that are material to them because this information may influence their amount of investment. They should also be given the right to vote on policies affecting the governance of organization. 

Corporate Social Responsibility and Business Ethics The lack of mutual decision and sense of responsibility for businesses and stakeholders has unavoidably turned out the business ethics and social responsibility a significant part of corporate governance debate. 

Relevance of Corporate governance The debate and effort in the arena of corporate governance has been tilted mostly in favour of the publicly listed and widely held companies. The shifting of control when a company’s ownership gets dispersed underscores the need to create and activate structures and processes by which the owners can ensure appropriate governance and management. The second factor addressed the need for more efficient regulation through amendments to listing agreements and company laws as well as updated standards of accounting, reporting and disclosures. The third factor focussed on market efficiency as an ultimate solution to corporate conduct and performance. The codes and principles derived from this experience appear to be influencing the developing countries in terms of sensitisation to the need for good governance where capital markets are expanding briskly. In the process, however, major business/commercial segments of the economies in the developing world are not covered by the corporate governance regulatory net or have found the principles less rewarding in practice. The framework for the principles of corporate governance has emanated from such a "worldview" and with the objective of creating efficient and transparent markets with widely held private ownership. Understandably, codes and principles in different countries have tended to believe that all enterprises will be of one variety only despite the caution that "one size doesn’t fit all". Thus, public


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enterprises have been treated in the same manner as the private either with the assumption that what is good for one is good for the other, or on the premise that eventually all enterprises should be free of dominant ownership of the government. The role of Governments as market regulator has been widely accepted and competition laws are emerging for protecting the people. Importance of Corporate Governance The need, significance or importance of corporate governance is listed below.

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: In recent years, the ownership structure of companies has Changing Ownership Structure changed a lot. Public financial institutions, mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on the management of the companies. They force the management to use corporate governance. That is, they put pressure on the management to become more efficient, transparent, accountable, etc. The also ask the management to make consumer-friendly policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance.

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: Today, social responsibility is given a lot of importance. I mportan ce of Social Responsibi l ity The Board of Directors have to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance.

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: In recent years, many scams, frauds and corrupt practices have taken Growin g Num ber of Scams place. Misuse and misappropriation of public money are happening everyday in India and worldwide. It is happening in the stock market, banks, financial institutions, companies and government offices. In order to avoid these scams and financial irregularities, many companies have started corporate governance.

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In general, shareholders are inactive in the I ndi ff er ence on the part of Shareholders: management of their companies. They only attend the Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak in the meetings. Shareholders associations are not strong. Therefore, directors misuse their power for their own benefits. So, there is a need for corporate governance to protect all the stakeholders of the company. Department of MBA, GCEM

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: Today most big companies are selling their goods in the global market. So, they Globalisation have to attract foreign investor and foreign customers. They also have to follow foreign rules and regulations. All this requires corporate governance. Without Corporate governance, it is impossible to enter, survive and succeed the global market.

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: Today, there are many takeovers and mergers in the business world. Takeover s and M er ger s Corporate governance is required to protect the interest of all the parties during takeovers and mergers.

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SEBI : SEBI has made corporate governance compulsory for certain companies. This is done to

protect the interest of the investors and other stakeholders. Benefits of Good Corporate governance The concept of corporate governance has been attracting public attention for quite some time. It has been finding wide acceptance for its relevance and importance to the industry and economy. It contributes not only to the efficiency of a business enterprise, but also, to the growth and progress of a country's economy. Progressively, firms have voluntarily put in place systems of good corporate governance for the following reasons:  Several studies in India and abroad have indicated that markets and investors take notice of well managed companies and respond positively to them. Such companies have a system of good corporate governance in place, which allows sufficient freedom to the board and management to take decisions towards the progress of their companies and to innovate, while remaining within the framework of effective accountability.  In today's globalised world, corporations need to access global pools of capital as well as attract and retain the best human capital from various parts of the world. Under such a scenario, unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed. The credibility offered by good corporate governance procedures also helps maintain the  confidence of investors – both foreign and domestic – to attract more long-term capital. This will ultimately induce more stable sources of financing. A corporation is a congregation of various stakeholders, like customers, employees, investors,  vendor partners, government and society. Its growth requires the cooperation of all the stakeholders. Hence it imperative for a corporation to be fair and transparent to all its stakeholders in all its transactions by adhering to the best corporate governance practices. Good Corporate Governance standards add considerable value to the operational performance of a  company by: 1. Improving strategic thinking at the top through induction of independent directors who bring in experience and new ideas; 2. Rationalizing the management and constant monitoring of risk that a firm faces globally; 3. Limiting the liability of top management and directors by carefully articulating the decision making process; 4. Assuring the integrity of financial reports, etc. It also has a long term reputational effects among key stakeholders, both internally and externally.  Also, the instances of financial crisis have brought the subject of corporate governance to the surface. They have shifted the emphasis on compliance with substance, rather than form, and brought to sharper focus the need for intellectual honesty and integrity. This is because financial and non-financial disclosures made by any firm are only as good and honest as the people behind them. Good governance system, demonstrated by adoption of good corporate governance practices,  builds confidence amongst stakeholders as well as prospective stakeholders. Investors are willing to pay higher prices to the corporate demonstrating strict adherence to internally accepted norms of corporate governance.


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Effective governance reduces perceived risks, consequently reduces cost of capital and enables board of directors to take quick and better decisions which ultimately improves bottom line of the corporate. Adoption of good corporate governance practices provides long term sustenance and strengthens stakeholders' relationship. A good corporate citizen becomes an icon and enjoys a position of respects. Potential stakeholders aspire to enter into relationships with enterprises whose governance credentials are exemplary. Adoption of good corporate governance practices provides stability and growth to the enterprise.

The concept of corporate/corporation A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts. A corporation is created (incorporated) by a group of shareholders who have ownership of the corporation, represented by their holding of common stock. Shareholders elect a board of directors (generally receiving one vote per share) who appoint and oversee management of the corporation. Although a corporation does not necessarily have to be for profit, the vast majority of corporations are setup with the goal of providing a return for its shareholders. When you purchase stock you are becoming part owner in a corporation. Char acter istics of a corpor ation 

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Unlimited life: - As a corporation is owned by stockholders and managed by employees, the sale of stock, death of a stockholder, or inability of an employee to function does not impact the continuous life of the corporation. Its charter may limit the corporation's life although the corporation may continue if the charter is extended. Limited liability: - The liability of stockholders is limited to the amount each has invested in the corporation. Personal assets of stockholders are not available to creditors or lenders seeking payment of amounts owed by the corporation. Creditors are limited to corporate assets for satisfaction of their claims. Separate legal entity: - The Corporation is considered a separate legal entity, conducting business in its own name. Therefore, corporations may own property, enter into binding contracts, borrow money, sue and be sued and pay taxes. Stockholders are agents for the corporation only if they are also employees or designated as agents. Relative ease of transferring ownership rights: - A person who buys stock in a corporation is called a stockholder and receives a stock certificate indicating the number of shares of the company she/he has purchased. Particularly in a public company, the stock can be easily transferred in part or total at the discretion of the stockholder. The stockholder wishing to transfer (sell) stock does not require the approval of the other stockholders to sell the stock. Similarly, a person or an entity wishing to purchase stock in a corporation does not require the approval of the corporation or its existing stockholders before purchasing the stock. Once a public corporation sells its initial offering of stock, it is not part of any subsequent transfers except as a record keeper of share ownership. Privately held companies may have some restrictions on the transfer of stock. Ease of capital acquisition: - A corporation can obtain capital by selling stock or bonds. This gives a corporation a larger pool of resources because it is not limited to the resources of a small number of individuals. The limited liability and ease of transferring ownership rights makes it easier for a corporation to acquire capital by selling stock, and the size of the corporation allows it to issue bonds based on its name.


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Extensive membership : - there is no maximum limit to the membership of a corporation. As the purpose of a company is to raise large capital, shares are sold to a large number of persons. Separation of management from ownership : - the actual management is delegated to the board of directors elected by shareholders, who in turn, take major policy decisions and hand over the daily administration to salaried managers. Government regulations : - The sale of stock results in government regulation to protect stockholders, the owners of the corporation. State laws usually include the requirements for issuing stock and distributions to stockholders. The federal securities laws also govern the sale of stock. Publicly held companies with stock traded on exchanges are required to file their financial statements and additional informative disclosures with the Securities and Exchange Commission. Certain industries, such as banks, financial institutions, and gaming, are also subject to regulations from other governmental agencies

The concept of governance Governance refers to "all processes of governing, whether undertaken by a government, market, or network, whether over a family, tribe, formal or informal organization, or territory, and whether through laws, norms, power, or language." It relates to processes and decisions that seek to define actions, grant power, and verify performance. Defin ition: -

Establishment of policies, and continuous monitoring of their proper implementation, by the members of the governing body of an organization. It includes the mechanisms required to balance the powers of the members (with the associated accountability), and their primary duty of enhancing the prosperity and viability of the organization. Governance in its widest sense refers to how any organisation, including a nation, is run. It includes all the processes, systems, and controls that are used to safeguard and grow assets. When applied to organisations that operate commercially, it is often termed "corporate governance" and has been described by the World Bank as "promoting fairness, transparency and accountability" and by the OECD as "a system by which business organisations are directed and controlled". Theoretical basis of corporate governance There are four broad theories to explain corporate governance these ar e: A. AGENCY THEORY A theory explaining the relationship between principals, such as a shareholders, and agents, such as a company's executives. In this relationship the principal delegates or hires an agent to perform work. The theory attempts to deal with two specific problems: first, that the goals of the principal and agent are not in conflict (agency problem), and second, that the principal and agent bring together different tolerances for risk.

A number of key terms and concepts are essential to understanding agency theory. An agent is employed by a principal to carry out a task on their behalf. Agency refers to the relationship between a principal and their agent. Agency costs are incurred by principals in monitoring agency behaviour because of a lack of trust in the good faith of agents. By accepting to undertake a task on their behalf, an agent becomes accountable to the principal by whom they are employed. The agent is accountable to that principal.   

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Agency theory can be applied to the agency relationship deriving from the separation between ownership and control.

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Companies that are quoted on a stock market such as the London Stock Exchange are often extremely complex and require a substantial investment in equity to fund them, i.e. they often have large numbers of shareholders. Shareholders delegate control to professional managers (the board of directors) to run the company on their behalf. The Directors (agents) have a fiduciary responsibility to the shareholders (principal) of their organisation (usually described through company law as 'operating in the best interests of the shareholders'). Shareholders normally play a passive role in the day-to-day management of the company. Directors own less than 1% of the shares of most of the UK's 100 largest quoted companies and only four out of ten directors of listed companies own any shares i n their business. Separation of ownership and control leads to a potential conflict of interests between directors and shareholders. The agents' objectives (such as a desire for high salary, large bonus and status for a director) will differ from the principal's objectives (wealth maximization for shareholders).

Agency theory can help to explain the actions of the various interest groups in the corporate governance debate


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Examination of theories behind corporate governance provides a foundation for understanding the issue in greater depth and a link between an historical perspective and its application in modern governance standards. Historically, companies were owned and managed by the same people. For economies to grow it was necessary to find a larger number of investors to provide finance to assist in corporate expansion. This led to the concept of limited liability and the development of stock markets to buy and sell shares. Limited liability: limited risk and so less interest in the firm. Stock market: wide and limited individual ownership and the ability to simply sell without the need to take any interest in the firm. Delegation of running the firm to the agent or managers. Separation of goals between wealth maximization of shareholders and the personal objectives of managers. This separation is a key assumption of agency theory. Possible short-term perspective of managers rather than protecting long-term shareholder wealth. Divorce between ownership and control linked with differing objectives creates agency problems. 

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Ex amples of pri nci pal-agent relati onships

1. Shareholders and directors The separation of ownership and control in a business leads to a potential conflict of interests between directors and shareholders. The conflict of interests between principal (shareholder) and agent (director) gives rise to the 'principal-agent problem' which is the key area of corporate governance focus. The principals need to find ways of ensuring that their agents a ct in their (the principals') interests. As a result of several high profile corporate collapses, caused by over-dominant or 'fat cat' directors, there has been a very active debate about the power of boards of directors, and how stakeholders (not just shareholders) can seek to ensure that directors do not abuse their powers. Various reports have been published, and legislation has been enacted, in the UK and the US, which seek to improve the control that stakeholders can exercise over the board of directors of the company. 

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2. Shareholders and auditors The other principal-agent relationship dealt with by corporate governance guidelines is that of the company with its auditors. The audit is seen as a key component of corporate governance, providing an independent review of the financial position of the organisation. Auditors act as agents to principals (shareholders) when performing an audit and this relationship brings similar concerns with regard to trust and confidence as the director-shareholder relationship. Like directors, auditors will have their own interests and motives to consider. Auditor independence from the board of directors is of great importance to shareholders and is seen as a key factor in helping to deliver audit quality. However, an audit necessitates a close working relationship with the board of directors of a company. This close relationship has led (and continues to lead) shareholders to question the perceived and actual independence of auditors so tougher controls and standards have been introduced to protect them. Who audits the auditors? 

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The cost of agency relationship Agency costs arise largely from principals monitoring activities of agents, and may be viewed in monetary terms, resources consumed or time taken in monitoring. Costs are borne by the principal, but may be indirectly incurred as the agent spends time and resources on certain activities. Examples of costs include: incentive schemes and remuneration packages for directors costs of management providing annual report data such as committee activity and risk management analysis, and cost of principal reviewing this data cost of meetings with financial analysts and principal shareholders the cost of accepting higher risks than shareholders would like in the way in which the company operates Cost of monitoring behaviour, such as by establishing management audit procedures.  

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Agency problem resolution measure Meetings between the directors and key institutional investors. Voting rights at the AGM – Annual grade meeting in support of, or against, resolutions. Proposing resolutions for vote by shareholders at AGMs. Accepting takeovers. Divestment of shares is the ultimate threat.     

Need f or corporate gover nan ce 

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If the market mechanism and shareholder activities are not enough to monitor the company then some form of regulation is needed. There are a number of codes of conduct and recommendations issued by governments and stock exchanges. Although compliance is voluntary (in the sense it is not governed by law), the fear of damage to reputation arising from governance weaknesses and the threat of delisting from stock exchanges renders it difficult not to comply.

B. STEWARDSHIP THEORY Stewardship theory is a theory that managers, left on their own, will indeed act as responsible stewards of the assets they control. This theory is an alternative view of agency theory, in which managers are assumed to act in their own self interests at the expense of shareholders. It specifies certain mechanisms which reduces agency loss including tie executive compensation, levels of benefits and also manager’s incentive schemes by rewarding them financially or offering shares that aligns financial interest of executives to motivate them for better performance.

Unlike agency theory, stewardship theory assumes that managers are stewards whose behaviours are aligned with the objectives of their principals. The theory argues and looks at a different form of motivation for managers drawn from organizational theory. Managers are viewed as loyal to the company and interested in achieving high performance. The dominant motive, which directs managers to accomplish their job, is their desire to perform excellently. Specifically, managers are conceived as being motivated by a need to achieve, to gain intrinsic satisfaction through successfully performing inherently challenging work, to exercise responsibility and authority, and thereby to gain recognition from peers and bosses. Therefore, there are non-financial motivators for managers. The theory also argues that an organization requires a structure that allows harmonization to be achieved most efficiently between managers and owners. In the context of firm’s leadership, this situation is attained more readily if the CEO is also the chairman of the board. This leadership structure will assist them to attain superior performance to the extent that the CEO exercises complete authority over the corporation and that their role is unambiguous and unchallenged. In this situation, power and authority are Department of MBA, GCEM

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concentrated in a single person. Hence, the expectations about corporate leadership will be clearer and more consistent both for subordinate managers and for other members of the corporate board. Thus, there is no room for uncertainty as to who has authority or responsibility over a particular matter. The organization will enjoy the benefits of unity of direction and of strong command and control.


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C. STAKEHOLDER THEORY Stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. It was originally detailed by R. Edward Freeman in the book Strategic Management: A Stakeholder Approach, and identifies and models the groups which are stakeholders of a corporation, and both describe and recommends methods by which management can give due regard to the interests of those groups. In short, it attempts to address the "Principle of Who or What Really Counts."

In the traditional view of the firm, the shareholder view, the shareholders or stockholders are the owners of the company, and the firm has a binding fiduciar y duty to put their needs first, to increase value for them. Stakeholder theory argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted as stakeholders - their status being derived from their capacity to affect the firm and its stakeholders. The basis for stakeholder theory is that companies are so large and their impact on society so pervasive that they should discharge accountability to many more sectors of society than solely their shareholders.

Stakeholder theory suggests that the purpose of a business is to create as much value as possible for stakeholders. In order to succeed and be sustainable over time, executives must keep the interests of customers, suppliers, employees, communities and shareholders aligned and going in the same directi on. Innovation to keep these interests aligned is more important than the easy strategy of trading off the interests of stakeholders against each other. Hence, by managing for stakeholders, executives will also create as much value as possible for shareholders and other financiers. Stakeholder theory may be the necessary outcome of agency theory given that there is a business case in considering the needs of stakeholders through improved customer perception, employee motivation, supplier stability, shareholder conscience investment. Agency theory is a narrow form of stakeholder theory. Department of MBA, GCEM

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D. SOCIOLOGICAL THEORY The sociological theory focused mostly on board composition and wealth distribution. Under this theory, board composition, financial reporting, disclosure and auditing are of utmost importance to realise the socio-economic objectives of corporation. Problem of interlocking directorships and the concentration of directorship in the hands of a privileged class are viewed as major challenges to equity and social progress.

OBLIGATION – DUTIES OF CORPORATE GOVERNANCE

Obligation (Duty) to Society At Large National Interest   Political non-alignment  Legal compliances  Rule of law  Honest and ethical conduct  Corporate citizenship  Ethical behaviour Social concerns  Corporate social responsibility  Environmental – friendliness   Healthy and safe working environment  Competition  Trusteeship  Accountability  Effectiveness and efficiency  Timely responsiveness  Corporations should uphold the fair name of the country

Obligation to Investors  Towards shareholders  Measure promoting transparency and informed shareholder participation  Transparency  Financial reporting and records Obligation to Employees  Fair employment practices Equal opportunities employer  Encouraging whistle blowing  Humane treatment  Participation   Empowerment  Equity and inclusiveness  Participative and collaborative environment


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Obligation to Customers Quality of products and services  Products at affordable prices   Unwavering commitment to customer satisfaction

Managerial Obligation  Protecting company’s assets  Behaviour towards government agencies Control  Society – oriented  Gifts and donations  Role and responsibilities of corporate board and directors  Direction and management must be distinguished  Managing and whole-time directors 


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Module 03 Public Policies The role of public policies in governing business, Government and public policy, classification of public policy, areas of public policy, need for public policy in business, levels of public policy, elements of public policy, the corporation and public policy, framing of public policy, business and politics levels of involvement, business, government, society and media r elationship government regulations in business, justification of regulation, types of regulation, problems of regulation Introduction  Public policy may be explained as a definite course or method of action selected from among alternatives and in the light of given conditions to guide and determine present and future decisions of governments or public authorities.  It is thus plan of action undertaken by government to achieve some broad public purpose.  Surprisingly, a generally accepted definition of public policy has been elusive. Some texts define public policy as simply "what government does." Others say that it is the stated principles which guide the actions of government. Still others say that the discussion of a definition contributes little and moves quickly to illustrate a variety of case studies. Simple Definition of Public Policy Public policy is a course of action adopted and pursued by a government. Full Definition of Public Policy Public policy is a purposive and consistent course of action produced as a response to a perceived problem of a constituency, formulated by a specific political process, and adopted, implemented, and enforced by a public agency.

The course meaning and discussion will pull apart this definition, piece by piece, to elucidate not simply the proposed definition. But the nature of public policy itself. We will plant the seeds for the public policy cycle as a method of analysis. Along the way, some related terms will be used and also defined. "Public policy is a purposive and consistent course of action" suggests goals and the absence of logical contradictions. This is still essentially the same as the short definition, above. The phrase "produced as a response to a perceived problem of a constituency" implies that government is responsive to its legitimate stakeholders, particularly citizens and voters. Do these groups, the constituents, have real grievances or are they mistaken perceptions or have they badly defined the purported problem? Does public policy respond to every complaint of every group? Do some get attention and not others? Yet, agency is invoked: government must decide, largely through political representatives, and citizens and groups need to be effective at pressing their grievances. Problems abound here. Then we need to identify a specific action: "formulated by a specific political process." The action that might bring about a public policy must go somewhere -- and we need to identify which organization has jurisdiction and might feasibly respond. Here, we must think in concrete and specific language. There must be agency, which means that we are dealing with established authority. Notice how the long definition raises doubts and introduced complexities. Finally, the policy must be "adopted, implemented, and enforced by a public agency." That is, some actions must be administered and implemented. Actions must ensure. Something must happen. Try to connect the original issue to the resulting administration. 

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Government and public policy There is a close relationship between public policy and governments or public authorities. No policy becomes public policy unless it is adopted, implemented and enforced by some governmental institutions. Government gives public policy three distinctive characteristics: I. It lends legitimacy to policies. Government policies are generally regarded as legal obligations which are easily observed by citizens. II. Government policies involve universality as these extend to all sections in the society. III. Government can alone can exercise compulsion in society-government can legitimately imprison violators of its policies. Classification of public policy Public policy can be organised along the following five lines: - Regulatory policy is about achieving government's objectives through the use of Regulatory  regulations, laws, and other instruments to deliver better economic and social outcomes and thus enhance the life of citizens and business Distributive  - distributive policies provide for goods and services such as welfare and health to specific segments of the population.  Redistributive - aim at rearranging one or more of the basic schedules of social and economic reward. For instance, provision of scholarship, old age pensions, unemployment insurance etc. Capitalisation – business and local government receive distributive largesse from the central  government which aim at increasing the productive capacity of society. They include: - cash payments for farmers, tax subsidies, gas subsidies etc. – public policies follow the court’s directives and set out what ought and ought not to be Ethical  done in an area marked off by deep moral convictions. Areas of public policy I.

Economi c management  

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L abour management relation s 

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Another area of public policy that came out of the depression days is the area of labourmanagement relations. Industrial revolution has effectively challenged the outdated thinking of the management that labour is like a vendible commodity that can be bought or sold at any time.

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Economic problems are one of the important areas of public policy. Now with the emergence of stabilisation measures adopted by governments to combat recession and depression and the concept of welfare state, it is assumed that state intervention is essential and even inevitable in economic activities.

It is believed that every man has the right to a good job, decent food, clothing and shelter. It is the responsibility of the government to guarantee these rights. Policy designed to help people whose basic needs have not been met for one reason or the other by the market system.

Shapi ng of publi c poli cies aff ectin g cor porate sector 

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Stakeholder expectations, if unmet, trigger action to transform social concern into pressure on business and government. A gap between the expected and actual performance stimulates public issue. Need to understand the reason for public issues and how they get transformed into public policy in the macro environment.


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Need for public policy in business Public policies that affect corporations are shaped by four forces, which are shown in the figure. Figure 4.1

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To cr eate a competi ti ve envi r onment o

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Public policies help the market to have perfect competition by way of controlling monopolies through license or by creating a competitive market mechanism.

To have contr ol on f oreign i nvestment o

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Government interferes in regulating foreign investments in certain industries which is very critical for the country. Sometimes objective is to encourage local investment when the domestic economy is doing well. Government may adopt protection policies for the following reasons:  To protect the growing local industries  To regulate demand and supply, where resources are scarce  To regulate the prices in the unhealthy competitive environment  To protect the natural environment


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Elements of public policy A government action that goes into its making in terms of public policy and execution can be understood in terms of several basic elements.

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Inputs o

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Goals o o

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Public policy goals can be ideal oriented or narrow, and self – serving. Public policy goals may vary widely, but it is always important to inquire whether it served the citizens of the country whose welfare it intends to serve. Goal should be – greatest good to the largest number of people.

Mechanism/instrument o

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Inputs influence the development of public policy. Government may determine its course of action on the basis of several factors such as economic, foreign policy, domestic political pressure, natural calamities etc. All these inputs can help shape what the government chooses to do and how it chooses to do it.

Instruments of public policy are those combinations of incentives and disincentives that government uses to prompt citizens, including businesses, to act in ways that achieve goals. For instance, in budget negotiations focus on alternative ways to raise revenue, graduating tax rates for individuals and businesses, reduced deductions, excise duties, sales taxes on selected items.

Results o o

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Public policy actions always have effects. Some are intended. Others are unintended. Since public policies affect millions of people corporations and other interests, it is almost inevitable that such actions will please some and displease others. For instance, when the government of India provided for pre-natal and post-natal leave with full salary for pregnant women, many companies in India did not employ women employees.


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Public policy process

1. Problem I denti fi cation

Either public opinion or elite opinion expresses dissatisfaction with a status quo policy. The problem is defined and articulated by individuals and institutions such as mass media, interest groups, and parties. 2. Agenda Setti ng

The definition of alternatives is crucial to the policy process and outcomes. Before a policy can be formulated and adopted, the issue must compete for space on the agenda (list of items being actively considered). An idea must make it through several levels, including the broad political system agenda, the congressional and presidential agendas, and the bureaucratic agenda. Key actors in agenda setting include think tanks, interest groups, media, and government officials. 3. Policy M akin g

From the problems that have been identified and have made it onto the various agendas, policies must be formulated to address the problems. Those policy formulations then must be adopted (authorized) through the congressional process and refined through the bureaucratic process. Of course, a non-decision (inaction, or defeating a proposal) is, itself, policy making. 4. Budgeti ng

Each year, Congress must decide through the appropriations process how much money to spend on each policy. Generally, a policy must first be authorized (adopted) before money can be appropriated for it in the annual budget. 5. I mplementation

Executive agencies (the bureaucracy) carry out, or implement, policy. Implementation could include adopting rules and regulations, providing services and products, publ ic education campaigns, adjudication of disputes, etc. 6. Evalu ation

Numerous actors evaluate the impact of policies, to see if they are solving the problems identified and accomplishing their goals. Evaluation looks at costs and benefits of policies as well as their indirect and unintended effects. Congress uses its oversight function and the General Accounting Office for evaluation, agencies evaluate their own performance, and outside evaluators include interest groups, think tanks, academia, and media. Evaluation frequently triggers identification of problems and a new round of agenda setting and policy making.

Framing of public policy 

Consti tuti onal gover nments o o



The will of the people and their desires get reflected in public policies. Petitions through elected representatives, public debate, media promotion, use of tobacco causing cancer, etc are some of the ways of framing public policy.

Non – democr ati c gover nments o

o o

Special interest lobbying of the leadership elite, public demonstration and civil disobedience play decisive roles in shaping public policies. Public is uninformed about the policy and gets frustrated. Media is controlled very much under these governments.


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Business and politics – levels of involvement There are three levels of business involvement, they are as follows: 1. L evel 1: f in ancial i nvolvement 



Formation of political action committee: - in some countries like USA, companies have been permitted to spend company funds to organise and administer a political action committee. PAC may solicit contributions from stock – holders and employees and then channels the funds to those seeking political office. Trade association support : - many large corporations place full – time liaison (link) officers in national capitals to keep abreast of developments in the government that may affect the company, or to influence taking of favourable policy decisions through various public relation activities.

2. L evel 2: or gani sation al i nvolvement 



Lobbying : - lobbying involves direct contact with a government official to influence the thinking of that person on an issue or public policy. It is usually done through fact to face contact, sometime in lengthy discussions. Employ grass root involvement : - grass root programmes are organised efforts to get constituents to influence government officials to vote or act in a favourable way.

3. L evel 3: str ategic publ i c poli cy in volvement

Through executive participation where the representatives participate in decision making by acting as the part of the executive. Business – Government – Society – Media relationship The role of government as an agent representing citizens of a country.  Businessmen understand and accept the fact that governments can create or destroy the basic  conditions necessary for business to compete and citizens to prosper.  Governments generally accept the view that their key role is to create appropriate public policy that promotes economic growth. Poor economic development will accelerate a nation’s social problems, including high  unemployment, pushing people below poverty line and bring in pressures to raise taxes. An expanding economy means job opportunities for trained workers but also higher labour costs for businesses. On balance, political leaders favour economic growth because it creates increased national wealth. Media raises issues as a player, in keeping/placing issues in the agenda and in contributing to their  resolution.


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Government Regulations in Business Government regulations of business is a mechanism for implementing social choices and helps in  creating the basic conditions that lead to economic prosperity.  People rely on government to institute and maintain rules of conduct for citizens as well as organisations. If citizens have to live peacefully, they expect the local government to regulate traffic, supply of  basic necessities, at the state level, they want the government to regulate industries so that they would observe labour laws and also create employment. The central government is expected to regulate trade and monetary and fiscal policies.

Problems of government regulations 1. Cost/benefit: all regulations add cost to products. When government mandates operations that would not otherwise occur, or interfere with the operations of markets, costs or premiums are added to products, raising the price to the consumer. The trend in government is increasing cost and new rules. 2. Effectiveness : is the intended purpose achieved and what are the unintended consequences and costs? 3. Deregulations: stakeholders resist deregulation, even when cost/benefit and effectiveness clearly favour deregulation. 4. Policy confusion: TV and cable system of delivery has caused confusion.


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MODULE 4 Environmental concerns and corporations

History of environmentalism, environmental preservation-role of stakeholders, international issues, sustainable development, costs and benefits of environmental regulation, industrial pollution, role of corporate in environmental management, waste management and pollution control, key strategies for prevention of pollution, environmental audit, Laws governing environment. Environmental concerns and corporations As the world starts to globalize, it is accompanied by criticism of the current forms of globalization, which are feared to be overly corporate-led. As corporations become larger and multinational, their influence and interests go further accordingly. Being able to influence and own most media companies, it is hard to be able to publicly debate the notions and ideals that corporations pursue. Some choices that corporations take to make profits can affect people all over the world. History of environmentalism As we look into the history of environmentalism, we can say that the concern for the protection of environment has recurred in different forms, in several parts of the world, long time ago. In the Middle East, writing that mainly concerns with environmental pollution were found in Arabic medical treatises and were written during the Arab Agricultural Revolution. They were primarily concerned with air, water, soil contamination, solid waste mishandling as well as environmental assessments of certain localities. We can say that this was the beginning of environmentalism.

Looking at the environmentalism history, Edward I, the king of England also banned or prohibited the burning of sea coal in 1272 after its smoke became a main problem. Considering the origin of environmentalism, in Europe, the first large scale, current environmental laws came into being in the form of British Alkali Acts. The laws were passed in the year 1863 in order to regulate harmful air pollution given off by the Leblanc process which was used to produce soda ash. With the growth of industrialization air and water pollution also increase. In the history of environmentalism, the beginning of environmental movement in United States can be dated back to 1739 when Benjamin Franklin as well as other Philadelphia residents cited "public rights," requested the Pennsylvania Assembly to stop or restrict waste dumping as well as for removing workplaces from Philadelphia's commercial district. The US movement continues till 1800s with the concerned for the protection of natural resources of the West. John Muir and Henry David Thoreau were the main philosophical contributors to this movement. In the history of environmentalism, environmental ideas became more popular with the beginning of 20th century. During this century efforts were being made to save wildlife and National Park Service was formed in 1916 by US president Woodrow Wilson. In 1972, the United States Environmental Protection Agency banned the agricultural use of DDT. People become more concerned with the problems of air pollution and petroleum spills as well as environmental interest grew in larger number. In India Chipko movement was formed in the year 1970. In 1979, James Lovelock, the former NASA scientist, published Gaia: A new look at life on Earth. Now, environmentalism has also changed to deal with new issues such as global warming and genetic engineering. Environmental issues have been engaging increasing discussion in the international business horizon. As in the case of some other social issues in the fore, the environmental issues raised are mostly which disadvantage the developing countries, ignoring or relegating to the background several serious which hold the developed nations or firms from such nations guilty.


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Some countries prohibit the import of goods which cause ecological damage. For example, the US has banned the import of shrimp harvested without turtle excluder devise because of its concern for the endangered sea turtles. Countries like India are affected by it. “Stakeholders” role in the global environmental governance process

The term ―stakeholders‖ is not a clear-cut or legal concept, so its scope needs to be defined. On the basis of the dictionary definition, stakeholders could be defined here as all the parties taking part in the international institutions’ deliberative and decision-making processes. The first parties concerned in these processes are obviously the Member States of these institutions. Yet the notion of ―stakeholders ‖ extends beyond just the State participants formally involved in the decision-making processes. So although the States remain the principal stakeholders, work o n extending participation in global governance processes focuses on other stakeholders in addition to the States. The States have the formal capacity of members or contracting parties and are represented in international institution bodies by their central governments. However, stakeholders may also encompass other State structures and public representatives such as elected representatives, including parliaments, local authorities and their respective international associations. Stakeholders:  Public opinion  NGO‘s  Business community  Government  Media  Corporations

A healthy environment is needed for a healthy life. Resources found in the environment, such as water, air, and soil can become easily contaminated, creating hazards that can affect health. Queenslanders risk being exposed to these environmental hazards through their daily activities at home and other places. Queensland Health is strongly committed to securing better health outcomes for all Queenslanders in natural and built environments, by reducing the impacts of environmental hazards and ensuring standards for environmental resources are protective of health. International issues: Sustainability is the key to preventing or reducing the effect of environmental issues. There is now clear scientific evidence that humanity is living unsustainably, and that an unprecedented collective effort is needed to return human use of natural resources to within sustainable limits. For humans to live sustainably, the Earth's resources must be used at a rate at which they can be replenished. Concerns for the environment have prompted the formation of Green parties, political parties that seek to address environmental issues. Initially these formed in Australia, New Zealand and Germany but are now present in many other countries. Environmental preservation: Developing countries are affected by the relocation of polluting industries from the developed it the developing ones. Similarly, several products which are banned in the developed nations are marketed in the under developed world. The dumping of nuclear and hazardous wastes in developing countries and the shifting of polluting industries to the developing countries impose heavy social costs on them. The exploitation of the natural resources of the developing countries to satisfy the global demand also often causes ecological


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problems. When the multinationals employ in the developing nations polluting technologies which are not allowed in the developed countries or do not care for the ecology as much as they do in the developed nations, it is essentially a question of ethics. Another serious problem is that developed nations sometimes raise environmental issues as a trade barrier or a coercive measure rather than for genuine reasons. Costs and benefits of environmental regulation: Cost-benefit analysis of environmental regulation plays a key role in determining how to achieve our environmental goals without imposing unnecessary costs on the economy. First, agencies should be required to use a checklist of good empirical practices and should promote decentralized evaluations of data and research. Second, absent compelling systematic evidence to the contrary, agencies should presume that consumers are best able to make their own energy-saving decisions, and should focus on regulations that address the harm that people impose on others. Third, a s ix-month early regulatory review process should be established for particularly important regulations to allow sufficient time for a thorough cost-benefit analysis and the incorporation of the results into the final regulations. It is the systematic calculation & comparison of the costs & benefits of the proposed regulation. Costs are reduction in human welfare. Benefits are increases in human welfare. Advantages:  It forces methodological consideration of each impact a policy will have on social welfare.  It disciplines thinking, though it does not always result in clear choices.  The studies show that the net social of a regulation in monetary term.  It injects rational calculation into emotional arguments.

Cost analysis can play an important role in legislative and regulatory policy debates on protecting and improving the natural environment, health, and safety. Although formal benefit-cost analysis should not be viewed as either necessary or sufficient for designing sensible public policy, it can provide an exceptionally useful framework for consistently organizing disparate information, and in this way, it can greatly improve the process and hence the outcome of policy analysis. If properly done, benefit-cost analysis can be of great help to agencies participating in the development of environmental regulations, and it can likewise be useful in evaluating agency decision making and in shaping new laws. Forms of pollution The major forms of pollution are listed below along with the particular contaminant relevant to each of them:  Air pollution:- the release of chemicals and particulates into the atmosphere. Common gaseous

   

pollutants include carbon monoxide, sulfur dioxide, chlorofluorocarbons (CFCs) and nitrogen oxides produced by industry and motor vehicles. Photochemical ozone and smog are created as nitrogen oxides and hydrocarbons react to sunlight. Particulate matter or fine dust is characterized by their micrometer size PM10 to PM2.5. Light pollution:- includes light trespass, over-illumination and astronomical interference. Littering:- the criminal throwing of inappropriate man-made objects, unresolved, onto public and private properties. Noise pollution:- which encompasses roadway noise, aircraft noise, industrial noise as well as high-intensity sonar. Soil contamination occurs when chemicals are released by spill or underground leakage. Among the most significant soil contaminants are hydrocarbons, heavy metals, MTBE, herbicides, pesticides and chlorinated hydrocarbons.


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 Radioactive contamination, resulting from 20th century activities in atomic physics, such as

nuclear power generation and nuclear weapons research, manufacture and deployment. (See alpha emitters and actinides in the environment.)  Thermal pollution is a temperature change in natural water bodies caused by human influence, such as use of water as coolant in a power plant.  Visual pollution, which can refer to the presence of overhead power lines, motorway billboards, scarred landforms (as from strip mining), open storage of trash, municipal solid waste or space debris.  Water pollution, by the discharge of wastewater from commercial and industrial waste (intentionally or through spills) into surface waters; discharges of untreated domestic sewage, and chemical contaminants, such as chlorine, from treated sewage; release of waste and contaminants into surface runoff flowing to surface waters (including urban runoff and agricultural runoff, which may contain chemical fertilizers and pesticides); waste disposal and leaching into groundwater; eutrophication and littering.

AIR/ INDUSTRIAL POLLUTION - AN ETHICAL PERSPECTIVE  We cannot live more than a few minutes without air. We must breathe whatever air is available around us, regardless of its quality. The fragile inner surface of the lungs where oxygen passes into the bloodstream and carbon dioxide is given off is particula rly sensitive to toxins and irritants. Air pollution is thus of immediate concern to every human being.  Apart from those who voluntarily pollute their own air through smoking, most air pollution is

inflicted by others, usually without recourse or compensation. It therefore goes against such universal moral precepts as the golden rule to do unto others as you would have others do unto you, and in theory should be punishable by law in most states if the guilty source could be identified. However since air quality usually reflects the sum of many diffuse sources, identifying the responsible party is difficult, and since almost everyone undertakes activities that release pollutants; we are all collectively responsible as well.  Different types of air pollutants reflect distinct ethical challenges. Air pollution from industrial

sources is a significant problem in most countries. Since these are usually identifiable point sources, they are relatively easy to regulate. Several approaches are available to industry: pollution prevention through changes in operating practices, improved and preventive maintenance, or changes in raw materials; building good air pollution control systems into new or modified production processes; improving or replacing air pollution control systems in existing facilities; and reducing air pollution and improving energy efficiency through process change (which often lowers costs as well). The industry must weigh the cost of these measures, reflected directly in its balance sheet, against the benefits to the public for which it receives no return apart from the temporary good will that comes when a nuisance has been abated. While a responsible business will implement all reasonable measures to avoid harm to others, unscrupulous operators will simply hope that their emissions are unnoticed or untraceable.  Government experience in the development and implementation of air pollution prevention or

reduction suggests that the multi-stakeholder cooperative approach has long range benefits, with government, industry, and NGOs agreeing on requirements with support and advice from technical and health experts, adopting an implementation time line, and undertaking periodic reviews and assessments of implementation progress. Where the government is honest and efficient, the businesses trustworthy, and the NGOs altruistic in their representation of the public interest, this works well. Department of MBA, GCEM

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 The air pollution created by multiple small sources, whether motor vehicle exhausts, home and

building heating systems, or agricultural wastes, can only be controlled by changes in consumer behaviour and in product technologies. There is often a circular debate whether consumer demand should lead to new products, or whether business should develop less polluting products and educate the consumers in their desirability. This usually reflects the morally questionable desire to pass the responsibility for change off to someone else while profiting from the status quo. Reinforcing ethical behaviour and strengthening corporate responsibility can thus strengthen action to reduce air pollution. Industrial pollution Is pollution which can be directly linked with industry, in contrast to other pollution sources. This form of pollution is one of the leading causes of pollution worldwide; in the United States, for example, the Environmental Protective Agency estimates that up to 50% of the nation's pollution is caused by industry. Because of its size and scope, industrial pollution is a serious problem for the entire planet, especially in nations which are rapidly industrializing, like China. Numerous manufacturing plants pour off undiluted corrosives, poisons, and other noxious by products. The construction industry discharges slurries of gypsum, cement, abrasives, metals, and poisonous solvents. Another pervasive group of contaminants entering food chains is the polychlorinated biphenyl (PCB) compounds, components of lubricants, plastic wrappers, and adhesives. In yet another instance of pollution, hot water discharged by factories and power plants causes’ so-called thermal pollution by increasing water temperatures. Such increases change the level of oxygen dissolved in a body of water, thereby disrupting the water's ecological balance, killing off some plant and animal species while encouraging the overgrowth of others. Causes: Production of electricity, nuclear waste, over-industrialization Effects: Global Warming, Air pollution, water pollution, Soil pollution Adverse air quality can kill many organisms including humans. Ozone pollution can cause respiratory disease, cardiovascular disease, throat inflammation, chest pain, and congestion. Water pollution causes approximately 14,000 deaths per day, mostly due to contamination of drinking water by untreated sewage in developing countries. An estimated 700 million Indians have no access to a proper toilet, and 1,000 Indian children die of diarrhea every day. Nearly 500 million Chinese lack access to safe drinking water. 656,000 people die prematurely each year in China because of air pollution. In India, air pollution is believed to cause 527,700 fatalities a year. Studies have estimated that the number of people killed annually in the US could be over 50,000. Oil spills can cause skin irritations and rashes. Noise pollution induces hearing loss, high blood pressure, stress, and sleep disturbance. Mercury has been linked to developmental deficits in children and neurologic symptoms. Older people are majorly exposed to diseases induced by air pollution. Those with heart or lung disorders are under additional risk. Children and infants are also at serious risk. Lead and other heavy metals have been shown to cause neurological problems. Chemical and radioactive substances can cause cancer and as well as birth defects. Role of corporate in environmental management:  To check pollution  Effective installation of pollution control devices  To be ethical.  It is widely recognized that firms, though better management practic es, can play a major role in  Addressing many environment problems. Companies have strong incentives to do so. On the one hand, they are influenced by a variety of external pressures (e.g. from customers, socially concerned investors, environmental interest groups and regulators), one the other hand firms’ own stakeholders increasingly expect ‗their’ company to behave in a socially responsible manner. Consequently, an increasing number of companies have taken steps to assess, monitor and report on their environmental performance.


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 Along with the global trend of green business and green living, more and more companies have been

attaching great importance to protecting the environment. An effective means to achieve and demonstrate sound environment performance is to adopt an Environmental Management System (EMS) and produce environmental performance reports. Waste Management: Waste is the by-product of house-hold, industrial & environmental issues. It refers to the collection, processing, recycling, transport & monitoring of waste. The term usually relates to materials produced by human activity, and the process is generally undertaken to reduce their effect on health, the environment or aesthetics. Waste management is a distinct practice from resource recovery which focuses on delaying the rate of consumption of natural resources.

The management of wastes treats all materials as a single class, whether solid, liquid, gaseous or radioactive substances, and tried to reduce the harmful environmental impacts of each through different methods. Rapid industrialization last few decades have led to the depletion of pollution of precious natural resources in India depletes and pollutes resources continuously. Further the rapid industrial developments have, led to the generation of huge quantities of hazardous wastes, which have further aggravated the environmental problems in the country by depleting and polluting natural resources. In fact, man today is caught in the vicious circle of increasing wants, declining resources and increasing waste being generated by the industries and municipalities is posing a problem of enormous dimensions. The domestic and industrial effluents are contributing in enhancing this problem. It might become the biggest problem if it is not dealt with immediately. Therefore, rational and sustainable utilization of natural resources and its protection from toxic releases is vital for sustainable socioeconomic development. Hazardous waste management is a new concept for most of the Asian countries including India. The utilization of resources and generation of waste is for beyond the limit that the biosphere was made to carry.

Pollution control  recycling  reusing  reducing  mitigating  preventing  Compost Key strategies for prevention: Installing Pollution control devices Dust collection systems   Bag houses  Cyclones  Electrostatic precipitators  Scrubbers  Baffle spray scrubber  Cyclonic spray scrubber  Ejector venture scrubber  Mechanically aided scrubber  Spray tower  Wet scrubber


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Sewage treatment  Sedimentation (Primary treatment)  Activated sludge bio-treatment (Secondary treatment; also used for industrial wastewater)  Aerated lagoons  Constructed wetlands (also used for urban runoff)  Industrial wastewater treatment  API oil-water separators  Bio-filters  Dissolved air flotation (DAF)  Powdered activated carbon treatment  Ultra filtration  Vapour recovery systems  Phytoremediation

Greenhouse gases and global warming Carbon dioxide, while vital for photosynthesis, is sometimes referred to as pollution, because raised levels of the gas in the atmosphere are affecting the Earth's climate. Disruption of the environment can also highlight the connection between areas of pollution that would normally be classified separately, such as those of water and air.

Recent studies have investigated the potential for long-term rising levels of atmospheric carbon dioxide to cause slight but critical increases in the acidity of ocean waters, and the possible effects of this on marine ecosystems. Most polluted places in the developing world The Blacksmith Institute, an international non-for-profit organization dedicated to eli minating lifethreatening pollution in the developing world, issues an annual list of some of the world's worst polluted places. In the 2007 issues the ten top nominees, already industrialized countries excluded, are located in Azerbaijan, China, India, Peru, Russia, Ukraine and Zambia. Benefits of Corporate Environmental Management The benefits of corporate environmental management are many. In the view of management, it can fulfill supply-chain requirements, ensure continual environmental improvement, help to reduce legislative non-compliance, promote staff environmental awareness and increase financial savings resulting from resource saving and cost reduction. From the public relations perspective, it can improve the company image, and enhance favourable customer relationships.

Along with the global trend of green business and green living, more and more companies have been attaching great importance to protecting the environment. An effective means to achieve and demonstrate sound environment performance is to adopt an Environmental Management System (EMS) an produce environmental performance reports. You can find useful information in this article. Environmental Management System An Environmental Management System (EMS) can help a corporation to improve its environmental performance and thus stay competitive in the environmentally conscious world business market. In general, a corporation will go through 3 steps in setting up its EMS.  Conduct an initial environmental audit to evaluate the current environmental performance.  Set its own environmental policy as well as objectives and targets.  Map out an environmental programme to translate the targets into concrete action plans.


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EMS Certification The ISO 14000 EMS certification is internationally recognized. To assist the Small and Medium Enterprises (SMEs) to develop their own EMS, the Environmental Protection Department (EPD) has launched support packages on environmental management information and ISO 14001 EMS specifically for SMEs of the construction and electrical/electronic sectors.

A successful EMS also involves periodic audit and review to ensure its effectiveness and achieve continual environmental improvement. EPD also launched a simple guide helping SMEs to conduct environmental audits. Environmental Performance Reporting Businesses are also encouraged to produce their o wn environmental performance reports to inform shareholders, investors, potential business partners, customers as well as the general public how they have contributed to achieving a sustainable environment. Evidence has shown that environmental performance reporting can be a useful marketing tool in winning business opportunities as some companies are more willing to work with those who have a proven record in environmental management. It can also boost the corporate image. To facilitate the business to produce good quality environmental performance report, EPD has set up a cyber helpdesk which includes step-by-step guide, tips for successful reports, international best practices, and other useful resource materials. Compliance Assistance Centre The CAC offers a wide range of services, including advice on environmental regulatory requirements, practical solutions to common pollution problems, updated compliance guides, green practices and environmental management tools.

Hazardous Waste Management Asbestos The term "asbestos" is used to describe a group of naturally occurring minerals composed of long, thin fibers and fiber bundles. The mineral has high tensile strength, good insulating properties and i s a fire retardant. However, medical information has indicated that inhalation of asbestos fibers may result in serious health issues including cancers in human. Construction materials such as AC sheeting and roofing which contain asbestos fibers have been widely used in Pacific island countries for housing and building construction, and even though health concerns have led to their phase-out, they are still found in many buildings. The Pacific is subject to periodic catastrophic weather and geological events such as tsunamis and cyclones which are highly destructive to built infrastructure. As a consequence, asbestos containing materials are, or may become a significant waste and human health issue in many Pacific countries and management and disposal of asbestos in the region is critical to the maintenance of long-term community health. Environmentally sound asbestos disposal options are likely to be restricted to either local disposal in a secure landfill; transport to and disposal in an offshore secure landfill; or disposal of concrete encased asbestos containing materials at sea. Stabilization of asbestos in occupied buildings prior to its eventual removal should be considered an urgent priority by national governments to minimize future exposure of the public to asbestos fibers. Electrical & Electronic Waste E-waste typically refers to end-of-life electrical and electronic products including computers, printers, photocopy machines, television sets, washing machines, radios, mobile phones and toys, which are made of sophisticated blends of plastics, metals, and other materials. Due to the demand for newer


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technology, the life-span of electrical and electronic products is progressively decreasing. Consequently, older and out-dated items are becoming obsolete and being discarded in large quantities and at increasing rates worldwide. The extent of the E-waste problem in the Pacific has not been comprehensively documented, but the limited information available indicates that the use of electrical and electronic equipment is increasing significantly on an annual basis in Pacific island countries. Electrical and electronic waste contains hazardous but also valuable and scarce materials such as metal and alloys which can be recovered and recycled. Proper management and disposal of E-waste is important to the long-term protection of local and regional Pacific environments, as well as to the maintenance of long-term regional sustainability. Medical Waste Management Health care activities lead to the production of waste that, if poorly managed, may lead to adverse community health effects. These wastes include infectious wastes, body part wastes, chemical or pharmaceutical wastes, expired pharmaceuticals, soiled bandages and dressings, contaminated sharps and radioactive and cytotoxic wastes and broken thermometers. Medical wastes are typically poorly managed in the Pacific, and are usually disposal of through low temperature combustion in pits within hospital compounds or by uncontrolled dumping in landfills. Improper disposal of medical wastes can result in contamination of water supplies or aquatic environments and burning of medical wastes at low temperatures results in the release of toxic pollutants to the air. Landfill dumping of medical wastes results in unacceptable community health risks and expired drugs may be acquired by children or scavengers if disposed in a landfill. There may also be ineffective separation of medical waste at source. In many cases where medical waste incinerators exist, they are often incorrectly operated, have technical problems or there is a lack of trained operators or a shortage of money for diesel fuel. Often the incinerators are donated, but they do not comply with best available technology or practices. An integrated framework to manage pharmaceuticals and progressively implement routine medical waste disposal through controlled high temperature incineration is essential for infection control and protection of the health of many smaller Pacifi c island communities. Environmental audit: Environmental audit is a general term that can reflect various types or evaluations intended to identify environmental compliance and management system implementation gaps, along with related corrective actions. In this way they perform an analogous (similar) function to financial audits. There are generally two different types of environmental audits: compliance audits and management systems audits. Compliance audits tend to be the primary type in the US or within US-based multinationals. Environmental compliance audits As the name implies, these audits are intended to review the site's/company's legal compliance status in an operational context. Compliance audits generally begin with determining the applicable compliance requirements against which the operations will be assessed. This tends to include federal regulations, state regulations, permits and local ordinances/codes. In some cases, it may also include requirements within legal settlements. Compliance audits may be multimedia or programmatic. Multimedia audits involve identifying and auditing all environmental media (air, water, waste, etc.) that apply to the operation/company. Programmatic audits (which may also be called thematic or media specific) are limited in scope to pre-identified regulatory areas, such as air. Audits are also focused on operational aspects of a company/site, rather than the contamination status of the real property. Assessments, studies, etc. that involve property contamination/remediation are typically not considered an environmental audit.


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ISO 14001 ISO 14001 is a voluntary international standard for environmental management systems ("EMS"). ISO 14001:2004 provides the requirements for an EMS and ISO 14004 gives general EMS guidelines. An EMS meeting the requirements of ISO 14001:2004 is a management tool enabling an organization of any size or type to: 1. Identify and control the environmental impact of its activities , products or services; 2. Improve its environmental performance continually, and 3. Implement a systematic approach to setting environmental objectives and targets, to achieving these and to demonstrating that they have been achieved. Environmental Environmental Auditing in India The Supreme Audit Institution (SAI) in India is headed by the Comptroller and Auditor General (CAG) of India who is a constitutional authority. The CAG of India derives his mandate from Articles 148 to 151 of the Indian Constitution. The CAG's (Duties, Powers and Conditions of Service) Act, 1971 prescribes functions, duties and powers of the CAG. While fulfilling his constitutional obligations, the CAG examines various aspects of government expenditure and revenues. The audit conducted by CAG is broadly classified into Financial, Compliance and Performance Audit. Environmental audit by SAI India is conducted within the broad framework of Compliance and Performance Audit. 2. Environment protection in India The Ministry of Environment & Forests is the nodal agency in the administrative structure of the Central Government of India, for the planning, promotion, coordination and overseeing the implementation of environmental and forestry programmes. The Ministry is also the Nodal agency in the country for the United Nations Environment Programme (UNEP). In the states, the Department of Environment and Forest is the main agency for implementation of environment programmes. Laws governing environment: environment: Environmental Environmental laws In the Constitution of India it is clearly stated that it is the duty of the state to ‗protect and improve the environment environm ent and to safeguard the forests and wildlife of the country‘. It imposes a duty on every citizen ‗to protect and improve the natural environment including forests, lakes, rivers, and wildlife‘. Reference to the environment has also been made in the Directive Directive Principles of State Policy as well as the Fundamental Rights. The Department of Environment was established in India in 1980 to ensure a healthy environment for the country. This later became the Ministry of Environment and Forests in 1985.

The constitutional provisions are backed by a number of laws – acts, acts, rules, and notifications. The EPA (Environment Protection Act), 1986 came into force soon after the Bhopal Gas Tragedy and is considered an umbrella legislation as it fills many gaps in the existing laws. Thereafter a large number of laws came into existence as the problems began arising, for example, Handling and Management of Hazardous Waste Rules in 1989.

Following is a list of the environmental legislations that have come into effect:  General  Forest & Wildlife  Water Air


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General

1986 - The Environment (Protection) Act authorizes the central government to protect and improve environmental quality, control and reduce pollution from all sources, and prohibit or restrict the setting and /or operation of any industrial facility on environmental grounds. 1986 - The Environment (Protection) Rules lay down procedures for setting standards of emission or discharge of environmental pollutants. 1989 - The objective of Hazardous Waste (Management and Handling) Rules is to control the generation, collection, treatment, import, storage, and handling of hazardous waste. 1989 - The Manufacture, Storage, and Import of Hazardous Rules define the terms used in this context, and sets up an authority to inspect, once a year, the industrial activity connected with hazardous chemicals and isolated storage facilities. 1989 - The Manufacture, Use, Import, Export, and Storage of hazardous Micro-organisms/ Genetically Engineered Organisms or Cells Rules were introduced with a view to protect the environment, nature, and health, in connection with the application of gene technology and microorganisms. 1991 - The Public Liability Insurance Act and Rules and Amendment, Amendment, 1992 was drawn up to provide for public liability insurance for the purpose of providing immediate relief to the persons affected by accident while handling any hazardous substance. 1995 - The National Environmental Tribunal Act has been created to award compensation for damages to persons, property, and the environment arising from any activity involving hazardous substances. 1997 - The National Environment Appellate Authority Act has been created to hear appeals with respect to restrictions of areas in which classes of industries etc. are carried out or prescribed subject to certain safeguards under the EPA. 1998 - The Biomedical waste (Management and Handling) Rules is a legal binding on the health care institutions to streamline the process of proper handling of hospital waste such as segregation, disposal, collection, and treatment. 1999 - The Environment (Sitting for Industrial Projects) Rules, 1999 lay down detailed provisions relating to areas to be avoided for sitting of industries, precautionary measures to be taken for site selecting as also the aspects of environmental protection which should have been incorporated during the implementation of the industrial development projects. 2000 - The Municipal Solid Wastes (Management and Handling) Rules, 2000 apply to every municipal authority responsible for the collection, segregation, storage, transportation, processing, and disposal of municipal solid wastes. 2000 - The Ozone Depleting Substances (Regulation and Control) Rules have been laid down for the regulation of production and consumption of ozone depleting substances. 2001 - The Batteries (Management and Handling) Rules, 2001 rules shall apply to every manufacturer, importer, reconditioner, assembler, dealer, auctioneer, consumer, and bulk consumer involved in the manufacture, processing, sale, purchase, and use of batteries or components so as to regulate and ensure the environmentally safe disposal of used batteries. 2002 - The Noise Pollution (Regulation and Control) (Amendment) Rules lay down such terms and conditions as are necessary to reduce noise pollution, permit use of loud speakers or public address systems during night hours (between 10:00 p.m. to 12:00 midnight) on or during any cultural or religious festive occasion 2002 - The Biological Diversity Act is an act to provide for the conservation of biological diversity, sustainable use of its components, and fair and equitable sharing of the benefits arising out of the use of biological resources and knowledge associated with it


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F orest orest and wildli fe

1927 - The Indian Forest Act and Amendment, 1984, is one of the many surviving colonial statutes. It was enacted to ‗consolidate the law related to forest, the transit of forest produce, and the duty leviable on timber and other forest produce‘. 1972 - The Wildlife Protection Act, Rules 1973 and Amendment 1991 provides for the protection protecti on of birds and animals and for all matters that are connected to it whether it be their habitat or the waterhole or the forests that sustain them. 1980 - The Forest (Conservation) Act and Rules, 1981, provides for the protection of and the conservation of the forests. Water

1882 - The Easement Act allows private rights to use a resource that is, groundwater, by viewing it as an attachment to the land. It also states that all surface water belongs to the state and is a state property. 1897 - The Indian Fisheries Act establishes two sets of penal offences whereby the government can sue any person who uses dynamite or other explosive substance in any way (whether coastal or inland) with intent to catch or destroy any fish or poisonous fish in order to kill . 1956 - The River Boards Act enables the states to enroll the central government in setting up an Advisory River Board to resolve issues in inter-sta te cooperation. 1970 - The Merchant Shipping Act aims to deal with waste arising from ships along the coastal areas within a specified radius. 1974 - The Water (Prevention and Control of Pollution) Act establishes an institutional structure for preventing and abating water pollution. It establishes standards for water quality and effluent. Polluting industries must seek permission to discharge waste into effluent bodies. The CPCB (Central Pollution Control Board) was constituted under this act. 1977 - The Water (Prevention and Control of Pollution) Cess Act provides for the levy and collection of cess or fees on water consuming industries and local authorities. 1978 - The Water (Prevention and Control of Pollution) Cess Rules contains the standard definitions and indicate the kind of and location of meters that every consumer of water is required to affix. a ffix. 1991 - The Coastal Regulation Zone Notification puts regulations on various activities, including construction, are regulated. It gives some protection to t he backwaters and estuaries. Air

1948 – The The Factories Act and Amendment in 1987 was the first to express concern for the working environment of the workers. The amendment of 1987 has sharpened its environmental focus and expanded its application to hazardous processes. 1981 - The Air (Prevention and Control of Pollution) Act provides for the control and abatement of air pollution. It entrusts the power of enforcing this act to the CPCB. CPCB. 1982 - The Air (Prevention and Control of Pollution) Rules defines the procedures of the meetings of the Boards and the powers entrusted to them. 1982 - The Atomic Energy Act deals with the radioactive waste. 1987 - The Air (Prevention and Control of Pollution) Amendment Act empowers the central and state pollution control boards to meet with grave grave emergencies of air pollution. 1988 - The Motor Vehicles Act states that all hazardous waste is to be properly packaged, labeled, and transported.


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Module 05 Business Ethics

Meaning of ethics, business ethics, relation between ethics and business ethics, evolution of business ethics, nature of business ethics, scope, need and purpose, importance, approaches to business ethics, sources of ethical knowledge for business, roots of unethical behaviour, ethical decision making, some unethical issues, benefits from managing ethics at workplace, ethical organizations.

Meaning of Ethics The word ethics is derived from the Greek word “ethikos” meaning custom or character. It is the science of morals describing a set of rules of behaviour.

The basic concepts and fundamental principles of decent human conduct. It includes study of universal values such as the essential equality of all men and women, human or natural rights, obedience to the law of land, concern for health and safety and, increasingly, also for the natural environment. Ethics is a branch of philosophy concerned with the study of what is good and bad. It is considered as a normative science because it is concerned with the norms of human conduct.

Business Ethics  Business ethics is the application of general ethical ideas to business behaviour.  The study of proper business policies and practices regarding potentially controversial issues such as corporate governance, bribery, discrimination and corporate social responsibility. Business ethics are often guided by law, while other times provide a basic framework that  businesses may choose to follow in order to gain public acceptance.  Business ethics are implemented in order to ensure that a certain required level of trust exists between consumers and various forms of market participants with businesses. 

Business ethics is the decisive, structured assessment of how people and institutions should act in the world of commerce. Particularly, it involves examining suitable constraints on the hunt for self -interest, or profits, when the actions of persons or firms affect others.

So, the businessmen must give a regular supply of good quality goods and services at reasonable prices to their consumers. They must avoid indulging in unfair trade practices like adulteration, promoting misleading advertisements, cheating in weights and measures, black marketing, etc. They must give fair wages and provide good working conditions to their workers. They must not exploit the workers. They must encourage competition in the market. They must protect the interest of small businessmen. They must avoid unfair competition. They must avoid monopolies. They must pay all their taxes regularly to the government.


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Features of Business Ethics

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Business ethics is a code of conduct. It tells what to do and what not to do for Code of conduct: the welfare of the society. All businessmen must follow this code of conduct. Business ethics is based on moral and social values. It Based on moral and social values: contains moral and social principles (rules) for doing business. This includes self-control, consumer protection and welfare, service to society, fair treatment to social groups, not to exploit others, etc. Gives pr otection to social grou ps: Business ethics give protection to different social groups such as consumers, employees, small businessmen, government, shareholders, creditors, etc. Provides basic fr amework : Business ethics provide a basic framework for doing business. It gives the social cultural, economic, legal and other limits of business. Business must be conducted within these limits. Voluntary: Business ethics must be voluntary. The businessmen must accept business ethics on their own. Business ethics must be like self-discipline. It must not be enforced by law. Businessmen must be given proper education and guidance Requi r es education and gu idan ce: before introducing business ethics. The businessmen must be motivated to use business ethics. They must be informed about the advantages of using business ethics. Trade Associations and Chambers of Commerce must also play an active role in this matter. Business ethics is a relative term. That is, it changes from one business to another. Rel ative Ter m: It also changes from one country to another. What is considered as good in one country may be taboo in another country. Business ethics is a newer concept. It is strictly followed only in developed New con cept: countries. It is not followed properly in poor and developing countries.

Relation between Ethics and Business Ethics Ethics asks the question, “How should I live my life?”, and it uses moral philosophy and moral reasoning to explore and answer that question. Business ethics asks, “How should a business live its life?” or more appropriately, “How should a business behave?”, and it uses moral philosophy and moral reasoning to explore and answer that question.” Though personal ethics has an influence on business ethics, at times, actions that are in accordance with business ethics might fall short of meeting personal ethics. I.e. an incident/activity, which is deemed


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ethical in terms of business, would not fall into the area of personal ethics. Hence, the difference exists on different person’s view on personal and business ethics. Harmony should exist between Personal Ethics and Business Ethics for a better work – life balance. Conflict exists between personal ethics and business ethics as in, a person’s ethics might not allow him/her to act according to the business ethics. Rules or Principles of Business Ethics The important rules or principles of business ethics are as follows: Don't cheat and exploit consumers by using bad business Avoid exploit ation of consumer s: practices such as artificial price rise and adulteration.  Don't indulge in unscrupulous activities like hoarding, black-marketing, sale Avoid profi teeri ng: and use of banned or harmful goods, etc., for the sake of greed to earn exorbitant profits. Don't destroy a healthy competitive atmosphere in the market En cour age healthy competit ion :  which offers certain benefits to the consumers. Do not engage in a cut-throat competition. Avoid making attempts to malign and spoil the image of competitors by unfair means.  Always check and verify the accuracy in weighing, packaging and quality En sur e accur acy: while supplying goods to the consumers. Pay taxes and other charges or duties to the government honestly and Pay taxes regul arl y:  regularly. Avoid bribing government officials and lobbying for special favours.  Maintain accurate business records, accounts and make them available to Get accounts audi ted: all authorised persons and authorities.  Pay fair wages or salaries, provide facilities and incentives and give F air tr eatment to empl oyees: humane treatment to employees. Supply reliable information to shareholders and investors about the Keep investors informed:  financial position and important decisions of the company.  Avoid injustice and partiality to employees in transfers and Avoid in ju stice and discrimi nation: promotions. Avoid discrimination among them based on gender, race, religion, language, nationality, etc.  Don't give expensive gifts, secret commissions, kickbacks, payoffs to No bri be and corr uption: politicians, bureaucrats, government officials and suppliers. Say no to bribe and avoid corruption. Di scour age secret agr eement:  Do not make a secret agreement with other businessmen for controlling production, distribution, pricing or for any other activity, which is harmful to the consumers. Keep ser vice befor e pr of it:  Accept the principle of "service first and profit next." The customer or consumer is the most important part of any business. All business activities are done for meeting his needs and for increasing his satisfaction and welfare. Practi ce fai r business:  Make your business fair, humane, efficient and dynamic. Give the benefits of these qualities to the consumers.  Avoid monopoly: Avoid forming private monopolies and concentration of economic power. Monopolies are bad for consumers. Fulfil customer’s expectations: Adjust your business activities as per the demands, needs and  expectations of the customers.  Give full respect and honour to the basic rights of the consumers. Respect con sum er s r ights:  Accept social r esponsibi l iti es: Honour responsibilities towards different social groups.  Satisfy consumer’s wants: Find out and satisfy the wants of the consumers. Use the available resources to produce good quality goods and services. Supply these goods and services regularly to the consumers. Charge reasonable prices for the goods and services. Give proper after-sales services. Do not produce goods and services, which are harmful to the health and life of the consumers. Remember, the main objective of the business is to s atisfy the consumers’ wants.


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Give more importance to service and consumer's satisfaction and less importance Ser vice motive: to profit-maximization. Make profits by providing services to the consumers. Do not make profits by exploiting the consumers. Protect the interest of the group i.e. give employees better wages and Protect grou p in terests: good working conditions, give shareholders better rate of dividend, give consumers good quality goods and services at low prices, etc. Optimum uti li sation of r esour ces: Ensure better and optimum utilisation of natural and human resources and minimise wastage of these resources. Use the resources to remove poverty and to increase the standard of living of people. Use pure, legal and sacred means to do business. Do not use illegal, I ntenti ons of busin ess: unscrupulous and evil means to do business.

Nature of Business Ethics – Normative/prescriptive/applied Nor mative Ethi cs: -

Ethics is a normative science. It means it lay down the norms or standard of what is good and what is bad. It specifies what we ought to do and what we ought not to do, in a certain situation. Normative ethics is the branch of philosophical ethics that investigates the set of Questions that arise when we think about the question “how should one act, morally speaking?” Prescri ptive Eth ics:-

Business ethics is a branch of ethics which prescribes standards of how the business is to be carried out. It lays down guidelines for the company’s response and accountability to its various stakeholders. It has to maintain a fine balance and take care of the interest of the shareholders on one hand and other like the employees, suppliers, customers and community at large on the other hand.

Appli ed Eth ics:-

Applied ethics is a branch of ethics that deals with specific, often controversial moral issues such as abortion, female feticide and infanticide, displacement of tribal people due to huge hydro- electric projects, cloning, testing drugs on animals, etc. Business too faces many controversial moral choices such as misleading advertising, insider trading bribery, corruption etc. Scope of Business Ethics Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the company. Ethi cs in Compli ance

Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught rather than a desire to be abiding by the law. An ethical climate in an organization ensures that compliance with law is fuelled by a desire to abide by the laws. Organizations that value high ethics comply with the laws not only in letter but go beyond what is stipulated or expected of them. Ethics in F in ance

The ethical issues in finance that companies and employees are confronted with include: • In accounting – window dressing, misleading financial analysis. • Related party transactions not at arm’s length • Insider trading, securities fraud leading to manipulation of the financial markets. Department of MBA, GCEM

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• Executive compensation. • Bribery, kickbacks, over billing of expenses, facilitation payments. • Fake reimbursements Ethi cs in H uman Resources

Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics should be a pivotal issue for HR specialists. The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee. Th e issues of ethi cs faced by H RM in clu de: 

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Discrimination issues i.e. discrimination on the bases of age, gender, race, religion, disabilities, weight etc. Sexual harassment. Issues surrounding the representation of employees and the democratization of the workplace. Issues affecting the privacy of the employee: workplace surveillance, drug testing. Issues affecting the privacy of the employer: whistle-blowing. Issues relating to the fairness of the employment contract and the balance of power between employer and employee. Occupational safety and health.

Companies tend to shift economic risks onto the shoulders of their employees. The boom of performance-related pay systems and flexible employment contracts are indicators of these newly established forms of shifting risk. Ethics in M arketing

Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing. The ethical issues confronted in this area include: • Pricing: price fixing, price discrimination, price skimming. • Anti-competitive practices like manipulation of supply, exclusive dealing arrangements, tying arrangements etc. • Misleading advertisements • Content of advertisements. • Children and marketing. • Black markets, grey markets. Ethi cs of Pr oduction

This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk. • Defective, addictive and inherently dangerous products and • Ethical relations between the company and the environment include pollution, environmental ethics, and carbon emissions trading. • Ethical problems arising out of new technologies for eg. Genetically modified food • Product testing ethics.

Evolution of Business Ethics


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The 1960s The social and political movements of the 1960s also brought forth major changes in the evolution of business ethics. Focus during that period evolved around environmental issues, civil right issues, increased employee/employer tensions, and the rising epidemic of alcohol and drug consumption. In 1962, for example, President Kennedy’s message to US citizens was focused on the protection of consumer interests. He proposed a plan that introduced four basic consumer rights to help protect the public: (a) the right to safety, (b) the right to be informed, (c) the right to choose, and (d) the right to be heard. These eventually became known as the Consumer Bill of Rights and had a huge impact on the evolution of business ethics. The 1970s The issue of business ethics continued to evolve and, as a result, began to emerge as a new field of study. Institutions popped up that offered more research, education, and training. Religious studies and philosophy also laid the groundwork for ethical behavior in the 1970s and identified a set of moral values that were acceptable with respect to business activities. Based on those foundations, professionals began the education process to teach and write about corporate social responsibilities offering practical strategies. Most leaders believed it was an organization’s obligation to maximize their positive impact on shareholders and consumers while minimizing their negative effects. During this period, employees were militant about ethical issues, human rights, cover-ups, disadvantaged consumers, and transparency issues. The 1980s Incidents like bribery, illegal contract practices, influential peddling, misleading advertising, and financial fraud shaped the development of business ethics in the 1980s. Six principles of this initiative included: (a) the support of a code of conduct, (b) ethical training for employees, (c) an open atmosphere for employees to report violation without fear of retribution, (d) inclusion of internal audits with effective reporting, (e) the preservation of integrity in the defence industry, and (f) adopting a philosophy of public accountability. These initiatives have been adapted in many of today’s most successful organizations. The 1990s Business ethics serves to question the morality of business practices. Unsafe working conditions and sweatshops were brought to the forefront of ethical business practices in the 1990s because of outsourcing practices to underdeveloped third world countries that a growing number of corporations were engaged in. For example, that some privately owned factories in China worked their staffers twentyseven out of thirty days, eleven hours a day, to satisfy the growing demands of the expanding global market. In addition to the killing committed in sweatshops, the rise of corporate liability for personal


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damages also played an integral role in the evolution of business ethics. This was due to the exposure of illegal practices by the tobacco industry and the ethical misconduct from the fraud and financial mismanagement scandals that were exposed. The New Millennium Since the turn of the 21st century, new issues arose that continued to help business ethics evolve, like cybercrime, product safety, financial misconduct on a global level, theft of intellectual property, and ethical issues regarding the sustainability of organizations and products. To the increased abuses in corporate, government demanded an increase in the level of standard ethical practices in business operations. It also resulted in the creation of oversight boards that require companies to establish and identify a code of ethics with respect to financial reporting and the transparency of financial records to shareholders and other interested incumbents. Conclusion

Business ethics evolved from a variety of components that continue to bring about positive change. Leaders are required to operate within the framework of the law because they provide goods, services, and jobs, and are organized so that their success is reliant on the efficiency and effectiveness of their operations and the operators who guide them. In a professional arena, leaders must adhere to the parameters and legal frameworks established by society and their organization, as well as follow a standard code of ethics established by their company. The most effective employers understand that a strong foundation outlines the parameters of ethical practices and is a major contributing factor to employee commitment, investor loyalty, and consumer satisfaction that effect an organization’s profits and longevity. Need or Importance of Business Ethics Some unscrupulous businessmen do business malpractices by Stop business malpractices:  indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding, etc. These business malpractices are harmful to the consumers. Business ethics help to stop these business malpractices. Business ethics are needed to improve the customers' confidence I mpr ove customer s' confi dence:  about the quality, quantity, price, etc. of the products. The customers have more trust and confidence in the businessmen who follow ethical rules. They feel that such businessmen will not cheat them.  Business ethics are mandatory for the survival of business. The businessmen Sur vival of busin ess: who do not follow it will have short-term success, but they will fail in the long run. This is because they can cheat a consumer only once. After that, the consumer will not buy goods from that businessman. He will also tell others not to buy from that businessman. So this will defame his image and provoke a negative publicity. This will result in failure of the business. Therefore, if the businessmen do not follow ethical rules, he will fail in the market. So, it is always better to follow appropriate code of conduct to survive in the market. The consumer has many rights such as right to health and Safeguardi ng consumers' r igh ts:  safety, right to be informed, right to choose, right to be heard, right to redress, etc. But many businessmen do not respect and protect these rights. Business ethics are must to safeguard these rights of the consumers.  Business ethics are required to protect the interest of Protecti ng employees and shar ehol der s: employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation through unfair trade practices.  Develops good relati ons: Business ethics are important to develop good and friendly relations between business and society. This will result in a regular supply of good quality goods and


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services at low prices to the society. It will also result in profits for the businesses thereby resulting in growth of economy. Business ethics create a good image for the business and businessmen. If the Cr eates good image: businessmen follow all ethical rules, then they will be fully accepted and not criticised by the society. The society will always support those businessmen who follow this necessary code of conduct. If the business follows all the business ethics, then the employees, Smooth functioning: shareholders, consumers, dealers and suppliers will all be happy. So they will give full cooperation to the business. This will result in smooth functioning of the business. So, the business will grow, expand and diversify easily and quickly. It will have more sales and more profits. Business ethics are gaining importance because of the growth of the Consumer movement: consumer movement. Today, the consumers are aware of their rights. Now they are more organised and hence cannot be cheated easily. They take actions against those businessmen who indulge in bad business practices. They boycott poor quality, harmful, high-priced and counterfeit (duplicate) goods. Therefore, the only way to survive in business is to be honest and fair. Consumer satisfaction: Today, the consumer is the king of the market. Any business simply cannot survive without the consumers. Therefore, the main aim or objective of business is consumer satisfaction. If the consumer is not satisfied, then there will be no sales and thus no profits too. Consumer will be satisfied only if the business follows all the business ethics, and hence are highly needed. Labour, i.e. employees or workers play a very crucial role in the success of I mportance of labour : a business. Therefore, business must use business ethics while dealing with the employees. The business must give them proper wages and salaries and provide them with better working conditions. There must be good relations between employer and employees. The employees must also be given proper welfare facilities. H ealthy competiti on: The business must use business ethics while dealing with the competitors. They must have healthy competition with the competitors. They must not do cut-throat competition. Similarly, they must give equal opportunities to small-scale business. They must avoid monopoly. This is because a monopoly is harmful to the consumers.

Approaches of Business Ethics According to the philosophies, environment means humanity. Today’s ethics approaches note depending on keeping human wants under pressure for the benefits of all human beings. By these words environment includes not only men, but also animals, plants i.e., the nature. Ethics occurs by relations of humans with themselves and their physical and social environment. Therefore, the origin of the problems and solution is human. These approaches can be grouped into three groups: Th e hu man-or iented appr oach

For centuries, people have established a lot of establishments to achieve goals. Human beings have seen that producing something by cooperation is more productive and effective than doing it alone, so they have established enterprises. They have seen unlimited needs, increasing wants and scarcity of objects and they have also seen establishing enterprises as a way of producing more. Th e envi r onment ori ented approach

Humans saw a lot of impacts from our living. Air, water and soil pollution, the danger of consuming natural resources, acid rain, and gas, dust, and liquids industries caused, soiling of natural foods, industrial pollution, and dangerous wastes, just to mention a few problems we face. These environmental problems make us reconsider the goals of organizations and their responsibilities to the society and nature. The organizational goals are often not environmentally friendly. In some events the Department of MBA, GCEM

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goal of the establishment is opposite to the environment and sometimes organizational activities damage the environment in achieving the goals. In this process, we should emphasize the reasons why they should have responsibility. First, they use environmental resources and resources are limited. Second, they damage the environment by their activities. Third, they use common assets of mankind. The li ving or iented approach

The enterprises have various forces to influence the environment: Economic force, social and cultural force, technological force, politic force, forces on individuals and physical environment. In spite of these impacts and forces of establishments, there is no social control system on the activities of enterprises. This point emphasizes business ethics terms as an institutional framework, i.e., social ethics. As an institutional term, social ethics means searching ethical norms to protect the social benefits, and determining the possibilities for achieving a kind society. Then, business ethics means, the norms, duties, responsibilities, courses of actions of enterprises to protect the benefits of whole society. Conclusion

The first approach reconciles ethical values with economic goals. The second approach gives priority to the ethical values. The third approach is realistic approach. The last two approaches are very important for us to develop a new concept and term on business ethics. The approach which gives priority to the ethical values is important, because the enterprises are not a purpose; they are only a tool which we use to get benefits. If this tool causes various damages on the ecosystem to get profit, then we should revise our organizational goals, targets and activities. Therefore, these two approaches define the new term business ethics as an institutional concept. This concept includes both organizational responsibility and individual duties as business managers, also covered the ecos ystem. Sources of ethical knowledge for business Primarily ethics in business is affected by three sources - culture, religion and laws of the state. It is for this reason we do not have uniform or completely similar standards across the globe. These three factors exert influences to varying degrees on humans which ultimately get reflected in the ethics of the organization Religion  It is one of the oldest foundations of ethical standards. Religion wields varying influences across various groups of people. It is believed that ethics is a manifestation of the divine and so it draws a line between the good and the bad in the society. Depending upon the degree of religious influence we have different groups of people. Culture  Culture is a pattern of behaviours and values that are transferred from one generation to another, those that are considered as ideal or within the acceptable limits. No wonder therefore that it is the culture that predominantly determines what is wrong and what is right. It is the culture that defines certain behavior as acceptable and others as unacceptable. Human civilization in fact has passed through various cultures, wherein the moral code was redrafted depending upon the changes. Law  Laws are procedures and code of conduct that are laid down by the legal system of the state. They are meant to guide human behavior within the social fabric. The major problem with the law is that all the ethical expectations cannot be covered by the law and specially with ever changing outer environment the law keeps on changing but often fails to keep pac e. In business, complying with the rule of law is taken as ethical behavior, but organizations often break laws by evading taxes, compromising on quality, service norms etc.

Roots of unethical behaviour


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People often wonder why employees indulge in unethical practices such as lying, accepting bribery etc. there are certain factors that make the employee to think and act in unethical ways: Pressure to balance work and family Poor internal communication Poor leadership Long working hours Heavy work load Lack of management support Pressure to meet sales or profit goals No recognition of achievements Company politics Personal financial worries          

Ethical decision making Ethical decision making is a very tough prospect in this dog-eat-dog world. However, in the long run, all will have to fall in and play fair. Suggestions to conduct ethical business:  Is the decision you are taking legal? If not legal, it is not ethical.  Is the decision you are taking fair? In other words, it should be a win-win equitable risk and reward.

Some unethical issues  Theft - Theft at work comes in a variety of forms, and oftentimes employees do not view it as unethical behavior, believing no one gets hurt b y the action. Employees take home office supplies, use business computers for personal tasks, pad expense accounts and abuse sick time or allotted personal days. Unethical behavior also includes having another employee punch a time card, or not punching out for lunch hours or other non approved time off.  Vendor Relationships - Businesses that buy from and sell products to other businesses are sometimes subject to unethical behavior. The practice of accepting gifts from a vendor in exchange for increased purchasing is not only unethical, it may have legal repercussions.  Br ibery - Bribery is a manipulative method where one buys the power or the influence of other person in order to satisfy his selfish need. Bribes create a conflict of interest between the person receiving bribe and his/her organisation. This conflict would result in unethical behaviour.  Bendin g the Rules - Bending the rules in a business situation is often the result of a psychological stimulus. If an employee is asked to perform an unethical task by a supervisor or manager, he may do it because his allegiance to authority is greater than his need to abide by the rules. Turning the


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other way to avoid trouble for another employee is still unethical, even though the motivation may be empathetic. Envir onmental - Unethical behavior by companies, such as releasing pollutants into the air, can affect cities, towns, waterways and masses of people. Wages and Wor ki ng Condi ti ons - Other unethical practices include not paying workers a fair wage, employing children under the legal working age and unsafe or unsanitary working conditions. Any practices that are not in compliance with fair labour standards and federal working guidelines fall into this category. Tax Evasi on – there are major unethical practices towards tax evasion. Many large corporations hire the service of professional tax consultants to take advantage of loopholes in t he law and evade taxes to the extent possible. M i sr epresentati on - Corporate misrepresentation can take many forms. It can be as simple as a salesman who lies about his company's products, or it can be false or misleading advertising. Misrepresentation can involve a cover up of illegal workplace conditions or transactions; falsified data in a shareholder report; lying to a union about corporate profits; or hiding or denying safety problems with a product.

Benefits from managing ethics at workplace Attention to business ethics has substantially improved society – establishment of anti-trust laws,  unions, and other regulatory bodies has contributed to the development of the society.  Ethical practice has contributed towards high productivity and strong team work – organisation being a collection of individuals, the values reflected will be different from that of the organisation.  Changing situations require ethical education – one must have clear ethical guidelines to take right decisions. Ethical training will be a great help in those situations. Ethical practices create strong public image - organisations with strong ethical practices will  possess a strong image among the public. This image would lead to strong and continued loyalty.  Strong ethical practices act as insurance – in the long run, it would benefit if the organisation is equipped to withstand the competition. Ethical organisation Char acter istics of ethi cal organi sation 

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They are at ease interacting with diverse internal and external stakeholder groups. The ground rules of these firms make the good of these stakeholder groups part of the organisation’s own good. They are obsessed with fairness. Their ground rules emphasise that the order persons interests count as much as their own. Responsibility is individual rather than collective. They see their activities in terms of purpose. This purpose is a way of operating that members of the organisation highly value. There will be clear communication in ethical organisations.


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Basic Workplace Ethics for an Organization Rules and regulations ought to be same for everyone . Everyone needs to attend office on time  irrespective of their designation, distance of their home from the workplace, salary or status. An individual cannot come to office late just because he is the team leader and his team is already present and working on his behalf. If a day’s salary of a clerk is deducted for coming late to work, it should be the same for the marketing manager as well.  Company’s policies need to be communicated clearly to each and every one . There should be transparency at all levels of hierarchy. Employees are the backbone of any organization and thus they must have a say in company’s goals and objectives.  An organization ought to respect its employees to expect the same in return . Rules and regulations should not be too rigid. Don’t expect an employee to attend office two days before his marriage date. If an employee is not keeping well, please do not ask him/her to attend office unless and until there is an emergency. Management must not forget that money is a strong motivator for employees . Everything is  important, be it career, growth, job satisfaction but what is most important is employee’s salaries. Do not unnecessary hold their salaries for a long time unless and until there is really shortage of funds. In case of marketing and sales employees, conveyance and mobile bills must be cleared at the earliest. Do not ask for unnecessary bills and documents. Organization should not expect employees to attend office 365 days a year . It is the  responsibility of human resource professionals to prepare the holiday calendar at the beginning of the year and circulate the same among all employees. Let employees enjoy their respective festivals and come back to work with positive energy and smile. Give employees the space they require . Key responsibility areas need to be communicated to the  employees on the very first day of their joining. Roles and responsibilities need to be assigned as per an individual’s expertise and experience. Do not expect an emplo yee with one year experience to head the marketing team. Employees need to be trained well. Organizations need to give at least six months time to the new employees to adjust in the new environment. Salaries should be decided in the presence of the employee. Keeping in mind an individual’s  role in the organization, his/her gross salary in the previous organization, responsibilities within the current system and of course his/her years of experience. One of the major reasons as to why employees quit their jobs after a year or so is poor appraisal system. Increments ought to be


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directly proportional to the amount of hard work an employee puts in throughout the year and also his/her performance. Unnecessary favours are against the workplace ethics. Do not be too strict with your employees . Do not block all social networking sites. Blocking face book and Orkut is not the ideal way to ensure employees are working and not wasting their time. Even a 24 * 7 check would not prevent employees from wasting their time unless and until they realize it themselves. The moment, you are strict with something, people would tend to do the same more.

Myths about Business Ethics

Myth 1: - Business ethics is more a Matter of religion than management. Myth 2: - Our staff members are ethical so we don’t need attention to business Ethics. Myth 3: - Business ethics is a discipline best led by philosophers and academics. Myth 4: - Our organization is not in trouble with the law, so we’re ethical. Myth 5: - Business ethics is a matter of the good guys preaching to the bad Guys. Myth 6: - Business ethics is the new policeperson on the block. Myth 7: - Ethics can’t be managed. Myth 8: - Business ethics and social responsibility is the same thing.


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MODULE 06 CORPORATE SOCIAL RESPONSIBILITY Types and n atur e of social r esponsibi l iti es, CSR principl es and strategies, model s of CSR, Best pr actices of CSR, Need of CSR, Ar gum ents for an d again st CSR, CSR In dian perspective.

Introduction  Corporate social responsibility is a gesture of showing the company’s concern and commitment towards society’s sustainability and development.  Corporate social reporting is a method of communication to the society about the company’s desired action or the action actually performed by it. The reporting has triple bottom lines that can be expressed by the three P’s (profit, people and  planet). Corporate Social Responsibility is a management concept whereby companies integrate social and  environmental concerns in their business operations and interactions with their stakeholders.  CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing the expectations of shareholders and stakeholders.

Definition CSR is the continuing commitment by business to behave ethically and contribute to economic  development while improving the quality of life of the workforce and their families as well as of the local community and society at large.

CSR principles and strategies  Respect for human rights  Discrimination based on caste, class, colour, gender has to be avoided  Should make social contribution which will be useful for local people  Enter into a dialogue with the society before taking any CSR activity  Based on creativity and self – realisation both for the corporate sector and the local community  Fair dealing and collaboration with the participants Feedback from the community/society  Proactive and make some positive value – added service   Long run economic and social development of the community.

Models of corporate social responsibility 1. F r iedman model 

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According to him, a business man has no duty other than developing his business. If he looks after his business well, he is performing a social as well as moral duty. A business man has no other social responsibility to perform expect to serve his shareholders and stockholders.


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Milton Friedman's statement that a business's social responsibility lies in making profit has shown a controversial point of view in modern business. Some people believe in Friedman's ideas while others do not. Is it possible that Friedman can be both right and wrong? In business, there are different situations that require different perspectives and methods of approach. On one hand, it is correct to say that the main focus of a business should be to make profit. Without profit, a business can not survive. In a way, Friedman's theory does promote social responsibility to society. The increase of profits in a company benefits the economy which benefits the citizens of that economy. Friedman also believed that social responsibility should not be forced by the government. While most economists agree with this notion, many believe that he may have gone to an extreme by saying that it is the company's only social responsibility. Companies can still maintain their successful path while pursuing several different methods of social responsibility simultaneously. Responsibility to stakeholders can still be achieved while helping to strengthen the community. For example, companies can conduct research to provide a safer product to consumers. 2. Ackerman model

Robert Ackerman and Robert Bauer developed a model in 1976. The model has emphasised on the internal policy and their relation to the CSR. The four stages ar e as follows: is marked by the identification of the project that will be chosen for social delivery. Th e f ir st stage It also formulates strategies for the project. is devoted to the intensive study of the problem by hiring experts and getting Th e second stage their suggestions to make it operational. The intention to take up the project remains only internal to the firm. is very critical for the project as it is not only made public but is also The third stage implemented. However, at the initial stage, the work for the social project goes on very slowly until the company gets advised by the public body. is the stage of evaluation. In this stage the needs of the society are considered The four th stage very minutely and problems and issues are addressed. 

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Th er e ar e basical ly six str ategies i n t he adoption of CSR: The firm shows reluctance to adopt any social work ( r ejection str ategy)  

The firm opposes any CSR project unless and until the pressure comes from external sources. (adver sar y str ategy)

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The firm works slowly and tries to show that it cannot carry on CSR due to lack of certain factors. However, if the firm is pressurized by the government, then it yields and accepts the project. (r esistance strategy) CSR is accepted and tries to finish the project. (compl iance str ategy) The firm accommodates the requests of the shareholders or government agencies to work in certain ways for the fulfilment of CSR. (accommodati on str ategy) Go ahead with the project and complete it according to the priority pattern of the firm. (pr oactive str ategy)


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3. Carr oll model

4. Envir onmental i ntegri ty and communi ty health model 

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Business people believe that if the corporate sector can positively contribute to the environmental integrity and human health, there will be greater opportunities for the expansion of business in general and this will, in turn, maximise profits. Healthy people can work more and earn more. So, consumers spending will increase and so will the profit. Therefore, in the same form CSR is beneficial for the corporate sector.

5. Corpor ate cit izenship model 

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The model posits that when a business behaves in a way that satisfies philanthropic(discretionary), legal and economic responsibilities well in the corporate world, it is entitled to corporate citizenship To be a corporate citizen, a corporate firm has to satisfy following conditions – consistently satisfactory and sustainable economic performance, ethical actions and behaviour and voluntary social actions that enhance the reputation of the company.

6. Stockh older s and stakehol der m odel 

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The model discusses two types of social orientations of a firm towards its economic stockholders and social stakeholders. There are two types of motives that underlie these two orientations. These motives are: - self – interest and moral duty. Productivism and philanthropy are the two orientations of the stockholders. Progressivism and ethical idealism are the orientations of stakeholders.


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Fig: - 7.2 ORIENTATION

Stockholder model

S E

Stakeholder model

Self

1 Productivism

2 Progressivism

Interest

Moral

3 Philanthropy

4 Ethical idealism

Duty

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Productivists believe that the only mission of a corporation is to maximize the self – interest (profit). Philanthropists who entertain stockholders’ views propose that helping the poor and the needy can be justified in terms of morality. To ethical idealists, the line between business and society is thin, and they believe in the sharing of corporate profits for humanitarian activities. Progressivists are of the opinion that although corporate behaviour is basically motivated by self – interest.

7. Towar ds a new model of CSR 

This model will concentrate on two critical factors that make the undertaking of CSR possible or impossible. These two factors are financial capability and ethical rooting. Fig 7.3

Types of social responsibility


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Best practices of CSR The best CSR practices should have the following characteristics: It is necessary to set a feasible, viable and measurable goal. Limit the CSR project according to  resource availability. Initially it should be a short t erm project. The wastage should be minimized.  It should build a lasting relationship with the community. This can be done by cooperation, partnership and understanding. CSR practice is the ideal which retains the community core values and yet makes social progress   The impact of the CSR needs to be assessed from time to time through discussion and opinion survey.  Reporting the impact through the media and publicity is essential for a good CSR project.


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         

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The project should create community awareness and the community itself should be motivated in various ways to undertake similar future projects. Engage the shareholders in the project

Need and importance of CSR Consumers increasingly don't accept unethical business practices or organisations who act irresponsibly. Advances in social media (giving everyone a voice) mean that negative or destructive practices quickly fuel conversations online. Organisations are accountable for their actions like never before. CSR should not be viewed as a drain on resources, because carefully implemented CSR policies can help your organisation: Win new business Increase customer retention Develop and enhance relationships with customers, suppliers and networks Attract, retain and maintain a happy workforce and be an Employer of Choice Save money on energy and operating costs and manage risk Differentiate yourself from your competitors Generate innovation and learning and enhance your influence Improve your business reputation and standing Provide access to investment and funding opportunities Generate positive publicity and media opportunities due to media interest in ethical business activities Arguments in favour of CSR:  : Social expectations of business have increased dramatically since the 1960s. Publ ic expectations Public opinion in support of business pursuing social as well as economic goals is now well solidified.  : Socially responsible businesses tend to have more and secure long run profits. Long run profits This is the normal result of the better community relations and improved business image that responsible.  : A business firm can and should have a conscience. Business should be Ethical obligation socially responsible because responsible actions are right for their own sake. : Firms seek to enhance their public image to gain more customers, better Public image  employees, access to money markets, and other benefits. Since the public considers social goals to be important, business can create a favourable public image by pursuing social goals. : Involvement by business can solve difficult social problems, thus creating a Better envir onment  better quality of life and a more desirable community in which to attract and hold skilled employees. : Government regulation adds economic costs Di scour agement of fu rth er gover nment r egulation  and restricts management’s decision flexibility by becoming socially responsible, business can expect less government regulation. : Business has a large amount of power in society. An equally Bal ance of r esponsibi l ity an d power  large amount of responsibility is required to balance it. When power is significantly greater than responsibility, the imbalance encourages irresponsible behavior that works against the public good.  : Social responsibility will improve the price of a business’s stock in the long Stockhol der in ter ests run. The stock market will view the socially responsible company as less risky and open to public attack. Therefore, it will award its stock a higher price earning ratio.  : Business has the financial resources, technical experts, and managerial Possessi on of r esour ces talent to provide support to public and charitable projects that need assistance.


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: Social problems must be dealt with at sometime. Business Superi ori ty of preventi on over cu r es should act on them before they become serious and costly to correct and take management’s energy away from accomplishing its goal of production goods and services.

Arguments against CSR: 

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: This is the essence of the classical viewpoint. Business is most Violation of profit maximization socially responsible when it attends strictly to its economic interests and leaves other activities to other institutions. : The pursuit of social goals dilutes business’s primary purpose: economic Dil ution of purpose productivity. Society may suffer as both economic and social goals are poorly accomplished. Many socially responsible activities do not pay their own way. Someone has to pay these Costs: costs. Business must absorb these costs or pass them on to consumers in higher prices. : Business is already one of the most powerful institutions in our society. If it Too mu ch power pursued social goals, it would have even more power. Society has given business enough power. : The outlook and abilities of business leaders are oriented primarily toward L ack of skil ls economies. Business people are poorly qualified to cope with social issues. : Political representatives pursue social goals and ar6e held accountable for L ack of accountabil ity their actions. Such is not the case with business leaders. There are no direct lines of social accountability from the business sector to the public. : There is no broad mandate from society for business to become L ack of broad public support involved in social issues. The public is divided on the issue. In fact, it is a topic that usually generates a heated debate. Actions taken under such divided support are likely to fail.

Corporate Social Responsibility: Initiatives and Examples in India Anand Corporate Services Limited Anand has a longstanding commitment to addressing the needs of the society, in view of its belief that for any economic development to be meaningful, the benefits from the business must trickle down to the society at large. Anand is of the firm view that the corporate goals must be aligned with the larger societal goals. 25 years ago, the SNS Foundation, an expression of Anand’s corporate social responsibility, was born. The objective of SNS foundation was comprehensive community development. The Foundation has created programs in the fields of health, education, natural resource management and life skills training, only to make sure that fellow humans could breathe easy. The long term goal of Anand CSR is to implement concepts like ‘Zero Tolerance Zone for Child Labour’, ‘Zero Waste Zone’ using strategies like Reduce, Recycle and Reuse not only at Anand/SNSF locations but extend to Anand residential areas. Aptech Limited Aptech Limited, a leading education player with a global presence, has played an extensive and sustained role in encouraging and fostering education throughout the country since inception. As a global player with complete solutions-providing capability, Aptech has a long history of participating in community activities. It has, in association with leading NGOs, provided computers at schools, education to the underprivileged and conducted training and awareness-camps. Aptech students donated part of the proceeds from the sale of their art work to NGOs. To propagate education among all sections of the society throughout the country, especially the underprivileged, Aptech fosters tie-ups with leading NGOs throughout the country, including the Barrackpur-based NGO, Udayan, a residential school for children of leprosy patients in Barrackpur, established in 1970.The company strongly believes that education is an integral part of the country’s social fabric and works towards supporting basic education and basic computer literacy amongst the underprivileged children in India.


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Avon Cycle Limited The poor and ignorant of India’s rural population turn to nearest towns and cities f or healthcare. They face in difference and exploitation. Hope gives way to despair. This gave inspiration to AVON for locating MATAKAUSHALYA DEVI, PAHWA CHARITABLE HOSPITAL. Mr. Sohan Lal Pahwa, AVON's Chairman and Principal Trustee of the hospital, spent a good part of his working life devoted to philanthropy. The hospital, in its 5th year of inception, has risen to serve a model healthcare facility boasting of some bold experiments in its very early years of existence. Its support since inception has been of the order of Rs. 3 crore to date and it continues uninterrupted. Reaching out to the needy farther afield, the hospital holds regular camps in surrounding villages to propagate scientific approach to healthcare. Recently the hospital took the social responsibility concept a step further and formulated a scheme titled 'Celebrated Female Child' to enable and inspire positive and enduring environment for society's all – consuming passion for 'sons only' to end.

CISCO System Inc. Philanthropy at Cisco is about building strong and productive global communities - communities in which every individual has the means to live, the opportunity to learn, and the chance to give back. The company pursues a strong “triple bottom line” which is described as profits, people and presence. The company promotes a culture of charitable giving and connects employees to non-profit organizations serving the communities where they live. Cisco invests its best-in-class networking equipment to those non-profit organizations that best put it to work for their communities, eventuating in positive global impact. It takes its responsibility seriously as a global citizen. Education is a top corporate priority for Cisco, as it is the key to prosperity and opportunity. ICICI Bank Ltd The Social Initiatives Group (SIG) of ICICI Bank Ltd works with a mission to build the capacities of the poorest of the poor to participate in the larger economy. The group identifies and supports initiatives designed to break the intergenerational cycle of poor health and nutrition ensure essential early childhood education and schooling as well as access to basic financial services. Thus, by promoting early child health, catalysing universal elementary education and maximizing access to micro financial services, ICICI Bank believes that it can build the capacities of India’s poor to participate in larger socioeconomic processes and thereby spur the overall development of the country. The SIG works by understanding the status of existing systems of service delivery and identifying critical knowledge and practice gaps in their functioning. It locates cost effective and scalable initiatives and approaches that have the potential to address these gaps and supports research to understand their impact. This is undertaken in collaboration with research agencies, nongovernmental organisations (NGOs), companies, government departments, local stakeholders and international organisations. Infosys Technologies Limited Infosys is actively involved in various community development programs. Infosys promoted, in 1996, the Infosys Foundation as a not-for-profit trust to which it contributes up to 1%PAT every year. Additionally, the Education and Research Department (E&R) at Infosys also works with employee volunteers on community development projects. Infosys leadership has set examples in the area of corporate citizenship and has involved itself actively in key national bodies. They have taken initiatives to work in the areas of Research and Education, Community Service, Rural Reach Programme, Employment, Welfare activities undertaken by the Infosys Foundation, Healthcare for the poor, Education and Arts & Culture.


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ITC Limited ITC partnered the Indian farmer for close to a century. ITC is now engaged in elevating this partnership to a new paradigm by leveraging information technology through its trailblazing 'e-Choupal' initiative. ITC is significantly widening its farmer partnerships to embrace a host of value-adding activities: creating livelihoods by helping poor tri bal’s make their wastelands productive; investing in rainwater harvesting to bring much-needed irrigation to parched dry lands; empowering rural women by helping them evolve into entrepreneurs; and providing infrastructural support to make schools exciting for village children. Through these rural partnerships, ITC touches the lives of nearly 3 million villagers across India. Mahindra & Mahindra The K. C. Mahindra Education Trust was established in 1953 by late Mr. K. C. Mahindra with an objective to promote education. Its vision is to transform the lives of people in India through education, financial assistance and recognition to them, across age groups and across income strata. The K. C. Mahindra Education Trust undertakes a number of education initiatives, which make a difference to the lives of deserving students. The Trust has provided more than Rs. 7.5 Crore in the form of grants, scholarships and loans. It promotes education mainly by the way of scholarships. The Nanhi Kali project has over 3,300 children under it. We aim to increase the number of Nanhi Kalis (children) to 10,000 in the next 2 years, by reaching out to the underprivileged children especially in rural areas. Satyam Computer Services Limited Alambana (support) is the corporate social responsibility arm of Satyam Computer Services Limited, formed to support and strengthen the vulnerable and underprivileged sections in urban India. Registered as Satyam Alambana Trust in 2000, Alambana aims at transforming the quality of life among urban population. Alambana's services are directed primarily at the disadvantaged sections in all the cities that Satyam has offices in. Volunteers from among Satyam associates and their family members lead the services and perform the required tasks. Tata Consultancy Services The Adult Literacy Program (ALP) was conceived and set up by Dr. F C Kohli along with Prof. P N Murthy and Prof. Kesav Nori of Tata Consultancy Services in May 2000 to address the problem of illiteracy. ALP believes illiteracy is a major social concern affecting a third of the Indian population comprising old and young adults. To accelerate the rate of learning, it uses a TCS-designed Computer – Based Functional Literacy Method (CBFL), an innovative teaching strategy that uses multimedia softw are to teach adults to read within about 40 learning hours. Dalmia Cement (Bharat) Limited The water source for the villages in and around the Dalmia Cement factory is dependent on rains. During summer months, the villagers, particularly women folk, travel long distances to fetch water for drinking and other purposes. Considering the difficulties and hardship faced by the people, the company, after discussing with the village elders and concerned Government authorities,took the initiative of making water available by: Providing deep bore wells. So far, 45 bore wells have been provided in various villages, namely Kallakudi, Palanganathan, Malvoi, Elakkurichi, Muthuvathur, Pullabmadi, Edayathankudi etc. Approximately, 300 to 400 people get adequate drinking water from each bore well. Water tanks to store the water. Rain and seepage water is harvested in the quarries of the company is pumped into a tank and supplied to inhabitants. 44,000 trees were planted and nurtured over a period of eight years. The presence of large trees and vast greenery has considerably improved the ecology in the area.


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DCM Shriram Consolidated Limited Shriram Fertilisers and Chemicals, is a unit of DSCL, located at Kota, 475 kms. Over the last 3 decades, various initiatives have been undertaken by the unit, in the Hadoti region (Kota, Bundi, Jhalawar districts) in ICU, ambulances, family planning, medical assistance;schools, scholarships, emphasis on girl child education;water to people and infrastructure. Good earth Education Foundation (GEF) Work of GEF was initiated in 1996 with a project in the Rai Bareilly district in Uttar Pradesh. The four-year project covered 63 government schools and benefited 15,000 children. GEF is currently implementing projects in Thane district, Maharashtra (in 56 schools & balwadis), Alwar District, Rajasthan (this Project is being implemented in partnership with the NGO Bodh Shiksha Samiti, covering 71 schools & balwadis) and Solan district, Himachal Pradesh (10 Balwadis). GEF Objectives include providing equal opportunities in pre-primary& primary educati on to all children, chil dren, and quality of education by ensuring that it is relevant, effective and activity based. Hindustan Construction Company (HCC) HCC plays an active role in CSR initiatives in the fields of Health, Education, Disaster Management, and Environment. Disaster Resource Network DRN is a worldwide initiative, promoted by the World Economic Forum (WEF).Trained volunteers and equipment resources from Engineering Construction & Logistics companies will complement the existing efforts of Government, NGO's and International Organizations in disaster management. It was during the WEF annual meet that the massive earthquake struck Gujarat in January 2001. The need for a trained and effective participation from industry was first felt there. The members of Engineering and Logistics segment of WEF came together to establish this network. The idea was further strengthened during the 9/11 incident where again the industry participated in the relief operations. DRN Worldwide was formally launched in New York in January 2002. And shortly thereafter, DRN - India Initiative was launched. India Aluminium Company Limited The Women's Empowerment project was initiated by Indal-Muri in Jharkhand where the Company operates an alumina refining plant. It was implemented in collaboration with an NGO, CAREJharkhand. The central problem this project has attempted to address is the very low socio-economic condition of the rural and tribal population of Silli block caused by low agricultural productivity, lack of or low cash income, unresponsive health/ Integrated Child Development Services (ICDS)schemes. The Project has helped set up around 100 Self Help Groups so far, which are running successfully with members trained in various vocational income – generating generating skills, agricultural methods for better yields and health care initiatives. About 2000 women have been brought into the fold of this activity helping to improve not justtheir own lives but the quality of life of their children and families as well. The Indal Women's Empowerment & Child Care project employed integrated package of strategies and interventions, such as: Establishment and Strengthening of Self Help Groups (SHG) in 30 strategically selected villages; Promotion of Nutrition Gardens and improved land / agricultural and natural resource management practices; and Creation of demand for improved ICDS/ health services through Self Help Groups and strengthening ICDS/ Health Department's service deli very JCB India Ltd. JCB India adopted a Government school, in the vicinity of the company premises as its social responsibility. They strongly believe that children are the foundation of our nation and they could be helped, we could build a better community and society tomorrow. The reason for adopting this particular school was the poor management of the school in terms of infrastructure, resources and quality of education. The company’s commitment to the school the school goes much beyond just providing monetary support towards infrastructure and maintenance of school building.


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Larsen & Toubro (L & T) Limited Considering that construction industry is the second largest employer in India after agriculture, employing about 32 million-strong workforce, L&T set out to regulate and promote Construction Vocational Training (CVT) in India by establishing a Construction Skills Training Institute (CSTI) on a 5.5 acre land, close to its Construction Division Headquarters at Manapakkam, Chennai. CSTI imparts, totally free of cost, basic training in formwork, carpentry, masonry, bar-bending, plumbing and sanitary, scaffolder and electrical wireman trades to a wide spectrum of the rural poor. As a result of the good response it received in Chennai, CSTI set up a branch at Panvel, Mumbai, initially offering training in formwork, carpentry and masonry trades. The Manapakkam and Panvel facilities together provide training to about 300 candidates annually who are inducted after a process of selection, the minimum qualification being tenth standard. Since inception, these two units have produced about 2,000 skilled workmen in various trades, wit h about sixty percent of them being deployed to L&T’s jobsites spread across the country. The success of this training-initiative demonstrates that adoption of systematic training techniques are bound to yield efficient and skilled personnel in the shortest possible time, and in the power to convert the potential of the Rural Youth in Construction and upgrading Rural Economy in a small way


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- meaning of contract, agreement, essential elements of a valid contract. Law of L aw of of contract agency- meaning, creation and termination of agency. Bailment and Pledge - meaning, rights and duties of bailor and bailee. Sal Sal e of Goods Act 1930: Definition of Sale, Sale v/s Agreement to Sell, Goods, Condition and Warranties, Express and Implied Condition, “Doctrine of Caveat Emptor”, Right and duties of Unpaid Seller. Meaning, scope and objectives of - Intellectual property law, law relating to patents, law relating to copyrights, law relating to trade mark.

INTRODUCTION: As we approach the new century, our world is increasingly described as a global village and our times as the post-geography era. Political boundaries are becoming less of a barrier in the face of the explosive growth of global investment and trade. Almost hundred investment laws and over a thousand bilateral investment treaties have extended to foreign investors, legal treatment equal, or similar to, that enjoyed by local investors. The right to national treatment is progressively finding its way to becoming part of customary international law. In these circumstances, it is no longer appropriate to speak of the need for a separate legal framework for international business distinct from that applicable to domestic business. What is needed is a legal framework that allows private business, regardless of whether it is domestic or foreign, to grow and prosper.

If your business is going to succeed you need to ensure that it is legally sound. This means that you need to get legal advice from a registered law firm or solicitor. This guide outlines what kind of legal advice you will need to get and why it is so important to get it. Why you need legal advice The main forms of advice What else a solicitor will help with   

Why need legal advice Yes, getting legal advice is an additional cost to your business but it can save you a lot more money in the long run. It is much easier to sort legal issues out at the beginning of your business instead of later when they can be more problematic and more costly. If you and your business are fully aware of relevant laws and regulations then it gives a sounder foundation to your venture. It shows that your business is built to last and has the ability to anticipate and react to change.  It is an extra cost for your company but getting legal advice now will save you time and money in the long run  It gives a solid foundation to your business and means you are prepared for the What else a solicitor will help with

They will act for you in a legal dispute and if you have to go to court. They can also give you advice if you have a website and are unsure about its legal ins and outs. They can also give you advice on financial matters such as how to keep your taxes to a minimum.  A solicitor will represent you if you become involved in a legal dispute and have to go to court  The effects of a flawed legal system on the business environment may be found in many areas which are only too familiar to businessmen.


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Here are some examples of what usually happens in the absence of appropriate and enforced legal rules: “The ef fects on contr acts: Respect for contractual obligations will be left entirely to the good will of the contracting parties, agreements will be binding only to the extent their beneficiaries have effective power to make them so, and resorting to extra-legal means will become an ordinary method of enforcement. “The eff ect on pr oper ty ri ghts : Individuals and corporations will tend to acquire only the assets over which they can maintain effective property rights. Many will prefer to liquidate their assets and keep them in the form of deposits or portfolio investments abroad, putting pressure on the value of the local currency. "Ef fect on corporati ons: Most companies will take the form of closed corporations where shares are held by reliable friends and relatives, thus barring the formation of large domestic joint-stock companies and depriving ordinary citizens of opportunities to own stock portfolios. "Ef fect on the banki ng system: Banks will lend only to those who can offer real assets as collateral, or to those who have effective, namely political, power in the society, thus limiting the growth of the banking sector and of new investment while reinforcing the concentration of wealth. Debt recovery will become a major problem for banks, threatening their very existence. Both the banking system and the capital market will not properly function in the absence of an adequate regulatory framework strictly supervised by efficient agencies. Furthermore, different types of financial mechanisms will emerge, promising quick and lucrative returns, but ending in failures which may affect t he economy as a whole. "Effect on the transfer of technology: The inflow of foreign direct investment, which normally introduces more modern technology, will slow down. Weak protection of intellectual property rights will stifle invention and the development of new ideas. “Effect on transaction costs: Enterprises will avoid competitive bidding as a normal method of procurement, preferring to deal with familiar and reli able sources. They will also tend to seek favors from public officials through illegal means.

"Ef fect on ongoing legislation and regul ation: Weak or ineffective laws usually lead to the enactment of further laws and regulations. An over-regulated economy undermines new investment, increases the cost of existing ones, and leads to the spread of corruption. The multiplication of laws and regulations also reduces their quality and the chances of their enforcement. The absence of judicial review, or its high cost, and delays in the administration of justice add to the negative impact. “ Ef fect on th e extent of cr im in al of fenses in the economic sphere: Weak, ineffective, or excessive laws lead to tax evasion, smuggling, and the growth of organized crime.

What is Business Law? Businesses interact in many and varied ways. To name just a few types of business transactions, there are contracts, mergers and acquisitions, leasing, etc. How these transactions are carried out is overseen by Business Law. Additionally, how businesses are formed is a large part of Business law. This area of law is very wide-ranging, although it deals primarily with defining the rights and responsibilities of businesses, rather than enforcing these laws.


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LAW OF CONTRACT: We enter into contracts day after day. Taking a seat in a bus amounts to entering into a contract. When you put a coin in the slot of a weighing machine, you have entered into a contract. You go to a restaurant and take snacks; you have entered into a contract. In such cases, we do not even realise that we are making a contract. In the case of people engaged in trade, commerce and industry, they carry on business by entering into contracts.

The law relating to contracts is to be found in the Indian Contract Act, 1872. The law of contracts differs from other branches of law in a very important respect. It does not lay down so many precise rights and duties which the law will protect and enforce; it contains rather a number of limiting principles, subject to which the parties may create rights and duties for themselves and the law will uphold those rights and duties. Thus, we can say that the parties to a contract, in a sense make the law for themselves. So long as they do not transgress some legal prohibition, they can frame any rules they like in regard to the subject matter of their contract and the law will give effect to their contract. WHAT IS A CONTRACT? Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law. Section 2(e) defines agreement as ―every promise and every set of promises forming consideration for each other.‖ Section 2(b) defines promise in these words: ―When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise.‖ from the above definition of promise, it is obvious that an agreement is an accepted proposal. The two elements of an agreement are: (i) Offer or a proposal (ii) An acceptance of that offer or proposal.

What agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy. Thus, a contract consists of two elements: (i) An agreement (ii) Legal obligation, i.e., it should be enforceable at law. However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts. Examples (1) A invites B for dinner in a restaurant. B accepts the invitation. On the appointed day, B goes to the restaurant. To his utter surprise A is not there. Or A is there but refuses to entertain B. B has no remedy against A. In case A is present in the restaurant but B fails to turn-up, then A has no remedy against B. (2) A gives a promise to his son to give him a pocket allowance of Rupees one hundred every month. In case A fails or refuses to give his son the promised amount, his son has no remedy against A. In the above examples promises are not enforceable at law as there was no intention to create legal obligations. Such agreements are social agreements which do not give rise to legal consequences. This shows that an agreement is a broader term than a contract. And, therefore, a contract is an agreement but an agreement is not necessarily a contract.


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ESSENTIAL ELEMENTS OF A VALID CONTRACT We have seen that the two elements of a contract are: (1) An agreement; (2) Legal obligation. Section 10 of the Act provides for some more elements which are essential in order to constitute a valid contract. It reads as follows: ―All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereb y expressly declared to be void.‖

Thus, the essenti al elements of a vali d contr act can be summed up as follows 1. Agreement. 2. Intention to create legal relationship. 3. Free and genuine consent. 4. Parties competent to contract. 5. Lawful consideration. 6. Lawful object. 7. Agreements not declared void or illegal. 8. Certainty of meaning. 9. Possibility of performance. 10. Necessary Legal Formalities. These essential elements are explained briefly. 1. Agreement As already mentioned, to constitute a contract there must be an agreement. An agreement is composed of two elements — offer and acceptance. The party making the offer is known as the offer or, the party to whom the offer is made is known as the offeree. Thus, there are essentially to be two parties to an agreement. They both must be thinking of the same thing in the same sense. In other words, there must be consensus-ad-idem. 2. Intention to create legal relationship As already mentioned there should be an intention on the part of the parties to the agreement to create a legal relationship. An agreement of a purely social or domestic nature is not a contract. 3. Free and genuine consent The consent of the parties to the agreement must be free and genuine. The consent of the parties should not be obtained by misrepresentation, fraud, undue influence, coercion or mi stake. If the consent is obtained by any of these flaws, then the contract is not valid. 4. Parties competent to contract The parties to a contract should be competent to enter into a contract. According to Section 11, every person is competent to contract if he (i) is of the age of majority, (ii) is of sound mind, and (iii) is not disqualified from contracting by any law to which he is subject. Thus, there may be a flaw in capacity of parties to the contract. The flaw in capacity may be due to minority, lunacy, idiocy, drunkenness or status. If a party to a contract suffers from any of these flaws, the contract is unenforceable except in certain exceptional circumstances.


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5. Lawful consideration The agreement must be supported by consideration on both sides. Each party to the agreement must give or promise something and receive something or a promise in return. Consideration is the price for which the promise of the other is sought. However, this price need not be in terms of money. In case the promise is not supported by consideration, the promise will be nudum pactum (a bare promise) and is not enforceable at law. Moreover, the consideration must be real and lawful. 6. Lawful object The object of the agreement must be lawful and not one which the law disapproves. 7. Agreements not declared illegal or void There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable at law. 8. Certainty of meaning The meaning of the agreement must be certain or capable of being made certain otherwise the agreement will not be enforceable at law. For instance, A agrees to sell 10 meters of cloth. There is nothing whatever to show what type of cloth was intended. The agreement is not enforceable for want of certainty of meaning. If, on the other hand, the special description of the cloth is expressly stated, say Terrycot (80 : 20), the agreement would be enforceable as there i s no uncertainly as to its meaning. However, an agreement to agree is not a concluded contract. 9. Possibility of performance The terms of the agreement should be capable of performance. An agreement to do an act impossible in itself cannot be enforced. For instance, A agrees with B to discover treasure by magic. The agreement cannot be enforced. 10. Necessary legal formalities A contract may be oral or in writing. If, however, a particular type of contract is required by law to be in writing, it must comply with the necessary formalities as to writing, registration and attestation, if necessary. If these legal formalities are not carried out, then the contract is not enforceable at law.

LAW OF AGENCY: Meaning: The law of agency is an area of commercial law dealing with a set of contractual, quasicontractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create legal relations with a third party. Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, expressly or implicitly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between:  Agents and principals (internal relationship), known as the principal-agent relationship  Agents and the third parties with whom they deal on their principals' behalf (external relationship)  Principals and the third parties when the agents purport to deal on their behalf.


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Liability L iabil ity of agent to thir d party

If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, so long as the relationship of the agency and the identity of the principal have been disclosed. When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of authority. L iabil ity of agent to pri ncipal

If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage. L iabil ity of prin cipal to agent

If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business. Duties An agent owes the principal a number of duties. These include:  A duty to undertake the task or tasks specified by the terms of the agency;  A duty to discharge his duties with care and due dil igence;

An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate. Termination The internal agency relationship may be dissolved by agreement. Under sections 201 to 210 of the Indian Contract Act 1872, an agency may come to an end in a variety of ways: 1. Withdrawal by the agent – however, the principal cannot revoke an agency coupled with interest to the prejudice of such interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, the principal cannot revoke the agent‘s authority till the goods are actually sold and debts satisfied, nor is the agency terminated by death or insanity (illustrations to s. 201); 2. By the agent renouncing the business of agency; 3. By discharge of the contractual agency obligations.

Alternatively, agency may be terminated by operation of law: 1. By the death of either party; 2. By the insanity of either party; 3. By the bankruptcy (insolvency) of either party;


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The principal also cannot revoke the agent‘s authority after it has been partly exercised, so as to bind the principal (s. 204), though he can always do so, before such authority has been so exercised (s. 203). Further, under s. 205, if the agency is for a fixed period, the principal cannot terminate the agency before the time expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill, continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid (s. 206). Under s. 207, the revocation or renunciation of an agency may be made expressly or implicitly by conduct. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them (s. 208). Agency relationships Agency relationships are common in many professional areas.  Employment.  Financial advice (insurance agency, stock brokerage, accountancy)  Contract negotiation and promotion (business management) such as for publishing, fashion model, music, movies, theatre, show business, and sport.

An agent in commercial law (also referred to as a manager) is a person who is authorized to act on behalf of another (called the principal or client) to create a legal relationship with a third party.

BAILMENT Th e r ightf ul possession of goods by one who is not the owner

Delivery of goods by one person to another for some purpose upon a contract that they shall be returned or disposed off according to the directions of the person delivering them Deli ver y upon contr act In the Indian context, delivery of goods should be made for some purpose and upon a contract that when the purpose is accomplished the goods shall be returned to the bailor. It follows that if a person‘s goods go into the possession of another without contract, t here is no bailment Duties of a Bailor Duty of Gr atuitous Bailor

The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware. Duty of Bailor f or r eward

The bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed. Duties of a Bailee Du ty of r easonable car e

The bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances take, of his own goods of the same bulk, quality and value as the goods bailed. Department of MBA, GCEM

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PLEDGE             

The bailment of goods as security for payment of debt or performance of a promise. Pledge is a special kind of bailment The chief basis of distinction is the object of the contract Bailment is to provide a security for a loan or for the fulfilment of an obligation Bailor is called the pawnor Bailee is called the Pawnee Delivery of possession is a necessary element in the making of a pawn Delivery may be actual or constructive Delivery of documents of title is equally effective to create a pledge Pledge is a conveyance pursuant to a contract Delivery and advance need not be simultaneous Pledge may be perfected by delivery after the advance is made Delivery may be made before or in contemplation of an advance

Rights of the Pawnee Right of retainer: Until dues are paid (interest & expenses) Right to extraordinary expenses: Expenses incurred for the preservation of the goods No right of retainer, he can only sue to recover Right of sale when pawnor defaults: After giving pawnor reasonable notice of sale. If proceeds are less than the amount due, pawnor is still liable to pay the balance & if proceeds are greater than the amount due, the Pawnee shall pay over the surplus to the pawnor.

SALE OF GOODS ACT -1930 This Act may be called the Sale of Goods Act, 1930. It extends to the whole of India (except the State of Jammu and Kashmir). It shall come into force on the 1st day of July, 1930 Definitions. - In this Act, unless there is anything repugnant in the subject of content(1) “Buyer" means a person who buys or agrees to buy goods, (2) "Delivery" means voluntary transfer of possession from one person to another. Sale v/s agreement to sell: (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfill ed, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.


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Contract of Sale how made -. (1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed. (2) Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partl y by word of mouth or may be implied from the conduct of the parties. Goods: (1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods. (2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen. (3) Whereby a contract of sale the seller purports to affect a present sale of future goods, the contract operates as an agreement to sell the goods. Goods perishing before making of contract: - Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, perished or become so damaged as no longer to answe r to their description in the contract. Goods perishing before sale but after agreement to sell.- Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided. Ascertainment of price: (1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. (2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. Agreement to sell at valuation: (1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party cannot or does not make such valuation, the agreement is thereby avoided. Provided that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he shall pay a reasonable price therefore (2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in fault. Condition and warranty.(1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. (2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to right to treat the contract as repudiated. (3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. (4) Whether a stipulation in a contract of sale is condition or a warranty depends in each case on the construction of the contract.


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When condition to be treated as warranty.1) Where a contract of sale is subject to any condition to the fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for relating the contract as repudiated. (2) Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect. (3) Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility of otherwise. Implied undertaking as to tile: - In a contract of sale, unless the circumstances of the contract are such as to show a different intention there is(a) An implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. (b) An implied warranty that the buyer shall have and enjo y quiet possession of the goods. (c) An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made. Sale by description: - Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description, and, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. Sale by sample.(1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. (2) In the case of a contract for sale by sample there is an implied condition (a) That the bulk shall corresponded with the sample in quality. (b) That the shall have a reasonable opportunity of comparing the bulk with the sample. (c) That the goods shall be free from any defect, rendering them un-merchantable, which would not be apparent on reasonable examination of the Effects of the Contract Goods must be ascertained: - Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are sanctioned. Property passes when intended to pass: (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (3) Unless a different intention appears, the rules contained in Section 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Specific goods in a deliverable state: - Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.


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Specific goods to be put into a deliverable state: - Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price: - Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with re ference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. Sale of unascertained goods and appropriation: (1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made. (2) Delivery to carrier: - Where, in pursuance of the contract, the seller delivers the goods Goods sect on approval or „on sale or return - when goods are delivered to the buyer on approval or on sale or return or other similar terms, the property therein passes to the buyer(a) When he signifies his approval or acceptance to the seller to does not other act adopting the transaction. (b) If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if not time has been fixed, on the expiration of a reasonable time. Reservation of right of disposal: (1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. (2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of landing or railway receipt, as the case ma y be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal. (3) Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange together with the bill of lading or, as they may be, the railway receipt, to secure acceptance to payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway rec eipt if he does not honour the bill of exchange, and, if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him. Doctr i ne of Caveat emptor

Under the principle of caveat emptor , the buyer could not recover damages from the seller for defects on the property that rendered the property unfit for ordinary purposes. The only exception was if the seller actively concealed latent defects or otherwise made material misrepresentations amounting to fraud. Before statutory law, the buyer had no express warranty ensuring the quality of goods. Common law requires that goods must be "fit for the particular purpose" and of "merchantable quality" but this implied warranty can be difficult to enforce and may not apply to all products. Hence, buyers are still advised to be cautious. Department of MBA, GCEM

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Performance of the Contract Duties of seller and buyer: - It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. Payment and delivery are concurrent conditions: - Unless otherwise agreed, delivery of the gods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods. Delivery: - Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them on his behalf. Effect of part delivery: - A delivery of part of goods, in progress of the delivery of the whole has the same effect, for the purpose of passing the property in such goods, as a delivery of the whole, but a delivery of part of the gods, with an intention of severing it from the whole, does not operate as a delivery of the remainder. Buyer to apply for delivery: - Apart from any express contract, the seller of goods in not bound to deliver them until the buyer applies for delivery. Rules as to delivery: (1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell, if not then in existence, at the place at which they are manufactured or produced. (2) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. (3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf. Provided that nothing in this section shall affect the operation of the issue or transfer of any document of title to goods. (4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. (5) Unless otherwise agreed, the expense of and incidental to putting the goods into a deliverable state shall be borne by the seller. Delivery of wrong quantity: (1) Where the seller delivers to the buyer a quantity of good less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate. (2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell the buyer may accept the goods included in the contact and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pa y for them at the contract rate. (3) Where the seller delivers to the buyer the gods he contract to sell mixed with goods of a different description not included in the contract. The buyer may accept the goods which are in accordance with the contract and reject the rest, or may reject the whole. (4) The provisions of this section are subject to any usage of trade, special agreement or course of dealing between the parties.


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Instalment deliveries: (1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments. (2) Where there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for, and the seller makes no delivery or defective delivery in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each cased depending on the terms of the contract and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract, or whether it is a severable breach giving rise to a claim for compensation, but not a right to treat the whole contract as repudiated. Delivery to carrier or wharfinger: (1) Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer. (2) Unless otherwise authorized by the buyer, the seller shall makes such contract with the carrier or wharfinger on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in course of transit or whilst in the custody of the wharfinger, the buyer made decline to treat the delivery to the carrier or wharfinger as a delivery to himself, or may hold the seller responsible in damages. (3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them during their sea transit and if the seller fails so to do, the goods shall be deemed to be at his risk during such sea transit. Risk where goods are delivered at distant place: - Where the seller of goods agrees to deliver them at his own risk at place other than that where they are when sold, the buyer shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident to the course of transit. Buyer's right of examining the goods: (1) Where goods are delivered to the buyer which he has not previously examined, he is not deemed to have accepted them unless and until he has a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract. (2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract, Buyer not bound to return rejected goods: - Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is no t bound to return them to the seller, but it is sufficient it he intimates to the seller that he refuses to accept them. Buyer not bound to return rejected goods.- Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is he intimates to the seller that he intimates to the seller that he refuses to accept them. Liability of buyer for neglecting or refusing delivery of goods: - When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods , he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery and also for a reasonable charge for the care and custody of the goods. Provided that nothing in this section shall affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.


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Rights of unpaid seller against the goods "Unpaid seller" defined: (1) The seller of goods is deemed to be an "unpaid s eller" within the meaning of this Act(a) When the whole of the price has not been paid or tendered. (b) When a bill of exchange or other negotiable instrument has been received as conditional payment and the conditions on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise. Unpaid seller’s rights: (1) Subject to the provisions of this Act and of any law for the for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law. (a) A lien on the goods for the period while he is in possession of them, (b) In case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them. (c) a right of re-sale as limited by this Act. (2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer. INTELLECTUAL PROPERTY LAW: Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. Intellectual property relates to items of information or knowledge, which can be incorporated in tangible objects at the same time in an unlimited number of copies at different locations anywhere in the world. The property is not in those copies but in the information or knowledge reflected in them. Intellectual property rights are also characterized by certain limitations, such as limited duration in the case of copyright and patents. Countries generally have laws to protect intellectual property for two main reasons. One is to give statutory expression to the moral and economic rights of creators in their creations and to the rights of the public in accessing those creations. The second is to promote creativity, and the dissemination and application of its results, and to encourage fair trade, which would contribute to economic and social development.

IP is divided into two categories: Industrial property, which includes inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs. The innovations and creative expressions of indigenous and local communities are also IP, yet because the y are ―traditional‖ they may not be fully protected by existing IP systems. Access to, and equitable benefit-sharing in, genetic resources also raise IP questions. The Two Branches of Intellectual Property: Industrial Property and Copyright Intellectual property is usually divided into two branches, namely industrial property, which broadly speaking protects inventions, and copyright, which protects literary and artistic works. Industrial property takes a range of forms. These include patents to protect inventions, and industrial designs, which are aesthetic creations determining the appearance of industrial products. Industrial property also covers trademarks, service marks, layout-designs of integrated circuits, commercial names and designations, as well as geographical indications, and protection against unfair competition.


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Copyright relates to artistic creations, such as books, music, paintings and sculptures, films and technology-based works such as computer programs and electronic databases. In most European languages other than English, copyright is known as author‘s rights. The expression copyright refers to the main act which, in respect of literary and artistic creations, may be made only by the author or with his authorization. That act is the making of copies of the work. The expression author’s rights refer to the creator of the artistic work, its author. It thus underlines the fact, recognized in most laws, that the author has certain specific rights in his creation which only he can exercise (such as the right to prevent a distorted reproduction). Other rights (such as the right to make copies) can be exercised by other persons, for example, a publisher who has obtained a license from the author. While other types of intellectual property also exist, it is helpful for present purposes to explore the distinction between industrial property and copyright in terms of the basic difference between inventions and literary and artistic works.

Inventions may be defined in a non-legal sense as new solutions to technical problems. These new solutions are ideas, and are protected as such; protection of inventions under patent law does not require that the invention be represented in a physical embodiment. The protection accorded to inventors is, therefore, protection against any use of the invention without the authorization of the owner. Even a person who later makes the same invention independently, without copying or even being aware of the first inventor‘s work, must obtain authorization before he can exploit it. Unlike protection of inventions, copyright law protects only the form of expression of ideas, not the ideas themselves. The creativity protected by copyright law is creativity in the choice and arrangement of words, musical notes, colors and shapes. So copyright law protects the owner of property rights against those who copy or otherwise take and use the form in which the original work was expressed by the author. Works Protected by Copyright For the purposes of copyright protection, the term ―literary and artistic works ‖ is understood to include every original work of authorship, irrespective of its literary or artistic merit. The ideas in the work do not need to be original, but the form of e xpression must be an original creation of the author. The Berne Convention for the Protection of Literary and Artistic Works (Article 2) states: ―The expression ‗literary and artistic works‘shall include every production in the literary, scientific and artistic domain, whatever may be the mode or form of its expression‖. The Convention goes on to list the following examples of such works:      

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books, pamphlets and other writings; lectures, addresses, sermons; dramatic-musical works; choreographic works and entertainments in dumb show; musical compositions with or without words; cinematographic works to which are assimilated works expressed by a process analogous to cinematography; works of drawing, painting, architecture, sculpture, engraving and lithography; photographic works, to which are assimilated works expressed by a process analogous to photography; works of applied art; illustrations, maps, plans, sketches and three-dimensional works relative to geography, topography, architecture or science; Translations, adaptations, arrangements of music and other alterations of a literary or artistic work, which are to be protected as original works without prejudice to the copyright in the original work.


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Computer programs are a good example of a type of work which is not included in the list in the Berne Convention, but which is undoubtedly included in the notion of a production in the literary, scientific and artistic domain within the meaning of Article 2. Indeed, computer programs are protected under the copyright laws of a number of countries, as well as under the WIPO Copyright Treaty (1996). A computer program is a set of instructions, which controls the operations of a computer in order to enable it to perform a specific task, such as the storage and retrieval of information. The program is produced by one or more human authors, but in its final ―mode or form of expression, ‖ it can be understood directly only by a machine (the computer), not by humans. Multimedia productions are another example of a type of work not listed in the Berne Convention, but which clearly comes within the notion of creations in the literary, scientific and artistic domain. While no acceptable legal definition has been developed, there is a consensus that the combination of sound, text and images in a digital format, which is made accessible by a computer program, embodies an original expression of authorship sufficient to justify the protection of multimedia productions under the umbrella of copyright. Rights Protected The most important feature of any kind of property is that the owner may use it exclusively, i.e., as he wishes, and that nobody else can lawfully use it without his authorization. This does not, of course, mean that he can use it regardless of the legally recognized rights and interests of other members of society. Similarly the owner of copyright in a protected work may use the work as he wishes, and may prevent others from using it without his authorization. The rights granted under national laws to the owner of copyright in a protected work are normally exclusive rights to authorize a third party to use the work, subject to the legally recognized rights and interests of others.

There are two types of rights under copyright. Economic rights allow the rights owner to derive financial reward from the use of his works by others. Moral rights allow the author to take certain actions to preserve the personal link between him and the work. Most copyright laws state that the author or rights owner has the right to authorize or prevent certain acts in relation to a work. The rights owner of a work can prohibit or authorize: Its reproduction in various forms, such as printed publications or sound recordings; The distribution of copies; Its public performance; Its broadcasting or other communication to the public; Its translation into other languages; Its adaptation, such as a novel into a screenplay.      

These rights are explained in more detail in the following paragraphs. Reproduction, distribution and related rights The right of the copyright owner to prevent others from making copies of his works without his authorization is the most basic right protected by copyright legislation. The right to control the act of reproduction – be it the reproduction of books by a publisher, or the manufacture b y a record producer of compact discs containing recorded performances of musical works - is the legal basis for many forms of exploitation of protected works. Other rights are recognized in national laws in order to ensure that this basic right of reproduction is respected. Many laws include a right specifically to authorize distribution of copies of works. Obviously, the right of reproduction would be of littl e economic value if the owner of copyright could not authorize the distribution of the copies made with his consent. The right of distribution usually terminates upon first sale or transfer of ownership of a particular copy. This means, for example, that when the


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copyright owner of a book sells or otherwise transfers ownership of a copy of the book, the owner of that copy may give the book away or even resell it without the copyright owner‘s further permission. Another right which is achieving increasingly wide recognition, and is included in the WIPO Copyright Treaty, is the right to authorize rental of copies of certain categories of works, such as musical works in sound recordings, audiovisual works, and computer programs. This became necessary in order to prevent abuse of the copyright owner‘s right of reproduction when technological advances made it easy for rental shop customers to copy such works. Finally, some copyright laws include a right to control importation of copies as a means to prevent erosion of the principle of territoriality of copyright; that is, the legitimate economic interests of the copyright owner would be endangered if he could not exercise the rights of reproduction and distribution on a territorial basis. Translation and adaptation rights The acts of translating or adapting a work protected by copyright also require authorization from the rights owner. Translation means the expression of a work in a language other than that of the original version. Adaptation is generally understood as the modification of a work to create another work, for example adapting a novel to make a film; or the modification of a work for different conditions of exploitation, e.g., by adapting a textbook originally written for university students to make it suitable for a lower level.

Translations and adaptations are themselves works protected by copyright. So in order to publish a translation or adaptation, authorization must be obtained both from the owner of the copyright in the original work and from the owner of copyright in the translation or adaptation. The scope of the right of adaptation has been the subject of significant discussion in recent years because of the greatly increased possibilities for adapting and transforming works which are e mbodied in digital format. With digital technology, manipulation of text, sound and images by the user is quick and easy. Discussions have focused on the appropriate balance between the rights of the author to control the integrity of the work by authorizing modifications, and the rights of users to make changes which seem to be part of a normal use of works in digital format. Moral rights The Berne Convention (Article 6bis) requires Member countries to grant to authors: (i) The right to claim authorship of the work (sometimes called the right of paternity); and (ii) the right to object to any distortion or modification of the work, or other derogatory action in relation to the work, which would be prejudicial to the author‘s honor or reputation (someti mes called the right of integrity). These rights are generally known as the moral rights of authors. The Convention requires them to be independent of the author‘s economic rights, and to remain with the author even after he has transferred his economic rights. It is worth noting that moral rights are only accorded to individual authors. Thus even when, for example, a film producer or a publisher owns the economic rights in a work, it is only the individual creator who has moral interests at stake. Limitations on Rights The first limitation is the exclusion from copyright protection of certain categories of works . In some countries, works are excluded from protection if they are not fixed in tangible form. For example, a work of choreography would only be protected once the movements were written down in dance notation or recorded on videotape. In certain countries, the texts of laws, court and administrative decisions are excluded from copyright protection.


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The second category of limitations concerns particular acts of exploitation, normally requiring the authorization of the rights owner, which may, under circumstances specified in the law, be carried out without authorization. There are two basic types of limitations in this category: (a) free use, which carries no obligation to compensate the rights owner for the use of his work without authorization; and (b) nonvoluntary licenses, which do require that compensation be paid to the rights owner for non-authorized exploitation. Examples of free use include: quoting from a protected work, provided that the source of the quotation and the name of the author is mentioned, and that the extent of the quotation is compatible with fair practice; Use of works by way of illustration for teaching purposes; and Use of works for the purpose of news reporting.  

In respect of free use for reproduction , the Berne Convention contains a general rule, rather than an explicit limitation. Article 9(2) states that Member States may provide for free reproduction in special cases where the acts do not conflict with normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the author. As noted above, many laws allow for individuals to reproduce a work exclusively for their personal, private and non-commercial use . However, the ease and quality of individual copying made possible by recent technology has led some countries to narrow the scope of such provisions, including through systems which allow certain copying, but incorporate a mechanism for payment to rights owners for the prejudice to their economic interests resulting from the copying. In addition to the specific categories of free use set out in national laws, the laws of some countries recognize the concept known as fair use or fair dealing. This allows use of works without the authorization of the rights owner, taking into account factors such as the nature and purpose of the use, including whether it is for commercial purposes; the nature of the work used; the amount of the work used in relation to the work as a whole; and the likely effect of the use on the potential commercial value of the work. Non-voluntary licenses allow use of works in certain circumstances without the authorization of the owner of rights, but require that compensation be paid in respect of the use. Such licenses are called nonvoluntary because they are allowed in the law, and do not result from the exercise of the exclusive right of the copyright owner to authorize particular acts. Non-voluntary licenses were usually created in circumstances where a new technology for the dissemination of works to the public had emerged, and where the national legislator feared that rights owners would prevent the development of the new technology by refusing to authorize use of works. This was true of two non-voluntary licenses recognized in the Berne Convention, which allow the mechanical reproduction of musical works and broadcasting. The justification for non-voluntary licenses is, however, increasingly called into question, since effective alternatives now exist for making works available to the public based on authorizations given by the rights owners, including in the form of collective administration of rights. Law of Copyright Copyright does not continue indefinitely. The law provides for a period of time during which the rights of the copyright owner exist. The period or duration of copyright begins from the moment when the work has been created, or, under some national laws, when it has been expressed in a tangible form. It continues, in general, until sometime after the death of the author. The purpose of this provision in the law is to enable the author‘s successors to benefit economically from exploitation of the work after the author‘s death.


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In countries party to the Berne Convention, and in many other countries, the duration of copyright provided for by national law is as a general rule the life of the author plus not less than 50 years after h is death. The Berne Convention also establishes periods of protection for works such as anonymous, posthumous and cinematographic works, where it is not possible to base duration on the life of an individual author. There is a trend in a number of countries toward lengthening the duration of copyright. The European Union, the United States of America and several others have extended the term of copyright to 70 years after the death of the author. Ownership, Exercise and Transfer of Copyright The owner of copyright in a work is generally, at least in the first instance, the person who created the work, i.e. the author of the work. But this is not always the case. The Berne Convention (Article 14bis ) contains rules for determining initial ownership of rights in cinematographic works. Certain national laws also provide that, when a work is created by an author who is employed for the purpose of creating that work, then the employer, not the author, is the owner of the copyright in the work. As noted above, however, moral rights always belong to the individual author of the work, whoever the owner of economic rights may be.

The laws of many countries provide that the initial rights owner in a work may transfer all economic rights to a third party. (Moral rights, being personal to the author, can never be transferred). Authors may sell the rights to their works to individuals or companies best able to market the works, in return for payment. These payments are often made dependent on the actual use of the work, and are then referred to as royalties. Transfers of copyright may take one of two forms: as signments and licenses. Law of Patents A patent grants an inventor exclusive rights to make, use, sell, and import an invention for a limited period of time, in exchange for the public disclosure of the invention. An invention is a solution to a specific technological problem, which may be a product or a process. Patents protect an invention from being made, sold or used by others for a certain period of time. There are three different types of patents in the United States:  Utility patents- these patents protect inventions that have a specific function, including things like chemicals, machines, and technology.  Design patents- these patents protect the unique way a manufactured object appears.  Plant patents- these patents protect plant varieties that are asexually reproduced, including hybrids.

Inventors may not assume that their creation is patented unless they apply and are approved for a patent by the US Patent and Trademark Office. This process can be complex and time consuming. It is a good idea to hire an intellectual propert y attorney to make sure you file the appropriate paperwork and get the patent you need to protect your invention and make it profitable. Copyright A copyright gives the creator of an original work exclusive right to it, usually for a limited time. Copyright may apply to a wide range of creative, intellectual, or artistic forms, or "works". Copyright does not cover ideas and information themselves, only the form or manner in which they are expressed. Copyrights protect the expressive arts. They give owners exclusive rights to reproduce their work, publicly display or perform their work, and create derivative works. Additionally, owners are given economic rights to financially benefit from their work and prohibit others from doing so without their permission. It is important to realize that copyrights do not protect ideas, only how they're expressed.


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