Ethics and Corporate Social Responsibility in

Business

Prepared for:

Dr. M.A.Mannan
Professor
Department of Management Studies
University of Dhaka

Prepared by:

Group: Maloti

MBA- 13th Batch (SIM)

Department of Management Studies
University of Dhaka

Name ID no.
Md. Alamgir Mollah 201
Kallal Das 202
Md. Habibur Rahman 203
Amal Kumar Paul 204
Debashish Mondal 205
Shajal Ali 206
Md. Anisuzzaman 207
Mithun Pravakar 208

Date of Submission: September 11, 2012

Definition of Ethics
1. Ethics also known as moral philosophy is a branch of philosophy that involves
systematizing, defending and recommending concepts of right and wrong behavior.
(Wikipedia)
2. There is one and only one social responsibility of businessto use its resources and
engage in activities designed to increase its profits so long as it stays within the rules of
the game which is to say engages in open and free competition without deception or
fraud. (Milton Friedman)
3. Ethics is a body of principles or standards of human conduct that govern the behavior of
individuals and organizations. (Dale H. Besterfield).

Different types of Ethics

Ethics, also known as moral philosophy, is a branch of philosophy that

involves systematizing, defending, and recommending concepts of right and
wrong behavior.

Major areas of study in ethics may be divided into 3 operational areas:

Meta-ethics, about the theoretical meaning and reference of moral

propositions and how their truth values (if any) may be determined;

Normative ethics, about the practical means of determining a moral

course of action;

Applied ethics, about how moral outcomes can be achieved in

specific situations;

Business ethics

Business ethics reflects the philosophy of business, one of whose aims is to determine the
fundamental purposes of a company. If a company's purpose is to maximize shareholder
 returns, then sacrificing profits to other concerns is a violation of its fiduciary
responsibility. The 'corporate persons' are legally entitled to the rights and liabilities due
to citizens as persons.

Economist Milton Friedman writes that..

corporate executives' "responsibility... generally will be to make as much money as

possible while conforming to their basic rules of the society, both those embodied in law
and those embodied in ethical custom".
"The only entities who can have responsibilities are individuals. A business cannot have
responsibilities. So the question is to do corporate executives, provided they stay within
the law, have responsibilities in their business activities other than to make as much
money for their stockholders as possible? And my answer to that is, no, they do not.

Codes of Ethics

Business ethics reflects the philosophy of business one of whose aims is to determine the
fundamental purposes of a company. If a company's purpose is to maximize shareholder
returns, then sacrificing profits to other concerns is a violation of its fiduciary
responsibility. Corporate entities are legally considered as persons in USA and in most
nations. The 'corporate persons' are legally entitled to the rights and liabilities due to
citizens as persons.
Economist Milton Friedman writes that corporate executives' "responsibility... generally
will be to make as much money as possible while conforming to their basic rules of the
society, both those embodied in law and those embodied in ethical custom. Friedman
also said, "The only entities who can have responsibilities are individuals. A business
cannot have responsibilities. So the question is to do corporate executives provided they
stay within the law have responsibilities in their business activities other than to make as
much money for their stockholders as possible? And my answer to that is, no, they do
not.
Approaches to managing a companys ethical conduct

To manage the ethical conduct of a company, a company can practice four

(04) approaches. They are:

a. The unconcerned or non-issue approach

b. The damage control approach

c. The compliance approach

d. The ethical culture approach

The unconcerned or non-issue approach: The unconcerned approach is

taken by those companies whose executives are immoral and unintentionally
amoral. They ethical issues are evaluated and practiced here in accordance
with the prevailing national law and regulations. Companies concerns the
ethics as a non issue matter and wants to take any further policy towards it if
it is ordered by the national pressure. Here, management not interested or
self motivated to set an ethical code.

The damage control approach: Damage control is favored at companies

whose managers are intentionally amoral but aware of scandal and adverse
public relations fall out that could cost significantly harm their career.
Companies using this approach, not wanting to risk tarnishing the reputation
of key personnel or the company. Usually companies conduct window
dressing ethics. Company executive that practice the damage control
approach are prone to look the other way when shady or borderline behavior
occurs, adopting a kind of- See no evil, hear no evil, speak no evil stance.

The compliance approach: Emphasis here is usually on securing board

compliance and measuring the degree to which ethical standards are upheld
and observed. Companies that adopt a compliance mode usually do some or
all of the following to display their commitment to ethical conduct: make the
code of ethics more visible in company operations and employee
communications, implement ethics training program, appoint a chief ethics
officer, have ethics committees to provide proper guide lines in ethical
matters, conduct ethics audit to measure and document the compliance,
give ethics awards to employees for outstanding ethical performances.

The ethical culture approach: Ethical culture approach ingrained the

ethics in the very root of company operations and business practices. The
main theme of that approach is that- we will do the business with ethics &
its natural. A company using the ethical culture approach seeks to gain
employee buy-in to the companys ethical standards, business principles and
corporate values.

Corporate Social Responsibility (CSR)

The World Business Council for Sustainable Development in its publication

Making Good Business Sense by Lord Holme and Richard Watts, used the
following definition- Corporate Social Responsibility 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 definition used by Business for Social Responsibility is: Operating a

business in a manner that meets or exceeds the ethical, legal, commercial
and public expectations that society has of business.

On the other hand, the European Commission defines CSR as- A concept
whereby companies decide voluntarily to contribute to a better society and a
cleaner environment. A concept whereby companies integrate social and
environmental concerns in their business operations and in their interaction
with their stakeholders on a voluntary basis.

Thus, different organizations have framed different definitions - although

there is considerable common ground between them. Very simply, CSR is
about how companies manage the business processes to produce an overall
positive impact on society.

Take the following illustration-

Companies need to answer to two aspects of their operations.

1. The quality of their management - both in terms of people and processes

(the inner circle).

2. The nature of and quantity of their impact on society in the various areas.

Outside stakeholders are taking an increasing interest in the activity of the

company. Most look to the outer circle - what the company has actually done,
good or bad, in terms of its products and services, in terms of its impact on
the environment and on local communities, or in how it treats and develops
its workforce. Out of the various stakeholders, it is financial analysts who are
predominantly focused - as well as past financial performance - on quality of
management as an indicator of likely future performance.

Principles of Corporate Social Responsibility

Many companies are adapting to the CSR idea and are involved in some
activities that they consider to be CSR. There are three main principles of
CSR. They are Sustainability, Accounting and Transparency.
Sustainability: As the word sustainability suggests, sustainability is all
about the decisions taken at present in a company and its impact on the
future. Sustainable development is both possible and desirable by most of
the companies. So, firms should make a conscious effort to invest in
technology and in development towards the society.

Accountability: There is a great emphasis on the ethical aspects of the

company and this in turn demands the company to be accountable to its
internal customers i.e. employees, its external employees and the
stakeholders. Businesses attempts to maximize profits as their first and
foremost goal, however now days companies cannot just stop at that.

Transparency: Members of management should provide information

transparently and honestly to help all involved discuss, debate and reach
better decision-making. This enables the team to identify and monitor any
potential risks which may arise and find an alternative solution. In terms of
social responsibility, transparency also enhances the company's credibility
toward its external stakeholders.

Drivers of CSR

The forces that are driving CSR today are essentially due to the
overwhelming shift in the interaction of the state, the individuals, and the
market. The core drivers of CSR are the growth in stakeholder expectations,
the responsibility for the supply chains, the diminishing role of the state and
the increasing pressure from the shareholders. The basic drivers for
propelling the CSR practice in the companies are as discussed below:

Maintaining Quality Employees: It has become an essential factor for all

the companies to retain their employees and maintain a certain quality of
the employees. Most of the companies are finding it difficult to manage the
attrition rate of their companies as employees are opting for companies that
have better social visibility and are actively involved towards the betterment
of the society.

Managing Cost: It is necessary for every country to manage its expenses

and try to reduce the costs whenever possible. In today's competitive world
managing the levels of carbon dioxide emission in the environment would
also save a considerable cost to the country. More than eleven countries
have rated cost management as the most important driver for CSR activities.

Brand Building: Many companies believe that indulging in CSR activities

would bring a lot of fame to the companies. This can go a long way in
promoting a company's brand name and thereby helping the company in
brand building exercise. It has also been noted that the attitude of the people
changes towards a company if it indulges in any CSR activities. It is
interesting to note that brand building is a drive which comes after
employment and cost management for most of the companies.

Tax benefits: Many countries believe in indulging in CSR activities for tax
relief. Tax benefits were cited as the largest incentive any company could get
in countries like Brazil and Vietnam. Many companies who would like to be
publicly listed have to maintain transparency in their taxations and have
standard employment practices.

Investor relations: Some countries consider maintaining investor relations

as an equally important factor and in an effort to do so these companies
comply by the ethical business practices. These countries believe that it's
the investors who would help the company to expand, would give the
necessary boost to the company to compete with the competitors and to
make necessary reforms in the company to meet the changing needs of the
customers.

Government pressure: Many countries are realizing the importance of the

pollution that is being caused by the companies and the amount of
destruction that these countries are causing to the world and its
environment. Government is also stepping in actively in many of the
countries and is taking the initiative to reduce the carbon emission from the
companies and involve themselves in activities that nullify their effect of
carbon emission.

US and European model of Corporate Social Responsibility

Traditionally in the United States, CSR has been defined much more in
terms of a philanthropic model. Companies make profits, unhindered except
by fulfilling their duty to pay taxes. Then they donate a certain share of the
profits to charitable causes. It is seen as tainting the act for the company to
receive any benefit from the giving. Thus the US model for CSR is seemed
too much simple and just take and give policy. The concept is somehow
violates continuous welfare of the society and environment as because the
welfare largely depends on profit gained by the organizations. The bio-fuel
law of US is also a negative example for CSR implementation. The model is
much more similar with social welfare with wealth maximization
requirements.

The European model is much more focused on operating the core business
in a socially responsible way, complemented by investment in communities
for solid business case reasons. Personally, I believe this model is more
sustainable because:

1. Social responsibility becomes an integral part of the wealth creation

process - which if managed properly should enhance the
competitiveness of business and maximize the value of wealth creation
to society.

2. When times get hard, there is the incentive to practice CSR more and
better - if it is a philanthropic exercise which is peripheral to the main
business, it will always be the first thing to go when push comes to
shove.

But as with any process based on the collective activities of communities of

human beings (as companies are) there is no 'one size fits all'. In different
countries, there will be different priorities, and values that will shape how
business act. And even the observations above are changing over time. The
US has growing numbers of people looking towards core business issues.

A Companys Social Responsibility Strategies

A companys social responsibility strategy needs five basic courses of actions
to make it socially responsible in the eye of all outside members and society
at large. These actions ensure the maximum preservation of public interest,
societal welfare, environmental protection, employee safety. The five courses
of actions are:

1. Actions to ensure the company has an ethical strategy and operates

honorably and ethically.
2. Actions to support charitable causes, participate in community service
activities and better quality of life.
3. Actions to protect or enhance the environment.
4. Actions to enhance employee well being and make the company a great
place to work.
5. Actions to promote workforce diversity.

Business Ethics and CSR in Bangladesh Perspective

The earlier days' concept is, the managers focused on today's decisions for
today's business'. However, the rapid change experienced by companies has
made the managers to anticipate the future and prepare for it. Business
ethics and corporate social responsibility are the most common phenomenon
in now a day. Both of them work as an instrument to serve the society at
large but with a business prospect. CSR concepts and practices in
Bangladesh have a long history of philanthropic activities from the time
immemorial. Till now, most of the businesses in Bangladesh are family
owned and first generation businesses. They are involved in the community
development work in the form of charity without having any definite policy
regarding the expenses or any concrete motive regarding financial gains in
many instances.

In general, it is true that in Bangladesh, the status of labor rights

practices, environmental management and transparency in corporate
governance are not satisfactory, largely due to poor enforcement of
existing laws and inadequate pressure from civil society and interest
groups like Consumer Forums.

Lack of enforcement of Industrial Laws and Regulations, weak unions,

absence of consumer rights groups and high level of corruption within
the regulatory bodies make CSR violation rampant in Bangladesh.
 Two most significant foreign exchange sources are the RMG sector and
the overseas manpower export.

Unbelievably low compensation, working hours,

health/hygiene/sanitation conditions, fire safety and various types of
abuse are so common and to the extent of inhumanity that wild shock
any conscientious individual to the core.

Recently, the RMG sector employees have embarked on an industry

wide movement to establish their rights.

A focus on CSR in Bangladesh would be useful, not only for improving

corporate governance, labor rights, work place safety, fair treatment of
workers, community development and environment management, but
also for industrialization and ensuring global market access.
References

1. Thompson. Arthur.A- Strickland A.J- Gamble. John E, Crafting and

Executing Strategies, 16th Edition, McGraw-Hill international edition.
2. Hill R.P- Stephens Debra- Smith Iain, Corporate social responsibility:
An Examination of Individual Firm Behavior, Business and Society
Review 108, no.03 (September 2003), p.348.
3. www.wikipedia.com/ Ethics-Business Ethics
4. http://www.mallenbaker.net/csr/definition.php
5. D Wood, 'Corporate Social Performance Revisited' (1991) 16(4) The
Academy of Management Review
6. R Freeman, Strategic management :a stakeholder approach (Pitman
1984) ISBN 978-0-273-01913-8
7. Stanford Encyclopedia of Philosophy. Metaphysics Research
Lab , CSLI , Stanford University
8. Business Intelligence Journal - January,2009