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GCEM

Business, Government &


Society
14MBA24

Mr. SRINIVAS S, Assistant Professor,


Department of MBA

2016

GOPALAN COLLEGE OF ENGINEERING AND


MANAGEMENT

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 responsibly 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 to
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)
The Study of Business, Government and Society (BGS): Importance of BGS to Managers Models of
BGS relationships Market Capitalism Model, Dominance Model, Countervailing Forces Model and
Stakeholder Model Global perspective 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

Business, Government & Society

14MBA24

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 for
the same.
A group assignment on The relationship between Business, Government and Society in
Indian Context and relating the same with respect the models studied in Module 1.
Case studies/Role plays related ethical issues in business with respect to Indian context.

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Business, Government & Society

14MBA24

MODULE 01
BUSINESS, GOVERNMENT AND SOCIETY
The Study of Business, Government and Society (BGS): Importance of BGS to Managers Models of
BGS relationships Market Capitalism Model, Dominance Model, Countervailing Forces Model and
Stakeholder Model Global perspective Historical Perspective.

Introduction to BGS
What is the business-government-society (BGS) field and what is its importance?
In the universe of human endeavor, we can distinguish subdivisions of economic, political, and
social activitythat is, business, government, and societyin every civilization throughout time.
Interplay among these activities creates an environment in which businesses operate.
The businessgovernmentsociety (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.
Ideas: 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 capitalismare
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.

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 societys expectations.

This contract defines the broad duties that business must perform to retain societys support, but
these duties are often ambiguous.

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Business, Government & Society

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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 duties 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

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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Business, Government & Society

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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.

Explanation of market capitalism 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 (17231790). 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 (18181883), 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.
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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 societys 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

Business, Government & Society

14MBA24

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 expressed 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
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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 the dominance model.

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Business, Government & Society

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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 each stakeholder must be considered as an end.

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Business, Government & Society

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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 corporationduties 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 companies. 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 countrys 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 stakeholders.
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: o A closed economy
o A sheltered market
o Limited need and access to global business
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 would
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.
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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.

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 companys 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
o All other functions required by law to be performed

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
organizations 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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o Pay for performance


o Process for determination
o 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.

Boards 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 informed 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 companys 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 doesnt 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.

Changing Ownership Structure: In recent years, the ownership structure of companies has
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.

Importance of Social Responsibility: Today, social responsibility is given a lot of importance.


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.

Growing Number of Scams: In recent years, many scams, frauds and corrupt practices have taken
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.

Indifference on the part of Shareholders: In general, shareholders are inactive in the


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.
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Globalisation: Today most big companies are selling their goods in the global market. So, they
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.

Takeovers and Mergers: Today, there are many takeovers and mergers in the business world.
Corporate governance is required to protect the interest of all the parties during takeovers and
mergers.

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.
Characteristics of a corporation
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.
Definition: 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 are: 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.

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 in 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.

Examples of principal-agent relationships


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 act 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.
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.
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 for corporate governance
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
managers 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 firms 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
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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 fiduciary 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 direction.
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.
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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 companys 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 relationship 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 - Regulatory policy is about achieving government's objectives through the use of
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.
Ethical public policies follow the courts directives and set out what ought and ought not to be
done in an area marked off by deep moral convictions.
Areas of public policy
I. Economic management
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.
II.
Labour management relations
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.
III. The welfare state
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.
IV.
Shaping of public policies affecting corporate sector
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

To create a competitive environment


o 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 control on foreign investment
o Government interferes in regulating foreign investments in certain industries which is very
critical for the country.
o 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.

Inputs
o 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.
o All these inputs can help shape what the government chooses to do and how it chooses to
do it.
Goals
o Public policy goals can be ideal oriented or narrow, and self serving.
o 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.
o Goal should be greatest good to the largest number of people.

Mechanism/instrument
o 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.
o 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 Public policy actions always have effects. Some are intended. Others are unintended.
o Since public policies affect millions of people corporations and other interests, it is almost
inevitable that such actions will please some and displease others.
o 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 Identification
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 Setting
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 Making
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. Budgeting
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. Implementation
Executive agencies (the bureaucracy) carry out, or implement, policy. Implementation could include
adopting rules and regulations, providing services and products, public education campaigns, adjudication
of disputes, etc.
6. Evaluation
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


Constitutional governments
o The will of the people and their desires get reflected in public policies.
o Petitions through elected representatives, public debate, media promotion, use of tobacco
causing cancer, etc are some of the ways of framing public policy.
Non democratic governments
o Special interest lobbying of the leadership elite, public demonstration and civil
disobedience play decisive roles in shaping public policies.
o Public is uninformed about the policy and gets frustrated.
o 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. Level 1: financial involvement
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. Level 2: organisational involvement
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. Level 3: strategic public policy involvement
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 nations 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
NGOs
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 six-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 particularly 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.
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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 byproducts. 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 practices, 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 eliminating 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 own 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 is 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 Pacific 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 mediaspecific) 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 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:
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 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 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, 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, 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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Forest and wildlife


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 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-state 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.
1991 - The Coastal Regulation Zone Notification puts regulations on various activities, including
construction, are regulated. It gives some protection to the backwaters and estuaries.
Air
1948 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.
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 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

Code of conduct: Business ethics is a code of conduct. It tells what to do and what not to do for
the welfare of the society. All businessmen must follow this code of conduct.
Based on moral and social values: Business ethics is based on moral and social values. It
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 protection to social groups: Business ethics give protection to different social groups such
as consumers, employees, small businessmen, government, shareholders, creditors, etc.
Provides basic framework: 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.
Requires education and guidance: Businessmen must be given proper education and guidance
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.
Relative Term: Business ethics is a relative term. That is, it changes from one business to another.
It also changes from one country to another. What is considered as good in one country may be
taboo in another country.
New concept: Business ethics is a newer concept. It is strictly followed only in developed
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 persons 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 persons 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: Avoid exploitation of consumers: Don't cheat and exploit consumers by using bad business
practices such as artificial price rise and adulteration.
Avoid profiteering: Don't indulge in unscrupulous activities like hoarding, black-marketing, sale
and use of banned or harmful goods, etc., for the sake of greed to earn exorbitant profits.
Encourage healthy competition: Don't destroy a healthy competitive atmosphere in the market
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.
Ensure accuracy: Always check and verify the accuracy in weighing, packaging and quality
while supplying goods to the consumers.
Pay taxes regularly: Pay taxes and other charges or duties to the government honestly and
regularly. Avoid bribing government officials and lobbying for special favours.
Get accounts audited: Maintain accurate business records, accounts and make them available to
all authorised persons and authorities.
Fair treatment to employees: Pay fair wages or salaries, provide facilities and incentives and give
humane treatment to employees.
Keep investors informed: Supply reliable information to shareholders and investors about the
financial position and important decisions of the company.
Avoid injustice and discrimination: Avoid injustice and partiality to employees in transfers and
promotions. Avoid discrimination among them based on gender, race, religion, language,
nationality, etc.
No bribe and corruption: Don't give expensive gifts, secret commissions, kickbacks, payoffs to
politicians, bureaucrats, government officials and suppliers. Say no to bribe and avoid corruption.
Discourage secret agreement: 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 service before profit: 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.
Practice fair 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 customers expectations: Adjust your business activities as per the demands, needs and
expectations of the customers.
Respect consumers rights: Give full respect and honour to the basic rights of the consumers.
Accept social responsibilities: Honour responsibilities towards different social groups.
Satisfy consumers 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 satisfy the consumers wants.
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Service motive: Give more importance to service and consumer's satisfaction and less importance
to profit-maximization. Make profits by providing services to the consumers. Do not make profits
by exploiting the consumers.
Protect group interests: Protect the interest of the group i.e. give employees better wages and
good working conditions, give shareholders better rate of dividend, give consumers good quality
goods and services at low prices, etc.
Optimum utilisation of resources: 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.
Intentions of business: Use pure, legal and sacred means to do business. Do not use illegal,
unscrupulous and evil means to do business.

Nature of Business Ethics Normative/prescriptive/applied


Normative Ethics: 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?
Prescriptive Ethics: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 companys 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.

Applied Ethics: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.
Ethics in Compliance
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 Finance
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 arms length
Insider trading, securities fraud leading to manipulation of the financial markets.
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Executive compensation.
Bribery, kickbacks, over billing of expenses, facilitation payments.
Fake reimbursements
Ethics in Human 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.
The issues of ethics faced by HRM include: 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 Marketing
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.
Ethics of Production
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 Kennedys 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 organizations 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 todays 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 organizations profits
and longevity.
Need or Importance of Business Ethics
Stop business malpractices: Some unscrupulous businessmen do business malpractices by
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.
Improve customers' confidence: Business ethics are needed to improve the customers' confidence
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.
Survival of business: Business ethics are mandatory for the survival of business. The businessmen
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.
Safeguarding consumers' rights: The consumer has many rights such as right to health and
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.
Protecting employees and shareholders: Business ethics are required to protect the interest of
employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation
through unfair trade practices.
Develops good relations: 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.
Creates good image: Business ethics create a good image for the business and businessmen. If the
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.
Smooth functioning: If the business follows all the business ethics, then the employees,
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.
Consumer movement: Business ethics are gaining importance because of the growth of the
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.
Importance of labour: Labour, i.e. employees or workers play a very crucial role in the success of
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.
Healthy competition: 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. Todays 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: The human-oriented approach
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.
The environment oriented 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
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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 living oriented 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 ecosystem.
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 pace. 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 by 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.
Bribery - 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.
Bending 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.
Environmental - Unethical behavior by companies, such as releasing pollutants into the air, can
affect cities, towns, waterways and masses of people.
Wages and Working Conditions - 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 Evasion there are major unethical practices towards tax evasion. Many large corporations
hire the service of professional tax consultants to take advantage of loopholes in the law and evade
taxes to the extent possible.
Misrepresentation - 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
Characteristics of ethical organisation
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 organisations 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 days salary of a clerk is deducted for coming late to work,
it should be the same for the marketing manager as well.
Companys 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 companys goals and objectives.
An organization ought to respect its employees to expect the same in return. Rules and
regulations should not be too rigid. Dont 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 employees 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 individuals expertise and experience. Do not expect an employee 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 individuals
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 dont 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 were 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 cant be managed.
Myth 8: - Business ethics and social responsibility is the same thing.

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MODULE 06
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 Indian perspective.

Introduction
Corporate social responsibility is a gesture of showing the companys concern and commitment
towards societys sustainability and development.
Corporate social reporting is a method of communication to the society about the companys
desired action or the action actually performed by it.
The reporting has triple bottom lines that can be expressed by the three Ps (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. Friedman model
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 are as follows: The first stage is marked by the identification of the project that will be chosen for social delivery.
It also formulates strategies for the project.
The second stage is devoted to the intensive study of the problem by hiring experts and getting
their suggestions to make it operational. The intention to take up the project remains only internal
to the firm.
The third stage is very critical for the project as it is not only made public but is also
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.
The fourth stage is the stage of evaluation. In this stage the needs of the society are considered
very minutely and problems and issues are addressed.
There are basically six strategies in the adoption of CSR: The firm shows reluctance to adopt any social work ( rejection strategy)
The firm opposes any CSR project unless and until the pressure comes from external sources.
(adversary strategy)
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. (resistance strategy)
CSR is accepted and tries to finish the project. (compliance strategy)
The firm accommodates the requests of the shareholders or government agencies to work in
certain ways for the fulfilment of CSR. (accommodation strategy)
Go ahead with the project and complete it according to the priority pattern of the firm.
(proactive strategy)

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3. Carroll model

4. Environmental integrity and community health model


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. Corporate citizenship model


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. Stockholders and stakeholder model
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

MOTIVES

Stockholder
model

Stakeholder
model

Self

1
Productivism

2
Progressivism

Interest

Moral

3
Philanthropy

4
Ethical idealism

Duty

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. Towards 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 term 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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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: Public expectations: Social expectations of business have increased dramatically since the 1960s.
Public opinion in support of business pursuing social as well as economic goals is now well
solidified.
Long run profits: Socially responsible businesses tend to have more and secure long run profits.
This is the normal result of the better community relations and improved business image that
responsible.
Ethical obligation: A business firm can and should have a conscience. Business should be
socially responsible because responsible actions are right for their own sake.
Public image: Firms seek to enhance their public image to gain more customers, better
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.
Better environment: Involvement by business can solve difficult social problems, thus creating a
better quality of life and a more desirable community in which to attract and hold skilled
employees.
Discouragement of further government regulation: Government regulation adds economic costs
and restricts managements decision flexibility by becoming socially responsible, business can
expect less government regulation.
Balance of responsibility and power: Business has a large amount of power in society. An equally
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.
Stockholder interests: Social responsibility will improve the price of a businesss stock in the long
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.
Possession of resources: Business has the financial resources, technical experts, and managerial
talent to provide support to public and charitable projects that need assistance.

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Superiority of prevention over cures: Social problems must be dealt with at sometime. Business
should act on them before they become serious and costly to correct and take managements
energy away from accomplishing its goal of production goods and services.

Arguments against CSR: Violation of profit maximization: This is the essence of the classical viewpoint. Business is most
socially responsible when it attends strictly to its economic interests and leaves other activities to
other institutions.
Dilution of purpose: The pursuit of social goals dilutes businesss primary purpose: economic
productivity. Society may suffer as both economic and social goals are poorly accomplished.
Costs: Many socially responsible activities do not pay their own way. Someone has to pay these
costs. Business must absorb these costs or pass them on to consumers in higher prices.
Too much power: Business is already one of the most powerful institutions in our society. If it
pursued social goals, it would have even more power. Society has given business enough power.
Lack of skills: The outlook and abilities of business leaders are oriented primarily toward
economies. Business people are poorly qualified to cope with social issues.
Lack of accountability: Political representatives pursue social goals and ar6e held accountable for
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.
Lack of broad public support: There is no broad mandate from society for business to become
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 Anands 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 countrys
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 Indias rural population turn to nearest towns and cities for 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 allconsuming 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 Indias 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 tribals 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 software
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 education to all children, 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 incomegenerating 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 delivery
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 companys commitment to 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, with about sixty percent of them being deployed to L&Ts
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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MODULE 07
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.

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 effects on contracts: 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 effect on property rights: 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.
"Effect on corporations: 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.
"Effect on the banking 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 the 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 reliable sources. They will also tend to seek favors from
public officials through illegal means.
"Effect on ongoing legislation and regulation: 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.
Effect on the extent of criminal offenses 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 hereby expressly declared to be void.
Thus, the essential elements of a valid contract 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 elementsoffer 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 mistake. 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 is 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
Liability of agent to third 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.
Liability of agent to principal
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.
Liability of principal 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 diligence;
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 agents 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 agents 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
The rightful 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
Delivery upon contract 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 persons goods go into the possession of another without contract, there is no bailment
Duties of a Bailor
Duty of Gratuitous Bailor
The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is
aware.
Duty of Bailor for reward
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
Duty of reasonable care
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.
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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 fulfilled, 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 partly 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 answer 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 enjoy 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 reference 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 may 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 receipt 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.
Doctrine 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.
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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 pay 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 not 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 seller" 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 sellers 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 they 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 authors 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 authors 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 inventors 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 expression 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 worksshall 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:

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 by 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 little 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 owners 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 owners 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 embodied 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 authors honor or reputation (sometimes 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 authors 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 authors successors to benefit economically from exploitation of the work after the
authors 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 his
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: assignments 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 property 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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Industrial design rights


An industrial design right protects the visual design of objects that are not purely utilitarian. An
industrial design consists of the creation of a shape, configuration or composition of pattern or colour, or
combination of pattern and colour in three dimensional forms containing aesthetic value. An industrial
design can be a two- or three-dimensional pattern used to produce a product, industrial commodity or
handicraft.
Law relating to Trademarks
A trademark is a recognizable sign, design or expression which identifies products or services of a
particular source from those of others. Trademarks protect the names and identifying marks of products
and companies. The purpose of trademarks is to make it easy for consumers to distinguish competitors
from each other. Trademarks are automatically assumed once a business begins using a certain mark to
identify its company, and may use the symbol TM without filing their symbol or name with the
government. There are strict laws in place to protect intellectual property rights. When intellectual
property rights are violated, it is important to hire an intellectual property lawyer. An experienced
attorney can help you sue for damages that include lost royalties. If your case is successful, the person
who violated your intellectual property rights may be required to pay for all of your legal fees in addition
to compensating you for using your work without your permission.

Department of MBA, GCEM

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