Business ethics, CSR and corporate governance
Business ethics applies moral principles to business choices. CSR extends duty to society, and corporate governance keeps boards accountable to all stakeholders.
Ethical theories
| Theory | Thinker | Core idea |
|---|---|---|
| Utilitarianism (teleological) | Jeremy Bentham, J. S. Mill | Right acts give the greatest good to the greatest number |
| Deontology (duty ethics) | Immanuel Kant | Follow duties you could make universal rules; treat people as ends, never only as means |
| Justice | John Rawls (1971) | Fairness judged from behind a 'veil of ignorance' |
| Rights | John Locke and the natural-rights tradition | Respect basic rights such as life, liberty and privacy |
| Virtue ethics | Aristotle | Do what a person of good character would do |
| Moral development | Lawrence Kohlberg | Three levels (pre-conventional, conventional, post-conventional) and six stages |
Carroll's CSR pyramid (1991)
| Level (bottom to top) | Responsibility | Society's view |
|---|---|---|
| Economic | Be profitable | Required |
| Legal | Obey the law | Required |
| Ethical | Do what is right and fair beyond the law | Expected |
| Philanthropic | Be a good corporate citizen; give back | Desired |
CSR in India
- Companies Act 2013, section 135: applies to companies that cross set limits of net worth, turnover or net profit.
- Such companies form a board CSR committee and adopt a CSR policy. Since 2021, a company with a small CSR obligation may let its board do the committee's work.
- They must spend at least 2% of the average net profits of the three immediately preceding financial years on CSR.
- Schedule VII lists eligible areas, such as hunger and poverty, health, education, gender equality, environment, heritage, sports, rural development and disaster management.
- Indian roots: Gandhi's trusteeship (the rich as trustees of wealth for society) and the long philanthropy of groups such as Tata.
Corporate governance milestones
| Year | Code or committee | Outcome |
|---|---|---|
| 1992 | Cadbury Committee (UK) | Code of best practice: independent directors, audit committees, a clear split of chair and CEO roles |
| 1998 | CII code (India) | India's first voluntary corporate governance code |
| 1999 | Kumar Mangalam Birla Committee (SEBI) | Led to Clause 49 of the Listing Agreement (2000) |
| 2002 | Sarbanes-Oxley Act (USA) | Passed after Enron and WorldCom; CEOs and CFOs certify accounts |
| 2003 | N. R. Narayana Murthy Committee (SEBI) | Strengthened Clause 49 |
| 2013 | Companies Act | Independent directors (s.149), audit committee (s.177), nomination and remuneration committee (s.178), CSR (s.135) |
| 2015 | SEBI LODR Regulations | Replaced Clause 49 for listed companies |
| 2017 | Uday Kotak Committee (SEBI) | Further reforms on board independence and disclosure |
Ethical dilemmas
Common business dilemmas: conflicts of interest, gifts and bribes, insider trading, whistle-blowing, misleading advertising.
Value-based organisation
- Core values, not just rules, guide everyday decisions.
- A written code of conduct, for example the Tata Code of Conduct.
- A whistle-blower (vigil) mechanism, required for listed companies under s.177, that protects people who report wrongdoing.
- Ethics training, an ethics committee or officer, and leaders who model the values.
- Performance is judged on how results are achieved, not just on the results.
- Indian ethos: nishkama karma (work without attachment to reward) and Gandhian trusteeship.
NET asks you to match ethical theories and CSR models with thinkers, recall s.135 and the governance committees, order Carroll's pyramid, and spot the type of dilemma in a short case.
Typical MCQ: “What minimum CSR spend does section 135 require?” At least 2% of the average net profits of the three immediately preceding financial years. Trap: it is based on net profit, not on turnover.
Typical MCQ: “Is utilitarianism teleological or deontological?” Teleological: it judges acts by their consequences. Trap: Kant's duty-based ethics is the deontological one.
Typical MCQ: “Which committee's report led to Clause 49 of the Listing Agreement?” SEBI's Kumar Mangalam Birla Committee (1999). Trap: the Narayana Murthy Committee (2003) only strengthened Clause 49.
Carroll climbs E-L-E-P: Economic, Legal, Ethical, Philanthropic. CSR is s.135 and 2%. Clause 49 began with Birla, was revised after Murthy, and gave way to LODR in 2015.