IFET COLLEGE OF ENGINEERING

DEPARTMENT OF MANAGEMENT STUDIES

BA7402 BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND GOVERNANCE

MBA II-SEM-4 UNIT 3

PART A

UNIT III LEGAL ASPECTS OF ETHICS

Political – legal environment; Provisions of the Indian constitution pertaining to Business; Political setup – major characteristics and their implications for business; Prominent features of MRTP & FERA. Social – cultural environment and their impact on business operations, Salient features of Indian culture and values.

POLITICAL – LEGAL ENVIRONMENT

1.what is meant by environment in business?

The combination of internal and external factors that influence a company's operating situation. The business environment can include factors such as: clients and suppliers; its competition and owners and improvements in technology and laws and government activities and market social and economic trends.

2.what is meant by legal aspects of ethics?

"Legal ethics" in the India is generally understood to primarily apply to lawyers, while codes of professional responsibility also apply in a derivative sense (directly) to non-lawyers who work with lawyers, such as paralegals or private investigators. In India the practice of law is regulated by the governments of the individual states and territories.

2.what is political environment?

The political environment is the state, government and its institutions and legislations and the public and private stakeholders who operate and interact with or influence that system. The stability of the political environment and government will impact on the prioritization of mental health policy in relation to other policies, the funding available to mental health and the time frames in which policies and programmes can be realized.

IFET CE –BUSINESS ETHICS AND CORPORATE GOVERNANCE /VISHNU J/UNIT 2 VERSION 1.0

3.what is meant by legal environment?

This refers to set of laws, regulations, which influence the business organisations and theiroperations. Every business organisation has to obey, and work within the framework ofthe law. The important legislations that concern the business enterprises include:(i) Companies Act, 1956(ii) Foreign Exchange Management Act, 1999(iii) The Factories Act, 1948(iv) Industrial Disputes Act, 1972(v) Payment of Gratuity Act, 1972(vi) Industries (Development and Regulation) Act, 1951(vii) Prevention of Food Adulteration Act, 1954

5.what are all the features of Ethical business Environment

Business environment is the sum total of all factors external to the business firm andthat greatly influence their functioning.

It covers factors and forces like customers, competitors, suppliers, government, andthe social, cultural, political, technological and legal conditions.

The business environment is dynamic in nature, that means, it keeps on changing.

(d) The changes in business environment are unpredictable. It is very difficult to predictthe exact nature of future happenings and the changes in economic and socialenvironment.

6.write down the importance of ethical business environment

The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully. The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities. It helps the firms to analyse the competitors’ strategies andformulate their own strategies accordingly

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7.what is meant by Economic conditions.

The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.

8.Write down the economic policy framed by government

All business activities and operations are directly influenced bythe economic policies framed by the government from time to time. Some of theimportant economic policies are:(i) Industrial policy(ii) Fiscal policy(iii) Monetary policy(iv) Foreign investment policy(v) Export –Import policy (Exim policy)

The government keeps on changing these policies from time to time in view of thedevelopments taking place in the economic scenario, political expediency and thechanging requirement

9.what is meant by economic system.

The world economy is primarily governed by three types of economic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.Economic developments taking place in the economic scenario, political expediency and thechanging requirement. Every business firm has to function strictly within the policyframework and respond to the changes therein.

10.what is social environment

The social environment of business includes social factors like customs, traditions, values,

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beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that asociety cherishes have a considerable influence on the functioning of business firms. Forexample, during festive seasons there is an increase in the demand for new clothes, sweets,fruits, flower, etc. Due to increase in literacy rate the consumers are becoming moreconscious of the quality of the products

11.what is meant by technological environment

Technological environment include the methods, techniques and approaches adopted forproduction of goods and services and its distribution. The varying technological environmentsof different countries affect the designing of products. For example, in USA and manyother countries electrical appliances are designed for 110 volts. But when these are madefor India, they have to be of 220 volts.

12.what is meant by Demographic Environment?

This refers to the size, density, distribution and growth rate of population. All these factorshave a direct bearing on the demand for various goods and services. For example acountry where population rate is high and children constitute a large section of population,then there is more demand for baby products. Similarly the demand of the people of citiesand towns are different than the people of rural areas. The high rise of population indicatesthe easy availability of labour.

13.what is meant by Natural Environment

The natural environment includes geographical and ecological factors that influence the

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business operations. These factors include the availability of natural resources, weatherand climatic condition, location aspect, topographical factors, etc. Business is greatlyinfluenced by the nature of natural environment. For example, sugar factories are set uponly at those places where sugarcane can be grown. It is always considered better toestablish manufacturing unit near the sources of input.

14.what are all the social responsibility of business

Social responsibility of business refers to the obligation of business enterprises toadopt policies and plans of actions that are desirable in terms of the expectation,values and interest of the society. It ensures that the interests of different groups of thepublic are not adversely affected by the decisions and policies of the business.

PROVISIONS OF THE INDIAN CONSTITUTION PERTAINING TO BUSINESS

4. State the major provisions of Indian constitution applicable to business.

1.Preamble of Constitution and Business

2.Economic Justice

3.Liberty of Thought, Expression, Belief, Faith and Worship:

4.Equality of Status and of Opportunity

5.Right to Equality (Articles 14 to 18)

6.Right to Freedom (Articles 19 to 22)

1.what is meant by rights to equality

Articles 14 to 18 deal with right to equality. The constitution clearly provides that the state shall not deny to any person equality before law or the equal protection of law within the territory of India. It cannot discriminate against any citizen on grounds of religion, race, caste, sex and place of birth or any of them. It means that every citizen has access to shops, public restaurants, hotels, places of public entertainment etc. and is free to use well, tanks, road and places of public resort maintained at state funds.

2.Write a note on rights to Freedom

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Articles 19 to 22 enumerates certain positive rights conferred by the Constitution in order to promote the ideal of liberty promised in the preamble. Six fundamental rights in the nature of ‘freedom’ are guaranteed to the citizens. The right to freedom is also applied equally in business. The businessmen can express their problems freely to the government and can get a solution to it. Similarly, every citizen has the right to choose any business or profession and can form unions, and conduct meetings.

3. what is meant by Right against Exploitation

Articles 23 to 24 deal with the right against exploitation and seek to prevent exploitation of weaker sections of society by unscrupulous persons as well as the state. Article 23 prohibits traffic in human beings, involuntary work without payment and other forms of forced labour. Article 24 prohibits the employment of children below 14 years of age in factories and hazardous occupations, employing women employees in night shifts in factories etc.

4. what is rights to freedom of religion

Articles 25 to 28 deal with the right to freedom of religion. Subject to public order, morality, health etc., the citizens enjoy freedom of conscience and are free to profess, practise and propagate any religion. However, the state can regulate or restrict the economic, financial, political or other secular activities associated with religious practices. No citizen can be compelled to pay any taxes the proceeds of which are to be spent for the promotion or maintenance of any particular religion or religious domination.

5.write a short note on Cultural and Educational Rights

Article 29 stipulates that the State shall not impose upon it any culture other than the community s own culture. A minority community has the right to preserve its culture and religious interests. Article 30 confers upon a minority community the right to establish and administer educational institutions of its choice.A notable feature of the educational and cultural right is that unlike other fundamental rights, it is not subject to any restriction, except that the State can make special provisions for the advancement of any socially and educationally backward classes of citizens.

6. What is Rights to Constitutional Remedies (Article 32)

This right has been described by Dr. Ambedkar as the ‘heart and soul of the Constitution. In tact the mere declaration of fundamental rights is useless unless effective remedies are available for their enforcement. This has been ensured under Article 32 which grants the right to move the Supreme Court by appropriate proceedings for the enforcement of the rights conferred by the Constitution.

IFET CE –BUSINESS ETHICS AND CORPORATE GOVERNANCE /VISHNU J/UNIT 2 VERSION 1.0

POLITICAL SET UP

1.What is political system.

A political system is a system of politics and government. It is usually compared to the legal system, economic system, cultural system, and othersocial systems. However, this is a very simplified view of a much more complex system of categories involving the views: who should have authority, how religious questions should be handled, and what the government's influence on its people and economy

2.what is meant by Authoritarianism

In authoritarian governments, the people have no power or representation and it is characterized by absolute or blind obedience to [formal] authority, as against individual freedom and related to the expectation of unquestioning obedience. The elite leaders handle all economic, military, and foreign relations. Dictatorships are examples of authoritarianism.

Totalitarianism is the most extreme form of authoritarianism because it controls all aspects of life including communication between citizens, censors the media, and threatens by means of terror.

3.what is monarchies in political system

A monarchy is a government controlled by a king or queen determined by a predisposed line of sovereignty.* In the modern world there are two types of monarchies, absolute monarchies and constitutional monarchies. An absolute monarchy works like a dictatorship in that the king has complete rule over his country.* A constitutional monarchy gives the royal family limited powers and usually works in accordance with an elected body of officials.* Social revolutions of the 18th, 19th, and 20th century overthrew the majority of existing monarchies in favor of a more democratic governments and the rise of the lower-class.

4. what is Democracy in political system

A democracy is a form of government in which the citizens create and vote for laws directly or indirectly via representatives.* The idea of democracy stems back from ancient Greece and the profound works of ancient academics. However, the presence of democracy does not always mean citizen’s wishes will be equally represented. For example, in many democratic countries immigrants, and racial and ethnic minorities do not receive the same rights as the majority citizens.

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MRTP & FERA

1.what is meant by MRTP Act.

The Monopolies and Restrictive Trade Practices Act, 1969, aims to prevent concentration of economic power to the common detriment, provide for control of monopolies and probation of monopolistic, restrictive and unfair trade practice, and protect consumer interest. Monopolistic trade practice is that which represents abuse of market power in the production and marketing of goods and services by eliminating potential competitors from market and taking advantage of the control over the market by charging unreasonably high prices, preventing or reducing competition, limiting technical development, deteriorating product quality or by adopting unfair or deceptive trade practices.

2.what is restrictive trade practices in MRTP

A restrictive trade practice is a trade practice, which1. Prevents, distorts or restricts competition in any manner; or2. Obstructs the flow of capital or resources into the stream of production; or

3. Which tends to bring about manipulation of prices or conditions of delivery or effected the flow of supplies in the market of any goods or services, imposing on the consumers unjustified cost or restrictions.

3.what are all the monopolistic trade practices

A monopolistic trade practice is one, which has or is likely to have the effect of:1. maintaining the prices of goods or charges for the services at an unreasonable

levelby limiting, reducing or otherwise controlling the production, supply or distribution of goods or services;

2. unreasonably preventing or lessening competition in the production, supply or distribution of any goods or services whether or not by adopting unfair method or fair or deceptive practices;

3. limiting technical development or capital investment to the common detriment;

4. deteriorating the quality of any goods produced, supplied or distribute; and

5. increasing unreasonably-

i. the cost of production of any good; or

ii. charges for the provision, or maintenance,of any services; or

iii. the prices for sale or resale of goods; or

iv. the profits derived from the production, supply or distribution of any goods or services.

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A monopolistic trade practice is deemed to be prejudicial to the public interest, unless it is expressly authorized under any law or the Central Government permits to carry on any such practice.

What are all the features of MRTP Act

Regulating expansions, mergers and amalgamations and appointment of directors in

respect of ‘dominant undertakings' having assets of rupees one crore and

more and of undertakings which by themselves or with inter-connected

undertakings have assets of not less than Rs. 20 crores in value.

ii)   Regulating the standing of new undertakings which would become inter-

connected undertakings of such existing undertakings the total assets of which

exceed Rs. 20 crores.

iii)  Control over and prohibition of monopolistic and restrictive trade practices as are

found to be prejudicial to public interest.

What is unfair trade practices

The following may result in an unfair trade practice:

False representation and misleading advertisement of goods and services. Falsely representing second-hand goods as new.

Misleading representation regarding usefulness, need, quality, standard, style etc of goods and services.

False claims or representation regarding price of goods and services.

Giving false facts regarding sponsorship, affiliation etc. of goods and services.

Giving false guarantee or warranty on goods and services without adequate tests.

What is meant by FERA?

The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian Parliament in 1973 by the government of Indira Gandhi and came into force with

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effect from January 1, 1974. FERA imposed stringent regulations on certain kinds of payments, the dealings in foreign exchange and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency.[1] The bill was formulated with the aim of regulating payments and foreign exchange.[2]

What are all the objectives of FERA Act

To regulate certain payments.

To regulate dealings in foreign exchange and securities.

To regulate transactions, indirectly affecting foreign exchange.

To regulate the import and export of currency.

To conserve precious foreign exchange.

The proper utilization of foreign exchange so as to promote the economic

development of the country.

FERA :

Regulated in India by the Foreign Exchange Regulation Act(FERA),1973.

Consisted of 81 sections.

FERA Emphasized strict exchange control.

Control everything that was specified, relating to foreign exchange.

Law violators were treated as criminal offenders.

Aimed at minimizing dealings in foreign exchange and foreign securities.

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What are all the features of FERA

All branches of foreign companies (except air lines and shipping companies) seeking

approval under FERA have to convert themselves into Indian companies.

ii. A minimum permissible foreign share holding limit of 74 per cent will be allowed to

companies engaged in manufacturing any item listed in Appendix-I of 1973 Industrial

Policy or predominantly export-oriented or engaged in any industry using

sophisticated technology or tea plantation or manufacturing companies engaged in

trading provided trading constitutes less than 25 per cent of ex-factory value of

production or has a turnover of less than Rs. 5 crores.

iii. A permissible foreign share holding of 40 per cent will be allowed for companies

engaged in other manufacturing items which neither use sophisticated technology nor

are listed in Appendix I.

However, these companies will have the option to change the charter of their

manufacturing operations or by becoming predominantly export oriented or by

manufacturing items listed in Appendix I. In such cases the maximum permissible

share holding would be 74 per cent.

iv. If a company is 100 per cent export-oriented, a foreign share holding exceeding 74

per cent may be allowed.

v. Airlines and shipping companies as well as banking companies are exempted.

vi. Since 1985, due to Government’s liberal economic policies, legislations like FERA

and MRTP have become more and more irrelevant.

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Socio Cultural Environment And Their Impact On Business Operations

Socio-cultural environment is a collection of social factors affecting a

business and includes social traditions, values and beliefs, level of literacy

and education, the ethical standards and state of society, the extent of

social stratification, conflict and cohesiveness, and so forth.

Socio-cultural environment consists of factors related to human

relationships and the impact of social attitudes and cultural values on the

business of the organization. The beliefs, values and norms of a society

determine how individuals and organisations should be inter-related.

The core beliefs of a particular society tend to be rigid. It is difficult for

businesses to change these core values, which become a determinant of

its functioning. Some of the important factors and influences operating in

this environment are as follows:

a) Social concerns, such as the role of business in society, environmental

pollution, corruption, use of mass media, and consumerism.

b) Social attitudes and values, such as expectations of society from

business, social customs, beliefs, rituals and practices, changing lifestyle

patterns, and materialism.

c) Family structure and the changes in it, attitude towards and within the

family, and family values.

d) Role of women in society, position of children and adolescents in family

and society.

e) Educational levels, awareness and consciousness of rights, and work

ethics of members of society.

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Salient features of Indian culture and values.

The culture of India is the way of life of the people of India. India's languages,religions, dance, music, architecture, food, and customs differ from place to place within the country. The Indian culture, often labeled as an amalgamation of several cultures, spans across the Indian subcontinent and has been influenced by a history that is several millennia old.[1][2] Many elements of India's diverse cultures, such as Indian religions, yoga and Indian cuisine, have had a profound impact across the world.

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