Why are we studying Business Ethics and CSR?
A business does not work only to earn profit. It also affects employees, customers, society, and the environment. Business Ethics teaches us what is right and wrong in business, while CSR (Corporate Social Responsibility) teaches businesses how to give back to society and act responsibly.
1. Shareholder View vs Stakeholder View of Management
A. Shareholder View
Meaning
A business exists mainly to increase profits for its owners (shareholders).
Main Idea
- Profit is the primary goal.
- Managers should focus on maximizing shareholder wealth.
- Social activities should be done only if they increase profits.
Example
A company launches a new product mainly to increase sales and profits for investors.
Advantages
- Clear business objective.
- Improves financial performance.
- Attracts investors.
Limitation
- May ignore social and environmental issues.
B. Stakeholder View
Meaning
A business should consider the interests of everyone affected by it.
Stakeholders Include
- Employees
- Customers
- Suppliers
- Government
- Society
- Environment
- Shareholders
Main Idea
Success comes from balancing the interests of all stakeholders.
Example
A company spends money on pollution control even if it reduces short-term profits.
Advantages
- Better reputation.
- Customer loyalty.
- Sustainable growth.
Limitation
- Difficult to satisfy all stakeholders.
Quick Difference
| Shareholder View | Stakeholder View |
|---|---|
| Focus on profit | Focus on all stakeholders |
| Owners are most important | Everyone affected is important |
| Short-term profit oriented | Long-term sustainability oriented |
2. Approaches of Business Strategy for CSR
CSR means businesses voluntarily contributing to society and the environment.
A. Defensive Approach
Meaning
Company does only the minimum required by law.
Example
Following pollution rules only to avoid penalties.
B. Compliance Approach
Meaning
Company obeys all legal requirements.
Example
Providing employee benefits required by labour laws.
C. Managerial Approach
Meaning
Managers actively consider social responsibilities while making decisions.
Example
Introducing eco-friendly packaging.
D. Strategic Approach
Meaning
CSR becomes part of business strategy.
Example
A company investing in education programs that improve its brand image.
Most Important Point
Strategic CSR benefits both society and business.
3. Theories of Ethics
Ethics helps us decide what is right and wrong.
A. Utilitarian Theory
Meaning
An action is right if it creates the greatest good for the greatest number of people.
Example
Building a bridge that benefits thousands of people.
Limitation
Minority interests may suffer.
B. Rights Theory
Meaning
Every person has basic rights that must be respected.
Examples
- Right to privacy
- Right to freedom
- Right to safety
Limitation
Different rights may conflict.
C. Justice Theory
Meaning
People should be treated fairly and equally.
Example
Equal pay for equal work.
Limitation
Fairness can be interpreted differently.
D. Virtue Theory
Meaning
Focuses on moral character rather than actions.
Important Virtues
- Honesty
- Integrity
- Courage
- Kindness
Example
A manager tells the truth even when it causes loss.
Limitation
Different people may define virtues differently.
Quick Comparison
| Theory | Focus |
|---|---|
| Utilitarian | Greatest benefit for most people |
| Rights | Protect individual rights |
| Justice | Fairness and equality |
| Virtue | Good character and values |
4(a). Ethical Dilemmas
Meaning
A situation where a person must choose between two or more options and each option has ethical consequences.
Simple Definition
A choice between “right vs right” or “right vs wrong.”
Example
A manager discovers corruption by a senior officer.
- Report it and risk losing job.
- Stay silent and protect career.
Both choices create problems.
Causes
- Conflict of interests
- Pressure from management
- Personal values vs company goals
How to Solve
- Follow company ethics policy.
- Consider consequences.
- Seek expert advice.
- Choose the most ethical option.
4(b). Social Audit
Meaning
A systematic evaluation of a company’s social and environmental performance.
Purpose
To check whether the company is fulfilling its social responsibilities.
Areas Checked
- Employee welfare
- Environmental protection
- Community development
- Customer satisfaction
Benefits
- Improves transparency.
- Builds public trust.
- Identifies weaknesses.
Example
A company reviews how much it spent on education, healthcare, and environmental projects.
5. Make or Buy Decision & Role of CSR Committee
A. Make or Buy Decision
Meaning
A company decides whether to produce something internally (“Make”) or purchase it from an outside supplier (“Buy”).
Make
Company produces the product itself.
Advantages
- Better quality control.
- Protects business secrets.
- More control over production.
Example
A car company manufacturing its own engines.
Buy
Company purchases from external suppliers.
Advantages
- Lower cost.
- Saves time.
- Access to expert suppliers.
Example
A mobile company buying camera modules from another manufacturer.
Factors Affecting Decision
- Cost
- Quality
- Time
- Availability of resources
- Strategic importance
- Risk involved
B. Role of CSR Committee in Annual Reporting
Meaning
CSR Committee is a group of directors responsible for planning and monitoring CSR activities.
Main Functions
1. Formulate CSR Policy
Creates CSR goals and guidelines.
2. Recommend CSR Budget
Suggests how much money should be spent on CSR activities.
3. Monitor CSR Projects
Ensures projects are implemented properly.
4. Review CSR Performance
Checks whether objectives are achieved.
5. Prepare CSR Report
Provides details in the company’s annual report.
Information Included in Annual Report
- CSR policy
- CSR projects undertaken
- Amount spent
- Areas of expenditure
- Impact of CSR activities
- Reasons for unspent CSR funds (if any)
One-Page Exam Revision
Shareholder View
➡ Profit for owners is main goal.
Stakeholder View
➡ Consider employees, customers, society, environment, and shareholders.
CSR Approaches
➡ Defensive → Compliance → Managerial → Strategic.
Ethics Theories
➡ Utilitarian = Maximum benefit.
➡ Rights = Protect rights.
➡ Justice = Fairness.
➡ Virtue = Good character.
Ethical Dilemma
➡ Difficult choice involving ethical issues.
Social Audit
➡ Check company’s social and environmental performance.
Make or Buy Decision
➡ Decide whether to produce internally or purchase externally.
CSR Committee
➡ Creates CSR policy, monitors projects, and reports CSR activities in annual reports.
Exam Tip: For TEE, focus especially on:
- Shareholder vs Stakeholder View ⭐⭐⭐⭐⭐
- CSR Strategic Approach ⭐⭐⭐⭐
- Theories of Ethics ⭐⭐⭐⭐⭐
- Ethical Dilemmas & Social Audit ⭐⭐⭐⭐
- CSR Committee Functions ⭐⭐⭐⭐⭐
These topics are frequently asked and form the foundation of MMPC-020.