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.