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Understanding Corporate Governance and Business Ethics: A Case Study of Infosys, Study notes of Business Administration

The role of management accountants in advising directors on financial statements and identifies the type of director mr. Pratap is playing. It also discusses the company's policies on suppliers, contractors, and buying agents, and the impact of corruption on businesses. The document further examines the unethical behaviors in business and infosys' approach to corporate governance and workplace values.

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Question Paper
Business Ethics & Corporate Governance (MB3I2): October 2008
Section A : Basic Concepts (30 Marks)
This section consists of questions with serial number 1 - 30.
Answer all questions.
Each question carries one mark.
Maximum time for answering Section A is 30 Minutes.
1. Mr. Anand Desai is in an ethical dilemma regarding purchase of a machine. If he buys the machine from Best
Electronics, who are ready to give 5 years warranty, he will not get any monetary benefit for himself. Therefore
he decides to buy the machinery from GL Electronics, who is giving only 1year warranty, in order to gain the
personal monetary benefit. Which of the following factors involved in decision-making affects the ethical
dilemma of Mr. Anand Desai?
(a) Concentration of effect
(b) Time interval
(c) Proximity
(d) Social agreement
(e) Magnitude of consequence.
<Answer>
2. When the implications and consequences of managers’ decisions become more evident, managers are faced with
the challenge of ethical dilemma. To avoid ethical dilemmas managers can follow the approaches by Clutterbuck
and Drummond and Carmichael’s. Which of the following does not belong to Clutterbuck’s approach?
(a) It includes ethics in recruitment criteria
(b) It uses reward and punishment mechanisms
(c) It establishes openness and transparency into decision-making processes
(d) It provides mechanism for negotiating concerns
(e) It draws up personal and corporate ethics checklist.
<Answer>
3. When a company adopts an anti-pollution environment policy, it is said to be ‘going green’. Organizations adopt
green initiative due to which of the following reasons?
I. Economic benefits from increased efficiency.
II. Competitive advantage through innovation.
III. Set a standard or code for moral behavior.
IV. Public image.
(a) Only (I) above
(b) Only (II) above
(c) Both (II) and (III) above
(d) (I), (II) and (IV) above
(e) (I), (III) and (IV) above.
<Answer>
4. If Vijay Motors is taken over by Vishnu Motors, Mr. Feroz and many other top executives are going to lose their
jobs. Therefore in order to discourage the unwanted takeover attempt, the management of Vijay Motors gave
stock options, bonuses and severance pay to all the top executives. By adopting which of the following
techniques, was the management of Vijay Motors able to protect themselves from hostile takeover?
(a) Golden parachute
(b) Sandbag
(c) Greenmail
(d) People pill
(e) Poison pill.
<Answer>
5. The primary role of the board is to supervise the quality of strategic thinking of the executive committee and
performs its role in strategy development at various levels. Structural and portfolio level of strategic thinking
involves discussions among the board of directors and the management, relating to which of the following?
I. External environment.
II. Mergers and acquisitions.
III. Potential market trends.
<Answer>
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Question Paper

Business Ethics & Corporate Governance (MB3I2): October 2008

Section A : Basic Concepts (30 Marks)

  • This section consists of questions with serial number 1 - 30.
  • Answer all questions.
  • Each question carries one mark.
  • Maximum time for answering Section A is 30 Minutes.

Mr. Anand Desai is in an ethical dilemma regarding purchase of a machine. If he buys the machine from Best

Electronics, who are ready to give 5 years warranty, he will not get any monetary benefit for himself. Therefore

he decides to buy the machinery from GL Electronics, who is giving only 1year warranty, in order to gain the

personal monetary benefit. Which of the following factors involved in decision-making affects the ethical

dilemma of Mr. Anand Desai?

(a) Concentration of effect

(b) Time interval

(c) Proximity

(d) Social agreement

(e) Magnitude of consequence.

When the implications and consequences of managers’ decisions become more evident, managers are faced with

the challenge of ethical dilemma. To avoid ethical dilemmas managers can follow the approaches by Clutterbuck

and Drummond and Carmichael’s. Which of the following does not belong to Clutterbuck’s approach?

(a) It includes ethics in recruitment criteria

(b) It uses reward and punishment mechanisms

(c) It establishes openness and transparency into decision-making processes

(d) It provides mechanism for negotiating concerns

(e) It draws up personal and corporate ethics checklist.

When a company adopts an anti-pollution environment policy, it is said to be ‘going green’. Organizations adopt

green initiative due to which of the following reasons?

I. Economic benefits from increased efficiency.

II. Competitive advantage through innovation.

III. Set a standard or code for moral behavior.

IV. Public image.

(a) Only (I) above

(b) Only (II) above

(c) Both (II) and (III) above

(d) (I), (II) and (IV) above

(e) (I), (III) and (IV) above.

If Vijay Motors is taken over by Vishnu Motors, Mr. Feroz and many other top executives are going to lose their

jobs. Therefore in order to discourage the unwanted takeover attempt, the management of Vijay Motors gave

stock options, bonuses and severance pay to all the top executives. By adopting which of the following

techniques, was the management of Vijay Motors able to protect themselves from hostile takeover?

(a) Golden parachute

(b) Sandbag

(c) Greenmail

(d) People pill

(e) Poison pill.

The primary role of the board is to supervise the quality of strategic thinking of the executive committee and

performs its role in strategy development at various levels. Structural and portfolio level of strategic thinking

involves discussions among the board of directors and the management, relating to which of the following?

I. External environment.

II. Mergers and acquisitions.

III. Potential market trends.

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IV. Strategic alliance.

(a) Only (IV) above

(b) Both (I) and (III) above

(c) Both (II) and (IV) above

(d) (I), (III) and (IV) above

(e) All (I), (II), (III) and (IV) above.

Prakash Industries Ltd. concentrates on profits so that they can continue to sponsor the blind school and the other

social activities they have undertaken. They measure their success not only in financial terms but also in terms of

contribution to society. In which of the following stages of ethical consciousness Prakash Industries Ltd., can be

placed?

(a) Law of the jungle

(b) Corporate citizenship

(c) Profit maximizing in the long-term

(d) Stakeholder concept

(e) Anything for profit.

The accountants who look into the operations of internal accounts of various departments and make a record of

the financial activities are management accountants and financial accountants. Which of the following is/are true

regarding management accountants?

I. The role of management accountant is to provide information that the management needs for

formulating policies.

II. The management accountant provides economic information to the investors.

III. The role of management accountant also involves advising directors on the items that have to be

included in the financial statement.

IV. The task of management accountant is to provide trustworthy and credible information on which

management can base its decisions.

(a) Only (I) above

(b) Both (I) and (II) above

(c) Both (I) and (IV) above

(d) (I), (II) and (III) above

(e) All (I), (II), (III) and (IV) above.

Global Tech Ltd., as a corporation enjoys the right to make donations to the leading political parties to push an

agenda in favor of it. Which of the following characteristics of a corporation, is Global Tech Ltd. enjoying?

(a) Transferability

(b) Limited liability

(c) Liability for investors

(d) Centralized management

(e) Legal personality.

Apart from taking strategic decisions and carrying moral risks of the business, a leader even has to maintain a

healthy relationship with stakeholders through ‘contracts’. Psychological contract is one among the various

Cannon contracts. Psychological contract

I. Aims at motivating employees and giving recognition to stakeholders and also offers some security.

II. Enables managers to use their competence and skills for the benefit of the enterprise.

III. Helps managers to make decisions that minimize wastage and at the same time, maintain a consistent

effort in reward standards.

(a) Only (I) above

(b) Only (II) above

(c) Only (III) above

(d) Both (I) and (II) above

(e) Both (II) and (III) above.

Governance is concerned with the intrinsic nature, purpose, integrity and identity of the institution. Corporate

management is more of hands on activity. Which of the following is/are true regarding corporate management?

I. External focus.

II. Management assumes an open system.

III. Task oriented.

IV. Concerned with where the company is going.

The stakeholders of an organization are all those who participate in some way in the activities of the

organization. A company’s relationship with which of the following stakeholders must be based on mutual

respect to foster long-term stability in return for value, quality, competitiveness and reliability?

(a) Creditors

(b) Suppliers

(c) Community

(d) Employees

(e) Competitors.

The board of directors can exercise some powers on behalf of the company. Which of the following powers can

be exercised only with the consent of the company at the general meeting?

I. The power to invest funds of the company.

II. Power to remit debt due by a director.

III. Power to appoint sole selling agents.

IV. Power to borrow in excess of capital and reserves for the company.

(a) Both (I) and (II) above

(b) Both (III) and (IV) above

(c) (I), (III) and (IV) above

(d) (II), (III) and (IV) above

(e) All (I), (II), (III) and (IV) above.

Law can be defined as a consistent set of universal rules that are widely published, generally accepted and

usually enforced. Which of the following is not true regarding the characteristics of law?

(a) Laws are enforced when people disobey them

(b) If a minority of members do not obey the law, it becomes difficult to enforce it

(c) The requirement how to act or not to act in a particular situation has to be published in written form

(d) Law is applicable to everyone who faces similar circumstances

(e) There should be any contradiction between two requirements of the act.

Focus on corporate responsibility was highlighted through the industrial revolution and the years thereafter.

Which of the following happenings pertain to the industrial revolution during ‘nonconformist challenge’ in

Britain?

I. Wealth and industry were approached in different ways from the perspective of the religion that people

heading big businesses followed.

II. Quakers played an important role in shaping values of new entrepreneurial groups.

III. It reflected the needs of people who failed to prosper from the industrial revolution.

(a) Only (I) above

(b) Only (II) above

(c) Both (I) and (II) above

(d) Both (II) and (III) above

(e) All (I), (II) and (III) above.

A research was conducted by the Center for Advanced Purchasing Studies to find out the relationships of the

American buyers with the foreign suppliers. Which of the following is not a result of this study?

(a) Buyers who were least satisfied with the supplier relationship were those who perceived their suppliers

to be most involved in unethical activities

(b) Significant differences did exist between buyers’ and suppliers’ perceptions regarding how each

believed the other to be involved in these activities

(c) Buyers believed that suppliers are involved in unethical practices and felt that suppliers are performing

less effectively

(d) It appeared that American buyers realized that employing unethical practices will result in short-term

success, but the foreign suppliers did not give hear to this aspect

(e) There is no relationship between the supplier’s nationality and the level of unethical activity in the

buyer-supplier relationship.

Which of the following is/are not true regarding the study conducted to examine ethical practices in the US,

France and Germany?

I. The American managers said that bribery was unethical and illegal under the Foreign Corrupt Practices

Act.

II. Only one third of the French managers felt signing a purchase order with the cost price more than the

current market price, would be dishonest.

III. It was concluded that the US and German executives were more concerned with ethical and legal

questions.

(a) Only (I) above

(b) Only (III) above

(c) Both (I) and (II) above

(d) Both (II) and (III) above

(e) All (I), (II) and (III) above.

At times of recession it has become common for businesses to reduce their size and overhead costs by

discharging some of the employees, and creating which of the following styles of management?

(a) Autocratic

(b) Bureaucratic

(c) Lean and mean

(d) Hire and fire

(e) At-will.

Laws can be enforced only if they are unduly accepted. Which of the following is not a process involved in the

formulation of law?

(a) Society process

(b) Political process

(c) Group process

(d) Individual process

(e) Economic process.

Money laundering can be defined with reference to situations such as

I. Acquisition, ownership, possession or transfer of any proceeds of crime.

II. Knowingly entering into a transaction related to the proceeds of crime, directly or indirectly.

III. Concealment or aiding in the concealment of the proceeds of crime.

IV. Those that violate equality of opportunity.

(a) Both (I) and (II) above

(b) Both (III) and (IV) above

(c) (I), (II) and (III) above

(d) (II), (III) and (IV) above

(e) All (I), (II), (III) and (IV) above.

Which of the following financial frauds can be detected by comparing financial statements over a period of

time, examining unusual journal entries, verifying supporting sales documents and unusual sales transactions?

(a) Fraudulent asset evaluations

(b) Concealed liabilities and expenses

(c) Fictitious revenues

(d) Fraudulent timing differences

(e) Fraudulent disclosures or omissions.

Which of the following is known as an assessment of the social impact of a corporation on society?

(a) Social audit

(b) Venture philanthropy

(c) Social initiative

(d) Ethical audit

(e) Cause-related marketing.

The enlightenment matrix is used to measure corporate giving. As per the matrix, a company that is high in

philanthropy and high in self-interest is involved in which of the following activities?

(a) Social responsibility

(b) Pure philanthropy

(c) Cause-related marketing

(d) Enlightened self-interest

(e) Community involvement.

Which of the following is the main purpose of corporate governance?

dynamic and successful technology companies in India. Infosys highlights its

perspectives at www.infosys.com.

On July 31, 2006, Murthy opened the NASDAQ market from his corporate

headquarters in Mysore. He said, “Twenty-five years ago, we founded Infosys with

a vision of the global delivery model. That vision has been validated as the tide of

globalization has swept across the world and businesses are dramatically changing

how they run their organizations. Opening the NASDAQ market from India is not

only a great honor for Infosys, but also illustrative of the emerging new world.”

The Company’s Vision is: “To be a globally respected corporation that provides

best-of breed business solutions, leveraging technology, delivered by best-in-class

people.” And, its Mission is: “To achieve our objectives in an environment of

fairness, honesty, and courtesy towards our clients, employees, vendors and society

at large.”

Infosys has built a state of the art office complex in Bangalore with all modern

facilities which helps in giving its employees a sense of belonging. While offering

stock options to its employees, it ensures that the workforce has a stake in its overall

growth. Actions speak louder than words and leaders must speak in a way that

inspires integrity and a vision for the company.

Corporate Governance is an area of critical importance to Infosys and one where it

has sought to be a global leader. It is seeking to use its model example to promote

far higher standards in India and Murthy has been one of the most vocal and

influential advocates of corporate governance reform in his country.

The company states: “We believe that sound corporate governance is critical to

enhance and retain investor trust. Accordingly, we always seek to ensure that we

attain our performance rules with integrity. Our Board exercises its fiduciary

responsibilities in the widest sense of the term. Our disclosures always seek to attain

the best practices in international corporate governance. We also endeavor to

enhance long-term shareholder value and respect minority rights in all our business

decisions.”

The Infosys corporate governance philosophy is based on the following principles:

  • Satisfy the spirit of the law and not just the letter of the law.
  • Corporate governance standards should go beyond the law.
  • Be transparent and maintain a high degree of disclosure levels. When in doubt,

disclose.

  • Make a clear distinction between personal conveniences and corporate

resources.

  • Communicate externally, in a truthful manner, about how the company is run

internally.

  • Comply with the laws in all the countries in which the company operates.
  • Have a simple and transparent corporate structure driven solely by business

needs.

  • Management is the trustee of the shareholders’ capital and not the owner.

Infosys stresses that at the core of its corporate governance practice is the Board,

which oversees how the management serves and protects the long-term interests of

all the stakeholders of the company. It states: “We believe that an active, well-

informed and independent Board is necessary to ensure the highest standards of

corporate governance.

Majority of the Board, 9 out of 16, are independent members. Further, Infosys has

compensation, nomination, investor grievance and audit committees, which are

comprised of independent directors.”

“As a part of our commitment to follow global best practices, we comply with the

Euroshareholders Corporate Governance Guidelines 2000, and the

recommendations of the Conference Board Commission on Public Trusts and

Private Enterprises in the U.S.

We also adhere to the UN Global Compact Programme.” To promote corporate

social responsibility the company established a philanthropic foundation in 1996,

which is mostly engaged in social, health and education programs in India.

Murthy is the chairman of the governing body of the Indian Institute of Information

Technology, Bangalore and the Indian Institute of Management, Ahmedabad. He

was the Chairman of the Committee on Corporate Governance appointed by the

Securities and Exchange Board of India (SEBI) in 2003. He is a member of the

Board of Overseers of the University of Pennsylvania’s Wharton School; Cornell

University Board of Trustees; Singapore Management University Board of Trustees;

INSEAD’s Board of Directors and the Asian Institute of Management’s Board of

Governors. He is also a member of the Advisory Boards and Councils of the

William F. Achtmeyer Center for Global Leadership at the Tuck School of Business,

the Corporate Governance initiative at the Harvard Business School, and the Yale

University President’s Council on International Infosys Foundation, the

philanthropic arm of Infosys Technologies Ltd., came into existence on 4th

December 1996 with the objective of fulfilling the social responsibility of the

company by supporting and encouraging the underprivileged sections of society. In

a short span of time, the Foundation has implemented numerous projects in its

chosen areas. The Foundation has undertaken various initiatives in providing

medical facilities to remote rural areas, organizing novel pension schemes and in

aiding orphans and street children. It has undertaken a large rural education program

titled “A library for every school” under which 5500 libraries have been set up in

government schools spread across many villages. Other activities include the

reconstruction of old school buildings, setting up of rural Science Centers and

schemes to provide support to dying traditional art and culture forms.

END OF

CASELET

Caselet 2

Read the caselet carefully and answer the following questions:

3. Bribery, of course, is the most widespread form of corruption, and corporate

strategies for dealing with bribe requests vary. With respect to the caselet, discuss

the strategies for saying no to bribe and explain risks and costs abound for

companies that succumb to the bribery game.

( 7 marks)

4. There’s no doubt that corruption, endemic in emerging economies around the world.

Discuss the various unethical behaviors that constitute in business and their impact

of corruption on market system.

( 8 marks)

In Turkey, the apartment buildings that collapse during earthquakes are known as

“bribe buildings.” In Africa, bridges dot the landscape with no roads to connect

them. There’s no doubt that corruption, endemic in emerging economies around the

world, throws economic development into chaos. It affects decisions made by

bureaucrats, degrades the quality of those in power, and discourages foreign

investment. It’s also an increasingly hot business topic, with a growing number of

influential business and political leaders from around the globe regularly

pinpointing corruption as one of the greatest threats to global economic

development.

“Corruption and bribery have moved to the forefront in discussions about business,”

says Wharton legal studies professor Philip M. Nichols. “The list of countries that

have been politically or economically crippled by corruption continues to grow, and

businesses with long-term interests abroad will ultimately be harmed by any plans

that include bribery.”

Bribery, of course, is the most widespread form of corruption, and corporate

strategies for dealing with bribe requests vary. According to Nichols, some

companies opt to pay, sometimes damaging their public images and making it more

difficult to refuse future requests. Others have the sheer bulk and revenues to

successfully and consistently say “no.” Oil giant Texaco, for example, has such a

formidable reputation for refusing to pay bribes that its jeeps are often waved

misallocation of resources. Yes, Africa is littered with bridges instead of hospitals.

But more damaging is the fact that in endemically corrupt systems, regular people

are not getting served by the government; they don’t trust the government so they

don’t interact with the government,” Nichols says. “But people have to get things

done. So they create their own systems to do things, such as resolve disputes or

enforce contacts or even police neighborhoods.”

These systems, however, “are not free,” Nichols adds. “They cost money. So money

goes to supporting the government system and money goes to supporting the

shadow system; twice as much money goes to bureaucracies as it should. That

means money is not going to increasing food production, or to health, or to

enlarging the economy. And that stinks.”

END OF

CASELET

Caselet 3

Read the caselet carefully and answer the following questions:

5. Define environmental ethics and explain the various approaches Fetzer Vineyards

used concerning the moral responsibility of environment.

( 9 marks)

6. Fetzer is recognized as a zero waste company by the state of California. Analyze the

initiatives adopted by Fetzer to become the zero waste company.

( 9 marks)

Imagine a football field covered in garbage. It’s a foot deep, so when you walk

around in it - slogging through office paper, food pulp, old Bic pens - it reaches up

past your ankles. Now imagine that someone has cleaned that field. The waste is the

same depth, but now it only reaches from the first to the seventh yard line, and 93%

of the field is pristine and green again. That’s a major cleanup. And that’s what

Fetzer Vineyards, in Hopland, California (Calif), has accomplished with its own

waste since 1991. Fetzer has done it during a time when sales more than doubled.

Not being one to rest on its laurels, the Fetzer winery aims to go further - to zero

waste by the year 2009. “We are already recognized as a zero waste company by the

state of California,” said Patrick Healy, environmental coordinator at Fetzer. What

they do with all that non-waste is instructive. They recycle everything from

cardboard to antifreeze; compost organic waste and turn it into fertilizer; and work

to keep materials out of the waste stream - by restoring oak barrels rather than

discarding them, for example.

There’s almost no aspect of the winery that escapes this kind of detailed

environmental scrutiny. Take the administration building, for example. This10,000-

square-foot facility, completed in 1996, is one of the world’s first large-scale

examples of rammed-earth (underground) construction. It was built almost entirely

with recycled wood. Carpets are natural fiber. Lights are on motion sensors, so they

go off as you leave the room. Heat comes from waste heat off chillers used in wine

making. And instead of air conditioning, the building uses night-air cooling.

“Computerized and motorized windows open at night to admit cool air,” Healy

explained. Even landscaping is environmentally conscious. It’s “zeroscape, “he said,

because the drought-resistant plants take little water.

And then, of course, there’s the photovoltaic array on the roof, which got up and

running in June. “It’s the largest photovoltaic display in northern California not

owned by a utility company,” Healy said. It supplies three-quarters of the building’s

energy needs. All other power used by the winery is from renewable sources, thanks

to a unique utility contract signed in May.

Most telling, perhaps, is the vineyard’s approach to grape growing itself: an organic

approach that relies on natural pest control and soil management. Techniques

include the use of “cover crops” grown between the vines, like crimson clover and

purple vetch, which attract beneficial insects. “They keep the bad guys in check, so

to speak,” said President Paul Dolan. Another technique is “canopy management,”

in which the leaf and cane canopy is opened to bring in sunlight, to reduce the

chance of mold and rot, and eliminate the need for fungicides.

The process “brings us closer to the vine,” Dolan said. “We don’t have the quick

fixes of chemicals, so we’re in the vineyards more. We find that our farmers are

better farmers as a result.” And the grapes simply taste better. That’s where the

financial payoff lies. There’s some demand for specially labeled “organic” wine,

which Fetzer meets with an organic label, Bonterra. Butit doesn’t label most of its

wine organic. Organic growing “is part of who we are,” Dolan said. “It’s not

something the consumer is aware of.”

About 20% to 30% of grapes used now are organic, but Fetzer plans to reach 100%

by 2010. Toward that end, it formed “Club Bonterra” to help share ideas on

sustainable farming among its outside farmers, who provide more than 90% of the

grapes.

Does all of this environmental focus cost more? Yes and no. Organic methods are a

little more expensive to begin with, but not in the long run. The solar array really

won’t pay for itself, but it was built with the help of grants. Renewable power is

slightly more expensive, but Fetzer is offsetting that by pursuing efficiencies in

usage. And recycling is decidedly less expensive than land filling. It all does make

economic sense. “But it’s not like we’re using it as a competitive edge,” Dolan said.

It simply fits with how the company does business. Fetzer’s vision statement is to

enhance the quality of life.

What’s remarkable is that Fetzer takes this holistic approach as a publicly held

company. This $160 million firm is owned by the $2 billion Brown-Forman Corp.,

based in Louisville, Kentucky (Ky). “They’ve been great about it,” Dolan said.

Fetzer runs its own show, as long as the profit is there. And as Dolan says, Fetzer is

“very profitable.” Over the last six years, profits and revenues have grown at a 15%

annual compounded rate.

It’s a model worth showcasing for a new century - a thoughtful and deep

commitment to the environment, combined with financial excellence. As Dolan

said, “it helps other people see it can be done.”

END OF CASELET 3

END OF SECTION B

Section C : Applied Theory (20 Marks)

ons with serial number 7 - 8.

ach question.

30 minutes on Section C.

Marian, a top graduate from Loyola in Humanities, has applied to Spin Colors

position. The CEO was questioned by other panel members after the in

necessity to hire Marian, as she is a black woman with unpleasant personal

good academics the CEO wants to appoint her. In this regard, discuss t

selection.

The role of the management involves in balancing the multiple claims of

Knight Restaurants gives preferential treatment to some of its stakeholder

Therefore the task of the management to keep the relationships among t

balanced. When these relationships become imbalanced, the survival of K

jeopardy. Discuss why it is important for Knight Restaurants’ to maintain goo

stakeholders.

Suggested Answers

Business Ethics & Corporate Governance (MB3I2): October 2008

Section A: Basic Concepts

Answer Reason

1. C Six factors are involved in ethical decision-making. Proximity says while solving

ethical dilemmas a manager may adopt those decisions that are beneficial to him or

those affected socially, culturally, psychologically or physically by the decision.

< TOP >

2. E Businesses operating with social responsibility should have standard rules and

regulations for efficient functioning. To avoid ethical dilemmas managers can follow

the approaches by Clutterbuck (institutional and control oriented approach) and

Drummond and Carmichael’s (personalized development approach). Clutterbuck’s

approach:

  • It includes ethics in recruitment criteria.
  • Using reward and punishment mechanisms.
  • Establish openness and transparency into decision-making processes.
  • Provide mechanisms for negotiating concerns.

Draw up personal and corporate ethics checklist is among Drummond and

Carmichael’s (personalized development approach).

< TOP >

3. D When a company adopts an anti-pollution environment policy, it is said to be ‘going

green’. Organizations adopt green initiative due to the following reasons:

  • Economic benefits from increased efficiency.
  • Competitive advantage through innovation.
  • Public image.

To set a standard or code for moral behavior is an objective of ethics.

< TOP >

4. A When a company is taken over, many top executive are likely to lose their jobs. So to

discourage an unwanted takeover attempt, a company gives lucrative benefits to its

top executive – these benefits are awarded to those executives who lose their jobs

after a takeover. Benefits include stock options, bonuses and severance pay etc., such

golden parachutes can run into millions of dollars and can cost the firm a lot of

money.

< TOP >

5. C Structural and portfolio strategy is concerned with decisions regarding the structure

of the company and the businesses that it should enter into. This level of strategic

thinking involves discussions among the board of directors and the management,

relating to acquisitions, mergers, strategic alliances or sale of a part of the business.

< TOP >

6. D In the fifth stage, “stakeholders concept,” companies concentrate on profits to have a

social as well as economic mission. They measure their success not only in financial

terms but also in terms of contribution to society.

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7. C The role of management accountant is to provide information that the management

needs for formulating policies, planning and controlling the activities of the

employees, decision-making, disclosures to shareholders and others who are external

to the business. The main task of a management accountant is to provide trustworthy

and credible information on which the management can base its decisions.

The financial accountant provides economic information to the investors. The role of

the financial accountant also involves advising directors on the items that have to be

selected for inclusion in the financial statement.

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8. E A corporation is a legal person, enjoying the following rights: - Corporations can make donations to political parties and thus can push an

agenda in favor of it.

  • Corporations can give reasonable protection to individuals working for it from

penalty or jail, which individuals would not enjoy as outsiders to the corporation.

  • As a legal person, a corporation can own property, including real estate,

copyrights and intellectual property.

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9. A According to Cannon psychological contract aims at motivating employees and

giving recognition to stakeholders and also offers some security.

Efficiency contract helps managers to make decisions that minimize wastage and at

the same time, maintain a consistent effort in reward standards.

Knowledge contract enables managers to use their competence and skills for the

benefit of the enterprise.

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10. B Statement (I), (II) and (IV) are not true regarding corporate governance. Since

corporate management focuses internally, it assumes a closed system and it is

concerned with getting the company there.

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11. E Jitendra Mishra and Molly Morrissey have identified the following factors that

promote trust in an organization:

  • Open communication.
  • Sharing of critical or important information.
  • Encouraging employee participation in decision-making.
  • Sharing of perceptions and feelings.

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12. C According to Gelleraman, a manager uses the following rationalizations: - They will be protected by their company. - Their actions are aimed at the individuals or corporations best interest. - Their actions are within reasonable ethical and legal limits. - Their actions will not be disclosed or published.

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13. D Marketing mix is crucial for the marketing decision making process. Assembling and

managing the 4P’s is an important task for any marketer. Marketing mix also includes

the service aspects of people, physical evidence and process.

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14. C Shadow directors are those who influence the decisions of the board without formally

being present on the board. This type of directorship is seen in some family owned

companies. But when there is evidence to prove their influence, they can be held

responsible for the acts of the company along with the directors of the board.

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15. A Circulated letters reflects the company’s policies on certain issues concerning

suppliers, contractors and buying agents.

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16. B The stakeholders of an organization are all those who participate in some way in the

activities of the organization. A company’s relationship with suppliers and

subcontractors must be based on mutual respect to foster long-term stability in return

for value, quality, competitiveness and reliability.

17. D Powers can be exercised only with the consent of the company at the general meeting

are

  • Power to remit debt due by a director.
  • Power to appoint sole selling agents.
  • Power to borrow in excess of capital and reserves of the company.

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18. B The characteristic of Law: - Laws are enforced when people disobey them - If the majority of the members do not obey the law, then it becomes difficult to

enforce it

  • The requirement how to act or not to act in a particular situation has to be

published in written form

  • Law is applicable to everyone who faces similar circumstances
  • There should be any contradiction between two requirements of the act.

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19. C During the Victorian rule there was a variance in the practice of christianity

especially between catholicism of the Irish migrants and the determined quakerism.

These quakers constituted the nonconformist section of the society. Noncoformism

was with respect to religion.

Therefore, the following happenings pertain to the ‘nonconformist challenge’ in

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28. A The main purpose of corporate governance is disbursement of organizational

resources to individuals based on positive contributions made to the organization.

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29. C In the Japanese model of corporate governance, the financial institutions have a

major say in the governance mechanism. The shareholders, along with the banks,

appoint the members on the board. In this model even the president is appointed on

the basis of a consensus between the shareholders and the banks.

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30. A The conformance role is a tricky role as it involves the director monitoring and

evaluating his own performance.

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Section B : Caselets

1. The Company’s Vision statement: “To be a globally respected corporation that provides best-of breed business

solutions, leveraging technology, delivered by best-in-class people.” And, its Mission is: “To achieve our

objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and

society at large.”

Ethical issues while developing the vision statement:

The Vision statement plays a major role in influencing the strategy of an organization. It reflects the values and

priorities of strategic decision makers. It provides managers with a unity of direction and also projects a sense of

worth and intent that can be identified and assimilated by the insider and outsiders of the company i.e.,

stakeholders.

A company’s vision statement reflects company’s culture and values. For instance, Infosys vision statement

declares that the company seeks to be a globally respected corporation that provides best-of-breed software

solutions delivered by best people.

Infosys global presence: On July 31, 2006, Murthy opened the NADSAQ market from his corporate headquarters

in Mysore. Murthy said that, twenty-five years ago they founded Infosys with a vision of the global delivery

model. That vision has been validated as the tide of globalization has swept across the world and businesses are

dramatically changing how they run their organizations. Opening the NASDAQ market from India is not only a

great honor for Infosys, but also illustrative of the emerging new world. Infosys employs over 58,000 people

worldwide.

Best-of-breed software: Murthy has pioneered a technology revolution and his corporation has become firmly

established and very successful. It provides consulting and IT services. It is one of the pioneers in strategic

offshore outsourcing of software services.

Respected corporation: Murthy’s approach to corporate governance and workplace values has been no less

influential on the most dynamic and successful technology companies in India. Corporate Governance is an area of

critical importance to Infosys and one where it has sought to be a global leader. It is seeking to use its model

example to promote far higher standards in India and Murthy has been one of the most vocal and influential

advocates of corporate governance reform in his country.

Infosys ensured best people: Infosys has built a state of the art office complex in Bangalore with all modern

facilities which helps in giving its employees a sense of belonging. While offering stock options to its employees,

it ensures that the workforce has a stake in its overall growth. Actions speak louder than words and leaders must

speak in a way that inspires integrity and a vision for the company.

There are no hard and fast rules that vision statement should be written or published. Top management usually has

a crucial role in the development of the vision statement. But in some organizations even employees are involved

in this task. The ethical question arises that to what extent do stakeholders have a right to be involved in

developing and articulating the strategic vision?

In many successful companies the CEO himself frames the vision statement of the organization. However there

are instances, where in companies failed due to this one – man approach. The ideal solution would be to involve

the CEO and senior managers in the development of the vision statement.

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2. Corporate Governance is an area of critical importance to Infosys and one where it has sought to be a global

leader. It is seeking to use its model example to promote far higher standards in India and Murthy has been one of

the most vocal and influential advocates of corporate governance reform in his country.

The company states that they believe that sound corporate governance is critical to enhance and retain investor

trust. Accordingly, they always seek to ensure that they attain their performance rules with integrity. Their Board

exercises its fiduciary responsibilities in the widest sense of the term. Their disclosures always seek to attain the

best practices in international corporate governance. They also endeavor to enhance long-term shareholder value

and respect minority rights in all our business decisions.

Boards:

Majority of the Board, 9 out of 16, are independent members. Further, Infosys has compensation, nomination,

investor grievance and audit committees, which are comprised of independent directors. Infosys exercises the

following boards or committees to oversee how the management serves and protects the long-term interests of all

the stakeholders.

Majority of the Board: In the majority of the board structure 9 out of 16, are independent members. In the

majority of the board, executive directors have a majority on the board while outside or non-executive directors

are in a minority. The non-executive directors are appointed to the board to represent the interests of stakeholder

groups like major shareholders employees, customers etc. Sometimes, organizations appoint non-executive

directors on the board to bring in the required expertise, knowledge and experience.

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bribery became a part of the normal course of business because bureaucrats worldwide expected similar

treatment.

  • Lastly, there are international trade implications surrounding bribery. Bribery degrades markets. Economist

Paolo Mauro, in the article “Corruption and Growth,” finds a direct link between high levels of corruption and

low levels of foreign direct investment. Though Mauro’s work does not explain this finding, Nichols offers

three likely reasons. First, corruption actually increases the amount of time a company must spend with a

bureaucracy; second, corruption makes it more difficult to obtain information, which increases transaction

costs, and third, corrupt relationships are less predictable and less enforceable. There’s probably a fourth

reason too, which is that most business people are good people and have a distaste for endemically corrupt

environments.

  • Corruption also drastically affects economic development by causing a misallocation of resources. Africa is

littered with bridges instead of hospitals. But more damaging is the fact that in endemically corrupt systems,

regular people are not getting served by the government; they don’t trust the government so they don’t interact

with the government. But people have to get things done. So they create their own systems to do things, such

as resolve disputes or enforce contacts or even police neighborhoods.

  • These systems, however, “are not free.” They cost money. So money goes to supporting the government

system and money goes to supporting the shadow system; twice as much money goes to bureaucracies as it

should. That means money is not going to increasing food production, or to health, or to enlarging the

economy.

4. There’s no doubt that corruption, endemic in emerging economies around the world, throws economic

development into chaos.

  • It affects decisions made by bureaucrats,
  • Degrades the quality of those in power, and
  • Discourages foreign investment.
  • It’s also an increasingly hot business topic, with a growing number of influential business and political leaders

from around the globe regularly pinpointing corruption as one of the greatest threats to global economic

development.

Various unethical behaviors and their impact on market system are:

Coercion

The use of threat or force to prevent sellers" from dealing with certain customers, and buyers from purchasing

from certain sellers amounts to coercion. Coercion decreases effective competition and results in fewer resources

being allocated to producing goods and services than would be the case if free competition had been allowed.

Deceptive information

Deceptive information about products and services often leads customers to choose goods and services that they

would not have chosen if they had access to accurate information. Such misleading information decreases

customer satisfaction as the products and services fail to meet customer expectations.

Theft

Theft compels (he marketer or supplier to increase his product price to make up for his losses due to theft. Many

power transmission companies arc the major victims of theft. These companies are accumulating losses because

of widespread theft of power by corporations and individuals. The scale of theft is now compelling many state run

electricity boards to pass on these costs to consumers or to move out of business.

Bribery

Bribery involves offering or receiving something of value for the purpose of influencing the action of an

official in the discharge of his or her public or legal duties. A bribe induces the decision maker to choose an

alternative that may bring him some personal gain, but may not ready be best one.

Today many businesses are indulging in bribing the decision makers to lake decisions in their favor. Bribes may

take the form of kickback, expensive sponsorships for travel aboard, parties, etc. Bribery distorts the market

system as the cost of the bribe is built into the cost of the project or the final product. A contractor who bags a

project to build a dam by bribing the concerned officials may try to make up for this expense by using low quality

inputs.

Bribery, of course, is the most widespread form of corruption, and corporate strategies for dealing with bribe

requests vary. According to Nichols, some companies opt to pay, sometimes damaging their public images and

making it more difficult to refuse future requests. Others have the sheer bulk and revenues to successfully and

consistently say “no.”

A key, Nichols suggests, is wiring this no-bribe ideal into a corporation’s culture, starting with a corporate code for

managers and employees, affiliates and potential business partners. But coming to grips with what appears to be an

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international groundswell of corruption is far from a simple matter. Nichols believes that unraveling and

explaining the mechanics of corruption is critical to helping the growing body of government and corporate

organizations trying to fight it.

On a practical level, what does the upswing in international corruption mean to a company? “The fact that a great

number of government officials in a great number of countries, including some potentially large markets, seem to

demand bribes is critical to any business that has a cross-border presence,” says Nichols. “Then there’s the reality

that more than 20 nations, including the wealthiest and most-active trading nations, have made bribe paying

illegal, and the fact that despite this there are still competitors who will pay bribes.

“These facts combined make for some extremely difficult terrain. Officials expect you to pay bribes, some of your

competitors will pay them, but you might go to jail if you do.”

Coercion, deceptive information, theft and bribery are all unethical behavior. They lead to a misallocation of

resources and a lack of trust between the parties involved in a business transaction. This hampers the effective

functioning of the market system.

5. Environmental ethics is a branch of applied ethics, which examines the moral basis of environmental

responsibility. Environmental responsibilities have to be weighed against the responsibilities against the

responsibilities to stakeholders and societal benefits, as any damage caused to environment has an impact on

society as well as on stakeholders. Environmental issues such as toxic waste, contamination of ground water, oil

spills destroying the seashores, usage of fluorocarbon that deplete the ozone layer etc can be tackled by espousing

environmental ethics. Thus, the goal of environmental ethics does mainly revolve around the concern about the

environment and also the moral foundation of environmental responsibility.

There are three approaches concerning the moral responsibility of environment. Although three different

approaches have been adopted, but they all in an essence, support environment responsibility. The approaches are:

  • Anthropocentrism approach
  • Anxiological approach
  • Eco-centric approach

The Anthropocentrism approach focuses on the utility that human beings can derive by protecting the

environment. Since the survival and well being of human beings depends on the environment, it is the moral

responsibility of human beings to support and preserve the environment.

According to the Anxiological approach it is the moral responsibility to protect animals. It; implies the

responsibility of environment with regard to preservation of animals and animals' rights. This approach stales that

it is essential for a human being to have a moral standing towards the animals. Since Fetzer did not have any

connection with animals they need not use this approach.

Eco-centric approach is considered to be a radical approach to the environmental responsibility. The theory states

that, environment has to be influenced from direct moral consideration but not that one which is derived from

human interest. The term direct responsibility means, doing such activities, which aim at preserving the inherent

nature and environment. The building of Fetzer is an example of Eco-centric.

Although different approaches have been put forward to support environmental responsibility, but a successful

foundation for environmental ethics should fulfill two tasks: first, it has to explain how human beings have

degraded the environment crisis, second, it must explain how human beings can protect the environment.

Environmental degradation can be better understood by examining some of the events that have had a major

impact on the environment like the Bhopal disaster and shell oil spill.

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6. Fetzer is recognized as a zero waste company by the state of California because of the following initiatives taken

by them:

Recycle: Fetzer recycles everything from cardboard to antifreeze; compost organic waste and turn it into fertilizer;

and work to keep materials out of the waste stream - by restoring oak barrels rather than discarding them.

Benefits: Recycling is less expensive than land filling. It all does make economic sense. Though it’s not like

they’re using it as a competitive edge. It simply fits with how the company does business. Fetzer’s vision

statement is to enhance the quality of life.

Building construction: T he administration building, 10,000-square-foot facility, completed in 1996, is one of the

world’s first large-scale examples of rammed-earth (underground) construction. It was built almost entirely with

recycled wood. Carpets are natural fiber. Lights are on motion sensors. Heat comes from waste heat off chillers

used in wine making. And instead of air conditioning, the building uses night-air cooling. Computerized and

motorized windows open at night to admit cool air. Even landscaping is environmentally conscious. It’s

“zeroscape, because the drought-resistant plants take little water.

Benefits: Since the lights are on motion sensors they go off as someone leaves the room, thus saving electricity.

The photovoltaic array on the roof, which got up and running in June is the largest photovoltaic display in northern

California not owned by a utility company. It supplies three-quarters of the building’s energy needs. All other

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