BUSINESS ETHICS

1. BECG Case Studies
Question 1
It is no secret that most businesses have adhered for a long time to
Milton Friedman’s wisdom that business should only care about making
profits for their shareholders. Since the outbreak of the financial crisis at
the end of 2007 – early 2008, this trusted wisdom, however, has been
challenged by many in society. An important question emerged: how can
business aim to make a profit by also being socially responsible? As a
result, the focus within the business world shifted to addressing the
questions of what social function businesses have and how they can
communicate, implement and manage those functions. One big
challenge in this process is to make clear to the larger audience that the
motives of companies are coloured by responsible and ethical values.
Hence, the management strategy of Corporate Social Responsibility
(CSR) was born. As the international magazine The Economist noted in
2008, “CSR has arrived”.
In many Western societies, CSR is now a well-accepted company
philosophy, whereas in many emerging markets, CSR is still underway
and its shape and implementation processes are not entirely clear yet.
Looking at the biggest market in the world, Country X, several
challenges clearly exist when it comes down to making CSR work.

2. Overall, CSR as a concept is generally accepted very well in Country X.
The fact that CSR is looked upon positively in itself is not such a
surprise. The country’s history is shaped to a large extent by Confucian
values emphasising the importance of building harmony and doing good.
Despite Confucius, adopting CSR as a company philosophy in Country
X nevertheless seems to be more challenging than could be expected.
Particularly the fact that Country X is known as the factory of the world
and a key supplier to feed western customer markets has not helped
when it comes down to CSR. The norms and expectations that have
emerged as a result of this focus on manufacturing and export has not
fostered a business attitude that takes into account the welfare and well-
being of their larger society (for example, the local problems with air
and water pollution).
In more recent years, however, the results of this manufacturing
economy have become more visible to citizens and business strategies
and policies are increasingly being criticised more by society. This
increased awareness has led to the situation that companies that want to
go public have become more motivated to signal their social and
environmental awareness/responsibilities to customers and stakeholders,
both in Country X and outside of Country X. Moreover, because CSR is
rapidly becoming a globally shared business value, evidence is also
mounting that companies could achieve commercial success in ways that
create social value for society and its members. This makes that CSR is
not only an ethical imperative anymore, it has also grown into having

3. economic value. These reasons have led to a stronger desire from
companies to optimise their CSR implementation and execution. Despite
this desire, very little persuasive examples of companies being able to
balance sustainability, responsibility and profitable business are known.
This is unfortunate because such examples could inspire and guide other
companies to transform the business world and market into a more
sustainable one.
Questions
1. Bring out the socially responsive strategies and role of self regulation
for the companies to be more socially responsible.
2. What do you mean by Corporate Social Responsibility? Compare and
contrast for Country X as before and after adopting Corporate Social
Responsibility practices?

4. Question 2
Five friends were studying quantitative finance in a well reputed
business school in India. During their study they observed that the
easiest way to become billionaire is to invest in the stock market, as the
returns on individual stocks are found to be highest in the world. For the
aforesaid objectives they discussed the plan with each other and agreed
to start a new Limited Liability Partnership which was mainly an
investment firm working in the stock market. In their Memorandum of
Association it was mentioned that the main activities of the firm
‘Prabhat’ will be to invest in the capital market. During the first financial
year the firm reported a huge capital loss and they were on a stage of
insolvency. The firm lost all the money in the stock market due to some
macro financial sentiments. One fine evening on April 14th, 2014 they
met to discuss their future strategy to overcome the losses faced by the
firm. Friends suggested many solutions but none of the solutions were
promising enough. Ultimately two things came out of discussion. One,
that they will hire some experts in the field who have experience in the
stock market. They believed that "The world is full of mediocrity,"
Rakesh one of the friends said, "I don't just want to compete. I want to
hire superstars, because I want to win the Super Bowl." Another friend
Suraj suggested building a network of high officials of top companies
and hedge fund managers. Rakesh and Suraj had their own different
opinions. Ultimately Suraj won the confidence and all the friends agreed
with the route suggested by Suraj. They started working hard to develop

5. a purposeful network. They started offering hospitality services to some
of the top notch people in the industry. It wasn’t a very tough job. Most
of the people gave positive response to them. Soon they developed a
network of executives’ of top companies on hospitality basis. These
officers provided them with material nonpublic information. Mr. Joseph
was an Executive Director of Novelty Bank. He developed personal
contacts with the Prabhat firm. He called one of the members of Prabhat
firm immediately after the Board meeting at which Mr. Peter announced
his future plan to infuse money in the company (This information was
material to the price of Novelty stock, thus inciting the Prabhat firm to
make the trade) and disclosed him this price sensitive information for
trading purpose. The series of the events then took place are as follows:
– On April 23, 2015, Mr. Peter (CEO of Novelty bank) agreed to pay
Rs.5 billion for redemption of the debenture of its company which
is supposed to reduce the fixed financial charges of the company
which further led to the increase in the share price of the bank.
– This information was not announced until 6 p.m., after the NIFTY
50 (India’s leading stock exchange where the stocks of bank are
listed) closed on that day.
– Before the announcement, one of the LLP members bought
175,000 shares of Novelty bank.
– The next day, by which time the infusion was public knowledge,
the firm sold his shares, for a profit of Rs. 9 00,000.

6. – During the same period of time financial stocks as a whole
crashed.
By buying 175,000 shares of Novelty immediately before the market
closed on April 23, 2015, the firm inflated its price, making this
reflect the then-unknown fact. In the short term, the argument seems
to be sound. It is clear that the firm’s actions caused Novelty stock to
more accurately reflect its true value.
Frequent such kind of acts decreased overall trust in the markets. It
allowed a small group of higher officials (consisting mainly of
corporate executives and hungry hedge fund managers) earn profit
from non-public price sensitive information.
Questions:
1) Which aspect of Corporate Governance this case touches upon?
What is the role of SEBI in such kind of activities? Do you feel
that such kind of acts must be controlled?
2) Who do you hold responsible Joseph or Prabhat firm members for
corporate ill?
3) Compare and contrast Rakesh and Suraj mantra for better
performance.