Question Paper

Business Ethics & Corporate Governance (MB321) : January 2006

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.

< Answer >

1. Which of the following illustrates the idea of "morally relevant differences?"
(a) Different principles generate different results
(b) Similar principles generate similar results
(c) Different principles generate similar results
(d) Similar principles generate different results
(e) Different principles generate no results.
< Answer >
2. Which of the following environmental laws in India allows private rights to use groundwater by viewing
it as an attachment to land?
(a) The River Boards Act (b) The Water Cess Act (c) The Water Act
(d) The Water Cess Rules (e) The Easement Act.
< Answer >
3. According to analysis by Premeaux and Mundy, which of the following is not an ethical standard to be
followed by operations managers in terms of ‘rights?’
(a) Authorize correct claims (b) Reject excessive claims
(c) Amend erroneous claims (d) Act professionally at all times
(e) Consider the fairness of decisions.
< Answer >
4. Which of the following reflect the company values, principles and guidelines?
(a) Special documents (b) Management philosophy statement
(c) Compliance codes (d) Circulated letters
(e) Compliance certificates.
< Answer >
5. Which of the following is not a liability that a director can be subjected to?
(a) Liability for breach of statutory duties
(b) Liability for breach of fiduciary duties
(c) Unlimited liability
(d) Personal liability
(e) Criminal liability.
< Answer >
6. Ethical problems mostly result in managerial dilemmas because
(a) Considerable expenses are involved in solving the ethical problems
(b) They may lead to high employee turnover
(c) They represent a conflict between an organization’s economic performance and its social
performance
(d) They require specialized skills to be resolved
(e) Ethical behaviour at individual level and at a collective level, have no bearing on each other.
< Answer >
7. Which of the following could be problem(s) with applying utilitarian theories to real problems?
I. Interpersonal comparisons of utility are difficult to perform.
II. The information burden associated with utilitarianism is impossible to satisfy.
III. There are no "rough comparisons" of utility available.
(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.
< Answer >
8. Which of the following is not a power of the audit committee?
(a) Power to investigate any activity within its terms of usage

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 (b) Power to seek information from any employee
(c) Power to obtain outside legal or other professional advice
(d) Power to secure attendance of outsiders with relevant expertise
(e) Power to review with the management the annual financial statements before submission to the
board.
< Answer >
9. Which of the following practices are not necessarily illegal?
I. Improper financial management.
II. Insider trading.
III. Money laundering.
IV. Fund embezzlement.
V. Management buy-out.
(a) Both (I) and (V) above (b) Both (II) and (III) above
(c) Both (II) and (IV) above (d) (I), (II) and (V) above
(e) (II), (III) and (IV) above.
< Answer >
10. Which of the following are conclusions about the relationship between moral judgements and law?
I. The requirements of law overlap to a considerable extent but do not duplicate the probable moral
standards of society.
II. The requirements of law tend to be negative, while the standards of morality more often are
positive.
III. The requirements of the law tend to lag behind the apparent moral standards of society.
IV. The law always represents collective moral judgements.
(a) Both (I) and (IV) above (b) Both (II) and (III) above
(c) (I), (II) and (III) above (d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
11. Six factors are involved in decision-making. According to which factor may a manager adopt that
decision which is beneficial to him or those affected socially, culturally, psychologically or physically
by the decision?
(a) Probability of the effect (b) Social agreement (c) Proximity
(d) Magnitude of consequence (e) Concentration of effect.
< Answer >
12. Which of the following is not an area covered by OECD principles of corporate governance?
(a) The rights of shareholders (b) The role of stakeholders
(c) Disclosure and transparency (d) Role of audit committee
(e) The responsibilities of the board.
< Answer >
13. Which of the following standards for ethical conduct implies ‘objectivity’?
(a) Performing professional duties in accordance with relevant laws, regulations and technical
standards
(b) Refraining from disclosing confidential information unless authorized
(c) Avoiding actual or apparent conflicts of interest and advising all appropriate parties of any
potential conflict
(d) Recognizing and communicating professional limitations or other constraints that would preclude
responsible judgement or completion of an activity
(e) Disclosing fully, all relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports, comments and recommendations presented.
< Answer >
14. The center for advanced purchasing studies, researched the relationships of American buyers with
foreign suppliers. Which of the following is not a result of this study?
(a) Significant differences did exist between buyers’ and suppliers’ perceptions regarding how
involved each believed the other to be in these activities
(b) Bribery figured as an unethical practice in the lists of both the buyer and the supplier
(c) There is no relationship between the supplier’s nationality and the level of unethical activity in the
buyer-supplier relationship
(d) Buyers least satisfied with the supplier relationship were those who perceived them to be most
involved in unethical activities
(e) Buyers who believed that suppliers are involved in unethical practices felt that suppliers are
performing less effectively.

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 < Answer >
15. There are various approaches for implementing a corporate code. In this respect, which of the following
is/are approaches recommended by Lickona to help managers address ethical dilemmas in the business
world?
I. Use of Socratic questioning of isolate views and confront reasoning.
II. Encouraging open and integrative discussions.
III. Eliciting the full range of ethical values.
IV. Coordination across department in terms of following the same ethical code.
(a) Only (I) above (b) Only (IV) above
(c) Both (II) and (III) above (d) (I), (II) and (III) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
16. Which of the following information about India pertaining to the environment is false?
(a) Carbon intensity levels are high in India compare to other Asian countries
(b) As per a WHO report, Delhi is one of the top ten most polluted cities in the world
(c) Majority of environmental issues that India faces are related to air pollution
(d) Carbon emission in India has grown nine times over the past decade
(e) India is the largest commercial energy consumer in non-OECD Asia.
< Answer >
17. Which of the following is/are true with respect to ‘Consequentialism?’
I. It revolves around the concept of value and maximization of that value.
II. It revolves around the implications for an organization due to illegal acts.
III. An act, even though it does not maximize happiness, is ethically permissible.
IV. People who support it believe that the morally correct decision often depends on the circumstances
of the person making it.
V. Teleological theories are also called consequentialist theories.
(a) Only (I) above (b) Both (I) and (V) above
(c) Both (II) and (IV) above (d) (I), (III) and (V) above
(e) (II), (III) and (IV) above.
< Answer >
18. Which of the following is true?
(a) The right of employees to a safe and healthy workplace can be justified by appealing to a right not
to be injured or killed
(b) Employees have a right to a safe and healthy workplace, even if it means certain inherently
dangerous jobs such as firefighter never get done
(c) The right of employees to a safe and healthy workplace can only be determined by looking at the
level of risk and the thorny issue of coercion
(d) Employees have no right to a safe and healthy workplace
(e) Employees need to ensure their own safety at the work place.
< Answer >
19. Which of the following is/are steps taken by SEBI to strengthen corporate governance in India?
I. Separation of the roles of Chairman and Chief Executive.
II. Declaration of quarterly results.
III. Strengthening of disclosure norms for Initial Public Offers.
IV. Issue of guidelines for preferential allotment at market related prices.
(a) Only (III) above (b) Both (I) and (III) above
(c) Both (II) and (IV) above (d) (I), (II) and (IV) above
(e) (II), (III) and (IV) above.
< Answer >
20. Altruistic actions, such as donating money, time, goods or services to charitable, humanitarian, or
educational institutions is known as
(a) Stake-holding (b) Philanthropy
(c) Social auditing (d) Corporate social responsibility
(e) An ethical dilemma.
< Answer >
21. Which of the following is/are deceptive or manipulative marketing practice/s?
I. Markdowns from a suggested retail price that is never charged.
II. Multiple pricing.
III. Updating products.
(a) Only (I) above (b) Only (II) above

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 (c) Both (I) and (II) above (d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
< Answer >
22. Controlling the release of toxic wastes by industries falls within the purview of environmental ethics.
Which of the following statements about toxic waste is not true?
(a) Toxic waste must be stored
(b) Toxic waste cannot be destroyed
(c) Toxic wastes are chemical and/or radioactive by-products of manufacturing processes
(d) With new technology, toxic waste can be processed effectively into relatively harmless material
(e) Toxic waste is harmful.
< Answer >
23. The stakeholder theory opposes the ___________ ethics mentality, which results from the business
community seeing itself as doing its best to survive in a hostile environment.
(a) Bolt-on (b) Pro-active (c) Reactive
(d) Relativism (e) Loyalty contract.
< Answer >
24. Which of the following boards is characterized by a ‘low’ concern for relations among directors as well
as a ‘low’ commitment to effective communication?
(a) Country club (b) Rubber stamp (c) Professional
(d) Representative (e) Majority outside.
< Answer >
25. Which of the following are issues that metaethics deals with?
I. Whether moral values exist independently of humans or whether they are simply human
conventions.
II. Matters that deal with the psychological basis of moral action.
III. Linguistic issues that deal with the meaning of key moral terms used.
IV. Controversial moral issues.
(a) Both (I) and (II) above (b) Both (II) and (IV) above
(c) (I), (II) and (III) above (d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
26. Which of the following is/are not true about ethical relativism?
I. It implies that no universal principles guide in judging morality.
II. Relativists cannot pass judgement on actions of societies other than their own.
III. Relativists eliminate the possibility of discussion across societies on ethical issues.
IV. Relativists take into consideration evidence that an ethical practice may be based on false beliefs,
illogical reasoning etc.
(a) Only (III) above (b) Only (IV) above
(c) Both (III) and (IV) above (d) (I), (II) and (III) above
(e) (I), (II) and (IV) above.
< Answer >
27. Which of the following powers exercisable by the board require the approval at the general meeting?
(a) Power to issue debentures (b) Power to borrow money
(c) Power to grant loans (d) Power to Invest funds of the company
(e) Power to appoint sole selling agents.
< Answer >
28. As per analysis by Hellriegel, Slocum and Woodman, according to which of the following principles are
decisions made by the operations manager based on the effects they have on his accountability and
career growth?
(a) Categorical imperative (b) Conventionalist (c) Disclosure
(d) Intuition (e) Utilitarian.
< Answer >
29. Which of the following is/are ethical practices typically found to be prevalent in Japan?
I. Grave violation of human rights.
II. Buying stocks at an inflated price with the understanding that these securities would be bought
back by the original seller at a higher price.
III. Investment in lobbying.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
< Answer >
30. Which of the following is a characteristic of the Anglo-American model of corporate governance?

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 (a) The supervisory board appoints and monitors the management board
(b) The creditors have a lien on the assets of the corporation
(c) The labor relations officer finds a place on the management board
(d) The president is appointed on the basis of a consensus between the shareholders and the banks
(e) The board ratifies whatever decisions the decisions the president takes.

END OF SECTION A

Section B : Caselets (50 Marks)

This section consists of questions with serial number 1 – 8.
Answer all questions.
Marks are indicated against each question.
Detailed explanations should form part of your answer.
Do not spend more than 110 - 120 minutes on Section B.

Caselet 1
Read the caselet carefully and answer the following questions:
1. Monitoring employees’ activities has invaded privacy expectations of employees. How can a company justify
monitoring its employees? Explain.
(6 marks) < Answer >
2. What could be the employee concerns about their privacy at the workplace being intruded? Are employees
justified in expecting privacy at the workplace?
(6 marks) < Answer >
3. There is a need to strike a balance between employees' privacy rights and employers monitoring them. How can
companies manage this issue? Discuss.
(8 marks) < Answer >
Privacy in today's workplace is largely illusory. In this era of open space cubicles, shared desk space, networked
computers and teleworkers, it is hard to realistically hold onto a belief in private space. New technologies make it
possible for employers to monitor many aspects of their employees' jobs, especially e-mail, voicemail, Internet usage,
the amount of time an employee's computer is idle, the content of computer files, telephone use, video surveillance and
drug and alcohol testing. Such monitoring is virtually unregulated. Therefore, unless company policy specifically states
otherwise (and even this is not assured), your employer may listen, watch and read most of your workplace
communications. Despite the readily available technology and increased acceptance of workplace monitoring many
employers are still unsure about what, if any, privacy rights are implicated if they decide to monitor, and whether the
risks outweigh the advantages. Therefore, employers and employees are being faced with new legal and ethical issues of
privacy.
Active monitoring of employees in the U.S. has risen sharply in the past few years, from 35 % to 80 %. Approximately 40
million Americans have Internet and/or e-mail access at work. The number of workers online is a clear indication of the
utility of electronic communications for business purposes. Cheap and instantaneous, electronic communication can
improve employee efficiency and productivity and provide convenient ways to not only communicate with clients and
co-workers, but also to gather and disseminate information over much broader populations. Given the obvious
advantages of electronic communication it is no wonder that so many employers make those resources available to their
employees.
As might be expected, providing these resources to employees is not without its risks. Employees, who now find
themselves with the ability to carry on an extended back and forth personal conversation throughout the course of the
day, or pass along jokes via e-mail, or check the scores from the previous night's games, or buy and sell stocks, or find
out when and where movies are playing, or any number of other distractions may face temptation to misuse their
employer provided online access. While time is wasted in these distractions, there are greater risks involved. Employers
are confronted with legal issues ranging from defamation, copyright infringement, trade secret protection and
confidentiality, harassment (including hostile work environment issues), to criminal accountability and loss of attorney-
client privilege.
The reasons for monitoring employee activities could definitely be valid business reasons such as to obtain compliance
to policies and laws, to ensure productivity etc., not just a desire to snoop. Work is carried out on equipment belonging
to employers who have a legal right to the work product of the employees using it. Studies reveal that 90 percent of the
5
companies engaging in any of these practices inform their employees that they're doing so. Also, most of the monitoring
is "performed on a spot-check basis rather than an ongoing 24-hour basis."
Monitoring, however, brings into conflict the employer's legitimate interest in protecting against the risks associated
with online access for employees and the privacy interests of the employees. The conflict between employers' need to
monitor and employees' right to privacy is, of course, not limited to electronic communication; but certain
characteristics of e-mail and the Internet such as the use of passwords to access communications and the apparent
ability to delete files may create an illusion of a higher level of privacy than is actually the case with electronic
communication.
Many U.S. managers, raised in the '60s, find the communications monitoring process abhorrent on an ethical basis. But
the failure to monitor, and actually police the communications consistently, is something that cannot be ignored without
serious consequences. Whether they have a right to privacy under employment circumstances or not, many employees
find the intrusion offensive. In addition to the general unease felt by many employees in knowing that every keystroke
may be monitored, big brother like, by their employer, there are important privacy issues and concerns that employees
have raised in response to employer monitoring. For example, what use may be made of employee information -
confidential and potentially embarrassing or harmful, discovered intentionally or unintentionally – through an
employer’s monitoring program?
Caselet 2
Read the caselet carefully and answer the following questions:
4. In what way does David Woods face an ethical dilemma? Explain.
(5 marks) < Answer >
5. How would you respond to the questions put forward by Harry?
(6 marks) < Answer >
6. How should David Woods have handled the entire situation that HealthStar Foods faces? What action should he
along with the crisis management team take to handle the crisis that has resulted? Explain.
(7 marks) < Answer >
David Woods, Chief Executive of HealthStar Foods Inc., a $50 million manufacturer of healthful foods, listened with
concern as Harry Thomson, his vice president for production, described reports that had come in during the past hour.
The reports came from two county health departments, one in Seattle and the other in Southern California. In each case,
the health department official reported a possible link between acute food poisoning of a child and an unpasteurized
apple product produced by HealthStar Foods and distributed throughout the Western United States. The health
departments had not yet ruled out all other possible causes. Additional information was not yet available, and Harry did
not have batch numbers for the products in question.
HealthStar Foods was rapidly becoming one of the best-known brands of natural or nonpasteurized foods in the Western
United States. Unpasteurized products had been popular in the health-food market for many years, but HealthStar Foods
is the most successful of several companies seeking to appeal to the mainstream market as well as to the niche
consumer.
The company's success had led to its rapid growth and the construction of its new processing facilities in California’s
Central Valley and in a coastal city of Central California. Fresh fruit and vegetable products were shipped from growing
regions throughout the West to these two facilities for processing and canning or bottling. The handling of
nonpasteurized products was critical as contamination could occur in picking, transporting, or processing the fresh
product. Distribution was also critical to the freshness and safety of the company's products. Daily distribution from the
company's processing facilities in company-owned refrigerated trucks ensured freshness.
In the light of the two reports, David said to Harry, “What's our response? “Do two 'maybes' mean we should do
something immediately? We have years had an occasional report, perhaps one every couple of months, during the past
two. None of those turned out to be traceable to our product. Do two reports represent anything other than a statistical
quirk? Should we be doing anything but waiting for the final reports from the health departments in a couple of days?”
At this stage no action was taken. However, Harry was startled a short time later to receive a third and fourth report
similar to the first two. Although also not conclusive, the new reports made Harry wonder if something was terribly
wrong. Harry immediately asked for an immediate meeting with David.
"Now what should we do?" asked Harry.
"Should we warn the retailers, asking them to stop selling the product?
“Should we also warn the public? Such a move could devastate the company's reputation and its stock price at a critical
moment. Don't we have an obligation to think long and hard before we take that step?”

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“How much certainty must we have and how serious does a problem have to be for us to proceed?"
Harry was deeply troubled when he heard from his managers that health officials in the four counties they visited were
virtually certain HealthStar Foods' product was indeed involved in the food poisonings.
At 7 p.m., HealthStar Foods announced publicly and through its retail network that it was pulling all batches of the
unpasteurized product associated with all but one of the alleged poisoning incidents. Once the news hit the wire
services, 50 more calls cascaded into company headquarters late that night and early the next morning. Most were from
consumers alleging they, too, had been poisoned by the company's products. Five more were reports from health
professionals who stated they were treating possible poisonings.
At 9 a.m. the next morning, David convened a meeting of his Crisis Action Committee, an ad hoc group of managers
that had been formed a few months earlier for just such a crisis. "Let me put several questions before the group," said
David.
“Are we doing enough by conducting a recall for the specific product in question, publicly asking consumers to return
all unused products to their local retailer, and asking retailers to stop selling and return all of their supply to us? The
press has done a pretty good job getting the word out. It's on the front page of perhaps 80 percent of the daily
newspapers in our distribution area this morning.”
"Should we do more to notify customers? Should we consider pulling all our products? The calls this morning allege
adverse reactions from many different products. And what should be our strategy toward those who have been made
sick by our product? If we show concern, isn't there a risk we will look like we are admitting liability? Finally, what
should we do about the sickest of those affected? Two children are reported this morning to be in critical condition."
Caselet 3
Read the caselet carefully and answer the following questions:
7. Corporate social responsibility (CSR) has become the password to not only overcome competition but to ensure
sustainable growth. What are the various CSR activities/projects that companies can undertake? What could be the
benefits of CSR for NTPC?
(5 marks) < Answer >
8. Private companies face certain limitations in taking up social upliftment projects. Explain the systematic
approach of “Community involvement choice flow” to sustain projects.
(7 marks) < Answer >
NTPC is a socially committed organization and a socially responsible corporate citizen that believes in growth with a
human face, and pursuing people-centered development. The company attaches great importance to discharging its
overall social responsibilities to the community and the society at large where its projects and stations are located. In
this regard, Resettlement and Rehabilitation (R&R) program becomes an area of sharp focus, a program that addresses
people affected directly or indirectly in the wake of the projects undertaken by NTPC.
Sensitive to the social issues since its inception, the organization framed guidelines for the facilities to be given to the
project affected. The organization was the first Public Sector Undertaking (PSU), and in that way the pioneer, in having
such a policy.
The R&R program aims at improving the overall economic status of Project Affected Persons (PAPs). This is achieved
by providing opportunities in the fields of sustainable income, health, education, sanitation, communication and other
such areas. Community development activities are carried out in a transparent and participative manner. Each program
is based on the specific local requirement and guided by the extensive Socio Economic Surveys (SES). This helps meet
the objective of ensuring that the Project Affected Persons (PAPs) improve or at least regain their previous standard of
living.
The PAPs are systematically categorized on the basis of loss of livelihood on an individual basis, thereby bringing into
its fold agricultural laborers, tribals, and landless laborers cultivating government land and tenant tillers. The
Resettlement and Rehabilitation program is meticulously worked out for each PAP. The R&R policy options and
entitlements include:
Resettlement
• Developed alternate free house plot in resettlement colony with necessary infrastructure facilities.
• Free transport arrangement for belongings and reusable material.
• Infrastructure to be provided includes primary school, dispensary, panchayat ghar, drinking water well/hand
pumps, WBM roads, drainage, etc
Rehabilitation

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 • “Land for land”
• Self-employment such as dairy, poultry, handicraft etc.
• Shops
• Award of petty contracts
• Jobs
The rehabilitation plans are finalized in a consultative manner with the PAPs and the State administration and soon they
translate into viable projects. The plans primarily aim at resettling PAPs in resettlement colonies, providing them
infrastructure facilities and also ways and means of rehabilitation. The rehabilitation process is attuned to the local
conditions and the needs of the people. With an eye on long-term development, vocational training has been built into
the rehabilitation process. Programs like tailoring, carpet weaving, papad making, bee keeping etc augment the family
earning capacity. The plans are implemented within a definite time frame and a specified budget.
There is sharp focus on all round development of the community, which is why the efforts do not stop at the individual
or family level redressal but take a holistic approach. Improving the roads, health care, education (including adult
education), vocational training, infrastructure development and sports are major activities. The Education program is a
priority. Each resettlement colony is provided with a primary school. NTPC plants address the need of Secondary and
Senior Secondary education. Besides setting up the infrastructure, NTPC provides books, dress, scholarship etc with a
view to making the facility really sustainable.
Recognizing the importance of sound institutional framework to achieve the desired results NTPC has set up dedicated
R&R cells. At the project level, the cell is responsible for coordinating and implementing the R&R plans and activities.
The regional R&R cells are responsible for monitoring the progress of implementation of R&R plans and follow up of
the respective R&R activities. At Corporate level, it oversees consistent application of policies and facilitates the
projects and the regions in planning, scheduling and budgeting etc.
The right skill mix has also been provided by associating people with social expertise and philanthropic thoughts,
consultants, facilitators, social scientists wherever and whenever required. Professional NGOs capable of undertaking
income generating projects have been engaged at times to achieve the desired results.
END OF SECTION B

Section C : Applied Theory (20 Marks)

This section consists of questions with serial number 9 - 10.
Answer all questions.
Marks are indicated against each question.
Do not spend more than 25 -30 minutes on section C.

9. Corporate Governance has aroused a great deal of public interest since it is crucial for the economic health of
corporations and society. There are various theories, which have laid the foundation for further studies in corporate
governance. Explain these ‘theories of corporate governance’ and their criticisms.
(10 marks) < Answer >
10. Various ethical theories guide the study of ethics or moral philosophy. Summarize the beliefs and problems in the
‘five major ethical systems.’
(10 marks) < Answer >
END OF SECTION C

END OF QUESTION PAPER

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 Suggested Answers
Business Ethics & Corporate Governance (MB321) : January 2006
Section A : Basic Concepts
1. Answer : (d) < TOP >

Reason: Interpretation of moral standards differ from person to person. Therefore, similar principles
will generate different results
2. Answer : (e) < TOP >

Reason: The Easement Act allows private rights to use groundwater by viewing it as an attachment
to land.
3. Answer : (e) < TOP >

Reason: Considering the fairness of decisions is an ethical standard to be followed by operations

managers in terms of ‘justice’ and not ‘rights.’
4. Answer : (a) < TOP >

Reason: Special documents reflect the company values, principles and guidelines.
5. Answer : (a) < TOP >

Reason: Liability for breach of statutory duties is not a liability that a director can be subjected to.
6. Answer : (c) < TOP >

Reason: Ethical problems are truly managerial dilemmas because they represent a conflict between
an organization’s economic performance and its social performance.
7. Answer : (c) < TOP >

Reason: Statement (I) Interpersonal comparisons of utility are difficult to perform and statement (II)
the information burden associated with utilitarianism is impossible to satisfy are problems
with applying utilitarian theories to real problems.
8. Answer : (e) < TOP >

Reason: Reviewing with the management the annual financial statements before submission to the
board is a function of the audit committee and not a power.
9. Answer : (a) < TOP >

Reason: Improper financial management and management buy-out include offenses that are
unethical, but not always illegal.
10. Answer : (c) < TOP >

Reason: Statements (I), (II) and (III) are conclusions about law and moral standards. Statement (IV)
is not a conclusions as law always does not represent collective moral judgements.
11. Answer : (c) < TOP >

Reason: According to the proximity factor a manager may adopt that decision which is beneficial to
him or those affected socially, culturally, psychologically or physically by the decision.
12. Answer : (d) < TOP >

Reason: Role of audit committees is not an area covered by OECD principles of corporate
governance, instead equitable treatment of shareholders is an area covered.
13. Answer : (e) < TOP >

Reason: Disclosing fully, all relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports, comments and recommendations presented
implies objectivity.
14. Answer : (b) < TOP >

Reason: According to the research conducted by the center for advanced purchasing studies, bribery
did not figure as an unethical practice in either the list of the buyer or the supplier.
15. Answer : (d) < TOP >

Reason: Statements (I), (II) and (III) are approaches recommended by Lickona. Coordination is an
approach recommended by Ferrel and Fraedrich.
16. Answer : (e) < TOP >

Reason: India is the second largest commercial energy consumer in non-OECD Asia. Therefore,
option (e) is the answer.

9
17. Answer : (b) < TOP >

Reason: Statements (I), which deals with two central ideas – the concept of value and the
maximization of that value is true about consequentialism. Statement (V) is also true about
consequentialism. Statement (II) is not relevant to this theory. Statement (III) is false as an
act which does not maximize happiness is not ethically permissible. Statement (IV) relates
to ethical subjectivism, therfore is not true about consequentialism.
18. Answer : (c) < TOP >

Reason: The right of employees to a safe and healthy workplace can only be determined by looking
at the level of risk and the thorny issue of coercion.
19. Answer : (e) < TOP >

Reason: Statements (II), (III) and (IV) are steps taken by SEBI to strengthen corporate governance in
India..
20. Answer : (b) < TOP >

Reason: Altruistic actions, such as donating money, time, goods or services to charitable,
humanitarian, or educational institutions is known as philanthropy. Philanthropy is the
voluntary promotion of human welfare. Options (a), (c) and (d) are incorrect. (e) Corporate
social responsibility involves an oragnization fulfilling its responsibilities towards its
stakeholders – customers, suppliers, shareholders etc.
21. Answer : (e) < TOP >

Reason: All the three statements are deceptive marketing practices.

< TOP >
22. Answer : (d)
Reason: Toxic wastes are dangerous chemical and/or radioactive by-products of manufacturing
processes. As a rule, toxic waste must be stored; it cannot be destroyed; and it cannot be
processed into harmless material. Therefore, option (d) is the correct answer.
< TOP >
23. Answer : (a)
Reason: The stakeholder theory opposes the bolt-on ethics mentality, which results from the business
community seeing itself as doing its best to survive in a hostile environment.
24. Answer : (b) < TOP >

Reason: The rubber stamp board is characterized by a ‘low’ concern for relations among directors as
well as a ‘low’ commitment to effective communication.
25. Answer : (c) < TOP >

Reason: Statements (I), (II) and (III) are issues that metaethics deals with. Statement (IV) pertains to
applied ethics.
26. Answer : (b) < TOP >

Reason: Statement (IV) is not true about ethical relativism. Relativists do not take into consideration
evidence that an ethical practice may be based on false beliefs, illogical reasoning etc., in
which case it may be important to speak out against the practice even if it pertains to
another society. All other statements are true about relativism.
27. Answer : (e) < TOP >

Reason: Power to appoint sole selling agents is a power that is exercisable only through consent at
the general meeting.
28. Answer : (e) < TOP >

Reason: According to the utilitarian principle, decisions made by the operations manager based on
the effects they have on his accountability and career growth
29. Answer : (d) < TOP >

Reason: Statement (II) and (III) are unethical practices typically prevalnt in Japan. Statement (I) is
an unethical practice largely prevalent in China.
30. Answer : (b) < TOP >

Reason: In the Anglo-American model of corporate governance, the creditors have a lien on the
assets of the corporation. Options (a) and (c) are characteristics of the German model.
Options (d) and (e) are characteristics of the Japanese model.

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 Section B : Caselet
1. The reasons companies monitor employee activities are valid business reasons, not just a desire to snoop.
Justifications why companies resort to monitoring employees include:
Security Concerns: Protecting the value of proprietary corporate information is a primary concern in an age
when e-mail and Internet connections continue to expand. Despite the advantages of new technology in business,
there are risks associated with providing employees access to new technology for businesses purposes.
Employees use the resources especially the Internet for fulfilling personal objectives. While wasted time in this
way is clearly an important and legitimate concern, employers may face even greater risks than distracted
employees. For example, employers may face potential liability for harassing or offensive communications made
by their employees using the e-mail or Internet access provided by the employer. The ease with which sensitive
documents can be attached to e-mail communications (both intentionally and accidentally) and sent with the
press of a button creates potential for loss of trade secrets or other proprietary information. Incoming messages
and downloads from the Internet raise the possibility of importing computer viruses or violating copyright laws
when employees open e-mail attachments or download software from the Internet.
Legal Compliance: Managers have an obligation to their company to monitor the activities of their employees to
ensure compliance with applicable laws and policies. You monitor their behavior, their adherence to the dress
code, the way they greet customers. The need to monitor their electronic activities is equally as great and the
reasons are the same.
In regulated industries, taping telemarketing activities gives both the company and the consumer some degree of
legal protection. Also, electronic recording and storage may be considered part of a company's "due diligence" in
keeping adequate records and files.
Legal Liability: Employees who are unwittingly exposed to offensive graphic material on colleagues' computer
screens may charge a hostile workplace environment.
Performance Review: Customer service and consumer relations personnel are frequently taped as they field
calls, and tapes are reviewed with supervisors to evaluate and improve job performance.
Productivity Measures: Net-surfing, personal use of office e-mail, and/or dialing up 900 numbers expend time
and assets on non-business related activities.

< TOP >

2. It would be fair to say that employees caught with dishonest secrets or caught sending offensive e-mail which
leads to a hostile work environment, should avoid severe discipline, but should employees lose their jobs for
browsing sports and shopping web sites or engaging in other online activities that are neither illegal nor arguably
lead to a hostile work environment such as searching for a new job or trading stock? The concern of employees is
when an employer unintentionally discovers confidential and potentially embarrassing or harmful information
about its employees through its monitoring what is the employer to do with this information? If, for example, an
employer stumbles across an employee's credit report or medical information does the employer assume any
responsibilities to guard that information, or at least to not act on it to the detriment of the employee? The
possibility of that type of information coming to light is not just an improbable hypothetical concern. As
employees spend many hours at work the ease of conducting some of their business via e-mail or the Internet,
such as, for example, banking online, may become a convenience that they are not able to forgo. The result is
that information that employees might prefer to keep confidential may be exchanged over the employer's
network. These questions highlight some of the issues that may concern employees about having their online
activities monitored at work.
< TOP >
3. The way to manage the issue of employee privacy vs employers monitoring is to strike the proper balance
between the two and not take either to extremes.
Employees' Right To Privacy In The Workplace
Employees' individual privacy interests must be balanced against the realities of the workplace. Even at work
there are some legitimate areas in which an employee has a reasonable expectation of privacy. These areas may
include, for example, desks and file cabinets. Privacy expectations of an employee "may be reduced by virtue of
actual office practices and procedures." It should also be noted that with the question of privacy in the workplace
there are no absolutes. Often whether an employee has a reasonable expectation of privacy is a question of
specific practices within the employee's workplace, and the issue of whether an employee has a reasonable
expectation of privacy "must be addressed on a case-by-case basis." Employers should not adopt a rigid
approach. They should try to instill in the employees a sense of discernment in the use of electronic resources for
well-intended purposes. Employees should be made to understand that employers are responsible for certain
actions of employees.

11
 Employers’ monitoring
The most effective and simplest way for an employer to protect its ability to monitor employees' online activities
in order to avoid legal challenges to that monitoring is to put in develop and publish a policy which clearly
informs employees that their use of e-mail and the Internet will be monitored and ensure that all employees are
aware of the policy. Employers should let employees know what is being monitored and why, what is acceptable
and what is not. The employees should be made aware that all e-mail, Internet and computer are primarily meant
for business purposes only, and that all the data on the company's electronic communications systems belongs to
the company even if it is passworded or has otherwise been deleted. The policy should also provide employees
with guidance about what is considered unacceptable use of the Internet/e-mail for example, prohibiting the
receiving, sending and/or downloading of discriminatory, harassing or offensive messages or information.
An employer cannot simply allow employees to communicate on an E-mail system unmonitored. Too many
litigants will seek to hold the employer responsible for what is said and done. However, monitoring should be
done wisely and consistently. Compliance and discipline should be monitored as any other company policy and
with a humane approach.
< TOP >
4. David Woods faces a conflict of interests, as he has to make a choice between the economic interest of the
company and its obligation to provide good and healthy food products to its customers. Moreover, he also has to
take a decision whether he should concentrate on the company’s stock prices and reputation or act ethically and
inform the people of the possible food poisoning due to HealthStar’s product. While formulating a strategy to
counter this crisis, David Woods might be accessing the possible responses of HealthStar’s stakeholders. Any
decision that he takes, to protect the interest of one stakeholder will go against the interests of the other i.e, either
shareholders may lose financially or he customer health might be at stake. Thus, David Woods’ faces an ethical
dilemma in deciding between the economic interests of the company/shareholders and the company’s ethical
obligation towards its consumers.
< TOP >

5. The questions asked by Harry are:

• “Should we warm the retailers asking them to stop selling the product?”
• “Should we also warn the public?”
• “Will these steps erode the company’s reputation and lower its stock product?”
• “How much certainty must we have and how serious does a problem have to be for us to proceed?
These questions should be answered as follows:
• Since the reports coming in form the market are pointing out one product, it is better to withdraw that
product before it starts affecting the sales of other products.
• It is always better for a company to be in touch with the customers at the time of crisis. Although nothing is
confirmed about the cause for the deaths, it is safer for HealthStar to warn its customers against the possible
dangers associated with its non-posteurized product.
• In the short run, the company may suffer in the stock markets, but if it fails to take any morally correct
decision at this juncture it might lose more in future in the form of lawsuits launched by affected customers.
• The company should respond immediately to the problem. Later, it can collect details and come out with an
elaborate strategy to eliminate the root cause of the problem.
• And ultimately, the company has a moral responsibility towards its customers well being, customers who are
loyal and who have contributed to HealthStar’s success. It would also be unethical for the company to think
only of its self-interest and not consider the well being of its customers.
< TOP >

6. Firstly, David Woods should not have ignored the initial reports of poisoning even though they were not
conclusive. He should have acted in order to know if the reports were true. An interaction with customers would
also have helped. Addressing them to inform them that measure were being taken to find out exactly what had
happened and that the company would do all that was appropriate should have been conveyed initially.
In the event of the ultimate crisis, David Woods have immediately launched an inquiry to examine the hygiene
measures taken at all the processing plants to trace the source of the problem. If a product is suspected of being
faulty, immediate action is required. An initial step would be to advise all retailers of the possibility of some
contamination in a particular product line and have them pull it off the shelves.
In situation like this, one must evaluate three things for confirming the ethical nature of an activity:
a. The action itself,
b. The circumstances surrounding the action, and
c. The intent of the action.

12
 In this case, the action, which caused significant danger to customers’ health, was the company’s negligence in
terms of sanitation and health standards. Because this action leads to food poisoning and deaths, it is wrong.
However, taking into account the circumstances, we must consider the possibility that whatever went wrong may
not have been the company’s fault. As the company has been so successful in the past, one can assume that they
have been ensuring that proper sanitation and health requirements are met. However, if any case food poisoning
and death resulted from using its products, the company should take moral responsibility for it.
It would be better that the company’s crisis management team handle the situation; as such teams would help
solve the problems in a systematic manner. The team should have addressed each of the questions put forth by
David appropriately. The company should have checked up on all its products and the associated hygiene
standards involved, so that it could rule out the possibility of any other product being potentially harmful. And
the public should have been informed about the same. The company should have considered the possibility
providing financial compensation to those who were made sick in addition to moral support. Showing concern
although would mean admitting liability, it would also imply that the company meant well for its customers and
that what had happened was not intentional. For those who were the sickest of those affected, the company
should have extended all possible support in getting them better.
< TOP >

7. Corporate social responsibility focuses on the social, environmental, and financial success of a company with the
aim to achieve social development while achieving business success. Some of the activities companies can get
involved in are as follows:
• Medical and health services in the rural and semi-urban areas
• Promotion of sports and cultural events
• Women’s health and education
• Water harvesting and tribal development
• Relief and rehabilitation and income generation
• Rural adults literacy
• Disaster management activities
• Human rights
• Environmental issues
Some benefits of CSR
• Improved financial performance
• Enhanced brand image and reputation
• Increased sales and customer loyalty
• Customer satisfaction
• Increased ability to attract and retain employees
• Brand Visibility, recognition and awareness
• Favorable positioning
• Competitive mileage
• More engaged investors
• Environmental sustainability
< TOP >

8. Private sector organizations cannot perform effectively in all the corporate responsibility activities like social tasks,
economic tasks that include creation of jobs etc. Not all organizations can perform effectively in fulfilling their
tasks to the community. There are shortages in certain areas and limitations on application elsewhere. But their
scope can be expanded by mutually beneficial partnerships between companies and non-profit organizations for
improving the community. In fulfilling these social responsibilities, companies must select projects carefully and
then ensure that sustained involvement and quality management backs them. Clutterbuck has proposed a
systematic approach for managing such activities. It is called the '’Community involvement Choice flow’'. The
various steps a company that adopts this approach can take are as follows:
A company should first audit its resources and capacity so that it can add real value to its activities. It means that
its policies are:
• Set practical, clear and achievable objectives.
• Identifying the primary aim of the programs that the organizations want to be involved.
• Have some well-defined criteria for choosing beneficiary organizations like healthcare, education etc.

13
 • Clearly, identify what 'not' to support
• Have fixed budgets for specific programs
• Appoint specialists and other required staff for organizing and delivering the support.
• Install systems for report evaluation, feedback and change.
• Processed information obtained form these activities have to be updated on a regular basis.
< TOP >

Section C: Applied Theory

9. McGregor’s Theory Y: The first theory of corporate governance, the Y theory, was based on the assumptions
that humans are by nature trustworthy and act in good faith, with integrity and honesty. The corporate
governance concept believed that monitoring is required only to curtail the rare misconduct of humans working
in corporations. According to Theory Y.
• The management of a corporation is responsible for organizing its productive resources like men material,
money and machines in the best possible way to accomplish the corporate goals (profits, volumes, quality
products, etc.)
• Employees by nature are not averse to behaving in accordance with the corporations’ requirements.
• Every employee has an in-build motivation to behave in a way that will help the corporation to achieve its
objectives.
The Stewardship theory: This theory proposed by Donaldson and Davis in 1988 was based on the Y theory and
accepted the assumptions (stated above) on which behavioral theories like Macgregor’s theory Y of human
behavior were developed.
Studies carried out by Berle and Means in 1932 in the field of corporate governance brought to light some facts
that contradict the assumptions of stewardship theory. The validity of these assumptions was questioned in this
changed corporate scenario. The critics of stewardship theory sited the divergence of interests of the owners and
the management as a basis for changing the assumptions of corporate governance concept. Some of the reasons
put forth by critics of stewardship theory are:
a) Separation of ownership form management.
b) There is no single shareholder who holds a major chunk of equity capital.
c) The inability of small investors to directly monitor the activities of the corporation in which they have
invested.
d) Control over the corporation changing from the owners to the management.
e) Divergent interests of the owners and management.
Beale argued that when the interests of the owners (share price, dividends etc.) differed from that of the
management (Job security, remuneration and other benefits) management was not likely to be interested in
optimum utilization of the resources of the corporation, as desired by the owners. Owners needed some
monitoring mechanisms to ensure that the interest of the management was aligned with their owners.
In 1976 Jensen and Meckling strengthened Berles’ argument by stating that there exists an agency relationship
between the owner and the management. This relationship can be defined as a contract under which one or more
persons (the principals) engage another person (the agent/manager) to perform some service on their behalf. It
involves delegating some decision-making authority to the agent. If both parities to the relationship are utility
maximizers there is good reason to believe the agent will not always act in the best interests of the principal.
Agency theory: The assumption - if both parities to the relationship are utility maximizers there is good reason
to believe the agent will not always act in the best interests of the principal gave rise to the agency theory. This
theory assumes that the agent manager will not always take decisions that will maximize long-term owner value.
Manager often take decisions, which further their own interests but are detrimental to the interests of the
organization. This theory states that agents/managers/employees cannot be trusted to act in the best interests of
the shareholders and should be monitored and controlled to ensure that they follow the set policies, procedures
and plans of the corporation.
Jenson feels that corporations should incur some cost to ensure management compliance. These costs result from
setting up of monitoring mechanisms like boards, which require appointment of outside independent directors to
carry out checks like audits to evaluate the performance of top management.
< TOP >

14
10. The beliefs and problems with the five major ethical systems are as follows:
Ethical System Nature of the ethical belief
Eternal Law Moral standards are given in an eternal law,
which is revealed in scriptures or apparent in
nature and then interpreted by religious leaders
or humanist philosophers. The belief is that
everyone should act in accordance with the law.
Utilitarian Moral standards are applied to the outcome of
Theory an action or decision. The principle is that
everyone should act to generate the greatest
benefits for the largest number of people.
Universalistic Moral standards are applied to the intent of
Theory action or decision. The principle is that
everyone should act to ensure that, similar
decisions would be reached by others given
similar circumstances.
Distributive Moral standards are based upon primacy of a
Justice single value, which is justice. Everyone should
act to ensure a more equitable distribution of
benefits, as it promotes individual self-respect,
which is essential for social cooperation.
Personal Moral standards are based upon the primacy of
Liberty a single value, which is liberty. Everyone
should act to ensure greater freedom of choice,
for this promotes market exchange, which is
essential for social productivity.
< TOP OF THE DOCUMENT >
15
Problems in the ethical system
There are multiple interpretations of the law,
but no method to choose among them
beyond human rationality, and human
rationality needs an absolute principle or
value as the basis for choice.
Immoral acts can be justified if they provide
substantial benefits for the majority, even at
an unbearable cost or harm to the minority.
An additional principle or value is needed to
balance the benefit-cost equation.
Persons who are prone to self-deception or
self-importance can justify immoral acts, and
there is no scale to judge between “wills.”
An additional principle or value is needed to
refine the categorical imperative principle.
The primacy of the value of justice is
dependent upon acceptance of the
proposition that an equitable distribution of
benefits ensures social cooperation.
The primacy of the value of liberty is
dependent upon acceptance of the
proposition that a market system of exchange
ensures social productivity.
< TOP >