Social Responsibility and Business Ethics
Modern managers must balance profit-making with societal obligations. Ethical and socially responsible management is a competitive necessity.
Corporate Governance
System of rules, practices, and processes directing and controlling a company. Principles: accountability (management to board to shareholders), transparency (open disclosure), fairness (equitable treatment of all stakeholders), responsibility (ethical behaviour). Nepal: Companies Act 2063 and NRB directives regulate governance.
CSR — Carroll’s Pyramid
(1) Economic: be profitable (foundation). (2) Legal: obey laws. (3) Ethical: do what’s right. (4) Philanthropic: contribute to community (voluntary). Nepal: Chaudhary Group Foundation (education, health), Ncell rural connectivity, banks’ financial literacy. CSR attracts customers, employees, and investors.
Stakeholder Theory (Freeman, 1984)
Businesses should serve ALL stakeholders — employees, customers, suppliers, community, government, environment — not just shareholders. Exploiting workers may cause strikes and reputation damage. Serving all stakeholders drives long-term success.
Business Ethics
Moral principles guiding right and wrong. Dilemmas: conflicts of interest, insider trading, environmental damage, employee exploitation, bribery, tax evasion. Framework: Is it legal? Is it fair? Would I be comfortable if public? Does it align with values? Nepal challenges: corruption (ranked 110/180 in Transparency International), weak enforcement.
Ethical Decision-Making
(1) Define problem. (2) Identify stakeholders. (3) Consider alternatives. (4) Apply ethical tests (legal, fair, comfortable, rights). (5) Decide and implement. (6) Monitor outcomes. Systematic approach prevents reactive decisions.
Summary
Corporate governance, CSR, stakeholder theory, and business ethics are integral to modern management. Companies that balance profit with social responsibility build sustainable competitive advantage.
Carroll’s CSR Pyramid — Detailed
| Level | Responsibility | Description | Nepal Example |
|---|---|---|---|
| 4. Philanthropic | Be a good corporate citizen | Voluntary contributions to society — education, health, community development | Chaudhary Foundation (schools, hospitals, disaster relief) |
| 3. Ethical | Do what is right and fair | Beyond legal requirements — fair treatment, honest advertising, environmental care | Companies paying above minimum wage because it’s the right thing |
| 2. Legal | Obey the law | Comply with all laws and regulations — tax, labour, environmental, consumer | Paying taxes (VAT, income tax), following Labour Act 2074 |
| 1. Economic | Be profitable | The foundation — generate revenue, provide returns to shareholders, create jobs | Every business must be financially viable to sustain operations |
Key point: The pyramid is built from bottom up. A company cannot be philanthropic (level 4) if it’s not economically viable (level 1). All four levels must be fulfilled simultaneously — they’re not sequential choices.
Ethical Dilemma Case Study
Situation: You are a manager at a Nepali pharmaceutical company. You discover that a popular medicine has a minor side effect that affects 1 in 10,000 users. The side effect is not life-threatening but causes discomfort. Reporting it would require a costly recall and damage the company’s reputation. Not reporting saves money but risks customer trust if discovered later.
Applying the ethical framework:
| Test | Analysis |
|---|---|
| Legal test | Nepal’s Drug Act requires reporting adverse effects — not reporting is illegal |
| Fairness test | Consumers have the right to know about side effects — hiding is unfair |
| Publicity test | Would I be comfortable if this appeared in Kantipur newspaper? No — cover-up would destroy trust |
| Values test | Does hiding information align with company values of “patient safety first”? No |
Decision: Report the side effect, initiate voluntary recall, communicate transparently with customers. Short-term cost but long-term trust preserved. Companies that handle ethical issues transparently (like Johnson & Johnson’s Tylenol recall) build stronger brands.
Arguments For and Against CSR
| For CSR | Against CSR (Friedman’s view) |
|---|---|
| Businesses use society’s resources, should give back | Only responsibility is to maximise shareholder profit |
| Long-term profitability requires social stability | Managers aren’t elected to make social decisions |
| Prevents government regulation (self-regulation preferred) | CSR diverts resources from core business |
| Improves public image, attracts customers and talent | Social problems should be addressed by government |
| Ethical obligation — power brings responsibility | Increased costs may be passed to consumers |
Exam Tips
Tip 1: Carroll’s CSR pyramid with all 4 levels and Nepal examples is the most commonly asked CSR question. Tip 2: Arguments for and against CSR comparison is frequently tested — present both sides balanced, then state your position. Tip 3: Ethics case study questions require applying the framework (legal, fair, publicity, values) step by step. Tip 4: Corporate governance principles (accountability, transparency, fairness, responsibility) with Nepal context (Companies Act 2063) is important.