s3 mba,business ethics and corporate governance notes

1. UNIT IV: Business Ethics in a Global Economy - Business - society - legal and economic
perspectives - benefits and fundamental principles of social audit - corporate social responsibility
(CSR) - historical perspective of CSR - concept and principles - corporate sustainability – ethical
perspectives in international business - culture and international business cultural relativism - global
ethical issues. (6 Hrs)
BUSINESS AND SOCIETY
There are many moral issues in the business world relevant to consumers. In particular, businesses
have moral duties to consumers and some actions taken in business are morally preferable that have an
impact on consumers, includes (a) the responsibilities of business to consumers, (b) product safety,
and (c) advertising
The responsibilities of business to consumers
Businesses have at least the following two general ethical duties to consumers, according to any theory
of justice or morality that recognizes (a) that contractual relationships give us obligations and (b) that
we have a right to non-injury:
1. Businesses must give us what we pay for. Whenever we trade, we are exchanging goods and
services within an implicit or explicit contract. One person is obligated to give one thing in exchange
for another. People should not be deceived about what they are buying. For example, when we buy a
TV set we expect (i) to get the TV set, (ii) that the TV set will function, (iii) that the TV set has
minimally sufficient quality, and (iv) that the TV set will not harm us when used in ordinary ways.
2. Businesses must not harm anyone, including consumers.
Additionally, businesses can make moral decisions that are not necessarily ―ethical duties.‖ Some
moral decisions are morally favorable and some are morally unfavorable. For example, utilitarian‘s
will argue that a business ought to help people flourish and live better lives, even though it‘s not
necessarily obligated to do so. One popular argument for a free market that allows trade unrestricted
by a government is the ―invisible hand argument‖—that free trade between rational self-interested and
profit-seeking individuals leads to competition, and a productive and flourishing society. However,
this implies that consumers are rational and informed and yet consumers tend to know very little about
the products they buy despite requiring them. For that reason it seems preferable for companies to be
open and honest about the products and services they sell. Consumers need ways to be informed about
the products and services they buy without becoming experts, or we have no reason to expect free
trade to lead to a prosperous society.
The facts that
(1) Consumers are no longer well-informed and
(2) Consumers are no longer self sufficient both have bearing on the importance of business ethics
regarding consumers:
First, at one point in time consumers might have been able to assess the quality of products and
services they bought on their own, but that is no longer the case. Products and services are now often
created by experts who have spent years within a specialized field. This makes it very important for

2. companies to be honest with consumers who can no longer know on their own if the product or service
they buy is of sufficient quality or even has the function they consider buying it for.
Second, at one point in time consumers might have been able to refuse to buy products and services
without penalty (353-354). Such people could be self-sufficient and farm all the food they need to
survive on their own. However, that is no longer the case. People are increasingly dependent on the
goods and services that require the machines, resources, and expertise of others. This gives consumers
little choice but to trust the honesty and good intentions of companies, and makes it even more
important that companies look out for the best interest of their customers.
The responsibilities of business
Businesses are required to give us sufficiently safe products whether they are regulated or not. The
following six steps should be taken by manufacturers to assure consumers that safety standards are
sufficiently high:
1. ―Business should give safety the priority warranted by the product” – Companies shouldn‘t
dismiss safety standards whenever they would cost the company money. Safety standards are a
requirement other than profit. The seriousness and frequency that a product causes harm determines
how important safety standards are. Products that cause serious injuries often are the products that
need the highest safety standards.
2. ―Businesses should abandon the misconception that accidents occur exclusively as a result of
product misuse and that it is thereby absolved of all responsibility”– First, consumers should be
educated about the proper use of products that can cause harm. Second, some consumers are harmed
even when they use products appropriately. Third, if products are continually being misused, there
might be ways to make misuse less dangerous.
3. ―Business must monitor the manufacturing process itself” – There are often product defects
from mismanaged manufacturing processes, and companies must oversee that people making the
products are qualified and predict possible problems in the manufacturing process and ways to identify
when such problems occur. Additionally, products should be rigorously tested to make sure they are
adequately safe. Sometimes other companies should be hired to assure that the testing process is
unbiased.
4. ―When a product is ready to be marketed, companies should have their product-safety staff
review their market strategy and advertising for potential safety problems” – Advertisements and
product images can have an impact on how a product is used and irresponsible advertising and product
images can encourage people to use the product in unsafe ways. For example, advertisers shouldn‘t
show people driving cars while using their phones to send text messages.
5. ―When a product reaches the marketplace, firms should make available to consumers written
information about the product’s performance” – To prevent the misuse of products, information
about proper and improper use of a product should be clearly explained and available to the public.
This is why many products have a warning label.

3. 6. ―Companies should investigate consumer complaints” (ibid.) – Consumers are a good source of
product safety testing that can go beyond a company‘s expectations, and complaints can be a good
source of information concerning safety standards and misuse of products.
Economic systems (Economics and ethics)
Political economy and political philosophy have ethical implications, particularly regarding the
distribution of economic benefits
Most economists distinguish between positive and normative economics, and most would argue that
economics is mainly relevant to policy because of the (positive) information it provides concerning the
consequences of policy. Yet the same economists also offer their advice concerning how to fix the
economy. In addition, there is a whole field of normative economics.
Economic outcomes, institutions, and processes may be better or worse in several different ways.
Some outcomes may make people better off. Other outcomes may be less unequal. Others may restrict
individual freedom more severely. Economists typically evaluate outcomes exclusively in terms of
welfare. This does not imply that they believe that only welfare is of moral importance. They focus on
welfare, because they believe that economics provides a particularly apt set of tools to address
questions of welfare and because they believe or hope that questions about welfare can be separated
from questions about equality, freedom, or justice. As sketched below, economists have had some
things to say about other dimensions of moral appraisal, but welfare takes center stage.
Indeed normative economics is often called ―welfare economics.
Law and regulation
Very often it is held that business is not bound by any ethics other than abiding by the law. Milton
Friedman is the pioneer of the view. He held that corporations have the obligation to make a profit
within the framework of the legal system, nothing more Friedman made it explicit that the duty of the
business leaders is, "to make as much money as possible while conforming to the basic rules of the
society, both those embodied in the law and those embodied in ethical custom". Ethics for Friedman is
nothing more than abiding by 'customs' and 'laws'. The reduction of ethics to abidance to laws and
customs however has drawn serious criticisms.
Counter to Friedman's logic it is observed that legal procedures are technocratic, bureaucratic, rigid
and obligatory where as ethical act is conscientious, voluntary choice beyond normatively. Law is
retroactive. Crime precedes law. Law against a crime, to be passed, the crime must have happened.
Laws are blind to the crimes undefined in it .Further, as per law, "conduct is not criminal unless
forbidden by law which gives advance warning that such conduct is criminal. Also, law presumes the
accused is innocent until proven guilty and that the state must establish the guilt of the accused beyond
reasonable doubt. As per liberal laws followed in most of the democracies, until the government
prosecutor proves the firm guilty with the limited resources available to her, the accused is considered
to be innocent. Though the liberal premise of law is necessary to protect individuals from being
persecuted by Government, it is not a sufficient mechanism to make firms morally accountable.

4. BENEFITS & FUNDAMENTAL PRINCIPLES OF SOCIAL AUDIT
Social Audit
The process of evaluating a firm's various operating procedures, code of conduct, and other factors to
determine its effect on a society. The goal is to identify what, if any, actions of the firm have impacted
the society in some way. It is a system that attempts the social performance and not at the economic
performance. Social audit is a method of understanding, measuring, reporting and improving the
organization‘s social and ethical performance.
A social audit may be initiated by a firm that is seeking to improve its cohesiveness or
improve its image within the society. If the results are positive, they may be released to the public. For
example, if a factory is believed to have a negative impact, the company may have a social audit
conducted to identify actions that actually benefit the society.
The social audit is a business statement published every year to present a set of information
about the social projects, benefits and actions addressed to employees, investors, market analysts,
shareholders and the community at large. It also functions as a strategic instrument to evaluate the
practice of corporate social responsibility.
Through its social audit the company shows what it does on behalf of its professional
staff, their families, collaborators and the community at large. Transparency is given to the activities
developed to improve quality of life. Its main function is to make public the company's social
responsibility, thereby strengthening the links between company, society and environment.
When put together by multiple professionals, the social audit shows and measures the company's
concern about people and about life in our planet.
Social audit is necessary to substantiate the claim of a company that it has been
performing social responsibilities. The basic purpose of social audit is to identify and measure the
social component of a business organization.
In the process of measurement, a quantitative or a qualitative method can be used. Since some of the
social responsibilities are not amenable to quantitative manipulation (for instance, the development of
business relations in various social areas), it is better to use both quantitative and qualitative measures.
Social audit should be conducted by both internal auditors and external consultants for a better, neutral
auditing.
Theodore Kreps (1940) coined the term social audit in a study of 72 industries over a period it of two
decades in an attempt to study the social performance through the system of social audit.
The scope of social audit includes many social areas including the satisfaction of
community needs, building of social infrastructure, consumerism, labour and employee relations, help
to minorities, disabled, orphans and very old people, donations and ecology and environment
protection, and the like.
The following are the major objectives and advantages of social audit:
0 It makes the company aware of the social works it is doing. This may function as a guide fer the
future course of action.

5. 0 It is an important determinant of the public image of a company. 0 It can be helpful to qualify a
company to be a corporate citizen. 0 It can reveal the social status of a company. 0 The company can
know the practical effectiveness of the different types of social programmes and make a comparative
cost-benefit analysis in this regard. o In making future programmes, the company can make use of the
data and information provided by social audit in its budgeting, priority formation and project
evaluation. 0 Social audit can be related to various social impacts of corporate social responsibility
programmes. 0 Social audit creates an impact on corporate governance and is a reflection of its social
effectiveness. It is taken up for the purpose of knowing its contribution to social development. 0 It
measures the gap between social objectives and actual achievement.
Process of social audit
i.e. social audit
 Tries to study the social responsibility of a business organization in a systematic manner.
 Social audit is a process of reviewing official records and determining whether state reported
expenditures reflect the actual monies spent on the ground
 It is based on the need of organizations to create a balance in the way they plan and measure
their commercial and non commercial operations, and to prove that there is consistency
between what an organizations says it will do and what it actually does.
 Method of understanding, measuring, reporting & improving the organization‘s social &
ethical performance.
 Basically a tool of analysis.
A corporate social audit (social accounting) is an assessment of your
company's performance on corporate social responsibility objectives. It evaluates measurable goals
intended to help your business meet the expectations your stakeholder groups have regarding your
social and environmental responsibilities. Balancing social responsibility with business performance is
imperative in the early 21st-century business arena.
The concept of Social Accounting originated in different forms by Adam Smith in 1776,
Later on, Karl Marks and Engel also expressed their views about social costs in 1844. Pigou in 1920
also elaborated the divergence of Social and Private Costs. The concept of social accounting was
clearly introduced in the 1970‘s and later this concept received serious consideration from professional
and academic accounting bodies. Social accounting as an approach began developing in the UK in the
early 1970s, when the Public Interest Research Group established Social Audit Ltd. This has led to an

6. increasing awareness of CSR, and the ―triple bottom-line‖ of business success – measuring the
business not only in its financial performance, but by its social and environmental impact as well.
Social accounting is adopted mostly by developed nations but now developing nations are also
adopting this concept as their management practice. The concept of Corporate Social Responsibility is
underpinned by the idea that corporations can no longer act as isolated economic entities operating in
detachment from broader society. Traditional views about competitiveness, survival and profitability
are being swept away. The concept of corporate social responsibility is now firmly rooted on the
global business agenda.
Meaning:
―Social Accounting‖ is a method by which a business seeks to place a value on the impact on society
of its operations. Social Accounting is an expression of company‘s social responsibilities and
requirements of general corporate accountability. It is concerned with the development of
measurements system to monitor social performances. It is also known by various names like, social
and environmental accounting, corporate social reporting and corporate social responsibility reporting.
Objectives of Social Accounting & audit
(Objectives ,Benefits/advantages of social audit)
The concept of social accounting gained prominence and momentum as a result of high level of
industrialization that had necessitated the corporate to invest substantial amount in the social activities.
Main objectives of social accounting are to help society by providing different facilities by enterprise
and to record them like:
1. Effective utilization of natural resources
Main objectives of making social accounting are to determine whether company is properly utilizing
their natural resources or not. To identify and measure the periodic net social contribution of an
individual firm consisting of cost and benefits internalized to the firm and externalities affecting social
system.
2. Help to employees
Company can help employees by providing the facility of education to children of employees,
providing transport free of cost and also providing good working environment conditions.
3. Help the society
To help determine whether individual firms strategies and practices which directly affect the relative
resource and power status of individuals, social segments, generations consistent with widely shared
social priorities one hand and individual aspirations on the other. Because companies' factories spread
the pollution in natural society which is very harmful for society .So, enterprise can help to society by
planting the trees, establishing new parks near factory area and also opening new hospitals.
4. Help to customers
If company provides goods to customers at lower rate and with high quality also benefits the society.
To provide optimal information to all the constituents of the society to enable them to make decisions
regarding allocation of the social resource where optimally implies cost/benefit effective reporting

7. strategy which also optimally balances potential information conflicts among the various constituents
of a firms.
5. Help to investors
Company can help to investors by providing transparent accounting information to investors.
Firms‘ strategies and practices that directly affect relative resources can be determined. Because of
many objectives are related to safeguarding of natural resources so this accounting is also known as
Social and Environmental Accounting, Corporate Social Reporting, Corporate Social
Responsibility Reporting, Non-Financial Reporting, Sustainability Accounting.
Thus
 The social audit benefits all groups involved with the company‘s activities.
 It provides useful information for Directors to make decisions regarding the social programs
the company sponsors.
 Preparing the social audit stimulates the employees to take part in choosing social actions and
projects, thus improving internal communication and integration between managers and staff.
 Suppliers and investors learn how the company faces its responsibilities with regard to human
resources and the environment, which is a good indicator of how the company is run.
 The social audit shows consumers its philosophy and the quality of the product or service that
is provided, pointing to the way the company chooses to make itself known.
 It makes the company aware of the social works it is doing. This may function as a guide for
the future course of action.
 It is an important determinant of the public image of a company.
 It can be helpful to qualify a company to be a corporate citizen.
 It can reveal the social status of a company.
 The company can know the practical effectiveness of the different types of social programs and
make a comparative cost-benefit analysis in this regard.
 In making future programs, the company can make use of the data and information provided by
social audit in its budgeting, priority formation and project evaluation.
 Social audit can be related to various social impacts of corporate social responsibility
programs.
 Social audit creates an impact on corporate governance and is a reflection of its social
effectiveness. It is taken up for the purpose of knowing its contribution to social development.
 It measures the gap between social objectives and actual achievement.
Why does Companies ‘Publish Social Audit Report?
Because it's ethical. Being fair, good and responsible is a reason in itself.
Because it adds value. The social audit gives the company a reference that is being more and more
appreciated by investors and consumers.

8. Because it reduces the risks. In a globalized world where information takes only some minutes to
be spread all over international markets, ethical and transparent conduct has to be an integral part of
any organization's strategy.
Because it's an instrument of modern management. The social audit is a valuable tool for the
company to administrate measure and publicize the practice of social responsibility in its undertakings.
Because it's an instrument of evaluation. Market analysts, investors and financing agencies now
include the social audit in the list of documents required to assess a company's risks and projections.
Because it's innovative and transforming. Publishing an annual social audit means changing the
old approach - indifferent to the satisfaction and welfare of employees and clients - to a modern view
where the company's objectives include the concern of social and environmental responsibility.
Fundamental principles of social auditing & accounting
PRINCIPLES OF SOCIAL AUDIT & UNIVERSAL VALUES
Social Accounting and Audit uses eight key principles to underpin its process, ensure verification is
effective and deliver continuous improvement. These are:

9. 1. Multi perspective/ Polyvocal: Aim to reflect the views (voices) of all those people (stakeholders)
involved with or affected by the organization/department/program.
2. Comprehensive: Aims to (eventually) report on all aspects of the organizations, work and
performance.
3. Participatory: Encourages participation of stakeholders and sharing of their values.
4. Transparency: Complete transparency in the process of administration and decision-making, with
an obligation on the government to suo moto (voluntary disclosure of information) give the people full
access to all relevant information.
5. Multidirectional: Stakeholders share and give feedback on multiple aspects.
6. Regular: Aims to produce social accounts on a regular basis so that the concept and the practice
become embedded in the culture of the organization covering all the activities.
7. Comparative: Provides a means whereby the organization can compare its own performance each
year and against appropriate external norms or benchmarks and provide for comparisons to be made
between organizations doing similar work and reporting in similar fashion.
8. Verified: Ensures that the social accounts are audited by a suitably experienced person or agency
with no vested interest in the organization.
9. Disclosed: Ensures that the audited accounts are disclosed to stakeholders and the wider community
in the interests of accountability and transparency.
10. Accountability: Immediate and public answerability of elected representatives and government
functionaries, to all the concerned and affected people, on relevant actions or inactions.
Using these principles enables the organisation to maintain effective social accounts, enables them to
be verified and ‗signed off‘ and provides a platform for continuous improvement.
Social Accounting Measures
I. Cost Benefit Analysis
Social cost benefit analysis is a technique to weigh up the environmental and social benefits and costs
of a business investment. It is used to understand community expectations and concerns about the
potential social and environmental impacts of a project to enable business to address these and make
the project more acceptable. Under this system the undertakings present social Balance Sheet and
Social Income Statement. The asset side of the balance sheet depicts social investment of capital
nature i.e. Township, water supply, school, club, road etc. The liability side shows organizations
equity and social equations in the form of contribution by employees. Social income statement
comprises social benefit and cost of staff community and general public. If social benefit exceeds
social cost the resultant is not social income to staff, community and general public.
II. Preparation of separate schedule
Schedules representing employees‘ benefits and services, social overhead, township maintenance etc
are prepared and shown as a part of annexure in the annual general report. Employee benefits and

10. services consist of salary and wages and various social security benefits. Social overhead schedule
include medical, educational, canteen and transportation facilities etc.
III. Expanded Value Added Approach
Building on traditional accounting principles, the Expanded Value Added Statement (EVAS) is an
innovative tool to account for economic, social, and environmental factors. It provides a way to
account for traditionally non-monetized factors (such as volunteer hours) to provide a better picture of
social value creation. Value added can be said that it is the measure of wealth that an organization
creates by ‗adding value‘ to raw materials products and services through the use of labor and capital. It
can be calculated by taking the value of goods and services it provides and subtracting the cost of its
externally purchased goods and services. Under this approach the income accruing to the enterprise
after external payments is taken into account. It represents the value added to goods and services
acquired by the enterprise as the results of the efforts of the management and employees. From the
value of production cost of direct materials and taxes are reduced to get Net Income accruing to the
enterprise. Expanded value added approach combines the financial and social data to give a fuller
picture to the social and economic impact of an organization. It includes both monetary and non
financial inputs and outputs
IV. Other Approaches
Mention of social activities undertaken by an enterprise in chairman‘s speech, Directors‘ report or
auditor‘s report. This approach aims at informing the general public, government and its members
about the organizations goals with economic goals. Other method is pictorial presentation in annual
report of social activities like sponsoring of social and charitable causes and other social welfare
activities; supplementing of government efforts effectively; focusing on human elements; ensuring
ecological balance, engaging in philanthropic activities undertaken in by the organization.
Social Accounting in India
The Sachan Committee in its report in 1978 recognized the need for social disclosures. The concept was
relatively new for India and is yet to gain momentum. Tata Iron Steel was the first in India which conducted
social accounting with the sole aim to examine and report to what extent company has been able to fulfill its
objectives regarding its social and local community.
India may become the world‘s first country to make corporate social responsibility mandatory.
Paths have been cleared for reintroduction of the Companies Bill, 2011, in the monsoon session. If the bill is
passed after endorsing all the propositions made by the Parliamentary Standing Committee on Finance,
corporate social responsibility (CSR) would become mandatory for the first time in the world in any country.
In August 2012 the parliament has paneled CSR to be mandatory. The statement advocates that those
companies with net worth above Rs. 500 crore, or an annual turnover of over Rs. 1,000 crore, shall earmark 2
percent of average net profits of three years towards CSR. In the draft Companies Bill, 2009, the CSR clause
was voluntary, though it was mandatory for companies to disclose their CSR spending to shareholders. It also
suggested that company boards should have at least one female member. (Times of India dated 16/10/12) There
is a growing realization among organizations that it is not merely sufficient to provide funds to support causes

11. initiated by non-profits, and when employees volunteer for a cause, it‘s a win-win situation for both the
organization and the employee as it helps improving managerial skill and enhancing profit.
Tata Group
Tata Group in India has a range of CSR projects, most of which are community improvement programs. For
example, it is a leading provider of maternal and child health services, family planning, and has provided 98
percent immunization in Jamshedpur. The company also endorses sports as a way of life. It has established a
football academy, archery academy, and promotes sports among employees. It offers healthcare services all
over the country with programs like rural health development. Tata Steel India won this award for Corporate
Social Responsibility from among the following short-listed nominees namely Coca-Cola Enterprises, CSM,
Findus Group, Firmenich, Nokia, The Body Shop, Unilever, etc in 2011.
Tata Group also has an organized relief program in case of natural disasters, including long-term treatment and
rebuilding efforts. It did laudable work during the Gujarat earthquakes and Orissa
floods. It also supports education, with over 500 schools, and also is a benefactor of the arts and culture. It has
done abundant work in improving the environment and local populations around its industries.
Infosys
Infosys is aggressively involved in a variety of community growth programs. In 1996, the company created the
Infosys Foundation as a not-for-profit trust to which it contributes up to 1 percent of profits after tax every year.
Moreover, the Education and Research Department at Infosys also works with employee volunteers on
community development projects.
The management team at Infosys continues to set examples in the area of corporate citizenship and has involved
itself vigorously in key national bodies. They have taken initiatives to work in the areas of research and
education, community service, rural outreach programs, employment, healthcare for the poor, education, arts
and culture, and welfare activities undertaken by the Infosys Foundation.
The Social Audit Process
The Social Audit process is cyclical, it is made up of four accumulative elements each one following
on from the previous one and informing the next element until the audit cycle is completed. The
process itself creates a learning culture which grows and strengthens year on year. The four elements
of the Social Audit cycle are as follows:
Element One - Governance Statement. This element is used to establish clarity about the organisation:
the principles and values, its objectives and commercial operations. The element includes a review of
the constitutional aims and objectives, a review of the rule book and clarification of the main values
that guide the operational management. Current practices and new areas for development are
identified, objectives are set for the following audit period and the measurement of objectives set in
the previous audit period takes place.
Element Two - External View and Stakeholders. This element is used to examine the organization‘s
relations with a broad set of stakeholders and its social, environmental and commercial environment.
The element includes stakeholder mapping, profiling and analysis, and an assessment of consistency
between the Governance Statement and current practice. Strengths and weaknesses in current practices
and new areas for development are identified, and objectives are set for the following audit period.

12. Governance Statement External View and Stakeholders Internal View and Organisation Social
Accounting and Verification
Element Three - Internal View and Organization. This element is used to examine the organization‘s
structure and relations with its staff, board members and volunteers, and how it delivers its operations.
The element includes an analysis of Roles and Tasks and a comparison with job descriptions and terms
of reference for consistency. Consistency with the Governance Statement is assessed. Strengths and
weaknesses in current practice and new areas for development are identified and objectives set for the
following audit period.
Element Four - Social Accounting and Verification. This element is where the Outline Objectives set
in the other elements are brought together, prioritized and planned for the following audit period. The
previous year‘s achievements are analyzed for their consistency with the Governance Statement to
determine the organization‘s degree of integrity. Objectives that have not been achieved are analyzed,
the Quality Assurance checks are assessed and the process and results are reported formally to
stakeholders in the Social Audit Report.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
CONCEPT OF CSR
Business Managers have begun to realize that they owe responsibility to society as they owe to
business enterprises.
―Social Responsibility is an organization‘s obligation to benefit society in ways that transcend the
primary business objective of maximizing profit‖.
Social responsibility is the implied, enforced or felt obligation of Managers, acting in their official
capacities to serve or protect the interest of groups other than themselves‖
CSR is the continuing commitment by the business to behave ethically and contribute
to economic development, while improving the quality of life of the workforce and their families as
well as the local community and society at large. It is the responsibility of the corporate sector to
contribute to some activities that increase social welfare.
Definitions:
1. CSR refers to the obligations of businessmen to pursue those policies, to make decision or to
follow those lines of actions which are desirable in terms of objectives and value of our
society.
2. CSR IS THE ETHICAL Behavior of a company towards society.
CSR should be core concern of all companies and part of each company‘s operations.
CSR focuses on three dimensions of value creation:
1. Profit,
2. People triple bottom line
3. Planet.
(a) CSR is the firm‘s concerning itself with the interests of society.

13. (b) CSR is the dual duty of a firm towards its shareholders and stakeholders.
(c) CSR assesses the impact of the actions of the company on not only its shareholders, but also its
employees, customers, communities, and the environment.
(d) CSR is the moral arm of corporate governance
Companies should make all efforts to promote CSR throughout the value- creation chain
as they are a part of it. They should take responsibility for social, Economic and Ecological
consequences of their actions and also engage in dialogues with all those who are involved in these
dimensions. Dialogues with stakeholders help them identify the social and environmental impacts of
their actions. Companies should frame policies and objectives on the basis of these dialogues.
CSR Spending & Government Approved CSR Categories
The company must spend at least two percent of its average net profits made in the
preceding three financial years (the ―Two Percent Formula‖) on government approved categories of
CSR. The CSR Clause states that companies must give preference to local areas where the company
operates. Further, CSR activities developed and implemented during the year by the company must be
detailed in its board report. On the other hand, if the company is unable to spend the required two
percent on CSR, it must explain why in the board report.
The term ―CSR‖ itself is not defined in the Companies Bill. However, Schedule VII of the Companies
Bill, quoted below, requires the CSR policy created by the CSR Committee to involve at least one of
the following focus areas:
• Eradicating extreme hunger and poverty;
• Promotion of education;
• Promoting gender equality and empowering women;
• Reducing child mortality and improving maternal health;
• Combating HIV, AIDS, malaria and other diseases;
• Ensuring environmental sustainability;
• Employment-enhancing vocational skills;
• Social business projects;
• Contribution to the Prime Minister‘s National Relief Fund or any other fund set up by the Central
Government or the state governments for socioeconomic development, and relief and funds for the
welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
Failure to Comply
While a company is not subject to liability for failing to spend on CSR, a company and its officers are
subject to liability for not explaining such a failure in the annual report of the Board of Directors.
There is currently no guidance as to what constitutes a sufficient or statutorily valid explanation for
failure to spend in the board report. In addition, a company and its Directors are liable even if they fail
to report on CSR activities that actually were conducted
Failure to explain is punishable by a fine on the company of not less than 50,000 rupees

14. and up to 25 lakh .Further, officers who default on the reporting provision could be subject to up to
three years in prison and/or fines of not less than 50,000 rupees and as high as 5 lakh rupees .
HISTORICAL PERSPECTIVE OF CSR
The concept of corporate social responsibility (CSR) has a long history associated with how it impacts
on organizations' behavior. In order to understand CSR's impact on organization behavior, therefore, it
is necessary to comprehend its progression.
In the 1950s the primary focus was on businesses' responsibilities to society and doing good
deeds for society. In the 1960s key events, people and ideas were instrumental in characterizing the
social changes ushered in during this decade. In the 1970s business managers applied the traditional
management functions when dealing with CSR issues, while, in the 1980s, business and social interest
came closer and firms became more responsive to their stakeholders. During the 1990s the idea of
CSR became almost universally approved, also CSR was coupled with strategy literature and finally,
in the 2000s, CSR became definitively an important strategic issue.
The historical evolution of the CSR can be classified into different periods . There is the earlier period
in the CSR evolution followed by the development of unique trends in the 1970s. The 1970s trends are
followed by the shifts that existed during the 1990s . The below figure shows the historical timeline
and different stages in the history of CSR as a paradigm in management and business theory:
Figure 1: History of Corporate Social Responsibility
The Early Classical Period
CSR was looked as a product of the industrialization process at that time. With the development of big
companies in 1870s the tasks of these companies increasingly affected other society domains. From
1900 through 1920, extra legislation based on business social responsibilities was passed under the
banner of the collection of advocated social reforms in the upcoming era.
The Immediate Post war Period
The debate over the social responsibility of business had achieved impetus succeeding World War II.
By this time corporate philanthropy had already become part of normal social fabric and business life.

15. Two principles formed the foundations for contemporary views on CSR. These were the principle of
stewardship and charity.
Trends during the 1970s
During 1970s, the texture of the war based on CSR altered to some degree. The focus in the war
shifted from corporate responsibility to the corporate responsiveness concept. This new focus on
responsiveness altered the emphasis from what organizations could do to survive to what organizations
could do to better the world through sustainability.
Shifts during the 1990s
In the 1990s, the concept of CSR emerged as the outcome of new forms of stakeholder engagement
and social regulation, increased demands of stakeholder and governmental regulation for reporting and
CSR. Critics and Scholars improved their analysis to include arguments based on the sustainability,
business ethics, corporate social performance, green marketing, stakeholder theory and citizenship
theory
CSR Strategy
CSR Strategy refers to conceptualization of corporate social responsiveness. This delineates and
explains how corporations actively respond to social concerns and expectations.
The four strategies or action-phases of corporate responsiveness outlined by Archie Carroll have been
widely cited in the subject. They are:
1. Reaction: At the first instance, the corporation denies its responsibility toward society arguing
that this is the responsibility of the government to take care of social issues. The purpose of
corporation is essentially to maximize its profit and profit only benefits society.
2. Defense: Corporation may admit its responsibility for social issues but tries to avoid as much
as possible or tries to discharge the minimum social responsibility till it does not adversely
affect it, also called ―Enlightened Self –Interest‖.
3. Accommodation: Corporation admits and accepts its responsibility toward society and
discharges the same as demanded by different stakeholders.
4. Pro-action: This is the enlightened stage when corporation seeks to discharge social
responsibility by going beyond normal rules and norms set in this regard. In other words,
corporation tries to do more for social issues than are expected of it. This, in a sense, refers to
―Holier than Thou ―approach of corporation toward society.
Types And Nature Of Social Responsibilities
CSR can be understood in both micro and macro perspectives. In the micro perspective, it is the
responsibility of one business unit or company; in the macro perspective, CSR encompasses the whole
gamut of corporate social activities where the entire corporate sector is engaged, and also in some
cases, the involvement of government is ensured.

16. Three basic constituents of CSR:
1. One part of CSR is to supply socially necessary products, create employment opportunities and
contribute towards a sustainable economic development.
2. To make the desirable social changes and respond to the changing values and priority patterns of
the society.
3. Actively contribute towards the improvement of social environment and discontinue or internalize
all the negative externalities (harmful impact).
There are basically the following five types of social responsibilities:
1. Responsibilities towards the Society
2. Responsibilities towards the Government
3. Responsibilities towards Employees
4. Responsibilities towards Shareholders
5. Responsibilities towards Consumers
Nature of Social Responsibility
CSR is an ethical issue and, therefore, is normative in character. CSR will be different for different
types of business institutions and also for different levels of society. There is no straightjacket formula
for CSR. In a sense, CSR is a relative concept.
Table1 7.1Typeosf Social Responsibilities
Responsibilities towards
Government
 Obey rules and regulations
 Regular payment of taxes
 Cooperating with the Govt. to promote social values
 Resisting bribery and corrupt practices
 Cooperating with the Govt. for economic growth
and
 development
 Cooperating with the Govt. for promoting R and D
 Not to take advantage of loopholes in business laws
Responsibilities towards Society as
a whole:
 Carrying on business with moral values and ethical
standards
 Prevention of environmental pollution
 Minimizing ecological imbalance
 Implementing the strategy of sustainable
development
 Making the use of appropriate technology
 Contributing towards the development of social
health, education and cultural milieu

17. Responsibilities towards Consumer.  Supplying socially harmless products
 Supplying the quality, standard, as promised.
 Providing good and services at reasonable prices
 Providing efficient timely after-sales services
 Resisting black-marketing and profiteering
 Maintaining consumers-grievance cell
 Trying to improve the quality of products and
reduce
 prices over time through competition
Responsibilities towards
Shareholders:
 To work for the survival and the growth of the
concern
 To build reputation and goodwill of the company
 To ensure a reasonable rate of return over time
 To remain transparent and accountable
PRINCIPLES OF CSR
In introducing CSR, companies must adhere to the following principles.
1. Supply Chain Responsibilities:
A company‘s social responsibilities should cover all those with whom companies come in contact,
irrespective of the relationship (formal or informal), product or service, or geographic location. These
may include suppliers, contractors, alliances etc. Companies must do everything they can in promoting
CSR practices, throughout their chain of operation.
2. Stakeholder Involvement: Companies must be ready to engage in dialogues with stakeholders
(workers, suppliers, local population, consumers, social organizations, public authorities etc). This will
help them know the concerns of stakeholders regarding consequences of company‘s behavior. There
should be ongoing exchange of information between company and its stakeholders regarding
company‘s CSR policies where companies arrive at a mutually accepted agreement about company
norms, values, rights and obligations.
3. Transparency and Reporting: Companies must be transparent and open with respect to their
policies and social conduct. Reporting requires companies to inform stakeholders about the effects of
their conduct and the consequences of these effects on other stakeholders. Information can be made
available to stakeholders through (a) regular public reports, (b) assessment reports, annual reports and
meetings, (c) publication of data and consultation.
Also includes:
0 One of the best principles for discharging corporate social responsibility is to have respect for
human rights. This respect should be explicitly shown in the public.

18. 0 It is necessary to have respect for the differences of views on CSR subject, methods, time, and so
on. The final decision is to be based on merit of the case and the temper of the time.
0 Diversity and non-discrimination should be the guiding principle. Discrimination based on caste,
Class, color, creed and gender in the CSR has to be avoided at all cost.
0 The CSR activities should make some social contribution and create some social utilities which are
liked by the local people and which will be useful for them.
0 It is always better to enter into a dialogue with the society/community before undertaking any CSR
activity. This can give some important insights regarding the contemplated project, its use and
implementation.
0 The CSR project should be based on creativity and self-realization both for the corporate sector
and the local community. The involvement of the community must be ensured.
0 Fair dealings and collaboration with the participants in the CSR project should be an important
principle at all times.
0 The initial impact of the project needs to be evaluated on the basis of feedback from the
community. This will help the feed-forward process while continuing the project.
0 The CSR strategy should be proactive and it should try to replace the bad environment by a better
alternative. The project must make some positive value-added.
0 The basic strategy of any successful SCR project will be the long-run economic and social
development of the community where the project is to be located.
Dimensions Of CSR
Shareholders: Primary responsibility of every business to see that the owners or shareholders get a fair
rate of dividend or fair return on capital invested.
Employees: Responsibility of management to provide for fair wages to workers based on the principal
of adequacy, equity and human dignity. Laws are there to provide security of workers, retirement,
sickness, injury, maternity, death etc. Job Security, training and motivation, obeying labor laws.
Customers: Provide quality goods, provide complete information, provide after sales service, warranty,
repair, installation etc. Produce goods that satisfy needs of the customers. Maintain regular supply of
goods; ensure goods that conform to health and safety standards.

19. Community: Pollution- free environment, employment opportunities, optimum utilization of resources,
conduct social programs like career counseling, contribute in solving social problems, like poverty,
illiteracy, racism etc. Business houses should conform to business ethics and a socially acceptable
code of conduct.
Government: Business organizations should also be responsible towards the government. Payment of
taxes, firms should submit their yearly returns of income and pay income tax judiciously. Firms should
obey the legislative machinery (Income tax law, labor laws etc) and support the government. Business
objectives should contribute to national goals to enhance industrial image of the country in the
international market.
Four part model of corporate social responsibility proposed by Archie Carroll is a multilayer concept
consisting of four inter-related aspects of responsibilities, namely, economic, legal, ethical and
philanthropic.
Economic Responsibility: A corporation has to meet its economic responsibilities in terms of
reasonable return to investors, fair compensation to employees, goods at fair prices to customers etc.
Thus meeting economic responsibility is the first layer of responsibility and also the basis for the
subsequent responsibilities.
Legal Responsibility: The legal responsibility of business corporations demands that business abide by
the law of land and play by the rule of the game.
Ethical Responsibility: These responsibilities refer to obligations which are right, just and fair to be
met by corporations. The conduct of corporations that goes beyond law and contributes to social well
being is called ethical.
Philanthropic Responsibility: The Greek word ―Philanthropy‖ means literally the love of the fellow
human‖. Making donations to charitable institutions, building of recreational facilities for employees and
their families, support for employees and their families, support for educational institutions, etc are
examples of philanthropic responsibilities discharged by corporations. It is important to note that the
philanthropic activities are desires of corporations, not expected by the society.
Models of CSR

20. 1. Philanthropic Model
2. European Model
1. Philanthropic Model: It asserts that CSR is about companies making profits and donating a part of it for
charitable causes.
2. European Model: This model believes that companies should operate their business in a socially
responsible way and invest in communities for social reasons that will benefit the companies in the long
run. In this model, social responsibility is viewed as part of company‘s wealth creation process.
Unilever has been able to support sustainable fisheries, when national governments could not provide a
solution to the depleting fish stocks.
Indian Models of CSR:
The following models explain the concept of CSR in the Indian context:
1. Trusteeship Model
2. Stakeholder Model
1. Trusteeship Model: Based on Gandhian Theory of trusteeship ―makes no distinction between private
and non- private property. All property is held in trust, no matter who possesses it. Ultimately, corporate
management becomes the trustee not only of shareholders but also of other broader interests like labor,
consumers, government and society at large.
2. Stakeholder Model: This model asserts that companies should look after the interest of all those who are
affected by their policies and operations. All those who are affected are known as stakeholders.
ARGUMENTS FOR AND AGAINST CSR
I. Arguments in Favor of CSR
1. Long Run Survival of Business Concerns:
Firms that assume social responsibilities may suffer losses in the short-run but fulfilling social
obligations is certainly beneficial for long-run survival of the firms. The short term costs are,
therefore, viewed as investments for long-run profitability.
2. Profitable for the Business Concerns:
Assuming social responsibility is necessary and helpful for long-run survival of business firms. This
makes the firm profitable in the long-run.
3. Moral and Social Commitment:
Business organizations operate in the social environment and, therefore, should be morally committed
to the interest of the society.
4. Improvement in Public Image:
A business firm that looks after interests of the society develops goodwill and public image. Its goods
and services are more readily acceptable to the society than those of its competitors.
5. Helps in Avoiding Government Regulation:

21. Business Organizations that do not assume social responsibility may be required to do so by the
government (2 percent clause). To avoid excessive Government regulation and interference, the
enterprises voluntarily assume social responsibilities.
II. Arguments against CSR
1. Business is an Economic Activity:
It is argued by the opponents of social responsibility that basic function of a business enterprise is to
look into economic viability of its operations. It is for the government to look after interests of the
society.
2. Quantification of Social Benefits:
What measures social responsibility and to what extent should a business enterprise be engaged in it,
what amount of resources should be committed to social values, whose interest should hold priority
over others(shareholders should be preferred over suppliers or vice versa ) and many other questions
make social responsibility a difficult task to be assumed.
3. Cost-Benefit Analysis: Any social-benefit program where initial costs exceed the benefits may not
be taken up by business enterprises even in the short run.
4. Lack of skill and competence:
Professionally qualified Managers may not have the aptitude required to solve the social problems.
5. Transfer of Social Costs:
Costs related to social programs are adjusted by business concerns in the following ways:
(a) Increase in Prices: The costs are passed to consumers by increasing the prices of goods and
services.
(b) Reduction in Wages: If Managers maintain the level of prices; the social costs may be reflected in
lowering of wages.
(c) Reduction in Profits: If wages are stabilized, company‘s profit would be reduced, which will lower
the rate of dividends to shareholders, reduced profits will reduce Manager‘s desire to further engage in
social responsibility.
6. Sub-Optimal Utilization of Resources:
If scarce business resources are utilized for social goals, this would violate the very purpose of
existence of an organization
CORPORATE SUSTAINABILITY (CS)
Sustainability: means preserving the resources & operating in a way that is conductive for long term
training.
 CS essential for long term success.
 For ensuring that markets deliver value across the society.
Business sustainability is often defined as managing the triple bottom line – i.e. a process by which
companies manage their financial, economic, social, environmental risks, obligations and
opportunities. These 3 impacts are sometimes referred to as Profit, People and Planet. Effective mgt of
these enables better sustainability for a company.

22. CS: A business approach that creates long-term consumer and employee value by implementing a
business strategy that considers every dimension of how a business operates in the social, cultural, and
economic environment. Formulates strategies to build a company that adopts permanence through
a) Transparency - Refers to having an engaging & open environment in company which
will improve performance & increase profits. This open (envmt) culture promotes employee
involvement in the innovation & creative process.
b) Proper employee development
 CS is an alternative to traditional growth and profit-maximization model.
 Gives significant focus on: sustainable development.
Sustainability is a business approach creating shareholder value in the long run.
It encompasses a strategy & practices that aim to meet the needs of stakeholders while seeking to
protect, support & enhance the human & natural resources that will be needed in the future.
CONCEPT OF CORPORATE SUSTAINABILITY
Borrows elements from four more established concepts:
1) Sustainable development
2) Corporate social responsibility
3) Stakeholder theory
4) Corporate accountability theory
Sustainable Development
Broad dialectical concept that balances the need for economic growth with environmental protection,
social justice, equity etc.
SD is the development that met the needs of present generations without compromising the ability of
future generations to meet their needs.
Contributions of sustainable development to CS are:
a. Helps set out the areas that companies should focus on- envmt, social, economic etc
b. Provides a common societal goal for corporations, governments, and society
Corporate social responsibility
Company‘s sense of responsibility towards community and society.CSR contributes to corporate
sustainability by providing economic, social, environmental benefits.
Stakeholder theory
It states that stronger the relationships with external parties, the easier it will be to meet your corporate
business objectives. The worse your relationships, the harder it will be. Strong relationships with
stakeholders are based on trust, cooperation & respect.
Corporate accountability
4th
and final concept. Refers to Legal or ethical responsibility to provide an account or reckoning of
actions for which one is held responsible. It helps to define the nature of relationships between
corporate managers & rest of the society.
Accountability differs from responsibility is that later refers to ones duty to act in a certain Way
whereas accountability refers to one‘s duty to explain, justify or report on his or her actions.

23. ETHICS IN GLOBAL (INTERNATIONAL) BUSINESS
Like many other Economic Terms, Global Business also called International Business and popularly
known as ‗Globalization‘ and is defined as ―The Progressive eroding of the relevance of territorial
bases for social, economic and political activities, processes and relations‖.
Globalization is the free movements of goods, services and capital across borders‖.
Key Characteristics of Globalization
1. Improved Technology in Transportation and Telecommunications:
The ever – increasing capacity and efficiency of transport and communication technology have made
possible for people and things move and communicate faster and cheaper.
The ―Friction of Distance‖ is now lessened, and the world has, in fact, metaphorically shrunk.
2. Movement of People and Capital:
A general increase in awareness, opportunity, and transportation technology has enabled people to
easily move around the world in search of a new job and new home.
3. Diffusion of Knowledge:
With the advent of internet, knowledge does not remain confined to the place of its origin instead it
diffuses speedily and widely across the globe.
4. Non-Governmental Organizations (NGOS) and Multinational Corporations (MNCS).
There has been continuous increase in the number of global non-governmental organizations (NGOS)
involved in dealing with global issues due to the increase in MNCs. Many international NGOS deal
with issues cutting across international borders (such as global climate change, energy use, or child
labor regulations). Amnesty International and Doctors without Borders are few examples.
Advantages and Disadvantages of Global Business:
Advantages Disadvantages
 Integration of markets like European  Intense competition
Union  Widening of gap between rich and poor
 Increasing free trade between nations countries
 Cheaper products for consumers  Harder for smaller business to establish
 Leads to outsourcing in some cases like themselves.
call centers to India  Exploitation of workers by paying the
 Lowering of International barriers for workers in less developed countries a
example now EU can trade with fraction of what would be paid to
ASEAN and NAFTA workers in developed countries.
 Helps prevent market saturation in a  Income earned in host country is not
specific market. always spent in same country.
 Standardization of product i.e. same  Decrease in environmental integrity as
products can be seen in many places- polluting corporations take advantage
i.e. Coke & Mc Donald‘s of weak regulatory rules in developing
 Reduction of cultural barriers increases countries.
the global village effect.  International bodies like the World
 Reduction of likelihood of war between Trade Organization (WTO) infringe on
developed nations national and individual sovereignty

24. Ethical Issues Involved in Global Business: (culture & international business cultural relativism)
Cultural differences found among nations imply distinct ethical issues involved in global business.
For example, as per the United States internal revenue service‘s estimates, around 17% of the
American Tax payers cheat and more than thirty million Americans consider it acceptable to make
incorrect statements on their tax forms. Here, what is technically illegal may not necessarily be
considered unethical.
Chinese and South Korean business people will view attempts to renegotiate a contract perfectly
acceptable even after they signed it. Americans will call it false or unethical.
In cross-cultural business interactions, the three possible constellations warrant our
consideration.
1. Business Practices considered Ethical within both nations/cultures.
It is likely that there could be some business transactions which are considered ethical in both the
nations and cultures. Assuming that both the parties know the arrangement well before, an example of
such business transaction could be paying some amount to an intermediary between the two parties in
Global Business.
2. Business Practices considered unethical within both Nations/cultures.
In Global Business, there could be some transactions which are considered as unethical by both the
parties. India and China are such two nations or cultures where corruption is considered wrong and,
thus unethical as is evident from civil society‘s long agitation in India to curb corruption widespread in
all spheres of activities in the country by bringing an act called
‗LOKPAL BILL‘.
3. Business Practice considered Ethical within one culture, but not within the other.
Chinese and South Korean business people will view attempts to renegotiate a contract perfectly
acceptable even after they signed it- but Indians and Americans will object that.
Similarly, Indian and Japanese companies will find it very unethical if a global partner terminates a
cooperation agreement because they found a more promising alternative but most Americans see no
issue with that.
American Companies usually have no problem with simultaneously cooperating and competing with
the same business partner. The same business practice will be considered quite unethical by many
Asians and Latin Americans.
Americans will refuse paying a government official a small bribe but many people in the Middle East
and elsewhere as well may consider the same acceptable and thus, ethical.
4. Employment Practices:
The common unethical practices relating to global business include abnormally low wages, use of
child labor, unhealthy working conditions, long hours of work, and violation of basic human rights to
workers like basic rights to organize themselves to solve their job related problems.
5. Human Rights

25. Basic human rights taken for granted in the developed world such as freedom of association, freedom
of speech, freedom of assembly, freedom of movement etc. Basic human rights are still not respected
in many nations.
The Business Ethicist Thomas Donaldson has suggested a ‗Minimal‘ list of ten international human
rights that has been widely accepted as an example of guidelines for global business organizations.
These are:
1. The right to freedom of physical movement.
2. The right to ownership of property
3. The right to freedom from torture
4. The right to a fair trial
5. The right to non-discriminatory treatment
6. The right to physical security
7. The right to freedom of speech and association
8. The right to minimal education
9. The right to political participation
10. The right to subsistence.
6. Environmental Pollution
Environmental regulations vary across nations. The Union Carbide disaster considered the biggest
industrial disaster in the world so far, claiming thousands of lives and polluting the local environment
is an example of global business causing among other things the environmental problem. Such
examples throw light on the weakness of law enforcement in such host nations. This might result in
higher levels of environmental pollution from the operations of multinationals than would be allowed
at home.
7. Corruption
Corruption has also been practiced as unethical practices in the Global Business with varying degrees
across the nations. Like other business practices, there are two views held about corruption rooted in
global business. In countries where preexisting political structures distort or limit the workings of the
market mechanism, corruption in the form of black-marketeering, smuggling and side payments to
bureaucrats to ―speed up‖ approval for business investments may actually enhance social welfare,
through creating employment, raise in income levels, provides goods for consumption and so on.
In other countries, corruption lead to moral revulsion against it has swept politicians out of office in
countries like Brazil, Italy, Japan etc. The real cost of corruption lies in the demoralization, cynicism
etc.
It is because of evil effects of corruption, the United States enacted the Foreign Corrupt Practices Act
(FC PA) in 1977 to outlaw the practice of paying bribes to foreign government officials in order to
gain business. With the similar purpose, the Organization for Economic Cooperation and Development
(OECD) adopted a convention on combating bribery of foreign public officials in international
business transactions which obliges member states to make the bribery of foreign public officials a
criminal offense.
How to deal with unethical practices in global business

26. Unethical practices involved in global business can be classified into two broad categories (i) due to
cultural differences across the nations (ii) Due to business itself. Best way to tackle this is to develop
some common agreements in terms of dos and don‘ts to be followed by global businesses across the
nations.
Richard De George offers seven basic guidelines for global businesses to be followed to conduct
business in an ethical manner across the nations. These seven guidelines are:
1. Multinationals should do no intentional direct harm:
2. Multinationals should produce more good than harm for the host country.
3. Multinationals should contribute by their activity to the host country‘s development.
4. Multinationals should respect the human rights of their employees.
5. To the extent the local culture does not violate ethical norms, multinationals should respect the local
culture and work and not against it.
6. Multinationals should pay their share of taxes.
7. Multinationals should cooperate with the local government in developing and enforcing just
background institutions.