Anantham Coaching For CA and CS Courses All Law/Theory Papers Trivandrum, Kerala

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1 Published by: Anantham Coaching For CA and CS Courses All Law/Theory Papers Trivandrum, Kerala Page 1

2 Brief Reference Notes Grey Areas in Ethics, Governance & Sustainability Paper CS Professional CS Bilu Balakrishnan, F.C.S [This e-book is only for education purpose. No responsibility on the contents will be taken by neither the author nor the publisher. References have been duly acknowledged. Students can use this e-book freely for study purpose] November, 2016 Page 2

3 Contents: The Caux Round Table (CRT) Kyosei Clarkson Principles of Stakeholder Management Agenda 21 SA 8000 ISO The Kyoto Protocol Page 3

4 The Caux Round Table (CRT): Introduction: The Caux Round Table (CRT) is an international organization of senior business executives aiming to promote ethical business practice. It was founded in 1986 by Frits Philips, President of Philips, and Olivier Giscard d'estaing, along with Ryuzaburo Kaku, President of Canon. In the Norman language Caux means lime, calcium carbonate. Caux is a small village in the Canton of Vaud, Switzerland which is part of the Montreux municipality. The CRT s Principles: The CRT s Principles for Business were published in 1994, incorporating western concepts (Human Dignity) and Japanese ones (Kyosei). The CRT's principal activities are an annual meeting and the publication of best-practice guides for various types of organization. Every three years, the annual meeting is held at Caux, Switzerland, where the original initiative took place in Stephen. B. Young is the Global Executive Director of the Caux Round Table. The CRT Principles for Business were formally published in 1994, and presented at the United Nations World Summit on Social Development in The CRT Principles for Business articulate a comprehensive set of ethical norms for businesses operating internationally or across multiple cultures. The Caux Round Table's 2017 Global Dialogue will be taking place from November 5th - 8th in Wittenberg, Germany, in partnership with the Wittenberg Center for Ethics. The CRT Principles for Business have been published in twelve languages, reprinted in numerous textbooks and articles, and utilized in business school curricula worldwide. The Principles are recognized by many as the most comprehensive statement of responsible business practice ever formulated by business leaders for business leaders. Vision of CRT: VISION is for a free, fair and prosperous global society built on the twin pillars of moral capitalism and responsible government. Mission of CRT: MISSION is to put moral capitalism to work by ensuring business contributes to greater prosperity, sustainability and fairness. Page 4

5 The Caux Round Table (CRT) is based on the belief that the world business community should play an important role in improving economic and social conditions. The Caux Round Table PRINCIPLES: Principles for Responsible Business Principles for Governments Principles for NGOs Principles for Ownership of Wealth The CRT Principles for Business are a worldwide vision for ethical and responsible corporate behavior and serve as a foundation for action for business leaders worldwide. CRT Principles for Business: Section 1 Preamble, Section 2 General Principles and Section 3 Stakeholder Principle. Section 1. Preamble Shared values, including a commitment to shared prosperity, are as important for a global community as for communities of smaller scale. For these reasons, and because business can be a powerful agent of positive social change, we offer the following principles as a foundation for dialogue and action by business leaders in search of business responsibility. In so doing, we affirm the necessity for moral values in business decision making. Without them, stable business relationships and a sustainable world community are impossible. Section 2. General Principles Principle 1: The Responsibilities of Businesses: Beyond Shareholders toward Stakeholders. Principle 2: The Economic and Social Impact of Business: Toward Innovation, Justice and World Community. Principle 3: Business Behavior: Beyond the Letter of Law toward a Spirit of Trust. Principle 4: Respect for Rules: To avoid trade frictions and to promote freer trade, equal conditions for competition, and fair and equitable treatment for all participants, businesses should respect international and domestic rules. Principle 5: Support for Multilateral Trade: Businesses should support the multilateral trade systems of the GATT/World Trade Organization and similar international agreements. Page 5

6 Principle 6: Respect for the Environment: A business should protect and, where possible, improve the environment, promote sustainable development, and prevent the wasteful use of natural resources. Principle 7: Avoidance of Illicit Operations: A business should not participate in or condone bribery, money laundering, or other corrupt practices: indeed, it should seek cooperation with others to eliminate them. It should not trade in arms or other materials used for terrorist activities, drug traffic or other organized crime. Section 3. Stakeholder Principles Customers: CRT believe in treating all customers with dignity, irrespective of whether they purchase our products and services directly from us or otherwise acquire them in the market; provide jobs and compensation that improve workers' living conditions; provide working conditions that respect each employee's health and dignity. Employees: CRT believes in the dignity of every employee and in taking employee interests seriously. Owners / Investors: CRT believes in honoring the trust our investors place in us; disclose relevant information to owners/investors subject to legal requirements and competitive constraints. Suppliers: Our relationship with suppliers and subcontractors must be based on mutual respect; seek fairness and truthfulness in all our activities, including pricing, licensing, and rights to sell. Competitors: CRT believes that fair economic competition is one of the basic requirements for increasing the wealth of nations and ultimately for making possible the just distribution of goods and services; foster open markets for trade and investment. Communities: CRT believe that as global corporate citizens we can contribute to such forces of reform and human rights as are at work in the communities in which we operate; respect human rights and democratic institutions, and promote them wherever practicable; collaborate with those forces in the community dedicated to raising standards of health, education, workplace safety and economic well-being. Page 6

7 Kyosei: Kyosei is a Japanese word that means living and working together for the common good a principle that is embraced by all Canon employees. It s a technique meaning a spirit of cooperation. Kyosei is one of the ethical ideals of Caux Round Table Principles for Business. Kyosei, a word with a great meaning. The traders pledge. The word KYOSEI is an interesting Japanese term Ryuzaburo Kaku attributed a huge part of CANON Inc. success. When practiced by a group of corporations, kyosei can become a powerful force for social, political, and economic transformation. At Canon kyosei at the heart of there business credo (a statement of the beliefs or aims). Kyosei establishes harmonious relations between the company and - Customers; Suppliers & Competitors; Governments; Natural Environment Kyosei philosophy reflects a confluence of social, environmental, technological and political solutions. It believes that peace, prosperity and social and environmental improvement come through positive action. A co-operative way of doing business. Five Stages of Kyosei: The kyosei journey begins by laying a sound business foundation and ends in political dialogue for global change. 1st - Economic survival of the company; 2nd - Cooperating with labour; 3rd - Cooperating outside the company; 4th - Global activism, and 5th - Making the government as a Kyosei partner. Page 7

8 Stage 1: Economic Survival: Companies in this stage work to secure a predictable stream of profits and to establish strong market positions in their industries. They contribute to society by producing needed goods, purchasing locally produced raw materials, and employing workers. In pursuing business goals, however, they tend to exploit their staffs and create labor problems. For instance, I feel that some U.S. companies take the profit motive too far when they lay off workers to increase profits and at the same time pay large bonuses to their CEOs. There is nothing wrong with the profit motive per se even companies in the later stages of kyosei must increase profits. But making a profit is only the beginning of a company s obligations. As they mature, businesses need to understand that they play a role in a larger, global context. Stage 2: Cooperating with Labor: A company enters the second stage of kyosei when managers and workers begin to cooperate with each other. Each employee makes cooperation a part of his or her own code of ethics. When that happens, management and labor start to see each other as vital to the company s success. The two sides are in the same boat, so to speak, sharing the same fate. This approach to management is popular in Japan, where companies are well known for their commitment to workers salaries, bonuses, and training. As important a step as it is, though, this stage of kyosei can become so inwardly focused that it does little to solve problems outside the company. Stage 3: Cooperating Outside the Company: When a company cooperates with outside groups, such as customers and suppliers, it enters the third stage of kyosei. Customers are treated respectfully and reciprocate by being loyal. Suppliers are provided with technical support and, in turn, deliver high-quality materials on time. Competitors are invited into partnership agreements and joint ventures, which result in higher profits for both parties. Community groups become partners in solving local problems. Needless to say, forming a kyosei partnership for the common good is very different from forming a cartel and fixing prices. Companies at this stage understand that a rising tide lifts all ships. They know that by finding ways to collaborate with customers, suppliers, and community groups, they are helping all parties. But third-stage companies often focus so much on local and national problems that they neglect global problems. For example, in Japan, many companies contribute to Japanese society but continue to have adversarial relations with foreign governments. Page 8

9 Stage 4: Global Activism: When a company begins large-scale business operations in foreign countries, it is ready to enter the fourth stage of kyosei. By cooperating with foreign companies, large corporations not only can increase their base of business but also can address global imbalances. For example, a company can help reduce trade friction by building production facilities in countries with which its home country has a trade surplus. By setting up R&D facilities in foreign countries, companies can train local scientists and engineers in cutting-edge research work. By training local workers and introducing them to new technology, corporations can improve the standard of living of people in poor countries. And by developing and using technology that reduces or eliminates pollution, companies can help preserve the global environment. Stage 5: The Government as a Kyosei Partner: When a company has established a worldwide network of kyosei partners, it is ready to move to the fifth stage. Fifth-stage companies are very rare. Using their power and wealth, fifth-stage companies urge national governments to work toward rectifying global imbalances. Corporations might press governments for legislation aimed at reducing pollution, for example. Or they might recommend the abolition of antiquated trade regulations. This type of cooperation is quite different from the traditional partnership between business and government, in which powerful corporations look to their own governments for help in trade deals or for special subsidies and protective tariffs. At the global level Kyosei will address Trade imbalances; Income imbalances; Environmental imbalances. Kyosei in Action at Canon A case approach (By President, Canon): In the first half of 1975, two years before I became president, Canon was losing money because of problems with management policy and internal production. We had to suspend dividends that year and were in no position to consider introducing kyosei, which requires a solid business foundation. We concluded, after an internal review, that we had become overly bureaucratic and had lost our entrepreneurial spirit. We put into action a strategy called the Premier Company Plan that was designed to place Canon in the top ranks of global companies and to move it from being a camera producer to being a global high-technology manufacturer. The plan set aggressive, long-term performance targets for each division and reorganized the company along a matrix structure centered around the main product lines: cameras, business machines, and optical Page 9

10 products. We also invested heavily in manufacturing, marketing, and R&D activities, making them the horizontal links between the vertical pillars formed by our three product groups. We made those investments at a time when the economies of the world were shrouded in pessimism due to the oil crisis of 1973 and when many companies were cutting back on their investments. We followed this basic plan for ten years and are still benefiting from its vision. Today we are the world market-share leader in our major product areas copiers and desktop printers. During the last ten years, our net profits have grown at an annual rate of 20%, sales have grown at 9%, and our return on sales and return on equity have more than doubled. We have built a strong foundation for the practice of kyosei. Many people criticize the concept of kyosei for being too idealistic and theoretical to put into practice, so I would like to demonstrate how successful it has been for us at Canon. In brief, each employee makes a commitment to live and work in harmony with others. This spirit is shared inside the company, then with the outside community, and finally with organizations throughout the world. The company has put many years of dedicated work into making kyosei a reality. I believe that we have made great progress. Canon started cooperating with workers early in its history, well before other Japanese companies. In 1943, Canon eliminated the distinction between salaried and hourly workers and did away with the rule that they had to use different cafeterias and rest rooms. Similarly, when Takeshi Mitarai was president of Canon, he moved the company from a six-day to a five-day workweek, making Canon the first major company in Japan to do so. *Reference source: The Path of Kyosei Article published in Harvard Business Review (HBR) Page 10

11 Clarkson Principles of Stakeholder Management: Origin and Purpose: The year after his retirement from the faculty of the University of Toronto in 1988, Max Clarkson ( ) founded the Centre for Corporate Social Performance and Ethics in the Faculty of Management, now the Clarkson Centre for Business Ethics & Board Effectiveness, or CC(BE) 2. Four conferences hosted by the Centre between 1993 and 1998 brought together management scholars to share ideas on stakeholder theory, an emerging field of study examining the relationships and responsibilities of a corporation to employees, customers, suppliers, society, and the environment. The Alfred P. Sloan Foundation funded the project, from which the Clarkson Principles emerged. Critical Content: After an introduction to the stakeholder concept with comments on shareowners and the legal and moral duty of managers, seven (7) principles of Stakeholder Management are set forth, each with a paragraph or two expanding on its meaning. These principles represent an early stage general awareness of corporate governance concerns that have been widely discussed in connection with the business scandals of Principle 1 : Managers should acknowledge and actively monitor the concerns of all legitimate stakeholders, and should take their interests appropriately into account in decision-making and operations. Principle 2: Managers should listen to and openly communicate with stakeholders about their respective concerns and contributions, and about the risks that they assume because of their involvement with the corporation. Principle 3: Managers should adopt processes and modes of behavior that are sensitive to the concerns and capabilities of each stakeholder constituency. Page 11

12 Principle 4: Managers should recognize the interdependence of efforts and rewards among stakeholders, and should attempt to achieve a fair distribution of the benefits and burdens of corporate activity among them, taking into account their respective risks and vulnerabilities. Principle 5: Managers should work cooperatively with other entities, both public and private, to insure that risks and harms arising from corporate activities are minimized and, where they cannot be avoided, appropriately compensated. Principle 6: Managers should avoid altogether activities that might jeopardize inalienable human rights (e.g., the right to life) or give rise to risks which, if clearly understood, would be patently unacceptable to relevant stakeholders. Principle 7: Managers should acknowledge the potential conflicts between (a) their own role as corporate stakeholders, and (b) their legal and moral responsibilities for the interests of all stakeholders, and should address such conflicts through open communication, appropriate reporting and incentive systems and, where necessary, third party review. Implementation: In many ways, the Clarkson Principles are meta-principles that encourage management to embrace specific stakeholder principles and then to implement them in accordance with the norms listed above. Companies are often times at crossroads to balance the interests of different stakeholders so that no particular stakeholder is either at an additional advantage or at disadvantage over the others. Corporate Boards and leadership must display an outstanding understanding of practical business ethics. They need not only do but also appear to do justice to diverse pulls and pressures from a complex array of stakeholders. By considering the concerns for stakeholders and address them fairly, managers are competent to create openness and build close ties. As they work together, the managers and stakeholders are able to determine any risks and play a role rewards. Through a mutual as well as balanced relationship, the stakeholders of the organization collectively contribute to progress the possibility of project success. Page 12

13 Agenda 21: Agenda 21 is a non-binding, voluntarily implemented action plan of the United Nations with regard to sustainable development. It is a product of the Earth Summit (UN Conference on Environment and Development) held in Rio de Janeiro, Brazil, in The term Agenda here denoted action plan and 21 denotes 21 st Century. Content of Agenda 21: Agenda 21 is a 350-page document divided into 40 chapters that have been grouped into 4 sections: Section I: Social and Economic Dimensions: is directed toward combating poverty, especially in developing countries, changing consumption patterns, promoting health, achieving a more sustainable population, and sustainable settlement in decision making. Section II: Conservation and Management of Resources for Development: Includes atmospheric protection, combating deforestation, protecting fragile environments, conservation of biological diversity (biodiversity), control of pollution and the management of biotechnology, and radioactive wastes. Section III: Strengthening the Role of Major Groups: includes the roles of children and youth, women, NGOs, local authorities, business and industry, and workers; and strengthening the role of indigenous peoples, their communities, and farmers. Section IV: Means of Implementation: implementation includes science, technology transfer, education, international institutions and financial mechanisms. The full text of Agenda 21 was made public at the UN Conference on Environment and Development (Earth Summit), held in Rio de Janeiro on June 13, 1992, where 178 governments voted to adopt the program. The final text was the result of drafting, consultation, and negotiation, beginning in 1989 and culminating at the two-week conference. The full implementation of Agenda 21, the Programme for Further Implementation of Agenda 21 and the Commitments to the Rio principles, were strongly reaffirmed at the World Summit on Sustainable Development (WSSD) held in Johannesburg, South Africa from 26 August to 4 September Page 13

14 SA 8000: SA8000 is an auditable certification standard (like ISO Standards) that encourages organizations to develop, maintain, and apply socially acceptable practices in the workplace. SA stands for Social Accountability. It was developed in 1997 by Social Accountability International, formerly the Council on Economic Priorities, by an advisory board consisting of trade unions, NGOs, civil society organizations and companies. The SA8000 streamlines the complexities of navigating industry and corporate codes to create a common language and standard for measuring social compliance. As it can be applied worldwide to any company in any industry, it is an extremely useful tool in measuring, comparing, and verifying social accountability in the workplace. SA 8000 is can also viewed as an auditable third-party verification, setting out the requirements to be met by organizations, including the establishment or improvement of workers rights, workplace conditions and an effective management system. The foundational elements of this Standard are based on the UN Declaration of Human Rights, conventions of the International Labour Organization (ILO), international human rights norms and national labour laws. SA8000 covers the following areas of accountability: Child labor: No workers under the age of 15; minimum lowered to 14 for countries operating under the ILO Convention 138 developing-country exception; remediation of any child found to be working. Forced labor: No forced labor, including prison or debt bondage labor; no lodging of deposits or identity papers by employers or outside recruiters. Workplace safety and health: Provide a safe and healthy work environment; take steps to prevent injuries; regular health and safety worker training; system to detect threats to health and safety; access to bathrooms and potable water. Freedom of Association and Right to Collective Bargaining: Respect the right to form and join trade unions and bargain collectively; where law prohibits these freedoms, facilitate parallel means of association and bargaining. Discrimination: No discrimination based on race, caste, origin, religion, disability, gender, sexual orientation, union or political affiliation, or age; no sexual harassment. Page 14

15 Disciplinary practices: No corporal punishment, mental or physical coercion or verbal abuse. Working hours: Comply with the applicable law but, in any event, not more than 48 hours per week with at least one day off for every seven day period; voluntary overtime paid at a premium rate and not to exceed 12 hours per week on a regular basis; overtime may be mandatory if part of a collective bargaining agreement. Remuneration: Wages paid for a standard work week must meet the legal and industry standards and be sufficient to meet the basic need of workers and their families; no disciplinary deductions. Management system for Human Resources: Facilities seeking to gain and maintain certification must go beyond simple compliance to integrate the standard into their management systems and practices. ISO 26000: ISO is the international standard developed to help organizations effectively assess and address those social responsibilities that are relevant and significant to their mission and vision; operations and processes; customers, employees, communities, and other stakeholders; and environmental impact. The ISO standard provides guidance on: The seven key underlying principles of social responsibility: 1. accountability, 2. transparency, 3. ethical behavior, 4. respect for stakeholder interests, 5. respect for the rule of law, 6. respect for international norms of behavior, and 7. respect for human rights; Recognizing social responsibility and engaging stakeholders; The seven core subjects and issues pertaining to social responsibility: organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development; Page 15

16 Ways to integrate socially responsible behavior into the organization In addition to providing definitions and information to help organizations understand and address social responsibility, the standard emphasizes the importance of results and improvements in performance on social responsibility. The scope of ISO includes the following: Assist organizations in addressing their social responsibilities while respecting cultural, societal, environmental, and legal differences and economic development conditions; Provide practical guidance related to making social responsibility operational; Assist with identifying and engaging with stakeholders and enhancing credibility of reports and claims made about social responsibility; Emphasize performance results and improvement; Increase confidence and satisfaction in organizations among their customers and other stakeholders; Achieve consistency with existing documents, international treaties and conventions, and existing ISO standards; Promote common terminology in the social responsibility field; Broaden awareness of social responsibility. Page 16

17 Kyoto Protocol: The Kyoto Protocol is an international treaty which extends the 1992 United Nations Framework Convention on Climate Change (UNFCCC) that commits State Parties to reduce greenhouse gas emissions, based on the premise that (a) global warming exists and (b) human-made CO 2 emissions have caused it. The Kyoto Protocol was adopted at the third Conference of the Parties to the UNFCCC (COP 3) in Kyoto, Japan, in 1997 came into force in 2005, is an international agreement linked to the United Nations Framework Convention on Climate Change. The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries and the European community for reducing greenhouse gas (GHG) emissions. The Kyoto Protocol which was agreed upon on December 11, 1997, at a meeting of the UNFCCC in Kyoto, Japan; was created as an effort to force action on the international community. Under the Kyoto Protocol, industrialized nations agreed to cut their greenhouse gas emissions to a certain percentage below 1990 levels. The full name of the Kyoto Protocol is the Kyoto Protocol to the United Nations Framework Convention on Climate Change. It is called the Kyoto Protocol because it was made in Kyoto, Japan. The term Kyoto was derived as a combination of the terms from kyo + to, both meaning "capital. Founded in 794 as Heionkyo meaning as "Capital of Calm and Peace. Objectives of Kyoto Protocol: to control emissions of the main anthropogenic (i.e., human-emitted) greenhouse gases (GHGs) stabilization of greenhouse gas concentrations in the atmosphere at a level that would stop dangerous anthropogenic interference with the climate system Parties are required to prepare policies and measures for the reduction of greenhouse gases in their respective countries Minimizing Impacts on Developing Countries by establishing an adaptation fund for climate change. Compliance. Establishing a Compliance Committee to enforce compliance with the commitments under the Protocol Accounting, Reporting and Review in order to ensure the integrity of the Protocol Page 17

18 The Kyoto mechanisms are: International Emissions Trading Clean Development Mechanism (CDM) Joint implementation (JI) The targets cover emissions of the six main greenhouse gases, namely: Carbon dioxide (CO2); Methane (CH4); Nitrous oxide (N2O); Hydrofluorocarbons (HFCs); Perfluorocarbons (PFCs); and Sulphur hexafluoride (SF6) Monitoring emission targets How the protocol works? Under the Protocol, countries' actual emissions have to be monitored and precise records have to be kept of the trades carried out. Registry systems track and record transactions by Parties under the mechanisms. The UN Climate Change Secretariat, based in Bonn, Germany, keeps an international transaction log to verify that transactions are consistent with the rules of the Protocol. Reporting is done by Parties by submitting annual emission inventories and national reports under the Protocol at regular intervals. A compliance system ensures that Parties are meeting their commitments and helps them to meet their commitments if they have problems doing so. Adaptation: The Kyoto Protocol, like the Convention, is also designed to assist countries in adapting to the adverse effects of climate change. It facilitates the development and deployment of technologies that can help increase resilience to the impacts of climate change. The Adaptation Fund was established to finance adaptation projects and programmes in developing countries that are Parties to the Kyoto Protocol. In the first commitment period, the Fund was financed mainly with a share of proceeds from CDM project activities. In Doha, in 2012, it was decided that for the second commitment period, international emissions trading and joint implementation would also provide the Adaptation Fund with a 2 percent share of proceeds. Page 18

19 Financial Commitment: The Protocol also reaffirms the principle that developed countries have to pay billions of dollars, and supply technology to other countries for climate-related studies and projects. The principle was originally agreed in UNFCCC. One such project is The Adaptation Fund that has been established by the Parties to the Kyoto Protocol of the UN Framework Convention on Climate Change to finance concrete adaptation projects and programmes in developing countries that are Parties to the Kyoto Protocol. Future of Kyotol Protocol: The Kyoto Protocol is seen as an important first step towards a truly global emission reduction regime that will stabilize GHG emissions, and can provide the architecture for the future international agreement on climate change. In Durban, the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP) was established to develop a protocol, another legal instrument or an agreed outcome with legal force under the Convention, applicable to all Parties. The ADP is to complete its work as early as possible, but no later than 2015, in order to adopt this protocol, legal instrument or agreed outcome with legal force at the twenty-first session of the Conference of the Parties and for it to come into effect and be implemented from References made in this e-book: ICSI Study Material Articles published in Harvard Business Review (HBR) Wikipedia Page 19