ASSIGNMENT ON ‘ETHICS IN MANAGEMENT’ SUBMITTED TO: SUBMITTED BY: AOUJ NAQVI CONTENTS: 1) Introduction 2) Meaning of Ethics in Management. 3) The Importance and Advantages of Good Business Ethics. 4) Relation between CSR and Business Process Management (BPM) 5) Linking Strategy and Social Responsibility 6) Introduction to the company. 7) Ethics of the company. 8) Iniatives by the company. 9) Milestones Achieved by ITC in CSR INTRODUCTION This assignment on the ‘Ethics of Management’ analyzes the aforementioned concept in the light of a century old company, ITC Ltd through a strategic lens.
First and foremost the topic has been explained and then by the means of the company and its business practices, the practicality of the concept has been shown. ITC Limited is a conglomerate with headquarters in Kolkata (India), having turnover of Rs. 26, 259 crores, pretax profits Rs. 6015 crores, has initiated a number of corporate social responsibility initiatives spread over 4 decades. Its market capitalization exceeds Rs. 100,000 crores. It started off as the Imperial Tobacco Company Ltd, A British owned company in Calcutta in 1910, as a single product company.
It had successfully expanded its markets through market penetration & development and product development strategies and emerged as a leader in industry. After Independence the Government of India’s policies have put then Foreign Company in a disadvantageous position due to continuous hike in excise duties, the Foreign Exchange Regulation Act 1973 & regulatory pressure to reduce foreign ownership, etc . They changed name to India Tobacco Company ltd in 1970 and Indian share capital increased to 40% in 1974. the name changed to I. T.
C Limited in line with their diversification strategies in view of changing environment. In 1975 they entered into Hotel business, followed by entry into paperboard business in 1977 ITC witnessed feverish strategic activities. Shri Y. C Deveshwar took over as chairman in 1996. ITC moved rapidly to apply the economic momentum of e-Chou pal (2000) to solve urgent social and environmental tasks. ITC launched Mission “Sunehra Kal”, a rural capacity building programmed fostering local initiatives to develop water and forest resources, open up new non-farm livelihoods, empower women economically and expand primary education.
ITC's aspiration to be an exemplar in sustainability practices is manifest in its status as the only company in the world of its size and diversity to be 'carbon positive', 'water positive' and 'solid waste recycling positive. ' In addition, ITC's businesses have created sustainable livelihoods for more than 5 million people, a majority of whom represent the poorest in rural India. In line with this strategy, ITC has expanded its FMCG portfolio to include items of daily consumption relevant to rural markets in a manner that leverages in-house capabilities.
The company has also forayed into the branded Packaged Foods Business. It draws upon the unique sourcing capability of the ITC e-Choupal, the cuisine expertise of ITC Welcome group and the traditional strengths of trade marketing and distribution to provide distinct source of competitive advantage in the market place . The ITC has not only fulfilled economic, legal, ethical and discretionary social responsibilities but have contributed to the development of Indian economy as a whole, leading to higher level of positioning.
ITC has consciously adopted CSR practices along with incremental changes in strategies to attain leadership position in competiveness & sustainable business practices which have prepared them to meet challenges of 21stcentury. ETHICS IN MANAGEMENT The literal meaning of the term ‘Ethics’ is, “Moral principles that govern a person's or group's behaviour. ”Where as the meaning of the term ‘Management’ is, “The responsibility for and control of a company or similar organization. ” Ethics and ethical behavior are the essential parts of healthy management.
From a management perspective, behaving ethically is an integral part of long - term career success. Wide access to information and more business opportunities than in the past makes ethics a need in modern business world. The reasons to behave ethically are: From the point of view of internal customer: * improves the atmosphere at work and helps motivating the employees * ethical behaviour of management sets a good example to the employees * evokes a sense of pride for the company and improves its image in the eyes of the employees From the point of view of external customer: It improves the public image of the company adds to the overall development of ethical behaviour in the society. Ethical decision - making When making a decision in management the following criteria of ethical decision - making should be considered: Legality - will the decision somehow affect the legal status? Fairness - how will the decision affect those involved in it? Effectiveness - Will the decision achieve the aim for which it is being taken? Self - respect - does the decision - maker feel good about the decision and its consequences?
Long - term effects - how do the predicted long - term effects relate to the above parameters? "Ethics in Management" Management ethics are the ethical treatment of employees, stockholders, owners, and the public by a company. A company, while needing to make a profit, should have good ethics. Employees should be treated well, whether they are employed here or overseas. By being respectful of the environment in the community a company shows good ethics, and good, honest records also show respect to stockholders and owners. The Importance and Advantages of Good Business Ethics
A business is not just about money making at all costs. There are considerations to be made outside traditional money making and ethical and moral considerations. A business should have a positive influence on its immediate surroundings and the people that live in the community by creating jobs and playing a significant role in the economical and social welfare of the community. The effect of unethical practices by a business will create a bad reputation and distrust among the employees and the community. Businesses with integrity and high ethical standards establish long lasting relationships with the customers they deal with.
Many business make the mistake of putting profit before customer satisfaction, while they might get away with it initially and appear successful, in the long run, the business is bound to fail as no customer wants to feel short-changed. It is important that a degree of transparency in all dealings be present and ambiguity be eliminated. This is because even if the transaction was fair, the presence of hidden expenses will generate distrust leading to bad will. The business administrators have a duty to the shareholders, employees, and the community; therefore, they need to keep to an ethical approach in all dealings.
It is important that set ethical standards be made part and parcel of the companies’ culture and included in all dealings associated with the business. Companies with good ethical policies earn: • Marketing advantages over their competitors. Customers readily invest in the companies through shares and also want to establish long lasting business relations with the company. • The performance of employees improves with good ethical policies present in a company. Morale is high and employees feel obligated to put in their all to continue to make it a success. Reputation management: a bad reputation is created by unethical behaviour which will eventually lead to a scandal. A scandal will result in falling stock prices, anxiety, and low morale among employees as well as government and public scrutiny and inquests. • Legal and financial incentives: companies known for their high ethical standards and education of employees on ethical polices are provided with strong legal and financial incentives by regulatory bodies. Individual opinion of what is ethical varies, hence the importance for the company to set standards that represent and are applied throughout the organization.
The Human resource team is the starting point of ethical reformation in an organization. The careful selection and training of the human resource team is necessary if they are to train other employees on ethics. Sound ethical policies in a company create a unified and morally sound approach to business practice. "If you have integrity, nothing else matters. If you don't have integrity, nothing else matters. " -- Alan K. Simpson Relation between CSR and Business Process Management (BPM) Peter Drucker, the famous Management thinker of his time.
The management has to manage their respective companies efficiently with focus on business process management (BPM) so that it would provide benefits to all stakeholders in the environment by generating surplus incomes & making profit. Business Processes are generally identified in terms of beginning and end points, interfaces and organization units including customer unit. A business process model is a representation of company’s operation or a specific part of operation. CSR is about how companies manage business in the society to produce an overall positive impact on the society at large.
Companies need to answer two aspects of their operations: • The Quality of their management-both in terms of people and processes. • The nature of and quantity of their overall positive impact on environment and local communities as well as their employees in the various areas. Outside stakeholders are taking an increasing interest in the activity of company. Most look to outer circle-what the company has actually done, good or bad, in terms of its products & services, in terms of its impact on environment and on local communities, or how it treats & develop its workforce.
Linking Strategy and Social Responsibility The combination of socially responsible endeavors a company elects to pursue defines its social responsibility strategy. Some companies are integrating social responsibility objectives into their Missions Performance targets Strategies. The combination of socially responsible endeavors a company elects to pursue defines its social responsibility strategy. Some companies are integrating social responsibility objectives into their Missions Performance targets Strategies. Mainstreaming CSR
Develop Company’s mission One which reflects corporate ambition consistent to changing paradigm, Mission supported by Vision, Giving clear futuristic direction, laying road map for sustainable growth. Vision Vision statements of genuine strategic intent should keep the focus on Wealth Creation for multiple Stakeholders, including the members of its organization (employees),its direct beneficiaries(owners),its economic partners(customers and suppliers) & the larger community in which the organization operates(society broadly defined). A vision identifies what a company is striving for.
A vision that ignores the larger role a firm plays in society is likely to be neither noble nor sustainable. Mission Mission identifies what the organization is going to do in order to attain its vision. An automobile company may have a vision “providing the best personal transportation vehicles to a broad section of society” and a mission of making “affordable, fuel efficient cars”. The mission must balance both the methods and results to be considered socially responsible. Strategy A firm’s strategy explains how the organization intends to achieve its vision and mission.
It defines the organization’s response to its competitive environment in order to achieve sustainable advantage. The Ansoff’s matrix indicates 4 strategies market penetration, market development, product development and diversification. The company diversifying is business in related or unrelated industries. INTRODUCTION TO THE COMPANY ITC Limited or ITC is an Indian public conglomerate company headquartered in Kolkata, West Bengal, India. Its diversified business includes four segments: Fast Moving Consumer Goods (FMCG), Hotels, Paperboards, Paper & Packaging and Agri Business.
ITC's annual turnover stood at $7 billion and market capitalization of over $34 billion. The company has its registered office in Kolkata. It started off as the Imperial Tobacco Company, and shares ancestry with Imperial Tobacco of the United Kingdom, but it is now fully independent, and was rechristened to India Tobacco Company in 1970 and then to I. T. C. Limited in 1974. The company is currently headed by Yogesh Chander Deveshwar. It employs over 29,000 people at more than 60 locations across India and is listed on Forbes 2000. ITC Limited completed 100 years on 24 August 2010.
ITC has a diversified presence in FMCG (Fast Moving Consumer Goods), Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology. While ITC is an outstanding market leader in its traditional businesses of Hotels, Paperboards, Packaging, Agri-Exports and Cigarettes, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. Meera Shankar, will join the board of ITC Ltd as the first women director in its history.
She will be an additional non-executive director of the cigarettes-FMCG-hotel major. THE ETHICS OF THE COMPANY’S MANAGEMENT The ethics of a company are implemented through its value system which is formulated by the top management. The vision, mission and core values provide the employees of the company with a value framework within which they should operate. VISION- Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Company’s stakeholders. MISION-
To enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder value. Definition and Purpose- ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth generating capacity. Since large corporations employ vast quantum of societal resources, we believe that the governance process should ensure that these companies are managed in a manner that meets stakeholder’s aspirations and societal expectations. Core Principles- ITC's Corporate Governance initiative is based on two core principles.
These are : i. Management must have the executive freedom to drive the enterprise forward without undue restraints; and ii. This freedom of management should be exercised within a framework of effective accountability. ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations.
Cornerstones From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC's governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfils the purpose of Corporate Governance. Trusteeship: ITC believes that large corporations like itself have both a social and economic purpose.
They represent a coalition of interests, namely those of the shareholders, other providers of capital, business associates and employees. This belief therefore casts a responsibility of trusteeship on the Company's Board of Directors. They are to act as trustees to protect and enhance shareholder value, as well as to ensure that the Company fulfils its obligations and responsibilities to its other stakeholders. Inherent in the concept of trusteeship is the responsibility to ensure equity, namely, that the rights of all shareholders, large or small, are protected. Transparency:
ITC believes that transparency means explaining Company's policies and actions to those to whom it has responsibilities. Therefore transparency must lead to maximum appropriate disclosures without jeopardising the Company's strategic interests. Internally, transparency means openness in Company's relationship with its employees, as well as the conduct of its business in a manner that will bear scrutiny. We believe transparency enhances accountability. Empowerment and Accountability: Empowerment is an essential concomitant of ITC's first core principle of governance that management must have the freedom to drive the enterprise forward.
ITC believes that empowerment is a process of actualising the potential of its employees. Empowerment unleashes creativity and innovation throughout the organisation by truly vesting decision-making powers at the most appropriate levels in the organisational hierarchy. ITC believes that the Board of Directors are accountable to the shareholders, and the management is accountable to the Board of Directors. We believe that empowerment, combined with accountability, provides an impetus to performance and improves effectiveness, thereby enhancing shareholder value. Control:
ITC believes that control is a necessary concomitant of its second core principle of governance that the freedom of management should be exercised within a framework of appropriate checks and balances. Control should prevent misuse of power, facilitate timely management response to change, and ensure that business risks are pre-emptively and effectively managed. Ethical Corporate Citizenship: ITC believes that corporations like itself have a responsibility to set exemplary standards of ethical behaviour, both internally within the organisation, as well as in their external relationships.
We believe that unethical behaviour corrupts organisational culture and undermines stakeholder value. ------------------------------------------------- Policy on Human Rights| ITC believes that all its employees must live with social and economic dignity and freedom, regardless of nationality, gender, race, economic status or religion. In the management of its businesses and operations therefore, ITC ensures that it upholds the spirit of human rights as enshrined in existing international standards such as the Universal Declaration and the Fundamental Human Rights Conventions of the ILO.
Policy ITC upholds international human rights standards, does not condone human rights abuses, and creates and nurtures a working environment where human rights are respected without prejudice. Implementation The Corporate Human Resources function of ITC is responsible for the Human Rights Policy design, implementation and updation. The policy is implemented at all locations of ITC through a set of separate policies and procedures covering each of the main constituents of human rights applicable at the workplaces. Monitoring & Audit
The assessment procedures for different constituents of this policy are defined against each specific policy. Consideration of Human Rights Impacts Across the Supply Chain As a large and multi-product enterprise whose products are benchmarked nationally and internationally, ITC's main supply chains can be grouped as follows: 1. For all its operations, technology, machinery and equipment are sourced from reputed and globally benchmarked suppliers/vendors who are expected to follow internationally accepted norms and standards on human rights. 2.
ITC's major businesses are vertically integrated across several Divisions. A substantial part of the supply chain is therefore internal through strategic backward linkages. Common values relating to human rights performance are shared across this supply chain. 3. Being a major agri-based company, the agriculture sector is a major supplier of inputs for its operations. The bulk of agricultural commodities are procured from state controlled trading platforms and the open market. 4. A very small proportion of ITC's business consists of supply chains comprising local vendors and suppliers.
The policy framework for such entities is enunciated separately in 'Policy to Ensure Respect for Human Rights across the Supply Chain'. Under this ambit of Human Rights, the company has the following policies as well: 1) Policy to Ensure Respect for Human Rights Policy across the Supply Chain. 2) Policy to Prevent Discrimination at Workplace 3) Policy on Freedom of Association 4) Policy Prohibiting Child Labour and Preventing Forced Labour from Workplace 5) Policy on Information and Consultation on Changes 6) HIV/AIDS: Policy Guidelines
THE SUCCESS OF THE VALUE-FRAMEWORK OF ANY COMPANY IS PROVEN TO THE SOCIETY IN THE FORM OF 2 MEANS: 1) BY THE EXPERIENCE OF ITS STAKEHOLDERS. 2) BY ITS INIATIVES AND ITS INNOVATIVE MEANS TO CARRY OUT THE SAME BUSINESS. RURAL INIATIVES ITC's Agri-Business is India's second largest exporter of agricultural products. ITC is one of the India's biggest foreign exchange earners (US $ 2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet.
This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. The company places computers with Internet access in rural farming villages; the e-Choupals serve as both a social gathering place for exchange of information (choupal means gathering place in Hindi) and an e-commerce hub.
What began as an effort to re-engineer the procurement process for soy, tobacco, wheat, shrimp, and other cropping systems in rural India has also created a highly profitable distribution and product design channel for the company—an e-commerce platform that is also a low-cost fulfillment system focused on the needs of rural India. The e-Choupal system has also catalyzed rural transformation that is helping to alleviate rural isolation, create more transparency for farmers, and improve their productivity and incomes. -------------------------------------------------
Problems addressed prior to the introduction of E-Choupal Traditionally, commodities were procured in mandis (major agricultural marketing centres in rural areas of India), where the middleman used to make most of the profit. These middlemen used unscientific and sometimes outright unfair means to judge the quality of the product to set the price. The difference in price between good quality and inferior quality was little, and therefore there was no incentive for the farmers to invest and produce good quality output. With e-Choupal, the farmers have a choice and the exploitative power of the middleman is neutralised.
Statement of a farmer who is a member of E-choupal: "Before ITC introduced us to e-Choupal, we were restricted to selling our produce in the local mandi. We had to go through middlemen and prices were low. ITC trained me to manage the Internet kiosk and I became the e-Choupal Sanchalak in my village. Today we are a community of e-farmers with access to daily prices of a variety of crops in India and abroad – this helps us to get the best price. We can also find out about many other important things – weather forecasts, the latest farming techniques, crop insurance, etc. -Choupal has not only changed the quality of our lives, but our entire outlook. ------------------------------------------------- ------------------------------------------------- Effects of e-Choupal ITC Limited has now provided computers and Internet access in rural areas across several agricultural regions of the country, where the farmers can directly negotiate the sale of their produce with ITC Limited. This online access enables farmers to obtain information on mandi prices, and good farming practices, and to place orders for agricultural inputs like seeds and fertilizers.
This helps farmers improve the quality of their products, and helps in obtaining a better price. Each ITC Limited kiosk having Internet access is run by a sanchalak — a trained farmer. The computer is housed in the sanchalak's house and is linked to the Internet via phone lines or by a VSAT connection. Each installation serves an average of 600 farmers in the surrounding ten villages within about a 5 km radius. The sanchalak bears some operating cost but in return earns a service fee for the e-transactions done through his e-Choupal.
The warehouse hub is managed by the same traditional middle-men, now called samyojaks, but with no exploitative power due to the reorganisation. Indeed these middlemen make up for the lack of infrastructure and fulfill critical jobs like cash disbursement, quantity aggregation and transportantion. Since the introduction of e-Choupal services, farmers have seen a rise in their income levels because of a rise in yields, improvement in quality of output, and a fall in transaction costs. Even small farmers have gained from the initiative.
Customized and relevant knowledge is offered to the farmers despite heterogeneous cultures, climates and scales of production. Farmers can get real-time information despite their physical distance from the mandis. The system saves procurement costs for ITC Limited. The farmers do not pay for the information and knowledge they get from e-Choupals; the principle is to inform, empower and compete. At the same time ITC Limited has obtained benefits from the programme: 1. elimination of non value added activities 2. differentiated product through identity preserved supply chains 3. alue added products traceable to farm practices 4. e-market place for spot transactions and support services to futures exchange There are presently 6,500 e-Choupals in operation. ITC Limited plans to scale up to 20,000 e-Choupals by 2012 covering 100,000 villages in 15 states, servicing 15 million farmers. ------------------------------------------------- From the farmers hut Few farmers like Abhishek Jain who is a farmer of soya crop in Madhya Pradesh has got to say that e choupal happens to be the best thing that has happened to him so far.
Like any other farmer even he was constantly caught in the vicious web of the middlemen. With the help of ITC's initiative not only him but other farmers as well have been able to get a better price for their produce both in India as well as abroad. ------------------------------------------------- ------------------------------------------------- Success that followed Today this initiative of ITC has empowered the lives of people living in 10 states where 40000 villages have 6500 e choupals and around 4 million farmers have been empowered.
The initiative taken up by ITC to help the degrading reputation of a farmer has surely made a huge difference to not only large but also medium and small scale farmers. ------------------------------------------------- ------------------------------------------------- Corporate philanthropy ITC e-choupal creatively leverages information technology to set up a meta-market in favour of India's small and poor farmers, who would otherwise continue to operate and transact in 'un-evolved' markets. As of July 2010, services through 6500 Echoupal across 10 states, reach more than 4 million farmers in about 40,000 villages.
Free access to Internet is also opening windows ofrural India to the world at large. ITC e-choupal is now being regarded as a reliable delivery mechanism for resource development initiatives. Its potential is being tested through pilot projects in healthcare, educational services, water management and cattle health management with the help of several service providers including non-governmental organizations. Classmate notebooks were launched with the initiative of contributing 1 rupee towards the education of poor children, from every four notebooks it sold.
Classmate, has launched a programme called Classmate Ideas for India challenge. The programme would be a part of the company's centenary initiative. The nation-wide programme would invite ideas of the youth, who have the potential to transform India. Classmate Ideas for India challenge plans to reach out to 25 lakh students across 30 cities, 500 schools and 200 colleges across the country. Milestones Achieved by ITC in CSR The three major global environmental milestone achieved by ITC are “carbon positive”, “water positive” and “solid waste recycling positive”.
The other Millstones achieved are in areas-eg- echoupal, social & farm forestry, watershed development, women’s empowerment, livestock development, primary education. ITC has not only fulfilled economic, legal, ethical and discretionary social responsibilities but have contributed to the development of Indian economy as a whole, leading to higher level of positioning. Thus, ITC has consciously adopted CSR practices along with incremental changes in strategies to attain leadership position in competiveness & sustainable business practices which have prepared them to meet challenges of 21st century.