Dean's Office Official Model Question Paper

Business Ethics: Descriptive vs. Normative

Business ethics is the application of moral principles, ethical standards, and values to business decisions and corporate behavior.

• Descriptive Ethics: Objectively observes and describes what moral beliefs and behavioral practices people or corporations actually hold.
• Normative Ethics: Prescribes what moral standards corporations ought to follow, formulating moral duties, rules, and virtues.

Utilitarianism vs. Deontology

• Utilitarianism (Consequentialist - Bentham & Mill): An action is morally right if it produces the greatest good (utility/happiness) for the greatest number of people.
• Deontological Ethics (Kant): Actions are inherently right or wrong based on moral duties and the Categorical Imperative, regardless of consequences (never treating human beings merely as a means to an end).

Agency Theory

Agency theory examines the contractual relationship between shareholders (principals) and corporate executives/managers (agents), addressing agency conflict where self-interested managers pursue personal perquisites, empire-building, or short-term gains at the expense of shareholder wealth.

Whistleblowing Policy

A corporate policy providing confidential, secure channels for employees to report illegal, fraudulent, or unethical corporate behavior without fear of retaliatory dismissal, demotion, harassment, or blacklisting.

Statutory CSR in Nepal

Under Section 54 of the Industrial Enterprises Act 2076, every manufacturing or service enterprise having annual turnover exceeding Rs 150 Million must allocate at least 1.0% of its annual net profit for mandatory Corporate Social Responsibility projects.

Carroll’s Corporate Social Responsibility (CSR) Pyramid

Archie Carroll depicts CSR as a four-layered hierarchy of corporate obligations:

                    /\
                   /  \  PHILANTHROPIC Responsibilities: Be a good corporate citizen.
                  /    \ (Voluntary community giving, educational support)
                 +------+----------------------------------------------------+
                /        \ ETHICAL Responsibilities: Be ethical. Obligation to
               /          \ do what is right, fair, and just; avoid harm.
              +------------+-------------------------------------------------+
             /              \ LEGAL Responsibilities: Obey the law. Law is
            /                \ society's codification of right and wrong.
           +------------------+----------------------------------------------+
          /                    \ ECONOMIC Responsibilities: Be profitable.
         /                      \ The foundational base: create economic value.
        +------------------------+-------------------------------------------+

1. Economic Responsibility (Foundation): The primary obligation to produce goods and services efficiently and remain profitable to reward shareholders and sustain employment.
2. Legal Responsibility: Conducting operations within the statutory framework enacted by law (tax laws, labor standards, environmental rules).
3. Ethical Responsibility: Meeting societal moral expectations that go beyond minimum legal statutes, treating workers fairly and respecting supply chains.
4. Philanthropic Responsibility (Pinnacle): Discretionary corporate citizenship—supporting rural schools, disaster relief, arts, and public health.

Corporate Board Governance and Specialized Committees

Corporate governance regulations establish checks and balances on executive management.

1. Independent Non-Executive Directors

• Directors having no financial, familial, or advisory relationship with promoters or executive management.
• Act as objective custodians protecting minority shareholder interests against promoter expropriation.

2. The Audit Committee

• Chaired by an independent director with certified financial/accounting expertise.
• Reviews quarterly financial statements, oversees internal audit controls, recommends the appointment and remuneration of statutory external auditors, and inspects related-party transactions.

3. Nomination and Remuneration Committee

• Evaluates board candidate competencies, establishes transparent succession plans for CEO and directors, and benchmarks executive compensation to prevent excessive stock-option bonuses that encourage reckless short-term risk.

Insider Trading and Market Manipulation under Securities Act 2063

1. Insider Trading

• Definition: Buying or selling securities while possessing Unpublished Price-Sensitive Information (UPSI)—such as unpublished quarterly earnings, bonus share declarations, merger negotiations, or major contract wins—before it is publicly disclosed to the market.
• Legal Sanctions (Section 91 & 101): Strictly prohibited. Violators face disgorgement of illicit profits, equivalent monetary fines, and imprisonment up to one year.

2. Market Manipulation Tactics

• Wash Trading / Circular Trading: Buying and selling shares among colluding shell accounts to create artificial trading volume and misleading liquidity.
• Pump-and-Dump Schemes: Spreading false rumors on social media to inflate share prices of thinly traded speculative stocks, dumping shares at the peak onto retail investors.

Contemporary Corporate Ethical Dilemmas

1. Conflicts of Interest

• Occurs when an executive’s personal private interests interfere with corporate fiduciary obligations (e.g., awarding lucrative corporate procurement contracts to vendor entities owned by executive spouses).

2. Executive Compensation Disparity

• Soaring CEO-to-worker median pay ratios (often exceeding 200 : 1 in global conglomerates) spark ethical debates regarding fairness, income inequality, and moral hazard.

3. Environmental Greenwashing

• The deceptive practice of overstating or fabricating an enterprise’s environmental achievements through glossy PR marketing to mislead consumers into believing products are eco-friendly while core operations remain ecologically destructive.

Case Analysis: Governance Turnaround at Himalaya Cement Corporation

a. Specific Statutory and Regulatory Violations

1. Related-Party Transaction (RPT) & Self-Dealing Breach: Awarding an unapproved Rs 800M contract to the Managing Director’s son violates Section 93 of the Companies Act 2063, requiring prior approval from an independent board and disclosure in audited accounts.
2. Criminal Insider Trading: Purchasing shares ahead of the 30% bonus share announcement using unpublished price-sensitive information (UPSI) violates Section 91 of the Securities Act 2063, punishable by asset forfeiture and criminal imprisonment.
3. Failure of Audit Committee Governance: Failing to hold mandatory quarterly Audit Committee meetings violates SEBON Corporate Governance Directives.
4. Auditor Independence Compromise: Personal friendship between CFO and external auditor compromises professional skepticism under the ICAN Code of Ethics.

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b. Ethical Evaluation: Greenwashing

• Kantian Deontology: Greenwashing violates Kant’s Categorical Imperative. Publishing false ‘Eco-Cement’ claims deceives consumers, treating them as mere instruments for financial extraction rather than rational autonomous ends in themselves.
• Stakeholder Theory (Edward Freeman): Corporations have moral duties to all stakeholders—including local rural communities suffering pulmonary illnesses from toxic dust emissions—not merely short-term promoter profits.

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c. Comprehensive Corporate Governance Reform Plan

[REFORM 1: Independent Board Restructuring]
- Remove compromised Managing Director; appoint independent Chairperson.
- Minimum 3 independent directors on 7-member board.
         |
         v
[REFORM 2: Related-Party Transaction (RPT) Protocol]
- All RPT contracts > Rs 10 Million must be appraised by independent cost engineers,
  approved by Audit Committee, and sanctioned by non-promoter public shareholders.
         |
         v
[REFORM 3: External Auditor Rotation & Tender]
- Dismiss existing auditor; appoint a top-tier independent chartered accounting firm
  via open competitive tender with mandatory 3-year audit partner rotation.

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d. Robust Whistleblowing and Code of Conduct Protocol

1. Independent Third-Party Reporting Portal: Establish a secure, multi-lingual digital whistleblowing portal hosted by an independent external legal firm, guaranteeing anonymity.
2. Statutory Anti-Retaliation Protection: Corporate bylaws must legally indemnify whistleblowers against retaliatory dismissal or demotion.
3. Binding Code of Conduct: All directors, executives, and employees must sign annual conflict-of-interest declarations, with mandatory 48-hour disclosure of all family commercial affiliations.