Business Ethics

Both business ethics and corporate governance aim to make a company behave responsibly and earn stakeholder trust.

• Both rest on honesty, integrity, fairness, accountability and transparency.
• Both go beyond bare legal compliance and protect the interests of shareholders, employees, customers and society, which builds long-term reputation and value.

• Source: Ethics comes from moral values, culture, religion and conscience. Law is made and written by the state or legislature.
• Enforcement: Ethics has no formal penalty; it is enforced by conscience and social pressure. Law is enforced by courts and carries fines or imprisonment.

(Also: ethics is wider and often unwritten, while law is specific and codified.)

Main ethical issues in information technology are:

• Privacy and data protection: collecting, selling or misusing personal data without consent.
• Cyber crime and security: hacking, identity theft, malware and weak data security.
• Intellectual property: software piracy, plagiarism and copyright violation.
• Accuracy and access: false information, fake news, the digital divide and employee monitoring.

The Anglo-American model is a shareholder-oriented, market-based model of corporate governance used in the USA and UK. Ownership is dispersed among many shareholders, the board is usually unitary (executive and non-executive directors together), and the main goal is to maximize shareholder wealth. Stock markets, disclosure and independent directors provide the control.

Two emerging trends in corporate governance are:

1. ESG and sustainability reporting: boards are expected to integrate environmental, social and governance factors into strategy and disclosure.
2. Board diversity and digital/cyber governance: more gender and skill diversity on boards, stronger shareholder activism, and oversight of technology and cyber risk.

Auditors act as an independent check on management in corporate governance. Their roles are to:

• examine the financial statements and give an opinion on whether they present a true and fair view;
• verify compliance with laws, accounting standards and internal controls;
• detect and report fraud, errors and irregularities;
• report to shareholders and the audit committee, which improves transparency and investor confidence.

Elkington's Triple Bottom Line (TBL) holds that a firm should measure its success not only by profit but by three Ps: People (social performance), Planet (environmental performance) and Profit (economic performance). The approach says long-term business success depends on balancing all three, rather than financial results alone.

Normative consideration in ethical decision making asks what ought to be done, using moral standards and principles rather than what is merely legal or profitable. It applies ethical theories (such as utilitarianism, deontology, justice and virtue ethics) and values like fairness, honesty and rights to judge whether an option is right or wrong.

Two features of the OECD Principles of Corporate Governance are:

• They protect shareholder rights and equitable treatment, including minority and foreign shareholders.
• They require timely, accurate disclosure and transparency, along with clear board responsibilities and recognition of stakeholders' rights.

They are voluntary, flexible guidelines that countries can adapt to their own legal systems.

A business code of conduct is a written set of rules, principles and standards of behaviour that a company or business association adopts to guide the ethical conduct of its directors, managers and employees in dealing with each other, customers, suppliers, the community and government. Example: the FNCCI Business Code of Conduct, 2061.

Unethical business practices such as fraud, bribery, false advertising, exploitation and tax evasion have serious consequences.

• Legal penalties: fines, lawsuits, licence cancellation and imprisonment of officials.
• Loss of reputation and customers: trust falls, sales and brand value decline.
• Financial loss: lower share prices, loss of investors and higher costs of capital and compliance.
• Poor employee morale: low motivation, high turnover and more internal fraud.
• Social and environmental harm: consumer injury, pollution and loss of public goodwill, leading to boycotts and weak long-term survival.

Marketing and sales raise ethical issues because they directly influence consumers.

• Product issues: unsafe, defective or low-quality goods, counterfeit or adulterated products, and harmful packaging.
• Pricing issues: price fixing, hoarding, black marketing, price discrimination and hidden charges.
• Promotion issues: false or misleading advertising, exaggerated claims, deceptive offers, manipulating children and vulnerable groups, and stereotyping.
• Distribution issues: unfair pressure on dealers, artificial shortages and unfair supplier terms.
• Sales issues: high-pressure selling, bribery or gifts to buyers, misuse of customer data and poor after-sales service.

Ethical marketing requires honesty, fairness and respect for consumer rights.

Meaning. Resource dependency theory (Pfeffer and Salancik, 1978) says a firm depends on its environment for critical resources such as capital, information, legitimacy and expertise. In governance, the board is a means of linking the firm to the outside world, reducing uncertainty and securing those resources.

Key points.

• Directors with strong networks (bankers, politicians, experts) bring finance, advice and legitimacy.
• Board size and composition reflect the firm's dependence: more dependence leads to more outside directors.
• Boards also co-opt important external stakeholders to reduce their power over the firm.

Critical assessment.

• Strengths: it explains why boards include outsiders and stresses the board's service and advisory role, not only monitoring.
• Weaknesses: it focuses on resource acquisition and neglects monitoring management; it is difficult to measure resource dependence; networked directors may serve their own interests or create conflicts of interest; and it gives little guidance on shareholder protection.

It is best used with agency theory, which covers monitoring.

An ethical decision-making model gives managers a step-by-step process to judge a problem before acting. A typical model is: recognize the ethical issue; gather the facts; identify stakeholders; generate alternatives; evaluate them using ethical tests (utility, rights, justice, virtue); decide; and review the outcome.

It improves ethical practice in these ways:

• It makes people notice ethical issues instead of treating them as purely business matters.
• It provides a consistent, structured approach, reducing biased or hasty decisions.
• It considers all stakeholders, not only profit.
• It increases accountability and transparency, since decisions can be explained and defended.
• It builds an ethical culture and reduces legal and reputational risk, leading to trust and long-term success.

SA 8000. It is a voluntary social accountability standard (by Social Accountability International) based on ILO conventions and UN human rights norms. Its significance:

• prohibits child and forced labour and discrimination;
• ensures safe workplaces, fair wages, reasonable working hours and freedom of association;
• gives certified firms a better reputation, access to global buyers and a more motivated workforce.

ISO 37000. It is the international guidance standard for the governance of organizations (2021). Its significance:

• sets principles of good governance such as purpose, value generation, strategy, oversight, accountability, stakeholder engagement, leadership, data, risk and viability;
• applies to all types and sizes of organization;
• improves decision making, transparency, ethical culture and stakeholder trust.

Together, SA 8000 promotes ethical labour practices, while ISO 37000 strengthens overall governance.

Milton Friedman (1970) argued that "the social responsibility of business is to increase its profits". This is the shareholder theory of CSR.

Main points.

• Managers are agents of the shareholders (owners), so their duty is to maximize owners' wealth within the law and ethical customs.
• Spending company money on social causes means spending the owners' money, or that of customers and employees, without their consent. This is a form of "taxation without representation".
• Managers are not elected or trained to decide social policy; solving social problems belongs to government and individuals.
• Business contributes to society by creating jobs, paying taxes and producing goods, and the market ensures efficient use of resources.

Criticism. It ignores other stakeholders, long-term reputation and externalities such as pollution. Modern views, such as stakeholder theory and the triple bottom line, argue that business has wider responsibilities.

The board of directors is the central body of corporate governance, acting between shareholders and management. Its roles are:

• Strategic direction: setting vision, objectives and major policies and approving budgets and big investments.
• Monitoring management: appointing, evaluating and rewarding the CEO and top executives, and removing them if needed.
• Accountability to shareholders: protecting shareholder interests and making sure fair returns and equal treatment of owners, including minorities.
• Oversight of risk, audit and internal control: through audit, risk and remuneration committees, ensuring accurate financial reporting.
• Compliance and ethics: making sure the company follows laws and sets an ethical culture through codes of conduct.
• Disclosure and stakeholder relations: ensuring transparent disclosure and balancing the interests of employees, customers, creditors and society.

Business ethics and corporate governance are closely linked, because both aim at responsible, trustworthy business. Their essence, however, differs.

Business ethics is the application of moral principles and values (right and wrong, fairness, honesty) to business decisions and behaviour. Corporate governance is the system of rules, processes and structures by which a company is directed and controlled and by which owners, board and management are held accountable.

Linkage. Ethics provides the value foundation for good governance, and governance provides the structure that puts ethics into practice. A company can follow governance rules and still act unethically (for example, legal tax avoidance that harms society), and a firm can have ethical staff but weak governance structures. Hence, though they appear similar, they are different in essence yet complementary.

German model.

• It is a stakeholder-oriented, two-tier board system. The supervisory board (Aufsichtsrat) oversees, appoints and removes the management board (Vorstand), which runs daily operations. No person may sit on both.
• Co-determination: employees (about one half in large firms) are represented on the supervisory board, along with shareholders.
• Banks hold large shareholdings and act as long-term investors with strong influence; ownership is concentrated.
• Focus is on long-term stability rather than short-term profit.
• Examples: Siemens, BMW, Volkswagen, Deutsche Bank.

Japanese model.

• It is a relationship-based, insider-dominated model built around the keiretsu (corporate groups with cross-shareholdings and a main bank).
• The board is large and mostly made up of senior insiders (company executives), with few outside directors. A separate board of auditors (kansayaku) monitors.
• The main bank provides finance and monitors the firm; lifetime employment and consensus decision making are common.
• Stakeholder (employee and group) interests are prioritized, and shareholders have a relatively weaker role, although reforms now promote more independent directors.
• Examples: Toyota, Mitsubishi, Sony, Hitachi.

Comparison. Both differ from the Anglo-American shareholder-focused model by emphasizing banks, long-term relationships and stakeholders. Germany relies on formal co-determination and a two-tier board, while Japan relies on informal group ties and insider boards.

Why it is challenging. Most Nepalese companies and business houses are family owned. Typical problems are:

• Founder dominance and concentration of control, with the board filled by family members and few independent directors.
• Nepotism: appointment on kinship rather than merit.
• Mixing of family and business finances, related-party transactions and weak disclosure.
• Succession conflicts and disputes among family members.
• Resistance to professional management, a weak internal control culture and little regulatory enforcement.
• Tax avoidance and a preference for informality.

Why it is not unmanageable.

• Legal framework: the Companies Act, 2063 requires board duties, audits, annual reports and minority protection; listed firms follow SEBON and NEPSE rules, and banks follow Nepal Rastra Bank directives.
• Professionalization: appoint independent directors, professional CEOs and audit committees.
• Family constitution/charter: written rules on roles, ownership, dividends, hiring and dispute resolution.
• Succession planning: training and transparent transfer of leadership to the next generation.
• Separation of ownership and management: with clear related-party policies and accurate financial reporting.
• Codes and training: adopting the FNCCI business code of conduct and governance education.
• Incentives: public listing, access to credit and global partners reward good governance.

Thus, with commitment to transparency, merit and accountability, family firms in Nepal (as seen in many successful groups) can manage governance effectively while keeping family values.

A. Companies Act, 2063 (Nepal) governance provisions.

• Board of directors: a public company must have a board of 3 to 11 directors (at least one-third representation of women in practice through later rules), with duties of good faith, care, diligence and loyalty; directors must avoid conflicts of interest and disclose personal interests.
• General meetings: annual general meeting is mandatory; shareholders vote, approve accounts and appoint auditors.
• Audit committee: public companies must form an audit committee, and the company must appoint a qualified, independent auditor.
• Accounts and disclosure: proper books of accounts, annual reports, financial statements and publication of key information.
• Shareholder and minority protection: the right to information, to inspect records, and to file a case against oppression or mismanagement.
• Restrictions: limits on loans to directors, and on insider dealing; liability and penalties for fraud and breach of duty.

B. FNCCI Business Code of Conduct, 2061. A voluntary self-regulatory code for member businesses covering:

• honesty, integrity and transparent dealings;
• compliance with law, tax payment, no corruption or bribery;
• fair competition, no hoarding, adulteration or black marketing;
• consumer protection: quality, fair price and honest advertising;
• fair treatment of employees: no child labour, safe workplace, fair wages;
• environmental protection and social responsibility;
• proper accounting and disclosure, and respect for stakeholders.

Together, the Act gives legally binding rules and the Code adds voluntary ethical standards, strengthening good governance in Nepal.

(a) Central ethical dilemma. The company must choose between meeting cost and deadline pressures (profit, political demands, completing the project) and keeping its legal and moral duty to protect the environment and local communities. Illegal over-extraction saves time and money but destroys farmland and displaces families, so it pits short-term economic gain against environmental and human harm.

(b) Utilitarian view. Utilitarianism judges an act by whether it produces the greatest good for the greatest number. The company claimed that the highway's benefits (connectivity, economic growth) justify the sacrifice.

The decision is not justifiable because:

• the harms (erosion, loss of farmland, displacement, lost livelihoods, long-term environmental damage) are serious, certain and often irreversible, and fall heavily on a vulnerable minority;
• the benefits would have been achievable by legal means (extending the schedule, buying materials from permitted sources);
• the act was illegal and breached the contract, and it created distrust, protests, possible fines, project delays and reputation loss, so the true net utility is negative;
• the argument ignored the rights and justice of those affected (a rights-based and justice view also rejects it).

(c) CSR approach. CSR (economic, legal, ethical and philanthropic responsibilities, and the triple bottom line) would have led the company to:

• obey environmental law and contract terms as a minimum;
• do an environmental and social impact assessment and consult communities beforehand;
• source materials only from licensed, permitted sites and use erosion control and restoration;
• compensate and resettle affected families fairly and offer local employment;
• be transparent and report openly to the government and the public, and treat cost estimates realistically at bidding.

(d) Strategy as project manager.

1. Renegotiate the schedule and budget with the government, presenting the monsoon and cost evidence, and include contingency in plans.
2. Use legal alternative supplies (licensed quarries, crushed rock, recycled material) and technology to reduce cost.
3. Form a community and environmental committee, with regular dialogue, grievance handling and fair compensation.
4. Use phased scheduling (work during dry season, add shifts or equipment) to speed up safely.
5. Strengthen monitoring and compliance audits, with third-party oversight and transparent reporting.
6. Set a clear code of conduct and refuse to follow illegal pressure, escalating to senior management if necessary.

This protects long-term profitability by avoiding penalties, stoppages and loss of trust, while safeguarding people and nature.

Myths about business ethics are common but false beliefs about it, for example: "business ethics is only common sense", "ethics is a matter of personal religion", "business is already ethical", "ethics is a luxury that reduces profit" and "ethics cannot be taught". In reality, ethics requires study, guides decisions and supports long-term success.

The domains (areas) of corporate social responsibility are:

• economic responsibility (profit, jobs, fair returns);
• legal responsibility (obeying laws);
• ethical responsibility (doing what is right and fair);
• philanthropic or discretionary responsibility (charity and community support).

Environmental and social responsibilities are also considered domains under the triple bottom line.

Corporate intelligence is the legal collection and analysis of information about competitors, markets, customers, technology and the business environment so that a company can make better strategic decisions. It becomes unethical if it uses spying, bribery, theft of trade secrets or deception.

Divine command ethics holds that morality comes from God's will or commands. An act is right because God commands it and wrong because God forbids it. Its main arguments are that sacred texts and religious authority provide absolute, universal moral rules, that people must obey them, and that obedience is rewarded and disobedience punished.

Insider trading is the buying or selling of a company's securities by a person who has material, non-public (confidential) information about the company, to make a profit or avoid a loss. It is unethical and illegal because it is unfair to other investors and damages market confidence.

Problems of fair pricing include:

• difficulty in defining what a "fair" price is, since cost, profit and value differ;
• price gouging or charging very high prices in shortages or emergencies;
• price fixing, collusion and monopoly pricing;
• hidden charges and misleading discounts;
• price discrimination between buyers.

Two consumer rights are:

1. The right to safety (protection from hazardous goods and services).
2. The right to information (to be told the truth about quality, price and ingredients).

(Others: the right to choose, to be heard, to redress, and to consumer education.)

Ethical consumption means buying and using goods and services that are produced and distributed in a way that is socially and environmentally responsible, for example fair trade, eco-friendly, cruelty-free and locally made products, and avoiding goods linked to child labour, exploitation or pollution.

Two corporate malpractices are:

1. Insider trading.
2. Fraudulent or false financial reporting (creative accounting), along with bribery, tax evasion and price fixing.

Two duties of a consumer are:

1. To be critically aware: to check quality, price, labels and expiry before buying and to ask questions.
2. To act responsibly: to demand and keep bills, to pay for goods, to complain about faults, to avoid fakes and to protect the environment.

Meaning: Corporate social responsibility (CSR) is the obligation of a business to act in ways that benefit society and the environment beyond profit and legal compliance. The statement is largely true, though CSR is not free of limits.

Reasons for rising relevance in the 21st century

• Stakeholder expectations: consumers, employees, investors and civil society demand ethical behaviour and transparency.
• Globalisation and media: social media and global supply chains expose misconduct quickly (e.g. labour scandals).
• Environmental crisis: climate change, pollution and resource scarcity make sustainability a business matter.
• Business benefits: better brand image, customer loyalty, employee motivation, easier access to finance (ESG investing) and lower risk.
• Legal and regulatory pressure: mandatory CSR spending, reporting standards and environmental rules (e.g. Nepal's CSR provisions in banks and industries).
• Corporate power: large firms have major social impact, so society expects them to contribute to development goals (SDGs).

Critical view

• Friedman argues that profit is the only responsibility; CSR may be a cost.
• Some firms use CSR for image building ("greenwashing") instead of real change.
• Impact is hard to measure and resources may be wasted.

Conclusion: despite criticisms, CSR has moved from charity to a strategic necessity. Genuine, well-planned CSR creates shared value for business and society.

Business ethical issues are situations where right and wrong are questioned; a dilemma is a choice between conflicting values or interests. Five important ones are:

1. Bribery and corruption: offering or accepting payments to obtain contracts or licences, against fair competition and law.
2. Conflict of interest: a manager's personal interest clashes with duty to the company, e.g. awarding contracts to relatives.
3. Misleading advertising and product safety: exaggerated claims, hidden defects, or selling unsafe goods to boost sales.
4. Employee issues: discrimination, sexual harassment, unfair wages, unsafe workplaces and privacy violations.
5. Environmental harm: pollution and waste dumping to reduce cost, versus sustainability.

Other dilemmas include whistleblowing (loyalty versus public interest), insider trading and accounting fraud. Dilemmas are typically between profit and ethics, or between stakeholders, and are resolved by ethical decision models, codes of conduct and ethical leadership.

Globalisation (growing cross-border trade, investment and communication) has increased both the need for and the scope of CSR.

Influences

• Global supply chains: multinationals are held responsible for labour and environmental conditions at overseas suppliers (e.g. Nike's sweatshop issues in the 1990s, Apple and Foxconn).
• Greater scrutiny: global media, NGOs and social media spread information fast, so scandals harm reputation worldwide.
• Global standards: ISO 26000, UN Global Compact, SA 8000, OECD guidelines and SDGs create common expectations.
• Competition and market access: exporters must satisfy buyers' CSR codes and certifications (fair trade, ISO 14001) to enter markets.
• Cultural and legal differences: firms face varying standards and may be tempted to exploit weak laws in developing countries (e.g. pollution or child labour), so CSR is needed to act consistently.
• Investor pressure: global investors prefer ESG-compliant companies.

Example: Nepalese carpet and garment exporters faced boycotts over child labour in the 1990s, and had to adopt certification (such as Rugmark/GoodWeave) and CSR practices to keep access to European markets.

Conclusion: globalisation pushes firms to adopt higher, uniform CSR standards, though it also creates risk of exploiting weak regulation.

(Virtue ethics.) Virtue ethics, associated with Aristotle, focuses on the character of the person rather than on rules or consequences. The central question is "What kind of person should I be?" rather than "What should I do?"

Essence

• Morality comes from good character traits (virtues) such as honesty, courage, justice, temperance, integrity and compassion, developed through habit and practice.
• Virtue is the "golden mean" between excess and deficiency (courage lies between cowardice and recklessness).
• The aim is eudaimonia, a flourishing life, achieved by practical wisdom (phronesis).
• Actions are right if they are what a virtuous person would do.

In business

• Encourages honesty with customers, fairness to employees, and integrity of managers and leaders.
• Builds an ethical culture through role models and organisational character, not just compliance.

Limitations: it gives little specific guidance in dilemmas, and virtues vary across cultures.

Ethical standards in advertising require that advertising be honest, fair and responsible towards consumers and society. Main standards are:

• Truthfulness: claims must be accurate and supported by evidence; no false, misleading or exaggerated statements.
• Full disclosure: no hiding of important conditions, prices, charges or side effects (fine print).
• Fair competition: no disparaging or copying rivals; comparisons must be fair and factual.
• Decency and respect: avoid obscenity, stereotyping, and offence to culture, religion, gender or minorities.
• Protection of vulnerable groups: do not exploit children, the elderly or the poor; limit advertising of harmful products such as tobacco and alcohol.
• Privacy: respect consumers' personal information and avoid intrusive promotion.
• Social responsibility: no encouragement of harmful behaviour, and support of environment-friendly claims that are real (no greenwashing).
• Compliance with law and codes: follow consumer protection laws, and advertising council or industry codes (Nepal's Advertisement Board and the Consumer Protection Act).

Following these standards builds credibility and customer trust.

In Nepal, CSR has evolved from traditional philanthropy to formal practice, with banks, telecom, cement, beverage and hydropower companies running programmes in education, health, environment and disaster relief. The Industrial Enterprises Act and Nepal Rastra Bank directives require a share of profit to be spent on CSR.

Problems

• Low awareness: many see CSR as charity or expense.
• Weak legal framework and enforcement, with unclear definitions and monitoring.
• Limited resources: small and family businesses with low profit cannot afford it.
• Image-building and unplanned spending: one-off donations, little link to business strategy and no impact measurement.
• Lack of transparency and reporting, and lack of trained professionals.
• Political and social instability, and corruption.
• Weak cooperation among government, business and NGOs.

Prospects

• Growing pressure from consumers, investors and global buyers.
• Regulatory directives for financial institutions and industries.
• Large need in education, health, environment and disaster management, giving many opportunities.
• Rising presence of multinational firms and SDG-based development agenda.
• Possibility of tax incentives, awards and CSR reporting standards.

Conclusion: with better laws, awareness, strategic planning and partnerships, CSR can contribute significantly to Nepal's sustainable development.

(a) CSR issues highlighted

• Poor labour conditions at Foxconn: 70-hour weeks, ten hours above Apple's Supplier Code limit.
• Worker suicides (13 in 2009-2010) linked to harsh management, work stress and a military-style approach.
• Lack of freedom and dignity: restrictions on interaction, fines and humiliation for violating rules, harsh interrogation (Sun Danyang).
• Limited transparency of Apple's supplier sustainability policy, and non-compliance of suppliers with Apple's Code.
• Worker welfare facilities provided on paper (swimming pool, tennis) but unusable because of long hours.

(b) Challenges of CSR in the supply chain of outsourcing multinationals

• Limited control and visibility: suppliers are separate legal firms, often in many tiers and countries, so monitoring is hard.
• Cost and price pressure: demand for low prices and quick delivery pushes suppliers to cut labour standards.
• Differences in law and culture between countries, and weak enforcement in host countries.
• Fraud in audits: suppliers hide violations or coach workers.
• Conflicting goals: profit and speed of launch versus ethical compliance.
• Reputation risk: the multinational is blamed for suppliers' misconduct, and public demand for transparency.
• Cost and scale of audits, and the difficulty of changing deeply rooted practices.

(c) Apple's efforts

• Issued a Supplier Code of Conduct, covering labour, human rights, health and safety, and environment.
• Conducted regular audits, which increased from 102 in 2009 to 229 in 2011 (an 80% increase over 2010 as given in the case), with local third-party auditors.
• Published an annual Supplier Responsibility Report to improve transparency.
• Became in February 2012 the first technology company to join the Fair Labor Association, allowing independent monitoring.
• Required corrective action plans from suppliers, and worked on working hours, worker well-being and environmental practices.

(d) Analysis of CSR audit at Apple

• Scope: audits cover working and living conditions, health and safety, and environmental practice at supplier facilities.
• Process: performed by Apple's auditors supported by local third-party auditors, which gives independence and local knowledge.
• Strengths: growing number of audits shows commitment; findings are published; joining the FLA brings external credibility; it can detect violations such as excess working hours.
• Weaknesses: audits are periodic and sometimes announced, so can miss problems; the Foxconn suicides occurred despite audits; a focus on checking compliance rather than fixing root causes (management culture); and some audit data can be manipulated.
• Improvement: more unannounced audits, worker interviews and hotlines, supplier training, stronger penalties for violations and transparent follow-up.

Overall, the audit is a necessary tool, but effective only when combined with real engagement and changed management practices.

Business ethics is the study and application of moral principles, values and standards of right and wrong to the conduct of business. It guides how firms and individuals behave toward customers, employees, owners, competitors, government and society, going beyond what the law merely requires.

Four essential elements of good corporate governance:

1. Accountability: the board and management answer to shareholders and stakeholders for their decisions and performance.
2. Transparency and disclosure: timely, accurate disclosure of financial and non-financial information.
3. Fairness: equitable treatment of all shareholders, including minority shareholders.
4. Responsibility and independent oversight: an effective, independent board with ethical conduct, risk management and compliance with law.

A conflict of interest arises when a person's private interest (financial, family or personal) interferes, or appears to interfere, with their duty to act in the best interest of the organization they serve. For example, a purchasing manager awarding a contract to a firm owned by a relative. It can damage objectivity and trust, so it should be disclosed and avoided or managed.

Insider trading is the buying or selling of a company's securities by a person who has material, non-public information about the company, such as directors, officers, employees or their associates. It is unethical and illegal in most countries, because it gives an unfair advantage over ordinary investors and harms market integrity and confidence.

A framework for ethical decision making in business:

Individual factors (values, moral development, personality)
Organizational factors (culture, code of ethics, leadership, peers, rewards)
Situational factors (moral intensity, pressure, opportunity)
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Recognise the ethical issue
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Gather facts and identify stakeholders affected
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Evaluate alternatives (law, utilitarian, rights, justice, virtue tests)
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Decide and act
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Review the outcome and learn (feedback to the factors above)

The framework shows that ethical decisions are shaped by individual, organizational and situational influences, and follow a process of recognizing the issue, evaluating the options against ethical principles, deciding, and reviewing the results.

Resource dependency theory holds that organizations depend on their external environment for critical resources (finance, expertise, legitimacy, contacts, information). The board of directors is therefore a means of linking the firm to those resources. Directors from banks, government, industry and the community help secure resources, reduce uncertainty and external dependence, and improve performance.

Two features of the Japanese model of corporate governance:

1. Keiretsu and main bank system: firms are tied to groups through cross-shareholdings, and a main bank is a major lender and shareholder that monitors management closely. Ownership is stable and long-term.
2. Insider-dominated board: boards are mostly senior executives and former managers, with few outside directors. Decisions are consensus-based and employees, lifetime employment and long-term growth are emphasized over short-term shareholder returns.

A code of ethics is important because it:

• states the values and standards of conduct expected from everyone in the organization;
• guides employees in ethical dilemmas and reduces misconduct;
• builds trust and a good reputation among customers, investors and the public;
• encourages a strong ethical culture and consistent decisions;
• protects the organization from legal liability and gives a basis for disciplinary action.

Under the Industrial Enterprises Act, 2076 (2020), an industry that has a net profit must spend a stated minimum share of it on corporate social responsibility (CSR). The Act sets out that:

• Industries are required to allocate a portion of their annual net profit to CSR activities (the Act specifies 1 percent of net profit for ordinary industries; the rate set for the sector concerned is followed).
• The amount must be spent on social work in areas such as education, health, environment, and community development, in the area where the industry operates, and be reported.
• Failure to do so can attract penalties, and the CSR spending should be shown in the annual report and audited.

Four features of governance in Nepalese family-owned businesses:

1. Ownership and control are concentrated in the family, and the founder or head is the main decision maker.
2. Key managerial and board positions are held by family members, with few independent directors.
3. Succession is usually decided by kinship (to sons or relatives) rather than merit.
4. Governance is informal and relationship-based, with limited disclosure and transparency and weak separation between family and business affairs.

Causes of ethical problems

• Individual: greed, weak personal values, low moral development, and personal or financial pressure.
• Organizational: a culture that rewards results at any cost, unrealistic targets, weak or missing codes of ethics, and poor leadership example.
• Competitive and economic pressure: intense competition and the need to meet profit and market expectations.
• Weak legal and regulatory systems: poor enforcement, corruption, and gaps in the law.
• Conflicts of interest and lack of oversight: weak controls, audit and whistleblowing channels.
• Social and cultural factors: tolerance of bribery, favouritism and nepotism.

Consequences

• Loss of reputation, customers' trust and brand value.
• Fines, legal penalties, lawsuits and possible closure.
• Falling sales, profit and share price, and difficulty in raising capital.
• Low employee morale, higher turnover and more misconduct.
• Harm to consumers, society and the environment, and weaker public confidence in the economy and business as a whole.

Integrity, honesty and fairness are core values that help to identify ethical issues in business.

• Integrity is consistency between values, words and actions, doing the right thing even when no one is watching. When a decision conflicts with one's principles or an organization's stated values, an ethical issue is signalled.
• Honesty means truthfulness and openness in communication and dealings: no lying, cheating, false advertising, misleading accounts or concealing material facts. Deception is a signal of an ethical problem.
• Fairness means just and equitable treatment of employees, customers, suppliers and competitors, without discrimination, favouritism or exploitation. Unequal or biased treatment signals an ethical issue.

Testing a situation against these three values helps managers to notice problems early and to act ethically.

Normative considerations are the ethical theories and principles that tell us what we ought to do in decision making. The main ones are:

1. Utilitarianism (consequentialism): an action is right if it produces the greatest good for the greatest number. Decisions are judged by their outcomes, weighing costs and benefits to all affected.
2. Deontology (duty-based, Kantian ethics): actions are right or wrong by duties, rules and principles, regardless of results. People should be treated as ends, never merely as means, and one should act on rules that could be universal.
3. Rights approach: decisions should respect the basic rights of stakeholders, such as the right to life, safety, privacy, truth and property.
4. Justice and fairness: benefits and burdens should be distributed fairly (distributive justice), with fair procedures (procedural justice) and fair correction of wrongs (compensatory justice).
5. Virtue ethics: focuses on the character of the decision maker; the right action is what a person of virtues such as honesty, courage, and compassion would do.
6. Ethics of care and relationships: emphasizes responsibility to those close to us and sensitivity to relationships and context.
7. Egoism and relativism (less favoured): self-interest or cultural norms as guides, often criticized as inadequate.

Managers usually combine several of these when facing a dilemma.

The board of directors is the central body of corporate governance, acting on behalf of shareholders. Its main roles are:

1. Setting strategy and direction: approve vision, mission, objectives, major plans and budgets.
2. Appointing and monitoring management: select, evaluate, reward and, if needed, remove the CEO, and oversee performance.
3. Oversight and control: ensure effective internal control, risk management, audit and compliance with laws.
4. Financial reporting and disclosure: ensure accurate financial statements and timely, transparent disclosure to shareholders.
5. Protecting shareholders' and stakeholders' interests: treat all shareholders fairly and balance the interests of stakeholders.
6. Ethics and culture: set the tone at the top, adopt codes of conduct and prevent conflicts of interest.
7. Dividend and capital decisions: approve dividends, major investments, mergers and borrowing.
8. Succession planning and advice: prepare for leadership succession and provide expertise and links to external resources.
9. Corporate social responsibility and sustainability.

Committees such as audit, remuneration and nomination help the board carry out these roles.

Key corporate governance provisions in the Companies Act, 2063 (2006) of Nepal include:

• Board of directors: a public company must have at least 3 and at most 11 directors, and the board is responsible for managing the company. A person who is disqualified (for example, insolvent or convicted of certain offences) cannot be a director.
• Duties of directors: act in good faith, with care and diligence, in the interest of the company; avoid conflict of interest and disclose personal interest in any contract.
• Independent and professional directors: representation of small shareholders and, for public companies, an independent or expert director is provided for.
• Audit committee: a public company must have an audit committee (headed by a non-executive director) to oversee financial reporting and internal control.
• Auditor: appointment of an independent auditor by the general meeting, with auditor's powers and duties.
• General meeting and shareholders' rights: annual general meeting, notice, voting, inspection of records and protection of minority shareholders, including remedies against oppression.
• Disclosure and records: keeping books of accounts, annual reports, financial statements and returns filed with the Office of the Company Registrar.
• Prohibition on insider trading and related-party loans by directors.
• Penalties for violations and fraud, and provisions on liability of directors.

Carroll's CSR pyramid has four layers: economic (be profitable), legal (obey the law), ethical (be fair and do what is right) and philanthropic (be a good corporate citizen).

Application in Nepal

• Economic: the base. Most Nepalese firms, mostly small and family-owned, are focused on survival, profit and employment, and see economic performance as their main responsibility.
• Legal: compliance is uneven because enforcement is weak and tax evasion, informal practice and labour-law violations exist. Laws such as the Industrial Enterprises Act, 2076 (mandatory CSR spending) and the Companies Act, 2063 give a legal base.
• Ethical: emphasized in principle, but problems such as adulteration, cartels, hoarding, underpaying workers and environmental neglect are reported. Ethical conduct is often seen as optional.
• Philanthropic: the most visible layer in Nepal, shaped by culture and religion (dan-punya). Firms donate to schools, hospitals, temples, disaster relief (the 2015 earthquake, COVID-19). Banks and telecoms spend on CSR, often for image rather than as strategy.

Critical examination

• In Nepal the order of priority is often reversed: philanthropy is done more readily than ethics and legal compliance, which makes CSR charity-oriented and ad hoc.
• A hierarchical pyramid does not fit well, since layers operate together, not in sequence.
• Developing-country conditions (poverty, weak institutions, corruption, informal sector) mean economic and legal duties are not fully met and firms are pressured to give donations to politicians or communities.
• The model is Western and individualistic, and gives little place to stakeholders such as community, employees and environment, or to Nepalese social values.
• Mandatory spending by law may turn CSR into a compliance exercise.

The pyramid remains useful as a guide, but needs adaptation to local culture, stronger enforcement and a shift from charity to strategic, sustainable CSR.

Emerging ethical issues and dilemmas in business include:

1. Data privacy and cybersecurity: collecting, selling and breach of customers' personal data, and surveillance of employees.
2. Artificial intelligence and automation: algorithmic bias and discrimination, lack of transparency, job loss, and responsibility for decisions made by machines.
3. Social media and digital marketing: fake reviews, misleading influencer advertising, misinformation and targeting of vulnerable users.
4. Environmental sustainability: climate change, pollution, greenwashing and responsibility for the carbon footprint and waste.
5. Workplace issues: diversity and inclusion, harassment, discrimination, gender pay gaps, remote work monitoring, gig worker rights and work-life balance.
6. Supply chain ethics: child and forced labour, unsafe factories and sourcing of materials.
7. Intellectual property and digital piracy.
8. Whistleblowing and retaliation.
9. Cryptocurrency, fintech and online fraud.
10. Corporate governance issues: executive pay, insider trading, and conflicts of interest.

These create dilemmas because profit, legal compliance and the interests of stakeholders often conflict, and law lags behind technology. Firms need codes of ethics, ethical leadership, training and clear reporting channels to deal with them.

(a) Models of corporate governance and the superior model

Which is superior? No single model suits all. For large modern business organizations with widely dispersed shareholders, global capital and complex risks, a hybrid of the Anglo-American model's transparency, independent directors, audit committees and shareholder rights, with the German/Japanese stakeholder and long-term focus, is best. Pure outsider models encourage short-termism, while insider models lack independence and accountability. Therefore a stakeholder-sensitive, transparent, independent-board model is the most effective for steering large firms today.

(b) Two global governance failure cases

1. Enron (USA, 2001). Enron used special purpose entities and off-balance-sheet accounting to hide debt and inflate profits. The board approved conflicts of interest, auditor Arthur Andersen failed in independence (and shredded documents), and executive pay rewarded short-term stock price. Enron went bankrupt and thousands lost jobs and savings.

Lessons: independent and competent boards and audit committees; auditor independence; transparent disclosure; effective whistleblowing; limits on conflicts of interest; strict regulation (Sarbanes-Oxley Act 2002 followed).

2. Satyam (India, 2009). Its chairman admitted to inflating cash balances and profits by about Rs 7,000 crore over several years. The board and auditors (PwC) failed to detect it, and independent directors approved a related-party acquisition of family firms (Maytas). Share price collapsed and the government took over the company.

Lessons: real independence of directors and auditors; scrutiny of related-party transactions; effective internal controls; separating the chair and CEO; stronger enforcement and investor protection. (Other examples are WorldCom, Lehman Brothers and Volkswagen.)

(c) Critical business ethics issues in Nepal and the way forward

Critical issues: corruption and bribery in procurement and licensing; tax evasion and under-invoicing; adulteration of food and medicine; black-marketing, hoarding and cartels or syndicates (transport, cement, etc.); unfair labour practices (low wages, unsafe work, informal jobs); misleading advertising and consumer exploitation; weak governance in family firms and banks, including loan misuse and insider lending; environmental damage; nepotism and political interference; and poor CSR practice.

Way forward:

• Government: strengthen and enforce laws, make institutions (CIAA, Department of Revenue Investigation, Securities Board, Competition Board) independent and effective, simplify rules to reduce corruption, protect whistleblowers, and make regulations transparent and digital.
• Business community: adopt codes of ethics and compliance programmes, honest tax and fair labour practices, quality and consumer protection, transparent reporting, independent directors and professional management, and sincere CSR.
• Professional bodies and industry associations (FNCCI, ICAN): self-regulation, ethics training and disciplinary action.
• Consumers, media and civil society: consumer awareness and watchdog roles, reporting wrongdoing.
• Education: include business ethics in school and university curricula.

Joint action by all parties is needed to build an ethical business culture and public trust.

(a) Ethical issues in the case

• Nepotism and favouritism: the General Manager gives his nephew Deepak the easier, high-commission tickets, which is unfair to other technicians.
• Unfair distribution of work and pay: other technicians lose income because of hidden preferential treatment, which breaches fairness and justice.
• Dishonesty and deception: the tickets are distributed secretly while the other technicians are told to take the top ticket, which misleads them.
• Abuse of power and intimidation: Bikram threatens to fire Chandani if she tells anyone, taking advantage of her probationary status.
• Conflict of interest: Bikram's family tie with Deepak conflicts with his duty to the company and all employees.
• Confidentiality versus wrongdoing: the confidentiality rule on pay should not protect unethical behaviour.
• Possible owner involvement: Asim's praise and frequent lunches with Bikram and Deepak suggest he may be aware or complicit.

(b) Whistleblowing and its consequences

Blowing the whistle by telling Asim is ethically justified because the practice harms other employees, is a serious violation of fairness, and cannot be solved inside the normal chain (the wrongdoer is her boss). She also has some evidence from what she personally saw. But it is risky.

Possible consequences for Chandani: retaliation, such as dismissal during probation; a bad reputation as a troublemaker; strained relations with Bikram and possibly Asim; stress and damage to her first job record; if Asim is involved or unwilling to act, she gets no protection.

Possible positive consequences: the unfair practice may be stopped; other technicians are treated fairly; the company's ethical culture and image improve; she acts with integrity and may earn respect.

It is better to first collect facts, record what she saw, check company policy and any hotline or HR, report to Asim in a calm, factual way (or anonymously if possible), and be ready with the risks.

(c) Family business and employee treatment

Yes, family businesses often differ, but this should not justify unfairness.

• Differences: family relationships influence hiring, pay and promotion; personal loyalty and trust matter more than formal rules; policies are informal; family members may be treated better; non-family employees may feel excluded from advancement; owner and family control makes complaints hard.
• Reasons: owners control the business directly, there is a weak separation of ownership and management, they try to protect and provide for relatives, and lack professional HR systems and independent boards.
• But employees in family firms deserve equal justice, objective criteria and transparent pay and work distribution. Good family firms adopt written policies, merit-based systems, and clear rules on conflicts of interest to retain talent and trust.

(d) Chandani's ethical dilemma and what she should do

Dilemma: she must choose between doing what is right (reporting an unfair practice that harms colleagues, and being honest) and protecting herself (her probationary job, her first job, and obeying the manager's order and confidentiality rule). It is a conflict between loyalty to the boss and company and duty to fairness and honesty, between self-interest and the interest of others.

What she should do:

1. Write down exactly what she saw (dates, facts) and avoid assumptions.
2. Review the company's code of conduct, grievance or whistleblowing policy.
3. Raise the issue first with an appropriate person, such as Asim (the owner invited her to bring problems), stating facts without accusing, or use an HR or anonymous channel if available.
4. Not take part in or conceal the unethical practice, and keep her own conduct honest.
5. Seek advice from a trusted mentor and know her legal protections and be prepared to look for another job if retaliation occurs.

Why: utilitarian, justice and rights tests show the practice harms several technicians and violates fairness, while keeping silent would make her complicit. Acting with integrity and in a careful, evidence-based way balances her duty to others against the risk to herself, and Asim's open-door invitation gives a legitimate route.