businessandprofitsanditsroleinsociety-141203104721-conversion-gate01.pptx

Ethics and CSR

1. Business & Profits and its Role in Society

2. Background A business (also called a company, enterprise or firm) is a legally recognized organization designed to provide goods and/or services to consumers. Business are predominant in capitalist economies. Most businesses are privately owned. A business is typically owned and formed to earn profit that will increase the wealth of its owners and grow the business itself. The owners and operators of a business have one main objectives i.e receipt or generation of a financial return in exchange of work and acceptance of risk. Notable exceptions include cooperative enterprises. Businesses can also be formed not-for-profit or be state owned.

3. Different Measures of Profit in a firm Gross Profit = Sales Revenue (Less) Cost of Goods Sold (COGS),thus removing only the part of expenses that can be traced directly to the production of the goods. Gross profit still includes general (overhead) expenses like R&D,S&M,G&A, also interest expenses ,taxes and extraordinary items. Operating Profit = Gross Profit (less) all operating expenses. This is the surplus generated by operations. It is also known as Earnings Before Interest and Taxes EBIT , Operating Profit Before Interest and Taxes OPBIT or simply Profit Before Interest and Taxes PBIT

4. Net Profit = Profit After Tax (unless some distinction about the treatment of extraordinary expenses is made).In the US the Term Net Income is commonly used. Income Before Extraordinary Expenses represents the same but before adjusting for extraordinary items. Net income (less) dividends becomes retained earnings. There are several additional important profit measures, notably EBITDA and NOPAT. To accountants, economic profit or EP , is a single-period metric to determine the value created by a company in one period usually a year. Different Measures of Profit in a firm

5. (Net) Profit Before Tax PBT equals operating profit less interest expenses (but before taxes).It is also know as Earnings Before Interest EBT, Net operating income before taxes or simply Pretax Income. Some economists define further types of profit: Abnormal profit (or supernormal profit) Subnormal profit Monopoly profit (super profit) Optimum Profit: This is the “right amount” of profit a business can achieve. In business, this figure takes account of marketing strategy ,market position, and other methods of increasing returns above the competitive rate. Different Measures of Profit in a firm

6. Shareholder & Stake holder view of Profit Shareholder Stakeholder 1.Narrow Focus, driven by numbers and things that have been qualified and measured Sustainable, competitive thinking that tends to be visionary 2.Executive Management may react to valuations in dramatic ways (merger, layoffs, etc.) Multi-view of the organization regardless if it is quantifiable. 3.Performance evaluation tends to be financially focused with little emphasis on intangible drivers of performance. Performance evaluation follow strategic issues, not just operations. 4.Sources of value tend to be isolated systems, fragmented and not coherent. Strong value systems across the entire value-chain, extending to external stakeholder. 5.Slow to respond to change; new ideas are not easily understood. Easy flow of new ideas and innovation (very change oriented) 6.Management tends to quickly embrace a quick fix solution, sometimes adopting the latest fad despite the fact that it may not fit or it is not well-tested. Management does not embrace quick fix solutions; instead opting to avoid paying a heavy price. Organ i z at i on A p p r oach to w ards…..

7. Shareholder Stakeholder 7.People who create value may be viewed as “too radical” and somewhat out-of-step. People who create value are most likely to advance within the organization. 8.The bottom line focus is earnings. The bottom line focus is on value – what value are we adding. 9. T radi t ion a l Approa c hes to gro w th – allocate resources to marketing ,acquire other companies ,control costs, etc. Growth through the intangibles – relationships, competitiveness ,knowledge workers; thinking in terms of opportunities for growing the business around core competencies. 10.Business success is what we create for our shareholders. Business success is what we create for all stakeholders, not just shareholders.

8. A shareholder is the part-owner of the enterprise or company and such he is interested in maximizing his profits. On the other hand the stakeholders are the one’s who have a stake in the company and they are the following. Shareholders Long Term Lenders Employees Distributors Customers Regulatory Government All the stakeholders have different expectations from their company or enterprise. The shareholder’s want to maximize profits and their dividend where as the long term lenders want to ensure safety of their money and timely payment of interest. On the other hand, the customer wants a competitive price and good quality and the distributor wants timely payment. Regulatory authorities want to ensure that the enterprise is running as per the laws of the land and the government wants to see that they get revenue from the business houses.

9. Role of business The basic objectives of businesses is to develop, produce and supply goods and services to customers. This has to be done in such a way as to allow companies to make a profit, which in t u rn de m an d s far m o r e t h an ju s t sk i l l s in co m pa n i e s ’ own fields and processes. Companies improve their resources by developing material and ideas. The goods and services produced must see demands made by customer. For example, Maggie Noodles of Nestle was a instant hit as it has created time value for the modern working housewife as she could make something to eat in 2 min time.

10. Businesses/Companies benefits society by: Supplying goods and services that customer cannot ,or do not want to ,produce themselves Creating jobs for customers, suppliers, distributors and co- workers. Entrepreneurs make money to support themselves and their families , pay taxes and use their wages to buy goods and services. Continually developing new goods, services and processes. Investing in new technologies and in the skills of employees. Building up and spreading international standards, e.g for environmental practice. Spreading “good practice” in different areas,such as the environment and workplace safe.

11. In fact, considered from all angles, is it unethical, NOT to make profit. It is unethical, for a company ,to make losses. Because, a company, to make losses , misutilises scares national resources, can not pay back creditors ,does not make wealth for its shareholders, make huge liabilities, upsets the economy, promotes inefficiency and most importantly, can not ,at any cost discharge social responsibility, meets its welfare commitments and jeopardies the future of its employees. Such a loss-making company becomes a nuisance and a burden to the economy and has no right to exist in the market place. Moreover ,it has no right to force its employees into economic insecurity, which is highly unethical. No business, however great or strong or wealthy it may be at present, can exist on unethical means, or in total disregards to its social concern, for very long. Resorting to unethical behavior or disregarding social welfare is like calling for its own doom. Profits Not An Un Ethical Word.

12. The Triple bottom line (abbr. TBL or 3BL) and also know as “People,Planet,Profit”. Captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: economic, ecological and social. The concept of TBL demands a company’s responsibility to be stakeholders rather than shareholders. In this case “stakeholders” refers to anyone who is influenced, either directly or indirectly by the action of the firm. According to the shareholder theory ,the business entity should be used as a vehicle for coordinating stakeholder interests, instead of maximizing shareholder (owner) profit. Triple Bottom line Concept for measuring Organizational Success

13. People, Planet and Profit “People” (Human capital) pertains to fair and beneficial business practices toward labor and the community and region in which a corporation conducts its business. A TBL company conceives a reciprocal social structure in which the well-being of corporate labor and other stakeholder interests are independent. “Planet” (Natural capital) refers to sustainable environmental practices. A TBL company endeavors to benefit the natural order as much as possible or at the least do no harm and curtail environmental impact. “Profit” is the economic value created by the organization after deducting the cost of all inputs, including the cost of the capital tied up. In the original concept, within a sustainability framework, the “profit” aspects needs to be seen as the real economic benefit enjoyed by the host society.

14. Questions Long Answer Questions : Business is related to making profit, whereas Ethics deal with right or wrong. Therefore business and ethics is not related to each other. Discuss (Oct.10) What do we mean by Business Ethics and what are the roles and responsibilities of various stake holder in it? (Oct.10) Short Note : What is Triple Bottom Line – Explain the term. (March 11)