Lecture :

Corporate Governance
Meaning and Definition Of Corporate Governance
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Definitions of Corporate Governance
The concept corporate governance can be defined as the whole spectrum of the culture of an
organisation which include its line of accountability, business, global operational network,
decision making processes, leadership style, authority, power and approachstrategy to
accomplishment of tasks!
The domain of corporate governance covers the setting up overall direction for the enterprise
through ade"uate supervision and control of actions of its e#ecutives to facilitate satisfaction of
stakeholders! The main import of corporate governance is to ensure corporate stability and viability,
the choice, "uality and mi# of persons to perform corporate functions profitably to the satisfaction
of the stakeholders in the organisation concerned and the larger society through its social behaviour
and or social responsibility!
Corporate governance is also defined as a system of structuring, operating and controlling a
company to achieve strategic goals to satisfy stakeholders and to comply with the legal and
regulatory re"uirements and to meet the environmental and community needs!
Characterstics Of C!G!
-------------------------
$%&epresent the frame work under which business decision are taken!
'%Depends on the rules and practices!
(%)ey part of the Contract!
*%+ssurance the well ,unctioning of markets!
Constituents of C!G!
----------------------
$%-oard of Director
'%.hare/olders
(%Management
0ecture 1
Definition 1
Corporate Governance is the system by which companies are directed and controlled23 Cadbury
&eport 45)%, $66'
72to do with 8ower and +ccountability1 who e#ercises power, on behalf of whom, how the
e#ercise of power is controlled!3
.ir +drian Cadbury, in &eflections on Corporate Governance, 9rnest .ykes Memorial 0ecture, $66(
The governance issues which are crucial to achieve these objectives are:
$! Distinguishing the roles of board and management
Composition of the board and related issues!
'! .eparation of the roles of the C9O and chairperson!
(! .hould the board have committee
*! +ppointment to the board and directors: re-election!
;! Directors: and e#ecutives: remuneration!
<! Disclosure and audit!
=! 8rotection of shareholder right and their e#pectations
>! Dialogue with institutional shareholders
6! .hould investors have a say in making a company 7socially responsible corporate citi?en3
8rinciple of C!G!
------------------
$%,airness
'%Transparency @ Disclosure
(%+ccountability
*%&esponsibility
Main Assues Of Corporate Governance or C!G!
------------------------------------------
$%Distingushing the roles of board and Management!
'%Composition of board and related issues!
(%.eparation of the role of C9O and Chairperson!
*%.hould The board has committees!
;%+ppointment to the -oard and DirectorsB and &e-election!
<%Disclosure @ audit!
Code of Corporate Governance1
The Code is essentially a consolidation and refinement of a number of different reports and codes
concerning opinions on good corporate governance! The first step on the road to the initial iteration
of the code was the publication of the Cadbury &eport in $66'! the &eport was a response to maCor
corporate scandals associated with governance failures in the 5)! ! Anitially limited to preventing
financial fraud, cadburyBs remit was e#panded to corporate governance generally! /ence the final
report covered financial, auditing and corporate governance matters, and made the following three
basic recommendations1
the C9O and Chairman of companies should be separated
boards should have at least three non-e#ecutive directors, two of whom should have no
financial or personal ties to e#ecutives
each board should have an audit committee composed of non-e#ecutive directors
These recommendations were initially highly controversial, although they did no more than reflect
the contemporary Dbest practiceD, and urged that these practices be spread across listed companies!
+t the same time it was emphasised by Cadbury that there was no such thing as Done si?e fits allD!
it was stipulated that companies need not comply with the principles, but had to e#plain to the stock
market why not if they did not!
! This recommended some further changes to the e#isting principles in the Cadbury Code1
each board should have a remuneration committee composed without e#ecutive directors,
but possibly the chairman
directors should have long term performance related pay, which should be disclosed in the
company accounts and contracts renewable each year

The ensuing suggested that all the Cadbury principles be consolidated into a DCombined CodeD! At
added that,
the Chairman of the board should be seen as the DleaderD of the non-e#ecutive directors
institutional investors should consider voting the shares they held at meetings, though
reCected compulsory voting
all kinds of remuneration including pensions should be disclosed!
.ocial &esponsibility of corporate 1
Antroductions
The focus is on corporate social responsibility, which involves responsibilities outside of
making a profit
8reliminary definitions of C.&
The impact of a company:s actions on society
&e"uires a manager to consider his acts in terms of a whole social system, and holds him
responsible for the effects of his acts anywhere in that system
Corporate social responsibility E emphasi?es obligation and accountability to society
Corporate social responsiveness E emphasi?es action, activity
Corporate social performance E emphasi?es outcomes, results!
Corporate .ocial &esponsibility 4C.&% E the invisible hand of the marketplace protected
societal interest

Fhat was the main motivationG
To keep government at arms length
Corporate .ocial &esponsibility 4C.&%
C.& considers the impact of the company:s actions on society 4-auer%
C.& re"uires decision makers to take actions that protect and improve the welfare of society
as a whole along with their own interests 4Davis and -lomstrom%
C.& relates primarily to achieving outcomes from organi?ational decisions concerning
specific issues or problems, which by some normative standard have beneficial rather than
adverse effects upon pertinent corporate stakeholders! The normative correctness of the
products of corporate action have been the main focus of C.& 49pstein%
C.& encompasses the economic, legal, ethical and discretionary 4philanthropic%
e#pectations that society has of organi?ations at a given point in time
C.& in 9"uation ,orm As the .um of1
9conomic &esponsibilities 4 Make a profit%
0egal &esponsibilities 4 Obey the law %
9thical &esponsibilities 4 -e ethical%
8hilanthropic &esponsibilities 4 Good corporate citi?en %
Corporate .ocial &esponsibility 4C.&% +rguments +gainst
&estricts the free market goal of profit ma#imi?ation
-usiness is not e"uipped to handle social activities
Dilutes the primary aim of business
0imits the ability to compete in a global marketplace
Corporate .ocial &esponsibility 4C.&% +rguments ,or
+ddresses social issues business caused and allows business to be part of the solution
8rotects business self-interest
0imits future government intervention
+ddresses issues by using business resources and e#pertise
+ddresses issues by being proactive
Corporate .ocial &esponsibility 4C.&% -usiness &esponsibilities in the '$ st Century
Demonstrate a commitment to society:s values and contribute to society:s social,
environmental, and economic goals through action!
Ansulate society from the negative impacts of company operations, products and services!
.hare benefits of company activities with key stakeholders as well as with shareholders!
Demonstrate that the company can make more money by doing the right thing!
$
Corporate social &eporting1
$!Mandatory social disclosure practices advocates that firms would disclose social information
only if it becomes the re"uirment of law!
'! Af law does not making social reporting mandatory !firms would disclose this information if
stakeholders demand it from company Bs management and the management also feels that it
will be in the interest of the society!
(! .ocial dimension!
*! .ocial human dimensions,
+nnual C.& can build trust with stakeholders @ encourage internal efforts to comply with a
company C. Goals!
C.& provide informations!
$! C9O @ senior leadership support!
'! 8erformance data for social,environment @ economic performance indicator!
ObCectives1
$! To measure contribution of firm to the society!
'! Determine firm social activites are consistent or notG
(! 9stablish meaningful communication with firmBs stakeholders!
*! ,irm environmental @ social risk management by identify risk @ their mgmt!
Corporate goveranance system world wide
Corporate Governance Mechanisms
The Amportance of Corporate Governance
Contemporary Corporate Governance .ituation
Growing +wareness and .ocietal &esponses
The German Model
The Hapanese Model
Andian Corporate Governance Model
The main features of corporate governance models
0ecture1 Corporate Disclosure
$! 8rocess Throgh which business enterprise communication with e#ternal parties!
'! purpose of analysis @ decision making should be ,ull,,air,+de"uate!
,ull 1 complete and comprehensive presenataion of information of financial activites in the
financial reports!
,air 1 information should be unbiased @ impartial,
+de"aute 1Ampose material information need by user of financial statemement @ &eports!
,actors affecting Disclosure
$! Ancrease comple#ities @ si?e of corporations
'! changing socio-political environment!
(! .ound investment decision
*! /elps in assessing risk of company!
The term 7investor protection3 defines the entity of efforts and activities to observe, safeguard and
enforce the rights and claims of a person in his role as an investor! This includes advise and legal
action! The assumption of a need of protection is based on the e#perience that financial investors
are usually structurally inferior to providers of financial services and products due to lack of
professional knowledge, information or e#perience! Countries with stronger investor protections
tend to grow faster than those with poor investor protections!
$! Transparency
'! +ccurate information
(! 9thics is concerned with code of values @ prinicples that enables a person to choose
between right and wrong @ select from alternative course of actions!
Organi?ation framework for investor protection!$'
th
+pril,$6>> .9-A 4to protect right of small
investor and regulate @ develop stock market!%,$66',-se 4leading stock e#change in
india,witnessed maCor scam mastermind bi harshad mehta%
5nit ' Ialues Ampact in -usiness
Arrespective of the cultural or social diversity, a common value system is one of the binding
ingredients that give Andians a common identity!
Indian Values System :
values are beliefs that guide people actions!They represent a personBs belief about what is right or
wrong !
Types of values1
Terminal values
Anstrumental values
operative values
conceived values
obCective values!
Andian Ialues .ystem The book of ancient history the earliest date due to /indusim dates back like
;JJJ years ago! /indusim is the oldest surviving culture ! 8ersians who migrated to Andia and called
the river .indhu became /industan and inhabitants were called /ondus!
Scriptures :
.criptures .anskrits literature can be classified under si# orthodo# heads and four secular heads!
The si# scriptures are1- .hruties smritis Atihasas 8uranas +gamas Darshanas
The Four Secular writing :
The ,our .ecular writing .ubhashitas )avyas Katakas +lankaras
Vedas ( Shruti Literature) :
Iedas 4 .hruti 0iterature% The word 7 I9D+3 means knowledge or wisdom! )nowledge or wisdom
is necessary for self-reali?ation! At manifests the language of the God in human speech!
Types o Vedas :
Types of Iedas &AGI9D+ L+H5&I9D+ .+MI9D+ +T/+&I+I9D
Shastra ! Smriti :
.hastra @ .mriti At is second literature means what is remembered ! At is created by man and is
passed on generation to generation ! At includes commentaries and e#planations of previously
revealed divine knowledge, grammar, law, astrology, epics and great deal!
Shastras :
.hastras At includes Guru Gita which is dialogue between lord .hiva and Mata 8arvati where .hiva
told the necessity of the Guru to 8arvati! At comprises $>' shlokas!Dharama means Chitta ki
.huddhata!
"urana :
8urana 8urana signifies old or ancientness! At is believed that these 8uranas must have been create
before ved vyas ! These talk about the history , the incarnation of God in easier in different forms!
There are $> 8uranas
Types o "uranas :
Types of 8uranas Iishnu 8uranas Karad 8uranas 8adma 8uranas Garud 8uranas Iarah 8uranas
-hagvat 8urans -rahmand 8urans -ramavaivarta purana Markandeya 8urana
#panishad :
5panishad At is the ,ourth part of vedas , also know as Iedas 4 9nd of Iedas % 5panishad means 7
to be seated down at the feet of Guru to receive Gyan3 Ieda M 5panisadN 8hilosophyDarshan
These e#plain the ways to attain * Goals 1- Dharma +rtha )ama Moksha !
0esson from mahabharat!
Turn your weaknesses into strengths!
Turn enemies into allies!
.hare your responsibilities!
Teamwork scores over Andividual 9ffort!
&ight Team N &ight set of Andividuals! The right man for the right Cob!
Commitment scores over Competence!
Team interests over Andividual interests!!
)now your enemychallenges! 9#ploit its weaknesses! Take calculated risks!
The &ight Managers 1 To inspire, invigorate, counsel in crisis !
)now Ground realities! +ccept different!
Mahabharat talk of * types of dealing with people1
.aam 4treating e"ually%
daan 4&ewarding%
Dand 4punishment%
bhed 4discrimination%
One has to Cudiciously use these methods in dealing with people!
Manangement 0esson ,rom &amayana 1
/ow to incorporate dharma into oneBs life !&amayana are adopted the ethical values of man
4purush% shall be converted into purushotam the man of highest character!
Fe learn lesson from it as to how to manage in odd situation!
.ita as an e#cellent lady! Af all ladies adopted even a fractional part of sitaBs character ,life
will change !this may help in adding ethical values!

/anuman 1 + great .ewak! Af all the servant 4worker% turn hanuman for the company and all C9Os
ram the corporate governance shall be one hundred percent!
&amayana gives us an e#cellant opportunity to perform well and people who follow ramayana do
turn more loyal ,calm and least greed!
The total 7&am )atha 7 is full of codes of good conduct!
0esson from Gita1
$! 9ach soul is a potential god!
'! /olistic +pproach
(! 9"ual importance to subCectivity @ obCectivity!
*! )arma yoga 4.elfless work%
;! 9#cellenceof work
<! Cooperations!
9ssences of Gita 1
$! one should perform his rightful @ duties in life!
'! Kon-attachment to the world @ to the pleasure of sense obCects!
(! 5nion with God by practing 7 pranayam3!
5nit (1 9thical impact in -usiness !
+ code of moral standards of conduct for what is 7good3 and 7right3 as opposed to what is 7bad3 or
7wrong3!That which is 7right3 or 7good3 in the conte#t of governing moral code!
9thical behavior is value driven process !
Assues in capitalism 4,ree Market 9conomy %
$! 8rivate ownership
'! phases 1Merchantile ,industrial,financial!state welfare capitalism
5nethical practices in field of Marketing, ,inance, /uman &esource ,AT!
,actors Governing 9thics1
$! Ialues forming institutions
'! Organisation Goals
(! Fork @ career
*! .uperior
;! 8eers and colleagues
<! 8rofessional codes
=! 8olitics @ 0aw!
Fe will e#amine ,O5& 9T/AC+0 T/9O&A9.1
&AG/T. T/9O&L
H5.TAC9 T/9O&L
5TA0AT+&A+KA.M
8&O,AT M+OAMAP+TAOK
These four theories can be classified in two ways1
Teleological $thical Theories N ,ocus on the COK.9Q59KC9. of a decision
%eontological $thical Theories (deeds) & ,ocus on the D9CA.AOK itself!
'IG(TS T($)'*
9ncompasses a variety of ethical philosophies holding that certain human rights are
fundamental and must be respected by other humans
,ocus is on each individual member of society and hisher rights
9ach of us faces a moral obligation not to harm the fundamental rights of others
)+KTA+KA.M
Ammanuel )ant .trict deontologist
$>
th
century philosopher
/umans are moral actors free to make choices and are able to Cudge the morality of any
action by applying his famous Categorical Imperative
Act only on that maxim whereby at the same time you can will that it shall become
a universal law. An other words, we Cudge an action by applying it universally!
For example: Borrowing money even though you now you will never repay it. 5sing
the categorical imperative, you would state the following rulema#im1 !hen " want
money# " will borrow money and promise to repay it# even though " now " won$t
repay it. +ccording to )ant, you would not want this ma#im to become a universal
law because no one would believe in promises to repay debts and you would KOT be
able to borrow money when you wanted or needed to! .o, the ma#im fails the
categorical imperative test, and you are compelled ethically KOT to promise falsely
that you will repay a loan!
Always act to treat humanity# whether in yoursel% or others# as an end in itsel%#
never merely as a means. An other words, we may not use or manipulate others to
achieve our own happiness! An the e#ample above, you are using the individualentity
that you are borrowing from bc if they knew all the facts, they wouldn:t agree to the
loan!
+odern 'ights Theories
8ropose mi#ed deontological theories bc strict )antianism:s duties are absolute and
sometimes create inappropriate results! (&ne can '()(* lie or ill even though in some
circumstances ++ such as sel%+de%ense ++ it may be acceptable to do so.)
+bide by a moral rule unless a more important rule conflicts with it! 4An other words,
don:t compromise a person:s right unless a greater right takes priority over it!% For
example# members o% society have a right '&, to be lied to. -owever# i% you could save
someone$s li%e by telling a %alsehood# such as '&, telling a criminal the true location o%
a witness who will testi%y against him# you would be compelled under the modern theory
to save the witness$ li%e by '&, telling the truth.%
+a,or Strength:
At protects fundamental rights unless some greater right takes precedence!
+a,or Criticisms:
Difficult to achieve agreement about which rights are protected! 4&ights fundamental to
industriali?ed nations may be unknown or severely restricted in developing nations. (.g.#
certain %reedoms# the treatment o% women O& 9ven wn a country, citi?ens may disagree
about the ranking of rights! (.g.# .ome Americans argue that the right to health care is an
important need that should be met by the gov$t or a person$s employer while others are
opposed to %unding universal health care b/c they want gov$t intervention limited.%
Doesn:t consider the costs or benefits associated wrights
Creates a sense of entitlement that may have a negative impact on motivation! (e.g.# "% one is
entitled to a 0ob# a place to live# %ood and healthcare regardless o% how hard he wors# he
may not be motivated to wor to earn those things.)
.ummary:
%etermine whether anyone-s rights are negatively aected .y an alternative/
0#STIC$ T($)'*
Hohn &awls, published A ,heory o% 1ustice, in $6=$
+rgued it was right for gov:ts to redistribute wealth in order to help the poor and
disadvantaged!
Greatest Li.erty "rinciple1 9ach person has an e"ual right to basic rights and liberties!
This is limited by the %ierence "rinciple1 .ocial ine"ualities are acceptable only if they
cannot be eliminated without making the worst-off class even worse off!
Focus is on outcomes! +re people getting what they deserveG
Strength1 -asic premise - The protection of those who are least advantaged in society!
Criticisms1 Doesn:t e#amine the costs of producing the e"uality!
.ummary:
Choose the alternative that allocates society-s .eneits and .urden most airly/
#TILIT1'I12IS+
Adentified most with $6
th
century philosophers Heremy -entham and Hohn .tuart Mill
&e"uires a decision maker to ma#imi?e utility for society as a whole
Ma# 5tility N achieving the highest level of satisfactions over dissatisfactions
At Cudges our actions based on outcomes 4teleological%
Strength: 9asy to articulate the standard of conduct E Merely do what is best for society as
a whole!
Criticisms:
Difficulty in measuring benefit @ harm to all members of society!
5ne"ual distribution of costs @ benefits may lead to detrimental results for a
particular class or group of people!
.umamry:
Choose the alternative that promises the highest net welare to society as a whole/
"')FIT +13I+I41TI)2
Ma#imi?e the business: long-run profits within the limits of the law
-ased on the 2aisse Faire Theory of Capitalism first e#pressed by +dam .mith in the $>
th

century
+rgues total social welfare is optimi?ed if humans are permitted to work toward their own
selfish goals
The role of gov:ts and the law is limited solely to ensuring the workings of a free market 4by
KOT interfering weconomic liberty, eliminating collusion among competitors, @ promoting
accurate information in the marketplace!
Strength: +llocation of society:s resources to those units that are most efficient increases
overall productivity and ma#imi?es total social utility!
Criticisms:
Doesn:t concern itself with /OF wealth is allocated in society! (%or example# in the
3.A# 456 o% our wealth is held by 756 o% the population).
Market imperfections and a person:s station at birth interfere whis ability to compete.
The ability of laws and market forces to control corporate behavior is limited
.ummary: Choose the alternative that produces the most long5run proits or the company
within the limits o the law/
ETHICS IN MARKETING : (Unfair practices)
1. ADULTERATION
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9thics in ,inance 45nfair practices%
$!Ansider Trading
'!,inancial .ervices
i% Deception 4,alse claims that are capable of being disaproved%
ii% Churning 49#ercise or inappropriate trading for a clientBs account by a broker who has
control over the account with intent to generate commissions rather than benefit the clients!%
iii% .uitability4only recommend suitable securties and financial products to investors!not the
products which suit them rather than the client
9thics in /uman &esources Manangement 1
$!Discrimination
'! whistle -lowing 1
(! occupational health care
*! suitable health care
;! +ppropriate salary
<! &ecognition of work life issues
=! commitment to improvement
>! ,ormation of "uality of work life teams
6! Training to facilitators
$J! conduct focus groups
$$! +naly?e information from focus group
$'! identify and implement improvement opportunities!
$(! &eward and recognition!
$*! 8rovide growth opportunities
$;! &espect and boosting self-esteem !
$<! 8rovide vision!
$=! Mutual commitment
$>! 8rovide good working environment
$6! 9mpowerment
'J! /iring the right people
'$! worklife balance
''! out of the way help!
9thics An Anformation Technology
$! 8rivacy
'! +ccuracy
(! 8roperty
*! +ccessibility
9thics in Antellectual 8roperty &ights
$! Copyright
'! patent
(! trademark
*! design
9thical issues of intellectual property
$! using the writing or property of someone else with out permission!
'! Misuse of software
(! Making and using pirated software and hacked accounts!
*! .ecret distribution of information to others!