The Role of SEBI in Corporate Governance

The Securities and Exchange Board of India regulates India's securities market. Established in 1992, the Securities Exchange Board of India is essential to corporate governance of India's securities market, as it serves as the central body that ensures investors are protected and the securities market is regulated.

1. Governance
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Corporate governance is the manner in which companies or market systems operate, including the rules, regulations, policies and standards for accountability, transparency and general corporate integrity.

Origins
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SEBI was formed after the Indian Parliament passed the Securities and Exchange Board of India Act, 1992 in response to the Financial Services Assessment Programme, a program developed by the World Bank and International Monetary Fund that observes and reports on global financial systems. The Indian government wanted to establish a strong financial atmosphere and securities market with a regulator promoting the latest in corporate governance standards.

Functions
SEBI sets governance standards in which the securities market must operate, protecting the rights of issuers and investors. SEBI has power to investigate circumstances where the market or its players have been harmed and can enforce governance standards with directives. An appeal process in place ensures accountability and transparency. SEBI may terminate from the securities list any company that does not comply with its governance standards and regulations. 2. Utilitarianism is Egalitarian An oft-cited strength of utilitarianism is that it is egalitarian, that it treats everyone equally irrespective of their class or status. Utilitarianism is concerned only with the amount of happiness that is in the world: it holds that we ought to maximise pleasure minus pain; it doesnt care who it is that is happy. This means that utilitarianism doesnt treat some people (celebrities, the rich, etc.) as any more valuable than everyone else. How rich or famous you are makes no difference on utilitarianism; all that matters when we are deciding what we ought to do is the amount of happiness that we can bring into the world. There are, however, several problems with this as a consideration counting in favour of utilitarianism. First, it is questionable whether utilitarianism is egalitarian. Although utilitarianism doesnt favour individuals just because they are rich or famous, it does favour people on
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other grounds. If I have a greater capacity for pleasure or pain that you do (I get very emotional, youre quite stoical) then utilitarianism will say that my interests are more important than yours. That isnt egalitarian; its prejudice towards me. 7. This problem stems from the fact that on utilitarianism people arent intrinsically valuable. On utilitarianism, only happiness is intrinsically valuable; people are valuable only insofar as they are receptacles for happiness. 8. Second, it can be argued that utilitarianism is too egalitarian. Some people (e.g. generous, compassionate, law-abiding citizens) do deserve to be treated better than others (e.g. violent criminals, lay-abouts). When we have to choose who it is that we will make happy, we are right to favour the former over the latter. Utilitarianism cannot account for this; it says that we should treat all people equally. 9.
10. Egalitarianism (from French gal, meaning "equal") is a belief of thought that favors equality of some sort. Its general premise is that people should be treated as equals on certain dimensions such as race, religion, ethnicity, political affiliation, economic status, social status, and cultural heritage. Egalitarian doctrines maintain that all humans are equal in fundamental worth or social status.[1] In large part, it is a response to the abuses of statist development and has two distinct definitions in modern English.[2] It is defined either as a political doctrine that all people should be treated as equals and have the same political, economic, social, and civil rights[3] or as a social philosophy advocatingthe removal of economic inequalities among people or the decentralization of power. 11. An egalitarian believes that equality reflects the natural state of humanity.[4][5][6] 12. Egalitarianism is the opposite of elitism. 13. An egalitarian system seeks "equal pay for equal work". A strictly egalitarian system also seeks to remove class and social barriers in the way people live and work. 14. Utilitarianism (also: utilism) is the idea that the moral worth of an action is determined solely by its usefulness in maximizing utility and minimizing negative utility (utility can be defined as pleasure minus pain, preference satisfaction, knowledge or other things) as summed among all sentient beings. It is thus a form ofconsequentialism, meaning that the moral worth of an action is determined by its outcome. The most influential contributors to this theory are considered to be Jeremy Bentham and John Stuart Mill. 15. Utilitarianism was described by Bentham as "the greatest happiness or greatest felicity principle".[1] Utility, the good to be maximized, has been defined by various thinkers as happiness orpleasure (versus suffering or pain), although preference utilitarians define it as the satisfaction of preferences. It may be described as a life stance, with happiness or pleasure being of ultimate importance. 16. Utilitarianism can be characterised as a quantitative and reductionist approach to ethics. It can be contrasted with deontological ethics (which do not regard the consequences of an act as a determinant of its moral worth) and virtue ethics (which focuses on character), as well as with othervarieties of consequentialism.

17. In general usage, the term utilitarian refers to a somewhat narrow economic or pragmatic viewpoint. Philosophical utilitarianism, however, is a much broader view that encompasses all aspects of people's life Both rule utilitarianism and act utilitarianism are teleological (from the Greek for "end", "purpose", or "goal") meaning that they are consequential, however Bentham's act utilitarianism is primarily absolutist, even though it is much more free than theories such as those put forward byImmanuel Kant. This means that in all acts require "Felicific calculus" to achieve "the greatest pleasure for the greatest number." Therefore there are definite rules and codes as to what the person must do in each situation to benefit the most people. The hedonic calculus is what Bentham thought all people must do before deciding the utility of the certain act in question. It is dependent on:

Its intensity. Its duration. Its certainty or uncertainty. Its propinquity, or remoteness. Its fecundity, or the chance it has of being followed by similar sensations: that is, pleasures, if it is pleasure: pains, if it is pain. Its purity, or the chance it has of not being followed by, sensations of the opposite kind: that is, pain, if it is pleasure: pleasure, if it is pain.

Its extent (the number of people who are affected by it).

However, Mill's rule utilitarianism is much more relative in that he encourages people to do acts that are pleasurable to themselves as long as they are what he calls a "higher pleasure" for example, the arts like literature, poetry, the opera. However, the meta-ethics of rule utilitarianism can be questioned as they are much more absolutist, since Mill is absolute in what he values as a higher pleasure. -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Ethics are a collection of principles of right conduct that shape the decisions people or organizations make. Practicing ethics in marketing means deliberately applying standards of fairness, or moral rights and wrongs, to marketing decision making, behavior, and practice in the organization. In a market economy, a business may be expected to act in what it believes to be its own best interest. The purpose of marketing is to create a competitive advantage. An organization achieves an advantage when it does a better job than its competitors at satisfying the product and service requirements of its target markets. Those organizations that develop a competitive advantage are able to satisfy the needs of both customers and the organization. As our economic system has become more successful at providing for needs and wants, there has been greater focus on organizations' adhering to ethical values rather than simply providing products. This focus has come about for two reasons. First, when an organization behaves ethically, customers develop more positive attitudes about the firm, its products, and its services. When marketing practices depart from standards that society considers acceptable, the market process becomes less efficientsometimes it is even interrupted. Not employing ethical

marketing practices may lead to dissatisfied customers, bad publicity, a lack of trust, lost business, or, sometimes, legal action. Thus, most organizations are very sensitive to the needs and opinions of their customers and look for ways to protect their long-term interests. Second, ethical abuses frequently lead to pressure (social or government) for institutions to assume greater responsibility for their actions. Since abuses do occur, some people believe that questionable business practices abound. As a result, consumer interest groups, professional associations, and self-regulatory groups exert considerable influence on marketing. Calls for social responsibility have also subjected marketing practices to a wide range of federal and state regulations designed to either protect consumer rights or to stimulate trade. The Federal Trade Commission (FTC) and other federal and state government agencies are charged both with enforcing the laws and creating policies to limit unfair marketing practices. Because regulation cannot be developed to cover every possible abuse, organizations and industry groups often develop codes of ethical conduct or rules for behavior to serve as a guide in decision making. The American Marketing Association, for example, has developed a code of ethics (which can be viewed on its Web site at www.ama.org). Self-regulation not only helps a firm avoid extensive government intervention; it also permits it to better respond to changes in market conditions. An organization's long-term success and profitability depends on this ability to respond.

Every advancement in information technology is accompanied by at least one ethical quandary. From Facebook to email updates, computer users are unaware of the fine balance between ethics and profit struck by providers. Software developers, businesses and individuals must think about the rights and wrongs of using information technology every day. The fundamental issues underlying the world of information technology are the end user's expectation of privacy and the provider's ethical duty to use applications or email responsibly.

1. Data Mining
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Data mining covers a wide range of activities that turn numbers, words and other data into distinguishable patterns. In the hands of a responsible agency or business, data mining can determine a probable next step for a terrorist cell or determine buying patterns within demographic groups. This practice has been assailed in the post 9/11 world as part of a widespread pattern of invasions of privacy carried out by America's intelligence experts. The practices of the Total Information Awareness Progress in particular were thought to pry into the day-today lives of innocent people by IT ethics experts and civil libertarians.

Social Networking
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The social networking craze may allow people around the world to speak with each other but it has also brought up several IT ethics issues. Facebook initiated a program called Beacon in 2007 to turn each user's personal information into an

advertisement, allowing a greater amount of connectivity between the website's members. Facebook's developers failed to create an opt-in system that gave willing users the chance to participate of their own accord. Beacon came under fire for pulling information from Facebook profiles and breaking down privacy boundaries common in the real world. Another ethical issue for social networking websites is the amount of security they should use when registering members. Several abductions in recent years have been connected to MySpace, bringing up concerns that social networking sites aren't doing enough to protect young users.

E-Mail Spam
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Spam is defined broadly as emails with commercial or profane messages that are sent blindly to hundreds and thousands of users. Aside from the content of spam email, the major ethical issues for service providers and individuals alike involve identifying spammers. Email programs through AOL and Yahoo! may identify some spammers who are brazen enough to send out millions of emails but their spam programs rely largely on user feedback. While some users will identify legitimate spammers carrying viruses and pornographic messages, there is the potential for users to identify legitimate companies as spammers.

Intellectual Property and Information Technology

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The merger of intellectual property rights and information technology has been rough going since the 1990s. The advent of Napster, Limewire and other peer-topeer downloading networks brought the issue of infringing on artistic property to the fore. NBC's exclusive rights to the 2008 Olympic Games were challenged by bloggers and online pirates who placed footage on YouTube. The ethical issue that arises when dealing with intellectual property in the virtual world is the length to which content producers should pursue permission to reprint images and articles. While lifting entire articles for a term paper is clearly unacceptable, there are questions from ethicists about the practicality of seeking out unknown artists and writers for something as minor as a blog.

Filtering Online Content

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Comcast has come under fire in the past two years for blocking downloads from Bit Torrent. The Internet service provider (ISP) has claimed that "throttling down" downloads via Bit Torrent is a reasonable element of maintaining high-speed service. Religious groups, adult websites and others have banned together in an unusual alliance to fight Comcast's effort to filter content. The major ethical debate raged between ISP, the Federal Communications Commission (FCC) and end users is whether Internet service should be content-neutral.

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Government intervention in the market sets out to attain two goals: social efficiency and equity. Social efficiency is achieved at the point where the marginal benefits to society for either production or consumption are equal to the marginal costs of either production or consumption. Issues of equity are difficult to judge due to the subjective assessment of what is, and what is not, a fair distribution of resources. Externalities are spillover costs or benefits. Whenever there are external costs, the market will (other things being equal) lead to a level of production and consumption above the socially efficient level. Whenever there are external benefits, the market will (other things being equal) lead to a level of production and consumption below the socially efficient level. Public goods will be underprovided by the market. The problem is that they have large external benefits relative to private benefits, and without government intervention it would not be possible to prevent people having a free ride and thereby escaping contributing to their cost of production. Monopoly power will (other things being equal) lead to a level of output below the socially efficient level. It will lead to a deadweight welfare loss: a loss of consumer plus producer surplus. Ignorance and uncertainty may prevent people from consuming or producing at the levels they would otherwise choose. Information may sometimes be provided (at a price) by the market, but it may be imperfect; in some cases it may not be available at all. Markets may respond sluggishly to changes in demand and supply. The time lags in adjustment can lead to a permanent state of disequilibrium and to problems of instability. In a free market there may be inadequate provision for dependants and an inadequate output of merit goods. Taxes and subsidies are one means of correcting market distortions. Externalities can be corrected by imposing tax rates equal to the size of the marginal external cost, and granting rates of subsidy equal to marginal external benefits. Taxes and subsidies can also be used to affect monopoly price, output and profit. Subsidies can be used to persuade a monopolist to increase output to the competitive level. Lump-sum taxes can be used to reduce monopoly profits without affecting price or output. Taxes and subsidies have the advantages of internalising externalities and of providing incentives to reduce external costs. On the other hand, they may be impractical to use when different rates are required for each case, or when it is impossible to know the full effects of the activities that the taxes or subsidies are being used to correct. An extension of property rights may allow individuals to prevent others from imposing costs on them. This is not practical, however, when many people are affected to a small degree, or where several people are affected but differ in their attitudes towards what they want doing about the problem. Laws can be used to regulate activities that impose external costs, to regulate monopolies and oligopolies, and to provide consumer protection. Legal controls are often simpler and easier to operate than taxes, and are safer when the danger is potentially great. However, they tend to be rather a blunt weapon. Regulatory bodies can be set up to monitor and control activities that are against the public interest (e.g. anti-competitive behaviour of oligopolists). They can conduct investigations of specific cases, but these may be expensive and time consuming, and may not be acted on by the authorities. The government may provide information in cases where the private sector fails to provide an adequate level. It may also provide goods and services directly. These could be either public goods or other goods where the government feels that provision by the market is inadequate. The government could also influence production in publicly owned industries. Government intervention in the market may lead to shortages or surpluses; it may be based on poor information; it may be costly in terms of administration; it may stifle incentives; it may be disruptive if government policies change too frequently; it may not represent the majority of voters interests if the government is elected by a minority, or if voters did not fully understand the

issues at election time, or if the policies were not in the governments manifesto; it may remove certain liberties. By contrast, a free market leads to automatic adjustments to changes in economic conditions; the prospect of monopoly/oligopoly profits may stimulate risk taking and hence research and development and innovation, and this advantage may outweigh any problems of resource misallocation; there may still be a high degree of actual or potential competition under monopoly and oligopoly. There are two views of social responsibility. The first states that it should be of no concern to business, which would do best for society by serving the interests of its shareholders. Social policy should be left to politicians. The alternative view is that business needs to consider the impact of its actions upon society, and to take changing social and political considerations into account when making decisions. This is good business. The virtue matrix is a means of illustrating the drivers of corporate social responsibility. Firms will take socially responsible actions if they are required to by law or if social norms dictate. These pressures on firms represent the civil foundation. Some firms will take corporate social responsibility further and thus move into the frontier. Here they may do things that are socially beneficial and may only possibly lead to higher profits, or may even clearly reduce profits. As firms become more socially responsible over time and as social pressures on business increase, so the civil foundation is likely to grow. Evidence suggests that economic performance is likely to be enhanced as the corporate responsibility of firms grows.

------------------------------------------------------------------------------------------------------------------------For over a decade, the Confederation of Indian Industry (CII) has been at the forefront of the corporate governance movement in India. In April 1998, it released a Task Force report entitled Desirable Corporate Governance: A Code, which outlined a series of voluntary recommendations regarding best-inclass practices of corporate governance for listed companies. It is worth noting that most of the CII Code was subsequently incorporated in SEBIs Kumar Mangalam Birla Committee Report and thereafter in Clause 49 of the Listing Agreement. Moreover, the CII Code was the first and probably a unique instance where an industry association took the lead in prescribing corporate governance standards for listed companies.

Corporate governance guidelines - both mandated and voluntary - have evolved since 1998, thanks to the efforts of several committees appointed by the Ministry of Corporate Affairs (MCA) and the SEBI. Indeed, it is fair to say that in terms of norms, guidelines and standards set for the board of directors, financial and non-financial disclosures and information to be shared by the management to stakeholders and the wider public, Indian corporate governance standards rank among the best in the world. And CII is privileged to be a part of this movement. Unfortunately, history tells us that even the best standards cannot prevent instances of major corporate misconduct. This has been true in the US Enron, Worldcom, Tyco and, more recently gross miss-selling of collateralised debt obligations; in the UK; in France; in Germany; in Italy; in Japan; in South Korea; and many other OECD nations. The Satyam-Maytas Infra-Maytas Properties scandal that has rocked India since 16th December 2008 is another example of a massive fraud. Satyam is a one-off incident - especially considering the size of the malfeasance. The overwhelming majority of corporate India is well run, well regulated and does business in a sound and legal manner. However, the Satyam episode has prompted a relook at our corporate governance norms and how industry can go a step further through some voluntary measures.

With this in mind, the CII set up a Task Force under Mr Naresh Chandra in February 2009 to recommend ways of further improving corporate governance standards and practices both in letter and spirit. The recommendations of the Naresh Chandra Task Force evolved over a series of meetings. The leitmotif of the report is to enunciate additional principles that can improve corporate governance in spirit and in practice. The report enumerates a set of voluntary recommendations with an objective to establish higher standards of probity and corporate governance in the country.

The recommendations outlined in this report are aimed at listed companies and wholly owned subsidiaries of listed companies. Another comment is in order. Large, highly visible and publicised corporate scandals often provoke legislative and regulatory actions. CII advocates caution against over-regulating. It needs to be recognised that while the super-structure of corporate governance is built on laws and regulations, these cannot be anything more than a basic framework. Much of best-in-class corporate governance is voluntary - of companies taking conscious decisions of going beyond the mere letter of law. The spirit of this Task Force Report is to encourage better practices through voluntary adoption - based on a firm conviction that good corporate governance not only comes from within but also generates significantly greater reputational and stakeholder value

when perceived to go beyond the rubric of law.

Therefore, it is only natural that this report should focus on recommendations, which are being placed before corporate India for adopting voluntarily. It is the belief of CII that Indian Industry would respond spontaneously and help set standards, which would define global benchmarks in the medium term.

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