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 | 

  
|
O It is a Business entity with different
µstakeholders¶ who contribute Capital, labour, &
know-how for mutual benefit.
O Management runs the business, not responsible
for providing funds.
O Stakeholders share the profit, not responsible for
operations.
O They elect µDirectors¶ who has authority &
responsibility to run the organization, establish
corporate policies.
O Board of directors supervises top management,
governs the corporation.
|

 


O ÿey aspects of good governance according to NFCG
includes: accountability, transparency & equality of
treatment for all stakeholders.
O Transparency or Corporate structure and operations
O The Accountability of Managers and the board to share
holders
O The Corporate responsibility towards employees creditors,
suppliers, and local communities
O µCorporate Governance¶ means relationship among three
groups ± Board of Directors, Shareholders, Stakeholders &
Top Management in determining the direction &
performance of the Organization.
O Board of directors involves in selection of Mission &
Objective, appoint the CEO (Chief Executive Officer),
O CEO is a Strategist, organization builder & Leader.
O Functions according to µIndian companies Act¶.
|

 


O The corporate governance mechanism in India include both
mandatory & Voluntary regulations. The major regulations
are:
Î The Companies Act, 1956.
Î The Securities Contract (Regulations) Act 1956.
Î The Securities Contract (Regulations) Amendment Act 2007.
Î The Securities & Exchange Board of India Act, 1992.
Î The Depositors Act, 1996.
Î The listing agreement with stock exchange
Î Various Committee reports.
Î An independent & professional agency, ICRA (Investment
Information & Credit Rating Agency) provides rating on
corporate governance. Based on variables such as
shareholding structures, executive management processes,
stakeholders relationship, transparency & disclosures &
financial discipline.
|

 
 |
O A ë

 is a mechanism established to allow different
parties to contribute capital, expertise, & labour for their
mutual benefit.
O |



ë refers to the relationship between
Board of directors, Top management, Stake holders &
Share holders, in determining the direction & performance
of the corporation.
O Management runs the company, but don¶t provide the funds
personally.
O Share holders/Investors take profit of enterprise without taking
responsibility for the operation.
O BOD approves all decisions that might affect the long-run
performance of the corporation.
O Responsibilities of BOD (Board of Directors)
Î Setting corporate strategy, overall direction, mission, or vision.
Î Hiring & Firing the CEO & Top management.
Î Controlling, monitoring, or supervising top management.
Î Reviewing & approving the use of resources.
Î Caring for share holder¶s interest.
 |

 
 |
O Board of Directors Continuum
O º
  
 




LOW (Passive) HIGH (Active)

Phantom Rubber Minimal Nominal Active Catalyst

Stamp Review Participation participation

Never Permits Reviews Involved to Approves, Takes active role

knows officers selected a limited questions & in establishing/
what to to make issues that degree in make final modifying
do. No all officers the decisions on mission,
degree of decision bring to its performance mission, objectives, etc.
involvem s. attention. or review of strategy, Has active
ent. selected key policies& strategy
decisions. objectives. committee.
Has active
board
committees.
|

 
 |
O Management duties:
O m  ë 
 | 
ë
ë


ë
  

 ë 

 
ë

 ë 
Î Assisting the BOD in its decision making process in respect of
company¶s strategy, policies, code of conduct & performance targets,
by providing necessary inputs.
Î Maximize the shareholders value without being detrimental to the
interests of other stakeholders
Î Implementing the code of conduct of the Board.
Î Manage the day to day affairs of the company to best achieve the
targets & goals set by the Board, to maximize the shareholders value.
Î Providing timely, accurate, substantive material information, including
financial matters to the board, board committees, & the shareholders.
Î Ensuring compliance of all regulations & Laws.
Î Ensuring timely & efficient service to the share holders & to protect
shareholders rights & interest.
Î Setting up & implementing an effective internal control system,
commensurate with the business requirements.
Î Co-operating & facilitating efficient working of board committees.

O The Board of most corporations are composed of both
Inside & Outside directors. (Max of ten to twelve directors).
Elected by share holders.
O Inside directors ± called Management directors, are officers
or executives employed by corporation.
O Outside directors ± called Non-management directors, may
be executives of other firms, not employees of the
corporation.
O In India Section 291 of the Indian Companies Act, 1956
enlists the general powers of the Board.
|

O CSR is integral part of corporate strategy.
O CSR means µopen & transparent¶ business
practices based on µethical values¶ and respect
for employees, communities, and the
environment.
O To deliver sustainable value to society and to
shareholders.
O Research studies show a positive correlation
between Social responsibility and Financial
performance of firms.
|
 
O CSR theories and related approaches are
classified in to four groups:
Î m 
 m 
, Corporation is seen as
instrument for wealth creation, it¶s social activities are
only a means to achieve economic results.
Î ? ëm 
, Concerns with power of corporations
in society and responsible use of this power in political
arena.
Î 

m 
, Corporation is focused on the
satisfaction of social demands.
Î  ëm 
, based on ethical responsibilities of
corporations to society. Ethics include Values (Desirable
behaviour & Norms (Specific expectation).
|!"#
#
O Carroll¶s Four Responsibilities of Business
O Economic responsibilities of a business organization is to produce
goods & services of value to society and make profit so that the
firm can repay its creditors & share holders.
O Legal responsibilities: Government laws that management is
expected to obey.
O Ethical responsibilities: Managements are to follow the generally
held beliefs about behaviour in a society. Follow ethical values.
O Discretionary responsibilities are purely voluntary obligations a
corporation assumes. E.g Philanthropic contributions, training the
un-employed, providing day care centres, etc.
O A business must make a profit to satisfy its economic
responsibilities. To continue in existence, the firm must follow the
laws (legal responsibilities)
Social Responsibility
Discretio
ECONOMICS LEGAL ETHICAL nary
(MUST DO) (HAVE TO DO) (SHOULD DO) Might Do
|!"#
#
O Having satisfied two basic responsibilities, the firm looks to
satisfy its social responsibilities. Which includes both ethical
& discretionary responsibilities.
O Discretionary responsibilities of to-day may become ethical
responsibilities of tomorrow. e.g day-care centres.
O Socially responsible firms may provide a company a
competitive advantage.
O Their environmental concerns may enable them to charge
premium prices & gain brand loyalty.
O Their trustworthiness may help them generate enduring
relationship with suppliers & distributors.
O They can attract outstanding employees who prefer
working for a responsible firm.
O They are likely to be welcomed in to a foreign country.
O They can utilize good-will of public officials for support in
difficult times.
O Helps in long term investments from capital investors.

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O According to Archie Carroll Organizations have
four responsibilities:
Î To produce goods and services of value to society.
Î They should obey the laws of the land.
Î Responsible for ethical behaviour ± to follow generally
held beliefs about behaviour in a society.
Î Discretionary responsibilities ± voluntary obligations,
such as training to farmers, rural development schemes,
welfare homes, etc.
O Canara Bank established 50 Rural development
and Self-employment Institutes. Implemented 40
drinking water facilities. For women
empowerment, set up, Centre for
entrepreneurship development for women & 3
Mahila Banks

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O Tata Consultancy Services (TCS) promotes wild
life preservation & supports nature.
O Employee¶s association µMaitree¶ involved in
Community development programmes
(Orphanage, old age homes, school for street
children, Children¶s hospital, library & charity
work.
O Syndicate Bank promoted adoption of new
technology in the field of agriculture to improve
productivity & efficiency. Conducts rural
education programmes.
# 
O Ethics is a discipline which deals with
µGood & Bad¶ , µMorality & Obligation¶.
O Ethics is concerned with Truth, Justice,
Fair competition, Advertising, Integrity,
Loyalty, Public relations, Customer care,
Environmental care, Care for minimum
working conditions, Social responsibilities,
Consumer autonomy, Patriotism,
Expectation of society & Corporate
behaviour.
O Code of ethics for the organization.
#
O Values are those which are considered to
be desirable by Individuals.
O It is a view of life & judgement of what is
desirable.
O It is part of a person¶s personality & a
group¶s morale.
O Tata¶s Value:
Î Public recognition of Honesty, Reliability &
Trust worthiness.
Î Employees are loyal, share a common belief,
they feel they are different from others.
#
O Areas where ethical practices are needed:
Î Recruitment and selection.
Î Incorporate values & ethics in employee
training.
Î Top management as a role model.
Î Top management and superiors compliance
with ethical standards.
#
O Lack of involvement in work.
O Lack of pride in work.
O No concern for self-development.
O No concern for health and well being.
O No recognition for merit and human
dignity.
O Too much emphasis on financial security,
irrespective of rightful means of pursuing
it.
O These bad values give rise to kickback,
bribes, whistle blowing, etc.
&  '#
O  ë 
 

ë :
Î Misuse of confidential information.
Î Abuse & misuse of power.
Î Poor quality of goods & services.
Î Insider trading & corruption.
Î Receiving gifts or favours from suppliers.
Î Dealing with Government agencies.
Î Bribery, Adultery, Sexual harassment,
Misappropriation of funds, Religious
discrimination.
Î Infighting & unhealthy atmosphere.
 (  
O There are three types of theories:
å m 
m 
: Suggest that plans &
actions should be evaluated by their
consequences. Should produce greatest benefits
to greater number of people. Satisfaction of all.

 m 
: All people have basic rights and
it should be respected in all decisions. Decisions
which interfere with individual¶s freedom should
be avoided.
 ëm 
: Decision makers should be
guided by fairness and equity as well as
impartiality. Principle of Distributive Justice.
)$*#
O They should set an example in terms of Values &
Ethics.
O Such values should be incorporated in firm¶s
policies and practices.
O Employers are to pay fair wages, to provide safe
working condition & respect employee¶s rights.
O Avoidance of work place surveillance,
discriminatory practices in recruitment &
promotion, termination on the basis of sex,
religion, caste etc.
O Avoidance of these will enhance CBM( confidence
building measures)
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ë  
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"
Î Man¶ unique inner voice
Î Holistic relationship
Î Self management
Î Yoga & Meditation
Î Dharma
Î Work is Worship
The spirit of renunciation
Respect for elders
Respect for hierarchy
Need for security
Importance of relationship
Simple living, high ideals
 | 

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Î THE INDUSTRY, IT BELONGS TO
O Industry profitability/ attractiveness (software is more
profitable than pharmaceutical)
Î THE NATION IT IS LOCATED
O Some nations enjoy competitive advantage in certain
industries (Successful automobile & electronic goods in Japan,
Pharmaceutical in USA)
Î IT¶S OWN RESOURCES, CAPABILITIES & STRATEGIES
O Strongest reason for success or failure of a firm
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1. The recommendations are divides into µMandatory¶ (absolutely
essential for corporate governance) & µNon-Mandatory¶
(desirable & may require change of law) categories.
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1. Will apply to all listed private and public sector companies. Their
directors, management, employees, & professionals associated
with the company.
2. BOD must be accountable to shareholders at all times. Their
tenure as per the companies Act.
3. Should have Executive & Non-Executive directors (not less than
50%), a part of whom are independent.
4. Non-Executive independent directors have no relationship with
management or promoters.
5. BOD must comprise of individual with certain personal
characteristics & core competencies, integrity, sense of
accountability, track record of achievement, ability to ask tough
questions, having financial literacy, experience, leadership
qualities, ability to think strategically, must show significant
degree of commitment to the company, devote adequate time
for meetings
 ÿ#*)$*|**
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1. Adequate compensation should be given to non-executive independent

directors.
2. Independence of the board is critical for having management
accountable to shareholders.
3. Insiders do not use their position of knowledge & access to inside
information about the company and take unfair advantage in transacting
in the securities of company.
4. In case a company has a non-executive chairman of board, at least one-
third of board should comprise of independent directors.
9. In case a company has an executive chairman, at least half of board
should be independent.
10. Non-Executive Chairman should be entitled to maintain a Chairman¶s
office at company¶s expense.
11. An Audit committee should have minimum of three members, all being
non-executive directors, two of them independent. One should be expert
in finance & accounting. Chairman a Independent director.
12. Audit committee Chairman must attend the AGM to answer the queries
of shareholders.
13. Audit committee should meet at least thrice a year.
ÿ#*)$*|**
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9. Disclosures must be made by management to board relating to
all material financial & commercial transactions.. Eg dealing in
company¶s shares, commercial dealings with bodies, which have
shareholding of management and their relatives.
10. Shareholders must be provided with brief resume of all
directors.
11. A committee should be set up under the Chairmanship of Non-
Executive director to look into the redress & grievances of
shareholders complaints, like transfer of shares, non-receipt of
balance sheet & dividends etc.
18. The Institutional shareholders should active interest in thy
composition of the Board of Directors, in the management,
strategy, performance, be vigilant and evaluate corporate
performance of the company.
19. Recommends that SEBI writes to Central Government to amend
the Securities (Regulation) Rule, 1957 for incorporating the
mandtory provisions of this report.
20. The Securities Contracts (Regulation) Act, 1956 be amended to
empower SEBI & Stock Exchange to take deterrent &
appropriate action in case of violation of the listing agreement.
ÿ#*)$*|**
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**
19. SEBI to write to Department of Company Affairs
for amendments to the Companies Act.
20. The Annual Report of Companies should contain
separate section on Corporate Governance. Non
compliance of any mandatory recommendations
should be highlighted.
21. Management should arrange to obtain a
Certificate from Auditors of the Company
regarding compliance of mandatory
recommendations. It should be sent to all
shareholders of company & to Stock exchange
along with annual returns filed by the company.
22. Ultimate responsibility for putting the
recommendations into practice lies directly with
the Board of Directors & the Management of the
Company.