Business Ethics, Corporate Governance & CSR

MCT-O64

Prof. S.K.Palhan

skpalhan@selfeffectiveness.com

Business Ethics, Corporate Governance &

Corporate Social Responsibility

It would be covered in the following 4 sessions

1.Introduction to corporate governance 2.Framework 3.Ethics in society & business 4.Corporate social responsibility

Session-1 Introduction to Corporate Governance

• Fundamentals of corporate governance

• Definition of corporate governance

• The concept of corporate governance

• Importance of corporate governance

Session-2 Framework of Corporate Governance

• Frame work • The key players • Elements of good corporate governance • Commonly accepted principals of corporate

governance • Major issues in corporate governance • Mechanisms for control

– Internal – External

• Good practices in corporate governance

Session -3 Ethics in Society & Business

• Ethics & their relevance

• Dimensions of responsibility

– National interest

– Legal

– Ethical behaviour

Session-4 Corporate Social Responsibility

• Importance of corporate social responsibility

• Steps to implement CSR

• Financial implication of CSR

• Role of social audit in CSR

• Conclusion

Session-1

• Fundamentals of Corporate Governance

Fundamentals of Corporate Governance

• Corporate governance is the set of processes , customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. – Set of processes-e.g. for selection of board members,

accounting, audit, dividend declaration etc. – Customs –i.e. the way business is conducted – Policies –related to employment, customers, import,

environment etc – Laws – e.g. company law, tax laws , labour laws etc. – Institutions – like SEBI, RBI, IRDA, TRAI which direct or

control the operation / administration of a corporate

Fundamentals of Corporate Governance

• Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.

• Stakeholders are persons or organizations which are affected positively or negatively by the operation of the corporate, now or in future

Corporate Governance

• The principal stakeholders are the promoters ,shareholders/members, management, and the Board of Directors. Other stakeholders include labour (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large.

Stakeholders • Internal

– Management

– employees

• External

– Customers

– Investors

– lenders

– Suppliers

• Regulatory

– Government e.g. SEBI, RBI, IRDA, TRAI, Environmental Laws etc.

• Social

– Local community

– NGOs

Stakeholder an example in a corporate building a hydro project • Internal

– Promoters ,Management,

– project leader, employees

• External

– Customers- state government, local municipality

– Investors- Financial institutions, individuals through IPO, world bank, LIC, Pension funds

– Lenders- debentures or Banks,

– Suppliers- of materials, consultancy, equipment, manpower etc.

• Regulatory

– Government e.g. SEBI, RBI, NHPC, Environmental Laws etc.

• Social

– Local community : displaced by the project , or getting employment

– NGOs, social activists etc

Stakeholders

• Managing stakeholders is very important for any corporate to run effectively

• e.g. Tehri dam project ran into many problems since the local persons displaced by the project could not be managed effectively by the project authorities & this lead to

– Delay in execution

– Increase in cost of project

Corporate Governance- another definition; comprehensive

• It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.

Corporate Governance- another definition; comprehensive

• It is a system of • structuring, operating and controlling a company • with a view to achieve long term strategic goals

– to satisfy shareholders, – creditors, – employees, – customers and suppliers,

• and complying with the legal and regulatory requirements,

• apart from meeting environmental and local community needs.

SEBI definition

• Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.

Corporate Governance SEBI definition

• Defines corporate governance as – the acceptance by management of the inalienable

rights of shareholders as the true owners of the corporation

– and of their own role ( i.e. management ) as trustees on behalf of the shareholders.

– It is about commitment to values, about ethical business conduct and

– about making a distinction between personal & corporate funds in the management of a company.

Importance of Corporate Governance

• It lays down the framework for creating long term trust between companies & external providers of capital

• Improves strategic thinking at the top

• It rationalizes the management & monitoring of risks a firm faces globally

• It limits the liability of top management & directors by carefully articulating the decision making process

• It ensures integrity of financial reports

• Provides a degree of confidence that is necessary for the proper funding of a market economy

Lack of Corporate Governance result

• Lack of corporate governance has lead to many corporate scams in India & abroad

– Mundhra scam

– Harshad Mehta scam in 1992-involving bond & equity market- Rs54billion

– Plantation companies vanishing with Rs.50,000 crores collected from investors-1995-6

– Mutual fund scam-in 1995-8- Rs.15,000 crores

– M.S.Shoes-insider tradibg-1994-Rs. 170 million

Lack of Corporate Governance result

– IT scam –1999-2000, which led to dotcom bubble burst

– Ketan Parikh-price manipulation-2001-

– Satyam scam-

• International scams – Collapse of Russian economy in 1998

– Enron scam

– Collapse of many American corporates due to frauds in2000

– Layman bothers scam

Lack of Corporate Governance result

• Each scam is a result of poor corporate governance.

• In the recent case of Satyam it affected – The image of the promoters – Image of the company – Loss of business – Loss of credibility of IT sector in India – Loss of national pride

• In the international level lack of corporate governance in Lehman case triggered the major problems faced by the US economy.

All corporates are not bad !

• There are many examples in India where corporates have excellent corporate governance e.g. Tatas, L&T, Infosys.

• Good corporate governance leads to

– High goodwill ;credibility in market

– Long term sustainability & growth

– Profitability

– Economic growth of the country

Summary of session-1

• In this session we have learnt – the different definitions of corporate governance

– The stakeholder concept

– Role of management in corporate governance

– Importance of corporate governance

– Good corporate governance pays & helps the economy of the country

• In session-2 in the series, we will discuss the frame work for corporate governance

Thank you

&

Now is the time for any

questions ,

clarifications

or comments

you may like to make at this stage