corporate governance& csr lecture 4

8/10/2019 Corporate Governance& CSR Lecture 4

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Why is Ethics Important?

1) Ethics corresponds to basic human needs:

The frst obvious reason or being ethical is o course that

the top bosses might otherwise land in jail and thecompany be hit with a heavy fne. However this is notreally an ethical consideration. It is rather a matter oexpediency.

most people want to be apart o an organizationwhich they can respect and be publicly proud o becausethey perceive its purpose and activity to be benefcial tosociety.

Most top management would like to respond to this need otheir employees; and they themselves eel an eual needto be genuinely proud o the company they are directing..


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) !alues create credibility with the public:

! company perceived by the public to the ethicallyand socially concerned will be honoured andrespected even by those who have no intimateknowledge o its actual working.

There will be an instinctive pre"udice in avour oits products" since people believe the companygives value or the money. Its public issues#

whether in the orm o euity# convertible bonds orfxed deposits will attract an immediate response.

$e know how easily a company like #arsen and$urbo or any $ata %ompany can get money romthe public.


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&) !alues give management credibility withemployees:

%alues provide a common language or aligning acompany&s leadership and its people# 'says (obert Haas o)evi *trauss. ' $hat Haas means is that organi+ationalethics values and language. $he management hascredibility with its employees precisely because ithas credit with the public'

,either sound business strategy# nor a generous

compensation policy and ringe benefts can ully winemployee credibility; only perceived moral and socialuprightness can.


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&) !alues give management credibility withemployees (cont):

The credibility gained by the top management o anethical company and the trust generated among theemployees fnally produce the eeling that the

company does not belong eclusively to theshare holders but rather to all the employees'

This phenomenon can be seen at work in thoseIndian companies which have a reputation orethical and socially responsible behavior

.g. TI*/0 employee reer to their company asHamari /ompany .


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*)!alues help better decision ma+ing:

!nother point o great importance is that anethical attitude helps management make betterdecisions# i.e.# decisions which are in the interesto the public# their employees and the company&s

own long term goodness# even though decisionmaking may have to be slower. This is becauserespect or ethics will orce a managementto ta+e all aspects o a ,uestion into

consideration" both" the economic aspects"and the social and ethical aspects


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Ethics:-

! frm that seriously desires to operate in an ethical andsocially conscious manner would do well to

Institutionali+ing its thics. *uch Institutionali+ing wouldreuires 1 steps2

34 .rawing up a company policy or code o ethics'

54 /amiliarizing its employees at all levels with thecode and with the processes o ethical re6ection oncomplex issues through special training. 7rogrammes#or through special sessions on ethics in the course oregular tanning programmes.

&)Ensuring the implementations o the %ode bymeans o a ormally designated thics /ommittee o the8oard o 9irectors.

h hi l d


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$he Ethical %ode:

! code o ethics that is going to be observed cannotbe drawn up by an individual or a small groupo the top management and then promulgatedwithout discussion among the employees.

thics is too complex a uestion to be dealt with thisway. *uch a code will lack credibility among the

employees and may even provoke decisions.

$o be acceptable" an Ethical code had to beinternalized by the employees'

TI*/0 would be a good example o a company likethis# this code would only have to be ormallypromulgated or publicly declared.


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0a+ing the %ode 1nown: :irst# the company&s ethical codes should be printed

and copies sent to every employee.

2ne o the documents that every now employeeshould receive together with his appointment2rder and the rules o service" must be a copyo the company3s %ode o ethics'

*econdly# the company should help employees

understand the implications o the code or their dailywork lie.

This can be done by special sessions on ethicaland social responsibility during regular treadingprogrammes. This is particularly important whennew employees are being given preinduction training


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Implementing the %ode:

The frst step in the implantation o any ethicalcodes is that the management should let it be

+nown that unethical or anti-social conduct onthe part o the employees will not betolerated# no matter what be pretext might be#even i it is to make greater profts or the company.

*erious implantation o a ethical codes reuires thatemployees ound deliberately violating the

code would be immediately ta+en to tas+" in amanner beftting the gravity o o4ence' ! ewwell publicised cases like this would have a salutarye


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The second step in the implantation o the ethicalcode is the constitution o an Ethical %ommittee.

What would be the unctions o the

committee?

34 It would solve problems that arise in the greyarea o ethical policy and recommend decisions to

the board o directors. This is surely an extremelyimportant unction# since a number o such problemswould certainly arise.

54The /ommittee would have to ma+e the policydecisions o the 5oard +nown so that thatemployees would understand the reasons behindthem. This is particularly important in the case odecisions which might a


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14The /ommittee would monitor compliancewith the ethical policy o the company and make

periodic reports to the 8oard. This implies that allemployees would be encouraged to report clearviolations o the company&s ethical code. Thisshould not# however mean that an internal spy

system is sought to be set up which wouldundermine the mutual trust that is essential or theproper working o the company.

=4 :inally# one o the responsibilities o the ethical/ommittee would be to recommend to the5oard any changes in the company3s ethicalpolicywhich the committee eels should be made.

This is an important point. It is recognition o the

act that ethics being linked with the concrete


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Corporate Governance &Corporate Social

Responsibility


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Corporate Governance

Definition of Corporate Governance

Introduction of Corporate Governance

Fundamentals of Corporate Governance Importance of Corporate Governance


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Corporate Social Responsibility

Definition

Introduction

CSR in Indian Context Examples of CSR

Arguments for & against CSR

Conclusion


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.efnition o %orporate6overnance

/orporate >overnance is defned asthe practices "principles andvalues that guide a company and its

business everyday# at all levels o theorgani+ation .


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Introduction to %6

/orporate governance is the ability tounction proftably while obeying laws"rules 7 regulations

>ood /orporate governance is the gluethat holds together responsiblebusiness practices which ensures positiveworkplace management ? sustainedfnancial perormance


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>ood /orporate >overnance practices instill incompanies the essential vision# processes and

structures to make decisions that ensure longerterm sustainability

There can be no better way to restore publicconfdence in both businesses 7 mar+ets?build a prosperous uture than proper corporategovernance


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Objectives of Corporate Governance

34 To align corporate goals with goals o itsstakeholders @society# shareholders etc 4

54 To strengthen corporate unctioning ?

discourage mismanagement

14 To achieve corporate goals by makinginvestments in proftable investment outlets

=4 To speciy responsibility o the board odirectors ? managers in order to ensure

good corporate governance

8i t % t


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8istory o %orporate6overnance

In the 91 defciencies in the accounting standardsled to ailure o many companies

*erious concerns were raised regarding corporategovernance ? the committee on corporategovernance was set in ;; by #ondon


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Aecommen at ons o 5 r a%ommittee report

)5oard o .irectors:

8oard o directors guide company&s operations# control

them ? provide "udgement" independent o themanagement# to the company . Their responsibilities arestrategic development o the company# maintaining goodmember relations# protecting company&s assets ? ulfllingall legal reuirements

)=udit %ommittee2

/ompanies must have an audit committee responsible ortheir fnancial reporting .This committee shall have accessto all fnancial inormation 7 power to investigate

any activity within its term o reerence # seek inormationrom any employee or e


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ecommen a ons o r a omm eereport (cont)

&) Aemuneration %ommittee: The report recommended setting up a remuneration

committee to determine ? account or company3spolicy on remuneration o its directors 'It alsoincludes pension rights ? compensation payment to

them .

=) =ccounting standards 7 fnancial reporting 2

/ompanies are reuired to present

34 consolidated accounts or all subsidiaries#

54 fnancial reporting or each o their productsegments # so that shareholders have completefnancial picture o the company in one statement only .

Aecommendations o 5irla %ommittee


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Aecommendations o 5irla %ommitteereport (cont)

>) 0anagement 2

Management o the company ensures that the policies

laid by the board o directors are implementedsuccessully or attainment o corporate ob"ectives.Management o the company comprises o the /0 #executive directors ? managers at various levels.

)


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Beed or %orporate6overnance

/orporate governance is needed or 2

) ood corporate governance gains credibility 7trust o global mar+et players'

&) Investor protection 2

Investors want their rights to be protected bycompanies in which they have invested money.

/orporate governance is an important tool orprotecting investor&s interest by improving eBciencyo corporate enterprise.


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6overnance (cont)

*)/oreign Investments 2

:oreign investment is taking place in India ? theseinvestors epect companies to adopt globallyacceptable practices o corporate governance .

>) /inancial reporting 7 =ccountability 2

>ood corporate governance ensures sound "transparent 7 credible fnancial reporting 7

accountability to investors ? lenders so that unds canbe raised rom capital markets .

) 5an+s 7 /inancial Institutions 2

8anks ? fnancial institutions who give fnancialassistance to companies are interested in fnancial

soundness o companies which is done through goodcorporate governance

C4 6lobalization o Economy 2 >lobali+ation demandsthat Indian Industries should conorm to thestandards o international rules . /orporate

governance helps in doing this .

/undamental unctions o


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/undamental unctions o%orporate 6overnance

/orporate governance links directly to

three undamental unctions o board andthe directors o the company andshareowners they serve . They are 2

7rotecting stake holders rights

Managing (isk

/reating long term business value


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Protecting stake holders rights&interests

0rgani+ation or conomic /ooperation ?9evelopment @0/94 advises business torecogni+e ? saeguard stakeholders rights.

These principles call on board to be truly

accountable to share owners and to takeultimate responsibility or their frmsadherence to a high standard ocorporate behavior and ethics '


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I the shareholder are adverselya


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Managing Risk

8y addressing ? managing risks

e


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The proper management o riskensures customer satisaction andreputation.


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Creating Bsiness vale

The role o any board is guiding corporatestrategy and creating wealth orshareholders'

The most e


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8etter working conditions improve theeBciency o the supply chain

Human rights strategies such aspreventing discrimination in the workplace and promoting gender ? ethniceuality in business processes# have been

shown to increase innovation in products ?services .

>ood management o environmental#

social and governance has shown tostrengthen reputation ? brand value .


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Corporate Social Responsibility

.efnition o %


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Introduction to %


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CSR in !ndia

! survey carried out by the Times

:oundation in 5DDE # revealed that overAD F o Indian organi+ations wereinvolved in /*( initiatives in areaslike 2

ducation Health

)ivelihood creation

*kill development and G mpowerment o $omen


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,otable eroup#Inosys * # 8harti nterprises # /oco/ola India#

7epsi co # and IT/ welcome group amongothers .

/orporate India has spread its /*( activitiesacross 5D states with Maharashtra gaining themost rom them . !bout 1 F o /*( activitiesare concentrated in it .


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In a study undertaken by a research companyT,*# India has been ranked second in global/*( #with Thailand being the frst .

!ssoc hams C Eco Dulse


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Eamples

The paint industry is making its productmore environment riendly by opting orwater based paints that are carcinogen ree.

The Heating# %entilation# !ir conditioningand rerigeration Industry @ H%!/4 is working

to get rid o its global warmer stigmathrough greater use o gases with +eroo+one depletion potential @ Kero 9774


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*ustainable Technologies andnvironmental 7ro"ects limited@ *T7*4is planning to start a pro"ect to

change plastic# organic and electronicwaste into petroleum without the usualharmul residue .

H9:/ has started a village adoptionscheme to improve the investmentclimate in Indian villages .


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Arguments against CSR )Economic Institutions2 8usiness is the

economic institution o the society .Itspurpose is to make the best use o resources? generate profts.

)#ac+ o 1nowledge 2 *ocial responsibilityis a vague concept and very diBcult toormulate specifc ? measurable goals .

&)=ccountability 2Managers are notaccountable to society and hence there could

be misuse o power # authority ? resources .


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*)$aing" the shareholder : In the name o/*( managers may indirectly be responsible ortaxing shareholders by utili+ing proftsbelonging to them or the welare o the society

.

>) Dower 2The acceptance o responsibilitywould automatically lead to the assumption oauthority and there could be an expansion othe hori+ons o corporate power in the name o/*(.

=rguments avoring %


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=rguments avoring %


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5etter Image : ! frm which accepts /*( can

gain the approval and appreciation o all sectionso society . Its goods ? services are more readilyaccepted by society than competitors companies

=voidance o problems 2 ! frm which reduces toact responsibly in dealing with society will aceopposition rom all sections o society

=ttraction 7 retention o good employees :

mployees are the most valuable assets o acompany . ! socially responsible company with itsgood image can attract ? retain good employees .


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Conclsion

/orporate >overnance ? *ocial(esponsibility help an organi+ation toincrease its eBciency besides minimi+ing

its risks .They are the best ways to restorepublic confdence in an organi+ation ?build a prosperous uture.

corporate governance& csr lecture 4

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