NTRODUCTION Globally business is adopting and following the Best in Class Concept of Corporate Governance.

It has come to be recognized that to be a successful Business entity, every company needs to attract and protect all stakeholders namely shareholders, Creditors, society, employees, internal customers, external customers, suppliers and the environment in and around the company. Global capital investors feel comfortable in an environment where the fundamentals of Corporate Governance are best protected and practiced. Business stands to benefit by adopting systems that bolster Stake holders trust through transparency, accountability and fairness. With increasing interdependence and free trade among countries and citizens across the globe, good Corporate Governance is of inevitable for companies seeking to distinguish and position themselves differently in the global environment. Practicing ethical business practices simply refers to adopting and practicing good Corporate Governance. The attitude to practice good business practices could be well evidenced basically by the mission and vision of an organization. Knowing the importance of adhering to the best business practices to reap the fruit of success. No doubt, Auditors in a public limited company are essential to bring about good governance. NEED FOR THE CORPORATES TO ACT ETHICALLY There are number of reasons given below that justify why businesses should act ethically: To protect its own image, To protect the interests of the business community in which the organization is also a member, To keep the business involved for the commitment to the society to act ethically. If there is no involvement, there is no commitment. - Dr. Steven Covey To meet the stakeholders expectations. For example, for the Consumers quality products at low cost; for the Investors ensuring fair and profitable return on the investment, To build trust with key stakeholder groups, To protect the Organization from abuse of the unethical employees and competitors, To create an environment in which workers can act in ways consistent with the organizational values, To ensure the growth and future of the organization. To act as an agent of social change (being as a Good Business role model). Additionally, an organization has to be ethical in its behaviour because it has to exist in the competitive world. A number of reasons could be found for being ethical in behaviour, few of them are; Values give management credibility with its employees. Only perceived moral rectitude and social concern bring employee respect, Values help in better decision making, Hard decisions, which have been studied from both, ethical and economic perspectives, are more difficult to make, but they will stand up against all odds. Ethics within organizations is a must, as only then, that can be conveyed through the activities they perform.

UNETHICAL PRACTICES Unethical practices can be defined as the practices, which are against the public policy, welfare, or immoral or unlawful or illegal. These practices should not be encouraged in the organizations as they would affect morality of the working environment. They should be forbidden, as they would create an unhealthy atmosphere in which people cant live a normal and satisfactory life. Some of the unethical practices, which prevail in the organizations, are as follows:

BRIBERY It is the use of power unduly to achieve ones own personal goal. Bribes create a conflict of interest between the person receiving bribe and his organization. This practice results in conflict between personal goal and organizational goal and it is found that the personal goal dominates here since the person wants to have illegal consideration at the cost of the organizations image. Bribery undermines market efficiency and predictability, thus ultimately denying people their right to the minimal standard of living. Bribery does more that destroys predictability; it undermines the essential social and economic system. The statements of GE are worth mentioning in this regard. No matter how high the stakes are, no matter how great the stretch is, GE will do business only by lawful and ethical means. When working with customers and suppliers in every aspect of our business we will not compromise our commitment to integrity. According to the L&T, its business policy goes thus all marketing personnel will adhere to the highest standard of personal and Business integrity and thereby maintain and promote our reputation as an outstanding company with which to do business. COERCION It is an act of threatening (or) threatening to commit any act, which is forbidden by law. When people discharge their responsibilities if things do not materialize according to their expectations, the higher authorities may threaten their subordinates in order to achieve what they want to achieve rather then what is required to be achieved. It includes the activities like blackmailing or arm-twisting of an individual in the organization. Ex: the Tylenol tampering case of Johnson and Johnson was done with an intention of damaging the image of the company. UNDUE INFLUENCE It refers to the situation where one person is said to be in a dominant position over the other person. This happens when the higher authorities misuse power on subordinates. Ex: The following relationships in the organization are said to be of having undue influence: - Manager-Subordinate; Directors-Managers; Proprietor Employees. INSIDER TRADING It is a method of misuse of position where the employee at level of management leaks out the confidential information to the outsiders or other insiders, which spoils the image, or reputation of the

company. Insider Trading is done when the employees trade the secret and confidential matters. The competitors use of this opportunity for their benefit in an unethical manner.

Ex: L & T (vs.) Reliance TAX EVASION Many large corporations hire the services of the professional tax consultants to take the advantages of loopholes in the law and evade taxes to the maximum extent possible. The main reason that causes this activity is the higher tax rates. Ex. Vyas, a tax consultant says that JRD Tata never entered into a debate over tax avoidance, which was permissible. Vyas says that Tata would have been the most ardent supporter of the view expressed by lord Deming- the avoidance of tax may be lawful, buy it is not yet a virtue. CONFLICT OF INTERSTS When personal goals and organizational goals clash, this problem arises. When people in the organization start giving more importance to the personal goals rather than the organizational goals and looking chances to keep personal goals dominating the organizational goals in order to benefit most from every activity what one does. This conflicting interest leads to taking decisions against the will of the employer. JRD Tata says: You have to adopt yourself to their (employees) ways and deal accordingly to draw out the best in each man. At times it involves suppressing yourself. It is painful but necessary. To be a leader, you have got to lead human beings with affection. To him, ethics includes Gratitude, Loyalty and Affection. This problem could be minimized when every employee is considered as an asset of the organization and allow the employees grow along with the organization. When suitable policies regarding compensation package, promotional policies and grievance measures are followed to overcome the problems of employees and hearing their grievances and adequately responding to their problems. POLLUTION: Most of the pollutions are created by Industries. Pollution can be classified into Air, Water, Soil, Marine, Noise, Thermal and Nuclear Pollutions. Pollution is the effect of undesirable changes in our surroundings that have harmful effects on plants, animals and human beings. This occurs when only short term economic gains are made at the cost of long term ecological benefits for humanity. During the last few decades, air and water have been contaminated and land on which life itself depends with a variety of waste products. When pollution is controlled, most of the health problems that occur due to the existence of the industries could be avoided. This is possible only when organizations take this as a social responsibility.

UNFAIR DEALING AND DISCRIMINATION As equality and fair treatment are required to be exercised for the maximum benefits of the employees, those who show partiality are to be seriously dealt with. Unfair dealing and discrimination would certainly lead to groupism and frustration among the employees, which will spoil the conducive working climate and eventually leads to unnecessary tension. Sometimes

employees are also discriminated by sex when the people at top dont favour the opposite sex. This attitude of the top officials would affect the progress of an organization. It is worth noting that unfair dealing and discrimination are such practices prohibited by the Law of any country.

IMPROPER ACCOUNTING PRACTICES: The auditor when he signs the accounting statements of a business enterprise, he certifies that according to his belief and understanding, the statements are true and fair, which give correct information. How far it is genuine is a matter of question to be raised. There are chances for the toplevel management to provide incorrect information to the auditor. It is the moral responsibility of the auditor to find out such incorrect information provided by the people inside the Organization and correct them before he certifies in order to protect the interest of the various stakeholders associated with the organization. SATHYAMS DEBACCLE: It is often described that, the tragic story of Satyam is similar to the one of the erstwhile U.S.-based utility company Enron and the defunct auditing firm, Arthur Andersen. As it has now happened in the case of Satyam, the two global giants took advantage of not only investors but also the public as a whole to illegally increase the personal wealth of the individuals who were involved a greed that led to the corporate debacle of December 2001, when Enron filed for bankruptcy. It is very essential to mention that auditing firms can not shy away from accepting their responsibility when the companies they have audited are found to have doctoring their accounting books. It is held that, the audit firms statement does not absolve it of the default committed by signing those financial statements. The penalty is quasi criminal as action can be against natural person not artificial person. But to ensure standard and discipline register of firms should be maintained. Institute of Chartered Accountants of India indicated the names of ruined chartered accountants or firms, they are not considered for allotment of audit by the Reserve Bank of India. It was decided to write to the Securities and Exchange Board of India (SEBI) that they should include a clause in their listing agreement that such accounting firms will not be appointed by the listed companies. However, the accounting firm, Price Waterhouse, Bangalore, still would like to put the blame on Satyams former Chairman B. Ramalinga Raju. In its letter to the newly constituted Satyam board, the firm has suggested that its audit report on the company should no longer be relied upon. It was stated that, The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years. What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of Rs. 11,276 crore in September quarter, 2008, and official reserves of Rs. 8,392 crore). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations thereby significantly increasing the costs Every attempt made to eliminate the gap failed The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with the real ones. Price Waterhouse has given their opinion that the financial statements for the period were prepared by the management. On its part, it planned and performed the required audit procedures on the statements and examined the books and records produced before them by the management. Further more, it is held that, they placed reliance on management controls over financial reporting

and the information and explanations provided by the management, as also the verbal and written representations made to us during the course of our audits, ROLE OF REGULATORS: Clearly, the accounting firm failed in its responsibility to the investors of the company and the public at large. The massive fraud that was quietly being hatched away from the public eye for a few years should not have escaped the eagle-eyed scrutiny of auditors internal and external. The regulators must quickly find out whether it was also a case of unholy complicity and abetment, says It is often argued that accounting and disclosure rules are good in India and the problem lies mainly in the enforcement. This is true to a degree but when widespread malpractices prevail, rules too must be tightened materially. M. N. Chaini, President, and Indian Merchants Chamber, described that, many abuses remain hidden due to lack of quarterly consolidated numbers points out Nilesh Jasani, Head of Research, Credit Suisse, an international financial services company, "Subsidiary balance sheets are not always available. Lack of equity method of accounting a global practice for the standalone results permits mis-representation". Mr. Jasani comes up with a suggestion to circumvent the situation that the one witnessed in Satyams case, when he says: ICAI should immediately work against the increasing use of direct balance sheet entries or even worse, just mention in the notes for any mark-to-market losses or impairment incurred on any assets. Insiders pledging or loaning of shares should attract same disclosure as their buying and selling. We urge regulators not to tweak rules for temporary protection of corporate profitability, as they normally worsen disclosure quality and harm investors. MARKET PERCEPTIVE: The market is sophisticated enough to understand non-recurring losses. Regulation changes to suppress them like Reserve Bank of Indias recent measures related to restructured loans not being non-performing reduce disclosure quality for investors. There is also a view that the ICAI should severely reduce the permitted items that companies can book direct in balance sheets. Most mark-to-market losses and impairment charges should flow through profit and loss statements. Investors are sophisticated enough to distinguish the nonrecurring losses. In the near term, companies would be made to declare all un-booked mark-tomarket losses every quarter. Satyam is not just a failure of an inflated company, but a failure of an inflated economy. Bubbles are a phenomenon in inflated economies. Here there are two bubbles: equity and real estate. Former RBI Governor Y. V. Reddy had repeatedly warned that these bubbles might burst any time. The Satyam group paid heavily for having invested huge funds in the real estate business which has suffered badly in the last two years. What expedited Satyams fall was its fraudulent financial management, coupled with an exceptional fall in stock market prices world over. In Satyams case, the company lied through the teeth, it delivered something that is palatable to its investors in the initial stages by dressing up its accounts and in the end, Ramalinga Raju came up with ostensible truth about his company which turned out to be rather unpalatable for investors in his company, its over 50,000 employees, various financial institutions and the Government. It is against this background, the past few years have been some significant development in the areas of corporate governance, transparency and disclosure. Corporate governance depends on all parts of the system the board, independent directors, auditors and others working together. . In the aftermath of the Satyam Computer Services debacle, practically every commentator has

pointed a finger at the failure of corporate governance standards at a company that has been Indias fourth largest exporter of information technology (IT) services and a winner of an award on corporate governance to boot. From now on awards such as the one on corporate governance, best business person of the year and so on will have very little value even in the narrow context of enhancing a company or its principal officers brand value. The fact is that until Ramalinga Raju, the erstwhile chairman of Satyam Computer Services, disclosed the big hole of over Rs. 7,000 crore in the companys balance sheet, everything seemed hunky dory. True, its image was dented after the abortive takeover bid of the two Maytas infrastructure companies owned and controlled by the family members of Ramalinga Raju. That was in the light of subsequent developments a minor blip that the company could have taken in its stride. However, even then there were concerns over the levels of corporate governance where the nominally independent directors were merely rubber stamping the promoters dubious plans? Actually, as Mr. Raju was to explain later, if Satyam had bought over the two infrastructure companies, it might have been able to show real assets in its balance sheet. ANXIOUS ACT: Although no one knew it then, the Raju was playing with particularly high stakes and tried to bring about a forced merger of Maytas companies with Satyam. Again, with the benefit of hindsight one might say that it was an act of desperation. After admitting to a systematic avoidance of books over seven years, it was time to go for an all or nothing deal. In Rajus case it failed bringing Satyam down with him. There was a failure of corporate governance is amply evident. The Satyam debacle has had international ramifications: its shares are quoted in New York. There have been class action suits already. Just as important, in the early days after the debacle, stock markets around the world declined. In India, markets were looking up until Mr. Rajus disclosure the temptation to stain the whole of corporate India with poor governance is strong but it will be wrong. There are many companies which have been adhering to the internationally comparable governance norms set out for them. India does have an elaborate corporate governance structure in place. DECLARATION: Both the Companies Act as well as the listing agreements that public limited companies enter into with stock exchanges contain important provisions. Company law lays down the principles of corporate governance that they have to follow. ACCOUNTING STANDARDS: Among others, it calls upon the companys board to adopt the accounting standards as stipulated by the Institute of Chartered Accountants of India (ICAI), a duty to maintain proper books of accounts, prepare final statements that conform to acceptable standards, to exercise due diligence before signing the report. Some of the above stipulations have obviously not been followed in the case of Satyam. What would normally have been considered serious, but technical transgressions have become the ingredients of a major scandal after Mr. Rajus confession. The erstwhile independent directors of Satyam might have resigned but their alleged sins of omission and commission relating to the misstatement of the companys accounts will haunt them for a long time.

More basic and comprehensive rules on governance are laid down under Clause 49 of the listing agreement that all publicly listed companies will have to enter into with stock exchanges where their shares are, or will be, traded. For instance, companies going public for the first time will have to comply before it files the draft (Red Herring) prospectus with the Securities and Exchange Board of India (SEBI) and simultaneous to its request to the stock exchange concerned for an in principle permission to trade in its shares. The board of a listed company will have a combination of executive and non-executive directors. Not less than 50 per cent of the board should comprise non-executive directors. Among other requirements of Clause 49 is the duty of a company to identify and appoint independent directors and the number of seats they should occupy in the board. (The proportion depends upon whether the chairman is an executive or non-executive director. If the chairman is an executive director 50 per cent of the board shall be independent directors; if non-executive it will suffice if independent directors form one third of the board.) The independent director should be a non-executive director and inter-alia not be a substantial shareholder not related to the promoters not been an executive of the company in the preceding three years apart from receiving directors remuneration does not have any material pecuniary relationship or transactions with the company or its promoters or with senior management. Also under Clause 49, the board of directors of all listed companies should lay down a code of conduct for all its members and senior managers and these members should affirm their compliance on an annual basis. Finally, the board should constitute a qualified and independent audit committee, a shareholders grievance committee and a remuneration committee. Mr. Ramalinga Rajus predicament has occurred despite Satyam observing all the norms of governance. Evidently it is not rules alone that matter but their implementation. In Satyams case the independent directors failed in their duty, the auditors have blundered, all internal and external checks and balances went haywire and the regulatory authorities, the SEBI, the stock exchanges and the company law administration have been lax. If one or a few promoters could get away with such a massive fudge for more than seven years, it does not speak well of governance in practice. FAILURE OF THE ACCOUNTING FIRM TOWARDS RESPONSIBILITY: It is often argued that accounting and disclosure rules are good in India and the problem lies mainly in the enforcement. This is true to a degree but when widespread malpractices prevail, rules too must be tightened materially. Accountants responsibility is to investors, not their clients management. This was what worlds leading charted accountant Arthur Anderson used to say often. Anderson founded and headed until his death in 1947 one of the five biggest global accounting firms, Arthur Andersen LLP, which was ironically enough convicted for Obstruction of Justice through shredding documents relating to its audit on Enron, resulting in the Enron scandal in 2002. Back home, at long last, accounting firm Price Waterhouse, Bangalore, has accepted the truth on Satyam that the accounts were fudged and audit report and opinions in relation to the companys financial statements for the audit period from the quarter ended June 2000 until the quarter ended September 30, 2008 should no longer be relied upon. CONCLUSION Companies can not function in a vacuum rather they need to function in the society. When the organization considers about the welfare of the stakeholders in every possible manner without compromising its mission and vision, the society takes care of the organization. It would be right to say that there are three sisters of corporation namely Business ethics, Corporate Governance and Business Social Responsibility. Though the concept of Corporate Governance may sound a novelty

in the Indian Business context and may be linked to the era of liberalization, it should not be ignored that the ancient Indian texts are the true originators of good Corporate Governance as one important statement from Rugveda says: A businessman should benefit from business like a honey- bee which suckles honey from the flower without affecting its charm and beauty. Ethics should be initiated from the top management to the bottom of the hierarchy. Before a company can expect to be viewed as ethical in the business community, ethical behaviour within its own walls to and by employees is a must, and top management dictates the mood. Ethical behaviour by the leaders of the organization will inevitably set the right tone for the rest of the Company and the values of the company will also remain consistent. From the aforesaid discussion, it is clear that directors and auditors are essential to bring out good corporate governance. As the role of auditors have evolved over time, they have become crucial to committee functioning and successful governance. From the fiasco of sathyam, it is found that, auditors played a dominant role. References: 1)The journal of Finance, vol. LII No (2nd June 1997, p- 737) 2) www.cipe.org 3) Code of Conduct for board members and top management of the company. HCL Info systems Ltd 4) Annual Reports- (a) Wipro Ltd 2005-06 and (b) Satyam Computers services Ltd- 2005-06 5) www.webpronews.com 6) Fernando, A.C., Corporate Governance- The time for a Metamorphosis- The Hindu-9th July 1997 7) Rangarajan, C., Corporate Governance- some issues- Indian management- Feb-2000 8) C.R.L. Narasimhan., Corporate Governance at its nadir- The Hindu-19th Jan 2009. ( page no:14) "