Session 9

Module 4
Governance, risk and financial stability
The balancing of conflicting objectives

Potential consequences of poor corporate

governance
Business failure and the contribution of poor
governance

Governance and ethics, corporate ethics,

corporate codes of ethics, professional ethics

Nature of Business Ethics

Covert ethical issues
Hidden and cannot be seen
Corporate acquisition
Marketing policies
HRM policies

Overt ethical issues

Open and can be seen

Bribery
Theft
Sabotage
Collusion

Corporate Theft
Collapse of a bank
Poor
speculative
investments
and
unauthorized trading by
one employee

Corporate Sabotage

How Coke sabotaged

Pepsi

Collusion
Companies get together to make secret
agreements that are possibly unethical or
illegal because they operate to the detriment
of a third party
Collusion is illegal because it interferes with
the natural market forces of supply and
demand and harms consumers by inhibiting
competition

Frances competition authority slapped 13 top manufacturers of cosmetics and

cleaning products with 950 million (RM3.8 billion) in fines for price collusion
between 2003 and 2006

Business Ethics and Profits

All businesses think about
profits
Most businesses operate on
the principle that profit is not
linked to ethical consideration
But there are instances which
nullify the above principles
E.g. Johnson & Johnson Tylenol
case
In ethical crisis
How do we protect the people?
"How do we save this product?

Areas of Ethical Violations

Misuse of confidential information

Poor quality of goods and services rendered
Insider trading
Receiving of gifts or favors from suppliers
Promoting conflicting self-business interest

China example
When is the Mooncake
not a Mooncake?
Festive gifts
Traditional filling
Expensive modern fillings
along with premium
items

When does a business gift become a bribe?

Gifting often practiced for :
Appreciation of past client relationship, placing a new
order, referrals to other clients etc.
Creating a positive, first impression which might help to
establish an initial business relationship
Returning a favour or in return for something

The fine line between gifting and bribing

Example:
Singapore - government employees are not allowed to accept
gifts

The Continuum

Gift-giving
Something of value given
without the expectation of
return

Lobbying,
Political
donations
Legalized bribery

Bribery
Something of value given
with the hope of a future
influence or benefit

Corporate Lobbying
Nira Radia case
Corporate lobbying
Telecom Ministry Fixing

Need for Business Ethics

Check business malpractices

Improve consumer confidence
Protect other social groups
Safeguard consumer rights and social welfare
Make
businessmen
conscious
of
social
responsibilities

Developing Moral Judgment

Developing Moral Judgment

External Sources of a Managers Values
Religious values
Judeo-Christian influence on the Western world

Philosophical values
Reasoning and ethical choice
Aristotle's Golden Mean - continuous acting in accordance with virtues

Cultural values
Traditionalism Vs. Modernism

Legal values
Law represents a minimum ethic of behaviour

Professional values
Professional oaths

Developing Moral Judgment

Internal Sources of a Managers Values

Respect for the authority structure

Loyalty
Conformity
Performance
Results

Common Misconduct in Organizations

Misrepresenting hours worked

Employees lying to supervisors
Management lying to employees, customers, vendors or the public
Misuse of organizational assets
Lying on reports/falsifying records
Sexual harassment
Stealing/theft
Accepting or giving bribes or kickbacks
Withholding needed information from employees, customers,
vendors or public

The simple step of a simple courageous man is

to not take part in the lie, not to support
deceit. Let the lie come into the world, even
dominate the world, but not through me.
- Alexander Solzhenitsyn

References
http://globalsteel.in/Integrity/GS2010/41Prof.Girish%20S.Bagale.pdf

 End of Module 4

Module 5
MODULE 5
Key issues in corporate governance
Role and composition of the board, remuneration of
directors and senior executives, accounting and audit,
relations with shareholders and other stakeholders

Applying best practice in governance: voluntary and

regulatory approaches, rules or principles, concept of
comply or explain
Governance problems for global companies and
groups
Governance issues in the public sector
Nolan Principles

Elements of Corporate Governance

The Board of Directors
Non-executive and independent directors
Committees of the board
Significant related party transactions

Auditors
Independence of auditors
Rotation of audit partners

Regulatory agencies
Legal and regulatory standards
Effective and credible enforcement

External institutions
Institutional investors
The press

Case TATA Motors

Board of Directors
Mr. Cyrus P. Mistry
Non-Executive Director and Chairman

Board of Directors
A non-executive director (abbreviated to nonexec, NED or NXD) or outside director is a member of
the board of directors of a company who does not form
part of the executive management team.
They are not employees of the company or affiliated with it
in any other way and are differentiated from inside directors,
who are members of the board who also serve or previously
served as executive managers of the company (most often
as corporate officers).
Non-executive
directors
are
the
custodians
of
the governance process.
They are not involved in the day-to-day running of business
but monitor the executive activity and contribute to the
development of strategy.

Case TATA Motors

Mr. Nusli N. Wadia

Non-Executive,
Independent Director

Dr. Raghunath A. Mashelkar

Non-Executive, Independent
Director

Case TATA Motors

Non-executive directors are sometimes considered the
same as an independent director, while other sources
distinguish them from independent directors saying nonexecutive directors are allowed to hold shares in the
company while independent directors are not.

Mr. Nasser Munjee

Non-Executive, Independent Director

Mr. Vinesh K. Jairath

Mr. Subodh Bhargava
Non-Executive, Independent Director Non-Executive, Independent Director

Case TATA Motors

Mr. Ravindra Pisharody

Executive Director
(Commercial Vehicles

Mr. Satish B. Borwankar

Executive Director (Quality)

Mr. Guenter Butschek

CEO and MD

Board of Directors
Executive Director
The senior operating officer or manager of an
organization or corporation
Full-time employee of the organization
Called ED in non-profit companies and CEO in forprofit companies (commonly)

Company Board
India has Unitary Board
Non executive and executive board members are both
in the same board

Duties of the Board

Governing the functions of the Company
Monitoring the management
Achieving adequate returns to its investors

Board is accountable to the shareholders

Not to the company MD or CEO

Board has a guiding role in evolving corporate

strategies

Board of Directors
Appointment of independent directors
Obligation of listed companies to have at least one third
of the total number of directors as independent directors
Good boards have Nomination committees (often made up of
independent directors only or in majority)
Nomination Committee is chaired by an independent director
Board decides the skill sets needed and the Nomination
committee seeks directors to match this skill set
The shortlist, along with CVs, is then discussed in the full Board,
and the final candidates are recommended to the Chairman of
the Board
Chairman gets in touch with the selected people and invites
them to join the Board after which their appointment is
sought to be ratified by shareholders in the next shareholders
meeting

Committees of the Board of Directors

Click Here to view

Board Committees
Four important Board Committees
Audit Committee
The Audit Committee is a key governance structure charged with
oversight over financial reporting and disclosure
Generally consist of non-executive directors, of a company
The Executive Director/Managing Director attends the meetings of
the committee as a special invitee
The committee generally acts as liaison between the auditors, both
internal and external, and the board of directors.

Remuneration committee
To fix top management pay.
Committee members are expected to be independent members of
the Board.
They are expected to fix remuneration in such a manner that it
provides an incentive system to align the interests of management
with that of the shareholders or stakeholders, wherever applicable.

Nomination Committee
Shareholder grievance Committee

Board Committees
Shareholders / Investors Grievance Committee
To look into redressing shareholders and investors complaints like
transfer of shares, non- receipt of Balance Sheets, non- receipt of
declared dividends etc.
The Committee is chaired by a non- executive director and
consists of 3 directors.
The Secretary of the Company acts as the Secretary of the
Committee.

Board of Directors
Independent Director shall mean non-executive director of the company who:
apart from receiving directors remuneration, does not have any material
pecuniary relationships or transactions with the company, its promoters, its
senior management or its holding company, its subsidiaries and associated
companies;
is not related to promoters or management at the board level or at one level
below the board;
has not been an executive of the company in the immediately preceding three
financial years;
is not a partner or an executive of the statutory audit firm or the internal audit
firm that is associated with the company, and has not been a partner or an
executive of any such firm for the last three years. This will also apply to legal
firm(s) and consulting firm(s) that have a material association with the entity.
is not a supplier, service provider or customer of the company.
And is not a substantial shareholder of the company, i.e. owning two percent or
more of the block of voting shares.

Women on Board

Nearly one-fifth of the worlds 200 largest companies have no women

directors
India has a population of about 1.2 billion, but ranks 120th for female
labour participation among the 131 nations surveyed by International
Labour Organization in 2013.

WoB The Indian Scenario

(Before March 2013)

Number of public listed companies

1470

Total number of Independent Directors

on Board

8990

Number of Women Independent

Directors on Board

350

WoB percentage

4%

Vacancies to be filled

966

Board Seats held by Women in BRICS

 The largest economies US, China and Japan

which have no quotas for women in
boardrooms, had the lowest growth of women
on boards, suggesting that unless pushed,
change does not occur

Indias Efforts
Progressive Legislation
To improve gender diversity
In 2013, India enacted The New Companies Act,
replacing the original 1956 law
Objective : more accountability and robust
corporate
governance
Every listed company and every public company with a
minimum paid up share capital of INR 1 billion or an annual
turnover of at least INR 3 billion is required to appoint a
woman director
For existing companies, the deadline for appointing a woman
director is 26th March 2015
For companies that are incorporated under the New Act, the
deadline is within six months from the date of incorporation.

Criteria
Section 149, The New Companies Act, 2013
Must be a director other than a managing director or a wholetime director or a nominee director
A person of integrity and possesses relevant expertise and
experience in the opinion of the board
Person should not be a promoter or related to a promoter of
the company or its holding, subsidiary or associate company
No pecuniary relationship with the company, its holding,
subsidiary or associate company, or directors, during the 2
immediately preceding financial years or during the current
financial year
Relatives to have no pecuniary relationship or transaction with
the company or its holding, subsidiary or associate company,
or their promoters, or directors, accounting to 2% or more of
its gross turnover or total income or INR 50,00,000 (whichever
is lower)

How do Companies Respond?

Reliance Industries Ltd.

How do Companies Respond?

Infosys

Independent director, Infosys