4-BASICS OF CORPORATE GOVERNANCE &BUSINESS ETHICS.

ROLE OF GOVERNMENT &LEGISLATION IN ENFORCING ETHICAL BUSINESS PRACTICES.

Role of Government of India & Legislation in Enforcing Ethical Business Practices.

In India, the Government, State or Central, has a great impact on how Businesses conduct their affairs. In fact, there is hardly any country in the world, Businesses of which are not influenced by State Activities, in one way or other. The Central Activities of the Government cut across all the broad categories of Economic Enterprises, namely Entry into Business, Conduct of the Enterprise, Results and Relationships. First, the Government may determine the conditions under which persons or associations may enter certain lines of Business as in granting a Charter, a Franchise, or a License. Secondly, the Government may regulate or assist the Conduct of Economic Ventures of many kinds, once they are under way. This includes Controls that may lay down general standards and prohibitions and those that interfere with matters that may be considered Managerial. Thirdly, Public Control may extend to the Results of Business Operation as in the limitation of Public-Utility Profits, Ceiling on Dividends and the Imposition of Excess-Profits Taxes on Business generally. Finally, the Government Controls the Relationships between the various segments of the Economy, the purpose being to settle conflicts of interests or Legal Rights and to prevent an undue concentration of Economic Power in one place. 2

Role of Government of India & Legislation in Enforcing Ethical Business Practices.

All the activities in Principle, listed in the earlier slide, are, no doubt, highly Moral and Ethical. The Goals are lofty and the concern is, undoubtedly for the welfare of the society, so that Social Imbalances do not result from Economic Activities. Not only limited to mere principles and visions, the Government also takes upon itself to initiate actions for Public Good. For example, when Private Enterprises fail, the Government takes over such Enterprises so that their Services continue to reach people and their Employees do not become unemployed. The Government also takes over Private Enterprises when there is pronounced and blatant wastage of Natural Resources; and more significantly when Private Enterprises fail to consider themselves as Trustees of Public Good and above all abuses its Power, specially where these Enterprises operate in Monopoly or Semi-Monopoly Market. The Modern State is a Custodian of the Welfare of the Society. The Welfare Government has the responsibility to bring around all-round Prosperity in the Society. To this end, the Indian Constitution incorporates a number of Welfare Measures that earmarks the Economic Responsibilities of the Central and the State Government.
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The Indian Constitution.

The Preamble of the Indian Constitution conveys the General Objective and Intention of the Legislature in enacting it. Among others, it also expresses the Socio-Economic Value it envisages to promote. The Preamble of the Indian Constitution states that attainment of Social, Economic and Political Justice, and Equality of Status and Opportunity should be among the most important basic guiding principles of the functioning of the State. The Fundamental Rights to Citizens, laid down in the Indian Constitution aims at preventing the Government and the Legislature from becoming Totalitarian. This is, again, very noble in principle. But in reality, it has been experienced that there is much more to be desired. The Directive Principles of State Policy of the Indian Constitution guides the State in making Policies and their Principles are taken into account in Making Laws.

Some of the Directive Principles which Promote Ethical Behaviour are given in the Next Slide:
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The Indian Constitution (Continued)

1) The State shall strive to promote the Welfare of people by securing and protecting as effectively as it may, a Social Order in which Justice, Social, Economic or Political, shall form all the Institutions of National Life. ( Article 38 (1)). The State shall in particular, strive to minimize inequalities in income and endeavor to eliminate inequalities in Status, Facilities, not only among individuals but also amongst groups of people residing in different areas and engaged in different vocations. (Article 38(2)). The State shall, in particular, direct its policy towards securing: (i) that the citizen, men and women equally, have the right to adequate means of livelihood; (ii) that the ownership and control of the material resources of the community are so distributed as best to sub serve the common good; (iii) that the operation of the Economic System does not result in concentration of wealth and means of production to the common detriment; (iv) that there is equal pay for equal work for both men and women; (v) that the health and strength of workers, men and women and 5 children are not abused.( Article 39).

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The Indian Constitution ( Contd).

4) The State shall secure that the operation of the Legal System promotes justice, on a basis of equal opportunity, and shall in particular, provide for Legal aid, to ensure that opportunities for securing justice are not denied to any citizen by reason of Economic or other disabilities, (Article 39-A). The State shall, with limits of its economic capacity and development make effective provision for securing the right to work, to education and to public assistance in case of unemployment, old age, sickness and disablement. The State shall make provisions for securing just and humane conditions of work and for maternity relief. (Article 42). The State shall endeavor to all workers, agricultural, industrial or otherwise a Living Wage and full enjoyment of leisure and SocioCultural opportunities, promote Cottage Industries in Rural areas. The State shall take steps to secure participation of Workers in the Management of undertakings. The State shall endeavor to protect and improve Environment and safeguard the Forests and Wild Life of the Country. (Article 48).
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Indian Business Laws & Their Impact on Ethical Behavior.

1) 2) 3) 4) 5) All Laws relating to Businesses in India can be classified into Two Broad Categories: a) Business Laws. b) Labour Laws. Business Laws: Some of the important Business Laws which aim to regulate Ethical Business Behavior are: The Industrial (Development & Regulation) Act. Foreign Exchange Regulation Act (FERA), 1973 The Companies Act, 1956. The Monopolies & Restrictive Trade Practices Act, 1969 The Essential Commodities Act. The Industrial (Development & Regulation) Act: This Act, enacted in 1951 with the main objectives of giving practical effect to the Industrial Policy, gave the Government Sweeping Powers to control the Industries. However it was felt that the objectives of this Act were not being achieved and it has resulted in the distribution of the benefits of developments more for the Richer Sections than the Poorer 7 Sections of Society.

The Industries (Development & Regulation) Act .

A Report on the operation of Licensing under this Act by the Planning Commission in 1966 (by Prof: Hazari who was appointed Honorary Consultant by the Planning Commission) stated that: The working of the Planned Economy had contributed to the Growth of Big Companies; The working of the Industrial Licensing System enabled the Large Industrial Houses to obtain a disproportionately large share of the Licenses issued; Some of the Large Industrial Bosses were guilty of non-implementation of Licenses and pre-emption or foreclosure of capacity; The operation of the Industrial Licensing System was not successful in achieving the objective of Regional Dispersal of Industries; The Large Industrial Houses were the Major Beneficiaries of Public Financial Institutions.

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Foreign Exchange Regulation Act, 1973: The main objective of the

FERA is the conservation and proper utilization of Foreign Exchange Resources of the country in the Economic Development of the country. This Act resulted in widening Trade Gap. It has also been said to have been a potent source of Corruption, Black Money, and Major Scams. Instead of encouraging Ethical Behavior, its imposition has resulted in Unethical Behavior by Companies and also by Individuals.
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Indian Business Laws (Contd).

The Companies Act, 1956: Its main objectives from the Ethical point
of view are that it seeks to provide a minimum standard of Good Behavior and Business Honesty in company promotion and management; recognition of the legitimate rights of the shareholders and creditors; a fair and true disclosure of the affairs of the company; a higher standard of accounting and auditing; and proper Corporate Governance Procedure etc. The Monopolies and Restrictive Trade Practices Act (MRTP): This Act was designed to regulate the functioning of the large Industrial Houses and Dominant Undertakings. Its Objective is to control the concentration of Economic Power and Monopolies and to Prohibit Monopolistic, Restrictive and Unfair Trade Practices. The Essential Commodities Act, 1955: This Act was established to provide, in the interest of the general public, control of Production, Supply & Distribution of, and Trade and Commerce in, certain commodities. The Government had listed specific commodities as Essential Commodities. The effect of this Act was widespread Unethical Behavior in the Society. Shortage of Essential Commodities have lead to Black Marketing and have lead to parallel economy. It also resulted in Corruption.
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Labour Laws.
The Constitution of India, in Article 43, directs the Government to secure, by suitable Legislation or Economic Organization or in any other way to all Workers, Agricultural, Industrial or otherwise, Work, a Living Wage, Conditions of Work ensuring a decent standard of Life, full enjoyment of Leisure and Social, and Cultural Opportunities. Following are some of the important Labor Laws implemented in India: Laws Relating to Weaker Sections ( Children & Women) Laws Relating to Specific Industries. Laws Relating to Specific Matters like Wages, Social Security, Bonded Labor. Laws Relating to Trade Unions, Industrial Disputes Act, The Workmens Compensation Act

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