Why is Ethics Important?

1) Ethics corresponds to basic human needs:

The first obvious reason for being ethical is of course that
the top bosses might otherwise land in jail and the
company be hit with a heavy fine. However this is not
really an ethical consideration. It is rather a matter of
expediency.
most people want to be apart of an organization
which they can respect and be publicly proud of because
they perceive its purpose and activity to be beneficial to
society.
Most top management would like to respond to this need of
their employees; and they themselves feel an equal need
to be genuinely proud of the company they are directing..

2) Values create credibility with the public:

A company perceived by the public to the ethically
and socially concerned will be honoured and
respected even by those who have no intimate
knowledge of its actual working.
There will be an instinctive prejudice in favour of
its products, since people believe the company
gives value for the money. Its public issues,
whether in the form of equity, convertible bonds or
fixed deposits will attract an immediate response.
We know how easily a company like Larsen and
Turbo or any Tata Company can get money from
the public.

 3) Values give management credibility with

employees:
Values provide a common language for aligning a
companys leadership and its people, says Robert Haas of
Levi Strauss. What Haas means is that organizational
ethics values and language. The management has
credibility with its employees precisely because it
has credit with the public.

Neither sound business strategy, nor a generous

compensation policy and fringe benefits can fully win
employee credibility; only perceived moral and social
uprightness can.

 3) Values give management credibility with

employees (cont):
The credibility gained by the top management of an
ethical company and the trust generated among the
employees finally produce the feeling that the
company does not belong exclusively to the
share holders but rather to all the employees.
This phenomenon can be seen at work in those
Indian companies which have a reputation for
ethical and socially responsible behavior
E.g. TISCO employee refer to their company as
Hamari Company .

 4) Values help better decision making:

Another point of great importance is that an
ethical attitude helps management make better
decisions, i.e., decisions which are in the interest
of the public, their employees and the companys
own long term goodness, even though decision
making may have to be slower. This is because
respect for ethics will force a management
to take all aspects of a question into
consideration, both, the economic aspects,
and the social and ethical aspects

Institutionalizing Corporate
Ethics: A firm that seriously desires to operate in an ethical and
socially conscious manner would do well to
Institutionalizing its Ethics. Such Institutionalizing would
requires 3 steps:
1) Drawing up a company policy or code of ethics.
2) Familiarizing its employees at all levels with the
code and with the processes of ethical reflection on
complex issues through special training. Programmes,
or through special sessions on ethics in the course of
regular tanning programmes.

3)Ensuring the implementations of the Code by

means of a formally designated Ethics Committee of the
Board of Directors.

The Ethical Code:

A code of ethics that is going to be observed cannot
be drawn up by an individual or a small group
of the top management and then promulgated
without discussion among the employees.
Ethics is too complex a question to be dealt with this
way. Such a code will lack credibility among the
employees and may even provoke decisions.

To be acceptable, an Ethical code had to be

internalized by the employees.

TISCO would be a good example of a company like

this, this code would only have to be formally
promulgated or publicly declared.

Making the Code Known:

First, the companys ethical codes should be printed
and copies sent to every employee.
One of the documents that every now employee
should receive together with his appointment
Order and the rules of service, must be a copy
of the companys Code of ethics.

Secondly, the company should help employees

understand the implications of the code for their daily
work life.

This can be done by special sessions on ethical

and social responsibility during regular treading
programmes. This is particularly important when
new employees are being given pre-induction training

Implementing the Code:

The first step in the implantation of any ethical
codes is that the management should let it be
known that unethical or anti-social conduct on
the part of the employees will not be
tolerated, no matter what be pretext might be,
even if it is to make greater profits for the company.

Serious implantation of a ethical codes requires that

employees found deliberately violating the
code would be immediately taken to task, in a
manner befitting the gravity of offence. A few
well- publicised cases like this would have a salutary
effect on the entire personnel of the company and
demonstrate that the firm is serious about its ethical.

The second step in the implantation of the ethical

code is the constitution of an Ethical Committee.
What would be the functions of the
committee?
1) It would solve problems that arise in the grey
area of ethical policy and recommend decisions to
the board of directors. This is surely an extremely
important function, since a number of such problems
would certainly arise.
2) The Committee would have to make the policy
decisions of the Board known so that that
employees would understand the reasons behind
them. This is particularly important in the case of
decisions which might affect the immediate financial
interest of the company.

 3)The Committee would monitor compliance

with the ethical policy of the company and make
periodic reports to the Board. This implies that all
employees would be encouraged to report clear
violations of the companys ethical code. This
should not, however mean that an internal spy
system is sought to be set up which would
undermine the mutual trust that is essential for the
proper working of the company.
4) Finally, one of the responsibilities of the ethical
Committee would be to recommend to the
Board any changes in the companys ethical
policy which the committee feels should be made.
This is an important point. It is recognition of the
fact that ethics being linked with the concrete

Corporate Governance &

Corporate Social
Responsibility

Corporate Governance

Definition of Corporate Governance

Introduction of Corporate Governance
Fundamentals of Corporate Governance
Importance of Corporate Governance

Corporate Social Responsibility

Definition
Introduction
CSR in Indian Context
Examples of CSR
Arguments for & against CSR
Conclusion

Definition of Corporate
Governance
Corporate Governance is defined as
the practices ,principles and
values that guide a company and its
business everyday, at all levels of the
organization .

Introduction to CG
Corporate governance is the ability to
function profitably while obeying laws,
rules & regulations

Good Corporate governance is the glue

that holds together responsible
business practices which ensures positive
workplace management & sustained
financial performance

 Good Corporate Governance practices instill in

companies the essential vision, processes and
structures to make decisions that ensure longer
term sustainability

There can be no better way to restore public

confidence in both businesses & markets &
build a prosperous future than proper corporate
governance

Objectives of Corporate Governance

1) To align corporate goals with goals of its
stakeholders (society, shareholders etc )
2) To strengthen corporate functioning &
discourage mismanagement
3) To achieve corporate goals by making
investments in profitable investment outlets
4) To specify responsibility of the board of
directors & managers in order to ensure
good corporate governance

History of Corporate
Governance
In the UK deficiencies in the accounting standards
led to failure of many companies
Serious concerns were raised regarding corporate
governance & the committee on corporate
governance was set in 1991 by London Stock
exchange to look into financial aspects of corporate
governance
The committee was lead by Sir Adrian Cadbury which
submitted its report on corporate governance in 1992.
Report of this committee activated the need for
corporate governance in India also.
Ammendments were made in the Companies Act ,
1956 in 2000
The first formal attempt to evolve a code of corporate
governance was put forward by The Birla Committee
report or Kumar Mangalam Report

Recommendations of Birla
report
1)Board of Committee
Directors:
Board of directors guide companys operations, control
them & provide judgement, independent of the
management , to the company . Their responsibilities are
strategic development of the company, maintaining good
member relations, protecting companys assets & fulfilling
all legal requirements

2)Audit Committee:
Companies must have an audit committee responsible for
their financial reporting .This committee shall have access
to all financial information & power to investigate
any activity within its term of reference , seek information
from any employee for effective financial reporting .
The purpose of appointing an audit committee is to
present & disclose correct, sufficient & credible financial
information of the company to its stake holders .

Recommendations of Birla Committee

report (cont)
3) Remuneration Committee:
The report recommended setting up a remuneration
committee to determine & account for companys
policy on remuneration of its directors .It also
includes pension rights & compensation payment to
them .

4) Accounting standards & financial reporting :

Companies are required to present
1) consolidated accounts for all subsidiaries,
2) financial reporting for each of their product
segments , so that shareholders have complete
financial picture of the company in one statement only .

Recommendations of Birla Committee

report (cont)

5) Management :
Management of the company ensures that the policies
laid by the board of directors are implemented
successfully for attainment of corporate objectives.
Management of the company comprises of the CEO ,
executive directors & managers at various levels.
6) Shareholders :
Shareholders are owners of the company. They have
the right to obtain timely information from the
company , right to transfer & register their
shares, right to participate & vote in
shareholders meetings , right to elect members
of the board etc. In this regards the committee
recommended that companys quarterly results &
various financial presentations may be put on
companys website for access by shareholders.

Need for Corporate

Governance

Corporate governance is needed for :

1) Separation of ownership from management :
Corporate governance ensures that managers work in
the best interests of corporate owners ( shareholders)
2) Global Capital :
Good corporate governance gains credibility &
trust of global market players.
3) Investor protection :
Investors want their rights to be protected by
companies in which they have invested money.
Corporate governance is an important tool for
protecting investors interest by improving efficiency
of corporate enterprise.

Need for Corporate

(cont)
4)ForeignGovernance
Investments :

Foreign investment is taking place in India & these

investors expect companies to adopt globally
acceptable practices of corporate governance .
5) Financial reporting & Accountability :
Good corporate governance ensures sound ,
transparent & credible financial reporting &
accountability to investors & lenders so that funds can
be raised from capital markets .
6) Banks & Financial Institutions :
Banks & financial institutions who give financial
assistance to companies are interested in financial
soundness of companies which is done through good
corporate governance
7) Globalization of Economy : Globalization demands
that Indian Industries should conform to the
standards of international rules . Corporate
governance helps in doing this .

Fundamental functions of
Corporate Governance
Corporate governance links directly to
three fundamental functions of board and
the directors of the company and
shareowners they serve . They are :
Protecting stake holders rights
Managing Risk
Creating long term business value

Protecting stake holders rights

&interests
Organization for Economic Co-operation &
Development (OECD) advises business to
recognize & safeguard stakeholders rights.

These principles call on board to be truly

accountable to share owners and to take
ultimate responsibility for their firms
adherence to a high standard of
corporate behavior and ethics .

 If the shareholder are adversely

affected by a companys actions
,shareowner value will suffer

Managing Risk
By addressing & managing risks
effectively, boards can position their
business to perform well financially and
secure a long term license to operate. By
failing to do so , boards can undermine
their companys reputation .
Proactively identifying possible human
rights concerns allows a business to more
effectively arrest potential risk .

 The proper management of risk

ensures customer satisfaction and
reputation.

Creating Business value

The role of any board is guiding corporate
strategy and creating wealth for
shareholders.

The most effective corporate citizenship

and sustainability strategies are led from
the top , incorporate a wide range of
stakeholder views & are aligned with the
companys business priorities .

 Better working conditions improve the

efficiency of the supply chain
Human rights strategies such as
preventing discrimination in the work
place and promoting gender & ethnic
equality in business processes, have been
shown to increase innovation in products &
services .
Good management of environmental,
social and governance has shown to
strengthen reputation & brand value .

Corporate Social Responsibility

Definition of CSR : Corporate Social
Responsibility is all about how
companies manage the business
processes to produce an overall
positive impact on society .

Introduction to CSR
Corporate Social Responsibility is the
continuing commitment by business
to behave ethically & contribute
to economic development while
improving the quality of life of
the workforce and their families
as well as of the local community
& society at large .

CSR in India
A survey carried out by the Times
Foundation in 2008 , revealed that over
90 % of Indian organizations were
involved in CSR initiatives in areas
like :
Education
Health
Livelihood creation
Skill development and
Empowerment of Women

 Notable efforts have come from Tata Group,

Infosys S , Bharti Enterprises , Coco-Cola India,
Pepsi co , and ITC welcome group among
others .
Corporate India has spread its CSR activities
across 20 states with Maharashtra gaining the
most from them . About 36 % of CSR activities
are concentrated in it .

 In a study undertaken by a research company

TNS, India has been ranked second in global
CSR ,with Thailand being the first .

Assoc ham's Eco Pulse Study on CSR for

2009-10 release in June 2009 , found that
corporate houses on an aggregate have
identified 26 different themes for their CSR
initiatives .

Examples
The paint industry is making its product
more environment friendly by opting for
water based paints that are carcinogen free.

The Heating, Ventilation, Air conditioning

and refrigeration Industry ( HVAC) is working
to get rid of its global warmer stigma
through greater use of gases with zero
ozone depletion potential ( Zero DPP)

 Sustainable Technologies and

Environmental Projects limited
( STEPS)is planning to start a project to
change plastic, organic and electronic
waste into petroleum without the usual
harmful residue .
HDFC has started a village adoption
scheme to improve the investment
climate in Indian villages .

Arguments against CSR

1)Economic Institutions: Business is the
economic institution of the society .Its
purpose is to make the best use of resources
& generate profits.
2)Lack of Knowledge : Social responsibility
is a vague concept and very difficult to
formulate specific & measurable goals .
3)Accountability :Managers are not
accountable to society and hence there could
be misuse of power , authority & resources .

 4)Taxing, the shareholder : In the name of

CSR managers may indirectly be responsible for
taxing shareholders by utilizing profits
belonging to them for the welfare of the society
.
5) Power :The acceptance of responsibility
would automatically lead to the assumption of
authority and there could be an expansion of
the horizons of corporate power in the name of
CSR.

Arguments favoring CSR

1) Long run survival of the business
concern :
Firms that take up CSR may suffer losses
in short term but fulfilling social obligations
is beneficial in the long run .
2) Moral & Social commitment :
Business organization should be morally
committed to the interest of the society . A
plant whose manufacturing activities result
in toxic wastes should be morally bound to
devise methods for disposing the waste

 Better Image : A firm which accepts CSR can

gain the approval and appreciation of all sections
of society . Its goods & services are more readily
accepted by society than competitors companies
Avoidance of problems : A firm which reduces to
act responsibly in dealing with society will face
opposition from all sections of society
Attraction & retention of good employees :
Employees are the most valuable assets of a
company . A socially responsible company with its
good image can attract & retain good employees .

Conclusion
Corporate Governance & Social
Responsibility help an organization to
increase its efficiency besides minimizing
its risks .They are the best ways to restore
public confidence in an organization &
build a prosperous future.