CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY

•A Corporation is a mechanism established to allow different parties to contribute towards

working of a business entity, like –
-Investors / share holders who control funds, but not responsible for running the co
-Mgt who run the co but do not control funds
- Employees who produce goods & services, but do not control funds & mgt
•To protect the interest of above 3 groups especially Investors Board of Directors are elected
for corporate governance. It has authority & responsibility to frame basic corporate policies &
insure implementation & control
•Thus corporate governance refers to relationship between Directors, Management &
Investors in determining the direction & performance of the corporation
•Over the last 2 decades after the opening of the economy, an overall spurt in Business Growth,
share holders & other investors have seriously questioned efficient governance by the Board
due to lack of involvement, knowledge & professionalism in providing guidance & control to
top management towards healthy growth of business
•Role & Responsibility of Board
-Setting Corporate Strategies & thru’ this Vision, Mission & Direction of business
-Organization structure at the top & appointment / removal of top management
-Supervising & monitoring progress of the co by guiding top management 1
•Review & approve, use of major resources like land building, plant & machinery, technology,
areas of business & their future growth, management of money & manpower (5 M’s)
In true sense the board is supposed to direct the affairs of the co, but not to manage them
Role of Board in Strategic Management
•Monitoring profitability & growth, both by keeping an eye on important developments inside
& outside the co. important inside factors are profitability, productivity, quality & working
environments, where is outside factors are overall economic environment, competition, growth
& diversification & marketing strategy
•Evaluate & influence - evaluate performance & set direction for future growth, do periodic
SWOT analysis & convert weaknesses into strengths as a on going philosophy
Only pro active Boards perform this function effectively
•Initiate & innovate – this is one of the most important strategic steps & thru’ this the Board
develops Vision & Mission to attain leadership / prominent place in Industry, eg Reliance,
Infosys, Tata’s, UB group
Study of 500 firms indicate that –
-40% only work as rubber stamps ( no involvement )
-30% only rectify what management does (minimum involvement )
-30% work actively with top management to set Strategic direction (active involvement ) 2
Trends in Corporate governance
In view of competitive & Global environment, Corporate Boards are becoming more active in
shaping the performance of the co. Recent trends in this direction are as under –
-In addition to share holders / family reps Boards have professional to guide & shape
future growth of co
- Institutions like banks, FI’s are putting their nominees on the Board to ensure proper
working
- Top management Directors are being offered stock options as compensation to
increase their involvement
- Expert committee’s are set up to regularly evaluate important performance
parameters like Finance, Growth & diversification, mergers & acquisitions, Training
& Development & efficacy of HRM
- Another important criteria which has been added in recent years is fulfilment of
Social responsibilities, like environmental protection, employee welfare, social
obligations towards society, like education, health, housing or adopting an other
social cause as a corporate responsibility, like adopting a town or a village for
Role of top management in Corporate Governance
-to accomplish corporate objectives with the help of functional teams in line with Mission,
Vision & Values
-Provide leadership to convey strategic vision to employees in the co – John Welch in GE, Bill
Gates in Microsoft, John Chambers in CISCO, Narayan Murti in Infosys, Prem ji Azmi in
Wipro, Ambani’s in Reliance, Naval Tata in TELCO & TISCO & so on
-Set & achieve high standards of performance management thru’
*Act as a role model
*Establish systems of high performance standards by adopting management
techniques like MBO, KRA’s, employee participation & empowerment,
*Performance related compensation system
*Upgradation of skills thru’ Training & Development
Social Responsibilities of Corporate
-In recent years Corporates are being looked upon as a part of larger social systems of the
society rather than a mere profit making entity for its share holders. This philosophy is being
recognized by Corporates as well as Democratic Political system, as an important factor in
macro economic system at National level & is gaining social importance day by day
-Keeping global practices in mind, social responsibility has been divided in the following 4
segments 4
 -Economic which corporate must do
-Legal which Corporate has to do
-Ethical which Corporate should do
-Discretionary which Corporate may do
Economic responsibilities are to produce goods & services of value to society so that
Corporate looks after the interest of share holders/ stock holders – this is primary role & must
be performed efficiently, other wise Business activity would perish
Legal responsibility obey all statutory laws like taxes, health & safety regulations, Labor &
Industrial Laws (Wages, salary, PF, ESI, Employment Laws etc)
Ethical should not do illegal activities & other social mal practices, no discrimination against
religion, sex etc, other work ethics as per social norms
Discretionary social welfare activities like hospitals, schools, housing & other developmental
projects, such activities are voluntary.
Activity 1 & 2 are obligatory, but 3 & 4 are social responsibilities. Firms which shoulder more
& more social responsibilities have high respect & acceptance in Public. Social subjects which
are gaining importance these days are as follows-
* Pollution of environments, especially air &water
* Global warming
*Energy conservation 5
*Waste management
*Water conservation & management
*Education & health care
*Payment of min wages in all sectors of society
Social responsibilities of corporate toward their business associates
Stock holders – good financial returns, growth, compliance of all legal requirements
Creditors – payment of dues as per contractual obligation
Employees – economic, social & psychological satisfaction, fair & just treatment, opportunity
for learning, growth & progress
Customer- satisfaction regarding price, quality, service & spares
Suppliers – professional & fair relationship, especially payments & technical backup
Govt – adherence to statutory laws
Employee Unions – recognition as per law, good IR relations as partners of business
Competitors – healthy adherence to trade & industry norms, no under hand practices
Community Work – adherence to safety regulations, pollution & waste disposal
Public – participation in public causes conformity to local laws, no public inconvenience 6