CHAPTER 1.INTRODUCTION
The concept of Governance is as old as human civilization. The term ‘Governance’ simply means the process of decision- making and the process by which decisions are implemented. The root of the word ‘Governance’ is from ‘gubernate’, which means ‘to steer’. orporate governance would mean to steer an organization in the desired direction. The responsibility to steer lies with the board of directors! governing board.
"n the basis of medieval period and the times of colonial rule some political scientist use the in describing the system of governance and one such scientist said#“the marvel of all history is the patience with which men and women submit to burdens unnecessarily laid upon them by their governments”. Governance is concerned with the intrinsic nature, purpose, integrity and identity
of an organization with primary focus on the entity’s relevance, continuity and fiduciary aspects. The world has come a long way since the times of such skepticism. The ma$ority of the member states of the comity of nations today are founded found ed on the principles of %&elfare 'tate( striving to achieve the common good and n the process affording optimum opportunity and involvement of the individual so as to serve the societal interests. This has lead to emergence of the concept of %Good Governance( as opposed to mere governance, as the umbrella concept conc ept encompassing within it a system of governance that is able to une)uivocally discover the basic value towards the society where standards concern economic, political and socio- cultural issues including those involving hu man rights and follow the same through an accountable accoun table and upright administration. Good Governance signifies the way an administration improves the standard of living of the members of its society by creating and making available the basic amenities of life, providing its people security and instill hope in their heart for a promising future, future, providing an e)uitable basis, access to opportunities for personal growth, affording participation and capacity to influence in the decision making in public affairs, sustaining a responsive $udicial system which dispenses $ustice on merits in a fair, fair, unbiased and meaningful manner and maintain accountability and honesty in each wing of the government. 1 William H. Borah
CONCEPT
orporate Governance may be defined as a set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. *t is the system by which companies are directed and controlled. *t is about promoting corporate fairness, transparency and accountability. *n other words, +good corporate governance+ is simply +good business+. *t ensures
de)uate disclosures and effective decision making to achieve corporate ob$ectives
Transparency in business transactions
'tatutory and legal compliances
/rotection of shareholder interests
ommitment to values and ethical conduct of business.
*n other words, corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf b ehalf of the shareholders. *t deals with conducting the affairs of a company such that there is fairness to all stakeholders and that its actions benefit the greatest nu mber of stakeholders. *n this regard, the management needs to prevent preven t asymmetry of benefits between various sections of shareholders, especially between the owner-managers and the rest of the shareholders. *t is about commitment to values, about ethical business b usiness conduct and about making a distinction between personal and corporate funds in the management of a company. 0thical dilemmas dilemmas arise from conflicting interests of the parties involved. *n this regard, managers make decisions based on a set of principles influenced by the values, conte1t and culture of the organization. 0thical leadership is good for business as the organization is seen to conduct its business in line with the e1pectations of all stakeholders. The aim of 2Good orporate Governance2 is to ensure commitment of the board in managing the company in a transparent manner for ma1imizing long-term value of the company for its
shareholders and all other partners. *t integrates all the participants involved in a process, which is economic, and at the same time social. The fundamental ob$ective of corporate governance is to enhance shareholders+ value and protect the interests of other stakeholders by improving the corporate performance and accountability. 3ence it harmonizes the need for a company to strike a balance at all times between the need to enhance shareholders+ wealth whilst not in any an y way being detrimental to the interests of the other stakeholders in the company. 4urther, its its ob$ective is to generate an environment of trust and confidence amongst those having competing and conflicting interests. *t is integral to the very e1istence of a company and strengthens investor+s confidence by ensuring company+s commitment to higher growth and profits. 5roadly, it seeks to achieve the following ob$ectives
properly structured board capable of taking independent and ob$ective decisions is in place at the helm of affairs
The board is balance as regards the representation of ade)uate number of non-e1ecutive and independent directors who will take care of their interests and well-being of all the stakeholders
The board adopts transparent procedures and practices and arrives at decisions on the strength of ade)uate information
The board has an effective machinery to sub serve the concerns of stakeholders
The board keeps the shareholders informed of relevant developments impacting the company
The board effectively and regularly monitors the functioning of the management team
The board remains in effective control of the affairs of the compan y at all times.
The overall endeavour of the board should be to take the organization forward so as to ma1imize long term value and shareholders+ wealth.
DEFINITION
#. adbury ommittee 6 7.8.9, #::; has defined corporate governance as such %orporate %orporate governance is the system by which companies c ompanies are directed and controlled. *t encompasses enco mpasses the entire mechanics of the functioning of a company and attempts to put in place a system of checks and balances between the shareholders, directors, employees, auditor and the management.( ;. %orporate governance is the system by which business corporations are are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and spells out the rules and procedures procedu res for making decisions on corporate affairs. 5y doing this, it also provides this it also provides the structure through which the company ob$ectives are set, and the means means of attaining those ob$ectives and monitoring performance.( <;= >. ?efinition of corporate governance by the *nstitute *nstitute of ompany 'ecretaries of *ndia is as under %orporate Governance is the application of best @anagement practices, ompliance of law in true letter and spirit and adherence to ethical standards for 0ffective @anagement and distribution of wealth and discharge of social Aesponsibility for sustainable development of all stakeholders(.
s per the United Nation’s Commission on Human rights , the key attributes of good governance include transparency, transparency, responsibility, accountability, participation and responsiveness to the needs of the people.
ccording to Robert Ian !ob" Tri#$er - 3e who introduced the words corporate governance for the first time in his book in #:BC as “Corporate Governance is concerned with the way corporate entities are governed, as distinct from the way business within those companies c ompanies are managed. Corporate governance governanc e addresses the issues facing Board of Directors, such as the interaction with top management and relationships with the owners and others interested in the affairs of the company.”
Good corporate governance involves a commitment of a company to run its business in a legal, ethical and transparent manner - a dedication ded ication that must come from the very top and permeate throughout the organization.; *t has much to do with the ethical grounding of governance and must be evaluated with reference to specific norms and ob$ectives as may be laid down. *t looks at the functioning of the given segment of the society from the point of view v iew of its acknowledged stakeholders and beneficiaries b eneficiaries and customers. *t must have firm moorings to certain moral values and principles.
Good governance, as a concept, is applicable to all sections of society such as the government, legislature, $udiciary, the media, the private sector, the corporate sector, the co-operatives, societies registered under the 'ocieties ' ocieties Aegistration ct, duly registered trusts, organizations such as the trade unions and lastly the non-government organizations 6DG"s9. %ames D. &o'(ensohn said that %orporate Governance is about promoting corporate fairness,
transparency and accountability(. Thus, Good governance creates a sound, ethical and sustainable strategy, acceptable to the institution as a whole and to other key stakeholders. Good governance oversees the implementation of such strategy through well-considered processes in an open, transparent and honest manner. Good governance is essential to the grant or assertion of autonomy. 5oards of Governors, by embracing good governance approaches, accept, une)uivocally, their own collective and individual responsibilities. Good governance facilitates decision-making that is rational, 2 Mr. Naresh Chandra, Chandra , http://www.mca.gov http://www.mca.gov.in/Ministry/latestnews/ra!t"# .in/Ministry/latestnews/ra!t"#eport"NareshChandra"C$$ eport"NareshChandra"C$$.pd! .pd!
informed, and transparent which leads to organizational efficiency and effectiveness that supports and fosters the development of high )uality education and research.(>
CHAPTER). Prere*uisites and Constituents
Today To day adoption of good orporate Governance practices has emerged as an integral element for doing business. *t is not only a pre-re)uisite for facing intense competition for sustainable growth in the emerging global market scenario but is also an embodiment of the parameters of fairness, accountability, disclosures disclosures and transparency to ma1imize value for the stakeholders. orporate governance is beyond the realm of law. *t cannot be regulated by legislation alone. Eegislation can only lay down a common framework F the 2form2 to ensure standards. The 2substance2 will ultimately determine the credibility and integrity of the process. 'ubstance is ine1orably linked to the mindset and ethical standards of management. 'tudies of corporate governance practices across several countries conducted by the sian ?evelopment 5ank, *nternational @onetary 4und, "rganization for 0conomic ooperation and ?evelopment and the &orld 5ank reveal that there is no single model of good corporate governance.
% World Ban& Wor&ing 'aper 'aper 1(): *overnance o! +echnica +echnicall d-cation in $ndia
The "0? ode also recognizes that different legal systems, institutional institutional frameworks and traditions across countries have led to the development of a range of different approaches to corporate governance. 3owever, a high degree of priority has been placed on the interests of shareholders, who place their trust in corporations to use their investment funds wisely and effectively is common to all good corporate governance regimes. lso, irrespective of the model, there are three different forms of corporate responsibilities which all models do respect
b y legitimate law Po'iti#a' Res+onsibi'ities, the basic political obligations are abiding by respect for the system of rights and the principles of constitutional state.
-o#ia' Res+onsibi'ities, the corporate ethical responsibilities, which the company
understands and promotes either as a community with shared values or as a part of larger community with shared values.
E#onomi# Res+onsibi'ities, acting in accordance with the logic of competitive markets
to earn profits on the basis of innovation and respect for the rights!democracy of the shareholders which can be e1pressed in terms of managements+ obligation as +ma1imizing shareholders value+. *n addition, business ethics and corporate awareness of the environmental and societal interest of the communities, within which they operate, can have an impact on the reputation and long-term performance of corporations.
The three key constituents of corporate governance gove rnance are the 5oard of ?irectors, the 'hareholders and the @anagement.
The pivotal role in any system s ystem of corporate governance is performed by the board of directors. *t is accountable to the stakeholders and directs and controls the management. *t stewards the company, sets its strategic aim and financial goals and oversees their implementation, puts in place ade)uate internal controls co ntrols and periodically reports the
activities and progress of the company in the company in a transparent manner to all the stakeholders.
The shareholders+ role in corporate governance is to appoint the directors and the auditors and to hold the board accountable for the proper governance of the company by re)uiring the board to provide them periodically with the re)uisite information in a transparent fashion, of the activities and progress of the compan y.
The responsibility of the management is to undertake the management of the company compan y in terms of the direction provided by the board, to put in place ade)uate control systems and to ensure their operation and to provide p rovide information to the board on a timely basis and in a transparent manner to enable the board to monitor the accountability of management to it.
The underlying principles of corporate governance revolve around three basic inter-related segments. These are
*ntegrity and 4airness
Transparency and ?isclosures
ccountability and Aesponsibility
The @ain onstituents of Good orporate Governance are
Ro'e and +oers o( !oard, the foremost re)uirement of good corporate governance is
the clear identification of powers, roles, responsibilities and accountability of the 5oard, 0" and the hairman of the board.
/egis'ation, a clear and unambiguous legislative and regulatory framework is
fundamental to effective corporate governance.
Code o( Condu#t, it is essential that an organization+s e1plicitly prescribed code of
conduct are communicated to all a ll stakeholders and are clearly understood by b y them. There
should be some system in place to periodically measure and evaluate the adherence to such code of conduct by each member of the organization.
!oard Inde+enden#e, an independent board is essential for sound corporate governance.
*t means that the board is capable of assessing the performance of managers with an ob$ective perspective. 3ence, the ma$ority of board members should be independent of both the management team and any commercial dealings with the company. 'uch independence ensures the effectiveness of the board in supervising the activities of management as well as make sure that there are no actual or perceived pe rceived conflicts of interests.
!oard -$i''s, in order to be able to undertake its functions effectively, the board must
possess the necessary blend of )ualities, skills, skills, knowledge and e1perience so as to make )uality contribution. *t includes operational or technical e1pertise, financial skills, legal skills as well as knowledge of government and regulatory re)uirements.
ob$ec tives and appropriate 0anagement Enironment, includes setting up of clear ob$ectives ethical framework, establishing due processes, providing for transparency and clear enunciation of responsibility and accountability, implementing implementing sound business planning, plann ing, encouraging business risk assessment, having right people and right skill for $obs, establishing clear boundaries for acceptable behaviour, establishing performance evaluation measures and evaluating performance and sufficiently recognizing individual and group contribution.
!oard A++ointments, to ensure that the most competent people are appointed in the
board, the board positions must be filled through the process of e1tensive search. well defined and open procedure must be in place for reappointments reappo intments as well as for appointment of new directors.
!oard Indu#tion and Training, is essential to ensure that directors remain abreast of all
development, which are or may impact corporate governance and other related issues.
enab le !oard 0eetings, are the forums for board decision making. These meetings enable directors to discharge their responsibilities. The effectiveness of board meetings is dependent on carefully planned agendas and providing relevant papers and materials to directors sufficiently prior to board meetings.
-trateg2 -etting, the ob$ective of the company must be clearly documented in a long
term corporate strategy including an annual business plan together with achievable and measurable performance targets and milestones.
!usiness and Communit2 Ob'igations, though the basic activity of a business entity is
inherently commercial yet it must also take care of community+s obligations. The stakeholders must be informed about the approval by the proposed and on going initiatives taken to meet the community obligations.
co mprehensive, regular, Finan#ia' and O+erationa' Re+orting, the board re)uires comprehensive, reliable, timely, correct correct and relevant information in a form and of a )uality that is appropriate to discharge its function of monitoring corporate performance.
0onitoring the !oard Per(orman#e, the board must monitor and evaluate its combined
performance and also that of individual directors at periodic intervals, using key performance indicators besides peer review.
Audit Committee, is inter alia responsible for liaison with management, internal and
statutory auditors, reviewing the ade)uacy of internal control con trol and compliance with significant policies and procedures, reporting to the board on the key issues.
Ris$ 0anagement, risk is an important element of corporate functioning and
governance. There should be a clearly established process of identifying, analysing and treating risks, which could prevent the company compan y from effectively achieving its ob$ectives. The board has the ultimate responsibility for identifying ma$or risks to the organization, setting acceptable levels of risks and ensuring that senior management takes steps to detect, monitor and control these risks.
Good corporate governance recognizes the diverse interests of shareholders, lenders, employees, government, etc. The new concept of governance to bring about )uality corporate governance is not only a necessity to serve the divergent corporate interests, but also is a key re)uirement in the best interests of the corporate themselves and the economy. economy. CHAPTER3. Chara#teristi#s o( 4ood Cor+orate 4oernan#e,5
Good governance has B ma$or characteristics. *t is participatory, participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, e)uitable and inclusive and follows the rule of law. *t assures that corruption is minimized, the views of minorities are taken into account and that the voices of the most vulnerable in society are heard in decision-making. *t is also responsive to the present and future needs of society.
Parti#i+ation - /articipation by both men and women is a key cornerstone of good
governance. /articipation could be either direct or through legitimate intermediate institutions or representatives. *t is important to point out that representative democracy does not necessarily mean that the concerns of the most vulnerable in society would be taken into consideration in decision making. /articipation / articipation needs to be informed and organized. This means freedom of association and e1pression on the one hand and an organized civil society on the other hand.
Ru'e o( 'a- Good governance re)uires fair legal frameworks that are enforced
impartially. impartially. *t also re)uires full protection of human rights, particularly those of
minorities. *mpartial enforcement of laws re)uires an independent $udiciary and an impartial and incorruptible police force.
Trans+aren#2 - Transparency means that decisions taken and their enforcement are done
in a manner that follows rules and regulations. *t also means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. *t also means that enough information is provided and that it is provided in easily understandable forms and media.
Res+onsieness - Good governance re)uires that institutions and processes try to serve all
stakeholders within a reasonable timeframe.
Consensus oriented - There are several actors and as many view points in a given society.
Good governance re)uires mediation of the different interests in society to reach a broad consensus in society on what is in the best interest of the whole community and how this can be achieved. *t also re)uires a broad and long-term perspective on what is needed for sustainable human development and how to achieve the goals of such development. This can only result from an understanding of the historical, cultural and social conte1ts of a given society or community.
E*uit2 and in#'usieness - society’s well being depends on ensuring that all its
members feel that they have a stake in it and do not no t feel e1cluded from the mainstream of society. This This re)uires all groups, but b ut particularly the most vulnerable, v ulnerable, have opportunities oppo rtunities to improve or maintain their well being.
E((e#tieness and e((i#ien#2 - Good governance means that processes and institutions
produce results that meet the needs of society while making the best use of resources at their disposal. The concept of efficiency in the conte1t of good governance also covers cov ers the sustainable use of natural resources and the protection of the environment.
onl y A##ountabi'it2 - ccountability is a key re)uirement of good governance. Dot only governmental institutions but also the private sector and civil society organizations must be accountable to the public and to their institutional stakeholders. &ho is accountable to
whom varies depending on whether decisions or actions taken are internal or e1ternal to an organization or institution. *n general an organization or an institution is accountable to those who will be affected by its decisions or actions. ac tions. ccountability ccountability cannot be enforced without transparency and the rule of law. law.C Thus6 it #an be #'ear'2 said that the #hara#teristi#s o( good #or+orate goernan#e is a set of
systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. *t is the system by which companies are directed and controlled. *t is about promoting corporate fairness, transparency and accountability. accountability. *n other words, +good corporate governance+ is simply +good business+. *t ensures
de)uate disclosures and effective decision making to achieve corporate ob$ectives
Transparency in business transactions
'tatutory and legal compliances
/rotection of shareholder interests
ommitment to values and ethical conduct of business.
http://www.-nescap.org/pdd/p http://www.-nescap.org/pdd/prs/'roect0c rs/'roect0ctivities/ngoing/gg/gover tivities/ngoing/gg/governance.asp nance.asp
The Aim and Ob7e#ties o( 4ood Cor+orate 4oernan#e,5
orporate governance, in plain terms, refers to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to e1ternal forces such as consumer groups, clients, and government regulations. regulations. *n recent times, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by by corporate officers. n n integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise.
The aim of 2Good orporate Governance2 is to ensure commitment of the board in managing the company in a transparent manner for ma1imizing long-term value of the company for its shareholders and all other partners. *t integrates all the participants involved in a process, which is economic, and at the same time social. The fundamental ob$ective of corporate governance is to enhance shareholders+ value and protect the interests of other stakeholders by improving the corporate performance and accountability. 3ence it harmonizes the need for a company to strike a balance at all times between the need to enhance shareholders+ wealth whilst not in any an y way being detrimental to the interests of the other stakeholders in the company. 4urther, its its ob$ective is to generate an environment of trust and confidence amongst those having competing and conflicting interests. *t is said that good corporate governance helps an organization achieve several ob$ectives and some of the more important ones include H ?eveloping appropriate strategies that result in the achievement o f stakeholder ob$ectives. H ttracting, motivating and retaining talent. H reating a secure and prosperous operating environment and improving operational performance http://3-siness.gov.in/corporate"governance/concept"o3ectivess.php
H @anaging and mitigating risk and protecting and enhancing the company’s co mpany’s reputation. reputation. 'ome aspects covered in the poll include H orporate governance regulations in in *ndia H orporate governance concerns in *ndia and role of independent directors and audit committees in addressing these concerns H 5oard practices, board oversight of risk management and the importance importance given to integrity and ethical values H /ractices that are fundamental to improved corporate governance.I Thus, corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. *t deals with conducting the affairs of a compan y such that there is fairness to all stakeholders and that its actions benefit the greatest number of stakeholders. *n this regard, the management needs to prevent preven t asymmetry of benefits between various sections of shareholders, especially between the owner-managers and the rest of the shareholders. *t is about commitment to values, about ethical business b usiness conduct and about making a distinction between personal and corporate funds in the management of a company. 0thical dilemmas dilemmas arise from conflicting interests of the parties involved. *n this regard, managers make decisions based on a set of principles influenced by the values, conte1t and culture of the organization. 0thical leadership is good for business as the organization is seen to conduct its business in line with the e1pectations of all stakeholders.
4 http://newsdawn.3logspot.in/2)12/)1/corporate5governance5in5india5aims5 and.html
CHAPTER8. The Cha''enges -et For 4ood Cor+orate 4oernan#e,5
*n recent years the word governance has become a very fashionable term and is being used in a variety of ways and that covers a large number of organizations both in public and private
domains.J n efficient, effective and democratic government is the best guarantor of social $ustice as well as an orderly society. society. 'imilarly, 'imilarly, there is also emphasis on the fact that the administrative system has to be country specific and area specific taking in view not only the institutions of governance and its legal and regulatory mechanisms but also its market, its civil society and cultural values of the people. The government would, therefore, have the singular responsibility to create an enabling environment where development program get properly p roperly implemented and that creative minds do not get stifled or their energies diverted from undertaking new initiatives or enterprises. The principal response of the state, therefore, would be to facilitate, to enable, and to coordinate. Deither the market nor the civil society can perform this role as effectively effectively as the government and thus they cannot become be come substitutes for the government. *ndia is not e1cluded from this global debate or transition from socialist order to capitalist growth models. Good corporate governance is an essential element in the efficient running of all organization. &hilst, corporate governance re)uirements vary from sector to sector and organization to organization, essentially all are about the underpinning processes by which organizations are directed and controlled and the associated transparency and accountability. orporate governance is, therefore, concerned with the structures and process for decisionmaking and accountability, ac countability, controls controls and behaviour at the top of organizations. 'imply, it describes the need for any organization to have a clear direction and accountability and appropriate working arrangements in place to ensure that it achieves what it sets out to do.
6http://wor&space.-npan.org/sites/$nternet/oc-ments/Challenges72)!or72)*ood 72)*overnance72)in72)$ndia.pd!
Im+ortan#e o( 4ood Cor+orate 4oernan#e,5
orporate governance has been a high profile topic in recent years principally because of public concern at a lack of control at the top of organizations. There is evidence of public perception that, in certain cases, senior managers appear to have been able to act without restraint and that inade)uately designed systems have failed to prevent fraudulent, inefficient or inappropriate behaviour. *ndeed, a survey undertaken by the ommittee on 'tandards in /ublic Eife in ;KKI, focusing on public attitudes towards conduct in public life, demonstrated that the public’s public’s confidence that office holders will be held accountable for their conduct is limited. &hile the ma$ority believes that public service organizations are committed to improving standards in public life, onl y a minority say they are confident that these organizations will generally uncov er wrong doing or that they will punish those in public office who are caught doing wrong. *n the early #::Ks, developments in corporate governance gained momentum partly as a result of scandals involving directors or other senior staff in private sector organizations. 4or e1ample, many people lost faith in company pension schemes after #::#, when Aobert @a1well was found to have stolen more than LCKK million from >;,KKK members of the @irror Group /ension 4und. The 5ank of redit and ommerce *nternational 65*9 was forced to shut its doors by the 5ank of 0ngland in #::# amid fraud allegations, resulting in around ;K local authorities across the 78 losing up to L>K million in investments.
0ffective corporate governance is therefore critical to the efficient and effective leadership of local authorities. Good corporate governance will help to
improve the performance of services, through effective scrutiny and reporting
ensure resources are efficiently deployed to achieve the council’s performance e1pectations
improve customer satisfaction, through the delivery of improved services and a focus on the needs of communities.
build public trust and confidence in public services by ensuring accountability, accountability, transparency and high standards of conduct.
0ffective corporate governance enhances to e1ternal financing by firms, Eeading to greater investment as well as high growth and employment. emplo yment.
Thus, in the words of @ervyn 8ing 2Good 2Go od corporate governance is about +intellectual honesty+ and not $ust sticking to rules and regulations, capital flowed towards companies that practiced this type of good governance2.B CHAPTER9. The Need For and :a'ue o( 4ood Cor+orate 4oernan#e,5
orporate Governance is needed to create a orporate culture of Transparency, accountability and disclosure. *t refers to compliance with all the moral M ethical values, legal framework and voluntary adopted practices. This enhances customer satisfaction, shareholder value and wealth.
Cor+orate Per(orman#e, *mproved governance structures and processes help ensure
)uality decision-making, encourage effective succession planning for senior management and enhance the long-term prosperity of companies, independent of the type of company and its sources of finance. This can be linked with improved corporate performanceeither in terms of share price or profitability. 8 http://www.d!dl.com/images/stories/0rti http://www.d!dl.com/images/stories/0rticles/News/Corporate"*over cles/News/Corporate"*overnance"in"$ndia.p nance"in"$ndia.p d!
Enhan#ed Inestor Ines tor Trust, Trust, *nvestors consider corporate Governance as important as
financial performance when evaluating companies for investment. *nvestors who are provided with high levels of disclosure M transparency are likely to invest openly in those companies. The consulting firm @c8insey surveyed and determined that globa l institutional investors are prepared to pay a premium of up to CK percent for shares in companies with superior corporate governance practices.
!etter A##ess to 4'oba' 0ar$et, Good corporate governance systems attracts
investment from global investors, which subse)uently leads to greater efficiencies in the financial sector.
Combating Corru+tion, ompanies that are transparent, and have sound system that
provide full disclosure of accounting and auditing procedures, allow transparency in all business transactions, provide environment where corruption will certainly certainly fade out. orporate Governance enables a corporation to compete more efficiently and prevent fraud and malpractices within the organization.
Eas2 Finan#e From Institutions, 'everal structural changes like increased role of
financial intermediaries and institutional investors, size o f the enterprises, investment choices available to investors, increased competition, and increased risk e1posure have made monitoring the use of capital more comple1 thereby increasing the need of Good orporate Governance. 0vidence indicates that well-governed companies receive higher market valuations. The credit worthiness of a company can be trusted on the basis of corporate governance practiced in the company.
Enhan#ing Enter+rise :a'uation, *mproved management accountability and operational
transparency fulfill investors’ e1pectations and confidence on management and corporations, and return, increase the value of corporations.
Redu#ed Ris$ o( Cor+orate Crisis and -#anda's, 0ffective orporate Governance
ensures efficient risk mitigation system in place. The transparent and accountable system that orporate Governance makes the 5oard of a company aware of all the risks involved in particular strategy, thereby, thereby, placing various control systems to monitor the related issues.
A##ountabi'it2, *nvestor relations’ is essential part of good corporate governance.
*nvestors have directly! indirectly entrusted management of the company for the creating enhanced value for their investment. The company is hence obliged to make timely disclosures on regular basis to all its shareholders in order to maintain good investors relation. Good orporate Governance practices create the environment where 5oards cannot ignore their accountability to these stakeholders.
CHAPTER;. E:IDENCE OF CORPORATE CORPORATE 4O:ERNANCE FRO0 THE ARTHA-HA-TRA,5
8autilya’s rthashastra maintains that for good corporate governance, all administrators, including the king were considered servants of the people. Good governance and stability were completely linked. *f rulers are responsive, accountable, removable, recallable, there is stability. stability. *f not there is instability. instability. These tenets hold good even today.
The substitution of the state with the corporation, the king with the 0" or the board of a corporation, and the sub$ects with the shareholders, bring out the )uintessence of corporate governance, because central to the concept of corporate governance is is the belief that public good should be ahead of private good and that the corporation+s resources cannot be used for personal benefit. •
Ra$sha F literally means protection, in the corporate scenario it can be e)uated with the
•
risk management aspect. :riddhi F literally means growth, in the present day conte1t can be e)uated to
•
stakeholder value enhancement Pa'ana F literally means maintenance!compliance, in the present day conte1t it can be
•
e)uated to compliance to the law in letter and spirit. =oga$shema F literally means well being and in 8autilya’s rthashastra it is used in conte1t of a social security system. *n the present day conte1t it can be e)uated to corporate social responsibility. responsibility.
rthashastra talks self-discipline for a king and the si1 enemies which a king should overcome F lust, anger, greed, conceit, arrogance and foolhardiness. *n the present day conte1t, this addresses the ethics aspect of businesses and the personal pe rsonal ethics of the corporate leaders. orporate Governance is managing, monitoring and overseeing various corporate systems in such a manner that corporate reliability, reputation are not put at stake. orporate Governance pillars on transparency and fairness in action satisfying satisfying accountability and responsibility towards the stakeholders.
4airness Aesponsibility orporate Governance
Transparency ccountability
The long term performance of a corporate is $udged by a wide constituency of stakeholders. Narious Narious stakeholders affected by the governance practices of the company
Nendors ustomers
0mployees 'takeholders 'ociety
Government.
Global competitions in the market need best planning, p lanning, management, innovative ideas, compliance with laws, good relation between directors, shareholders, employees and customers of companies, value based corporate governance g overnance in order to grow, prosper and compete in international markets by strengthen their strength overcoming their weaknesses and running them effectively and efficiently in an efficient and transparent manner by adopting the best practices. orporate *ndia must commit itself as reliable, innovative and prompt service provider to their customers and should also become reliable business partners in order to prosper and to have all round growth. orporate Governance is nothing more than a set of ideas, innovation, creativity, thinking having certain ethics, values, principles etc which gives direction and shape to its people, employees and an d owners of companies and help them to flourish in global market. *ndian orporate 5odies having adopted good corporate governance will reach themselves to a benchmark for rest of the world it brings laurels as a way of appreciation. orporate governance lays down ethics, values, and principles, management manag ement policies of a corporation which are inculcated and brought into practice. The importance of corporate governance lies in promoting and maintains integrity, transparency and accountability throughout the organization.
HI-TOR= > NEED OF CORPORATE 4O:ERNANCE
orporate governance concept emerged in *ndia after the second half of #::I due to economic liberalization and deregulation of industry and business. &ith the changing times, there was also
need for greater accountability of companies to their shareholders and customers. The report of adbury ommittee on the financial aspects of corporate Governance in the 7.8. has given rise to the debate of orporate Governance in *ndia. Deed for corporate governance arises due to separation of management from the ownership. 4or a firm success, it needs to concentrate on both economical and social aspect. *t needs to be fair with producers, shareholders, customers etc. *t has various responsibilities towards employees, customers, communities and at last towards governance and it needs to serve its responsibilities at the best at all aspects. The %corporate governance concept( con cept( dwells in *ndia from the rthshastra time instead of 0" at that time there were kings and sub$ects. Today, corporate and shareholders replace them but the principles still remain same, unchanged i.e. good governance. ;Kth century witnessed the glossy of *ndian 0conomy 0con omy due to liberalization, globalization, and privatization. *ndian economy for the #st time here was together with world economy for product, capital and lab our market and which resulted into world of capitalization, corporate culture, business ethics which was found important for the e1istence o f corporation in the world market place. orporate governance is concerned with set of principles, ethics, values, morals, rules regulations, M procedures etc. orporate governance establishes a system whereby directors are entrusted with duties and responsibilities in relation to the direction of the company’s compan y’s affairs. affairs. The term %governance( means control i.e. controlling a company, an organization etc or a company M corporate governance is governing or controlling the corporate bodies i.e. ethics, values, principles, morals. 4or corporate governance to be good the manager needs to meet its responsibilities towards its owners 6shareholders9, creditors, employees, customers, government and the society at large. orporate governance governanc e helps in establishing a system where a director is showered with duties and responsibilities of the affairs of the company. compan y. 4or effective corporate governance, its policies need to be such that the directors of the company co mpany should not abuse their power and instead should understand their duties and responsibilities towards the company and should act in the best interests of the company in the broadest sense. The concept of ‘corporate governance’ governance ’ is not an end it’s $ust a beginning towards growth of company for long term prosperity.
CHAPTER?. RO/E OF /A& IN CORPORATE 4O:ERNANCE
Eaw can only provide a minimum code of conduct for proper regulation of human being or company.
‘The rt rt of drawing solid ob$ects on a flat surface surface so as to give the right impression impression of their
relative height, width, depth, distance, etc.’ ;. pparent relation between different aspects of a problem. *n simple terms it means ‘the right impression’. @ainly we will deal with the perspectives of corporate go vernance from three points of view #. 'hareholders 6apital @arket9 F ontrol perspective ;. "rganization 6@anagement9 F ontrol perspective >. 'takeholders - ontrol perspective 1. -hareho'ders, as providers of a risk capital have final control on resource allocation
decisions. ). Organi@ation, have the main purpose is to control i.e. through skills, intelligence, innovation,
ideas, professionalism etc. Therefore, here in this perspective, resource allocation decision should rest with them. 3. -ta$eho'ders, here, it says that for long term business, only shareholders value ma1imization
should not be seen as sole goal but it should be for well being b eing of all groups with stake of long run of business and it should be goal of corporate governance.
I0PORTANT I--UE- IN CORPORATE 4O:ERNANCE
There are several important issues in corporate governance and they play a great role, all the issues are inter related, interdependent to deal with each other. 0ach issues connected with corporate governance have different priorities in each of the corporate bodies. The issues are listed as below
#.
Nalue based corporate culture
;.
3olistic view
>.
ompliance with laws
C.
?isclosure, transparency, M accountability
.
orporate governance and human resource management
I.
*nnovation
J.
Decessity of $udicial reforms
B.
Globalization helping *ndian companies to become global giants based on good corporate
governance. :.
Eessons from orporate failure
1. :a'ue :a'ue based #or+orate #u'ture, 4or any organization to run in effective way, it needs to have
certain ethics, values. Eong run business needs to have based corporate culture. Nalue based corporate culture is good practice for corporate governance. go vernance. *t is a set of beliefs, ethics, principles which are inviolable. *t can be a motto i.e. short phrase which is uni)ue and helps in running organization, there can be vision i.e. dream to be fulfilled, mission and purpose, ob$ective, goal, target. godl y, religious religious attitude which helps h elps in ). Ho'isti# ie, This holistic view is more or less godly, running organization. *t is not easier to adopt it, it needs special efforts and once adopted it leads to developing )ualities of nobility, tolerance tolerance and empathy. 3. Com+'ian#e ith 'as Those companies which really need progress, have high ethical
values and need to run long run business they abide and comply with laws of 'ecurities 01change 5oard "f *ndia 6'05*9, 4oreign 01change Aegulation ct, ompetition ct ;KK;, yber Eaws, 5anking Eaws etc.
8. Dis#'osure6 trans+aren#26 and a##ountabi'it2, ?isclosure, transparency and accountability
are important aspect for good governance. Timely and accurate information should be disclosed on the matters like the financial position, performance etc. Transparency is needed in order that government has faith in corporate bodies and conse)uently it has reduced corporate ta1 rates from >KO today as against :JO during the late #:JKs. Transparency is needed towards corporate bodies so that due to tremendous competition in the market place the customers having choices don’t shift to other corporate bodies. 9. Cor+orate 4oernan#e and Human Resour#e 0anagement, 4or any corporate body, the
employees and staff are $ust like family. 4or a company to be perfect the role of 3uman Aesource @anagement becomes very vital, they both are directly linked. 0very individual should be treated with individual respect, his achievements should be recognized. 0ach individual staff and employee should be given best opportunities to prove their worth and these can be done by 3uman Aesource ?epartment. Thus in orporate Governance, 3uman Aesource has a great role. ;. Innoation, 0very orporate body needs to take risk of innovation i.e. innovation in
products, in services and it plays a pivotal role in corporate governance. ?. Ne#essit2 o( %udi#ia' Re(orm There is necessity of $udicial reform for a good economy and
also in today’s changing time of globalization and liberalization. "ur $udicial system though having performed salutary role all these years, certainly are b ecoming obsolete and outdated over the years. The delay in $udiciary is due to several interests involved in it. 5ut then with chang ing scenario and fast growing competition, the $udiciary needs to bring reforms accordingly. *t needs to speedily resolve disputes in cost effective manner. . 4'oba'i@ation he'+ing Indian Com+anies to be#ome g'oba' giants based on good goernan#e, *n today’s age of competition and due to globalization our several *ndian orporate
bodies are becoming global giants which are possible only due to good corporate governance. moral to learn from, every failure B. /essons (rom (rom Cor+orate Fai'ure FUTURE
Good corporate governance in the changing business environment has emerged as powerful p owerful tool of competitiveness and sustainability. *t *t is very important at this point and it needs need s corporation for one and all i.e. from 0" of company to the ordinary staff for the ma1imization of the stakeholders’ value and also for ma1imization of pleasure and an d minimization of pain for the long term business. Global competitions in the market need best planning, p lanning, management, innovative ideas, compliance with laws, good relation between directors, shareholders, employees and customers of companies, value based corporate governance g overnance in order to grow, prosper and compete in international markets by strengthen their strength overcoming their weaknesses and running them effectively and efficiently in an efficient and transparent manner by adopting the best practices. orporate *ndia must commit itself as reliable, innovative and prompt service provider to their customers and should also become reliable business partners in order to prosper and to have all round growth. orporate Governance is nothing more than a set of ideas, innovation, creativity, thinking having certain ethics, values, principles etc which gives direction and shape to its people, employees and an d owners of companies and help them to flourish in global market. *ndian orporate 5odies having adopted good corporate governance will reach themselves to a benchmark for rest of the world it brings laurels as a way of appreciation. orporate governance lays down ethics, values, and principles, management manag ement policies of a corporation which are inculcated and brought into practice. The importance of corporate governance lies in promoting and maintains integrity, transparency and accountability throughout the organization. orporate governance has e1isted since past but it was in different form. ?uring Nedic Nedic times kings used to have their ministers and used to have ethics, values, principles and laws to run their state but today it is in the form corporate governance g overnance having same rules, laws, ethics, values, and morals etc which helps in running corporate bodies in the more effective ways so that they in the age of globalization become global giants. 'everal *ndian ompanies like /epsio, *nfuses, Tata, &ipro, &ipro, T', and Aeliance are some of the global giants which have their flag of success flying high in the sky due to good corporate governance.
Toady To ady even law has a great role to play in successful and growing economy. Government and $udiciary have enacted several laws and regulations like '05*, 40@, yber laws, ompetition laws etc and have brought several amendments and repeal the laws in order that they don’t act as barrier for these corporate bodies and developing *ndia. Pudiciary has also helped in great way by solving the corporate disputes in speedy way. orporate bodies have their aim, values, motto, ethics and principles etc which guide them to the ladder of success. 5ig and small organizations have their magazines annual reports which reflect their achievements, failure, their profit and loss, their current position in the market. few companies have also shown awareness of environment env ironment protection, social responsibilities and the cause of upliftment and social development and they have deeply committed co mmitted themselves to it. The big e1ample of such a company can be of ?eepak 4ertilizers and /etrochemicals orporation Eimited which also bagged ;nd runner up award for the corporate social responsibility by business world in ;KK. 7nder the present scenario, stakeholders are given more importance as to shareholders, they even get chance to attend, vote at general meetings, make observations and comments on the performance of the company. orporate governance from the futuristic point of view has great role to play. The corporate bodies in their corporate have much futuristic approach. They have vision for their company, company, on which they work for the future success. They take risk and adopt innovative ideas, have futuristic goals, motto, and future ob$ectives to achieve. &ith increase in interdependence and free trade among countries and citizens across the globe, internationally accepted corporate governance standards are of paramount importance for *ndian ompanies seeking to distinguish themselves in global footprint. The companies should always keep improving, enhancing and upgrading themselves by bringing more reliable integrated product and service )uality. They should be more transparent in their conduct. orporate governance should also have approach of holistic view, value based governance, should be committed towards corporate social upliftment and social responsibility and environment protection. *t also involves creative, generative and positive things that add value to the various stakeholders that are served as customers. 5e it finance, ta1ation, banking or legal framework each and every place re)uires good corporate governance. 3ence corporate governance is a means and not an end, corporate e1cellence should be end.
CHAPTERB. Con#'usion and -uggestions,5
Aecently the terms 2governance2 and 2good governance2 are being increasingly used in development literature. *t should be clear that good governance is an ideal which is difficult to achieve in its totality. Nery Nery few countries and societies have come close to achieving good governance in its totality. 3owever, to ensure sustainable human development, actions must be taken to work towards this ideal with the aim of making it a reality. reality.: Today, To day, even law has a great role to play pla y in successful and growing economy. Government and $udiciary have enacted several laws and regulations like '05*, 40@, yber laws, ompetition laws etc and have brought several amendments and repeal the laws in order that they don’t act as barrier for these corporate bodies and developing *ndia. Pudiciary has also helped in great way by solving the corporate disputes in speedy way. Governance is the act, process or power of governing an organization. Good governance allows organizations to do the right thing, in the right way, wa y, for for the right people, in a timely, open, honest and accountable way. good governance framework will include the systems, processes, cultures and values used to direct and control organizations and through which they answer to, get involved with and, where appropriate, lead their communities.
Good governance has been bee n a growing area of focus since the early #::Ks. Narious Narious documents good practice have been on produced and improved as reform has taken place. Governance, and in particular local accountability, has played an increasingly important role in public services.
:arious re'eant Committee’s in dee'o+ing good goernan#e (rameor$s in 'o#a' goernment are as (o''os,5
H The report of the ommittee on the 4inancial spects of orporate Governance 6The adbury Aeport #::;9 identified three essential principles for corporate governance F openness, integrity and accountability.
( http://www.-nescap.org/pdd/p http://www.-nescap.org/pdd/prs/'roect0c rs/'roect0ctivities/ngoing/gg/gover tivities/ngoing/gg/governance.asp nance.asp
H The ommittee on 'tandards in /ublic Eife e1amined concerns about the conduct of people who hold public office and published its 4irst report *n @ay #::.This ?efined seven general principles, known as the Dolan principles. These are selflessness, selflessness, integrity, integrity, ob$ectivity, ob$ectivity, accountability, openness, honesty and integrity.
H *n ;KKC the *ndependent ommission on Good Governance in /ublic 'ervices published a set of common principles that all public-sector organizations should adopt. The Good Governanc e 'tandard for /ublic 'ervices built upon the Dolan /rinciples for the manner of individuals in public life. *t did so by setting out si1 core principles that that should form the backbone of the governance arrangements of all organizations. "rganizations should #. 4ocus on the organization’s purpose and outcomes for itizens. ;. learly define functions and roles. >. /romote values of good governance. C. @ake informed and open decisions and manage risk. . ?evelop the ability and skills of the governing body. I. *nvolve stakeholders 6those with an interest9 and @ake accountability real
To achieve Good Governance the Government shall be on a mission to follow clarity, conviction, compassion and consistency in governance which are prere)uisites to achieve the principles and vision of good governance. larity promotes transparency, transparenc y, participatory participatory and efficient governance. onviction promotes accountable and effective governance. ompassion promotes consensus oriented, e)uitable and inclusive governance.
*n a nutshell, Good corporate governance governanc e entails effective participation in public policy making, the prevalence of the rule of law and $udicial system and a system s ystem of institutional checks and balances through horizontal and vertical separation of powers and effective oversight agencies. *t is further said that %the mother earth has enough for everyone’s need , but not enough for anyone’s greed( *f the business owners and managers follow the righteous path, it is a win- win situation for all the true corporate social responsibility in order to achieve a good corporate governance. lthough it seems difficult, but it is not possible, all that is needed little effort with pure heart
The pendulum needs to swing a little for people to reali!e that corporations serve a useful purpose, but they are right to e"pect high accountability. accountability.#$
Thus, *ndia has made a significant achievement in the area of orporate Governance and is yet to go a long way in ensuring good corporate governance in line with the leading economies of the globe. *ndian companies are focusing on good corporate governance so as to accomplish the short term and long term corporate plans simultaneously ensuring the o verall interests of the various stake holders. The good corporate governance helps an organization in attracting the best talents in various domain areas, as well as in motivating and remaining the talent thereby facilitating the overall process of talent management which acts as a backbone or the engine of any organization. Good corporate governance facilitates the management of visualizing, analyzing and managing the various types of risk so as to ensure a secure and prosperous operating environment to improve the operational performance and productivity. Good corporate governance is characterized by a firm commitment and adoption of ethical practices by an organization across its entire value chain and in all of its dealings dealings with a wide group of stakeholders encompassing employees, customers, vendors, regulators, and shareholders 6including the minority shareholders9, in both good and bad times, to achieve this certain checks and practices need to be whole heartedly embraced
1) #avanan and Mindtree
CHAPTER1. CORPORATE CORPORATE -OCIA/ RE-PON-I!I/IT=
The vast amount of literature available on the sub$ect ensures that there e1ist innumerable definitions of corporate governance. To get a fair view on the sub$ect it would be prudent to give a narrow as well as a broad definition definition of corporate governance. *n a narrow sense, corporate governance involves a set of relationship amongst the company’s management, its board of directors, shareholders and other stakeholders. These relationships, which involve various rules and incentives, provide the structure through which the ob$ectives of the company are set, and the means of attaining those ob$ectives and monitoring performance are determined. Thus, the key aspects of good corporate governance include transparency of corporate structures and operations the accountability of managers and the boards to shareholders and corporate responsibility towards employees, creditors, suppliers and local communities where the corporation operates. *n a broader sense, sense, however, good corporate governance- the e1tent to which companies are run in an open and honest manner- is important for overall market confidence, the efficiency of international capital allocation, the renewal of countries’ industrial bases, and ultimately the nations’ overall wealth and welfare.
*t is important to note that in both the narrow as well as in the broad definitions, d efinitions, the concepts of disclosure and transparency occupy centre-stage. *n the first instance, these concepts create trust at the firm level among the suppliers of finance. *n the second instance, they create overall confidence at the aggregate economy e conomy level. *n both cases, they result in efficient allocation of capital. orporate governance is important for the following reasons •
*t lays down the framework for creating long-term trust between companies a nd the e1ternal providers of capital
•
*t improves strategic thinking at the top by inducting independent directors who bring a wealth of e1perience, and a host of new ideas
•
*t rationalizes the management and monitoring of risk that a firm faces globally
•
*t limits the liability of top management and directors, by carefully articulating the decision making process
•
*t has long term reputational effects among key stakeholders, both internally 6employees9 and e1ternally 6clients, communities, political!regulatory agents9
•
*ndependent directors are the trustees of good corporate governance. n active and involved board consisting of professional and truly independent independen t directors plays an important role in creating trust between a company compan y and its investors, and is the best guarantor of good corporate governance. *ncreasingly, institutional investors, both in *ndia and internationally, are closely scrutinising the corporate governance practices and the )uality of boards before taking investment inv estment decisions. s s *ndian companies look towards accessing funds from foreign institutional investors and tapping global financial markets, the credentials of their independent directors will become important.
•
4inally, competent and )ualified independent directors play an important role in the stewardship and strategy formulation of companies. *ndian corporates that have
appointed such directors to their 5oard have benefited immensely from their guidance and inputs. •
The Dational 4oundation for orporate Governance 6D4G9 has been set up the ?epartment of ompany ffairs, Government of *ndia, in partnership with onfederation of *ndian *ndustry 6**9, *nstitute of ompany 'ecretaries of *ndia 6*'*9 and *nstitute of hartered ccountants of *ndia 6**9 with the goal of promoting good corporate governance practices in *ndia.
The D4G will focus on the following areas •
reating awareness on the importance of implementing good corporate governance practices both at the level of individual corporations and for the economy as a whole. The foundation would provide a platform for )uality discussions and debates amongst academicians, policy makers, professionals and corporate leaders through workshops, conferences, meetings and seminars.
•
0ncouraging research capability in the area of corporate governance in the country and providing key inputs for developing laws and regulations which meet the twin ob$ectives of ma1imizing wealth creation and fair distribution of this wealth.
•
&orking &orking with the regulatory authorities at multiple levels to improve implementation and enforcement of various laws related to corporate governance
•
*n close coordination with the private sector, work to instil a commitment to corporate governance reforms and facilitate the development of a corporate governance culture
•
ultivating international linkages and maintaining the evolution towards conve rgence with international standards and practices for accounting, audit and non-financial disclosure.
•
'etting up of %Dational entres for orporate Governance’ across the country, which would provide )uality training to ?irectors and aim to have global recognition and acceptance The eo'ution o( #or+orate so#ia' res+onsibi'it2 in India refers to changes over time in *ndia of the cultural norms of corporations+ corporations+ engagement engagement of corporate social responsibility 6'A9, responsibility 6'A9, with 'A referring to way that businesses are managed to bring about an overall positive impact on the communities, cultures, societies and environments in which they operate.<#= The fundamentals of 'A rest on the fact that not only public only public policy but policy but even corporates should be responsible enough to address social issues. Thus companies should deal with the challenges and issues looked after to a certain e1tent by the states.<;= mong other countries *ndia has one of the oldest traditions of 'A. 5ut 'A practices are regularly not practiced or done only in namesake specially by @Ds with no cultural and emotional attachments to *ndia. @uch has been done in recent years to make *ndian 0ntrepreneurs 0ntrepreneurs aware aware of social responsibility as an important segment of their business activity but 'A in *ndia has yet to receive widespread recognition. *f this goal has to be realised then the 'A approach of corporates has to be in line with their attitudes towards mainstream business- companies setting clear ob$ectives, undertaking potential investments, measuring and reporting performance publicly. publicly.
The history of 'A in *ndia has its four phases which run parallel to *ndia+s historical development and has resulted in different approaches towards 'A. 3owever the phases are not static and the features of each phase may overlap other phases. The First Phase
*n the first phase charity charity and and philanthropy philanthropy were the main drivers of 'A. ulture, religion, family values and tradition and industrialization had an influential effect on 'A. *n the preindustrialization period, which lasted till #BK, wealthy merchants shared a part of their wealth with the wider society by way of setting up temples for a religious cause.
food from their godowns and money mone y and thus securing an integral position in the society.
&ith the arrival of colonial rule in *ndia from the #BKs onwards, the approach towards
'A changed. The industrial families of the #:th century such as Tata Tata,, Godre$ Godre$,, 5a$a$ 5a$a$,, @odi @odi,, 5irla 5irla,, 'inghania were strongly inclined towards economic as well as social considerations. 3owever it has been observed that their efforts towards social as well as industrial development were not only driven by b y selfless and religious motives but also influenced by caste groups and political ob$ectives.<>= The -e#ond Phase
*n the second phase, during the independence movement, movement, there was increased stress on *ndian *ndustrialists to demonstrate their dedication towards the progress of the society. This was when @ahatma Gandhi introduced Gandhi introduced the notion of 2trusteeship2, according to which the industry leaders had to manage their wealth so as to benefit the common man. 2 % % desire to to end capitalism almost, if not &uite, as much as the most advanced socialist. But our methods differ. 'y theory of trusteeship is no ma(e)shift, certainly no camouflage. % am co nfident that it will survive all other theories.2 This was Gandhi+s words which highlights his argument towards his concept of
2trusteeship2. Gandhi+s influence put pressure on various *ndustrialists to act towards building the nation and its socio-economic development.
The third phase of 'A 6#:IKFBK9 had its relation to the element of 2mi1ed 2 mi1ed economy2, economy2, emergence of /ublic 'ector 7ndertakings 6/'7s9 7ndertakings 6/'7s9 and laws relating labour and environmental en vironmental standards. ?uring this period the private sector was forced to take a backseat.
restrictions on the private sector led to corporate malpractices.
They emphasized upon transparency, social accountability and regular stakeholder
dialogues. *n spite of such attempts the 'A failed to catch steam. The Fourth Phase
*n the fourth phase 6#:BK until the present9 *ndian companies started abandoning their traditional engagement with 'A and integrated it into a sustainable business strategy. *n *n the #::Ks the first initiation towards globalization globalization and and economic liberalization were undertaken. ontrols and licensing system were partly done away with which gave a boost to the economy ec onomy the signs of which are very evident today. *ncreased growth momentum of the economy helped *ndian companies grow rapidly and this made them more willingQGa$are, A.'. 6;K#C9. conceptual study of 'A development in *ndia. *n ?.5. /atil M ?.?. 5hakkad, Aedefining @anagement /ractices and @arketing in @odern ge ?hule, *ndia tharva /ublications 6p. #;-#C9.R and able to contribute towards social cause. Globalization has transformed *ndia into an important destination in terms of production produ ction and manufacturing bases of TDs are concerned. s &estern &estern markets are becoming more and more concerned about labour and environmental standards in the developing countries, *ndian companies which e1port and produce goods for the developed world need to pay a close attention to compliance with the international standards. <= 'A is not a new concept con cept in *ndia. 0ver since their inception, corporates c orporates like the Tata Group, Group, the ditya 5irla Group,and Group,and *ndian "il orporation, orporation, to name a few, have been involved in serving the community. Through donations and charity events, many other organizations have been doing their part for the society. The basic ob$ective of 'A in these days is to ma1imize the co mpany+s overall impact on the society and stakeholders. 'A policies, practices and programs are being comprehensively integrated by an increasing number of companies throughout their business
operations and processes. growing number of corporates feel that 'A is not $ust another form of indirect e1pense but is important for protecting the goodwill go odwill and reputation, defending attacks and increasing business competitiveness. competitiveness.
of corporate self-regulation integrated into a business a business model. model. 'A policy functions as a selfregulatory mechanism whereby a business monitors and ensures its active compliance co mpliance with the
spirit of the law, ethical standards and international norms norms.. &ith some models, a firm+s implementation of 'A goes beyond compliance and engages in 2actions that appear to further <;=<>= <>= some social good, beyond the interests of the firm and that which is re)uired by law.2 law.2<;= 'A
aims to embrace responsibility for corporate actions and to encoura ge a positive impact on the environment and stakeholders stakeholders including including consumers, employees, investors, communities, and others. The term 2corporate social responsibility2 became popular in the #:IKs and has remained a term used indiscriminately by many to cover legal and moral responsibility more narrowly construed.
/roponents argue that corporations increase long term profits by operating with a 'A perspective, while critics argue that 'A distracts distracts from business+ economic role. ;KKK study compared e1isting econometric econometric studies studies of the relationship between social and financial performance, concluding that the contradictory results of previous studies reporting reporting positive, negative, and neutral financial impact, were due to flawed empirical analysis and analysis and claimed when the study is properly specified, 'A has a neutral impact on financial outcomes. <=
is merely window-dressing window-dressing,, or an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations. corporations. /olitical sociologists became interested in 'A in the conte1t of theories of globalization globalization,, neoliberalism neoliberalism and and late capitalism. 'ome sociologists viewed 'A as a form of capitalist legitimacy and in particular point out that what began as a social movement against uninhibited corporate power was transformed by corporations into a +business model+ and a +risk management+ device, often with )uestionable results.<:= 'A is titled to aid an organization+s mission as well as a guide to what the company stands for to its consumers. 5usiness ethics is ethics is the part of applied ethics that e1amines ethical principles and moral or ethical problems that can arise in a business environment. *'" ;IKKK is the recognized international standard for 'A. /ublic sector organizations 6the 7nited Dations for e1ample9
adhere to the triple bottom line 6T5E9. *t is widely accepted that 'A adheres to similar principles, but with no formal act of legislation. legislation. 5usiness dictionary defines 'A as 2 company’s company’s sense of responsibility towards the community and environment 6both ecological and a nd social9 in which it operates. ompanies e1press this citizenship 6#9 through their waste and pollution reduction processes, 6;9 b y contributing educational and social programs and 6>9 b y earning ade)uate returns on the employed resources.2<##= 2orporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and e)ually to re)uire accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society2 *+ir drian Cadbury in -Global Corporate Governance orum/, 0orld 0orld Ban(, 1$$$2
The basis for recent international work 6see, for instance, the &orld &orld 5ankSs work inwww.gcg4.org inwww.gcg4.org99 on orporate Governance is the "0? 2/rinciples of orporate Governance2 6www."0?.org www."0?.org99 which cover the rights of shareholders, the e)uitable treatment of shareholders, the role of stakeholders in corporate governance, governanc e, disclosure and transparency and the responsibilities of the board. The &orld &orld 5ank notes, however, that there is no single model of corporate governance with systems varying by country, coun try, sector sector and even in the same corporation over time. mong the most prominent systems are the 7' and 78 models, which focus on dispersed controls and the German and Papanese models which reflect a more concentrated ownership structure. Corporate social responsibility responsibility is concerned with treating the stakeholders of the firm ethically
or in a socially responsible manner. 'takeholders e1ist both within a firm and outside. onse)uently, behaving socially responsibly will increase the human development of stakeholders both within and outside the corporation. This definition 6from glossary glossary99 is much wider than the stakeholder definition used, to date, by the "0? and the &orld &orld 5ank. 4or instance the "0? principles imply that a key role for stakeholders is concerned with ensuring
the flow of e1ternal capital to firms and that stakeholders are protected by law and have ha ve access to disclosure. &hile the &orld 5ank have been intrigued by a Pune ;KKK *nvestor "pinion 'urvey of @c8insey 6survey 6survey99 that finds that investors say that board governance governanc e is as important as financial performance in their investment decisions and that across Eatin merica, 0urope, the 7' and sia investors 6over BKO of those interviewed9 would be willing to pay more for a company with good board governance practices. /oor governanceS was defined by @c8insey as a company that has •
@inority of outside directors
•
"utside directors have financial ties with management
•
?irectors own little or no stock
•
?irectors compensated only with cash
•
Do formal director evaluation process
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Nery Nery unresponsive to investor re)uests for information on governance gove rnance issues Good governanceS was defined by @c8insey as
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@a$ority of outside directors
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"utside directors are truly independent, no management manage ment ties
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?irectors have significant stockholdings
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Earge proportion of director pay is stock!options
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4ormal director evaluation in place
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Nery Nery responsive to investor re)uests for information on governance g overnance issues Given the )uestions, it is not surprising that the figure of BKO was arrived at, but the point is that Good GovernanceS has a very narrow fit to the "0? principles and even narrower when compared with corporate social responsibility sentiments. Devertheless, there is increasing advocacy of a broader and more inclusive concept of corporate governance that e1tends to corporate responsibility and has a wider concept of stakeholderS stakeho lderS than
that used by the "0? 6see schematic9. These ideas are reflected in the 8ing Aeport for 'outh frica, the ommonwealth principles of business practice, the 78Ss TomorrowSs ompany etc.
+chematic (indly supplied with permission of 'ervyn 3ing of the 3ing Commission, +outh frica
*n conclusion, the notion of corporate governance g overnance fits well into current concerns of management manage ment structure at the top of corporations and is becoming increasingly better defined thanks to the work of the &orld &orld 5ank and "0? etc., but hardly encompasses the concerns of corporate co rporate social responsibility notions. "n the other hand, notions of corporate social responsibility have not advanced as far as the corporate governance school with its agreed set of principles. There is light on the horizon thanks to work by 8ing and others and also in the adbury definition itself that notes that the aim of corporate governance g overnance is to align as nearly as possible the interests of individuals, corporations and society.
4C+5 is about how companies manage thebusiness processes to produce an overall positive impact on society” )
0a''enba$er
*DTA"?7T*"D orporate 'ocial Aesponsibility 6'A9, can be described as, the continuous commitment by corporations towards the economic and social development of communities in which they operate. The concept of corporate social responsibility of large industrial groups has occupied a prominent place in the greater national discourse on economic issues since the preindependence era in *ndia. Gandhi described large business as ‘trusts’ of the ‘wealth of the people’ and thus emphasized on the larger social purpose that industrial wealth wealth should serve in independent *ndia. *n the early days of the post- independence period, the *ndian state under the heavy influence of Dehruvian socialism encouraged private industries to play an active role in the economic and social development deve lopment of the backward sections of the society, while at the same time setup a mammoth public sector for serving larger societal interests. s Dehru’s Dehru’s gentle socialism gave way to the more radical policies p olicies of nationalization and e1tensive state regulation of the *ndira Gandhi era, industrial groups desperate to avoid the draconian state policies and regulations in economic affairs resorted to large scale corporate welfare programs to demonstrate that private wealth also played a important role in poverty alleviation and the socio-economic development of the nation and was not anti-people. n impeding crisis in *ndian economy led the Aa$iv Gandhi and Darashima Aao governments go vernments to dismantle the ‘license ra$ and introduce muchneeded economic reforms in the country, which marked the beginning of the economic liberalization and the free market economy in *ndia. The ma$or impact of these economic reforms has been the increased presence of transnational corporations in the country and transformation of *ndian businesses into large global enterprises. *n this scenario, there is an increased focus on the social role of these private enterprises by both the proponents and opponents of liberalization in *ndia. *n this paper we analyze anal yze the fundamental changes in paradigm p aradigm of corporate social responsibility and the new innovative practices being applied for its implementation in the last decade in *ndia, in the conte1t of the liberalization of the *ndian economy. "ur central argument in the paper is that the rise of private p rivate enterprise in the free market setup has radically transformed the perception and understanding that corporations co rporations have of their large role in society and conse)uently, their has been a revolution in implementation of corporate social responsibility programs at the ground level.
A"E0 "4 'A o 5oost in brand image and reputation. o *ncreased sales and customer loyalty. o Aeduction in operating costs. o 3igher productivity and a nd )uality. o ttract ttract and retain employees. o Aeduced regulatory oversight. 'T80 3"E?0A /AT**/T*"D *D "A/"AT0 '"*E A0'/"D'*5*E*TU A0'/"D'*5*E*TU The conceptualization of corporate social responsibility uptill the #::K’s was purely in terms of o f philanthropy or charity. c harity. &elfare &elfare programs or initiatives were introduced not as a duty or a responsibility but as a form of charity that was supposed to indicate the virtues of the company or the organization. @any industrial groups like the Tatas Tatas or 5irlas setup charitable trusts that provided financial grants for various worthy causes. lthough there were some cases where the corporation took up a more active role like the establishment of the 5irla *nstitute of Technology, Technology, /illani by the 5irlas or setting up of primary schools schoo ls by several ma$or industrial groups for their workers ‘s children but even in these cases the approach was philanthropical. The problem with the philanthropy Fbased model has several problems there are as follows H The corporation does not commit its resources fully behind such a pro$ect and often confines itself to one-time or periodical financial grants. H 'ince its an act of charity, the corporation does not feel the need for community participation in the designing or management of such initiatives and people participation, if any, an y, is restricted restricted to limited implementation aspects reducing the efficiency and effectiveness of corporate social responsibility measures at the ground level. H The lack of involvement from the primary resource provider i.e. the corporation leads to low levels of accountability and transparency at the implementation level. T30 D0& *DN"NT*"D' *D *@/E0@0DT*DG "A/"AT0 '"*E A0'/"D'*5*E*TU &ith the shifting of the corporate social responsibility paradigm to a stakeholder centric approach, practices at the ground level have also undergone a radical transformation. *n every aspect of corporate social responsibility measures the last decade has seen corporations innovating to increase efficiency, effectiveness effectiveness and accountability. The focus has been on initiatives that are people-centric with active community participation at all levels. 4urther, 4urther, the corporations themselves have moved away from the charitable initiatives like giving financial grants or sponsorships to providing products and services in a manner that would make a real difference in the target communities. The first perceptible change has been the introduction of a host of innovative programs and schemes in several areas like education, healthcare, rural development, environment protection, protection of artistic and cultural heritage and disaster management that
are customized to meet the specific needs of the target group and corporations devote not n ot only financial resources but e1pertise, manpower, products and services for the successful implementation of these schemes H E7/*D *D?* ET?, ET?, *ndia’s third third largest manufacturer of pharmaceuticals has started a pro$ect for providing sustainable sustainable development in #C villages across Aa$asthan. The scheme instead of providing for piece-meal assistance that d oes not lead to effective alleviation of poverty or ade)uate development is designed as a holistic action plan that includes an gricultural *ncome Generation 'cheme, land cultivation and fruit plantation programs, fodder preservation schemes, sericulture and water-recycling water-recycling programs, establishment of medical and educational centres, cen tres, adult literacy programs and credit schemes. H */E, another *ndian pharma ma$or has found a novel approach to fulfil its corporate social responsibility obligations by offerering to sell a cocktail of three anti-3*N drugs, 'tavudine, Eamivudine and Devirapine, to the Dobel /rize-winning voluntary agency @edicine 'ans 4rontieres 6@'49 at a rate of V>K, and at VIKK per patient per year yea r to other DG"s over the world. This offer has to lead to a significant decrease in the prices o f these drugs worldwide increasing the accessibility of these drugs especially in the developing countries. H AD5WU, AD5WU, one of *ndia’s ma$or pharmaceutical firms operates seven mobile healthcare vans and two urban welfare centres that reach over a lakh people in various parts of northern and central *ndia as part of its corporate social responsibility initiative. H TT "D'7ETDU '0AN*0' 6T'9 has set up a fullye)uipped computer training laboratory for children from the 'ociety for the &elfare &elfare of the /hysically 3andicapped and Aesearch entre, in /une for imparting basic computer c omputer knowledge. D**T has launched a highly popular ‘hole-in-the-wall’ scheme where it places a computer on a public wall in urban and rural areas so that neighborhood children can learn computer basics using the playway method. H 53AT 53AT 0E0TA"D*' 0E0TA"D*' ET? ET? built cyclone proof houses for the victims of the super cyclone in with the help of the victims victims themselves so that the houses are built according to their needs. "A/"AT0 "A/"AT0 '"*E A0'/"D'*5*E*TU *D /75E* 0DT0A/A*'0' *n our narrative so far, we have focused on the private sector and its greater societal obligations. *ndia, also, has a large public sector with several huge corporations. nd companies operating in various sectors like petroleum, heavy industries, aviation, mining, steel, e)uipment manufac turing and shipping. The *ndian public sector has had a long tradition of corporate social responsibility and the
initiatives of corporations like the "il and Datural Gas ommission 6"DG9, 'teel uthority of *ndia Etd 6'*E9 and Gas uthority of *ndia Etd. 6G*E9 have critical in the development of several backward regions of the country. *ndian irlines irlines and 5harat 3eavy 0lectronics have hav e been widely acclaimed for their disaster management efforts. The era of liberalization has led to the privatization of several public sector units and others being forced to make switch from from being monopolies to being free market players with intense private competition. These dynamic processes have raised several key )uestions related to the corporate social responsibility responsibility of the public sector H &hat should the social involvement levels of a company or corporation once it is privatizedX H 'hould public sector units continue to play the same social role as they did in the pre-independence era or is there a need to scale back their social responsibility initiativesX initiativesX These are )uestions that are central to the post-liberalization debate and need further analysis and research. @eanwhile the opponents of privatization have used an ‘corporate social responsibility’ argument for their cause, they argue that considering the vital importance of the social role played by the public sector in *ndia, there should not be any privatization of these vital industries. "nce again the lack of ade)uate research specifically empirical data restricts us from an ob$ective e1amination of this issue. "DE7'*"D The new economic era in *ndia i.e. the post-liberalization phase of the *ndian economy was a catalyst for the radical transformation transformation in the corporate social responsibility related practices in the country, the change was two fold transformation of the conceptual understanding of corporate social responsibility and innovations at the implementation level. t the conceptual level, there was a fundamental transformation from the charity-oriented approach to the stakeholderoriented approach. 0ven though the company is an artificial person it has some responsibility like human. *t can provide more social responsibility oriented activities to the society for economic development. ccording to Goldman 'aches %*f *ndia continues the same economic development activities definitely it will become the @otor for world economy in ;K>.(
