Handout # 1

Corporate Governance, Corporate Social Responsibility & Ethics

Issues to be discussed
• Concept of Corporate Governance
• Objectives of Corporate Governance
• Fundamental Principles of Corporate Governance
• Concept of Corporate Social Responsibility
• Objectives of Corporate Social Responsibility
• Concept of ethics in managing business

Concept of Corporate Governance
• Performance as well as Conformance
• Responsiveness to the rights of the stakeholders
• Relationship among various participants in determining the direction and performance of a company
• Fair practices, transparency and accountability
• The way a company is organized and managed to ensure that all the stakeholders receive their fair share of a company’s earnings (Standard and Poors)
• A system by which business corporations are directed and controlled (OECD)
• Process, structure and relationships through which the Board of Directors oversee what Management does.

Defining Corporate Governance
• A blend of rules, regulations, laws and voluntary practices that enable the companies to attract finance and human capital, perform efficiently and thereby maximize long-term value for the shareholders besides respecting the aspirations of multiple stakeholders including those of the society.

• It is the system by which companies are directed and controlled with the following specific aims:
• Fulfilling long-term strategic goals of the owners
• Taking care of the interests of the employees
• A consideration for the environment and local community
• Maintaining excellent relations with both customers and suppliers
• Proper compliance with all the applicable legal and regulatory requirements
--Cadbury Committee (UK)


• An economic, legal and institutional environment that allows companies to diversify, grow, restructure and exit and do everything necessary to maximize long-term shareholder value.
• It deals with laws, procedures, practices, and implicit rules that determine a company’s ability to take managerial decisions vis-à-vis its shareholders, creditors, the State and employees.
--CII

Objectives of Corporate Governance
• Installation of a properly structured board which is capable of taking independent and objective decisions.
• Ensuring properly balanced board having representation of an adequate number of non-executive independent directors capable of taking care of the interests of all the stakeholders.
Objectives of Corporate Governance
• Adoption of transparent procedures and practices in decision-making by an informed comity of board members
• Effective and regular monitoring of management functioning by the Board
• Disclosures to shareholders with a view to help them become informed of the relevant developments affecting the company
• Exercise of effective control on corporate affairs by the board at all times.


Fundamental Principles of Corporate Governance
• Transparency
• Accountability
• Trusteeship
• Ethics
• Empowerment
• Oversight
• Fairness to all stakeholders


Concept of Corporate Social Responsibility
• Corporate Social Responsibility (CSR) is the decision-making and implementation process that guides all company activities in the protection and promotion of international human rights, labour and environmental standards and compliance with legal requirements within its operations and in its relations to the societies and communities where it operates.


• CSR involves a commitment to contribute to the economic, environmental and social sustainability of communities through the on-going engagement of stakeholders, the active participation of communities impacted by company activities and the public reporting of company policies and performance in the economic, environmental and social arenas.

• The corporate responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families and the local community and society at large.
--World Business Council for Sustainable Development

Objectives of Corporate Social Responsibility
• Address climate change
• Discourage intrinsically harmful products
• Internalize costs
• Pay taxes in full
• Stop lobbying against public interests
• Democratize the workplace
• Reduce consumption and limit growth

Concept of Ethics in Managing Business
• Consequence-based framework: Do whatever is in the best interest of the majority
• Duty-based framework: Follow the universally acceptable principles
• Virtue-based framework: Do as a good person would do in identical situation

Advantages of ethical practices in management
• Employee commitment and loyalty
• Less likelihood of theft and fraud in the company
• Better organizational climate
• Greater customer care
• Customer loyalty
• Repeat customers
• Goodwill in the market