UNIT 1:ETHICS- ITS IMPORTANCE,, NEED, BEHAVIOUR,ISSUES,

CORPORATE GOVERNANCE

• BUSINESS ETHICS—CLASH OF PERS VS ORGNL GOALS

MORAL/ IMMORAL – ETHICAL & UNETHICAL
• PREVENTS ANY HARM TO SOCIETY

• UNETHICAL BEHAVIOUR OCCURS DUE TO: SELFISHNESS OF FEW,

PROFITS, PER VALUES VS BUSINESS GOALS,CROSS CULTURAL
CONTRADICTIONS
• ETHICAL PRINCIPLES TEND TO BE BROADER THAN LEGAL
PRINCIPLES

• BUSINESS ETHICS – IS SET OF PRINCIPLES

• BASED ON INTEGRITY & FAIRNESS—FOR BENEFITS OF

STAKEHOLDERS(SHAREHOLDERS,
EMPLOYEES,CUSTOMERS,DEALERS,VENDORS, GOVT,SOCIETY)

• VALUES/ LOYALTY

WHY?:
TRUST BUILDING INTERNAL/ EXT STAKEHOLDERS—ETHICAL
BEHAVIOUR DEVELOPS/ CO IS …
Eg TATA HAS … TATA CODE OF CONDUCT & “OUR SHARED IDEALS
AND VALUES AS A CORPORATE CITIZEN. “

CORPORATE INDIA CAN NOT AFFORD TO BE ETHICAL?

• GIFTS/ CASH BEING PAID TO FACTORY INSPECTOR, EXCISE
OFFICER, LABOUR INSPECTOR, FIRE OFFICER,IT OFFICER, ST
OFFICER, PF INSPECTOR… LIST IS LONG.
• ALSO NATION WANTS TO BUILD ECONOMY FAST ENOUGH TO
CATCH UP WITH OTHER NATIONS.
• SO CALLED SENSE OF HOSPITALITY, CAN MAKE MONEY FROM
FRESH LICENSE,WEALTH BY FAIR/ FOUL MEANS, LAW OF
INHERITANCE( PARENTS WANT TO AMASS WEALTH FOR
CHILDREN),DIFFICULTY IN AMASSING WITH HONEST MEANS,
SCORCHING TAX SYSTEMS.
ROOTS OF THESE UNFAIR/ UNETHICAL PRACTICES:
BALANCING WORK & FAMILY, LACK OF MGT SUPPORT,POOR
LEADERSHIPS, LACK OF MGT SUPPORT, POOR LEADERSHIP, NEED TO
MEET GOALS…

WHY BUSINESS BE ETHICAL:

• PROTECT OWN INTT

• OF BUSINESS COMMUNITY
• COMMITMENT TO SOCIETY- ACT ETHICAL
• MEET STAKEHOLDER’S EXPTN
• PREVENT HARM TO PUBLIC
• BUILD TRUST WITH KEY STAKE HOLDERS
• PROTECT THEM FROM UNETHICAL STAKEHOLDERS/
COMPETITORS
• PROTECT OWN REPUTATIONS
• PROTECT OWN EMPLOYEES
• CREATE SUCH ENVRT
• CREATES UNDERSTANDING FOR BETTER DECISION MAKING
• Most of INDIAN COS HAVE CODE OF CONDUCT FOR
EMPLOYEES COVERING ETHICS---INFOSYS, TATA, ONGC, &
GUIDELINES BY CII/ ASSOCHAM,
UPTO---26/8/10
SOME UNETHICAL ISSUES:

• BRIBERY—GO GET FAVOURS FOR CO!

• COERCION----
• INSIDER TRADING
• TAX EVASION- JRD NEVER ADVOCATED SAVING OF TAX
• CONFLICT OF INTEREST—JRD PRACTISED LOYALTY,
AFFECTION, GRATITUDE.
• POLLTION- JRD-- ARDENT SUPPORTER

CORPORATE GOVERNANCE ETHICS: THE RESPONSIBILITY OF

CEO/ BOD ARE:
1. ACT WITH HONESTY/ INTEGRITY, AVOID CONFLICT
OF INTT. IN PERSONAL & PROFESSIONAL LIFE
2. PROVIDE INFO- CORRECT,COMPLETE, OBJECTIVE,--
FOR TIMELY /ACCURATE/FAIR/FULL
UNDERSTANDABLE DISCLOSURES—SUBMITTED TO
REGULATORS
3. COMPLY WITH APPLICABLE LAWS( STATE/
FEDERAL/ LOCAL/PUB/ PVT/) & REGULATORY
AGENCIES.
4. ACT IN GOOD FAITH
5. RESPECT CONFIDENTIALITY OF INFO. & SHOULD
NOT BE USED FOR PERSONAL ADVANTAGES
6. PROACTIVELY PROMOTE & BE AN EXAMPLE OF
ETHICAL BEHAVIOUR
7. BE RESPONSIBLE FOR USE/ CONTROL OF ASSETS/
RESOURCES.
8.
BENEFITS OF MANAGING ETHICS IN WORKPLACE:
1. IMPROVES SOCIETY( ANTI TRUST LAWS/ UNION
CONTROLS/ REG BODIES)
2. HIGH PRODUCTIVITY & STRONG TEAM( DUE TO
CONFIDENCE)
3. ETHICAL EDUCATION HELPS IN CRITICAL
TIMES/ODD SITUATIONS
4. STRONG PUBLIC IMAGE
5. AN INSURANCE
30/6
HOW TO RECOGNISE ETHICAL ORGANISATIONS:
1. ON THE BASIS OF CORP GOVERNANCE—ONLY
PRACTISED VALUES CREATE OC. WHEN
VALUES ACT IN TUNE WITH GOALS—ITS
CALLED CORP CULRURE OF ORGN.
2. IN REF TO STAKE HOLDERS-----TOP MGT IS REP
.eg MARICO—MAKERS OF E OIL, DISCOVERED
A HARMLESS TINT IN OIL IN ONE O PRODN
LINE. CO WITHDREW FROM MKT THE ENTIRE
PREV BATCH , SHUT DOWN THE LINE, BUT DID
NOT REMOVE WORKMEN & INVOLVED THEM
IN INVESTIGATION. WORKERS COULD
IDENTIFY CAUSE, CORRECTED THE PROCESS,
RESUNED PRODUCTION.
3. IN REF OF CORP GOVERNANCE—TOP PEOPLE
ARE A/C TED FOR USE OF ASSETS. IF THEY
PERFORM WELL- NO QUESTIONS IF TOP MGT
IS PAID AS PER PERF, IT WILL WORK

HOW ETHICS CAN MAKE :

1. CG IS MEANT TO RUN CO ETHICAL SO THAT
ALL SH( SHAREHOLDERS) ARE DEALT IN
FAIR MANNER.
2. GOOD CG( CORP GOVERNANCE) WILL LOOK
AT ALL SH NOT ONLY SHARE HOLDERS. Eg
TANNERIES IN KANPUR, TEXTILES IN
COIMBUTORE/ TIRPUR, LUDHIANA HAVE
CREATED HAVOC TO ENVRT—BRINGING
MISERIES TO VILLAGERS/
TOWNS.RECENTLY 4 COS IN GHAZIABAD
WERE SHUT DOWN BY UP P C B FOR
WATER DISCHARGE WITHOUT ET.
3. CG SHOULD COME FROM WITHIN( NOT TO
BE IMPOSED ONLY)
4. LOT OF PROVISIONS EXIST IN CO LAW/ ACT
—BUT NOT FOLLOWED
 5. MANY CASES PEOPLE LIKE KETAN PARIKH,
HARSHAD MEHTA HAVE MANIPULATED
RULES TO THEIR ADVANTAGE BRINGING
SUFFERINGS TO MILLIONS.
6. SEBI—HAVE CONTROL ON LISTED COs,
WHAT ABOUT PVT LTD/ UNLISTED CO’s
OPNS?
7. SERIOUS FRAUD INVESTIGATION
OFFICE( SIFO) IN DCA( DEPTT OF CO
AFFAIRS) INVESTIGATED 229 COS WHO
COLLECTED Rs 800 CRS FROM PUBLIC &
VANISHES / UNTRACEABLE.- THOUSANDS
INVESTORS LOST MONEY.

UNIT 3: CORP GOVERNANCE:

1. from DEV VS UNDEV PROSP—US/ UK DEVELOPING INDUSTRIES I

INDIA ALSO STARTED IN EARLY TWENTY CENTURY.
2. CG IS MORE THAN JUST BOARD PROCESS, GOVT, WORLD LEVEL
ORGN ARE INVOLVED- -- APEC/ OECD( ORGANISATION
FORECONOMIC COOPERATION & DEVTT.---
RIGHTS OF SHARE HOLDERS, EQUITABLE TREATMENT , THEIR ROLE IN
CG,DISCLOSURES/ TRANSPARENCY/RESPONSIBILITY OF BOG

3. HISTORICAL PERSPECTIVES:
HOW COS ARE FORMED , INDIAN INDUSTRY DEVTTS.,BRITISHER’S
IMPACT , --- REF PAGE 19, BY FERNANDO.--- ALL THE FIVE POINTS
MENTIONED IN CL 2 ABOVE.—DONE ON 31/8.( 1 TO 3)
4.USA—CATHES UP—WATERGATE SCANDLES, SEC( SECURITY &
EXCHANGE COMMISSION ) PROPOSED MANDATORY AUDITING OF ALL
FIRMS. TREADWAY COMMISSION IN 1987 RECOMMENDED PROPER
CONTROLED EVRT., INTERNAL AUDITS & INDEPENDENT AUDIT
COMMITTEES.

5. UK CATCHES UP : SERIES OF CORP SCAMS IN 80S & 90 S, GIANTS eg

POLLYPACK, BCCI( BANK OF CREDIT & COMMERC INTNL) ETC
COLLAPSED

6.CADBURY COMMITTEE: SIR ADRIAN CADBURY COMMITTEE WAS

FORMED IN UK BY LSE—REP FROM CORPPORATES, TO ADDRESS
INTERNAL BETTER CONTROL ON FINANCE/LOSSES.IT SUBMITTED “
CODE OF BEST PRACTICES” IN 1992. THOUGH NOT MANDATORY TO
FOLLOW YET COs LISTED IN LSE WERE ASKED TO MENTION IF
FOLLOWING GUIDELINES .
7. CORP GOVERNANCE ISSUES—PAGE 22,23,24,26,25---
7a – DISTINGUISH ROLE OF BOARD & MGT—
BOARD HAS FOLLOWING RESPTY----
• DECIDE CEO, HIS SALARY
• OVERSEE CONDUCT OF BUSINSS
• REVIEW OBJECTIVES/ PLANS/ FINANCE
• ADVISE TOP MGT
• RECOMMEND/ GET NOD FROM SHAREHOLDERS ABOUR BOARD
MEMBERS
• COMPLIANCES TO LAWS
• ANY OTHER/ ALL FNs
7B-- COMPOSITION OF BOD—NOS,- SEBI – APPOINTED KUMAR
MANGLAM BIRLA COMMITTEE REPORT – GUIDELINES FOR -- IND ,
NOMINEE, EX/ NON EXE CMD.
7C.--- SEP ROLE OF CEO & CMD—STARTING WITH CAD COMMITTEE
TO KMB COMMITTEE—IN LARGE CO ROLE IS BIG HENCE SEPARATE
PERSONS REQD.
7D-- COMMITTEES – YES REQD – FUNCTIONS IN COORDINATION
WITH INDEPEND DIRECTORS
7E—BOARD COMMITTEE IN FACT RECXOMMEND DIRECTORS , AND
APPROVED BY SHAREHOLDERS IN AGM
7F—PAY / SALARY OF DIRECTORS—IT MAY REFLECT
TRANSPARENCY/ APPL BY SHAREHOLDERS/ PROCESS OF
DETRMINATIONS/PENSIONS OF NON EX DIRECTORS.

7G—DISCLOSURES/ AUDITS—OECD/ CADBURY COMMITTEE REPORT

SAYS—THAT CEO/ CMD MUST PRESENT TRANSPARENT , REAL
PICTURE STATUS OF FINANCIAL PERFORMANCE THOROGHLY
AUDITED BY INDEPENDENT AUTHORITY

7H—SHAREHOLDERS’ RIGHT PROTECTIONS— MAJOR DECISION

NEED APPL, OR AT LEAST BE INFORMED, VARIOUS COMMITTEES
ARE THERE.
7I—DIALOGUE WITH INSTITUTIONAL SHAREHOLDERS—

7J—SHAREHOLDER’S SAY IN CG-

8. BOD PROCESSES--- SEE / REF BOD ROLES/

RESPONSIBILITY

AS PER CADBURY CODE OF CONDUCT TOO:

 • BOARD TO MEET REGULARLY –
MONITOR EXEC DEVTTS
• IF CEO & CMD SAME , STILL ONE ON
BOARD BE SENIOR
• NON EXEC DIRECTOR ALSO REQD –
HAVING WEIGHTAGE
• BOARD TO HAVE NORMAL
SCHEDULE OF MATTERS
• BE AGREED PROC FOR DIRECTORS
• ALL DIRECTORS SHOULD HAVE
ACCESS TO ADVISE/ SERVICES OF CO
SECY.(CS) IF CHANGE IN SECY – TO
BE DONE BY COMPLETE BOARD
FOR NON EX DIRECTORS THE
PROCEDURE IS:
• TO HAVE INDEPENDENT
JUDGEMENT
• BE FREE FROM ANY DIRECT
RESPONSIBILITY- FEES BE AS PER
THEIR TIME & COMMITMENT
• FOR SPECIFIC TERM
• BE APPOINTED THRU FORMAL
PROCESS
FOR EXEC DIRECTORS THE PROCD IS:

• TO NOT EXCEED 3 YRS

• CLEAR DISCL OF SALARY
INCLDG CMD, THEIR PERKS,
PENSIONS, SOP.
• SALARY THRU A
REMUNERATION COMMITTEE
• IF EXPERIENCED—INVESTORS
HAVE MORE CONFIDENCE FOR
STAYING IN.
PROCESS/
PROCD./RESPONSIBILITY OF BOD:
• BALANCED & UNDERSTANDABLE ASSESSMENT OF CO
• OBJ & PROFESSIONAL RELATIONSHIPS
• AUDIT COMMITTEE OF AT LEAST THREE NON EXEC DIRECTORS
• DIRECTORS TO EXPLAIN RESPTY TO PREPARE A/CS
• TO HAVE EFFECTIVE INTERNAL CONTROL
• TO REPORT BUSINEESS AS GROWING ACTIVITIES
EXERCISE : PREPARE BOD ROLES & RESPONSIBILITIES/ PROCESS IN A
COMPANY : ITC/INFOSYS/ TATA MOTORS
 9. BENEFITS OF GOOD CG TO SOCIETY
10. MODELS OF CG: GLOBAL & INDIAN
MODELS
11. MANAGERIAL OBLIGATIONS—TO
INVESTORS/ EMPLOYEES/SOCIETY
12.