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NAME Priyanka Maru Jinal Mistry Palak Mistry Vidhi Miyani Rachna Parekh Karan Parikh Sejal Patel Bijal Kanakia

ROLL NO. 526 527 528 529 530 531 535 560


Any accomplishment requires the effort of many people and this project was no different. Regardless of the source, we wish to express my gratitude to those who may have contributed to this work, even anonymously. We gratefully acknowledge and express deep appreciation to many people who have made this project possible. Ocean of thanks to Prof. Poonam Popat. Without her support, motivation and suggestion this project would not have been possible.


Topic 1. Introduction to Corporate Governance 2. History of Corporate Governance 3. Committees on Corporate Governance 4. Corporate Governance for Companies 5. Corporate Governance on Banks 6. Corporate Governance on Insurance Companies 7. Code on Board of Directors 8. Transparency in Decision Making 9. Measures for Improving Ethical Standards

Page No. 5. 6. 8. 14. 16. 19. 23. 26. 31.


A corporation is a congregation of various stakeholders, namely, customers, employees, investors, vendor partners, government and society. A corporation should be fair and transparent to its stakeholders in all its transactions. This has become imperative in todays globalized business world where corporations need to access global pools of capital, need to attract and retain the best human capital from various parts of the world, need to partner with vendors on mega collaborations and need to live in harmony with the community. Unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed. Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation or company is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. Corporate Governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimized. Sound Corporate Governance is, therefore, critical to enhance and retain investors trust.

Definition of corporate governance Report of SEBI Committee (India) on Corporate Governance defines corporate governance as 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. It is about commitment to values, about

ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.

The OECD provides the most authoritative functional definition of corporate governance: Corporate governance is the system by which business corporations 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 other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.


The history of the development of Indian corporate laws has been marked by interesting contrasts. At independence, India inherited one of the worlds poorest economies but one which had a factory sector accounting for a tenth of the national product; four functioning stock markets with clearly defined rules governing listing, trading and settlements; a well-developed equity culture if only among the urban rich; and a banking system replete with well-developed lending norms and recovery procedures. In terms of corporate laws and financial system, therefore, India emerged far better endowed than most other colonies. The years since liberalization, have witnessed wide-ranging changes in both laws and regulations driving corporate governance as well as general consciousness about it. Perhaps the single most important development in the field of corporate governance and investor protection in India has been the establishment of the

Securities and Exchange Board of India (SEBI) in 1992 and its gradual empowerment since then. Established primarily to regulate and monitor stock trading, it has played a crucial role in establishing the basic minimum ground rules of corporate conduct in the country. Concerns about corporate governance in India were, however, largely triggered by a spate of crises in the early 90s the Harshad Mehta stock market scam of 1992 followed by incidents of companies allotting preferential shares to their promoters at deeply discounted prices as well as those of companies simply disappearing with investors money. Corporate governance in India is evident from the various legal and regulatory frameworks and Committees set relating to corporate functioning comprising of the following: 1. The Companies Act, 1956 2. Monopolies and Restrictive Trade Practices Act, 1969 (replaced by new Competition Law) 3. Foreign Exchange Management Act, 2000 4. Securities and Exchange Board of India Act, 1992 5. Securities Contract Regulation Act, 1956 6. The Depositories Act, 1996 7. Arbitration and Conciliation Act, 1996 8. SEBI Code on Corporate Governance


Apart from these laws and acts, there were also committees setup globally as well as in India that highlighted corporate Governance on various sectors. These committees are as follows: Cadbury Committee Report- Recommendations: The 'Cadbury Committee' was set up in May 1991 with a view to overcome the huge problems of scams and failures occurring in the corporate sector worldwide in the late 1980s and the early 1990s. Reviewing the structure and responsibilities of Boards of Directors and recommending a Code of Best Practice The boards of all listed companies should comply with the Code of Best Practice. All listed companies should make a statement about their compliance with the Code in their report and accounts as well as give reasons for any areas of non-compliance. The Code of Best Practice is segregated into four sections and their respective recommendations are:1. Board of Directors - The board should meet regularly, retain full and effective control over the company and monitor the executive management. There should be a clearly accepted division of responsibilities at the head of a company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision. Where the chairman is also the chief executive, it is essential that there should be a strong and independent element on the board, with a recognised senior member. Besides, all directors should have access to the advice and services of the company secretary, who is responsible to the Board for ensuring that board procedures are followed and that applicable rules and regulations are complied with.

2. Non-Executive Directors - The non-executive directors should bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct. The majority of non-executive directors should be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgment, apart from their fees and shareholding.

3. Executive Directors - There should be full and clear disclosure of directors total emoluments and those of the chairman and highest-paid directors, including pension contributions and stock options, in the company's annual report, including separate figures for salary and performance-related pay.

4. Financial Reporting and Controls - It is the duty of the board to present a balanced and understandable assessment of their companys position, in reporting of financial statements, for providing true and fair picture of financial reporting. The directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary. The board should ensure that an objective and professional relationship is maintained with the auditors.

Considering the role of Auditors and addressing a number of recommendations to the Accountancy Profession:

The annual audit is one of the cornerstones of corporate governance. It provides an external and objective check on the way in which the financial statements have been prepared and presented by the directors of the company. The Cadbury

Committee recommended that a professional and objective relationship between the board of directors and auditors should be maintained, so as to provide to all a true and fair view of company's financial statements. Auditors' role is to design audit in such a manner so that it provide a reasonable assurance that the financial statements are free of material misstatements. Further, there is a need to develop more effective accounting standards, which provide important reference points against which auditors exercise their professional judgement. Secondly, every listed company should form an audit committee which gives the auditors direct access to the non-executive members of the board. The Committee further recommended for a regular rotation of audit partners to prevent unhealthy relationship between auditors and the management. It also recommended for disclosure of payments to the auditors for non-audit services to the company. The Accountancy Profession, in conjunction with representatives of preparers of accounts, should take the lead in:- (i) developing a set of criteria for assessing effectiveness; (ii) developing guidance for companies on the form in which directors should report; and (iii) developing guidance for auditors on relevant audit procedures and the form in which auditors should report. However, it should continue to improve its standards and procedures.

Dealing with the Rights and Responsibilities of Shareholders: The shareholders, as owners of the company, elect the directors to run the business on their behalf and hold them accountable for its progress. They appoint the auditors to provide an external check on the directors financial statements. The Committee's report places particular emphasis on the need for fair and accurate reporting of a company's progress to its shareholders, which is the responsibility of the board. It is encouraged that the institutional investors/shareholders to make greater use of their voting rights and take positive interest in the board functioning.


Both shareholders and boards of directors should consider how the effectiveness of general meetings could be increased as well as how to strengthen the accountability of boards of directors to shareholders.

Committees on corporate governance under the chairmanship of Shri Kumar Mangalam Birla (1999)

The Kumar Mangalam Committee made mandatory and non mandatory recommendations. Based on the recommendations of the Committee, the SEBI had specified principles of Corporate Governance and introduced a new clause 49 in the Listing agreement of the Stock Exchanges in the year 2000.

Naresh Chandra Committee (2002)

The Enron debacle in July 2002, involving the hand-in-glove relationship between the auditor and the corporate client and various other scams in the United States, and the consequent enactment of the stringent Sarbanes Oxley Act in the United States were some important factors, which led the Indian government to wake up. The Department of Company Affairs in the Ministry of Finance on 21 August 2002, appointed a high level committee, popularly known as the Naresh Chandra Committee, to examine various corporate governance issues and to recommend changes in the diverse areas involving the auditor client relationships and the role of independent directors. The Committee submitted its Report on 23 December 2002. Naresh Chandra Committee recommendations relate to the Auditor-Company relationship and the role of Auditors. Report of the SEBI Committee on Corporate Governance recommended that the mandatory recommendations on matters of disclosure of contingent liabilities, CEO/CFO Certification, definition of Independent Director,

independence of Audit Committee and independent director exemptions in the report of the Naresh Chandra Committee, relating to corporate governance, be implemented by SEBI. Committee on Corporate Governance under the Chairmanship of Shri N. R. Narayana Murthy (2002)

Narayana Murthy Committee recommendations to clause 49 of the Listing Agreement, include role of Audit Committee, Related party transactions, Risk management, compensation to Non-Executive Directors, Whistle Blower Policy, Affairs of Subsidiary Companies, Analyst Reports and other non mandatory recommendations.

Corporate Governance under Clause 49 of the Listing Agreement

Clause 49 of the Listing Agreement, which deals with Corporate Governance norms that a listed entity should follow, was first introduced in the financial year 2000-01 based on recommendations of Kumar Mangalam Birla committee. After these recommendations were in place for about two years, SEBI, in order to evaluate the adequacy of the existing practices and to further improve the existing practices set up a committee under the Chairmanship of Mr Narayana Murthy during 2002-03. The Murthy committee, after holding three meetings, had submitted the draft recommendations on corporate governance norms7. After deliberations, SEBI accepted the recommendations in August 2003 and asked the Stock Exchanges to revise Clause 49 of the Listing Agreement based on Murthy committee recommendations. This led to widespread protests and representations from the Industry thereby forcing the Murthy committee to meet again to consider the objections. The committee, thereafter, considerably revised the earlier recommendations and the same was put up on SEBI website on 15th December 2003 for public comments. It was only on 29th October 2004 that SEBI

finally announced revised Clause 49, which had to be implemented by the end of financial year 2004- 05. These revised recommendations have also considerably diluted the original Murthy Committee recommendations.

Areas where major changes were made include:

1. Independence of Directors

2. Whistle Blower policy

3. Performance evaluation of nonexecutive directors

4. Mandatory training of non-executive directors, etc.

Failure to comply with clause 49 (corporate governance) of SEBIs listing agreement is punishable with imprisonment of up to 10 years or a fine of up to Rs 25 crore or both. Besides, stock exchanges can suspend the dealing/trading of securities. With over 6000 listed companies, monitoring and enforcement are significant challenges in the immediate term. While SEBIs ultimate sanction in cases of serial non-compliance is delisting, this is unpopular as delisting penalises the non-controlling dispersed shareholders and closes their exit options. Hence, SEBI has tended to enforce the recommendations through dialog and in some cases monetary penalties.



The Companies Act, 1956 is the central legislation in India that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. It applies to whole of India and to all types of companies. The Companies Act, 1956 has elaborate provisions relating to the Governance of Companies, which deals with management and administration of companies. It contains special provisions with respect to the accounts and audit, directors remuneration, other financial and nonfinancial disclosures, corporate democracy, prevention of mismanagement, etc.

(1) Disclosures on Remuneration of Directors The specific disclosures on the remuneration of directors regarding all elements of remuneration package of all the directors should be made as a part of Corporate Governance. Section 299 of the Act requires every director of a company to make disclosure, at the Board meeting, of the nature of his concern or interest in a contract or arrangement (present or proposed) entered by or on behalf of the company10. The company is also required to record such transactions in the Register of Contract under section 301 of the Act.


(2) Requirements of the Audit Committee Audit Committee has a critical role to play in ensuring the integrity of financial management of the company. This Committee add assurance to the shareholders that the auditors, who act on their behalf, are in a position to safeguard their interests. Besides the requirements of Clause 49, section 292A of the Act requires every public having paid up capital of Rs 5 crores or more shall constitute a committee of the board to be known as Audit Committee. As per the Act, the committee shall consist of at least three directors; two-third of the total strength shall be directors other than managing or whole time directors. The Annual Report of the company shall disclose the composition of the Audit Committee. If the default is made in complying with the said provision of the Act, then the company and every officer in default shall be punishable with imprisonment for a term extending to a year or with fine up to Rs 50000 or both.

(3) Number of Directorships Restricted Sections 275, 276 and 277 have been amended to provide that no person shall hold office as director in more than 15 companies (excluding private company, unlimited company, etc., as defined in section 278) instead of 20 companies. This shall enable the director concerned to devote more time to the affairs of company in which he is a director.

(4) Corporate Democracy Wider participation by the shareholders in the decision making process is a precondition for democratizing corporate bodies. Due to geographical distance or other practical problems, a substantially large number of shareholders cannot attend the general meetings. To overcome these obstacles and pave way for introduction of real corporate democracy, section 192A of the Act and the

Companies (Passing of Resolution by Postal allot), Rules provides for certain resolutions to be approved and passed by the shareholders through postal ballots.

(5) Appointment of Nominee Director by Small Shareholders Section 252 has been amended to provide that a public company having paid-up capital of Rs. 5 crore or more and one thousand or more small shareholders can elect a director by small shareholders. Small shareholders means a shareholder holding shares of nominal value of Rs. 20,000 or less in a company14. However, this provision is not mandatory and small shareholders have option to elect a person as their representative for appointment as director on the Board of such company.

(6) Directors Responsibility Statement Sub-section (2AA) in section 217A has provided that the Boards report shall include a directors responsibility statement with respect to applicable accounting standards having been followed, consistent application of accounting policies selected so as to give a true and fair view of state of affairs and of the profit and loss of the company, maintenance of adequate accounting records with proper care for safeguarding assets of company and to prevent and detect fraud and other irregularities, and the preparation of annual accounts on a going concern basis.



Report of RBI Committee Both objective and subjective criteria have been laid down to determine the eligibility of promoters to set up a bank. The subjective elements include diversified ownership, sound credentials and integrity. Curiously, RBI has demonstrated some uneasiness with reference to other businesses that prospective promoters may be carrying on. Here are some extracts: It is not clear if tainting all players in a specific type of business activity with the same brush is a prudent approach. For example, as these comments observe, stock broking activity is a regulated industry subject to fitness norms and may not deserve the type of blacklisting treated meted out by the RBI.

Corporate Structure RBI has specified the structure that corporates must be used while setting up banking activity. Promoters must set up a non-operative holding company (NOHC) through which they will hold the bank and all other regulated financial activities within the group. As the draft guidelines note, this is to ring fence the regulated financial services activities of the group from other non- financial activities. Depending on existing structures of corporate groups, successful licensee may need to restructure their group holdings to comply with the proposed structure.

Minimum Capital An initial minimum capital requirement of Rs. 500 crores has been imposed. There are very specific requirements on shareholding limits of the NOHC in the bank. For instance, there is a lock-in of 40% shares of the NOHC in the bank for 5

years. Although the NOHC may start with a higher shareholding, it has to be pared down to 40% within 2 years from the date of licensing, to 20% within 10 years, and to 15% within 12 years. The bank will have to be listed on a stock exchange within 2 years, which is quite a short time frame. Hence, the establishment of the bank as well as its initial business operations must provide for early listing. Foreign Shareholding To begin with, a private sector bank can raise only up to 49% from foreign investors. It is only after 5 years that the prevailing policy of foreign investment in banking will become applicable, which is that foreign investment is allowed up to 74%. To that extent, RBI has followed a phased approach for the new private sector banks by not making the general foreign investment policy applicable to them at their initial stage. This would mean that a private bank conducting an IPO in the first 2-year period will have to largely rely on the domestic supply of capital.

Corporate Governance The draft guidelines provide some broad indication of the type of governance norms to be followed by private sector banks. The emphasis is on ring fencing all regulated activities under the umbrella of the NOHC. Moreover, the draft guidelines call for a separation of ownership and management in promoter companies that own or control the NOHC. This might be somewhat difficult to comply with, especially in the case of banks to be established by traditional family corporate groups. The only specific governance norm is that at least 50% of the directors of the NOHC should be totally independent of the promoter / promoter group entities, their business associates, and their customers and suppliers. In that sense, RBI appears less concerned with governance issues at the level of the bank itself, but more with the corporate group establishing it, as these norms extend to both the NOHC as well as the promoters. Overall, while the RBI has taken the bold step of further opening up the private banking sector, it is treading with utmost caution. In terms of timing, it is unlikely that the regime for private banking licenses will be in place anytime soon. As the

draft guidelines themselves suggest, they will be finalised and the process of inviting applications for setting up new banks in the private sector will be initiated only after the Banking Regulation Act is amended to include various matters that are presently under consideration for legislative amendment, including removal of restriction on voting rights and RBIs approval for change of shareholding beyond 5% in a bank. It is difficult to hazard a guess as to the timeframe within which the legislative amendments would be effected.


1. General 1.1 Corporate Governance is understood as a system of financial and other controls in a corporate entity and broadly defines the relationship between the Board of Directors, senior management and shareholders. In case of the financial sector, where the entities accept public liabilities for fulfillment of certain contracts, the relationship is fiduciary with enhanced responsibility to protect the interests of all stakeholders. The Corporate Governance framework should clearly define the roles and responsibilities and accountability within an organization with built-in checks and balances. The importance of Corporate Governance has received emphasis in recent times since poor governance and weak internal controls have been associated with major corporate failures. It has also been appreciated that the financial sector needs to have a more intensive governance structure in view of its role in the economic development and since the safety and financial strength of the institutions are critical for the overall strength of the financial sector on which the economic growth is built upon. As regards the insurance sector, the regulatory responsibility to protect the interests of the policyholders demands that the insurers have in place, good governance practices for maintenance of solvency, sound long term investment policy and assumption of underwriting risks on a prudential basis. The emergence of insurance companies as a part of financial conglomerates has added a further dimension to

sound Corporate Governance in the insurance sector with emphasis on overall risk management across the structure and to prevent any contagion. 1.2 The Insurance Regulatory and Development Authority (IRDA) has outlined in general terms, governance responsibilities of the Board in the management of the insurance functions under various Regulations notified by it covering different operational areas. It has now been decided to put them together and to issue the following comprehensive guidelines for adoption by Indian insurance companies. These guidelines are in addition to provisions of the Companies Act, 1956, Insurance Act, 1938 and requirement of any other laws or regulations framed thereunder. Where any provisions of these guidelines appear to be in conflict with the provisions contained in any law or regulations, the legal provisions will prevail. However, where the Guidelines on Corporate Governance requirements of these guidelines are more rigorous than the provisions of any law, these guidelines shall be followed. 2. Objectives 2.1 The objective of the guidelines is to ensure that the structure, responsibilities and functions of Board of Directors and the senior management of the company fully recognize the expectations of all stakeholders as well as those of the regulator. The structure should take steps required to adopt sound and prudent principles and practices for the governance of the company and should have the ability to quickly address issues of non-compliance or weak oversight and controls. These guidelines therefore amplify on certain issues which are covered in the Insurance Act, 1938 and the regulations framed thereunder and include measures which are additionally considered essential by IRDA for adoption by insurance companies. 2.2 The guidelines accordingly address the various requirements broadly covering the following major structural elements of Corporate Governance in insurance companies:-


Governance structure Board of Directors Control functions Senior management CEO & other senior functionaries Role of Appointed Actuaries External audit Appointment of Statutory Auditors Disclosures Outsourcing Relationship with stakeholders Interaction with the Supervisor Whistle blowing policy

2.3 In these guidelines, the reference to the Board would apply to the Board of Directors and Senior Management to the team of personnel of the company with core management functions. Normally, this would include officials at one level below the Executive Director (including Functional Heads). In regards to insurers, the Appointed Actuary has a special executive and statutory role.

3. Significant Owners, Controlling Shareholders and Conflict of Interest Role of Board 3.1 IRDA prescribes a minimum lock-in period of 5 years from the date of certificate of commencement of business of an insurer (R3) for the promoters of the insurance company and no transfer of shares of the promoters would be permitted within this period. 3.2 Section 2 (7A) of the Insurance Act, 1938 has prescribed the ceiling of FDI in Indian Insurance Companies at 26%. It could be capped at such percentage as may be notified by the Government of India1 in future. The manner of computation of FDI to satisfy this requirement is detailed at Regulation 11 of the IRDA (Registration of Insurance Companies) Regulations, 2000.

3.3 The Insurance Act stipulates prior approval of the IRDA for registration/transfer of shares, exceeding one per cent and /or which involve holding of share capital, after such transfer, in excess of 5 per cent of the paidup capital of the company (2.5 per cent for banking or Investment Company). The Board of Directors of the company shall ensure that the registration of shares is in compliance with the above provisions of the Act and Circular on regulatory framework on (i) issue of shares in any form other than equity and (ii) transfer of shares. 3.4 Sections 297 & 299, of the Companies Act 1956, inter-alia, deal with the potential areas of conflicts of interest and the obligation of the Directors and the disclosures thereof. Primarily, the conflicts of interest in insurance companies arise whenever there are conflicting interests of shareholders, policyholders and management, and there is therefore a duty on the Board to act in the interest of policyholders or prospective policyholders. The Authority may in due course also define significant ownership that could attract potential conflicts of interest. AS 18 of ICAI also casts obligations for the disclosures of transactions involving related parties. There should be adequate systems, policies and procedures to address potential conflicts of interest, compliance with AS 18. These include Board level review of key transactions, disclosures of any conflicts of interest to manage and control such issues. Presently the ceiling is 26 per cent.

3.5 Auditors, Actuaries, Directors and Senior Managers shall not simultaneously hold two positions in the insurance company that could lead to conflict or potential conflicts of interest.

3.6 The Board should ensure ongoing compliance with the statutory requirements on capital structure while planning or examining options for capital augmentation of the Company.


4. Governance Structure Currently, the private insurers in India are yet to go public and get their shares listed on the stock exchanges. The composition of the Boards of the Public Sector Undertakings in the insurance sector is also laid down by the Government of India. It is relevant to observe here that the Corporate Governance requirements of companies listed in the Stock Exchanges have evolved over time and are outlined in Clause 49 of the Listing Agreement of the Stock Exchanges. As the listing requirements are available in public domain they are not being repeated. However, since the Indian insurance companies are as yet unlisted the Authority advises all insurers to familiarize themselves with Corporate Governance structures and requirements appropriate to listed entities. The companies are also well advised to initiate necessary steps to address the extant gaps that are so identified to facilitate smooth transition at the time of their eventual listing in course of time.


The Board of Directors (the "Board") must adopt the following Code of Business Conduct and Ethics (the "Code ") for directors of the Company. This Code is intended to focus the Board and each director on areas of ethical risk, provide guidance to directors to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability. Each director must comply with the letter and spirit of this Code. No code or policy can anticipate every situation that may arise. Accordingly, this

Code is intended to serve as a source of guiding principles for directors. Directors are encouraged to bring questions about particular circumstances that may implicate one or more of the provisions of this Code to the attention of the Chairman of the Audit Committee, who may consult with inside or outside legal counsel as appropriate. Directors who also serve as officers of the Company should follow Code in conjunction with the Company's Code of Conduct.

Director Responsibilities. Conflict of Interest. Corporate Opportunities. Confidentiality. Compliance with laws, rules and regulations; fair dealing. Encouraging the reporting of any illegal or unethical behavior. Compliance procedures; waivers.

Directors responsibilities The Board represents the interests of shareholders, as owners of a corporation, in optimizing long- term value by overseeing management performance on the shareholders' behalf. The Board's responsibilities in performing this oversight function include a duty of care and a duty of loyalty. A director's duty of care refers to the responsibility to exercise appropriate diligence in overseeing the management of the Company, making decisions and taking other actions. In meeting the duty of care, directors are expected to:


Attend and participate in board and committee meetings: Personal participation is required. Directors may not vote or participate by proxy. Remain properly informed about the corporation's business and affairs: Directors should review and devote appropriate time to studying board materials. Rely on others: Absent knowledge that makes reliance unwarranted, directors may rely on board committees, management, employees, and professional advisors. Make inquiries: Directors should make inquiries about potential problems that come to their attention and follow up until they are reasonably satisfied that management is addressing them appropriately. A director's duty of loyalty refers to the responsibility to act in good faith and in the Company's best interests, not the interests of the director, a family member or an organization with which the director is affiliated. Directors should not use their positions for personal gain. The duty of loyalty may be relevant in cases of conflict of interest (section 2 below), and corporate opportunities (section 3 below).

Conflict of interest Directors must avoid any conflicts of interest between the director and the Company. Any situation that involves, or may reasonably be expected to involve, a conflict of interest with the Company, should be disclosed promptly to the Chairman of the Audit Committee. A "conflict of interest" can occur when a director's personal interest is adverse to or may appear to be adverse to the interests of the Company as a whole. Conflicts of interest also arise when a director, or a member of his or her immediate family, receives improper personal benefits as a result of his or her position as a director of the Company.


This Code does not attempt to describe all possible conflicts of interest that could develop. Some of the more common conflicts from which directors must refrain, however, are set out below.

Relationship of Company with third-parties: Directors may not engage in any conduct or activities that are inconsistent with the Company's best interests or that disrupt or impair the Company's relationship with any person or entity with which the Company has or proposes to enter into a business or contractual relationship. Compensation from non-Company sources: Directors may not accept compensation (in any form) for services performed for the Company from any source other than the Company. Gifts: Directors and members of their families may not accept gifts from persons or entities who deal with the Company in those cases where any such gift is more than modest in value, or where acceptance of the gifts could create the appearance of a conflict of interest. Personal use of Company assets: Directors may not use Company assets, labour or information for personal use unless approved by the Chairman of the Audit Committee or as part of a compensation or expense reimbursement program available to all directors.



Many committees have focused on activities and decision making abilities of BOD:University committees and staff make decisions that impact significantly on other staff and students. These Guidelines are to assist University committees and staff in making fair and transparent decisions.

University Legislation and Policy In many instances, the Universitys legislation and/or policy determines the procedures for reaching decisions including: Authorising a particular body or individual to make the decision; Specifying timelines and how to communicate with the student or staff member; Providing parameters on what should be considered; and Detailing penalties that can be applied or types of decisions that can be reached.

Staff should ensure they are familiar with the relevant University legislation and/or policy and the types of decisions that the legislation/policy governs. If a particular decision is governed by University legislation/policy, staff should follow the procedural and approval processes as detailed in the relevant legislation. For a decision to be valid and effective, the decision must be one that the decision maker is authorised to make.


Privacy and Confidentiality Any use of an individual's personal information must comply with the University's Information Privacy Policy and the University's Information Privacy Statement Collection, Use and Disclosure of Personal Information. Appropriate levels of confidentiality must also be maintained during the decision making process.

Procedural Fairness Procedural fairness (also known as natural justice) is about ensuring the procedure for making a decision is fair and proper. Not all decisions made by University committees and staff are subject to the principles of procedural fairness. The principles apply to the exercise of a power which affects the rights, interests or legitimate expectations of an individual. The principles of procedural fairness are summarised as follows.

Disclosure of Relevant Information An individual about whom a decision is to be made is entitled to know the case that is to be met. They should be informed of the following: Allegations or accusations made against them; Information upon which the decision will be based; Criteria for making the decision; Nature of the decision that may be made; and Possible penalties that may be imposed. If the decision is governed by University legislation/policy, a copy of the applicable University legislation/policy should be provided to the individual.


Sufficient Notice of Hearing Sufficient notice of the hearing will depend on the complexity and urgency of the matter. If an oral hearing is to be held, an individual should be provided with written information on when and where the hearing will be held, who will be present and what the hearing will be about. University legislation/policy may prescribe specific requirements such as the number of days notice that is required prior to a hearing. These requirements must be strictly observed. Where the legislation/policy does not prescribe specific requirements, the decision maker should give notice that is fair and appropriate in the circumstances.

Right to be Heard An individual is entitled to an opportunity to reply to the case against them and for their reply to be received and considered before the decision is made. A hearing may not necessarily mean an oral hearing. A person may be heard in writing (eg. considering documents or correspondence) if the University legislation does not require an oral hearing and it is otherwise appropriate in the circumstances. University legislation/policy may permit an individual to be accompanied by a support person at an oral hearing. However, the University does not allow an individual to be represented by a lawyer and in most circumstances does not allow an individual to be represented by an advocate. There are some exceptions (eg. advocates are permitted for international students under the Student Grievance Procedure).


Unbiased Decision Maker The decision maker must be impartial and must not have an interest in the matter being decided. The decision maker must not bring a biased or prejudiced mind to making the decision. Even where no actual bias exists, the decision maker should be careful to avoid the appearance of bias. Examples of bias are when the decision maker has had prior involvement in the matter or has a close association with someone involved.

Decision Based on Relevant Evidence A decision maker must not base their decision on mere speculation or suspicion. All irrelevant information should be disregarded and the decision should be based solely on evidence that is relevant to the matter at hand.

Communicating the Decision Once the decision is made it should be communicated to all persons affected by it. University legislation/policy may prescribe a time within which a decision must be made and/or communicated. University legislation/policy may also require the decision maker to provide a written statement of the reasons for the decision. Where a decision is made to impose some kind of penalty, the penalty must be one that is authorized by the relevant University legislation/policy. Decision makers should keep written records of all decisions and the processes followed in reaching those decisions.

Appeal Notification Many decisions that affect an individuals rights or expectations have an appeal process under University legislation/policy (eg. decision to impose a penalty for a breach of discipline). If an adverse decision is made and a right of appeal exists

within the University, the individual should be informed of that right of appeal in writing together with the relevant procedural information (eg. method for lodging appeal and time limits). Decisions that relate to students (and to a limited extent staff) can be reviewed by the Victorian Ombudsman, who can investigate to ensure a decision has been reached fairly and reasonably. If there is no internal avenue of appeal, the individual should be notified in writing of any right they may have to complain to the Victorian Ombudsman.


To accelerate the standard on ethics in business, the main focus should be kept on knowledge based values, aesthetic based values, instrumental values and moral values that needs to be inculcated in behavior of personnel in the business organisations. For many entrepreneurs business ethics are not at the top of their list of priorities, but they should be. Good business ethics not only help others (communities, other businesses, suppliers, employees etc) but they also help your business. By being an ethical company you can promote a positive image and encourage others to do business with you. The benefits of a more ethical image is always something to consider, but will be more or less important depending on the industry you're in and the nature of your business. Think about it, would you be more or less likely to purchase a product for your new born baby from a seemingly unethical company? This is something we all do all the time, make judgements based on the information we have of a business or person and as a business owner it is your job to make sure that people see your business is the most positive light possible.


Have ethics! Write a code of ethics, you may have strong ethical values, but unless you make some effort to ensure your business and its employees are aware of your businesses ethical stance it is likely each person will rely on their own judgement and what they deem to be ethical may not be the same as what you deem to be ethical.

Promote good ethics While its important to be ethical for the right reasons, making people aware that you are an ethical company is important too. Advertising campaigns, stationary, a "motto" or tag line that emphasises your ethical stance and the general ethos within your business all add up to show youre an ethically responsible company and will help to make people aware of such. Ethics in life and ethics in business are not the same. In life, if faced with an ethical choice many of us would like to think we would do the right thing, but in business the right thing may not always be clear as a businesss objectives and peoples ethical objectives do not always match. This doesnt mean thats its impossible to have a profitable and ethically responsible business, it may just take a little more effort.