Business Ethics and Corporate Social Responsibility

Corporate Ethics: Investors Rights, Privileges, Problems and Protection

Presented By: Group 6 Abhinandan() Smriti() Arun Kumar(31) Alok Tripathy(24) Manish Kumar(42) Sikha Maity(17) Sweta(20)

Introduction
The phenomenal growth of multinationals, has brought huge material wealth to the international community.

This growth was only possible because of joint stock companies.

Contd
The share holder is a part-owner normally located far from the company.

Management needs to follow corporate governance practices such as integrity, transparency, full disclosure of information.

Rights of Shareholders

The rights are conferred on the members of the company by Indian Companies Act 1956.

These rights are given to the shareholders to bring about good corporate governance.

Views of Committees on the Issues

WORKING GROUP ON THE COPMANIES ACT

THE NARAYAN MURTHY COMMITEE

CIIS CIMMITTEE ON CORPORATE GOVERNANCE

THE NARESH CHANDRA COMMITTEE

KUMAR MANGALAM BIRLA COMMITTEE

Working Group on the Companies Act

Issues:

Focusing on the transparency in accounting of the organization.

Details of each directors remuneration and commission which should be a part of directors report.

Ciis Committee on Corporate Governance

Issues: The objective of CII was to develop and promote code of corporate governance.
International standardization in terms of disclosure of information by corporate sector.

Kumar Mangalam Birla Committee

Issues:
Primary objective was to view corporate governance from perspective of investors& shareholders. To improve corporate governance standards in listed companies in areas such as -Disclosure of material information(financial & nonfinancial)

-Responsibilities of independent & non-independent directors

The Naresh Chandra Committee

Issues:
Promotes corporate governance and audit through long term shareholder values. The committee addresses representation of independent directors on company board and composition of audit committee.

No distinction between board with an executive chairman and non executive chairman.

The Narayan Murthy Committee

Issues:
Focuses on trustees of the shareholders at large and prevent asymmetry of benefits between various section of shareholders. A board of committee is formed for redressal of shareholders and investors complaints.

Dr. J. J. Irani Committee Report

The Government of India constituted an expert Committee on company law on 2 Dec. 2004 under the chairmanship of Dr. J. J. Irani to make Recommendation onResponses received from various stakeholders on the concept paper. Issues arising from the revision of the companies act, 1956. Bringing about compactness by reducing the size of the act and removing redundant provisions.

Enabling essay and unambiguous interpretation by recasting the provision of law. Providing greater flexibility in rule making to enable timely response to ever-evolving business model. Protecting the interests of the stakeholders and investors, including small investors. And any other related, or incidental to the above. The committees report is a balanced and wellrounded document and attempts to equate the pulls and pressure of modern business and those of shareholder democracy.

SEBIS Guidelines for Investors

The Securities and Exchange board of India, the Indian capital market regulator, in its guidelines to investor/ shareholders, makes it know that a company enjoys the following rights:Rights Of a shareholder, as an individualTo receive the share certificate on allotment or transfer as the case may be in due time. To receive copies of the annual report, the balance sheet and the profit & loss account and the auditors report.

To participate and vote in general meetings either personally or through proxies. To proceed against the company by way of civil or criminal proceedings. To apply for the winding-up of the company. To receive the residual proceeds. To apply to the company law board to investigate the affairs of the company.

Shareholders Responsibilities To remain informed. To be vigilant. To participate and vote in general meetings. Trading of Securities-

A shareholders has the right to sell securities that he/she holds at a price and time that he/she may choose. Similarly he/she has the right to buy securities from anyone or through a recognized stock exchange at a mutually acceptable price and time.

Transfer of SecuritiesTransfer of securities means that the company has recorded in its books a change in the title of ownership of the securities effected either privately or through an exchange transaction.

Depository and DematcrialisationA depository is a system which holds shares in the form of electronic accounts in the same way a bank holds ones money in a saving account.

Share transitions in the electronic form can be effected in a much simpler and faster way. All one needs to do is that after confirmation of sales/ purchase transaction by ones broker, one should approach his/her DP with a request to debit/credit his/her account for transaction.

Investor Protection
It can be defined by

1.The extend of laws that protects investor rights, 2.The strength of legal institution that facilitate law enforcement.

Relationship Between Investor Protection and Corporate Governance

Corporate Governance is to a large extent a set of mechanism through which outsider investors protects themselves against expropriation by insider.

How do insider steal investors fund

Insider can steal the investors in variety of ways. a. By simply stealing the earning. b. Unfit or under qualified family member appointed to senior management position . c. Selling additional securities in the firm they control to another firm.

Impact of Investor Protection

Enhancing saving and capitol information. Channelizing these into real investment. Improving the efficiency into of capitol allocation since capitol flows into more productive usage.

Problems of Investors In India

Against MemberBrokers of stock exchanges Against companies listed for trading in stock exchanges. Against Financial Intermediaries.

N.K.Mitra Committees Recommendations

A specific act for protection is needed. investors Establishment of judicial Forum. Transfer of investor protection and education fund. Amendment of SEBI Act 1992 is required.

Amendment of Secuirities Contract Act,1956 is required.

Investors Protection
STOCK EXCHANGES COMPANY LEVEL

REGULATORY AGENCIES

STOCK BROKERS LEVEL

Lacunae In Investors Protection

UNSATISFACTOR Y REDRESSAL OF COMPLAINTS SUSPICIONS OVER SEBIS CREDIBILITY

MULTIPLICITY OF AUTHORITIES AND OVERLAPPING FUNCTIONS

UNAWARENESS OF COMMON INVESTORS

SEBIs Poor Performance

SEBI (the designated capital market regulator)

Mixed record in fostering and nurturing corporate governance in the Indian corporate sector. Since its inception(1992) it has substantial growth in its stature and reach. Presently its regulatory framework is robust.

Cont
Played a significant role in creating the countrys capital market infrastructure Past 5 years with significant growth and reach, failure has been spectacular. S.Vaidya Nathan lists the following failures:

Suggestions for improvement

Poor tackling of price manipulation and insider trading issues Poor conviction rate Need to enhance its manpower skills It should simplify and trim regulations It should tone up quality of disclosure It should solve issues of IPOs and mutual funds

SEBI badly needs to improve administration and accountability and restore its cradibility as a powerful regulator.

A Case Study On Insider Trading(HLL-BBLIL Merger)

Statement of The Case

Insider Trading
The case study deals with the Insider Trading by official of Hindustan Unilever. It was during the merger of its sister concern Brooke Bond Lipton India Limited SEBI to scrutinize the manner of the involvement of Big Company.

Charges of HLL
HLL decide to appeal against SEBI verdict to the Union Minister of Finance:Is HLL guilty of Insider Trading? Would SEBI charges stand legal scrutiny when contested as there were several question of law and its interpretation which would have to be settled?

Conclusion
Charges against HLL made a question mark on SEBI role as a watch dog on Indian Capital Market. Its ability to control financial crime such as insider trading. The case also triggered the urgent modification of regulations of SEBI. There is an urgent need of System and Structure of market regulation that will respond immediately.