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Business Ethics & Corporate Governance

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Introduction to Ethics
• At its simplest, ethics is a system of moral principles.
They affect HOW people make decisions and lead
their lives.
– Morality The standards that an individual or a
group has about what is right and wrong or good
and evil.
– Moral standards The norms about the kinds of
actions believed to be morally right and wrong as
well as the values placed on what we believe to be
morally good and morally bad.
– Nonmoral standards The standards by which we
judge what is good or bad and right or wrong in a
nonmoral way.
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Introduction to Ethics

• Five Characteristics of Moral Standards

– Involve serious wrongs or significant
benefits
– Should be preferred to other values
including self-interest
– Not established by law or legislature
– Based on impartial considerations
– Associated with special emotions and
vocabulary

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Introduction to Ethics..cont..
 Ethics is concerned with WHAT is good for individuals and
society and is also described as moral philosophy.
 The term is derived from the Greek word ethos which can mean
custom, habit, character or disposition.
 Ethics covers the following dilemmas:
◦ how to live a good life
◦ our rights and responsibilities
◦ the language of right and wrong
◦ moral decisions - what is good and bad?
 Our concepts of ethics have been derived from religions,
philosophies and cultures. They infuse debates on topics like
abortion, euthanasia, human rights and professional conduct
etc.
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Approaches to ethics
• Philosophers nowadays tend to divide ethical
theories into three areas: metaethics,
normative ethics and applied ethics.
– Meta-ethics deals with the nature of moral
judgement. It looks at the origins and meaning of
ethical principles.
– Normative Ethics is concerned with the content of
moral judgements and the criteria for what is right
or wrong.
– Applied Ethics looks at controversial topics like
war, animal rights, honour crime, slavery, capital
punishment etc.
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Approaches to ethics
• Also Classified as;
– Normative study An investigation that
attempts to reach conclusions about what
things are good or bad or about what
actions are right or wrong.
– Descriptive study An investigation that
attempts to describe or explain the world
without reaching any conclusions about
whether the world is as it should be.
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What use is ethics?

• If ethical theories are to be useful in practice,
they need to affect the way human beings
behave.
• Some philosophers think that ethics does do
this. They argue that if a person realises that it
would be morally good to do something then
it would be irrational for that person not to
do it.
• But human beings often behave irrationally -
they follow their 'gut instinct' even when their
head suggests a different course of action.
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What use is ethics?

• However, ethics does provide good

tools for thinking about moral issues,
such as.
–Ethics can provide a moral map (a
framework)
–Ethics can pinpoint a disagreement
–Ethics doesn't give right answers
–Ethics can give several answers
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Four ethical 'isms'

• Moral realism: is based on the idea that there are real

objective moral facts or truths in the universe. Moral
statements provide factual information about those truths.
• Subjectivism: teaches that moral judgments are nothing more
than statements of a person's feelings or attitudes, and that
ethical statements do not contain factual truths about
goodness or badness.
• Emotivism: is the view that moral claims are no more than
expressions of approval or disapproval.
• Prescriptivism: Prescriptivists think that ethical statements
are instructions or recommendations.

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Four ethical 'isms‘…..an example

• We can show some of the different things one might be doing when one
says that 'murder is bad' by rewriting that statement to show what he
really meant:
• He might be making a statement about an ethical fact
– "It is wrong to murder"
– This is moral realism
• He might be making a statement about his own feelings
– "I disapprove of murder"
– This is subjectivism
• He might be expressing his feelings
– "Down with murder"
– This is emotivism
• He might be giving an instruction or a prohibition
– "Don't murder people"
– This is prescriptivism
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Business Ethics
Business ethics: A specialized study
of moral right and wrong that
concentrates on moral standards as
they apply to business institutions,
organizations, and behavior.
 In the 1930s, Rotary International
developed its Code of Ethics that is
still used extensively. It uses four
questions that are called the four way
ethical behaviour for any ethical issue
a business faces.
 Is it the truth?
 Is it fair to all concerned?
 Will it build goodwill and better
friendship?
 Will it be beneficial to all concerned?

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Business Ethics….cont

Business Ethics Is a Study of

•Our moral standards insofar as these
apply to business
•How reasonable or unreasonable
these moral standards we have
absorbed from society are
•The implications our business
activities.

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Guidelines for Ethical Behavior:

Utilitarian Approach: people should

behave in such a way that will produce
the greatest benefit to society and
produce the least harm or the lowest
cost.
Individual Rights Approach: all
human-beings are certain fundamental
rights that should be respected in all
decisions.
Justice Approach: decision-maker
should be equitable, fair and impartial
in the distribution of costs and benefits
to individuals and groups

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Business Ethics….cont

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Kinds of Ethical Issues

– Systemic—ethical questions about the social, political, legal, or economic
systems within which companies operate.
– Corporate—ethical questions about a particular corporation and its policies,
culture, climate, impact, or actions.
– Individual—ethical questions about a particular individual’s decisions,
behavior, or character.
• Should Ethical Qualities be Attributed Only to People or Also to
Corporations?
• One view says corporations, like people, act intentionally and have moral
rights, and obligations, and are morally responsible.
• Another view says it makes no sense to attribute ethical qualities to
corporations since they are not like people but more like machines; only
humans can have ethical qualities.
• A middle view says that humans carry out the corporation’s actions so
they are morally responsible for what they do and ethical qualities apply in
a primary sense to them; corporations have ethical qualities only in a
derivative sense.
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Arguments Against Ethics in Business

 Law of agency: A law that specifies the duties of persons who agree to
act on behalf of another party and who are authorized by an agreement
so to act.
 In a free market economy, the pursuit of profit will ensure maximum
social benefit so business ethics is not needed.
 A manager’s most important obligation is loyalty to the company
regardless of ethics.
 So long as companies obey the law they will do all that ethics requires.

Arguments Supporting Ethics in Business

 Ethics applies to all human activities.
 Business cannot survive without ethics.
 Ethics is consistent with profit seeking.
 Customers, employees, and people in general care about ethics.
 Studies suggest ethics does not detract from profits and seems to
contribute to profits.
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Ethical Issues in Business

New Technologies Raise New Ethical Issues for Business
 The agricultural and industrial revolutions introduced new ethical issues.
 Information technology raises new ethical issues related to risk, privacy, and
property rights.
 Nanotechnology and biotechnology raise new ethical issues related to risk and
to the spread of dangerous products.
International Issues in Business Ethics
 Globalization and Business Ethics
 Multinational Corporations
 Differences Among Nations
 Business and Ethical Relativism
◦ Ethical or moral relativism The theory that there are no ethical standards that are
absolutely true and that apply or should be applied to the companies and people of
all societies.
◦ Objections to ethical relativism
 Some moral standards are found in all societies.
 Moral differences do not logically imply relativism.
 Relativism has incoherent consequences.
 Relativism privileges whatever moral standards are widely accepted in a society.

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Kant’s Categorical Imperative-A basis 4 moral rights

• Categorical Imperative: Everyone shud b treated as a free person equal 2
everyone else.
– Universalizability: Action in similar situation wud b same if anyone else is
put into that situation
– Reversibility: Action shud b as u expect other 2 do when u face such a
situation

Types of Justice
• Distributive Justice: Distributing society’s benefits &burdens fairly.
• Retributive Justice: Blaming or punishing persons fairly for doing wrong.
• Compensatory Justice: Restoring to a person what the person lost when
he or she was wronged by someone.

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Kohlberg’s Three Levels of Moral Development

• Preconventional (punishment and obedience; instrumental and relative)
• Conventional (interpersonal concordance; law and order)
• Postconventional (social contract; universal principles).

Gilligan’sTheory of “Female” Moral Development

• For women morality is primarily a matter of caring and responsibility.
• Moral development for women is progress toward better ways of caring
and being responsible.
• Women move from a conventional stage of caring only for oneself, to a
conventional stage of caring for others to the neglect of oneself, to a
postconventional stage of achieving a balance between caring for others
and caring for oneself.

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Corporate Social Responsibility Is a Business’s Societal

Obligations

• The shareholder view of Friedman says a manager’s only responsibility is to legally and ethically
make as much money as possible for shareholders.
• Stakeholder theory says managers should give all stakeholders a fair share of the benefits a business
produces.
• Business ethics is both a part of corporate social responsibility and part of the justification for
corporate social responsibility.

• Social responsibility of business refers to what the business does, over and above the statutory
requirement, for the benefit of the society. The word responsibility connotes that the business has
some moral obligations to the society.

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Responsibilities of Business

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Social Orientations and Involvement of Business

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Factors Affecting Social Orientation

• Promoters and Top Management

• Board of Directors
• Stakeholders and Internal Power Relationship
• Societal Factors
• Industry and Trade Associations
• Government and Laws
• Political Influences
• Competitors
• Resources
• Ethical Influences

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Claimants of Social Responsibility of Business

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Corporate governance- Purpose, Role and Objectives

 Corporate governance broadly refers to the rules,
processes or laws by which businesses are operated,
regulated and controlled.
 Today’s corporate governance places a strong
emphasis on both, economic efficiency and
safeguarding the welfare of shareholders.
 Presence of an effective corporate governance system,
within a company and across an economy as a whole,
helps to strengthen the economy, create investor
confidence, and contribute to social wellbeing.
•

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The Aim And Purpose Of Corporate Governance

•Corporate governance is concerned with
holding the balance between economic and
social goals and between individual and
communal goals.

•The governance framework is there to

encourage the efficient use of resources and
equally to require accountability for the
stewardship of those resources.
•
•The aim is to align as nearly as possible the
interests of individuals, corporations, and
society.
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The role of good corporate governance

 set right objectives;

 chart the right processes of operations and process of governance;
 ensure ethics in the corporate objectives and practice;
 develop right kind of people and talent in the organisation;
 inculcate the culture of ethics amongst people;
 obey the rules, laws and regulations concerning the business;
 adopt methods of measures and means to control and regulate
within the rules and regulations; and
 adhere to the environmental laws and regulatory principles.

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The Principles of Corporate Governance

 Rights and Equitable Treatment of

Shareholders
 Interests of Other Stakeholders
 Role and Responsibilities of the
Board
 Integrity and Ethical Behaviour
 Disclosure and Transparency

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CII Guidelines for Corp Governance

• Care for all Stakeholders:

• Ethical functioning:
• Respect for Workers' Rights and Welfare:
• Respect for Human Rights:
• Respect for Environment:
• Activities for Social and Inclusive
Development

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The OECD Principles of Corporate Governance

As per some important highlights of the OECD principles, the corporate governance
framework should:
 Promote transparent and efficient markets, be consistent with the rule of law and clearly
articulate the division of responsibilities among different supervisory, regulatory and
enforcement authorities.
 Protect and facilitate the exercise of shareholders’ rights.
 Ensure the equitable treatment of all shareholders.
 Recognize the rights of stakeholders established by law or through mutual agreements
and encourage active co-operation between corporations and stakeholders in creating
wealth, jobs, and the sustainability of financially sound enterprises.
 Ensure that timely and accurate disclosure is made on all material matters regarding
the corporation, including the financial situation, performance, ownership, and
governance of the company.
 Ensure the strategic guidance of the company, the effective monitoring of management
by the board, and the board’s accountability to the company and the shareholders.

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The Combined Code of Corporate Governance

the recommendations, codes or principles have mainly focused on

 the company’s structure;
 its financial and non-financial disclosures;
 compliance with codes of corporate governance;
 competitive remuneration policy;
 shareholders rights and responsibilities; and
 financial reporting and internal controls.

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New provisions in the Clause 49 of the SEBI guidelines on

corporate governance
 The board will lay down a code of conduct for all board members and
senior management of the company to compulsorily follow.
 The CEO and CFO will certify the company’s financial statements and
cash flow statements.
 At least one independent director of the holding company will be a
member of the board of a material non-listed subsidiary.
 The audit committee of the listed company shall review the financial
statements of the unlisted subsidiary, in particular its investments.
 If while preparing financial statements, the company follows a treatment
that is different from that prescribed in the accounting standards, it must
disclose this in the financial statements and the management should also
provide an explanation for doing so in the corporate governance report of
the annual report.
 The company will have to lay down procedures for informing the board
members about the risk management and minimization procedures.
 Where money is raised through public issues, rights issues etc., the
company will have to disclose the uses/applications of funds according to
major categories as part of quarterly disclosures of financial statements.
 The company will have to publish its criteria for making its payments to
non-executive directors in its annual report.
•

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Models of Corporate Governance

 The Anglo-American Model

 The Coordinated Model
 The Family-Owned Company Model

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Models of Corporate Governance

 The Anglo-American Model

 The Coordinated Model
 The Family-Owned Company Model

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The Anglo-American Model

 This is a typical liberal model of governance, which is prevalent in the

US, UK, and many English speaking countries of the erstwhile British
Empire.
 This model calls for governance by the board of directors, which has
the power to choose the CEO.
 While the CEO has the power delegated by the board to manage the
company on a daily basis, he or she needs board approval for certain
major decisions.
 In this model, the board of directors is responsible towards the
shareholders; however, the by-laws of many companies make it
difficult for all but the largest shareholders to have any influence or
say over the make up of the board.
 Contrary to the spirit of good corporate governance, individual
shareholders are not given the opportunity to choose their nominees
to the board.

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The Family-Owned Company Model

 This is prevalent in Asian and Latin American countries, where

companies owned by families often dominate the market.
 This business model views the transparency and disclosure norms
of the Anglo-American model as exposing the core business
financials and strategies to others, which would mostly benefit the
competitors and regulators, with few tangible benefits to the
organisation.
 The system is more amenable to self serving gains from business,
and vulnerable with regard to ethics and social responsibility.
 Family-owned companies do not necessarily harm the interests of
shareholders because they themselves are major beneficiaries of
their dividend policy or related benefits.
•

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The Coordinated Model

 This model, prevalent in Europe and

Japan, acquiesces to shareholder
interest but also gives priority to the
interests of managers, employees,
customers, suppliers and the
community in general.
 The coordinated model encourages
innovation and profit on a more
incremental level.

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Best Practices’ in Corporate Governance

 Adherence to a code of conduct and the practice of whistle-blowing is

important; but how they are communicated and practised across the
organisation is even more important. It is vital for board members and senior
managers to lead by example.
 Following trusteeship in order to protect shareholders – including minority
shareholders – is essential.
 An independent and transparent process is needed to evaluate the functioning
of the board.
 Integrity and ethical values should be emphasized as being fundamental to the
governance system.
 Focus on sustainability.
 Increased responsibility and empowerment of independent directors.
 Skills to listen to and understand stakeholders – their needs and interests.
 Concern for purposeful corporate social responsibility.

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Landmarks of Indian Corporate Governance System

Indian model is closer to Anglo-American Model.

 The Companies Act, 1956
 SEBI Act, 1992
 Introduction of Clause 49 in SEBI Act, 2000
 Revision of Clause 49 by N.R. Murthy Committee introduced in
Jan 2006
 New Companies Act, 2008
 Corporate Governance Guidelines, 2009 by MCA
 Emergence of Corporate Governance in India

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Corporate Governance Models, Codes and Status In India

 philosophy and purpose of business and the corporate governance

‘mantra’ of that country.
 Indian model is closer to Anglo-American Model.
 Defined as: “ acceptance by management of the inalienable rights
of the shareholders as the true owners of the corporation and of
their own role as trustees on behalf of the shareholders. It is
about the commitment to values, about ethical business conduct
and about making a distinction between personal and corporate
funds in management of a company”.
•

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Principles Of Business Responsibilty And Development Work As

Per SEBI
 Businesses should conduct and govern themselves with ethics, transparency
and accountability.
 Businesses should provide goods and services that are safe and contribute to
sustainability throughout their life cycle.
 Businesses should promote the well-being of all employees.
 Businesses should respect the interests of and be responsible towards all
stakeholders, especially those who are disadvantaged, vulnerable and
marginalised.
 Businesses should respect and promote human rights.
 Businesses should respect, protect, and make efforts to restore the
environment.
 Businesses, when engaged in influencing public and regulatory policy, should
do so in a responsible manner.
 Businesses should support inclusive growth and equitable development.
 Businesses should engage with and provide value to their customers and
consumers in a responsible manner.

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Deficiencies In Indian Corporate Governance Practices

 Failure of Board- including its independent directors- to stop false

accounting and fictitious deals.
 Failure of the auditor to detect and highlight such gross
malpractices in governance mechanisms.
 Wilful distortion of financial disclosures and material facts with
the help of auditor and senior management.
 Laid back attitude of the banks and bankers to the company.
 Failure of regulators and oversight agencies to detect such frauds
and wrong-doings.

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Corporate Governance Issues In Family-Owned Business In

India
 Board structure and the role of board members
 Separating ownership from management
 Succession Planning

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Functional Changes Required In Family-Owned Business In

India
 Separation of ownership from management by appointing
and working through ‘professional management team’;
 Adherence to the Corporate Governance Guidelines 2009,
issued by the MCA;
 Taking into the Board competent and qualified independent
directors and empowering them to act as per SEBI guidelines
for functioning;
 Forming ‘audit committee’, ‘ethics committee’ and putting in
place the ‘whistle-blowing’ mechanism in the management
and governance practices; and
 Strict, faithful and corruption-free oversight and controls by
the regulators of laws and regulations in the country.

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Corporate Governance and The Indian Ethos

 The Holistic approach in governance

 Equal importance to
subjectivity/objectivity
 Karma yoga
 Respect to each soul as potential God
 Cooperation
 Yogah Karmashu Kushalam

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Significance of Ethics In Corporate Governance

 The growth of business – either internal or global – has to be

‘inclusive’ and ‘sustainable’; abiding by ethical principles (rules of
ethics) is the key to sustainable development.
 The creation of social value by an organisation through a
purposeful ‘corporate social responsibility’ policy strengthens its
corporate image and business opportunity.
 Ethics should be made an integral part of corporate governance
for excellence in performance; ethics are indispensable when it
comes to bringing discipline in thoughts and actions that can lead
to sustainable development in a fiercely competitive and
constantly changing world.

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Ethical Dimensions Of Corporate Governance

 If corporate governance has to set the rules for inclusiveness and

sustained growth of a business, the leaders of the organisation
have to define (or derive) the vision, values and goals of the
business; not short-term but in the long-term sense.
 Corporate governance is about creating a seamless interface
between the ethical practices of processes, people and policy in
the organisation for the ‘creation of value to the company and
wellbeing to the society’.
 The system must also be able to effectively check the greed of
company executives and prevent them from the temptation of
earning a quick buck through unethical activities that are also
not relevant to value creation for the company and society.

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Ethical Approach To Corporate Governance

 Assuring integrity, honesty and ethical behavior in the workplace.
 Maintaining transparency in duties, deals, rules, processes and
procedures related to work and services to members in the
organisation or other stakeholders.
 Upholding the interests of stakeholders.
 Protecting the environment and controlling pollution to ensure the
wellbeing of society and nation.
 Ensuring the rights of shareholders.
 Clarifying the role and duties of the board and the CEO for
transparency and fairness in practices.

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Improving Ethics In Corporate Governance

 Corporate governance must go beyond the law; laws are often

seen as instruments for self protection and for justice when
aggrieved, whereas the whole purpose of an ethical approach is to
avoid causing injustice and damage to others’ interests.
 For greater effectiveness in improving ethical culture and conduct
of the organisation, the system needs to be proactive – like the
‘feed-forward’ control system – which relies more on prevention of
the cause(s) and promotion of ethical work-culture.
 There is a need to integrate ethical principles into the
administrative and accountability structure of the corporate
governance system.

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The Holistic Nature of Corporate Governance

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Setting Governance Platform: Ethics And Sustainability

 Sustainability ensures that the future necessity and wellbeing are not affected
by the compromise made for the present gain.
 ‘Welfare of future generations’ is not only the key concern of environmental
sustainability, but also of business.
 In business, it is the welfare of shareholders, employees, customers, suppliers,
society and those having any connection with its outcome – for now and in the
future – are the concerns of sustainability.
 A business has to optimize its future goals for social welfare along with
stakeholder welfare; reduce random or selfish usage of environment, energy
and other scarce resources; set positive social, environmental and economic
examples for the societies – present and future – and stimulate society’s
aspiration for growth, wellbeing and sustainability.
 An important part of governance focus should be on ‘people’ – to help develop
the right kind of thinking (i.e. inclusive thinking), attitude and talent.

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Corporate Governance: Regulation Versus Self-Regulation

 Regulations are formulated based on prevalent laws and pre-dated data (available data),
knowledge and understanding of the business process requirements vis-à-vis
requirements to protect shareholders’ interests.
 While regulations and regulatory measures are necessary for business and governance,
they have to be effective for sustainable growth as well.
 Globally coordinated regulatory rules are important not only for financial business, they
are also equally important for other areas of business and human activities.
 Self-regulation can be described as the self-imposed standards of behavior with
reference to codes and principles which is based on an understanding of strengths and
weaknesses of the individuals, and of the purpose and perspective of the business.
 Regulation and self-regulation are complementary approaches which both industries
and business need if they were to ensure ethical governance and sustainable results.

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Challenges To Corporate Governance

 Financial irregularity
 Regulatory indiscipline
 Unfair distribution of gains amongst top executives
 Random use of scarce resource
 Dumping of toxic wastes into coastal lands
 Lack of concern and commitment regarding
greenhouse gas emissions
 Unfair trade practices
 Marketing of questionable bio-engineered products

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The levels and activities of a corporate governance system

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Social View Of Corporate Governance: CSR

 Corporate Social Responsibility is the continuing

commitment by business to behave ethically and
contribute to economic development while improving
the quality of life of the workforce and their families
as well as of the local community and society at large.
 CSR, being a voluntary measure, has no rules,
regulation or procedure to comply with.
 Some companies appoint an Ethics Officer – a senior
member of the management team – who would not
only establish ethical standards but also oversee the
company’s compliance to its CSR policy.

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•The incentive to corporations and to those who own and manage them to adopt
internationally accepted governance standards is that these standards will help them
to achieve their corporate aims and to attract investment.
•The incentive for their adoption by states is that these standards will strengthen the
economy and discourage fraud and mismanagement.
•The foundation of any structure of corporate governance is disclosure. Openness is
the basis of public confidence in the corporate system, and funds will flow to the
centers of economic activity that inspire trust.

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Reasons for the Growing Demand

for Corporate Governance
 Inadequacies and failures of an existing system often
bring to the fore the need for norms and codes to
remedy them.
 Deficiencies in the Accounting Standards became
more evident after many companies, in their
eagerness to increase earnings and accelerate
growth, exploited the weaknesses in the accounting
standards to show inflated profits and understate
liabilities.

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Corporate Governance Environment and Outcomes

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The Recommendations of Birla Committee

 The Birla Committee Report is the first formal and comprehensive attempt to evolve a Code of
Corporate Governance, in the context of prevailing conditions of governance in Indian companies,
as well as the state of capital markets.
 The Committee, felt that the recommendations should be divided into mandatory and non-
mandatory categories.
 Applicability: The recommendations will apply to all the listed private and public sector
companies, in accordance with the schedule of implementation. This is a mandatory
recommendation.
 Board of Directors: Board of Directors should have an optimum combination of executive and
non-executive directors.
 The CII Code has also laid down that no individual should be a director on the boards of more than
10 companies at any given time; non-executive directors should be active, have defined
responsibilities, and be conversant with P & L accounts; directors who have not been present for at
least 50 per cent of board meetings should not be re-appointed.
 Audit Committee and Remuneration Committee: One of the items of the CII Code is that there
should be an Audit Committee, which shall have access to all financial information. The Birla
Committee has recommended an Audit Committee to act as a catalyst for effective financial
reporting, with powers to investigate any activity within its terms of reference and to seek
information from any employee.

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Recommendations of Birla Committee

 The Birla Committee Report is the first formal and

comprehensive attempt to evolve a Code of
Corporate Governance, in the context of prevailing
conditions of governance in Indian companies, as well
as the state of capital markets.
 The Committee, felt that the recommendations
should be divided into mandatory and non-
mandatory categories.

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 Applicability: The recommendations will apply to all the listed

private and public sector companies, in accordance with the
schedule of implementation. This is a mandatory
recommendation.
 Board of Directors: Board of Directors should have an optimum
combination of executive and non-executive directors.
 The CII Code has also laid down that no individual should be a
director on the boards of more than 10 companies at any given
time; non-executive directors should be active, have defined
responsibilities, and be conversant with P & L accounts;
directors who have not been present for at least 50 per cent of
board meetings should not be re-appointed.

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 Audit Committee and Remuneration Committee:

One of the items of the CII Code is that there should
be an Audit Committee, which shall have access to all
financial information. The Birla Committee has
recommended an Audit Committee to act as a
catalyst for effective financial reporting, with powers
to investigate any activity within its terms of
reference and to seek information from any
employee.

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 Accounting Standards and Financial Reporting: companies are

required to give consolidated accounts in respect of all its
subsidiaries in which they hold 51% or more of the share
capital.
 Management: While the Board is responsible for ensuring that
the principles of corporate governance are adhered to and
enforced, the real onus of implementation lies with the
management which is responsible for translating into action
the policies and strategies of the Board and implementing its
directives to achieve corporate objectives of the company
framed by the Board. It is, therefore, essential that the board
should clearly define the role of the management.

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The Recommendations of Birla Committee

 Accounting Standards and Financial Reporting: companies are required to give consolidated
accounts in respect of all its subsidiaries in which they hold 51% or more of the share capital.

 Management: While the Board is responsible for ensuring that the principles of corporate
governance are adhered to and enforced, the real onus of implementation lies with the management
which is responsible for translating into action the policies and strategies of the Board and
implementing its directives to achieve corporate objectives of the company framed by the Board. It
is, therefore, essential that the board should clearly define the role of the management.

 These are mandatory recommendations.

 Shareholders: The shareholders are the owners of the company and as such they have certain
rights and responsibilities.

 The Committee believes that the General Body Meetings provide an opportunity to the shareholders
to address their concerns to the board of directors and comment on and demand any explanation
on the annual report or on the overall functioning of the company.
• The Committee has also recommended that the institutional shareholders take an active interest
in the composition of the Board of Directors and evaluate the corporate governance performance
of the company.

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 These are mandatory recommendations.

 Shareholders: The shareholders are the owners of the company
and as such they have certain rights and responsibilities.
 The Committee believes that the General Body Meetings
provide an opportunity to the shareholders to address their
concerns to the board of directors and comment on and
demand any explanation on the annual report or on the overall
functioning of the company.
 The Committee has also recommended that the institutional
shareholders take an active interest in the composition of the
Board of Directors and evaluate the corporate governance
performance of the company.

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Role and Responsibilites Of Board Of Directors (Cadbury

Committee)
 The Board composition and function, division of responsibility, accountability and authority
 Functioning and compensation of non-executive directors. (The revised Clause 49 states
that all compensation paid to non-executive directors including independent directors shall
be fixed by the Board and shall require prior approval of shareholders in the general
meeting and that limit shall be placed on stock options granted to non-executive directors.
The Board is also required to draft a code of conduct and affirm compliance with the same
annually.)
 Appointment and functioning of Audit Committee – its constitution, empowerment and
responsibility.
 Compliance with ethics – either through Audit Committee or by appointing separate
oversight agency (This also should include review of functioning of whistle-blower
mechanisms for early detection of wrong-doings.)
 Remuneration of Board members, including non-executive directors.
 Formation of a grievance committee to address shareholders’ grievances and complaints.
 Certification by CEO/CFO as to the reliability of financial reports and compliance with
applicable laws and regulations.
 Finally, the Board has to annually submit report about the compliance with corporate
governance to the SEBI.

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CII Guidelines for Corp Governance..\CII\CII guidelines for

corporate governance-E000000056.1238.book-b).pdf

• Care for all Stakeholders:

• Ethical functioning:
• Respect for Workers' Rights and Welfare:
• Respect for Human Rights:
• Respect for Environment:
• Activities for Social and Inclusive Development:

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CII Task Force on Corp Governance..\CII\E000000274.970.Report of the

CII task force on corporate governance.pdf
• Appointment of independent directors
• Duties, liabilities and remuneration of independent directors
• Remuneration Committee of the Board
• Audit Committee of the Board
• Separation of the offices of the Chairman and the Chief Executive Officer
• (CEO)
• Attending Board and Committee Meetings through Tele-conferencing and video conferencing
• Executive Sessions of the Independent Directors
• Auditor – Company Relationship
• Independence of Auditors
• Certificate of Independence
• Audit Partner Rotation
• Auditor Liability
• Appointment of Auditors
• Qualifications Introduced by Statutory Auditors or Internal Auditors in
• their Audit Reports, Tax Audit Report or CARO Reports.
• Whistle Blowing Policy
• Risk Management Framework
• The Legal and Regulatory Standards
• The Capability of Regulatory Agencies - Ensuring Quality in Audit Process
• Effective and Credible Enforcement
• Confiscation of Shares
• Personal Liability
• Institutional Investors
• The Press

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