Q1.

ROLE AND RESPONSIBILITY OF BOARD OF DIRECTORS IN

CORPORATE GOVERNANCE
❖ Role of the Board of Directors

The Board of Directors oversees the management and governance of the

company, delegating operational authority to the Chief Executive Officer and
senior management. Its primary role is to ensure effective management and
monitor the performance of senior leadership.

Board’s core responsibilities are to:

• Select individuals for Board membership and evaluate the performance of

the Board, Board committees and individual directors.
• Select, monitor, evaluate and compensate senior management.
• Assure that management succession planning is adequate.
• Review and approve significant corporate actions.
• Review and monitor implementation of management’s strategic plans.
• Review and approve the Company’s annual operating plans and budgets.
• Monitor corporate performance and evaluate results compared to the
strategic plans and other long-range goals.
• Review the Company’s financial controls and reporting systems.
• Review and approve the Company’s financial statements and financial
reporting.
• Review the Company’s ethical standards and legal compliance programs
and procedures.
• Oversee the Company’s management of enterprise risk.
• Monitor relations with shareholders, employees, and the communities in
which the Company operates.

Role of Non-Executive Director’s

Non-executive directors are expected to focus on board matters and not stray
into ‘executive direction,’ thus providing an independent view of the company
that is removed from day-to-day running. Non-executive directors, then, are
appointed to bring to the board:

• Independence.
• Impartiality.

• Wide experience.

• Special knowledge.

• Personal qualities.

The key responsibilities of non-executive directors are :

➢ Strategic direction

Non-executive directors, as outsiders, often have a broader view of external

factors affecting the company. Their role in strategy is to offer informed insights,
provide fresh ideas, and act as constructive critics of the objectives and plans
proposed by the executive team.

➢ Monitoring

Non-executive directors are responsible for keeping an eye on executive

management’s performance, ensuring progress is made toward the company’s
strategy and objectives.

➢ Communication

Non-executive directors help build valuable connections between the company

and external networks. They may also represent the company publicly when
needed, strengthening relationships with key stakeholders.

➢ Audit

Non-executive directors ensure that the company presents accurate financial

reports to shareholders and maintains strong internal controls. They play a key
role in upholding transparency and accountability, whether as part of an audit
committee or the full board.

Role of Auditors in Corporate Governance

Auditors are vital to the foundation of corporate governance, ensuring that

companies maintain integrity, accountability, and transparency in their financial
reporting
➢ Ensuring Financial Accuracy

The primary Role of Auditors is to ensure the accuracy and reliability of

financial statements. Auditors verify the accuracy of financial statements,
ensuring they comply with accounting standards and reflect the company’s true
financial position.

➢ Enhancing Transparency and Accountability

Auditors enhance transparency and accountability within a company. By

conducting thorough audits, they provide an independent assessment of the
company’s financial health, ensuring that management’s actions and financial
disclosures are accurate and reliable.

➢ Detecting and Preventing Fraud

One of the critical aspects of the Role of Auditors is detecting and preventing
fraud. Auditors employ various techniques and procedures to identify any
irregularities or fraudulent activities within a company’s financial records.

➢ Ensuring Compliance with Laws and Regulations

Compliance with laws and regulations is a fundamental aspect of corporate

governance. Auditors ensure that companies adhere to legal and regulatory
requirements, minimizing the risk of legal issues and penalties. This compliance
is essential for maintaining the company’s reputation and avoiding legal
complications.

➢ Financial Audits

Financial audits are the core responsibility of auditors. Auditors assess the
validity of financial transactions, verify the accuracy of financial records, and
provide an independent opinion on the financial health of the company.

➢ Risk Management

Risk management is a critical aspect of corporate governance. Auditors evaluate

the company’s risk management processes, ensuring that potential risks are
identified, assessed, and mitigated. Auditors help the company manage risks
effectively and make informed decisions.
Q2. Nature and Importance of corporate governance

Corporate Governance refers to the way a corporation is governed. It is the

technique by which companies are directed and managed. It means carrying the
business as per the stakeholders' desires. It is actually conducted by the board
of Directors and the concerned committees for the company's stakeholder's
benefit. It is all about balancing individual and societal goals, as well as,
economic and social goals. Corporate Governance is the interaction between
various participants (shareholders, board of directors, and company's
management) in shaping corporation's performance and the way it is proceeding
towards.
Q3. Difference between corporate governance and corporate excellence.

Aspect Corporate Governance Corporate Excellence

Definition Corporate governance is Corporate excellence

concerned with the refers to a
process by which transformation from the
corporate entities and status of a good
particularly limited company to the status of
liability companies are a great company.
governed.

Focus Ensures ethical Focuses on achieving a

practices, compliance competitive edge,
with laws, and creating value, and
accountability in enhancing overall
managing a corporation. organizational
performance.

Objective To maximize long-term To achieve superior

value and shareholder performance and
wealth while ensuring goodwill by building
stakeholder interests are trust and value among
protected. all stakeholders.

Scope Involves processes, Involves developing and

policies, laws, and strengthening
relationships affecting management systems to
how a company is drive sustainable growth
directed and controlled. and superior results.

Key Elements Transparency, Competitive advantage,

accountability, fairness, innovation, stakeholder
ethical standards, and trust, sustainable
compliance with performance and
regulations.
 organizational
development.

Role of Stakeholders Defines the distribution Builds goodwill and trust

of rights and among stakeholders
responsibilities among through actions and
the board, results, creating long-
management, term loyalty and
shareholders, and other support.
stakeholders.

Importance Critical for ensuring Essential for achieving

economic efficiency, industry leadership,
market confidence, and sustainable
a stable industrial and development, and long-
societal environment. term success.

Contribution to Business Provides a foundation Transforms companies

for ethical business into outstanding
practices and effective performers by fostering
decision-making. innovation, efficiency,
and superior results.

End Goal Ensures the company Helps organizations

operates fairly, achieve excellence by
transparently, and in consistently delivering
compliance with laws. outstanding practices
and results.

Examples/Definitions Defined by Cadbury Defined by EFQM as

Committee, James D. outstanding practices in
Wolfensohn, and ICSI as leadership, innovation,
systems ensuring ethical customer value, and
governance and sustainable outcomes.
fairness.
Q4. SEBI guidelines on corporate governance.

To promote good corporate governance, SEBI (Securities and Exchange Board of

India) constituted a committee on corporate governance under the
chairmanship of Kumar Mangalam Birla. On the basis of the recommendations
of this committee, SEBI issued certain guidelines on corporate governance;
which are required to be incorporated in the listing agreement between the
company and the stock exchange.

SEBI guidelines on corporate governance are as follows:

(a) Board of Directors

• The Board of Directors of the company shall have an optimum

combination of executive and nonexecutive directors.
• The number of independent directors would depend on whether the
chairman is executive or non-executive.
• In case of non-executive chairman, at least, one third of the Board should
comprise of independent directors; and in case of executive chairman, at
least, half of the Board should comprise of independent directors.
• The expression ‘independent directors’ means directors, who apart from
receiving director’s remuneration, do not have any other material
pecuniary relationship with the company.

(b) Audit Committee

❖ Audit committee constitution are as follows:

• It shall have minimum three members, all being non-executive directors,
with the majority of them being independent, and at least one director
having financial and accounting knowledge.
• The Chairman of the committee will be an independent director. (iii) The
Chairman shall be present at the Annual General Meeting to answer
shareholders’ queries.

❖ Powers of Audit committee includes:

• To investigate any activity within its terms of reference.
• To seek information from any employee.
 • To obtain outside legal or other professional advice.
• To secure attendance of outsiders with relevant expertise, if considered
necessary.

❖ The role of audit committee includes :

• Overseeing of the company’s financial reporting process and the
disclosure of its financial information
• Recommending the appointment and removal of external auditor.
• Reviewing the adequacy of internal audit function.
• Discussing with external auditors, before the audit commences.
• Reviewing the company’s financial and risk management policies.

c) Remuneration of Directors

The disclosures on the remuneration of directors are:

• All elements of remuneration package of all the directors i.e. salary,

benefits, bonus, stock options, pension etc.
• Details of fixed component and performance linked incentives, along
with performance criteria.

(d) Board Procedure

• Board meetings shall be held at least, four times a year, with a maximum
gap of 4 months between any two meetings.
• A director shall not be a member of more than 10 committees or act as
chairman of more than five committees, across all companies, in which
he is a director.

(e) Management

A Management Discussion and Analysis Report should form part of the annual
report to the shareholders; containing discussion on the following matters.

• Opportunities and threats

• Segment-wise or product-wise performance
• Risks and concerns
• Discussion on financial performance with respect to operational
performance
 • Material development in human resource/industrial relations front.

(f) Shareholders

In case of appointment of a new director or reappointment of a director,

shareholders must be provided with the following information:

• A brief resume (summary) of the director

• Nature of his expertise
• Number of companies in which he holds the directorship and membership
of committees of the Board.

(g) Report on Corporate Governance

There shall be a separate section on corporate governance in the Annual Report

of the company, with a detailed report on corporate governance.

(h) Compliance

The company shall obtain a certificate from the auditors of the company
regarding the compliance of conditions of corporate governance. This certificate
shall be annexed with the Directors’ Report sent to shareholders and also sent
to the stock exchange.

Q5. CSR and its drivers.

Corporate Social Responsibility (CSR) is about businesses contributing positively

to society while pursuing their goals. It’s no longer just about charity or
compliance but an integral part of how companies operate. CSR ensures that
businesses address societal and environmental challenges while maintaining
ethical and sustainable practices. Forward-looking companies are embracing CSR
as a way to build trust, strengthen relationships, and ensure long-term success.

Drivers of CSR are as follows:

1.Ethical Leadership

• Strong ethical leadership is the backbone of CSR. Leaders who prioritize

integrity inspire responsible practices across the organization.
• Ethical decision-making at all levels creates a culture that values CSR, setting
the foundation for sustainable and impactful initiatives.
• Transparent codes of ethics and training programs can reinforce ethical
behaviour and encourage accountability.

2. Stakeholder Engagement

• CSR works best when businesses actively involve stakeholders, including

employees, customers, communities, and investors.
• Engaging with stakeholders through regular consultations, surveys, or forums
helps align CSR efforts with community expectations.
• Open communication builds trust and fosters a sense of shared responsibility.

3.Transparent Reporting

• Transparency builds trust and ensures accountability. Companies that openly

share their CSR goals, progress, and challenges demonstrate credibility.
• Publishing annual sustainability reports or measuring performance through
key indicators helps showcase the real impact of CSR.

4.Sustainable Business Practices

• Adopting sustainable practices ensures businesses reduce their

environmental footprint and create long-term value.
• This includes using eco-friendly materials, promoting ethical supply chains,
reducing waste, and adopting renewable energy solutions.
• Sustainability audits can identify areas for improvement and help businesses
take meaningful action.
5. Social Innovation

• Social innovation involves finding creative ways to address societal

challenges, like inclusive hiring practices or promoting education.
• CSR-driven projects, such as leveraging technology for social good or
supporting environmental sustainability, can leave a lasting impact.
• Encouraging teams to innovate and align projects with the company’s
strengths enhances the value of CSR initiatives.

Conclusion

CSR is essential for businesses to thrive in today’s socially conscious world. By

focusing on ethical leadership, engaging stakeholders, ensuring transparency,
adopting sustainable practices, and fostering social innovation, companies can
create meaningful CSR strategies. These drivers not only fulfill ethical obligations
but also position businesses for long-term success. Integrating CSR into daily
operations ensures businesses remain responsible, trustworthy, and aligned
with society’s needs—building a better future for all.

Q6. Initiatives in India on Corporate governance. (Past, Present, Future)

Corporate governance refers to the set of principles, ethics, values, and rules
that guide the management and operations of a company. It ensures
accountability, transparency, and fairness in a company’s dealings with its
stakeholders, including shareholders, employees, customers, and society at
large. In India, the need for corporate governance became more prominent after
the liberalization of the economy in 1991, as businesses sought to align
themselves with global practices to ensure competitiveness and sustainability.
Corporate Governance in India: Past, Present, and Future

Corporate governance in India has its roots in ancient times, as seen in the
Arthashastra, where kings followed ethical principles to govern. Over time, with
liberalization and globalization in the 20th century, India embraced modern
corporate governance to compete in international markets.

In the present day, good corporate governance has become essential for
businesses to thrive. It ensures fairness in dealing with stakeholders, compliance
with laws, and ethical decision-making. Indian companies like Tata, Infosys, and
Wipro have set benchmarks for strong corporate governance practices, making
them global leaders.

In the future, corporate governance will focus on adopting global standards,

enhancing transparency, and addressing emerging challenges like environmental
and social responsibilities. Companies must continuously innovate and adapt to
stay relevant in the global market.

SEBI Code of Corporate Governance

The Securities and Exchange Board of India (SEBI) has played a vital role in
strengthening corporate governance in India. SEBI introduced regulations like
Clause 49 of the Listing Agreement to ensure transparency, accountability, and
fairness in companies. These codes require boards to have a balance of executive
and independent directors, audit committees, and clear disclosures in annual
reports.
Key Committees on Corporate Governance

1. Kumar Mangalam Birla Committee (2000)

SEBI formed this committee to develop corporate governance standards. Its

key recommendations include:

→ Boards should have a mix of executive and non-executive directors, with

independent directors forming a significant portion.
→ Audit committees must consist of non-executive directors, with at least
one having financial expertise.
→ Regular board meetings (at least four annually) should be held.
→ Disclosures on directors’ remuneration, stock options, and other benefits
should be included in annual reports.
→ Shareholder complaints should be addressed by a specific board
committee.

2. N.R. Narayana Murthy Committee (2003)

SEBI constituted this Committee under the chairmanship of N.R. Narayana

Murthy, chairman and mentor of Infosys, and mandated the Committee to
review the performance of corporate governance in India and make appropriate
recommendations. Its key recommendations are:

→ Non-executive directors should serve for a maximum of nine years.

→ Audit committees should review financial statements, risk management,
and related-party transactions.
→ Companies should establish whistleblower policies to protect employees
reporting misconduct.
→ CEOs and CFOs should certify the accuracy of financial statements.

These initiatives have significantly improved corporate governance in India,

making Indian companies more competitive and ethical on a global scale.
5 – Marks Questions

Q1. Insider Trading

Insider trading is defined as a malpractice wherein trade of a company's

securities is undertaken by people who by virtue of their work have access to the
otherwise non-public information which can be crucial for making investment
decisions.

According to SEBI, “Insider Trading is the trading of securities of a company by

an Insider using company's non-public, price sensitive information while causing
losses to the company or profit to oneself.”

 Why Control Insider Trading?

1. To Protect General Investors

Insider trading manipulates the market, causing losses to regular investors. It

benefits only the insiders while denying fair profit opportunities to others.

2. To protect the interest and reputation of the company.

Once a company faces a problem of Insider Trading, investors tend to lose

confidence in the company and stop investing in the company and also selling all
the stocks of the company.

3. To Ensure Confidence in Stock Exchange Operations

If insiders bypass regulations, it weakens trust in stock market fairness, even

with SEBI's oversight.
4. Boost Public Trust in the Financial System

A strong financial system needs public confidence. Insider trading erodes this
trust, especially in India, where domestic investment rates are already low. A
healthy economy depends on a fair and transparent market.

Significant Penalties:

• SEBI may impose a penalty of not more than Rs. 25 Crores or three times the
amount of profit made out of Insider Trading; whichever is higher.

• SEBI may initiate criminal prosecution

• The entity may be banned from raising funds from capital market.

• SEBI may issue orders prohibiting an insider or refraining an insider from

dealing in the securities of the company.

• The organization may get poor ratings from business agencies.

Q2. Difference between Ethics and Morality.

Aspect Ethics Morality

A formal system of beliefs that Personal values and beliefs

Definition
guide behavior. about right and wrong.

Logical reasoning and shared Gut instinct, culture, or

Basis
values. religious beliefs.

Subjective and culture-

Nature Objective and universal.
specific.

Deals with specific areas like

Applies to all aspects of life and
Scope politics, religion, family, and
governs groups/organizations.
individuals.

Encourages thinking before Often reflects on actions

Focus
acting. after they are done.

Tells us if our behavior or

Tells us how we should behave in
Application intentions were right or
different situations.
wrong after the fact.

Immoral actions are usually

Unethical actions often affect
Implications confined to personal or
broader contexts and groups.
specific areas.

Helps determine if behavior was Helps determine if intentions

Role
good or bad. were good or bad.

Resisting an affair because it

Resisting an affair because it’s
Example feels personally or religiously
unethical.
wrong.

Overall Guides behavior formally in Shapes individual beliefs and

Importance society. choices.
Q3. Difference between norms and values.

Aspect Norms Values

Rules or prescriptions about how Beliefs or principles that drive

Definition individuals should behave in individual actions and guide
specific social settings. behavior.

Depend on societal values and Reflect personal or collective

Basis
guide behavior accordingly. moral principles and beliefs.

Nature Specific and situation-based. General and abstract.

Represent broad ideals or

Provide specific rules for
Scope principles applicable
behavior in particular situations.
universally.

Determine, guide, and predict Inspire and motivate actions

Function behavior in certain social based on what is deemed
contexts. important or desirable.

Differ across individuals and

Differ across societies and
Flexibility societies, but often remain
cultures.
constant for individuals.

Focus on "what, how, when, and Focus on guiding the overall

Application why" actions should occur in moral compass and priorities
specific scenarios. of individuals.

Following traffic rules to ensure Valuing honesty, which

Example
social order. influences one to avoid lying.

Concrete and linked to specific Abstract and rooted in ideals

Abstractness
behaviors or actions. and beliefs.

Deeply held standards shaping

Overall Unwritten societal rules that
personal identity and moral
Importance regulate specific interactions.
conscience.
Q4. Theories of Business ethics