Corporate Governance Submitted by Dhaka University

8/6/2019 Corporate Governance Submitted by Dhaka University

1/38


2/38

OBJECTIVES

In the context of developing economics, Corporate Governance has its apparent importance

for the economic health of corporations and society in general. Under the concept of

Corporate Governance, Corporate Social Responsibility can play a vital role in the

development process and produce an overall positive impact on society. The first objective of

this paper is to highlight the role of CSR in the context of South Asian angle of vision. We

will try to give some evidences in this respect. The second objective of this paper is to show

whether the western corporate governance model size fit for all countries or not. Here we will

see some evidences on some Western countries and Asian countries. We will also try to find

out some impediments that make it divergence to the western model. Then we will present a

optimal model or ideal model which can be suitable for any country as well as South Asian

countries and try to focus on its various wings. Later on, we will try to show some case

studies concerning the South Asian region and their performance in CSR for development.


3/38

LIST OF ABBREVIATIONS

ACGA Asian Corporate Governance Association

ADB Asian Development Bank

CEO Chief Executive Officer

CG Corporate Governance

CSR Corporate Social Responsibility

GCGF Global Corporate Governance Forum

NGO Non Government Organization

OECD Organization of Economic Co-operation and Development

SAARC South Asian Association for Regional Cooperation

WB World Bank


4/38

CONTENTS

Subject Page No.

INTRODUCTION 01

PART- A:

Definition of Corporate Social Responsibility 01

The Role of CSR in South Asia 02

Arguments for CSR 04

Criticisms of CSR 05

Impediments to implement CSR in south Asia 06

The role of government in encouraging socially responsible behaviour 07

PART- B:

Definition of corporate governance 08

Elements of corporate governance 08

SECTION ONE:

Description of a western corporate governance model 09

Arguments against convergence of CG models 10

Empirical evidence of being different models in different countries 10

Points of divergence of CG models in case of South-East Asia 11

Comparative analysis on corporate governance 13

SECTION TWO:

Principles of good corporate governance 14

Five Golden Rules 15

A summary of the methodology 15

CONCLUDING NOTES 17

APPENDIX 18

REFERENCE 29


5/38

APPENDIX

Subject Page No.

Figure 1: Structural model of corporate governance 18

Figure 2: The stakeholder approach and the strategy process 19

Case study 1:Green drive by Coke at Tirupati, India 20

Case Study 2: CSR in INDIA 21

Case Study 3: Unocal reaches out to children in Moulvibazar in Bangladesh 22

Case Study 4:Levis gives away $285,000 for women & youth in India 23

Case Study 5:Bangalore IT companies is making long-term financial commitments

under their CSR programs 24 Case Study 6: CSR in Bangladesh-Some evidences 25


6/38

EXECUTIVE SUMMARY

In preparing this paper we segregate our discussion into two segments. These are:

Part A: This segment comprises the definition of corporate social responsibility

(CSR), its role in South Asian development, arguments, criticisms, evidence,

impediments to implement and social impact.

Part B: In this segment we will discuss on Corporate Governance Models. There are

two sections here. In section one we will present particular western corporate

governance model does not fit for all countries. In section two we will present an ideal

model and its characteristics and policy recommendation.

In Appendix two figures are included which represent a Western Corporate

Governance model and a ideal model which can be suitable for any country as well as

South Asian countries. We also include some case studies on Corporate Social

Responsibility (CSR) which are related in the context of South Asian development.


7/38

INTRODUCTION

At the micro-level in bringing the utmost optimization of the management process, the primal

presumption of excellence of a management in every national economy is essentially

expected. The ongoing globalization of the world economy has spread such important

elements of its structure as the internal and operational industrial management, which can

help the owners of having the assurance of the rate of return of the invested resources and

making the society better off. For the enhancement of its worldwide competitiveness, each

country and each global region has to build up such government mechanism known as

corporate governance. It is the process in which the investors are assured of getting their rate

of return from the managerial department where all are intermingled with laws andregulations. In corporate governance system there is a phrase Corporate Social

Responsibility (CSR) means performing social welfare in different stages. In eradicating

poverty, providing education, sponsoring any cultural activities, offering scholarship to

meritorious students, allotting relief to the distressed of natural calamities, CSR play a vital

role in their respective arena and over the world as well. However it is a big question whether

the western corporate governance model will suit all countries. From empirical evidence and

practical knowledge it is widely regarded that one size of model does not fit all. A western

corporate governance model can be appropriate for a particular country but does not convey

any good message for other countries. For this each country has developed her own corporate

governance model considering her own cultural and socio-economic performance.

PART A

Definition of Corporate Social Responsibility

Corporate social responsibility is tended to be defined as putting something back into the

community and was generally seen as a duty incumbent on those in a more favorable

position in society to help those less well placed than themselves. We can take CSR as :

a voluntary activity in excess of legal compliance

concerned with the social and environmental as well as economic aspects of

organizational behavior

rooted in ethical values central in shaping stakeholder relationships.

1


8/38

At an organizational level each enterprise will have a unique response to CSR according to

factors such as its resources, core competencies, management preferences and stakeholder

interests as well as the broader historical, cultural and social environment in which it exists

and operates.

The World Business Council for Sustainable Development in its publication "Making Good

Business Sense" by Lord Holme and Richard Watts, used the following definition.

"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"

The Roles of CSR in South Asia

The region of South Asia comprising Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan

and Sri Lanka is home to one-quarter of the earth's population and some of its poorest states.

All these countries have almost the similarity in their cultural and social angle of vision .

Today enlightened companies understand the need for having a comprehensive corporate

social responsibility (CSR) agenda. This has brought into focus non-financial issues such as

business ethics, community service, corporate governance and workplace issues. The four

pillars of CSR are, in our opinion, community investment, employee relations, environmental

practices and ethical conduct. The works that conducted here are as follows:

Child healthcare: This is the most essential work in the South Asian development.

Many companies playing this CSR in the South Asian region such as Biocon ,

Unilever etc.

In India these drives are conducted in over 20 surrounding villages and will cover

over 10,000 infants. In addition, over 35,000 school children from the ages of five to

15 from nearby village schools have also been vaccinated against Hepatitis B.

Primary education: In the process of enlightening the poor people many

organizations are playing CSR here. They mostly provide primary education.

Scholarship: CSR play an important role by providing scholarship to the meritorious

students and encourage them. Being a knowledge driven enterprise, Biocon, in India

offers scholarships, awards and practical assistance to the economically

2


9/38

disadvantaged. They have assisted in the construction of schools, installation of

science laboratories and libraries, buying computers and providing free computer

training for teachers in rural schools.

Environmental work: Environmental safety is also of utmost importance to us and

Biocon actively assists the Bangalore Agenda Task Force (BATF) in keeping the city

clean. They have installed eco-friendly traffic booths and bus shelters in Bangalore.

Biocon also provides water supply to the surrounding village community. Currently,

they are in the process of establishing the Biocon Foundation that will focus on

providing affordable and quality healthcare services for the under-privileged across

the country.

Health Insurance Program: CSR play an important role by providing low cost

Health Insurance Program aimed to serve the needs of rural families who are often

devastated by medical costs associated with expensive hospitalization and surgical

interventions. The pilot program envisages a network of hospitals and clinics in

Bangalore, which will cover 3,00,000, people in Anekal taluka in the first phase. The

aim is to be able to replicate this nationwide and eventually worldwide.

HIV/AIDS awareness: Many organizations are playing important role in the

vulnerable areas to aware them about AIDS. Especially the young generation and the

ignorance people in the South Asian countries.

Ensuring human rights: CSR playing a vital role in providing human rights to the

vulnerable people. In South Asian countries there are many people who are living

below poverty line income and they cannot afford their basic needs. CSR in the South

Asian countries is playing a vital role in this respect.

Sponsoring: In everycountry many corporate companies are playing a vital role by

sponsoring many sports, cultural activities, etc. In Bangladesh, Grameen Phone,

Pepsi, Coca cola, Samsung etc. are doing this type of jobs.

3


10/38

In natural calamities: In natural calamities, CSR plays an important role providing

the distressed people money, foods, shelter, and water etc. and save the life of the

people.

Beautification: CSR play this role in many countries in the South Asia . In

Bangladesh the work is still running for the coming SAARC summit.

It is essential that it is inherent responsibility to fulfill the role as educators, trainers, business

leaders and development professionals and contribute to the nations progress. There are huge

scopes of CSR in the Third World countries like ours. No goal is too big; no step is too

small.

[Note: Evidences of some CSR programs are included in Appendix as case studies.]

Arguments for CSR

There are so many arguments for CSR. These are-

i)Changed public expectations of business: Public needs have changed, leading to changed

expectations. Therefore if business wishes to remain viable in the long-run, it must receive its

charter from society and responds to societys needs and give society what its wants.

ii) Better environment for business: The creation of a better social environment benefits

both society and business. Society gains through better neighborhoods and employment

opportunities; business benefits from a better community, since the community is the source

of its work force and consumer of its products and services.

iii) Avoidance of government regulation: Social involvement discourages additional

government regulation and intervention. The result is greater freedom and more flexibility in

decision making for business.

iv) Balance of responsibility with power: Another argument for social responsibility by

business is that business has a great deal of power that, it is reasoned, should be accompanied

by an equal amount of responsibility.

v) System interdependence requires social concern: Modern society is an interdependent

system and the internal activities of the enterprise rave an impact on the external

environment.

vi) Stockholder interest: Another argument for social responsibility is that it is in the

interest of the stockholder for business to engage in certain kinds of responsible behavior.

4


11/38

vii) Problems can become profits: If businesss innovative ability can be turned to social

problems, many problems could be handle profitably according to traditional business

concepts. So items that may once have been considered waste( for example soft-drink cans)

can be profitably used again.

viii) Public image: Social involvement creates a favorable public image. Thus, a firm may

attract customers, employees and investors.

ix) Let business try: Business social responsibility should try to solve the problems that

other institutions have not been able to solve. After all, business has a history of coming up

with novel ideas.

x) Business has the resources: Business should use its talented managers and specialists as

well as its capital resources to solve some of societys problems.

xi) Socio-cultural Norms: Another argument for social responsibility is that of socio-cultural

norms. So the businessman operates under a set of cultural constraints in the same way that

another person in society does. In this manner the manager is guided to pursue profit in ways

which are socially responsible.

xii) Prevention is better than curing: It is better to prevent social problems through

business involvement than to cure them. It may be easier to help the hard-core unemployed

than to cope with social unrest.

Some of the points that have been mentioned have rigorous theoretical framework than others

and several of them overlap, but taken as a whole, they are a powerful argument for business

assumption of social responsibilities.

Criticism of CSR

There are some criticisms of CSR. These are-

i) Profit maximization: The primary task of business is to maximize profit by focusing

strictly on economic activities. Social involvement could reduce economic efficiency.

Perhaps the most powerful argument against business assumption of social responsibilities is

the classical economic doctrine of profit maximization. This doctrine was presented by Adam

Smith in 1776 and has influenced economic thinking since then.

ii) CSR is Inappropriate: Economist Milton Friedman has argued strongly for years that

social responsibility is inappropriate corporation action as no firm would sell food below cost

5


12/38

to help the poor people. The large enterprise can have money to exercise social responsibility

only if it has a monopoly position as monopoly prosecuted under the antitrust law.

iii) Business cost of social involvement: Society must pay for the social involvement of

business through higher prices. Social involvement would create excessive costs for business

which cannot commit its resources to social action.

iv)Weakened international balance of payments: Social involvement can create a

weakened international balance of payments situation. The cost of social programs, the

reasoning goes would have to be added to the price of the product. For example, American

companies selling in international markets would be at a disadvantage when competing with

companies in other countries that do not have these social costs to bear.

v) Lack of social skill: Businesspeople lack the social skills to deal with the problems of

society. Their training and experience is with economic matters and their skills may not be

pertinent to social problems.

vi) Business has enough power: Business has enough power and additional social

involvement would further increase its power and influence.

vii) Lack of accountability: There is a lack of accountability of business to society. Unless

accountability can be established, business should not get involved.

Impediments to implement CSR in south Asia

In Sept 2002, IndianNGOs.com research on CSR involved meetings with corporates who

have and who do not have CSR Programs and the research revealed some reasons why

corporates have some reservations about investing in Traditional CSR Programs. The reasons

are as follows-

i) Financial Reasons - Budget Restrictions

Many Corporates cite this as the major reason why they do not have CSR Programs .

In this category, one can also include Companies in the Manufacturing Sector / Engineering

Sector which invested in CSR earlier but do not have CSR Programs now, because of

Economic pressures.

ii) Lack of understanding that small budgets are enough

Most of the companies feel that CSR is a costly exercise and one must have huge budgetoutlays to make an impact.

6

6


13/38

Contrary to this, there is a list of smaller projects where the Companies can make bigger

impacts.

iii) Lack of understanding of non financial giving

Most of the corporates do not consider non-financial giving as an integral part of CSR.

Corporates invariably think that CSR means money out flow.

iv) Unnecessary diversion of attention

Some Young and Entrepreneur driven Corporates think CSR unnecessarily diverts the

attention of the employees.

v) Suspicion about NGOs

Corporates are not sure how their funds will be utilized by the NGOs.

Some Corporates think that NGOs want only money and not involvement. And they also

want to take credit for the entire project.

vi) Management of NGOs

Corporates at times feel that NGOs are family managed (husband/wife) organizations.

The succession planning of the NGOs is a major worry for Social Investors. So there is a

great need for NGOs to improve their Credibility and Visibility in the Corporate Sector.

The roles of government in encouraging socially responsible behaviour

When prompted, most respondents expressed the view that government could be instrumental

to some degree in encouraging socially responsible behaviour in organizations, although the

answers tended to be rather generalized and often vague.

Suggestions included:

tax relief for donations

matched government funding

schemes to educate and raise awareness of CSR issues

more information on environmental grants.

In general, the expressed preference seemed to be for government to play the role of

supporter and enabler rather than director of CSR.

7

7


14/38

PART B

Definition of Corporate Governance

In general corporate governance is the system by which business corporations are directed

and controlled. It is a field in economics that investigates how to secure efficient management

of corporations by the use of incentive mechanisms, such as contracts, organizational designs

and legislation. It try to improve financial performance by 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 as well as distribute rightsand responsibilities among them. Good corporate governance contributes to sustainable

economic development by enhancing the performance of companies and increasing their

access to outside capital. Economists view about CG-

Some commentators take too narrow a view, and say it (corporate

governance) is the fancy term for the way in which directors and auditors

handle their responsibilities towards shareholders. Others use the expression

as if it were synonymous with shareholder democracy. Corporate governance is

a topic recently conceived, as yet ill-defined, and consequently blurred at the

edgescorporate governance as a subject, as an objective, or as a regime to be

followed for the good of shareholders, employees, customers, bankers and

indeed for the reputation and standing of our nation and its economy [Maw et

al,1994, page 1].

Elements of corporate governance

Corporate Governance consists of two elements:-

1) The long-term relationship which has to deal with checks and balance, incentives for

managers and communications between management and investors.

2) The transactional relationship which involves dealing with disclosure and authority.

8


15/38

SECTION ONE

Description of a western corporate governance model

In general, western corporate governance model comprising four key factors. These are:

a) Subjects: WesternCG model is formed by shareholders, managers, government and

investors and these are included in subjects.

b) Objects: Western CG works on joint stock enterprises, dividends and intercourse with

the external environments which are referred in objects.

c) Goals: Western CG Model includes 3 types of general goals-

Increase the effectivity and profitability,

Attract investment,

Harmonize the participants to increase interest of individuals

motives.

d) Mechanism of realization: To create a realistic mechanism Western CG forms

management bodies and separates their power, makes procedures and rules, ensures

shareholders access to information, regulates information disclosure by joint stock

enterprise and regulates joint stock enterprise general meetings arrangement. Here,

regulation of the joint stock enterprise general meetings arrangement comprises-

regulation of election process into joint stock enterprise governance bodies,

regulation of mandatory commission functioning,

regulation of the meeting arrangement,

regulation of the voting procedure.

In Figure-1, It is given a structure model of the corporate governance.

[See Appendix]

Now we try to find out some evidences whether the western CG model differs according to

different countries. It is widely believed that one size does not fit all as legal systems,

business cultures and corporate structures are different even among developed nations like

9


16/38

North America and Europe. The OECD reflects this view in the preamble to its Principles of

Corporate Governance, where it states: There is no single model of good corporate

governance.1More recently, the Global Corporate Governance Forum (GCGF) formed by

the World Bank and OECD, has been debating on whether it should promote developed-

country governance standards or allow emerging markets to be scored against guidelines

crafted by them and shaped for their conditions, rather than against standards they had no role

in writing* Despite the globalization of standards in many areas of the economy, this

argument holds powerful sway.

Arguments against convergence of CG models

There are three major arguments that provide a great logic against convergence of different

countries CG models into a single model.

First, corporate governance systems are tightly coupled with countries regulatory traditions

such as banking, labor, tax and competition law which vary from country to country and are

unlikely to be modified in the near future.

Second, corporate governance systems do not exist in isolation of other institutional features

directly related to the ways in which firms compete in the global economy.

Third, global pressures on corporate governance practices are mediated by domestic politics

in ways that make convergence across countries rather unlikely.

Empirical evidence of being different models in different countries

Early students of corporate governance argued that shareholder rights and the sharp

separation of dispersed ownership from managerial control were inevitably more efficient

and modern than alternative models such as family firms, conglomerates, bank-led groups

or worker co-operatives and would become widespread (Berle and Means 1932; Kerr et al.

1964). In particular, given the dominance of American business from the end ofWorld War

II to at least the 1970s, it was expected that the American corporate governance model would

dispersed ownership, strong legal protection of shareholders and indifference to other

stakeholders, little reliance on bank finance, relative freedom to merge or acquire so that it

would be the best practice throughout the world. But American governance system which is

characterized by its shareholder-centered CG model with weak financial intermediaries and

11OECD Principles of Corporate Governance, Preamble, p 2. (www.oecd.org/daf/governance/principles.html)

*.Global Proxy Watch, Stumble, January 14, 2000.

10


17/38

well-developed capital markets is unlikely to take over the world any time soon. The rise of

Germany and Japan as formidable manufacturing powers from the 1960s to the 80s, cast

serious doubt on the superiority of the American model of corporate governance. The reasons

are-

Different corporate governance systems are associated with peculiar

managerial decision-making criteria, temporal orientations and diachronic responses

to the business cycle.

The chances that stock markets in the world are uncorrelated with each other

increase with the diversity in patterns of corporate governance.

The persistence of deep and momentous cross-national differences in CG in

the face of globalization is a puzzling phenomenon to some.

Moreover, multilateral organizations and the financial media seem to be

unable to come to terms with the diversity of the world.

However, the experts assembled by the OECD point out that such a convergence are not

towards the US approach but towards a middle ground between the shareholder and

stakeholder-centered models (Fleming, 1998). The OECD advisory group concludes that

the practical corporate governance agenda in different countries is converging in many vital

areas, although historical and cultural differences will continue to exist (1998a:87). Adding

to the confusion, other OECD studies have concluded that it is not productive to argue

whether any system of governance is inherently superior to others and that systems are

path specific. (1995:29).

Actually, CG models of different countries fit their legal, institutions, political circumstances

and make their position in the global economy. Moreover, convergence is unlikely because

any process of change, whether induced by globalization or not, takes place in a political

context.

Points of divergence of CG models in case of South-East Asia

The divergence of CG models in case of South-East Asian countries occurred on the basis of

three general concepts these are:

Stakeholders concept

11


18/38

Board structure concept

Regulatory or legal style or code concept

Stakeholders concept: Different countries practiced different principles such as-

China, Korea, Japan and Thailand- explicitly subscribe to this stakeholders

principle.

Singapore ,Malaysia recognize the social impact of corporation but do not

emphasis stakeholders within the governance context.

Singapore uses other means such as legislation to protect employees,

creditors and customers.

Malaysia-encourages boards to be responsible for relations with stakeholders.But stresses that they are accountable to the shareholders.

Board structure concept: Under this concept it is considered to have two types of

boards- single tier boards and two tier boards. Most countries have the former.

Interestingly, Korea, despite the historic influence of Japan, does not have two-tier

boards. While Thailand is alone in considering moving from single-tier to two-tier (it

sees this as a way to enhance board independence).

Regulatory or legal style or code concept: It comprises first, how big is a countries

code (in terms of volume words), Second how narrowly or broadly it is focused. Both

Hong Kong and Singapore have small codes that are limited in scope. Hong Kongs

code is about a page and a half long and is extremely general. Singapores current

code is a similar length and only focuses on audit committees. At the other end of the

scale is the new code of Korea which runs to about 40 pages and covers each aspect

of governance comprehensively.

In conclusion it can be said that Asias two international finance centers are, by nature, more

pragmatic than idealistic and more likely to implement reform in a business-friendly that is

incremental manner rather than through grand gestures. Alec Tsui,(Chief Executive of the

Stock Exchange of Hong Kong,)said that regulators must strike a balance between over- and

under-protecting investors. Alec Tsui also comments- Regulators in some developed

markets have perhaps erred in the direction of acting too much as Nanny to the market, or

of inhibiting commercial flexibility with copious rules and regulations. Our philosophy in12


19/38

Hong Kong is to adopt a practical and non-bureaucratic approach, as far as this is possible.

Above all, we seek to apply the spirit of the rules, rather than mechanistically following their

letter.2 Certainly, no one could accuse the Hong Kong government of being overly

aggressive in promoting corporate governance reform (although certain sections of

government, such as the Securities and Futures Commission, the market regulator, display a

much greater sense of urgency than other sections).

Comparative analysis on corporate governance

The literature on globalization and corporate governance contains important disagreements.

There are fundamental legal, institutional and political reasons why a convergence in

corporate governance modelsespecially on the Anglo-Saxon patternis not likely.

Scholars have found very little evidence suggesting convergence. The three arguments

against convergence in corporate governancelegal, institutional, politicalprovide enough

ammunition to cast serious doubt on the idea that there is a best practice in corporate

governance. Our conclusion is that corporate governance systems are unlikely to converge

across countries as a result of globalization. Globalization, however, has made inroads over

the last half century, suggesting that it encourages countries and firms to be different, to look

for a distinctive way to make a dent in international competition rather than to converge on a

best model. Again a model is basically based on ethics which preserve the job of corporate

social responsibility(CSR).The practice of bribery and corruption in society is inimical

towards a healthy economy, and lack of ethical behavior in a company is inimical to trust. In

the western model it is assumed that laws and regulation will remain alright. Although there

are two kinds of preferences shareholders approach , stakeholders approach and the political

influence are the impediments of implementing the model.

22. Alec Tsui, Corporate GovernanceProtecting Investor Interests, Business Week Roundtable, Hong Kong, October 30,

1999.

13


20/38

SECTION TWO

Principles of good corporate governance

This is a model which is suitable for any country as well as South Asian countries. All the

goodies to a great degree, abided by this rules .All the baddies to a large extent ignored

them. The principles underlying the rules are:

Ethical approach culture , society ,organizational paradigm

Balanced objectives- congruence of goal of all interested parties

Each party plays his part-roles of key players: owners /directors /staff

A decision making process in placed based on a model reflecting the above giving due

weight to all stakeholders

Stakeholders treated with equal concern- albeit some have greater weight than others

Accountability and transparency to all stakeholders

Hence, with due respect to Milton Friedman who is quoted as believing that the social

responsibility of business begins and ends with increasing profit we contend that running

the business successfully is not simply about market domination or shareholder value. And

good corporate governance is not simply about a battle between distant, disloyal institutional

shareholders and greedy directors but about the ethos of the organization and fulfilling its

clearly agreed goals. These goals may be set by the entrepreneur who starts the business but

they are accepted by all parties as being high-minded and in everyones interests. There has

to be a process of identifying different needs and as much as possible harmonizing them. This

is the starting point for the smooth running of the business. Once dissonance in the common

goal creeps in, the danger of the standard of corporate governance deteriorating rises steadily.

Clearly external regulation can only play a limited part in ensuring threat such a deep-seated

and beneficial culture exists.

It takes the view that there is an over-riding moral dimension to running a business and that

the standard of governance will depend on the moral complexion of the operation. Hence the

approach developed is based on the belief that:

14


21/38

the business morality or ethic must permeate the entire operation from top to

bottom and embrace all stakeholders.

good corporate governance is an integral part of good management practice,

permeating the entire operation and not an esoteric specialism addressed bylawyers, auditors and sociologists.

Five Golden Rules:

For good corporate governance five golden rules are vital. These are:

1. Ethics: a clearly ethical basis to the business.

2. Congruence of goals: appropriate goals, arrived at through the creation of a

suitable stakeholder decision-making model.

3. Strategic management: an effective strategy process which incorporates

stakeholder value.

4. Organization: an organization suitably structured to effect good corporate

governance.

5. Reporting: reporting systems structured to provide transparency and

accountability.

A summary of the methodology

1. Using the internal, external and stakeholder analyses, we can find out a balanced view of:

Ethics: What the board thinks of the companys ethical behaviors may not be the

same as what other stakeholders think- the differences may simply be due to lack

of communication but need to be reconciled. General views on ethics-what and

how important the issues are such as:

Consideration and protection of the environment

Fair trading, especially with poor countries

Defending human rights, for example non-exploitation of workers in poor

countries

Not investing in countries with unacceptable regimes

Supporting local communities

Fair treatment of staff


22/38

Goals: The crucial part of the process- if the companys agreed goal is found to

be significantly different from what stakeholders want, the goal will have to be

adapted or changed completely.

Organization: The company has an organization capable of delivering goodcorporate governance- from the stakeholders point of view. This means ensuring

accountability through direct contact with all stakeholders which may be unclear or

even unknown. There are two key elements to be considered when designing the

appropriate organization,- shape and style.

Shape: There are five basic types of organization structure:

Simple

Functional

Multi-divisional

Holding company

Matrix

Style: There are three basic styles of management:

Strategic planning

Financial control

Strategic control

Reporting: Here we can find out how much the stakeholders know about the

business which can be compared with that they should know or what the board think

they know.

2. We can then feed the information gather back into the strategy model and use it to makeany changes necessary to:

the ethical stance or the resources made available to improve the companys image.

the goal- the general direction in which the company is moving.

the organization- this process automatically opens up communication channels if they

were lacking before but these will need to be rationalized; it will also have opened our

eyes to any structural or operational inefficiencies, etc which are affecting our

stakeholders.

15


23/38

reporting systems- having opened up these channels, it is then possible to monitor

progress and ensure stakeholders are getting all the information they need and this

function, too, will have to be rationalized.

3. When a strategy has been selected and implemented, the steps taken above will mean we

can evaluate progress of the strategy and the effect it is having on stakeholder attitudes to the

concepts addressed by the Golden Rules- particularly usefully, ethics and the goal.

As Figure 2[see appendix] shows we will need to monitor all four elements- including the

organization an the reporting systems themselves- to ensure continuing high standards and

that we are receiving accurate, timely information to feed back into the model.

CONCLUDING NOTES

In conclusion it can be said that CSR play a vital role in the development of South Asian

countries. Nor will Asian countries move towards as single Asian model of governance,

given the diversity that existing current governance system, the variations in regulatory

philosophy, and differing political systems. The convergence of the policy level in Asiancountries towards the Anglo-American CG model cannot but have a profound impact on

Asian business.

16


24/38

17


25/38

Appendix

18


26/38

Corporate social responsibility- Structure does it protect the interests Does the company behave responsibly of the various stakeholders and have

towards all its stakeholders? open channels of communication all of them?

The stakeholder approach is part of the wholestrategy process, taking all stakeholders into

account.

Congruence of goals- Information is there

Does the companys goal reflect the information being passedExpectations of all the stakeholders? through this channels which is

Sufficient and accurate

Enough to satisfy all theStakeholders?

Figure 2: The shareholder approach and the strategy process

Goal Reporting

Ethics

Organisa

-tion

Strategy process

Using:

-internalanalysis-externalanalysis-stakeholderanalysis

19


27/38

Case study 1 :Green drive by Coke at Tirupati, India.

TIRUPATI, NOV 02,2004, Coca-Cola, the aerated drinks major, has embarked on a

major project to make Tirupati a greener and better place to live in. As part of the Andhra

Pradesh State Formation Day celebrations, it has launched an afforestation program at

Annamayya road in the temple town. One hundred employees of Coca-Cola India's Sri

Kalahasti bottling plant took part in the tree plantation drive, taken up in association with

the State Forest Department, the Municipal Social Forestry wing and a private school, Sri

Chaitanya Children's Academy. The Tirupati MLA, M. Venkataramana, inaugurated the

event and planted a sapling. ``We at Coca-Cola have always integrated our business

operations with environment-friendly practices, policies and this (tree plantation drive) is

yet another step to help improve the local environment," a company spokesperson said.

Three hundred saplings of Neem and Amla were planted.

[Source: India's National NewspaperTuesday, Nov 02, 2004]

20


28/38


29/38

Case study 2 : CSR in INDIA

The need for companies to develop a social responsibility. "Every company has

a special continuing responsibility towards the people of the areas in which it is

located. The company should spare its engineers, doctors, managers to advise

the people of the villages and supervise new developments by co-operative

efforts between them and the company," said J.R.D. Tata. "The service of India

means the service of the millions who suffer. It means the ending of poverty and

ignorance and disease and equality of opportunity," saidJawaharlal Nehru

.

This is substantiated by case studies of what companies are already doing

towards being socially responsible.

[Source:The Business of Social Responsibility: The Why, What and How of Corporate

Social Responsibility in India; 2000 by Harsh Srivastava and Shankar Venkateswaran,

Books for Change, India]

Among 600 companies in India who are doing as responsible corporate citizens

-85% agreed that companies need to be socially responsible.

-Only 11% of the companies had a written policy.

-Over 60% of the companies were making monetary donations. Health,

Education and Infrastructure were the most supported issues.

[Source: Report on Survey on Corporate Involvement in Social Development in India

by Partners in Change, July 2000; Partners in Change, India.]

21


30/38

Case study 3: Unocal reaches out to children in Moulvibazar in Bangladesh.

The school administration of Gopendraganj Primary School of Bhunobir union Moulvibazar

gave a warm reception to Unocal to show their appreciation for providing their students with

uniforms recently, says a Press release. From Unocal Andrew L. Fawthrop, President and

Managing Director, Unocal Bangladesh, Gregory Huger, Director Corporate Responsibility,

Unocal Foundation, Timothy McLaughin, Naser Ahmed, Nurul Huda, Ashraf Choudhury were

present. Unocal has distributed a total of 3301 uniforms in 12 primary schools in the

Moulvibazar District. The schools are along the pipeline route of Unocal's Moulvibazar Natural

Gas Project. Natural gas will be processed at Kalapur union and transported through this

pipeline to Petrobangla's North South Pipeline at Musai near Rashidpur.

Unocal's Moulvibazar Plant site is located at Kalapur Union of Srimangal Thana in the

Moulvibazar District. Commercial production is expected to begin from the Moulvibazar Field

by the first quarter of 2005. An agreement with Petrobangla has been signed recently in this

regard. Development of this field will help meet Bangladesh's immediate needs for natural gas

supplies.

[Source: News From Bangladesh-Daily News Monitoring Service, October 15,2004.]

22


31/38

Case study 4: Levis gives away $285,000 for women & youth in India.

The Levi Strauss Foundation and Levi Strauss & Co. have awarded US$285,000 to three

organisations in India to help women and youth through economic development, educationand HIV/AIDS prevention programs.

A grant of US$150,000 goes to Parikrma over two years to target the poorest of the poorchildren and their families living in the urban slums of Bangalore. It will provide 230students with high quality, values-based education; nutrition in the form of a well-balanceddiet and supplements; and healthcare through immunisations and regular check-ups at theParikrma Centre for Learning at Sahakaranagar. In partnership with other local non-governmental organizations, it will also offer integrated community development programssuch as HIV/AIDS awareness and prevention, vocational training for older siblings of thestudents; detoxification to address alcoholism among fathers of children; and micro-financing and loans to families for asset-building.The second organization, SANGRAM, will receive $100,000 over two years for acampaign to combat stigma and discrimination and the spread of HIV/AIDS among ruralwomen in 713 villages in Sangli, Maharashtra, through village-level communityinterventions.

DISC will receive $35,000 to educate 6,000 female garment workers in Bangalore and themanagement of these factories about basic labour laws and employment rights coveringminimum wages, overtime payment, leave entitlement and other statutory benefits; workingconditions; and reproductive health and HIV/AIDS. It will also educate employees abouttheir role as responsible workers and factory management about their responsibilities asemployees. It will hold in-factory training for all levels of employees, facilitate theestablishment of regular employer-employee dialogue, staff welfare committees, andremediation committees for grievance handling.

LSF and LS&CO. have a strict non-discrimination policy that will not supportorganizations which discriminate against a person or group on the basis of age, politicalaffiliation, race, national origin, ethnicity, gender, disability, sexual orientation or religious

belief. LSF and LS&CO. focus on alleviating poverty for youth (aged 7-25) and womenthrough three inter-related areas:

Preventing the spread of HIV/AIDS through education and Awareness related programs, especially where social bias towards HIV/AIDS remainsstrong Increasing economic development opportunities by supporting Workforce development, micro-enterprise programs and asset-building initiatives, and Ensuring access to an education where none is provided or access is limited.

23


32/38

Case study 5: Bangalore IT companies are making long-term financial commitmentsunder their CSR programs.

Aditi Technologies has committed a minimum of Rs 40,000 per month to fund its CSR

activities. The actual investment is much more, says its vice-president, Ajay Bij. The

employees pool in whatever they can and the company contributes the same amount to

make it double. The companys CSR wing is christened Aanchal and 80% of employees,

along with founder and CEO Pradeep Singh and visiting board members from the US,

support education for the underprivileged children through the wing.

Aanchal volunteers interact with children on a regular basis and also fund the rehabilitation

equipment needed by the school. Aditi also provides special classes for the 9th and 10th

standard students in the girls school to prepare them for the board exams. Aditi also makes a

commitment to support the higher education of those who score well, while employees try

to inspire the students through interactions. We also bring some girls to the office

occasionally and show them how the real world works. Somewhere this helps us to inspire

them to do well.

Wipro Technologies CSR is focused towards improving the Indian education system

because the company believes that the current system of education in India needs

rejuvenation. Another employee supported initiative is Wipro Care, meant for education of

underprivileged students. Our volunteers are also working with slum inhabitants in

Hyderabad to start a tie-and-dye unit on their own. We continue to work on various projects

in other Wipro locations such as Chennai, Pune and New Delhi also, Mr Gupta says.

Another company Honeywell Technology Solutions Lab (HTSL) has formed a community

service team which manages the companys CSR. Through the community service team,

we imbibe the values and the spirit of giving, from our parent Honeywell. This coupled with

the Indian value of living together as one has formed the essence of our CSR initiative,

says managing director Krishna Mikkileni.

HTSL helps underprivileged individuals to become self reliant and independent with its

start a life program. It sponsors autorickshaws, photocopying machines and the like for

individuals to help them make out a living from it.

[Source: Reema Jose (2004), Indian Express Newspaper, Bombay, November 28.]

24


33/38

Case study 6 : CSR in Bangladesh some evidence.**

Many companies, especially local businesses and MNCs operating in Bangladesh, are placing

greater emphasis on the role that they can play as responsible corporate citizens. They areadopting a social, ethical and environmentally responsible approach in their business activity.

For instance, since the Magurchara debacle, the MNCs in the energy sector have become

even more conscious of this role. By recognizing their wider responsibilities, the prospector

companies now accept that they are accountable to a wide range of stakeholders outside the

shareholders, including business partners, employees, customers, suppliers and community

groups. Few examples of CSR investments in Bangladesh are as follows:

1. British American Tobacco Bangladesh (BATB): As tobacco products pose risks to

health, BATB is aware of the significance of CSR. BATB is the pioneer corporate house in

Bangladesh to initiate Social Reporting process in April 2002 through formal dialogue with

its external stakeholders to understand their views and concerns on issues involving the

tobacco industry in general, and the Company in particular. It is the first company in

Bangladesh to prepare a Social Report in September 2003, that complies with their rigorous

global benchmarks of the AA 1000 standards and the United Nations Foundations sponsored

Global Reporting Initiative (GRI) guidelines. They have opted to work with both, and more

importantly, have sought an independent verification on the integrity of their Social

Reporting process from Bureau Veritas Quality International (BVQI). BATB has also

established a formal CSR committee within the company. Eight facilitated dialogue sessions

were held in two stages in three places, including Dhaka, the national capital. Issues raised by

the stakeholders were grouped into ten main categories: (i) consumer information, (ii) public

smoking, (iii) lower risk products, (iv) Youth Smoking Prevention, (v) responsible marketing,

(vi) Tobacco Regulation, (vii) tobacco taxation and cigarette pricing, (viii) environmental

management, (ix) corporate citizenship, and (x) corporate governance.

During the Dialogue sessions the stakeholders expressed that they were aware of the

contributions being made by BATB to the government in excise revenue. Their suggestion

was for diversification of business and to create more job opportunities.

GlaxoSmithKline (GSK): GSK is one of the worlds leading pharmaceutical companies. Its

global quest is to improve the quality of human life by enabling people to do more, feel better

25


34/38

and live longer. In Bangladesh GSK is continuing its support to a hospital ward and play-

corner for children afflicted with leukemia in Chittagong Medical College Hospital. The

project is managed by Children Leukemia Assistance & Support Services (CLASS). The also

has awareness program for common people about Hepatitis B and other preventable diseases

in association with different social welfare organizations such as Sandhani, Rotary, Lions,

and Badhon.

Lafarge Surma Cement Ltd: In Bangladesh Lafarge Cement expects to complete the

construction and erection of its cement plant by 2005. A massive landfill and site

development work have already been completed on the 90 acre plant site. At the same time,

Lafarge is implementing a comprehensive action plan to support the people and local

communities, who were impacted by this project. Under a Resettlement Action Plan of the

company, the affected people received better than normal financial deals. The families are

resettled in a new village, in new houses with basic amenities. The villagers are owners of the

houses and a piece of land. There is a Community Development Centre which provides

medical care, training programs on income generating activities such as cattle breeding,

weaving and basic education to the villagers especially, women and children.

Nestle: As Nestle has grown from humble beginnings into a corporate giant, it has attempted

to take the fundamental cultural values of environmental preservation and cleanliness to

every country where it operates. In Bangladesh, apart from donating money to various

orphanages, Nestle also held a dengue prevention march. This seems to be the perfect way of

creating awareness among the people about dengue prevention measures. People tend to

regard it as more than a dairy marketing company. Nestle organized a day-long Nido Fair in

Bogra last year. It may have been launching a commercial campaign, but imparting

nutritional facts about baby-food to the masses is certainly an important social responsibility.

Sheltech (Pvt) Ltd: This leading real estate developer views business not only as a tool for

generating profit, but also to explore new avenues and launch new products. It is committed

to provide better service to its clients. Sheltech is involved with the development of the

countrys games and sports. It particularly supports Badminton and Tennis. Sheltech Award,

introduced in 1978, is the most talked-about one in the country. This is an award for the

leading writers, singers and cultural personalities. In their real estate development projects,

Sheltech takes care of the surrounding environment.


35/38

Shell: Shell focuses on delivering products that are safe for the people and the environment.

In Bangladesh, the Shell Bangladesh Exploration and Development B.V. is also dedicated to

the fundamentals of health, safety and environment (HSE) related principles, foremost of

which is to pursue the goal of no-harm to people by way of protecting the environment. Shell

also works with the World Conservation Union (IUCN) to encourage and assist societies to

conserve the integrity and diversity of nature and ensure natural resources that are used in a

fair and ecologically sustainable way. Shell is the first energy company to establish a

biodiversity standard. It commits all Shell companies to respect protected areas, maintain

ecosystems and contribute to conservation. It has shown it can meet this standard in projects

from Gabon in Africa to the Stanlow refinery in the UK.

Unocal Bangladesh: Approximately, 420 people work for Unocal Bangladesh, of which

98% are Bangladeshis. Corporate responsibility is fundamental to Unocals core values. In

Bangladesh, Unocal has been active in community service for several years, investing more

than one million dollar in a wide variety of activities and programs primarily focused on

education, healthcare and social welfare in the Greater Sylhet areas where its gas fields are

located. In 2002, Unocal entered into long term alliances with several leading humanitarian

organizations that are dedicated to the principles articulated in Unocals vision to improve

the lives of people wherever we work. These organizations include Habitat for Humanity,

The Nature Conservancy, The international Youth Fund, and the International Institute for the

Rights of the Child. Through these and other alliances, Unocal expects to improve the

effectiveness of its corporate responsibility undertakings and help empower local

communities in Bangladesh as well as the South East Asian countries of Indonesia, Thailand,

and Myanmar.

Standard Chartered Grindlays Bank: Standard Chartereds CSR activities are of two

types. One type includes community development in the areas of health, education and youth.

Standard Chartered encourages its employees to take ownership of such projects and get

involved in these activities. In Bangladesh, it has a number of community activities amongst

which is its involvement in Islamia Eye Hospital at a significant level. Through the sight

savers scheme, SCB is rendering ophthalmologic services to the lower income group and

poor people to have eye treatment and surgery at highly subsidized rates.

26


36/38

27


37/38

Berger Paints: Berger has partnership programs with few NGOs helping to rehabilitate

disabled peoples through different income generating activities.

Grameen Phone: Grameen Phone is trying to promote information technology as integral

part for poverty alleviation agenda. It provides mobile phones to the target population of the

poor, particularly in the rural area at a 50% discount in price.

Singer Bangladesh: Singer Bangladesh is helping young women of low income group to

learn sewing and earn the Singer Diploma, which is helping to manage their own living.

Some of them take up self- employment while others join garment industries.

Reckit Benkizer: They are contributing to healthy living through preventive health care all

around the world. Bangladesh regional office is aware of the concept and this aspect of

corporate behaviour. There is no particular policy make-up given to them.

As we see, MNCs are trendsetters of business-social partnership in Bangladesh. In a country

like Bangladesh where social institutions are still evolving, the corporate entities have to

show more commitment. Except for the few MNCs, the corporate sector in Bangladesh is

lagging far behind in this respect. Businesses can also be of immense assistance in combating

the national problem of youth unemployment, a problem that spirals into poverty, social

alienation, criminal behavior and wasted potential. By encouraging an entrepreneurial culture

among young people, businesses, often in partnership with specialized youth enterprise

organizations, eg. Micro Industries Development and Assistance Services (MIDAS) can give

young people the opportunity to gain life skills, self-esteem and employability.

** This case study is taken from internet edition of HOLIDAY , editorial , Friday

October 31 ,2003 prepared by Parveen Mahmud.

28


38/38

REFERENCES

1. Kendall, N , Kendall, A (1998): Real World Corporate Governance a programmefor profit- enhancing stewardship.(Person Professional limited, Great Britain.)

2. Aguilera, Ruth V. (1998). Elites, Corporations and the Wealth of Nations: HistoricalInstitutional Patterns in Italy and Spain. PhD Dissertation, Department of Sociology,Harvard University.

3. Fleming, Rowland W. (1998). Worldwide Changes in Corporate Governance. TheCorporate Board (November-December):1-4.

4. Naisbitt, John, and Patricia Aburdene. (1990). Megatrends (2000). New York:

Morrow. OECD. (1995). Financial Markets and Corporate Governance. FinancialMarket Trends 62:13-35.

5. OECD(1998)a. Corporate Governance: Improving Competitiveness and Access toCapital in Global Markets. Paris: Organization of Economic Cooperation andDevelopment.

6. Useem, Michael. (1996). Investor Capitalism: How Money Managers are Changingthe Face of Corporate America. New York: Basic Books.

7. Allen, J.(2000). Article for Corporate Governance International. ACGA, January2000.

8. Frederick,W,C , Devis, K, and James, E.(1998). Business and Society. McGraw-Hill, New York, 6th ed. Chap.2.

9. Tusi,A (1999). Corporate Governance-Protecting Investor Interests, Business weekRoundtable, October 30, Hongkong.

10. Lu, J, Batten ,J.(2001). The Implementation of OECD Corporate GovernancePrinciples in Post-Crisis Asia. JCC 4,Winter 2001, Greenleaf Publishing 49-53.

11. Guillen, M,F, (1999). Corporate Governance and Globalization: Arguments andEvidence Against Convergence. Reginald H. Jones Center.

12. Article for World Bank Group Private Sector Development Strategy ImplementationProgress Report June 20,2003.

13. Worthington , I, Jones,T, and Ram,M (2003). Giving Something Back: Social

Responsibility and South Asian Business in the United Kingdom- An Exploratory

Study, Center for Social Markets.

Documents

Corporate Governance Submitted by Dhaka University