04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
1
CG & CSR ( Over all Concepts)
M.R.VanithamaniAsst . Professor
School of ManagementVLBJCET
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
2
Some Definitions
• “Corporate Governance is the system by which companies are directed and controlled…”
– Cadbury Report (UK), 1992
• “…to do with Power and Accountability: who exercises power, on behalf of whom, how the exercise of power is controlled.”
• Sir Adrian Cadbury.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
3
An OECD Definition
• “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders ..also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.”
– Preamble to the OECD Principles of Corporate Governance, 2004
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
4
What is Corporate Governance?
• The Manner in which a Corporation is Run– Achieving its Objectives– Transparency of its Operations– Accountability & Reporting– Good Corporate Citizenship
• The Processes & Operating Relationships that Best Achieve Organisational Goals
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
5
CORPORATE GOVERNANCE
WHAT IS CORPORATE GOVERNANCE – Processes And Structure By Which Business And Affairs Of Corporate Sector Is Directed And Managed
OBJECTIVE OF CORPORATE GOVERNANCE a) To build up an environment of trust and confidence amongst those having competing and conflicting interest
B) To enhance shareholders’ value and protect the interest of other stakeholders by enhancing the corporate performance and accountability
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
6
Some Governance Models
• Finance or the Principal-Agent Model– Markets for Capital, Managerial Talent and
Corporate Control, Key determinant– In general, profit-maximisation goal is co-
functional with social-welfare-maximisation– Shareholders as Residual Claimants have
superior control rights
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
7
Exclusive Accountability toShareholders
• Risk-bearing Entrepreneurs
• Residual Claimants
• Winding-up Ranking: Last in Pecking Order
• Boards Appointed by Shareholders
• Non-congruence of Stakeholder Interests
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
8
The Stakeholder Case
• Firm Objective must be defined more widely than just shareholder-value-maximisation, since risk capital is not the only, or even the major input
• Residual Claimant Rights Not Universally Valid, eg, Circumscribed in case of pre-bankruptcy (US Chapter XI) Situations
• Other Such: Employees with Firm-specific Specialised Skills, Customers/Vendors with Substantial Stake in the Business, etc
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
9
The Corporate Board
• Central to Corporate Governance– Juxtaposed between Shareholders on the one
hand, and on the other, Managers of the Entity (Cadbury)
– Follows Distancing between Ownership and Control (Berle and Means)
– Trustee for All Shareholders– Loyalty & Commitment – Always to Company
M.R.Vanithamani, Assistant Professor, School of Management, VLBJCET
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
10
Board Role & Responsibility
• Provide/ Exercise
– Leadership and Strategic Guidance
– Objective Judgement Independent of Management
– Control over the Company
• Direct and Control the Management of the Company
• Be Accountable at all times to All Shareholders
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
11
Dimensions of Board Responsibility
• Direction involves– Formulation & Review of Company Policies,
Strategies, Budgets and Plans, Risk Management Policies, Top Level HR Policies, etc
– Setting Objectives & Monitoring Performance– Oversight of Acquisitions, Divestitures,
Projects, Financial and Legal Compliance, etc
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
12
Dimensions of Board Responsibility
• Control Involves– Prescribing Codes of Conduct, – Overseeing Disclosure & Communication
Processes,– Ensuring Control Systems to Protect Company
Assets– Reviewing Performance & Realigning Action
Initiatives to Achieve Company Objectives
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
13
Dimensions of Board Responsibility
• Accountability Involves– Creating, Protecting and Enhancing Company
Wealth and Resources– Timely and Transparent Reporting– Good Corporate Citizenry including Discharge
of Stakeholder Obligations and Societal Responsibilities without Compromising the Shareholder Wealth Maximisation Goal
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
14
Corporate Governance & Capital Market Drivers: A Conceptual Framework
Listed Corporations(The Board & the Executive)
Regulators Government Stock Exchanges (SEBI/RBI) Legislation Listing Agreements
Market Operators Institutional Investors Press/Media (Rewards) (Pension Funds/Insce Cos) (Opinion Makers)
Lenders(Banks/
Depositors)
Shareholders/Stakeholders
REGULATION & LEGISLATION
Market Operations, Critique & Monitoring
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
15
Environmen
t Social
Economic
An Enterprise’s Triple Effect on Society
BusinessImpact
Sustainable Development Equal Opportunities
Waste Control Education & Culture
Emissions Community Regeneration
Energy Use Human Rights
Product EmployeeLife-cycle Volunteers
Product Wealth Productive Ethical Value Generation Employment Trading
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
16
The Triple-Bottomline Impact
Business Impact
environment society
economics
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
17
Governance Orientation Matrix
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
18
Governance Orientation & Sustainable Profits
A G E N C Y
STEWARDSHIP
SUSTAINABLE PROFIT LINE
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
19
Attributes & Responsibilities of Boards &Directors
• Assume Responsibility for Effective & Efficient Management, through Oversight Mechanisms
• Integrity is Indivisible; Role Model Director is the Most Persuasive Statement of Ethical values
• Consider Transparency as the Norm. Confidentiality should not lead to Opacity
• Ultimate Responsibility for True and Fair Presentation Rests with the Board
• Poor Leadership Infects
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
20
RECENT DEVELOPMENTS
Committee headed by Shri Naresh Chandra constituted in august 2002 to
examine corporate audit, role of auditors, relationship of company &
auditor
Recommendation of Naresh Chandra committee:
Recommended a list of disqualifications for audit assignments like direct
relationship with company, any business relationship with client, personal
relationship with director
Audit firms not to provide services such as accounting, internal audit assignments
etc. To audit clients
Auditor to disclose contingent liabilities & highlight Significant accounting
policies.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
21
RECENT DEVELOPMENTS
Recommendation of Naresh Chandra committee:
Audit committee to be first point of reference for appointment of auditors
CEO & CFO of listed company to certify on fairness, correctness of annual
audited accounts
Redefinition of independent directors – does not have any material,
pecuniary relationship or transaction with the company
Composition of board of directors
Statutory limit on the sitting fee to non-executive directors to be reviewed
Recommendations have formed part of companies (amendment) bill, 2003
(yet to be passed)
M.R.Vanithamani, Assistant Professor, School of Management, VLBJCET
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
22
RECENT DEVELOPMENTS
Sebi constituted a committee headed by shri N. R. Narayana Murthy to review existing code of corporate governance
Recommendations: Strengthening the responsibilities of audit committee
Improving quality of financial disclosures
Utilization of proceeds from IPO
To assess & disclose business risks
Formal code of conduct for board
Whistle blower policy to be placed in a company providing freedom to approach the
audit committee
Subsidiaries to be reviewed by audit committee of holding company
M.R.Vanithamani, Assistant Professor, School of Management, VLBJCET
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
23
CG Systems / Models
1. Anglo – American Model (or) Unitary Board Model (or) Anglo- Saxon Approach
2. German Model (or) Toe-tier Board Model (or) Continental European Approach
3. Japanese model (or) Business Network Model
4. Indian Model
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
24
Anglo – American Model (or) Unitary Board Model
Shareholders BOD Shareholders
Officers/ Managers
Shareholders
CompanyCreditors
Elect
Lies on
Manage
Appoints & Supervises
Stake in
Monitors & Regulates
Own
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
25
Anglo – American Model (or) Unitary Board Model
• Ownership is equally divided between individual & institutional stakeholders.
• Directors are rarely independent of management• Companies are run by professional managers who
have negligible ownership stakes.• Investors are reluctant activists• Discourages large investors from taking active
role in CG.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
26
German Model (or) Toe-tier Board Model
Employees &Labour Unions
Supervisory Board
Shareholders
Management Board(Including Labour Relation Officer)
Company
Manage
Appoints & Supervises
Own
Appoints 50%CAppoints 50%C
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
27
German Model (or) Toe-tier Board Model
1. CG is exercised through 2 boards
2. The upper board supervises the executive board on behalf of the stakeholders.
3. Societal –oriented approach
4. Ensures employees & Labourers also enjoy a share in governance.
5. Supervisory board appoints & monitors management board.
6. MB independently conducts day to day operations.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
28
Japanese model (or) Business Network Model
Supervisory Board
President
Executive Management
Company
Appoint
Manage
Consults
Owns
Provides Loans
Own
Shareholders
Ratifies the President’s Decision
Main Bank
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
29
Japanese model (or) Business Network Model
• Boards tends to be large• Power is based on the relationship between
the top management and the network• Lending banks are given a role in CG• The main bankers & shareholders together
appoints BODs• President consults supervisory board &
excutive management.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
30
Indian Model of CG
Internal Environment
External Environment
Internal Environment
Govt Regulations, Policies
Companies Act, SEBI, Stock Exchange
Corporate Culture, structure, influences
Depositors, borrowers, customers & stakeholders
CG System
Vision, mission, policies
SH Auditors BOD
CG outcomes / Benefits to the societyProper Governance
Investor ProtectionHealthy corporate sector development
Shareholders Value
Concern for customers
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
31
Indian Model of CG
• Governed by Company’s Act-1956
• Follows more or less the UK model
• Private companies are dominated by the founder & his family members.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
32
Theories of Corporate Governance
Corporate governance
Agency Theory
Transaction Cost Economics
Stakeholder Theory
Stewardship Theory
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
33
Agency theory
• Identifies relationship between Principal & Agent
• Principal delegates work to agents
• Owners are the Principal & Directors are the Agents
• BOD should act as monitoring device by ensuring that the problems arise out of P-A relationship are minimised.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
34
Transaction Cost Economics
• Views the firm as governance structure.
• Choice of appropriate governance structure aligns the interest of directors & Shareholders.
• There are certain economic benefits to the firm itself to undertake transactions internally rather than externally.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
35
CG Systems / Models
1. Anglo – American Model (or) Unitary Board Model (or) Anglo- Saxon Approach
2. German Model (or) Toe-tier Board Model (or) Continental European Approach
3. Japanese model (or) Business Network Model
4. Indian Model
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
36
Anglo – American Model (or) Unitary Board Model
Shareholders BOD Shareholders
Officers/ Managers
Shareholders
CompanyCreditors
Elect
Lies on
Manage
Appoints & Supervises
Stake in
Monitors & Regulates
Own
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
37
Anglo – American Model (or) Unitary Board Model
• Ownership is equally divided between individual & institutional stakeholders.
• Directors are rarely independent of management• Companies are run by professional managers who
have negligible ownership stakes.• Investors are reluctant activists• Discourages large investors from taking active
role in CG.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
38
German Model (or) Toe-tier Board Model
Employees &Labour Unions
Supervisory Board
Shareholders
Management Board(Including Labour Relation Officer)
Company
Manage
Appoints & Supervises
Own
Appoints 50%CAppoints 50%C
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
39
German Model (or) Toe-tier Board Model
1. CG is exercised through 2 boards
2. The upper board supervises the executive board on behalf of the stakeholders.
3. Societal –oriented approach
4. Ensures employees & Labourers also enjoy a share in governance.
5. Supervisory board appoints & monitors management board.
6. MB independently conducts day to day operations.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
40
Japanese model (or) Business Network Model
Supervisory Board
President
Executive Management
Company
Appoint
Manage
Consults
Owns
Provides Loans
Own
Shareholders
Ratifies the President’s Decision
Main Bank
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
41
Japanese model (or) Business Network Model
• Boards tends to be large• Power is based on the relationship between
the top management and the network• Lending banks are given a role in CG• The main bankers & shareholders together
appoints BODs• President consults supervisory board &
excutive management.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
42
Indian Model of CG
Internal Environment
External Environment
Internal Environment
Govt Regulations, Policies
Companies Act, SEBI, Stock Exchange
Corporate Culture, structure, influences
Depositors, borrowers, customers & stakeholders
CG System
Vision, mission, policies
SH Auditors BOD
CG outcomes / Benefits to the societyProper Governance
Investor ProtectionHealthy corporate sector development
Shareholders Value
Concern for customers
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
43
Indian Model of CG
• Governed by Company’s Act-1956
• Follows more or less the UK model
• Private companies are dominated by the founder & his family members.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
44
Sir Adrian Cadbury’s Definition 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.”
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
45
HISTORY OF CORPORATE GOVERNANCE
• Ever since the concept of corporate entity was recognized, corporate governance in various in various manifestations has been in existence.
• Efforts to articulate standards for corporate governance took roots in countries like the US and the UK. As a fall out of 1997 economic and financial crisis, Asian countries too became keenly interested in the issue of corporate governance. The OECD countries took early initiatives to address governance issues.
• Despite various attempts to define corporate governance and, its elements, and suggesting a model of good corporate governance, no universally accepts model of good corporate governance exists.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
46
HISTORY OF INDIAN CORPORATE GOVERNANCE
• Recommendations of the Kumar Mangalam Birla Committee Constituted by SEBI and the Naresh Chandra Committee, led to addition and updating of clause 49 in the listing agreement. Compliance of provisions of clause 49 is largely mandatory by listed companies though it has some non – mandatory provisions also.
• SEBI has undertaken a project for rating the good corporate governance practices of listed companies. There has been little progress in this direction.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
47
Value Value creationcreation
Principles of Governance
• Four board ideals, which should be the guiding force of company’s philosophy on corporate governance.
• Purpose of setting out philosophy on corporate governance is to reflect Board’s commitment to adoption of good governance practice as part of the company’s corporate culture / life apart from complying with regulatory requirements.
• It is a kind of self disciplinary code designed to secure the ultimate goal of making the company a value driven organization.
Transparency
Accountability
DisclosureDisclosure
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
48
ROLE OF CONSTITUENTS OF CORPORATE GOVERNANCE
• Shareholders :- Role to appoint directors and auditors and to see if an appropriate governance structure is in place
• Board of Director:- Responsible for governance of the company.
• Management :- Responsibility of management is to ensure that control systems are in place to achieve objectives laid down by board.
• Society – environmental protection; social consciousness
• Trade - fairness in dealing
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
49
OBJECTIVES OF CORPORATE GOVERNANCE
• That a properly structured board capable of taking independent and objective decisions is in place at the helm of affairs.
• That the Board is balanced as regards the representation of adequate number of non – executive and independent directors who will take care of the interests and well being of all the stakeholders.
• That the board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
50
LEGAL AND REGULATORY FRAME WORK
• The Companies Act 1956 was the principals legislation providing the formal structure for corporate governance.
• Securities and Exchange Board of India – Listing agreement – Clause 49 has made certain provisions with regard to corporate governance mandatory for listed companies.
• Sarbannes Oxley Act (AS 5 serves as guideline)
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
51
SEBI Guidelines on Corporate Governance
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
52
Board Procedure
• The Board meeting shall be held at least four times a year.
• The difference of two Board meeting should not be more than four months.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
53
Board of Directors:Composition of Board
• The Board of Directors of the company shall have an optimum combination of executive and non-executive directors with not less than 50% of the Board of Directors Comprising of Non-Executive Directors.
• In case of a Non-Executive Chairman,at least 1/3rd of board should comprise of Independent Directors.
• A Director shall not be a member in more than 10 committees or act as Chairman of more than 5 Committees.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
54
Information to be placed before Board of Directors
• Annual operating plans and budgets and any updates.• Capital budgets and any updates• Quarterly results of the company and its operating
divisions or business segments.• Minutes of meetings of audit committee and other
committees of the board.• The information on recruitment and remuneration of
senior officers just below the board level,including appointment or removal of Chief Financial Officer and the Company Secretary.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
55
Information to be placed before Board of Directors
• Show cause,demand,prosecution notices and penalty notices,which are materially important.
• Fatal or serious accidents,dangerous occurances,any material effluent or pollution problems.
• Any material default in financial obligations to and by the company,or substantial non-payment for goods sold by the company.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
56
Information to be placed before Board of Directors
• Any issue,which involves possible public or product liability claims of substantial nature,including any judgement or order which may have passed strictures on the conduct of the company or taken an adverse view regarding another enterprise that can have negative implications on the company.
• Details of any joint venture or collaboration agreement.• Transactions that involve substantial payment towards
goodwill,brand quality or intellectual property.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
57
Information to be placed before Board of Directors
• Significant labor problems and their proposed solutions.Any significant development in HR/IR front like signing of wage agreement,implementation of Voluntary Retirement Scheme.
• Sale of a material nature,or investments, subsidiaries, assets which is not in normal course of business.
• Non compliance of any regulatory,statutory nature or listing requirements and shareholders service such as non-payment of dividend,delay in share transfer.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
58
Non Executive Directors
• All compensation paid to NED’S shall be fixed by the Board of Directors and shall be approved by shareholders in general meeting.
• Limits shall be set for the maximum number of stock options that can be granted to NED’s in any financial year and in aggregate.
• Company shall publish its compensation philosophy in respect of NED’s in its annual report.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
59
Non Executive Directors
• Company shall disclose on an annual basis,details of shares held by NEDs.
• NEDs shall be required to disclose their stock holding in the listed company in which they are proposed to be appointed as Directors,prior to their appointment.
• Person shall be eligible for the office of NED so long as the term of office did not exceed 9 years in terms of 3 years each,running continuously.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
60
Independent Director
• No monetary relationship with the company, its promoters, senior management or affiliate companies.
• Not related to promoters or the senior management. • Not been an executive with the company in the immediately
three preceding financial years. • Is not a partner or executive of the auditors/ lawyers/consultants
of the company; • Is not a supplier, service provider or customer of the company. • Does not hold 2 per cent or more of the shares of the company. • The British definition, interestingly, as given in the Higgs report
is an exclusive definition which provides for who cannot be an independent director.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
61
Independent Director
• Independent Director shall periodically review legal compliance reports prepared by the company as well as steps taken by the company to cure any taint.
• The considerations as regards remuneration paid to an independent Director shall be the same as those applied to a non-executive director.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
62
Code of Conduct
• It shall be obligatory for the Board of a company to lay down the code of conduct for all Board members and senior management of a company.
• All Board members and senior management personnel shall affirm compliance with the code on an annual basis.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
63
Board Independence
• Majority of the directors should be independent on management both in fact & appearance.
Assessing Independence Relationship with non-profit organizations
CEO can also serve as chairman of the board & acts as a bridge between the management and the board.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
64
Duties & Responsibilities of the Board
• Should act on a fully informed basis, in good faith, with due diligence and care and the best interest of the company & Shareholders.
• Should treat all shareholders equally
• Considering the interest of the stakeholders, should apply high ethical standards.
• Should be able to exercise objective independent judgment on corporate affairs
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
65
Key function of the Board• Reviewing and guiding all Plans & Policies• Setting targets and monitoring• Overseeing major capital expenditures• Monitoring governance practices and
incorporating changes whenever needed.• Selecting, compensating, monitoring and
evaluating key executives.• Aligning key executives & board remuneration.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
66
contd
• Ensuring formal & transparent nomination & election process
• Monitoring & managing conflicts
• Preventing abuse & misuse of corporate asserts
• Ensuring integrity of corporate financial system
• Overseeing the process of disclosure & communication
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
67
Distribution of Decision & Control Rights
Stockholder’s General assembly
Decision Legitimating
Management Team3rd Degree Decision rights
Decision Management
BOD 2nd Degree
Decision RightsDecision control
Control Separation
Separation gains from specialization in risk
bearing & decision making Separation cost from lack
of incentives
Further Control Separation
Separation gains from transaction cost.
Separation cost from increased bureaucracy
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
68
Role of BOD & Management
• Selection, compensation and evaluation of qualified & ethical CEO
• Planning for management Succession• Understanding, reviewing & monitoring
implementation of the corporation’s - strategic plans - annual operating plans & budget• Focusing on the integrity & clarity of the
corporation’s financial statement & financial reporting
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
69
contd
• Engaging outside auditors & considering independence issues
• Advising management on significant issues & reviewing and approving further actions
• Reviewing management's plan for business resiliency
• Nominating directors & committee members ensuring effective CG.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
70
Board Organizations (Committees)• Committee structure permits the board to address key areas
in depth.• Committees decide about the CG issues• Board designates chairmen for committees• Effective CG depends on audit, compensation & CG
committee.• To study special issues additional committees are formed.• Responsibilities are clearly defined & documented
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
71
1. Audit Committee• Comprised of solely independent directors with 3-5
members• Members qualify as independent as per listings• Should meet minimum financial standards with at least one
financial expert.• Should be specialized in risk assessment & management
Practice.• Primary Functions:
o Outside Auditors 0 Financial Statementso Independence 0 Internal audit functionso Internal Controls 0 Communicationo Compliance 0 Hiring auditor Personnel.o Critical Accounting Judgment & Estimates
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
72
2. CG Committee/ Nominating Committee
• Recommend Director Nominees
• Consists of independent directors
• Recommends directors for appointment to committees
• Monitor & Safeguard the board’s independence
• Ensures timely & quality information to Board
• Develops & Recommends CG principles for all
• Looks after the evaluation of Board &management
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
73
3.Compensation Committee
• Takes care of Corporation’s overall compensation & CEO, Sr.Mgt Compensation
• Establishes appropriate incentives for management & employees at all levels.
• Deciding stock options & Equity Compensation• Lon term / Short term performance based
compensations. • Ensuring the benefits proportionate to the
contributions
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
74
Board & Management Evaluation
• Effectiveness, operations & Contributions must be measured.
• Periodic self evaluation of board• Ensuring quality contribution by directors• Renomination based on earlier performance• Plans for retirement & Replacement of members.• Succession planning• Evaluation of CEO’s performance & others
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
75
Composition of Audit Committee
• The Audit Committee shall have minimum 3 members.• All the members to be Non Executive Directors.• The majority of the members to be independent.• All members of Audit shall be financially literate.• One member must have financial and accounting
knowledge.• Chairman of the committee shall be an Independent
Director.• The Chairman shall be present at Annual General Meeting
to answer shareholders Queries.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
76
Functioning of Audit Committee
• Audit Committee shall meet at least thrice a year.• One meeting to be held before finalisation of
Annual Accounts.• Other two meetings should be held at interval of 6
months.• The quorum shall be of 2 members or 1/3rd of the
members of the audit committee,whichever is higher and minimum of 2 independent Directors.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
77
Power of the Audit Committee
• To investigate any activity within its terms of reference.
• To seek information from any employee.
• To obtain outside legal or other professional advise.
• To secure attendance of outsiders with relevant expertise,if it considers necessary.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
78
Role of Audit Committee
1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.
2. Recommending the appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services.
3. Reviewing with management the annual financial statements before submission to the board.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
79
Role of Audit Committee
4. Reviewing with the management, external and internal auditors, the adequacy of internal control systems.
5. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit.
6. Discussion with internal auditors any significant findings and follow up there on.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
80
Role of Audit Committee• 7.Reviewing the findings of any internal investigations by the
internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.
• 8.Discussion with external auditors before the audit commences about nature and scope of audit as well as post-audit discussion to ascertain any area of concern.
• 9. Reviewing the company’s financial and risk management policies.
• 10.To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
81
Review of Information by Audit Committee
1. Financial statements and draft audit report, including quarterly / half-yearly financial information;
2. Management discussion and analysis of financial condition and results of operations;
3. Reports relating to compliance with laws and to risk management;
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
82
Review of Information by Audit Committee
4. Management letters / letters of internal control weaknesses issued by statutory / internal auditors; and
5. Records of related party transactions
6. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
83
Audit Reports and Audit Qualifications
• In case it has followed a treatment different from that prescribed in an Accounting Standards, management shall justify why they believe such alternative treatment is more representative of the underlined business transactions. Management shall also clearly explain the alternative accounting treatment in the footnote of financial statements.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
84
Whistle Blower Policy
i. Personnel who observe an unethical or improper practice shall be able to approach the audit committee without necessarily informing their supervisors.
ii. Companies shall take measures to ensure that this right of access is communicated to all employees through means of internal circulars, etc.
iii. The employment and other personnel policies of the company shall contain provisions protecting "whistle blowers" from unfair termination and other unfair prejudicial employment practices.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
85
Whistle Blower Policy
i. Company shall annually affirm that it has not denied any personnel access to the audit committee of the company and that it has provided protection to "whistle blowers" from unfair termination and other unfair or prejudicial employment practices.
ii. Such affirmation shall form a part of the Board report on Corporate Governance that is required to be prepared and submitted together with the annual report.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
86
Subsidiary Companies
i. The company agrees that provisions relating to the composition of the Board of Directors of the holding company shall be made applicable to the composition of the Board of Directors of subsidiary companies
ii. At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of the subsidiary company.
iii. The Audit Committee of the holding company shall also review the financial statements, in particular the investments made by the subsidiary company.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
87
Subsidiary Companies
• (iv) The minutes of the Board meetings of the subsidiary company shall be placed for review at the Board meeting of the holding company.
• (v) The Board report of the holding company should state that they have reviewed the affairs of the subsidiary company also
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
88
Disclosures of Contingent Liabilities
• The company agrees that management shall provide a clear description in plain English of each material contingent liability and its risks, which shall be accompanied by the auditor’s clearly worded comments on the management’s view. This section shall be highlighted in the significant accounting policies and notes on accounts, as well as, in the auditor’s report, where necessary.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
89
Disclosures
• Basis of related party transactions.
• Board Disclosures-Risk Management
• Proceeds from Initial Public Offerings
• Management
• Shareholders
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
90
Remuneration of Directors:Disclosures to be madea. All elements of remuneration package of all the
directors i.e. salary, benefits, bonuses, stock options, pension etc.
b. Details of fixed component and performance linked incentives, along with the performance criteria.
c. Service contracts, notice period, severance fees. d. Stock option details, if any – and whether issued
at a discount as well as the period over which accrued and over which exercisable.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
91
CEO/CFO Certification
a. They have reviewed the balance sheet and profit and loss account and all its schedules and notes on accounts, as well as the cash flow statements and the Directors’ Report;
b. These statements do not contain any materially untrue statement or omit any material fact nor do they contain statements that might be misleading;
c. These statements together present a true and fair view of the company, and are in compliance with the existing accounting standards and / or applicable laws / regulations;
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
92
CEO/CFO Certification
a. They are responsible for establishing and maintaining internal controls and have evaluated the effectiveness of internal control systems of the company; and they have also disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, and what they have done or propose to do to rectify these;
b. They have also disclosed to the auditors as well as the Audit Committee, instances of significant fraud, if any, that involves management or employees having a significant role in the company’s internal control systems; and
c. They have indicated to the auditors, the Audit Committee and in the notes on accounts, whether or not there were significant changes in internal control and / or of accounting policies during the year.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
93
Compliance
• The company shall obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated in this clause and annex the certificate with the directors’ report, which is sent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchanges along with the annual returns filed by the company.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
94
CEO’S & CFO’S required to affirm financials
• CEO’S and CFO’S are required to certify the reports filed with the SEC.
• False and/or improper certifications can attract fine ranging from $ 1 Million to $ 5 Million or up to 10 years imprisonment or both.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
95
Penalties
• Penalties prescribed under the SOX ACT for any wrong doings are very stiff.
• Any CEO or CFO providing a certificate knowing that the certificate does not meet with the criteria stated,may be fined upto $ 1 Million and/or imprisonment upto 10 years.
• Those who WILFULLY provide false certification can be fined upto $ 5 Million and/or imprisonment upto 20 years.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
96
CORPORATE GOVERNACE AND ETHICS
•Wide exposure of unethical practices in various corporate houses.
•With the increasing liberalization and globalization of Indian economy, the driving forces for business ethics are getting further strengthened due to need to match the best global competitive standards of ethics
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
97
CORPORATE GOVERNACE AND ETHICS
• Ethics carry importance from the point of view of employee’s customers, shareholders, lenders, dealers and vendors all of whom form part of the corporate of business stakeholders. All need to be treated fairly and justly.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
98
CORPORATE GOVERNACE AND ETHICS
• Corporate ethics and good governance becomes highly important and should go hand in hand.
• Examples of unethical practices in corporate houses :
(a) Unofficial estimates by the IMF state that Indians have stashed away at least 100 billion dollars in foreign banks.
(b) There are about 4 lakh registered companies in India, 40% of them do not file any returns
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
99
Corporate Governance And Social Responsibility
• Corporate are born,exist and grow in a society and hence owe an obligation towards betterment of society.
• A business firm must view itself as a socially responsive entity and assume wider responsibilities.
• Corporate must accept social responsibility of giving due weight age to protect the environment and safeguard the interest of customers,employees,suppliers and the community.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
100
Corporate Governance And Social Resposibility
• Corporations do not exist solely to provide returns to shareholders.Instead,they must serve a larger social purpose.
• Corporations should be ‘socially responsible’ institutions,managed in public interest and that they exist to create wealth for the society.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
101
CORPORATE SOCIAL RESPONSIBILITY
• ENVIRONMENT:-• Eco-efficiency• Sustainable
development• Environment
accounting
• CUSTOMERS:-• Direct • indirect
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
102
Models of CSR
1. Classical View – Making Profit
2. Archie Carroll’s Pyramid
Philanthropic
Ethical
Legal
Economic
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
103
Contd…
3. Stakeholders Model
• Bringing Balance among all stakeholders
• Look after the health of corporations
• Balancing multiple claim of stakeholders• Owners – Higher Profits
• Customers – Better R&D
• Employee- Good Pay & Benefits
• Local Community – Non Exploitation & Upliftment
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
104
CSR - Types
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
105
Types of CSR1. Cause Promotion : Providing funds to promote a cause so
as to increase its awareness2. Cause Related Marketing : Donating certain % of
resources to a social cause3. Social Marketing: Supports the development &
Implementation of a behavior campaign4. Corporate Philanthropy : Donating / Direct contribution
towards a particular cause.5. Community Volunteering : Supports & encourages all
the stakeholders to volunteer, to support local to work on a social cause.
6. Socially Responsible Business Practices : Adopting business Practices to protect the environment and doing socially responsible business.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
106
CSR in Developed Vs Developing Countries
Developed Countries
-Governance-Ethical Businesses-Human Rights- Environment
Developing Countries
- Focus on Nation Building- Socio-Economic Development- Rural Development- Employment- Education - Health Care- Community Support
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
107
CSR in India
Based on :-
• Ethical beliefs of founding fathers
• Business areas in which they operate
• Socio –Economic Environment
• Opportunity available over a longer stay
• Visibility
• Perception of Customer Oversight
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
108
CSR Philosophies in India
1. Ethical – Mahatma Gandhi’s Principle : Voluntary Commitment from the Company
2. Static – Nehru’s Principle : State ownership & legal requirements ensures CSR. Public Sectors shall act as role models to other corporate in CSR leading to good economic development
3. Liberal – Milton Friedman's view : Corporate responsibilities are limited to private owners
4. Stakeholder- Edward Freeman’s : Companies respond to the needs of SHs which leads to good CSR.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
109
Why CSR is Preferred?
• Visibility• Feel good Factor (Helps in retaining talents)• Business Partner Requirement• Voluntary• Pressure from Stakeholders / Investors/ Lenders/ NGOs • Need to maintain Good Relation with External entity• Founder’s Attitude• Threat of Regulators• Desire to enhance or sustain competitiveness• Barrier to Competition
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
110
Barriers in Implementing CSR
• Absence of clear linkage between CSR & financial Success
• Low voluntary adoption to CSR• Lack of mechanisms to measure, evaluate & improve
CSR.• Smaller companies think as it is the responsibility of
bigger ones • Philanthropic Exercise• High overheads of implementing & sustaining csr.• There is no universally accepted frame work for CSR
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
111
RISK AND RISK MANAGEMENT CYCLE
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
112
RISK• The uncertainty of event occurring that
could have an impact on the achievement of the objectives.
• Risk implies uncertainty of profits or danger of loss due to some unforeseen events in the future.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
113
TYPES OF BUSINESS RISK
• Operational risk
• Market risk
• Inherent risk
• Static risk
• Credit risk
• Systematic risk
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
114
OPERATIONAL RISK• An operational risk is a risk arising from
execution of a company's business functions
• Ex: fraud risks, legal risks, physical or environmental risks, etc.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
115
MARKET RISKMarket risk is the risk that the value of an investment willdecrease due to moves in market factors • Equity risk, the risk that stock prices will change.• Interest rate risk, the risk that interest rates will change.• Currency risk, the risk that foreign exchange rates will
change.• Commodity risk, the risk that commodity prices (e.g.
grains, metals) will change.• Credit risk, the risk that a loan will not be paid back.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
116
OTHER RISKS INHERENT RISKS- A risk which it is impossible to managed
or transferred away
STATIC RISKS- Risk which is unique to an individual asset
CREDIT RISKS- Failure to meet the obligated payments of
counter parties on time
SYSTEMATIC RISKS- The risk of holding Market Portfolio
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
117
TYPES OF BUSINESS RISK
Internal risks1. Human factors2. Technological factors3. Physical factorsExternal risks1. Economic factors2. Natural factors3. Political factors
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
118
RISK MANAGEMENT• The culture, processes and structures that are
directed towards the effective management of potential opportunities and adverse effects.
• Risk management is a structured approach to managing uncertainty related to a threat, a sequence of human activities including: risk assessment, strategies development to manage it, and mitigation of risk using managerial resources.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
119
RISK MANAGEMENT CYCLE
RISK IDENTIFICATION
CREATE RISK MANAGEMENT PLAN
IMPLEMENTATION
RISK ASSESMENT
RISK TREATMENTS
REVIEW ANDEVALUATION
ESHTABLISH THE CONTEXT
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
120
ESHTABLISH THE CONTEXT
• Identification of risk in a selected domain of interest• Planning the remainder of the process.• Mapping out the following:
the social scope of risk management the identity and objectives of stakeholders the basis upon which risks will be evaluated,
constraints.• Defining a framework for the activity and an agenda
for identification.• Developing an analysis of risks involved in the process.• Mitigation of risks using available technological,
human and organizational resources.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
121
IDENTIFICATION• Source analysis • Problem analysis
METHODS1. Objectives-based risk identification
2. Scenario-based risk identification
3. Taxonomy-based risk identification
4. Common-risk Checking
5. Risk Charting
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
122
RISK ASSESSMENT
• Potential severity of loss to the probability of occurrence.
• Rate of occurrence of risk
• Severity of consequences
Rate of occurrence * impact of the event = risk
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
123
POTENTIAL RISK TREATMENTS
• Avoidance (eliminate)
• Reduction (mitigate)
• Transference (outsource or insure)
• Retention (accept and budget)
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
124
RISK MANAGEMENT PLAN CREATION
• Select appropriate controls or countermeasures to measure each risk.
• Document in statement of applicability.
• Identify control objectives and document.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
125
REVIEW AND EVALUATION
• to evaluate whether the previously selected security controls are still applicable and effective, and
• to evaluate the possible risk level changes in the business environment.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
126
LIMITATIONS
• If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of losses that are not likely to occur.
• Prioritizing too highly the risk management processes could keep an organization from ever completing a project or even getting started.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
127
• ‘Risk management’, on the other hand, is defined as the identification, analysis and economic control of all such risks that may threaten assets, resources, or earning capacity of a firm/company. Risk management is in reality ‘an all business activities embracing’ tool and with a high standard of risk management, it would naturally be possible to ensure high standard of corporate governance.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
128
• It would, therefore, be necessary for the internal auditor to first get a fair idea of various categories of risks and action to be taken to confirm that enough safeguards are in place for managing different risks.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
129
If the internal auditor has to report on how the financial risks are being managed, he would consider the impact of following sub-categories of financial risks:
✎ Market risks: Under this subcategory foreign exchange risk, interest risk, commodity risk and equity risks are considered.
✎ Liquidity risk✎ Credit risk✎ Economic risk arising out of changes in economic
structure✎ Sovereign risk: failure of a government
company/corporation or a State government to honour its loan obligations or other commitments
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
130
While examining the financial risks, the internal auditor has to pay special attention to the following points:
☛ Receivables and bad/doubtful debts: This is one significant item, which has to form part of the internal auditor’s report, as in many companies financial crisis starts with a poor control on this item. It has a direct bearing on the financial health of many companies, particularly those companies with a very large number of customers, like telecom companies, electricity companies.
☛ Inventories: Optimum Inventory levels are decided by the Production and other concerned departments but it is the internal auditor who can ensure that the inventory carrying cost is properly controlled and is optimum.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
131
☛ Investments: The risk arising out of changes in interest rate policies of the Central Government /Reserve Bank of India can be quite substantial and has to be assessed at regular intervals because such changes result in substantial erosion of investments as in Debt schemes of Mutual Funds, etc.
☛ Foreign exchange transactions: The risk of financial loss on account of depreciation of foreign exchange bank balances or receivables has to be critically examined for reporting to the Board.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
132
• This risk arises out of wider aspects of a company’s activities, e.g., risk arising due to poor marketing strategy/acquisitions strategy, changes in consumer behaviour, poor product launches.
• From the point of corporate governance, management of strategic risks may be considered to be responsibility of the senior management/Board of Directors.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
133
• In case of other risks like environmental, technological and operational risks the internal auditor may not have an expert knowledge of the severity of the risks and he would have to take help of the concerned Departmental heads to critically examine the process of the risk management.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
134
• In this case, one major issue that the internal auditor may be required to examine could be adequacy of the insurance cover and the cost of such cover. For this purpose he would have to examine the past experience about insurance claims, loss prevention and safety measures, and, of course, the risk profile of various assets. In view of the increased competition between the general insurance companies, both in the public and private sectors, it has become possible to obtain a mega policy cover and the internal auditor may be the right authority to critically examine all aspects regarding the insurance cover obtained for all risks of a company.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
135
• It would be necessary for the internal auditor to weigh impact of all these risks on the financial performance of the company and make a suitable quarterly report to the Board of Directors/CEO/MD of the company. This report could be submitted when the Board considers the Quarterly performance of the company.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
136
• Financial reporting risks Liquidity and leverage Contractual compliance . Compliance with local laws intellectual property management.
Engagement execution Integration of subsidiaries ,Human resource management Culture, values and leadership.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
137
• Macro economic factors, Exchange rate fluctuations ,Political environment, Competitive environment ,Concentration of revenues, inflation and cost structure Immigration, regulations Security and business continuity, Technology obsolescence
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
138
CSR - MEANING
What is corporate social responsibility ?
CSR is about how companies manage the business processes to produce an overall positive impact on society.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
139
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
140
• The relationship between a company and its employees can have a big impact on that other key relationship - that between the company and its customers.
• Remuneration: does the company pay a fair wage • Employee development: does the company invest
in training and development for its staff • Is the employee consulted about policies and
procedures that may affect the working environment?
• Work-life balance • Health and safety
CSR Issues that need to be managed in the workplace
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
141
Community initiatives
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
142
CORPORATE SOCIAL RESPONSIBILITY
CSR can be described as an approach by which a company:
recognizes that its activities have a wider impact on the society and the development of the society, in turn it helps the business
Actively manages the economic, social, environmental and human impact of its activities
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
143
Observations of social responsibility
• CSR is a vision about the relationship of business and society. It is most effectively treated as investments
• Profits are not only to reward investors but also to provide jobs, pay fair wages and contribute to the prosperity of the community
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
144
5 DIMENTIONS OF CSR
• Customer
• Employee
• Business partner
• Environmental protection and sustainable dimension
• Community
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
145
COMMUNITY
• Business operate in local, national and global context. Companies will make more important contribution to society especially to local communities. long term success of the company depends on the health, stability, prosperity of the community in which it operates.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
146
COMMUNITY INITIATIVES
OF CORPORATES
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
147
BAJAJ Bajaj works in 33 villages and Talukas of
Pune District and 11 villages of Aurangabad district, Maharashtra. The integrated development activities under implementation include women empowerment, income generation, health programmes, agricultural extension, animal husbandry, watershed development, drinking water schemes, sanitation and education. 5600 families comprising a rural population of about 30,000 people are copartners in these development activities.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
148
EDUCATION
• They conduct non formal education, to non school going and poorly performing school going children. About 400 primary students undergo the programme each year.
• They also conduct classes for vocational training like tailoring, bamboo craft, handicraft, making of greeting cards, mats, paper bags and assist computer training
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
149
BAJAJ
Education
Computer class Tailoring class
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
150
HEALTH CARE
The health care programme, which includes mother and child care, eradication of malnutrition, TB, leprosy etc, Each village has a health worker who makes home visits to assist/ advise villagers on health matters. They also providing medical services, for a nominal fee or free for the poor, at the door steps of the villagers, through the mobile clinic..
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
151
Bharti Airtel’s response to Tsunami Disaster:
• Donated Rs. 1 Crore to the Prime Minister’s Relief Fund, in addition to contributions from employees
• Created 29 Airtel Crisis Communications centres in Tamil Nadu
• Raised resources for Tsunami victims by initiatives such as a ‘Benefit Cricket Match’
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
152
CONSTITUENTS OF A GOOD CORPORATE GOVERNANCE
Shareholders elect directors who represent them. Directors vote on key matters and adopt the majority decision. Decisions are made in a transparent manner so that shareholders and
others can hold directors accountable. The company adopts accounting standards to generate the information
necessary for directors, investors and other stakeholders to make decisions.
Good corporate governance is fundamental to raising capital, satisfying investors and running successful businesses in increasingly global markets.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
153
CORPORATE REPUTATION Corporate reputation is created when a corporate is responsible to all
its stakeholders and shareholders.
Unlike corporate governance, which aims at maximization of interest of the general public,customer,employee, retiree, suppliers, shareholders and the financial analyst,besides meeting the requirements of government regulatory bodies,local communities and environmental protection.
Damage to reputation occurs when there is a perceived gap between corporate performance and stakeholders expectation.
EXAMPLE:COCA-COLA, When faced with a drinks contamination issue in Belgium in June 1999,is another example of a hugely successful company,which failed to have its reputation..
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
154
CORPORATE REPUTATION.
• In today’s complex environment, organizations need to understand and respond to stakeholders rapidly shifting values, rising expectations, demands for public consultation and an increasingly intrusive new medias.
Now we are entering the era of the “triple bottom line” when companies are being increasingly required to achieve a balance between commercial success, environmental responsibility and social justice.
CSR programmes are in an integral part of good reputation management.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
155
CORPORATE REPUTATIONAL AGENTS.
Reputational agents are individuals and/or groups that reduce the information gap between insiders and outsiders by seeking and providing information to outsiders about the performance of insiders and enterprises.
Examples of reputational agents are:
1.The Media
2.Lawyers
3.Environmentalists
4.Non governmental organizations (NGOs)
5.Investment bankers and corporate governance analysts.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
156
CORPORATE REPUTATION INDEX
The corporate reputation index represents stakeholder expectations and experiences with the company and its services,processes,management and systems.
This index represents the company which is involved in activities like
1.Community development
2.Education and literacy
3.Population and health with special focus on HIV/AIDS
4.Empowerment of woman
5.Physical challenges.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
157
CORPORATE REPUTATION INDEX
It is considered to be a measure of confidence in the organisation and goes beyond market capitalisation and brand equity.
INFOSYS topped the AC NIELSON corporate reputation index,and other two giants-WIPRO and TCS featured among the top 10 most favourable companies.
The study is conducted by AC NIELSON and designed to measure key perceptions of the performance of leading corporations in India,to help benchmark company image and reputation.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
158
DEFINITION:Corporate reputation is defined as the better management of the emotional attachment that stakeholders have with the organization.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
159
Corporate reputation quotient is a comprehensing method of corporate reputation that was created specifically to capture the perceptions of any corporate, stakeholder group such as consumers, investors, employees. The instrument enables research on the drivers of a company reputation as well as comparisions of reputation both within and across industries
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
160
Corporate reputation model has the following 6 drivers with 20 attributes
EMOTIONAL APPEAL:Good feeling about the companyAdmire and respect the companyrusy the company
PRODUCTS AND SERVICES:Stand behind the product/servicesOffers high quality product/servicesDevelops innovative product/servicesOffers product/service that are good value
VISION AND LEADERSHIP:Has excellent leadershipHas a clear vision for the futureTakes advantage of mkt oppurtunities
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
161
WORK PLACE ENVIRONMENT:Is well managedLooks like a good company to work forLooks like it has good employees
FINANCIAL PERFORMANCE: Record of profitabilityLooks like a low risk investmentStrong prospects for future growthTends to outperform its competitors
SOCIAL RESPONSIBILITY:Support good causes Environmentally responsibleTreats people well
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
162
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
163
At the heart of the chain is the BRAND that complex of emotional attachments that we have with superior products,services and organisation
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
164
is not as yet a business function
requires a fusion between several aspects human resource managementmarketing business strategy corporate communications
one of the most undervalued of strategic assets
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
165
CORPORATE LEGITIMACY
• The term legitimacy is derived from Webrian sociology.As Weber emphasised legitimacy constituted the basis of very real difference in the way in which power was exercised.
• In the organisational level there were two board grounds for exercising authority,based on tradition and its rational legal authority,resting on behalf of the legality of enacted rules and the right of those in positions of authority to issue commands.
• Corporate legitmacy refers the authority which is confined to the scope of the office and cannot be used in a capricious or self interested way.
• The ability to issue commands which are seen as binding because they are legitimate and is one of the central pillars of an organisation..
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
166
CLASSIC EXAMPLES
INFOSYS Health Care Education Environment Act and Culture. Videocon Hospital Education,Sports. Reliance Industries Ltd Community Welfare. Hindustan Unilever Ltd Shakthi-Empowering rural woman,Lifebouy
Swatya Chetna,Economic Empowerment of Woman. Godrej Industries Hospital,Mangroves Protection Community
Development. Aditya Birla NUVO Infrastructure,livelihood,agriculture and water
shed development,health and family welfare education. Bharat petroleum provision of drinking sanitation, vocational
training,counsellling of its employees.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
167
Legal Issues in CG
• Recent scandals in the corporate have given way to increased scrutiny of public registrants. In addition, shareholder groups, such as institutional shareholder services, are taking a harder look at entities and creating new metrics by which to measure and compare corporate governance.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
168
CORPORATE SOCIAL RESPONSIBILITY?
Integration of social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.
Behavior by businesses over and above legal requirements.
Voluntarily adopted. Intrinsically linked to the concept of sustainable
development. Not an optional ‘add-on’ to business core activities —
but about the way in which businesses are managed.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
169
CORPORATE SOCIAL RESPONSIBILITIES
• Corporate social responsibilities implies decide voluntarily to contribute to a better society and clean environment.
• CSR means companies integrating social and environmental concerns in their daily business operations and in their interactions with their stakeholder on voluntary basis.
• CSR insists the social, morale, ethical responsibilities of business.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
170
• Try to protests welfare of the stakeholder, consumers and the society as whole.
• Emphasis on firm’s total commitment.• Best way of doing a Business.• Fixes corporate responsibilities at every
level part of management.• Corporate social responsibilities view of
explicit and implicit is subscribed by a large number of companies that make commitments to various social programmes and projects.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
171
• CSR is the voluntarily contribution to the society.
• CSR so beyond the traditionally cost benefit approach.
• Where the law ends the social responsibility starts.
• Social responsibilities will increase the moral commitment to the business unit.
• CSR is a modern concept.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
172
KEY DRIVERS ON CSR
• Greater stakeholder awareness of corporate ethical, social and environmental behavior.
• Direct stakeholder pressures.• Investors pressures• Peer group pressures• increased social responsibilities• Globalization /widen market• Role of media
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
173
SIGNIFICANCE OF CSR
• CSR insist the social, moral, ethical responsibility of business.
• Try to protect welfare of the stakeholder consumers and the society as whole.
• Emphasis on firm’s total commitment
• Best way of doing a business.
• Business ethics. (5 Rights)
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
174
• Keep stakeholders in a satisfied manner.
• CSR at every organization as a level part of management.
• Protecting environmental from pollution
• CSR refers to the relationship between owner or company, stakeholder and the society.
• CSR builds relationship between company stakeholder and society.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
175
CSR FOR SUSTAINABLE DEVELOPMENT
What is sustainability ?
Use of processes and materials that can be maintained for an indefinite period.
Reduce or eliminate contaminating toxins and in general minimize negative impact on the environment.
Sustainability differs from industry to industry • By reducing the use of paper – sustainability of world’s forests
• Not to pollute ground water - sustainability of our drinking water supply
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
176
CSR FOR SUSTAINABLE DEVELOPMENT
The sustainable development of the business depends upon the relationship with in and around the organization and out of the organization, which it means with stakeholders.
Improving Corporate social performance building “ THE GOOD SOCIETY”
Frederick (1978) argues that the fundamental idea of CSR is that business executives there an obligation to work for social Betterment.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
177
SUSTAINABILITY IN TERMS OF CORPORATE SOCIAL
RESPONSIBILITY
In the globalized era, it is of at most
importance for an organization to have a policy that has a concern towards the social responsibility.
The extent up to which the companies are able to sustain their commitment towards the society and the environment.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
178
BUSINESS HOUSES ARE RESPONSIBLE TO THE
VARIOUS STAKEHOLDER PERSPECTIVES AND
INITIATIVES
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
179
CONTENTS
• Stake holders
• Share holders
• Employees (or) internal customers
• Consumers (end users)
• Customers(marketing channels)
• Suppliers• Government
• Local community
• Bankers ,Creditors, Financial institutions
• Environment
• Society
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
180
STAKE HOLDERS• Person, group, or organization that has direct or indirect stake
in an organization because it can affect or be affected by the organization's actions, objectives, and policies.
• Key stakeholders in a business organization include creditors, customers, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources.
• All stakeholders are not equal and different stakeholders are entitled to different considerations. For example, a firm's customers are entitled to fair trading practices but they are not entitled to the same consideration as the firm's employees.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
181
What is a primary stakeholder?
• Employees
• Customers
• Stockholders
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
182
What is a Secondary Stakeholder?
No contractual bond or direct legal authority
• Community Activists
• Advocacy groups
• Religious organizations
• Nongovernmental organizations (NGOs)
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
183
Why do Corporations Care about Secondary Stakeholder Action?
Direct operational costs (legal fees, public relations expenses etc) but – Civil Suits– Protests– Letter-writing campaigns– Extreme actions (Greenpeace)
• Consequences to reputation and ability to attract customers, employees and appease regulators and shareholders
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
184
Stakeholder Management
Stakeholders are those parties impacted by the company and upon whom its ultimate success depends
Major stakeholders in addition to investors:
Employees
Customers
Business partners
Communities
Environment
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
185
Enterprise Eco-System: The Stakeholder Concept
EnterpriseEnterprise
Part
ners
EmployeesCustomers
Environment
Com
mu
nit
ies
Suppliers
Enterprise
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
186
SHARE HOLDERS
Adequate ROI Dividend Bonus shares Complements Discount coupon
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
187
EMPLOYEES (OR) INTERNAL CUSTOMERS
Quality of life / Work-life-balance
Human resource policies
Responsible restructuring
Human rights
Diversity
Job creation
Training and education
Health and wellness
Harassment
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
188
RIGHT PERSON FOR THE RIGHT JOB – RECRUITING AND SELECTING
THE GREEN MINDED EMPLOYEES
“Green minded people for the job”.
Parameters that reveals the attitude of the candidate towards CSR
Preference/ importance to their
past records
Candidates prefer jobs in the company that cares more for the environment and the society.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
189
CONSUMERS (END USERS)
-Business ethics (5 RIGHTS)
-Continual supply
-Gift Cheque
-Offer coupon
-Festival offer
-Privilege card
-Discount coupon
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
190
CUSTOMERS(Marketing channels)
Continual supply (SCM)
Ethical marketing, ethical advertising
Products and Services
• Product safety
• Quality
Fair pricing
Customer service
Responsible procurement
Audits
Cause related marketing
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
191
SUPPLIERS Codes of conduct
Responsible Supply chain management
• Monitoring
Human rights
Labor standards (ILO)
Minority Vending
Fair Trade
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
192
GOVERNMENT
-Settlement of taxation
-Cordial relationship
-Avoid tax evasion
-Avoid black money
-Transparency in books of accounts
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
193
GREENING OF TRAINING
New ways of thinking and doing.
Training is often the starting point for a company’s programs.
Creative thinking about environmental issues - change management effort.
Senior managers - Assigning short readings or video presentations to stimulate thinking.
Green thinking.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
194
LOCAL COMMUNITIY
(Corporate Citizenship)
Volunteerism
Education
Skill development
Poverty alleviation
Philanthropy
Partnership with NGOs
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
195
BANKERS ,CREDITORS, FINANCIAL INSTITUTIONS
-Proper repayment of interest and principal amount
-Justify the affordability
-Financial services
-Smooth relationship
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
196
ENVIRONMENT
Eco-Efficiency
• Waste reduction
• Pollution avoidance
• Recycling
• Reducing materials, energy, water
• Lower packaging costs
• Certification
Life-cycle management
Greening the supply chain
Public procurement
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
197
SOCIETY
• Human Rights
• Pollution free environment
• Clean green everywhere
• Social welfare activities
• Well being, Material well being, Financial well being
• Tree plantation
• Forestation
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
198
Examples of CSR : RELIANCE-INDIA
• Health and safety environmental program
• Occupational health care centre's(OHC)
-Clean development mechanism(CDM)
-Fresh water provide to near village
• Education for poor
• Initiatives to combat HIV-AIDS and TB
• Adoption of public health centre's
• Highway rescue intervention
• Dhirubhai ambani hospital-Lodhivali
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
199
• Moti khavadi medical centre
• Community medical services and SEZ,Jamnagar
• Thalassaemia detection camp and parental councelling
• Cancer-aid for cancer patient
• Mobile dispensaries
• Blood donation derives
• Public health care
• Drishti painting competition
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
200
• Community development
• Reliance rural development trust(RRDT)
• Empowerment of women and youth
• Skill up gradation
• Eco-friendly initiatives
• Packaging solutions to formers (Leno bags)
• Polyethylene(PE) Biogas Domes for renewable energy source
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
201
• Sports for physically challenged
• Real Indian heroes
• Dhirubhai ambani foundation (DAF)
• Dhirubhai ambani Education –rewards and scholarships
• Reliance Kargil scholarship schemes
• Reliance school of life sciences(RSLS)
• Dhirubhai ambani International school
• Great India media
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
202
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
203
Scope of social responsibility
• Protecting and promoting stake holder interests• Social concern and promotion of common welfare
programmes• Good corporate governance itself is a social
responsibility.• Corporate in the vanguard of rendering social
services .• Corporation should supplement state efforts
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
204
Barriers to CSR
A) Corporate Level– Lack of leadership and vision– Too much focus on short-term goals– Inability to recognize opportunities– Lack of entrepreneurial spirit and innovation
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
205
Barriers to CSR
B) Country/Society Level – Lack of creative pressure from the government
and civil society.– Lack of support from the consumers– Lack of peer support through business
associations - reluctance of other companies to follow
– Lack of economic/market incentives
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
206
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
207
INTRODUCTION
Corporate social responsibility is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, commodities and other stakeholders as well as the environment.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
208
Environmental Concerns
• The growth of consumerism, leading to the high rate of consumption of natural resources, is at the heart of many environmental problems.
• Traditionally industry has been driven by
consumer demand to produce goods efficiently, regardless of the consequences.
• Regulation and innovation are changing this system, but yet have not solved problems.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
209
ENVIRONMENTAL PRESERVATION
Role of stakeholders To promote environmental awareness among the people we need the help
of different stakeholders to achieve such environmental preservation.
These stakeholders are: Public opinion The Media Environmental groups Corporations Government Sustainable development
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
210
COSTS AND BENEFITS OF ENVIRONMENTAL REGULATION
• Environmental regulation are often criticized as being too costly.
• Protecting environmental quality is an expensive task for many regulated industries.
• Forward thinking firms can turn environmental regulations to their advantage.
• To realize that not all the firms are affected equally by environmental regulations.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
211
TRADE AND ENVIRONMENT
• Countries have now begun to negotiate agreements on environmental issues.
• In future any firm with international dealings will have to take environmental issues into considerations.
• The lack of standardization of environmental regulations between countries has complicated trade issues.
• The north America free trade agreement (NAFTA) one of the first major trade agreement to seriously integrate environmental concerns into trade considerations.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
212
ROLE OF CORPORATE IN ENVIRONMENTAL MANAGEMENT
• Corporation is powerful enough to influence any situation, be it developmental or environmental.
• In recent years, as awareness about environmental degradation occurring air, water, soil and biosphere has grown.
• Most of the blame has been laid at the doorstep of industry, with the big corporations roped in as the main culprits and enemies of the environment.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
213
ENVIRONMENTAL AUDIT
• Environmental audits provide an in-depth review of the company processes and progress in realizing long term strategic goals.
• It examines the company’s performance as against its policy, and undertaken with reference to performance of personnel, technology, system and documentation.
• it also examines pick over these are related to relevant standards of practice.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
214
MANAGING ENVIRONMENTAL ISSUES
• Reducing cost through measures such as recycling or energy conservation.
• Reducing the possibility of industrial disasters.
• Establishing a good corporate reputation and earning the goodwill of people.
• Mitigating employees by providing a better work environment.
• Conforming to a code of ethics.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
215
ENVIRONMENTAL RISK MANAGEMENT
• Probability of occurrence of an adverse event such as an accident.
• Probability distribution of the total cost if the event occurs.
• Allocation of responsibility if an accident occurs.
• Certainty of the assessment.
• Managers should look at better environmental performance as an opportunity rather than as a threat.
• Many companies allow environmental issues to be handled by lawyers and consultants.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
216
ENVIRONMENTAL MANAGEMENT IN INDIA
• Environmental practices in India have improved significantly in recent times.
• Regulations have become more stringent.
• Many companies are looking into environmental management for improve their image and to cut costs.
• A recent survey of 47 companies conducted by business today and Tata energy research institute has revealed that 75% of them have an environmental policy.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
217
NATIONAL ENVIRONMENTAL POLICY
• Environmental and economy are the two sides of the same coin.
• Conservation of life supporting systems.
• Forest and wildlife conservation.
• Forest cover.
• Biodiversity conservation.
• Concerns on fresh water resources.
• Deficiencies in the draft policy.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
218
INDIAN OIL
• Indian oil has a intensive social responsibility programme for health, family welfare, education, environment protection, providing potable water, sanitation and empowerment of women.
• Indian oil has invested close Rs.7000crore for production of green fuels meeting global standards.
• To secure the nations energy security, the corporation is now in the process of commercializing various options in alternative fuels such as ethanol-blended petrol, biodiesel and hydrogen.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
219
YAMANA GOLD• It is a leading Canadian - based gold mining company.
• Its business and operation decisions are guided by concern for the natural environment.
• It is working on a number of water saving, air monitoring, and protection initiatives at their operations.
• In 2008 plan to explore new programs to reduce their carbon footprint.
• They were continuously conduct environment audit. YAMANA CUT 10% BY 2010• Reduce fossil fuel consumption.• Reduce solid waste• Reduce fresh water consumption• Reduce power consumption
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
220
CORPORATE SOCIAL RESPONSIBILITY
WELFARE , SAFETY AND SOCIAL INITIATIVES
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
221
Welfare, safety & social initiatives
Welfare, safety and social initiatives means that what are the initiatives taken by the companies for the welfare and development of society as well as their employees.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
222
Welfare & social initiatives of ZenSar Technologies
• For the welfare of the society ZenSar technologies established ZenSar Foundation. The main objective of this is to improve, guide and inspire the lives of underprivileged community.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
223
Activities of ZenSar foundation
• Health care initiatives:It includes weekly clinics, counseling sessions and health camps are regularly held to promote general health and well being in the community.
• Educational initiatives: The ZenSar foundation identified AKANKSHA, a NGO that focuses on developing a strong educational foundation, deep sense of self-esteem and facilitates fun activities for underprivileged children.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
224
• Livelihood Advancement Business School (LABS)
It promotes customized programs for youth and women in the age group of 18-30 youth from economically weaker sections of society, and empower them to gain access to opportunities for sustainable livelihoods and growth in the new economy.
• NGO partnership
In addition to the community initiatives, the ZenSar foundation has been working with various NGO on multiple social programs for Pune
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
225
Social initiatives of INDIAN OIL CORPORATION
• Establishment of CSR
IOC established their CSR program in the year 1964. the main aim of this program is to help to enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience.
• Sharing Profits
Every year IOC set aside a fixed portion of ita profits for spreading smiles in millions of lives acrosss the country through a comprehensive community welfare and development program.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
226
Social welfare activities of TATA coffee
• Community development programs
To improve the welfare of its employees the company implemented Social Accountability system in their plantation division ,curing division and roasting division at kushal Nagar.
• Coorg FoundationCoorg Foundation, a public Charitable Trust established by the company. It contributes towards treatment of individual affiliated with serious illness and made donations to medical institutions for conducting free medical camps.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
227
• Conscofe General Public Charitable Trust (CGPCT)CGPCT established in the year 1986,with the aim of
adopting pollibetta or any of the surrounding villages or any other villages in kodagu district or anywhere in Karnataka state for the purpose of development and the provision of public utilities and amenities.
• Conscofe employees welfare trust Conscofe employees welfare trust take care of the
housing ,education, scholarships, pension benefits, etc of its employees.
• SWASTHA centre for special education and rehabilitationThe main aim of this project is to teach
underprivileged students about envelope& file making, screen printing, making greeting cards and other paper products.
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
228
Social initiatives of BPCL
• BPCL started their social activities right from 1984.
• They conducted different activities for the development of society as well as employees. These activities include the following:
– Counseling
– HIV/AIDS care and prevention
– Generation next
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
229
Social initiatives of TNPL
TNPL provides Scholarship to the children belonging to the economically weaker section to pursue their education free in TNPL school.
TNPL supports augmentation of the educational facilities available in Government schools in villages surrounding the company .
Provide every year free education in TNPL School for 5 underprivileged children from neighbouring villages .
Sponsor 3 students from villages within a radius of 15 km in and around the factory premises, for the Diploma Course in
Pulp and Paper Technology conducted by Seshasayee Institute of Technology (S.I.T), Trichy.
Award special prizes to students of Government High Schools and Higher secondary Schools securing first 3 ranks in the school in X & XII standard Public Examination.
Education
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
230
• TNPL regularly organizes Medical Camps in the neighbouring villages, through Medical officers and Para Medical Staff of the Company . So far, over 150 camps have been conducted.
• Special Medical Camps to address ailments relating to Eye, ENT, Dental with the active involvement of leading medical hospitals in the region have been conducted. Persons requiring hospitalization or surgery are given financial assistance on merits.
• A sum of Rs.3 lakhs has been given for construction of a separate Infectious Diseases Block at Govt. Hospital, Karur .
Medical and public health
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
231
Test 1 objectives1. Agency theory identifies relationship between Principles & Agents2. Japanese model of CG is otherwise known as Business Network
Model3. Anglo American model considers Investors as reluctant activists4. In Japanesh model of CG, Lending banks are given a role in CG5. In Indian model of GC Private companies are dominated by
Founders& Family6. Share holders are also viewed as Stakeholders7. Agency Cost forms the theoretical base for CG8. Co –determination in CG is Employee Representation in Board9. The 3A’s of CG are Acceptability, Affordability, Adaptability10. The 4P’s of CG are Purpose, Process, People, Performance
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
232
Test 2 - objectives
1. CEO acts as a bridge between the management and the board.2. Audit committee should be specialized in risk assessment & management Practice3. Compensation Committee decides stock options & Equity Compensation4. SEBI Listing agreement Clause 49 has made certain provisions with regard to
corporate governance mandatory for listed companies5. The Board meeting shall be held at least four times a year6. A Director shall not be a member in more than 10 committees or act as Chairman
of more than 5 Committees7. Personnel who observe an unethical or improper practice shall be able to approach
the audit committee without informing their supervisors through- Whistle blowing policy
8. Risk enhance or impede an organization’s ability to achieve its current or future objectives
9. Net Risk exposure = Gross risk – safeguards10. BODs are a small group of people who direct, monitor and control a Corporate
Entity and ensure Long Term Viability and also Maximum Shareholders
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
233
Important Questions• CG Models• Barriers in implementing CG• BOD- Duties & Responsibilities• Committees• SEBI ,clause 49 for listing• Corporate Reputation• Risk cycle• Stake holder & Shareholders• Contd………..
04/11/23 M.R.Vanithamani , AP, SOM, VLBJCET
234
Contd….
• CSR –Models & Types
• CSR – sustainable development
• CSR- in today’s corporate
• CSR – Issues
• Business houses are responsible to the various stakeholder perspectives & initiatives
• Restructuring- need & issues