Corporate Governance and Business Ethics

Corporate Governance and Business Ethics# Corporate Governance : The conceptBasic Values of Corporate GovernanceNeed & Importance for Corporate GovernanceHistory and development of Corporate Governance in IndiaConstituents of Corporate GovernanceDisclosure based Regulation Components & types of disclosureCase StudyEthics in businessRole of Organizational Ethics in PerformanceEthical Behavior at WorkCauses of Unethical Conduct in an OrganizationModels of Ethics Management

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Corporate Governance : The conceptWhat is corporate governance?

Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals Cadbury aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaSir Adrian Cadbury

CG is about promoting corporate fairness, transparency and accountability James D. Wolfensohn, president world bank

CG is a system by which businesses are directed or controlled "Cadbury report 1992

The primary purpose of corporate leadership is to create wealth legally and ethically N R Narayana Murthy

Corporate governance is defined as a set of systems, processes and principles which ensures that a company is governed in the best interest of all stakeholders Business portal government of India

Sir Adrian#Corporate Governance GovernanceTRANSPARENCYEnsures timely, material & accurate information is available Info on Finance, Performance, Ownership, Governance Prevents Information asymmetriesACCOUNTABILITYCEO Accountable to the BODBOD accountable to the S/HRESPONSIBILITYRecognize the legal rights of all SHsEncourage cooperation between company and stakeholdersFAIR TREATMENTProtect SH rightsTreat all SHs and minorities equitablyProvide for effective redress for violationsBasic Values of Corporate Governance#Need & Importance for Corporate GovernanceGood corporate governance is a key element in improving economicefficiencyConversely, bad corporate governance, particularly in banks, can undermine economic and financial stabilityCompetitive advantageIncrease the value of the organization, shareholders & also theemployeesEnhancement of Shareholder Value, keeping in view the Interests of other StakeholdersCG a Way of Life rather than a Code

#History of Corporate Governance in IndiaNot triggered by any serious nationwide financial, banking and economic collapse

Driven by an industry association, the Confederation of Indian Industry(CII)

In December 1995, CII started designing a voluntary code of corporate governance circulated in 1997 and the code

In April 1998, the code was released as Desirable Corporate Governance: A Code

Between 1998 and 2000, over 25 leading companies voluntarily followed the code#Development of Corporate Governance in India1999-2000:The Birla Committee Report was approved by SEBI in December 2000 Became mandatory for listed companies through the listing agreement

2002 : Naresh Chandra committee report on corporate audit and governance highlighted the importance of the corporate governance

2003:The Narayan Murthy report says that Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the corporation

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The Board of Directors Pivotal role Accountable to stakeholders Directs management

The Shareholders & StakeholdersTo participate in appointment of directorsTo hold the BoD accountable for governance through proper disclosures

The ManagementTo act on the direction of the BoDTo provide requisite information to the BoD for decision makingTo implement and monitor control systems

Constituents of Corporate Governance#Rationale` for Disclosures

An effective disclosure based regulation (DBR) implies greater responsibilities on the company directors, its management and advisers

An effective DBR promotes investor activism

Markets believe that perceived benefits outweigh perceived costs

#Disclosure based Regulation Components & types of disclosure

Disclosures Disclosuresby whom for whom Public Listed Cos. ShareholdersIntermediaries InvestorsStock Exchanges MARKET IntermediariesMutual Funds RegulatorAnalysts & advisors Government Other stakeholders#Ethics in businessThe principle of conduct professional ethics

A system or philosophy of conduct

A discipline dealing with what is good and bad- moral duty and obligation

A set of moral principles or values

#Business Ethics vs. Individual MoralityEthics is examining moral standards of a person, a company or a society to decide whether these standards are reasonable and to apply them to contexts and issues.Morality refers to how individuals make judgments about right & wrong.Who decides whats ethical#A Timeline of Ethical and Socially Responsible Concerns1960s1970s1980s1990s2000sEnvironmental issuesEmployee militancyBribes and illegal contracting pricesSweatshops and unsafe working conditions in third-world countriesCybercrimeCivil rights issuesHuman rights issuesInfluence peddlingRising corporate liability for persona damages (for example, cigarette companies)Financial misconductIncreasing employee-employer tensionCovering up rather than correcting issuesDeceptive advertisingFinancial mismanagement and fraudGlobal issues, Chinese product safetyChanging work ethicDisadvantaged consumersFinancial fraud (for example, savings and loan scandal)Organizational ethical misconductSustainabilityRising drug useTransparency issuesIntellectual property theft#Role of Organizational Ethics in PerformanceEmployee Commitment and TrustInvestor Loyalty and TrustCustomer Satisfaction and TrustEthical CultureProfits#

Ethical Behavior at Work#Causes of Unethical Conduct in an OrganizationPressure to meet unrealistic objectives and deadlinesIncrease in acute competitionEconomic GreedInformation of unethical acts through mediaPressure to earn profitLack of Management Support or Poor Leadership

#Managing Ethics in a companyWhere is your companys line in sand?How do your leaders model ethical behavior and set the ethical tone?Why might good people in your company do unethical things?What do existing ethical challenges look like?How do you protect the values associated with your company?How are your values promoted, measured and rewarded?

#Models of Ethics ManagementUnethical/Immoral ManagementCircumvent the law; absence of ethical Principles andaccountabilitiesEthical/Moral ManagementConforms to high standards of ethical behaviorAmoral ManagementIntentional: does not consider ethical factorsUnintentional: casual or careless about ethical factors#In interconnected world anything you do in private can find its way into the public domainLegislators around the world insist business leaders accept accountabilities for the types of organizational cultures and ethical risks that emerge under their stewardshipPeople listen with their eyes and take their lead from what gets rewardedNewly enacted US and UK legislation makes business leaders (not employees) accountable for corrupt corporate behaviour2011 research amongst 144 global organizations found the top 3 challenges:Getting employees to speak up about ongoing concerns Getting leaders to demonstrate ethical leadership Establishing an ethical cultureEast knows more about the West than West does about the East. West is seen as arrogant and judgmental. Younger generations educated in the west and fluent in EnglishSocial order is respected and governments have more legitimacy and authority then in the WestGiving and receiving face and family obligations are critically importantBoth Chinese & Indonesian governments have signaled they are clamping down on black corruptionSolid business relationships can only be build on solid social relationships firstWestern PerspectiveEastern PerspectiveEast vs West Perspectives on Ethics#Primary issue is always the GREYBribe, fraud, embezzlement, extortion, tax evasion, smuggling economic crimes Abuse of institutional power to further self interests; extravagance or waste public purse Common practice of social life including nepotism, favouritism, preferential treatment. Creating & maintaining networks of personal relations to seek and give favorable treatments Class A Black CorruptionClass B Grey CorruptionClass C White Corruption#