Professional Documents
Culture Documents
ASSIGNMENT 1
2) Remuneration Committee:-
The main role of this committee is to have an appropriate reward polity that can
attract, retain and motive directors to achieve the long term goals of the
company.
Committee members will need to be sensitive to wider community concerns.
Functions:
i. The committee is and is seen to be, independent with access to its own
external advice.
ii. It has a clear policy on remuneration that is well understood and has support
of the shareholders. Iii. Performance packages are aligned with shareholders
interests in mind. iv. Reporting is clear, concise and gives the reader of the
annual report a bird's eye view of policy payments and the rationale behind
them.
3) Nomination Committee:
In the case of companies and similarly-organized bodies, there are generally two
types of chairmen, non-executive and executive.
Non-executive
A non-executive Chairman of the Board is and does the following:
A part-time officeholder who sits on and chairs the main board of a company
Provides support and advice to a CEO
This position usually entails fulfilling a similar function on a number of additional
board committees, as well as being a political figurehead of the Company.
Executive
An executive Chairman of the Board is and does the following:
A full-time officeholder who typically leads the board and also takes a hands-on
role in the company's day-to-day management.
Helps the CEO to oversee all the operational aspects involved in running the
company, which include project planning and development delivery, retail and
leasing, sales, market research and many other areas within their extensive
scope.
Has overall responsibility for the company which involves engineering and
controlling the company's current growth in and future expansion into
international markets.
In addition, oversees all projects' development activities and related businesses
of the company, with the intention of generating financial returns for the
shareholders and driving sustainable development.
The chairman often sets the style of leadership of the board which in turn filters
down through the organization.
Never be negligent and not to commit or let others commit tort-liable acts
Never misuse the power vested upon the director
Not to use/exercise the powers given for a collateral purpose
Never ever make secret profits and make good loss - whether due to breach of
duty or of negligence.
Act always in the best interest of the company and as well its shareholders,
customers and other stakeholders of the company
THE ROLE OF THE CHAIRMAN
The chairman manages the activities of the board and ensures that the effective
functioning of the board ensuring the adherence of the formulated polices and
plans and its actual performance by putting them in practice by the executive
management. The chairman works very closely with the company secretary to
ensure the legal compliance and ensure the regulatory requirements to avoid
any noncompliance and bring a good corporate governance practices in the
company. The chairman needs to be a good business man understanding the
language of the business, the market in which the company is, what the product
and services are offered by the company, its future prospects in the national and
international perspective keeping the long term view in mind for taking the
company to the higher level of performance. The chairman needs to ensure that
the internal needs of the board and its code is observed and he has to also deal
with varied levels in the organization such as executive, non executive directors,
senior management, outside experts, internal and statutory auditors,
employees, stakeholders mainly shareholders. The chairman needs to have an
excellent working relationship with the CEO of the company who puts the plan
into reality. Very good inter personal relationship with all levels is required to be
maintained by the chairman. An excellent chairman would be in a position to
take the company to its phenomenal growth and make the company a very
successful one.
also the Chief Executive, it is essential that there should be a strong and
independent element on the Board, with a recognized senior member. The Board
should include non-executive Directors of sufficient caliber and number for their
views to carry significant weight in the Boards decisions.
The Board should have a formal schedule of matters specifically reserved to it for
decisions to ensure that the direction and control of the company is firmly in its
hands.
There should be an agreed procedure for Directors in the furtherance of their
duties to take independent professional advice if necessary, at the companys
expense.
All directors should have access to the advice and services of the Company
Secretary, who is responsible to the Board for ensuring that Board procedures are
followed and that applicable rules and regulations are complied with. Any question
of the removal of Company Secretary should be a matter for the Board as a whole.
Relating to the Non-Executive Directors the recommendations are:
Non-executive Directors should bring an independent judgement to bear on issues
of strategy, performance, resources, including key appointments, and standards of
conduct.
The majority should be independent of the management and free from any
business or other relationship, which could materially interfere with the exercise of
their independent judgement, apart form their fees and shareholding. Their fees
should reflect the time, which they commit to the company.
Non-executive Directors should be appointed for specified terms and
reappointment should not be automatic.
Non-executive Directors should be selected through a formal process and both,
this process and their appointment, should be a matter for the Board as a whole.
For the Executive Directors the recommendations in the Cadbury Code of
Best Practices are:
Directors service contracts should not exceed three years without shareholders
approval
There should be full and clear disclosure of their total emoluments and those of
the Chairman and the highest-paid UK Directors, including pension contributions
and stock options. Separate figures should be given for salary and performancerelated elements and the basis on which performance is measured should be
explained.
Executive Directors pay should be subject to the recommendations of a
Remuneration Committee made up wholly or mainly of Non-executive Directors.
And on Reporting and Controls the Cadbury Code of Best Practices stipulate
that:
Where any of these acts is committed in circumstances where under the victim
of such conduct has a reasonable apprehension that in relation to the victim's
employment or work whether she is drawing salary, or honorarium or voluntary,
whether in government, public or private enterprise such conduct can be
humiliating and may constitute a health and safety problem it amounts to sexual
harassment.
It is discriminatory for instance when the woman has reasonable grounds to
believe that her objection would disadvantage her in connection with her
employment or work including recruiting or promotion or when it creates a
hostile work environment. Adverse consequences might be visited if the victim
does not consent to the conduct in question or raises any objection thereto.
Steps to be taken by the employers
All Employers or persons in charge of work place whether in public or private
sector should take appropriate steps to prevent sexual harassment. Without
prejudice to the generality of this obligation they should take the following
steps:
(a) Express prohibition of sexual harassment as defined, above at the work place
should be notified, published and circulated in appropriate ways.
(b) The Rules/Regulations of Government and Public Sector bodies relating to
conduct and discipline should include rules / regulations prohibiting sexual
harassment and provide for appropriate penalties in such rules against the
offender.
(c) As regards private employers steps should be taken to include the aforesaid
prohibitions in the standing orders under the Industrial Employment (Standing
Orders) Act, 1940.
(d) Appropriate work conditions should be provided in respect of work, leisure,
health and hygiene to further ensure that there is no hostile environment
towards women at work places and no employee woman should have reasonable
grounds to believe that she is disadvantaged in connection with her
employment.
ASSIGNMENT 2
Dumb and Neubauer have suggested criteria for evaluation in three categories:
I. The Directors themselves:
1. Intent, especially CEO/Chairman - To create a forum in which expertise and
wisdom can be tapped.
2. Selection, Nomination and Depart\1re - Loyalty to company and stockholders
and handle departures carefully.
3. Composition and Balance - Choose Directors carefully-ensure skill balance, no
magic number as to the size of the board.
II. The Role - Define a Role - a set of functions and activities that adds value.
1.
Arrange on a board mission - clear and shared understanding of its
mission for the board and top management of company.
2. Defining the portfolio - Identify areas where the board can add value. Allocate
time to each area.
3. Setting Priorities - Identify priorities and consider if time and attention given
accordingly.
4. The Board - Management Balance - Decide explicitly to avoid undue power to
management by default. Specify which decisions delegated to management.
Boards may choose to impose more rigorous standards upon themselves.
5. The Business Environment - In which the company operates should
influence/the board's involvement.
6. The status of the company - Current stage of company's development will
also reflect the level of the Board's involvement. E.g. - Expansion, retrenchment,
etc.
III.
Once all or some of the features are accepted, as positive the evaluation
could begin by measuring performance in relation to these.
Even the most prudent norms can be hoodwinked in a system plagued with
widespread corruption. Nevertheless, with industry organizations and chambers
of commerce themselves pushing for an improved corporate governance system,
the future of corporate governance in India promises to be distinctly better than
the past.
Case Study
Ram Krishan Dhir (RKD) was extremely happy to be selected as the corporate MD of the United
Group at Indore. The United Group consisted of three industries, all located within 30 Km of the
corporate office, Indore. Madhya Pradesh Medical Equipments Ltd. (MPMEL) was one of the
industries of this group. Each industry of the group had its own CEO who was directly answerable to
the corporate MD.
MPMEL established in 1980, with Japanese collaboration, had soon earned a name
for its quality and customer responsiveness. By 1983, with employee strength of around 300 MPMEL
with very harmonious industrial relations, and the latest technology had registered a good turn over o
over Rs. 80 Crores. But there the success story ended. Mr. Raj Anand, The original promoter of the
group died in an air crash and his eldest son Mr. Virat Anand (VA) took control of entire business in
January, 1984. Virat was a spoiled brat, lived in luxury, had no qualms about swindling money
wherever possible and had least regards and considerations for the professional management and
the employees.
MPMEL`s down ward journey had truly begun. By 1987, it had witnessed change of
4CEOs and 12 middle /junior levels managers. Most of present set of managers were hand picked by
Virat and groomed in his culture of scant concern for the employees and the organizational growth. In
the following years, the MPMEL lost many of its major customers, Performance, quality of its medical
equipment and industrial relations deteriorated. It was defaulting often on its payment to the lending
bankers and even the salary payment to its employees was often delayed and even withheld. By
February 1989, when RKD was taking over as corporate MD, the situation was:
a. Two of its leading lending banks (Syndicate Bank and Bank of Baroda) had stopped further
payments & over drafting to MPMEL and had served notices to MPMEL for clearance of its
dues.
b. Four of its old and professional directors of the Boars of Directors, had resigned and replaced
by cronies and relatives of VA
c. Industrial relations in the MPMEL were bad and there was total lack of trust between the
management and employees. A number of local DADAS were in control of the employees
and MPMEL employees had gone on a violent strike in November, 1988 for irregular payment
of salaries, adhoc promotions and inaction of outstanding issues. The striking employees had
physically beaten up the CEO and some other managers and damaged a number of buildings
and windows. They had however, spared the main air- conditioned production complex. The
strike had ended by police intervention and signing of a Long Term Agreement (LTA) with
the Union employees. Promised actions by the management were over due.
d. The other two industries of the United Group were only slightly better but heading downwards.
e. MPMEL was still operative and producing good quality equipment at about 50% capacity. The
rejection rate however, had increased considerably and there was a large dump of rejected
quality equipment. The quality control department was totally disheartened due to dismissal of
its good manager six months ago without any replacement and no one was paying any
attention to their concerns and suggestions.
f. The turn over in 1988 had dropped to Rs. 36 crore.
RKD, an MBA and an ex DIG Police, with an excellent track record as a good administrator
and a person of high integrity was determined to bring about a major change in MPMEL.
Within a month of his taking over, after his discussions with a section of employees and their
union leaders, senior managers, some experts (two of them were ex-MDs) and the Chairman
of the BOD, he realized that their problems had nothing to do with their products and
technology but they seem to weave around the management of Human Resources and
excessive withdrawal of funds by the Chairman. There were strong indications of continuing
rumblings, dissatisfaction among employees and lack of faith in management despite the
LTA.
Questions:
1. Analyze the situation, as RKD, as you see it and suggest a course of action you propose to
take?
Under the leadership of Mr. Raj Anand, the company registered a good turnover. It earned a
name for quality and customer responsiveness. After the death of Mr. Raj Anand, the company
gradually lead to failure. The successor, Mr. Virat Anand could not become a good leader and
ended up the business in disaster. The company witnessed change of management several
times which included change of 4CEOs and 12 middle /junior levels managers. It also lost many
of its major customers, performance, quality of its medical equipment and industrial relations
deteriorated. The company had lot of dues with its bankers and even the salaries of employees
were often delayed/withheld. While these are the major problems, the following are some of the
suggestions proposed:
a.
Firstly, clearing the dues of MPMEL with Syndicate Bank and Bank of Baroda
b. Salary settlement of the employees and offer promotions if required. Conduct a meeting
with the employee union and enter into a mutual agreement for the welfare of the
employees and organization.
c.
Re appoint the old BODs and appoint a new CEO; remove cronies and relatives of VA
d. The other two industries of the United Group were only slightly better but heading
downwards.
e.
f.
Have a discussion with the strategic and operation departments to know the reasons behind
the drop in turnover and rejection of quality equipment.
2. What actions in particular you plan to take to change the culture of MPMEL?
Changing the organizational culture requires time, commitment, planning and proper execution.
It is more difficult to change the culture of an existing organization than to create a culture in a brand
new organization. When an organizational culture is already established, people must unlearn the old
values, assumptions, and behaviours before they can learn the new ones.
The two most important elements for creating organizational cultural change are executive support
and training.
Executive support: Executives in the organization must support the cultural change, and in ways
beyond verbal support. They must show behavioural support for the cultural change. Executives must
lead the change by changing their own behaviours. It is extremely important for executives to
consistently support the change.
Training: Culture change depends on behaviour change. Members of the organization must clearly
understand what is expected of them, and must know how to actually do the new behaviours, once
they have been defined. Training can be very useful in both communicating expectations and
teaching new behaviours.
Other components important in changing the culture of an organization are:
a. Create value and belief statements by using employee focus groups, by department, to put
the mission, vision, and values into words that state their impact on each employee's job. This
would provide all employees a common understanding of the desired culture that actually
reflects the actions they must commit to on their jobs.
b.
Practice effective communication by keeping all employees informed about the organizational
culture change process ensuring commitment and success. Telling employees what is
expected of them is critical for effective organizational culture change.
c.
Redesign the approach to rewards and recognition to encourage the behaviours vital to the
desired organizational culture.
Review all work systems such as employee promotions, pay practices, performance management,
and employee selection to make sure they are aligned with the desired culture. As an example, you
cannot just reward individual performance if the requirements of your organizational culture specify
team work. An executive's total bonus cannot reward the accomplishment of his department's goals
without recognizing the importance of him playing well with others on the executive team to
accomplish your organizational goals.
ASSIGNMENT C
9. In the private sector who has the firm hold over the companies?
a) Individual investors
b) Promoters
c) Financial Institutions
d) Customers
10. In the public sector who selects/ appoints the board members?
a) The PSU concerned
b) Controlling administrative ministry
c) The BOD
d) Financial Institutions
11. The head of the BOD is normally called-a)CEO
b)President
c) Chairman
d) Managing Director
12. For effective corporate governance CEO of the company-a) Should always head the BOD
b) Should never head the BOD
c) Be allowed to exercise his choice to head the board
d) Should be allowed to appoint the head of the BOD
13. The BOD should consists of-a) Only executive directors
b) Majority of executive directors
c) Only non-executive director
d) A good mix of executive and non - executive directors
14. Which one of the following is not a parameter of best boards?
a) Accountability of share holders
b) Maximization of profits
c) Independence of decision making
d) Transparency of disclosures
15. Desirable corporate governance in India - A code was prepared by-a)
Government of India
b)
FICCI
c)
Confederation of Indian Industries
d)
None of these
16. Directors are Liable for-a) Negligence and breach of trust
b) Misfeasance
c) None of the above
d) Both (a) and (b) above
17. The directors appointed by financial institutions on the BOD are called-a) Non-Executive directors
b) Executive directors
c) Nominee directors
d) Institutional directors
18. The Companies Act 1956 came into force on-a) 1 January, 1956
b) 1January, 1957
c) 1Apirl, 1956
d) 1April, 1957
19. One of the terms of reference for SEBI's committee on corporate governance
in May 1999 was-a)
To draft a code of corporate best practices.
b)
To offer comments on the Sir Cadbury's report.
c)
To draft instructions for an effective BOD.
d)
None of these
20. The formula for Economic Value Added is-a) Operating expenses (+) overhead expenses (-) Interest
b) ROI (-) Weighted average cost of capital (x) capital invested
c) Operating Profit (+) Capital Cost (-) Taxes
d) None of these (Correct is: = Net Operating Profit After Taxes (NOPAT) - (Capital *
Cost of Capital)
27. Who prepared the report titles "Desirable Corporate Governance in India - A
Code "?
a) Government of India
b) FICI
c) CI I` s Task Force
d) UTI
28. The above report was based on the draft report prepared by-a) Dr. Goswami
b) FICCI
c) Dr. CV Alexander
d) Mr Kumaramangalam
29. The major roadblock for effective Governance has been-a) Political Interference
b) Vested interests of management
c) Lack of control mechanism
d) Lack of societal pressure
30. Desirable Corporate Governance: A Code (DCGC) recommends that the full
board . should meet minimum of following items-a) Six times a year
b) Once a year
c) Twice a year
31. The National Task Force on Corporate Governance (set up by CII) was
headed by -a) Dr. Goswami
b) Mr. Rahul Bajaj
c) Dr. Omkar Goswami
d) Mr C K Birla
32. The word "value" is derived from the French /Latin word-a) Valeo
b) Vaelram
c) Valoir
d) Valer
33.A value is a ----------------- concept-- ( choose the word most suited to fill
the blank )
a) Behavioral
b) Perceptual
c) Management
d) Decision
34. Conflict of interest-a) Situation where Shareholders are in conflict with other Stakeholders
d) Different stakeholder groups and individual employees trying to balance their
various interests
c) Dispute between the Boards of Directors
d) Situation where company and the Government is at loggerheads.
39. Ethical issues are truly managerial dilemma they represent a conflict
between an organization economic performance and its-a) Reputation
b) Growth
c) Social / ethical performance
d) Employees job satisfaction
40. A good Corporate Governance structure is a working system for-e)
Recognizing the myth that is 'democracy'
f)
Appropriate monitoring of compliance and performance
g)
Lobbying for necessary legislation when the courts do not give favorable
decisions
h)
None of these