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Corporate governance

Corporate governance covers corporate conduct, character, order,
philosophy & practice.
It is all about fairness in all dealings with all stakeholders.
Stakeholders include internal members like shareholders, employees,
executives etc. & external members like supply chain participants,
customers, competitors, regulatory bodies, government, tax
authorities, trade associations, society etc.

It is concerned with the quality of interactions between the
corporate body on the one hand & the divergent stakeholders
on the other.
It is the accountability of the board of directors towards its
stakeholders.
It ensures how effectively the board of directors & mgt. are
discharging their functions in building & satisfying
stakeholders’ confidence.

Principles of corporate governance –

 Transparency – accurate, adequate & timely disclosure of
relevant information to different stakeholders.
 Accountability – since the top mgt. has considerable authority
over the use of resources, they must accept accountability for all
their decisions & actions.

 Independence – board of directors or top mgt. should be
independent, strong & non-partisan body where all decisions are
based on business prudence.

. Ethics consists of moral rules or principles.  Heavy compensation package of top executives. care for the environment. justness. In common usage it can mean morality. Business ethics: Ethics means the science of moral duty or the science of ideal human character. Reporting – adequate reporting to various stakeholders on major developments. dept. goodness. there is no job security for the employees. have observed frequent violation of law by the corporate entities.g. for e.  Institutional investors are capable of affecting the major decisions of the entities by holding majority of shares.  Because of intense competition. Need for corporate governance:  Today.  Various govt.  Society’s expectations from the corporate world have undergone lot of changes. a company has a very large number of shareholders spread all over the world because of which the idea of shareholders’ democracy remains confined only to statute .  Complications due to mergers & takeovers. honesty etc.

It provides a code of conduct for the managers. It is concerned with what is right & what is wrong in human behavior. Some of the examples are –  To charge fair price  To pay tax honestly  To earn reasonable profit  Fair treatment to workers Business ethics in the behavior of employees:  Employee ethics in relation to work  Employee ethics in relation to superior  Employee ethics in relation to subordinates  Employee ethics in relation to colleagues  Employee ethics in relation to organization Business ethics in the behavior of top mgt.A law is usually concerned with only the minimum regulations necessary to work in different capacities. but business ethics ensure that the business adheres to rules & regulations which is much more above the minimum requirements. . Business ethics refers to the moral principles which should govern business activities.

a part of that system. life of employees etc. Social responsibility of business simply reinforces the interdependence among business. Ethical behavior in dealings within the organization – consists of internal relationship like fair work load. decent work environment good conflict resolution. in fact. society & environment. It is the obligation of an organization to protect & enhance the social context in which the organization functions. impartiality. The assumption of social responsibility implies recognition & understanding of the aspirations of the society & determination to contribute to its achievement Responsible to whom (constituents): .  Ethical behavior in dealings with the outside world – fairness in dealing with customers. they have a responsibility to serve the society & protect the environment in return. with channel members. It is the obligation of business firms to function as part of a larger social system because they are. fair wage policy. respect for pvt. with competitors. Social responsibility of business: It is the recognition that organizations have significant influence on the social system & that influence must be properly considered & balanced in all organizational actions. As the business draw resources from the society & environment. with trade unions etc.

intervention Social obligation v profit objective There is an argument against social obligation saying that if social responsibilities are taken care of at the cost of economic objectives. local. However. owners (shareholder). Why social responsibility? ( arguments in favor) • Use of society’s resources • Long term business interest • Moral justification • Better public image • Conscious customers • Strong trade unions • Fear of govt. & secondly. Profit objective can not be eliminated as the very survival of business depends on it. local community. an enterprise earning profit can serve the society better than an enterprise running into loss. to nurture & develop human values like motivation. Thus. social responsibility refers to both socio-economic & socio-human obligation of the business. the survival of business will be in danger. etc. The concept of social responsibility has two phases – firstly the businessmen recognise that they have a broad obligation to the society affecting public welfare such as employment. creditors. customers. uninterrupted supply of essential goods at fair price etc. morale.The constituents to whom business is responsible are multiple like employees. suppliers. . state or union governments. cooperation etc in work. trade associations.

to transform one or more inputs into one or more outputs that represent solutions from the internal or external stakeholders’ point of view. An organization may have many business processes. might cut across departments. a part of it can be spent for the welfare of the society. while production process concentrates only on production process/activity. mgt. in turn. Business process cuts across all functional lines of the enterprise. Each process might consist of many sub-processes which. Business process reengineering (BPR) or simply process reengineering concentrates on business process rather than production process. Thus.But if it is earning sufficient profit. Business process reengineering: Reengineering basically strives to break away from the old rules about how we organise & conduct business. . Business process: what is it? A business process consists of an activity or set of activities. BPR is gaining more & more significance these days. Thus. Poor BP will take away customers more definitely than poor production process. should consider earning of profit as well as performing of social obligations simultaneously. by recognising & rejecting some of them & then finding imaginative new ways to accomplish work.

It is always concerned with improving efficiency & effectiveness of an overall process. However. inventory planning. cutting down layers of decision-making & timely task completion are the essence of BPR. performance appraisal process. are some of the pitfalls. . budget preparation etc. credit approval process. plan & business operations. Business process reengineering is concerned with questioning the statusquo as to the way a particular process is carried out.Some of the typical examples are – order processing. It demands a careful analysis of the customers’ needs. purchase process. selection process. Total quality management (TQM): One popular approach for improving quality is that of TQM. & a plan to fill the possible gap between the current & the desired situation. choosing the wrong process to reform. Work simplification. inadequate change mgt. an assessment of the degree to which these needs are currently met. improved process efficiency etc. better linkage between strategy. The success of TQM often needs the cooperation among its participants. TQM involves organization’s long term commitment to the continuous improvement of quality throughout the organization. rigid organizational structure etc. Some of the advantages of BPR are – improved customer focus. & with the active participation of all members at all levels to meet & exceed customers’ expectations.

evaluation. the concept of TQM need not be restricted to corporate world alone. reduced cost & improved profitability. long-term effort. top managers must be involved. fewer defects & less waste. . it can even be applied to govt. All the people concerned should be willing to accept changes from time to time. This feedback about past events is not good enough for control. It is nothing more than postmortem where no one has found way to change the past.To make TQM program effective. Feed forward (pre-action) control: In mgt. Any quality improvement effort requires not only the support but also active involvement of all levels of mgt. depts. Feedback (post-action) as a control mechanism just shows deficiency in the historic or past event. Training & development of the staff is very important for developing skills & for learning how to use tools & techniques relevant to TQM. TQM results in greater customer satisfaction. Ultimately. increased total productivity. feedback & improvement programs. When implemented effectively. Thus. horizontally & diagonally. TQM is not a one-time effort. It is obvious that for its success TQM demands a free flow of information – vertically. or NGOs or even to non-profit making organizations. but it is a continuous. The quality improvement efforts need to be continuously monitored through data collection. control should always be directed towards future if it is to be effective. They must provide a vision. reinforce (strengthen) values emphasising quality. set quality goals & arrange resources for the quality program. it ultimately results in an environment where quality has high priority.

Therefore. It is based on timely & accurate information about changes in the environment. . & that problems will occur if they do not do something about them right now. if right information is not available in time. Feed forward system monitors inputs into a process to ascertain whether the inputs are as planned. then feed forward control is not going to be effective.What managers need for effective control is a system that will tell them. Feed forward control can be effective if following guidelines are followed. Preventive maintenance program is an important example for feed forward control.  Careful discrimination must be applied in selecting input variables. it should be flexible.  The system of feed forward control must be kept dynamic or up to date.e. to take corrective action. Feed forward control involves evaluation of inputs & taking corrective measures before a particular sequence of operations is completed. i. if they are not. then are to be changed in order to obtain desired results. in advance. (Requisites)  Thorough planning & analysis must be done.  Data on input variables must be regularly collected & processed .  Corrective action must be taken as suggested by feed forward control Feed forward v feedback system: Simple feedback system measures output of a process & provides an assessment to take corrective action to reach the desired results.

Management information system (MIS) .Real-time information control (concurrent control): Real-time information is information about what is happening while it is happening. Today. Some people see real-time information as a means of exercising realtime control in areas of importance to managers. It is also called steering control. An executive can have access to up to date information about a particular operation as & when the transaction is taking place. it is technically possible with the use of information technology & satellite service to obtain real-time data on many operations.

to plan. inflation rate. control & evaluate the activities of the enterprise. . Why MIS? Today’s organizations have grown in size & complexity. education level. change in the government.MIS is a formal method of collecting timely & accurate information in a presentable form in order to facilitate effective decision making & implementation of these decisions in order to carry out organizational operations for the purpose of achieving the organizational goals. GNP etc. interest rate. decisions – large organizations going for decentralization & hence they need more & more accurate & timely information about the operation of the whole unit.  Technological factors – include new technological innovations in different areas  Social factors – like changes in socio-cultural set up. are –  Economic factor – information about changes in the economic structure. law & regulations affecting business etc.  Need to control mgt. Some of the continuously changing factors in the environment affecting the individual org. value systems etc. The dynamics of the environment further adds to the complexity of organizational operations. unemployment rate. MIS is a system designed to provide selected decision-oriented information needed by mgt. are required on a continuous basis in formulating strategies & policies.  Politico-legal factors – changes in the political system.

Developing MIS: Developing of MIS basically consists of design phase & implementation phase. also indicating various components of the system & the methodology of implementing the system. Design phase involves the following steps –  Identifying various decisions that must be made to run an organization.  Set objectives for the system (MIS)  Prepare a feasibility report – emphasizing the necessity as well as economic feasibility of developing & implementing the system.  Preparing a technical report – regarding the hardware & software needed. Have more data storage capacities. equipments & personnel  Training the personnel  Installing the new MIS  Testing the new MIS  Operating the system  Evaluating MIS to see if it is doing what it is supposed to do . Implementation stage involves the following steps –  Acquiring necessary facilities. Computerization – computers becoming more powerful & less expensive to operate.

must be actively involved in the implementation of the system. Guidelines for improving MIS:  Involvement of top mgt.MIS & misconceptions/mistakes: Some of the common misconceptions about MIS & some of the common reasons for the failure of the system are -  More information is better for effective decisions – reality is.  Human acceptance – Ultimately.  Computers cannot do everything – Use of computers is only supplementary to good decision making.  Lack of managerial involvement – Top mgt. but the quality & timeliness of information that matters in making the decision taken effective.  Failure of proper communication – Inter-departmental communication must be clear & precise. it is not the quantity. the success of MIS depends on the acceptance of the people who are supposed to use it.  Developing a master pan explaining about the whole system . & not substitute for good decision making.  Proper coordination between designers of the system & the users of the system.

 Accountability for the success of the system on both designers & users. .