Assignment – 2

BECG

Name- Priya Chauhan

ABS/PGDM/20/031

Ques 1. The consequences of COVID19 may create famine across the globe. More
specifically in underdeveloped or least developing countries. Few unethical
business practices may occur such as warehousing, price hiking, artificial supply
shortage etc. Please share your opinions (Actual and expected ethical business
practices) based on your own country's present ethical business practices during the
tragedy of COVID19 calamity.

Ans.1 We all can see that COVID 19 has presented enormous challenges to
the entire Nation. Though Ethical business decisions are always important
ethics becomes even more significant when dealing with a crisis. Indian
Companies have once again proved that they care by resorting to ethical
practices in dealing with this unprecedented crisis. Businesses are being led
from the top and ethical decision-making is being considered to be the need
of the hour by balancing the interest of various stakeholders. Leaders from
Indian Corporates as always rose to the responsibility of assisting the
Government in its fight and have been displaying the highest degree of
ethical practices. Following are different ways in which leading Indian
Companies have contributed in dealing with this unprecedented threat,
Monetary and Non-Monetary Contribution by Being a Responsible
Employer Enhancing Infrastructure facility.

In this harsh time, many big companies contributed their fair share to make
this time bearable for example

i. Significant monetary contribution to the extent of 2000 Crores has

come from Indian Companies and more is expected. Highest being
that from Tata group to the extent of 1500 crores, Adani,100 Crores,
Jindal South West (JSW )group 100 Crores just to name a few.
 Reliance Industry Limited (RIL) decided to provide free fuel for all
emergency vehicles plying. Parle-G decided to provide 3 Crores
biscuits packets to the people in need. Several companies are
offering their resorts and hotels to be used for Quarantine purposes or
for accommodating doctors and other support staff i.e. TATA,
Mahindra, and Mahindra.

ii. Indian Companies are also helping the government in its fight against
COVID 19 by assisting in developing and enhancing infrastructure
facilities Reliance Industries Limited has set emergency hospitals and
isolation centers. The company is also increasing its manufacturing
capabilities to produce 100,000 face masks per day and other
protective equipment for health workers to well equip them in this
fight against deadly coronavirus. Mahindra and Mahindra (M&M)
announced the manufacturing of Ventilators at a very competitive
costing.

iii. Vedanta Group has set up a 100 Crores fund to help daily wagers and
their contractual workers and to other needy communities across their
various plant locations.

iv. Hero Group also set up 100 Crores fund to help their employees,
vendors and dealers.

It is very clear that socially responsible companies are doing

everything they can in the greater interest of the community and the
nation while attempting to balance various stakeholders Gesture
shown by Indian Companies is commendable, but this needs to be
continued as this pandemic has no time tag. Companies need to come
up with a long drawn plan to protect the interest of their vulnerable
workers. Moreover, even after this crisis is relented enormous
generosity is expected from companies considering the long lasting
financial implications of this pandemic.
 This crisis can also be considered as an opportunity to build
indigenous infrastructure for health and also for supporting our in-
house manufacturing capabilities reducing dependence on imports.

Amidst this gloomy and challenging situation there lies a hidden

opportunity for the companies to create goodwill as history has shown
that businesses upholding values are rewarded by consumers and also
by the employees.

Ques 2. “Good governance entails policies, practices, procedures and systems that
strengthen the corporation, reaping internal benefits: clear governance policies,
practices and procedures; improved oversight and supervision; sound
organizational management”. If these are the rewards of good corporate
governance. Then deign the risks and challenges of corporate governance failure?

Ans.2 The main problem with corporate governance is that it doesn't stand alone; it
has to work in conjunction with a company's mission and values statement to give
directors and stakeholders a clear guide about how they should behave. There are
several problems that a business might struggle with as follows:

i. Conflicts of interest: A conflict of interest occurs when a controlling

member of the company has other financial interests that could influence
his decision-making or conflict with the objectives of the company. For
example, a board member of a wind turbine company who owns a
significant amount of stock in an oil company is likely to be conflicted,
because she has a financial interest in not representing the advancement
of green energy. Conflicts of interest erode the trust of stakeholders and
the public and potentially open the business up to litigation.

ii. Governance standards: A board can have all the equitable rules and
policies it likes but if it can't propagate those standards throughout the business,
what chance does the company have? Resistant managers can subvert good
corporate governance at the operational level, leaving the business exposed to state
or federal law violations and reputational damage with stakeholders. A policy of
corporate governance needs a clear enforcement mechanism, applied consistently,
as a check and balance against the actions of executive staff.
iii. Short-termism: Good corporate governance requires that boards should
have the right to manage the company for the long-term, to create sustainable
value. This is problematic for a couple of reasons. First, the rules governing a listed
company's performance tend to prioritize short-term performance for the benefit of
shareholders. Managers face an unrelenting pressure to meet quarterly earnings
targets, since dropping the earnings per share by even a cent or two could hit the
company's stock price. Sometimes a company has to go private to achieve the kind
of sustainable innovation that cannot be achieved in the glare of the public
markets.

The second problem is that directors only sit on boards for a brief period and many
face re-election every three years. While this has some benefits – there's an
argument that directors cannot be considered independent after 10 years of service
– short tenures could rob the board of long-term oversight and critical expertise.

iv. Diversity: its common sense that boards should have an obligation to ensure
the proper mix of skills and perspectives in the boardroom, but few boards take a
hard look at their composition and ask whether it reflects the age, gender, race and
stakeholder composition of the company. For example, should workers be given a
place on the board? This is the norm across most of Europe and evidence suggests
that worker participation leads to companies having lower pay inequalities and a
greater regard for their workforce. It's a balancing act, however, as companies may
focus on protecting jobs instead of making tough decisions.

v. Accountability issues: Under the current model of corporate governance,

the board is positioned squarely between shareholders and management. Authority
flows from the shareholders at the top and accountability flows back the other way.
In other words, it's shareholders – not stakeholders generally – who are most
protected by corporate governance and shareholders – not stakeholders – who get
to withhold critical votes unless certain reforms are implemented.

Corporate governance is the internal structure of a corporation from its lowest level
workers all the way up to its executives. The term is also used to describe how a
corporation makes its decisions regarding business-related activities from reaching
its short-term and long-term goals to communicating with shareholders. Corporate
governance has far-reaching effects not only for the business itself but for the
financial market as a whole.

Some of the governance issues faced by the firms which eventually lead to
corporate governance failures are –
• Ineffective governance mechanisms, for example, lack of board committees
or committees consisting of few or a single member.
• Management, who deliberately undermines the role of the various
governance structures by circumventing the internal controls and making
misrepresentations to auditors and the Board.
• Non-independent board and audit committee members, for example where a
CEO fulfilled multiple roles in various committees.
• Inadequately qualified members, for example, audit committee members not
having appropriate accounting and financial qualifications or experience to
analyses key business transactions, family members holding board positions
without appropriate knowledge or qualifications.
• Ignorance by regulators, auditors, analysts etc of the financial results and red
flags.

Corporate governance failures have resulted in massive problems faced by the

companies over the years

Example of failure of Corporate Governance:

Satyam Computers Pvt. ltd: Satyam began facing problems from December the
16th, 2008. Its chairman Mr. Ramalinga Raju, in a surprise move announced a $1.6
billion bid for two Maytas companies. He wanted to deploy the cash available for
the benefit of investors. Raju’s family promoted and controlled the two companies.
The share prices plunged 55% voicing concern towards Satyam’s poor corporate
governance. They overturned the decision in 12 hours. This resulted in the
resignation of several independent directors of the firm. Thus, this resulted in a
further fall in the share prices of Satyam.
On 7th January 2009 B Ramalinga Raju, the founder of Satyam Computer
Services, confessed to a Rs 7,000- crore balance sheet fraud. He had hidden it from
the IT Company’s board, employees and auditors for several years. He revealed in
his confession that his attempt to buy Maytas companies was his last attempt to
“fill fictitious assets with real ones”.
The government reacted to the fraud by overhauling the regulatory framework. It
introduced the new Companies Act 2013, which fixed liabilities of auditor and
independent directors, among other changes. In 2014, market regulator SEBI
amended Clause 49 of listing guidelines to improve corporate governance.
Corporate governance is critical issue faced by all companies. The above cases
highlight the fact that poor corporate governance can lead to a downfall of the
largest companies. Regulatory bodies have increased their scrutiny on the firms are
under increased scrutiny by regulatory bodies which increases the importance of
good governance. Digital solutions can help firms implement a robust governance
mechanism to help significantly reduce risk of governance failure.

Enron: The primary reason for the failure of Enron was attributed to an audit
failure. The problem faced by Enron was despite having structures and
mechanisms in place for good corporate governance. Nobody flaunted and flouted
these rules and regulations. The board of directors turned a blind eye to open
violation of the code. Particularly, when it allowed the CFO to serve in special
purpose entities (SPEs). The auditors failed to prevent suspect and questionable
accounting. The auditors did not even examine the SPE transactions.
Enron shareholders filed a $40 billion lawsuit after the company’s stock price fell.
It achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1
by the end of November 2001. On December 2, 2001, Enron filed for bankruptcy
under Chapter 11 of the United States Bankruptcy Code.

As a result of the scandal, the US government introduced new regulations and

legislation to expand the accuracy of financial reporting for public companies. The
Sarbanes-Oxley Act was introduced as a result of the Enron scandal. It increased
penalties for destroying, altering, or fabricating records in federal investigations or
for attempting to defraud shareholders.

Ques 3. Even the smallest company impacts social change by making a simple
donation. How Corporate Social Responsibility acts a tool for social and economic
development? Elaborate the same along with the examples.

Ans.3 The term corporate social responsibility (CSR) refers to practices and
policies undertaken by corporations that are intended to have a positive influence
on the world. The key idea behind CSR is for corporations to pursue other pro-
social objectives, in addition to maximizing profits.

Helps in Social Development and Economic Development:

• Helps in Poverty alleviation: One root of poverty is lack of access to

markets and resources. Companies can help by providing skills training and
financing options to disadvantaged peoples and communities. Companies also
provides mid-meals in schools. Companies establish their manufacturing units in
rural areas, it provides and generates employment to poor peoples in society.
• Helps in increasing living of standard: When Companies setup their plants
in rural areas, it generates employments, peoples engage in different occupations
and they earn money and this increases their standard of living, (many organization
build their own schools in rural areas) by providing free education and midday
meal to their children they minimize their expenses, it also helps in issues like
child labor.

• Helps in increasing Education: There are various programs that companies

run through CSR activities through which education is promoted in rural areas.
Many Companies runs their own schools in which they provide free educations to
children of employees of lower income segments like peons, guards etc. or to poor
income group of people in society.

• Helps in increase awareness towards social issues: Many organizations

run campaign to increase awareness regarding various social issues likes medical
issues like depression, STD, AIDS, sexual harassment, discrimination, child labor
etc.
Companies also organize campaign like blood donation, eye check-ups etc.

• Helps in rural community development: Organizations setup their plants

in rural/villages/backward areas, when peoples are exposed to urban areas and their
lifestyle, it helps in change of mind-sets and thinking.

• Helps in upgrading and adapting with technology: Organisation organise

campaign that can help teaching peoples about water conservation, rain water
harvesting, and new irrigation techniques to improve production of crops and
pulses.
• Helps in uplifting GDP: When there is increase in standard of living,
standard of education is increase and purchasing capacity of poor segment is lifted
then it helps in increase of GDP and increase in economic conditions in country.
Examples of Organization that are involved in Corporate Social Responsibility are
as follows:
• Tata Group
The Tata Group conglomerate in India carries out various CSR projects, most of
which are community improvement and poverty alleviation programs. Through
self-help groups, it has engaged in women empowerment activities, income
generation, rural community development, and other social welfare programs. In
the field of education, the Tata Group provides scholarships and endowments for
numerous institutions.
The group also engages in healthcare projects, such as the facilitation of child
education, immunization, and creation of awareness of AIDS. Other areas include
economic empowerment through agriculture programs, environment protection,
providing sports scholarships, and infrastructure development, such as hospitals,
research centres, educational institutions, sports academy, and cultural centres.

• Ultratech Cement
Ultratech Cement, India’s biggest cement company is involved in social work
across 407 villages in the country aiming to create sustainability and self-reliance.
Its CSR activities focus on healthcare and family welfare programs, education,
infrastructure, environment, social welfare, and sustainable livelihood.
The company has organized medical camps, immunization programs, sanitization
programs, school enrolment, plantation drives, water conservation programs,
industrial training, and organic farming programs.

• Mahindra & Mahindra

Indian automobile manufacturer Mahindra & Mahindra (M&M) established the K.
C. Mahindra Education Trust in 1954, followed by Mahindra Foundation in 1969
with the purpose of promoting education. The company primarily focuses on
education programs to assist economically and socially disadvantaged
communities.
Its CSR programs invest in scholarships and grants, livelihood training, healthcare
for remote areas, water conservation, and disaster relief programs. M&M runs
programs such as Nanhi Kali focusing on education for girls, Mahindra Pride
Schools for industrial training, and Lifeline Express for healthcare services in
remote areas.

• ITC Group
ITC Group, a conglomerate with business interests across hotels, FMCG,
agriculture, IT, and packaging sectors has been focusing on creating sustainable
livelihood and environment protection programs. The company has been able to
generate sustainable livelihood opportunities for six million people through its
CSR activities.

Their e-Choupal program, which aims to connect rural farmers through the internet
for procuring agriculture products, covers 40,000 villages and over four million
farmers. It’s social and farm forestry program assists farmers in converting
wasteland to pulpwood plantations. Social empowerment programs through micro-
enterprises or loans have created sustainable livelihoods for over 40,000 rural
women.