Module-3

Corporate governance is a set of rules, principles, regulations, or processes through which

companies are controlled and directed. The need for corporate governance arose due to various
corporate failures in the past. Therefore, by following these rules and principles, companies can
regulate their processes better. Corporate governance applies to both a company’s daily operations
to management or strategic activities.

Corporate governance allows companies to regulate their relationships with their stakeholders
better. These may include both internal and internal stakeholders. It ensures that the board of
directors only pursue objectives that are in line with stakeholders’ expectations. Corporate
governance deals with the integrity and objectivity of a company’s board of directors in their
dealings with the stakeholders.

For some companies, following corporate governance may be optional. However, in most
jurisdictions, public companies must follow these principles. There are various objectives that
corporate governance tries to achieve. These objectives come from the underlying principles that
corporate governance implies over companies.

• Importance of Corporate Governance

1. Minimize Agency Problems
Agency is when one entity acts as another entity’s agent. In companies, the management
acts on behalf of the shareholders, which is a type of agency relationship. In some instances,
the board of directors may not act in the shareholders’ best interests. Corporate governance
tackles that problem by ensuring the objectives of both the shareholders and the
management are in line.
2. Protect Stakeholders
Apart from minimizing agency problems, corporate governance protects a company’s other
stakeholders as well. These may include both internal and external stakeholders. Corporate
governance defines the relationship that companies must have with their stakeholders. By
doing so, it ascertains that each stakeholder’s rights are clear for companies to fulfill.
3. Attract Investors
Corporate governance provides companies with a system for best practices. Through this, it
ensures a company’s operations are efficient. As mentioned, it also protects shareholders’
and other stakeholders’ rights. When investors look for companies to invest in, they will
always prefer companies with good corporate governance. This way, corporate governance
can attract new investors.
4. Promotes Accountability
A good corporate governance system ensures that companies follow a sound, transparent,
and credible financial reporting system. This way, corporate governance helps promote
accountability in a company. This accountability can also help in the above aspects, helping
attract more investors or protect stakeholders.

Q.2 Fair & Unfair Business Ethics.

these are those practises which are based on ethical ideas and thoughts."
Examples of Fair Trade Practices :
1. Towards employees
•Payment of fair wages and salaries
•Healthy Work Environment
 •Good working conditions
•Employee participation in management
•Employee Empowerment
•Proper mixture of monetary and non-monetary motivational factors.

2. Towards Customers
•Moderate prices of the goods and/ or services
•Timely supply of the goods and / or services
• Total Quality Management
Perfectly competitive market
Proper Information of the product/service
• Wide scope for choice

3.Towards Shareholders/Investors
• Optimum Use of the Funds
• Fair Return on their Investments
• Safety and Security of Funds
• Timely Disclosure of necessary documents
• True and Fair View

4.Towards Suppliers
• Regularity and Honesty in placing orders
• Trust and Confidence
• Good relations
• Regularity in payments

5. Towards Creditors / Financial Institutions

• Optimum Use of the funds
• Productive use of loans/ borrowings
• Regularity in payment of EMI
•Cordial relation and communication

6. Towards Government
• Regular payment of taxes, duties, fees and penalties
• Proper implementation of rules and regulations
• Participation in development of interiors of the country
• Export Promotion and Import Substitution
• Support for achieving Self-sufficiency
• Contribution to raise National Income

7. Towards Society
• Conservation of Natural Resources
• Optimum use of resources
• Creation of Employment Opportunities
• Adoption of Pollution Controlled Techniques of Production
• Raising the standard of living of masses
• Participation towards medical, academic public utility services
Unfair Business Practices
Meaning
"An unfair trade / Business practice means a trade practice, which, for the purpose
promoting any sale, use or supply of any goods or services, adopts unfair method, unfair or
deceptive practice.
Examples of Unfair Business Practices

1. Towards Employees
• Inadequate pay
• Exploitative work practices
• Unhealthy Work Environment
• Improper and unhygienic working conditions
• Lack of employee participation in management
• Absence of employee Empowerment
• Lack of motivation

2. Towards Customers
• High prices of the goods and / or services
• Improper supply of the goods and / or services
• Inferior quality of product / service
• Monopoly of seller
• Hoarding and adulteration
• Misleading Advertisements
• Black marketing and short weights

3 . Towards Shareholders / Investors

• Improper Use of the Funds
• Creation of false documents to show faulty results
• Lack Safety and Security of Funds
• Manipulation of documents
• Absence of True and Fair View

4.Towards Suppliers
• Lack of Regularity and Honesty in placing orders
• Absence of Trust and Confidence
• Conflicts in relationships
• Irregularity in payments of dues

5.Towards Creditors / Financial Institutions

• Misuse of the funds
• Personal use of loans/ borrowings
• Irregularity in payment of EMI
• Lack of Co-cordial relations and communication

6. Towards Government
• Irregularity in payment of taxes, duties, fees and penalties
• No proper implementation of rules and regulations.
• Lack of interest in development of Interiors of the country.
 • Formation of business combinations for avoiding competitions & creating monopolies.
• Disregard to business laws, government policies and subsidies.

7. Towards Society

• Lack of interest in Conservation of Natural Resources

• Giving bribes, gifts to officials with selfish motive.
• Opposition for trade unions
• Inadequate measures for pollution control Over industrialisation in selected
areas.
• Lack of participation in social security and public utility measures.

STAKE HOLDERS’ THEORY

Introduction

This theory was embedded in the management discipline in 1970 and gradually developed by
Freeman (1984) incorporating corporate accountability to a broad range of stakeholders.

According to wheeler and others, stakeholder theory is derived from a combination of sociological
and organisational disciplines.

Stakeholder theory is a mixture of broad research tradition, incorporating philosophy ethics, political
theory, economics law and organizational science.

Definition

1. Than be defined as "

"any group or individual who can affect or is affected by the

achievement of the organisations objectives".

The theory aims at managers in the organization have a network of relationships to serve - this
includes the suppliers, employees and business partners.

2. According to Clarkson (1994) - In Stakeholders Theory, a firm is a system of stakeholders operating

within the larger system of host society, that provides the necessary legal and market infrastructure
for the firms activities.

In this the purpose of the firms is to create wealth or value for its stakeholders b converting their
stakes into goods and services.

Diagrammatic presentation of the Stakeholder Model (According to Donaldson and

Preston 1995).

Features

1. It includes a combination of organizational management & Business Ethics which

help in addressing morals and values in managing an organisation.
2. It mainly focuses on Stakeholders of a corporation.
3. If attempts to address the principle of who or what really counts
4. he different Stakeholders include employees, customers, suppliers, financiers, communities,
government bodies political groups, trade associations, unions.
 5. This theory integrates both a resource based view and a market based view & adds a socio-
political level.

AGENCY THEORY

A. Introduction

An agency, in general terms, is the relationship between two parties, where one is a principal and
the other is an agent who represents the principal in transactions with a third party. Agency
relationships occur when the principals hire the agent to perform a service on the principals' behalf.
Principals commonly delegate decision-making authority to the agents

B. Definition

The agency theory is a supposition that explains the relationship between principals and agents in
business. Agency theory is concerned with resolving problems that can exist in agency relationships;
that is, between principals (such as share holders) and agents of the principals (for example,
company executives).

he two problems that agency theory addresses are :

1. the problems that arise when the desires or goals of the principal and agent are in conflict,
and the principal is unable to verify (because it difficult and/or expensive to do so) what the
agent is doing; and
2. he problems that arise when the principal and agent have different attitude towards risk.

C. Features of The Agency Theory

1. The theory provides the fundamental theoretical base of corporate governance

The essence of the theoryis separation of ownership and control.

2. Shareholders as owners of the company set the objectives and acting as the principal appoints the
managers as their agents to pursue their objectives.

3. In Agency theory, managers (agents) run the company on behalf of the Shareholders (Principal).

4. In certain cases the objectives of the managers are different from the shareholders which raise
conflicts in their objectives. This is called as the "agency problem."

D. About the Agency Theory

1. Agency theory is an extension of contractual theory of firm developed by Jense and Meckling
(1976), and Fama and Jensen (1983) wherein a firm is viewed as the nexus of contracts among
different constituents specifying the rights of each agent (manager) in the firm, performingcrietaria,
on which agents are evaluated. And allocation of profits.

2. According to this theory, managers are the agents of the owners, but in reality they acquire
significant control over the funds. Managers use their control right to pursue their personal goals.

N 3. Many times managers are in advantageous position over the owners on account of possession
of the managerial expertise and firm specific knowledge. This position acts as an instrument to gain
control over the firm. A conflict of goals thus occur, as managers pursue actions which benefit
themselves.
4. To resolve the conflicts of interests, certain mechanisms are prescribed in the theory to protect
the interest of the owners :

a) auditing System to limit the self interested managerial behaviour.

'b) Various bonding assurances by the managers that such abuses does not take

place.

c) Changes in organization system to limit the ability of managers to engage in the undesirable
practices.

5. The focus of the theory is on identifying the governance mechanisms to limit the agent's self-
serving behaviour and thus resolving agency problem.

6. The Agency theory assumes that, an effective board comprises of majority of directors, who are
not managers in the company and independent from management. The interest of such directors is
called as outside directors orindependent directors. It is emphasized that independent directors,
lead to superior corporate performance by mitigating the conflict of interest between owners and
managers.

SEPARATION OF OWNERSHIP AND CONTROL

separation of ownership and management in corporate governance involves placing the

management of the firm under the responsibility of professionals who are not its owners. Owners of
a company may include shareholders, directors, government entities, other corporations and. the
initial founders. This separation allows skilled managers to conduct the complicated business of
running a large company.

With the structure of the modern corporation, the ownership of the company and the control
distribute among the shareholders. The structure of business can provide some advantages to the
company overall, but it can also create some extra burdens along the way. Before choosing to
incorporate, it helps to understand both sides of the issue.

BENEFITS

1. Unbiased Structure

Another advantage of separating the control and the ownership of the company is that the
executives and the upper level managers of the company are not necessarily those that own the
majority of the company. This separates those who make the day-to-day operational decisions for
the company from those who own stock. This means that the managers and Chief Executive Officer,
or CEO, can make decisions based on the interest of the company and not themselves.

2. Professional Managerial Skills

The growth of a company comes with the demand for different skills to manage the operations of
the company, meaning the owners of a company may not have all of the necessary skills and
experience needed for certain managerial roles. Creating a management team separate from the
ownership enables the company to be run by professionals with diverse skills such as in marketing,
corporate financing and public relations.

3.. Easier Performance Appraisals

Performance appraisals are an essential part of good corporate governance, as they, enable
managers to evaluate the company and to point out areas of improvement. It can" be complex to
evaluate performance where there is a lack of separation of ownership and management. But
separation makes it easier for the board and those in management to be evaluated objectively.
Owners can freely deal with the chief executive officer and other senior managers, even after the
appraisals.

4, Checks and balances.

Separate managers and owners in a firm ensure that a system of checks and balances is in place.
Managers act as a buffer between the company and stakeholders such that they can alleviate
negative impacts of stakeholder activities and avoid hitches in public . relations. Managers are well
suited to put in place strategies that will lessen losses to the rest of the stakeholders as a result of
the actions of another stakeholder.

WHISTLEBLOWING

whistle blowing is an attempt by a corporate employee to disclose wrong doing in an organisaiton

for achieving the organizational benefit. It may be internal i.e. reporting a corruptactivity through
higher authority to the organization for it may be external i.e. informing to government or media or
police authories.

Origin

Whistle blowing was first used by the Government employees who go to public with complaints of
corruption or market in Government agencies.

Later on it was used in private sector also

Meaning

It is an attempt by a member or ex-member of an organization to disclose wrong doing in or by the

organisation.

ternal Whistle Blowing

It is when wrong doing is reported only to higher authorities in the organization through formal
procedure existing in the organisation.

External Whistle Blowing

It is when wrong doing is reported to external individuals or bodies such as

Government agencies or news papers or Public Interest Groups.

Benefits

i It helps a company to deal with misconduct and thus prevent embarrassing

public disclosure.

hi) Employees will be assured that they will not suffer relation.

fi) Companies can get the benefit from learning about problems and can take
corrective actions before the problems be come public issue.

iv) It provides channel of communication to employees for responding to wrong

doing in the organisation.

Components of Whistle Blowing Policy

ASIS CG

a) A clearly defined procedure for voting

b). Statement of responsibility for the employees.

c) Well trained personnel to receive and investigate reports.

d) Commitment to take appropriate action.

e) Guarantee against fraudulent practice.

ELEMENTS OF GOOD CORPORATE GOVERNANCE

Corporate governance is basically a set of rules, practices, and procedures that

guides company oversight and control by its Board of Director and independent
committees. It involves balancing the interests of a company’s stakeholders—
including management, employees, suppliers, customers, and the community—with
the need to deliver value to its shareholders/owners. Having a strong, active,
governance program is absolutely critical to the ongoing financial health, growth, and
success of an enterprise over time.

ELEMENTS

1. A focus on diversity

Studies have shown that companies with more diversified boards are more risk averse,
have less volatile stock returns, and are more likely to pay dividends. So, it can be
argued that diversity by gender, age, and minority representation should be a key goal
for the composition of every company’s board and senior management ranks.

2. Regular compensation review and management

Another essential element of corporate governance is the review and management of

compensation at both the board and executive management levels.

Director compensation has been increasing in recent years as the hours devoted to
board positions have been growing. According to a 2016 Pay Governance review, the
median compensation received by directors at S&P 500 companies was $265,487.
3, Auditor independence and transparency

A review of audit practices and company accounting can also signal problems to
come. Auditors should be independent (with no financial interest in a company) with
the majority of their revenues derived from audit activities, not consultation services.
Accounting issues should be handled in a transparent manner, with complete, detailed
information and reports always available to the board and measures put in place to
prevent recurrence of any questionable findings.

4, PROXY VOTING AND SHAREHOLDER INFLUENCE

increasingly, investors are using proxy voting as a means to influence a board’s

corporate oversight as well as its commitment to improving its governance on issues
such as climate change, income inequality, and shareholder proxy access.

Failures of Corporate governance

1.Loss of Shareholder Confidence and Trust.

When a company deviates from its corporate governance strategy it sends a signal to its
shareholders that it cannot be trusted. This erodes any confidence that the shareholders had in the
business and leads them to feel cheated or misled. If shareholders believe bad business decisions are
in the company's immediate future, they may jump ship to avoid any potential loss.

2.Difficulty Raising Capital

Lack of adherence to a company’s corporate governance strategies can also scare away investors.
For investors, one of the most important aspects when making an investment decision is the level of
implementation of corporate governance principles (public disclosure of information, protection of
shareholder rights, and equal treatment of shareholders) and profitability, which ensures return on
their investment.

3,No-Risk Management

Not conforming to its corporate governance strategies may lead to a lack of risk management within
a business. This increases the possibility of the company making bad investments and decisions.

4,Increased Government Oversight

A company with a reputation for lack of adherence to corporate governance strategies may incur
increased government oversight from departments looking to verify that the company is operating
within the bounds of the law. This puts the business in the spotlight if anything was to ever go
wrong.
 MODULE 4
CSR

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be
socially accountable to itself, its stakeholders, and the public. By practicing corporate social
responsibility, also called corporate citizenship, companies can be conscious of the kind of impact
they are having on all aspects of society, including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways that
enhance society and the environment instead of contributing negatively to them.

Types of Corporate Social Responsibility

• Environmental Responsibility

Environmental responsibility is the pillar of corporate social responsibility rooted in preserving

mother nature. Through optimal operations and support of related causes, a company can ensure it
leaves natural resources better than before its operations.

• Ethical Responsibility

Ethical responsibility is the pillar of corporate social responsibility rooted in acting in a fair, ethical
manner. Companies often set their own standards, though external forces or demands by clients
may shape ethical goals.

• Philanthropic Responsibility

Philanthropic responsibility is the pillar of corporate social responsibility that challenges how a
company acts and how it contributes to society. In its simplest form, philanthropic responsibility
refers to how a company spends its resources to make the world a better place.

• Financial Responsibility

Financial responsibility is the pillar of corporate social responsibility that ties together the three
areas above. A company make plans to be more environmentally, ethically, and philanthropically
focused; however, the company must back these plans through financial investments of programs,
donations, or product research.

Benefits of Corporate Social Responsibility

• Brand Recognition
The consumers are more likely to act favourably towards a company that has acted
to benefit its customers as opposed to companies that have demonstrated an ability
to delivery quality products. Customers are increasingly becoming more aware of
the impacts companies can have on their community, and many now base
purchasing decisions on the CSR aspect of a business.

• Investor Relations
For companies looking to get an edge and outperform the market, enacting CSR
strategies tends to positively impact how investors feel about an organization and
how they view the worth of the company.
• Risk Mitigation
Consider adverse activities such as discrimination against employee groups,
disregard for natural resources, or unethical use of company funds. This type of
activity is more likely to lead to lawsuits, litigation, or legal proceeds where the
company may be negatively impacted financially and be captured in headline news.

Q3) Family-Owned Business

Introduction
In India, nearly one third of the publicly listed companies are promoted, controlled
and managed by the family. But many of these big companies of India are out of the
family's control because of their large size and a good percentage of them have
succeeded in clearly separating management from ownership. To reduce any
conflicts of interest the owners of the compantes take a back seat when it comes to
management, enjoying only the fruits of ownership. However, the situation in India
leaves much to be desired. The promoters are actively involved in the day-to-day
management and run the enterprises as their private property even when their
holding is low in comparison with outside holdings. In the listing agreement between
the company and the stock exchange, where the company's shares are listed, SEBI
mandated a clause of regulatory framework in India on corporate governance. While
countries like US, based on its bad experiences in the recent past has chosen to take
an extreme step to enact a law for making companies to conduct in a 'better way on
corporate governance, India decided to adopt a middle-of-the-road path in the form
of a clause in the listing agreement between the company and the stock exchange.
The Indian Family-Owned Business dates back to the latter half of the 19th Century,
which also marks the beginning of business in India. It is not surprising that the
family run businesses currently account for a whopping 95% of all Indian Companies.
Considering that the one third of the companies listed in Fortune 500 fall under this
category, including the currently second Wall-mart.
• Need of Professionalism
Professionalizing the family business is not only about changing from family
management to outside management. The difference between a “professionalized”
company and a “personalized” company is when it comes to decision-making time.
The personalized companies make spontaneous decisions, while professionalized
ones make planned decisions. Professionalizing the family business means changing
the informal to the formal so that decisions are based on unbiased and accurate
data. With Professionalizing the family business, you can take the business to the
‘next level.’
During its initial years, the small or mid-sized family business faces external or
market challenges such as defining the right strategy, getting access to capital and
acquiring a competitive benefit. But the very first and important thing is to create
the right strategy, survive and grow. At this initial stage, a super leader or a
remarkable entrepreneur manages the business with extraordinary passion and
insight. The leader’s values and skills promote the growth of a unique and distinctive
business.
• Need of Professionalism
Involvement.
Families who meet regularly, with the inclusion of spouses, to share, learn and
discuss information relevant to the company and to the family have healthier
families and businesses.
Disagreement without defensiveness.
Learning to respectfully disagree without becoming defensive is difficult for many
people. In families, it is extremely hard: the tension between individuality and
inclusiveness; the history of sibling rivalry for love and attention; the lingering
feelings of not being valued – all of these attack our sense of self. Allowing
disagreement without attacking increases the ability to be vulnerable, and hence
builds trust.
Sharing of tasks.
Inevitably, people think back to group projects in school. Few enjoyed the process
because either someone felt he or she had to do all the work, or someone wanted to
control the whole project. There are two components to sharing of tasks:
1) letting someone else do things in the way they believe the task should be
completed, and
2) completing the task in a reasonable and agreed upon timeframe to the agreed
upon standards.

A. Role of Board of Directors.

The role of the board is to;
• Establish the mission, goals and policies of the organization, what we should
accomplish and how we should conduct ourselves in the process.
• Develop a long-range plan for the organization; define our strategy and a time
frame for achievement of our goals.
• Ensure the long term financial stability and strength of the organization, develop
and maintain sources of income to provide for the continuing operation of the
organization.
• Ensure the long term organizational stability and strength of the organization,
bring into the organization individuals with the necessary abilities to lead and
manage the organization in the future.
• Maintain the integrity, independence and ideals of the organization; do not allow
individuals or organizations to compromise these principles.
• Hire and develop an executive director to manage the operations of the
organization.
• Exercise management oversight of the executive director and the operations,
approve annual budgets, review operating and financial results, audit for compliance
with internal policies and external requirements, review performance against goals.

• Role of Auditors
Issuance Of Audit Opinion: Basically, the statutory role of external auditors is to
issue an audit opinion on the true and fair view of the financial statements for use
by the shareholders and other stakeholders. Hence, the external audit is one of the
cornerstones of corporate governance. It provides an external objective check on
 how the financial statements has been prepared and presented and a means
through which shareholders monitor and control management, thus enhancing
transparency in a company. It is therefore imperative to appoint an independent
expert to audit the financial statements.

Evaluation of Internal Control: Internal control assessment is critical to the

discharge of the auditor's duty. Such an opportunity will allow the auditor to
understand the client's environment and help to decide on the appropriate audit
plan to adopt. Auditors are expected to communicate any form of weakness to
management via a Letter of weakness of internal control in accordance with ISA 400.

Accountability: Research has revealed that evaluating control and operation, which
is a duty of external auditor, enhances corporate governance. External auditors
introduce measures and policies that compel accountability. For instance, if the
financial statements prepared by management is manipulated through inflation of
figures, an external auditor could recommend penalties for such activities and
provide recommendations to curb reoccurrence.

Q. Why is audit done?

What is the Role of Auditing in Corporate Governance?
Internal Auditing: It is an independent, objective assurance and consulting activity
adding value and advancing the operations of a company. It assists a company in
achieving its goals by implementing a systematic, disciplined approach for evaluating
and improving the efficacy of risk management, control, and governance systems
Governing Body: The entity in charge of the organization's general direction and
control. In most cases, auditing serves two purposes. First, auditors provide
objective, unbiased assessments of the organization's governance structure and the
operational efficacy of specific governance operations.

• Role of Auditors
protecting Interests of Stakeholders

Auditors often have access to the key information regarding several activities being
carried out in the organisation and this makes them aware of the mismanagement
happening therein. Here, the auditor has the opportunity to inform the
management about the shortcomings in the policies while also bridging the gap
between the stakeholders and the management. This sharing of information can
definitely lead to better corporate governance.

2) Promoting Accountability

At times the auditors in an organisation become privy to the various misstatements

and figures that have been manipulated. This is the time when the auditor can
recommend penalties for every manipulation done by the company. This will help in
bringing a sense of accountability in every stakeholder and will also help the Board
of Directors to identify people who are not depicting professionalism in their work.
Such penalties can be in many forms like removal of the person from specific
position, delaying the promotion, reducing the annual bonus, etc
 3) Crisis Management

Bigger Organisations, at some point of time, go through financial crisis. This can be
attributed to any scam or corruption within the company or any allegation that a
company is subjected to from outside. In times like these, the auditor is expected to
have an action plan ready which shall include assigning different responsibilities to
different stakeholders of the administration.

• Role of Govt in CSR

As corporate governance becomes increasingly driven by ethical norms and the need
for accountability, and CSR adapts to prevailing business practices and legal
framework, a potential convergence between them surfaces. In India, the provisions
relating to Corporate Governance and CS are covered under following heads :
1. The Companies Act, 1956 (applicable to both listed and unlisted companies).
2. Securities and Exchange Board of India and regulations (applicable to listed
companies).
It may be noted that for the unlisted companies the norms are made comparatively
easier and are prescribed in the Companies Act, 1956. Whereas in case of listed
companies, all the Companies Act, 1956 provisions are applicable and also the SEBI
regulations, including the provisions of listing agreement with Stock Exchange, for
transparency, disclosure and corporate governance are applicable.
It may be noted that, at present, the provisions of Corporate Governance are
mandatory and recommendatory under various provisions discussed here in above.
With effect from April 1, 2014, every company, private limited or public limited,
which either has a net worth of 7 500 crore or a turnover of 7 1,000 crore or net
profit of? 5 crore, needs to spend at least 2% of its average net profit for the
immediately preceding three financial years on corporate social responsibility
activities.

• Corporate Governance
Governance refers specifically to the set of rules, controls, policies, and resolutions
put in place to direct corporate behavior. A board of directors is pivotal in
governance. Proxy advisors and shareholders are important stakeholders who can
affect governance.
Communicating a firm's corporate governance is a key component of community
and investor relations. For instance, Apple Inc.'s investor relations site outlines its
corporate leadership (its executive team and board of directors). It provides
corporate governance information including its committee charters and governance
documents, such as bylaws, stock ownership guidelines, and articles of
incorporation.
Most companies strive to have exceptional corporate governance. For many
shareholders, it is not enough for a company merely to be profitable. It also must
demonstrate good corporate citizenship through environmental awareness, ethical
behavior, and sound corporate governance practices.
 Module-5

Q) Global challenges in business ethics.

• Unethical Accounting
“Cooking the books” and otherwise conducting unethical accounting practices is a
serious problem, especially in publicly traded companies.

• Nondisclosure and Corporate Espionage

Many employers are at risk of current and former employees stealing information,
including client data used by organizations in direct competition with the company.
When intellectual property is stolen, or private client information is illegally
distributed, this constitutes corporate espionage. Companies may put in place
mandatory nondisclosure agreements, stipulating strict financial penalties in case of
violation, in order to discourage these types of ethics violations.
• Technology and Privacy Practices
Under the same umbrella as nondisclosure agreements, the developments in
technological security capability pose privacy concerns for clients and employees
alike. Employers now have the ability to monitor employee activity on their
computers and other company-provided devices, and while electronic surveillance is
meant to ensure efficiency and productivity, it often comes dangerously close to
privacy violation.
• Whistleblowing or Social Media Rants
The widespread nature of social media has made employees conduct online a factor
in their employment status. The question of the ethics of firing or punishing
employees for their online posts is complicated. However, the line is usually drawn
when an employee’s online behavior is considered to be disloyal to their employer.
This means that a Facebook post complaining about work is not punishable on its
own but can be punishable if it does something to reduce business.

• Frauds- Meaning

Introduction
As the business progresses, trade and commerce activities expand, the profits,
turnover go on increasing simultaneously. The society in which per capital income,
std., of living, national wealth, national income are accelerating, such society is an
indicator of a growing economy.
But, every coin has 2 sides. On one hand when we talk about prosperity, diversity,
on the other hand, we observe an emergence of unethical practices.
Nowadays, frauds, scams, corruption etc. such terms are found everywhere. There
will not be any sector or area where this disease has not entered. Corruptive or
fraudulent practices are like slow poisoning which destroy the system of faith,
loyalty, reliability confidence of the people and help to proceed towards unrest,
underdeveloped society.

Definition and Meaning of Fraud

According to Collins English Dictionary fraud can be defined as "deceit, trickery,
sharp practice or breach of confidence, perpetrated for profit or to gain some unfair
or dishonest advantage.
Maintain the tone of Ethics at the top: The subordinates have the tendency to
follow their superiors. When the signals are passed on to the middle management
about the unethical behavior of the top management the fear of punishment gets
reduced and the tendency of following the superior dominates.
Review and enforce password security . The incidences of hacking and the Phishing
have troubled the Indian Private sector banks to a great extent. In addition to this
most of the Indian banks are running behind the ATM and credit cards to compete
with each other but have conveniently forgone the fact that ATM cards and the
credit cards are the best tools available in the hands of the fraudsters
Promote the Whistle blowing Culture: Many of the surveys on Frauds have shown
that the frauds are unearthed by the “TIPS” from insider or may be from outsiders.
Internal audits and internal controls come much later. The message about
contacting the vigilance officers is flashed in most of the branch premises.

Overcoming losses in Financial Markets.

Frauds in Indian Financial Markets

The normal human nature is to save monies earned. People expect returns on their
savings and hence, there are a lot of opportunities for them to invest. One of the
lucrative investments in which people find huge returns in lesser periods is
Investment in Shares.
Though there are various regulations controlling the share market operations we
have been coming across various frauds one after the other like Security Scam
(Harshad Mehta) in 1995 and the latest scam (by Ketan Parekh), which has
unearthed the involvement of various bigwigs in the investment market frauds.
These are only big scams. But in the day-to-day transactions in the investment
market various frauds are committed by various people, which affect the financial
status and investor sentiments.

Corruption is not only about bribes: People especially the poor get hurt when
resources are wasted. That’s why it is so important to understand the different kinds
of corruption to develop smart responses.

2. Power of the people: Create pathways that give citizens relevant tools to engage
and participate in their governments – identify priorities, problems and find
solutions.

3. Cut the red tape: Bring together formal and informal processes (this means
working with the government as well as non-governmental groups) to change
behavior and monitor progress.

4. It’s not 1999: Use the power of technology to build dynamic and continuous
exchanges between key stakeholders: government, citizens, business, civil society
groups, media, academia etc.
 5. Deliver the goods: Invest in institutions and policy – sustainable improvement in
how a government delivers services is only possible if the people in these
institutions endorse sensible rules and practices that allow for change while making
the best use of tested traditions and legacies – imported models often do not work.

6. Get incentives right: Align anti-corruption measures with market, behavioral, and
social forces. Adopting integrity standards is a smart business decision, especially for
companies interested in doing business with the World Bank Group and other
development partners.

7. Sanctions matter: Punishing corruption is a vital component of any effective anti-

corruption effort.

8. Act globally and locally: Keep citizens engaged on corruption at local, national,
international and global levels – in line with the scale and scope of corruption. Make
use of the architecture that has been developed and the platforms that exist for
engagement.

9. Build capacity for those who need it most: Countries that suffer from chronic
fragility, conflict and violence– are often the ones that have the fewest internal
resources to combat corruption. Identify ways to leverage international resources to
support and sustain good governance.

10. Learn by doing: Any good strategy must be continually monitored and evaluated
to make sure it can be easily adapted as situations on the ground change.

• Relationship Between Corporate Governance And CSR

To be a good corporate citizen, a company has to be internally well governed and
externally responsible. The concept of CSR was initially just a philanthropic and for
charity. However, there has been a shift been from a charity-based model to a
stakeholder-participation based model and it is now gradually being fused into
corporate governance. The first step to CSR is the practice of corporate governance
as unless a company observes corporate governance, it is unlikely to develop a social
conscience and social awareness.

CSR and corporate governance to some extent can be considered as the two sides of
a coin since they are interlinked but are also different in some aspects. Both CSR and
corporate governance focus on the ethical practices of the firm and its awareness
and the actions taken by it regarding both the internal and external environment.

Where CSR refers to the self-governing activities of the company towards the society
in which it functions, corporate governance is a form of internal regulations imposed
by the managerial department on the whole company for a smooth internal
functioning. Apart from this, both CSR and corporate governance contribute to
building the brand image of the company, having a direct impact on its efficient
performance.
In this, the role of Board of the directors and the management is especially critical as
they are the ones who have to consciously analyse their actions and keep in mind
the image that they want to present to the world as they not only represent the
company but also run it and hence have to take in consideration the social and
environmental concerns of the society. Companies like Infosys, Hindustan Unilever,
Cipla and Tata hold a good image in the society and rank amongst the top
companies in terms of corporate governance whereas companies like Café Coffee
Day, Yes Bank, Jet Airways, etc. are collapsing and have been in the news lately for
all the wrong reasons like corruption, bankruptcy, etc. and one of the reasons is the
failure of corporate governance in such companies

Conclusion: CSR is based on the concept of self-governance related to the external

stakeholders and external regulatory mechanism whereas corporate governance is
the widest control mechanism which the company undertakes in relation to its
management decisions. Both CSR and corporate governance are the two sides of the
coin which relate to the same broader topic while having a bit of differences at the
same time.