Corporate Governance And Social Responsibility

What Is Corporate Governance?

• The primary purpose of corporate leadership is to create wealth legally and ethically.
• This translates to bringing a high level of satisfaction to five constituencies customers, employees,
investors, vendors, and society-at-large.
• The raison of every corporate body is to ensure predictability, sustainability, and profitability of revenues
year after year.
• Corporate Governance may be defined as a set of systems, processes, and principles which ensure that a
company is governed in the best interest of all stakeholders. It is the system by which companies are
directed and controlled.
• It is about promoting corporate fairness, transparency, and accountability. It ensures:
o Adequate disclosures and effective decision-making to achieve corporate objectives;
o Transparency in business transactions;
o Statutory and legal compliances;
o Protection of shareholder interests;
o Commitment to values and ethical conduct of business.
Why Corporate Governance Matter?
• To establish sound relationships among the management, Board of Directors, controlling shareholders,
minority shareholders and other stakeholders.
o For sustainable economic development.
o For improving performance. For adding value.
o For reducing investment & reputational risk.
o For developing capital markets.
• Refers to the set of systems, principles and processes by which a company is governed
• It is based on conducting business with integrity and fairness, making all disclosures and decisions
complying with the laws of the land and conducting business in ethical manner
• Benefits of Corporate Governance
1. Creates overall market confidence and long term trust
2. Increases share prices
3. Ensures integrity of financial reports
4. Limits liability by top management
5. Improves strategic thinking
Corporate Governance & Internal Controls
• The board is responsible for:
Maintaining a sound system of internal controls, Reviewing the effectiveness of internal controls,
and Reporting to the shareholders that this review has been carried out.
• It is the responsibility of management to:
o Identifying & evaluate the risk faced by the company, for consideration by the board.
o Design, operate and monitor a suitable system of internal control.
o The Turnbull report is the most specific report regarding the requirement for internal controls,
which suggests that directors should review internal controls under the five-heading identified by
COSO in 1992.
 1. Control environment.
2. Risk Assessment.
3. Control activities.
4. Information & communication.
5. Monitoring.
Benefits & Limitation Of Corporate Governance
Benefits of Corporate Governance Limitations of Corporate Governance
Creates overall market confidence and long-term trust Costs of Monitoring
Increases share prices Easily Corruptible
Ensures integrity of financial reports Family-Owned Companies
Limits liability by top management
Improves strategic thinking

Corporate Social Responsibility

• CSR is a concept that suggests that commercial corporations must fulfill their duty of providing care to
society”
• Ethical behavior of a company (or business) towards society.
• Promoting activities like engaging directly with local communities, identifying their basic needs, and
integrating their needs with business goals and strategic intent.
• The government perceives CSR as the business contribution to the nation’s sustainable development goals.
• Essentially, it is about how a business takes into account the economic, social, and environmental impact
of the way in which it operates. Corporate Social Responsibility.
• Many other names are used to refer to CSR such as socially responsible business, responsible business
conduct, responsible entrepreneurship, corporate citizenship, corporate accountability or corporate
sustainability. CSR is the continuing commitment by businesses to behave ethically & contribute to
economic development while improving the quality of life of the workforce & their families, local
communities, and society at large.
• CSR requires companies to acknowledge that they should be publicly accountable not only for their
financial performance but also for their social and environmental record. CSR encompasses the extent to
which companies should promote human rights, democracy, community improvement, and sustainable
development objectives throughout the world. CSR is the commitment of businesses to contribute to
sustainable economic development by working with employees, their families, the local community, and
society at large to improve their quality of life in ways that are both for business and good for international
development.
• CSR is an extended model of corporate governance based on the fiduciary duties owed to all the firm’s
shareholders. CSR is about how companies manage their business processes to produce an overall positive
impact on society. CSR is the responsibility of corporations to go above and beyond what the law requires
them to do. CSR is the responsibility of corporations to contribute to a better society and cleaner
environment.
Benefits Of CSR
• Increased employee loyalty and retention.
• Increased quality of products and services.
• Increased customer loyalty. Increased reputation and brand image.
• Greater productivity and quality.
 • Reduced regulatory oversight.
• Access to capital and market. Product safety and decreased liability.
• Less volatile stock value
• Basic objective of CSR these days is to maximize the company's overall impact on society and
stakeholders.
• It is important to protect goodwill and reputation, defending attacks, and increase business
competitiveness.
• Companies have specialized CSR teams.
• Also, Corporate increasingly join hands with Non-governmental organizations (NGOs) and use their
expertise in devising programs that address wider social problems.
• Law : Under the Companies Act, 2013, any company having a net worth of rupees 500 crores or more or
a turnover of rupees 1,000 crores or more or a net profit of rupees 5 crores or more should mandatorily
spend 2% of their net profits per fiscal on CSR activities.

PRINCIPLES OF GOVERNANCE

➢ CONSTRUCTIVE PARTNERSHIP
Exceptional boards govern in constructive partnership with the chief executive, recognizing that
the effectiveness of the board and chief executive are interdependent. They build this partnership through
trust, candor, respect, and honest communication.
➢ MISSION DRIVEN
Exceptional boards shape and uphold the mission, articulate a compelling vision, and ensure the
congruence between decisions and core values. They treat questions of mission, vision, and core values
not as exercises to be done once, but as statements of crucial importance to be drilled down and folded
into deliberations.
➢ STRATEGIC THINKING
Exceptional boards allocate time to what matters most and continuously engage in strategic
thinking to hone the organization’s direction. They not only align agendas and goals with strategic
priorities, but also use them for assessing the chief executive, driving meeting agendas, and shaping board
recruitment.
➢ CULTURE OF INQUIRY
Exceptional boards institutionalize a culture of inquiry, mutual respect, and constructive debate
that leads to sound and shared decision making. They seek more information, question assumptions, and
challenge conclusions so that they may advocate for solutions based on analysis.
➢ INDEPENDENT-MINDEDNESS
Exceptional boards are independent-minded. They apply rigorous conflict-of-interest procedures,
and their board members put the interests of the organization above all else when making decisions. They
do not allow their votes to be unduly influenced by loyalty to the chief executive or by seniority, position,
or reputation of fellow board members, staff, or donors.
 ➢ ETHOS OF TRANSPARENCY
Exceptional boards promote an ethos of transparency by ensuring that donors, stakeholders, and
interested members of the public have access to appropriate and accurate information regarding finances,
operations, and results. They also extend transparency internally, ensuring that every board member has
equal access to relevant materials when making decisions.
➢ COMPLIANCE WITH INTEGRITY
Exceptional boards promote strong ethical values and disciplined compliance by establishing
appropriate mechanisms for active oversight. They use these mechanisms, such as independent audits, to
ensure accountability and sufficient controls; to deepen their understanding of the organization; and to
reduce the risk of waste, fraud, and abuse.
➢ SUSTAINING RESOURCES
Exceptional boards link bold visions and ambitious plans to financial support, expertise, and
networks of influence. Linking budgeting to strategic planning, they approve activities that can be
realistically financed with existing or attainable resources, while ensuring that the organization has the
infrastructure and internal capacity it needs.
➢ RESULTS-ORIENTED
Exceptional boards are results-oriented. They measure the organization’s progress towards mission
and evaluate the performance of major programs and services. They gauge efficiency, effectiveness, and
impact, while simultaneously assessing the quality-of-service delivery, integrating benchmarks against
peers, and calculating return on investment.
➢ INTENTIONAL BOARD PRACTICES
Exceptional boards purposefully structure themselves to fulfill essential governance duties and to
support organizational priorities. Making governance intentional, not incidental, exceptional boards invest
in structures and practices that can be thoughtfully adapted to changing circumstances. Exceptional boards
purposefully structure themselves to fulfill essential governance duties and to support organizational
priorities. Making governance intentional, not incidental, exceptional boards invest in structures and
practices that can be thoughtfully adapted to changing circumstances.
➢ CONTINUOUS LEARNING
Exceptional boards embrace the qualities of a continuous learning organization, evaluating their
own performance and assessing the value they add to the organization. They embed learning opportunities
into routine governance work and in activities outside of the boardroom.
➢ REVITALIZATION
Exceptional boards energize themselves through planned turnover, thoughtful recruitment, and
inclusiveness. They see the correlation between mission, strategy, and board composition, and they
understand the importance of fresh perspectives and the risks of closed groups. They revitalize themselves
through diversity of experience and through continuous recruitment.

REFERENCE:
Twelve Principles of Governance That Power Exceptional Boards. Washington, DC: Board Source 2005.