INTRODUCTION Ethics commonly means rule or principles that define right and wrong conduct.

It may be defined as: Ethics is a fundamental trait which one adopts and follows as a guiding principle or basic dharma in ones life. It implies moral conduct and honorable behavior on the part of an individual. Ethics in most of the cases runs parallel to law and shows due consideration to others rights and interests in a civilized society. Compassion on the other hand may induce a person to give more than what ethics might demand.1 Business Ethics refers to the system of moral principles and rules of conduct applied to the business, which is a social organ and shall not conduct itself in detrimental to the interests of the society and the business sectors. The meaning of Social responsibility with reference to corporate governance has to be understood by understanding the correlation between business and social responsibility. In this era of growing corporate world and complexities, human society greatly acknowledges the need to fathom the ultimate ends achieved from both individual as well as societal, perspectives. The best solution to this seems to be the implement good governance methods. The World Business council for sustainable development has proposed a definition of Corporate Social responsibility as:

Ethics, Business and Professions, Charted Secretary November 2003 p., 1673

Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to the economic development while improving the quality of life of the workforce and their families as well as of the local community and the society at large2 The European Commission advocates CSR as: Being socially responsible means not only fulfilling legal expectations, but also going beyond compliance and investing more into human capital, the environment and relations with stakeholders.3 The Chairman of SEBI has acknowledged the need for dynamic approach and acquiescence with the framing of governance principles, which takes time to take shape and evolves with time and environment. However, a regulator or supervisory body cannot legislate ethics rather it has to emerge from the people who manage the interest of the stakeholders. Its about delivering, satisfying and satiating the expectations of all the stakeholders including the customers, employees, suppliers and the society at large. The company escalation is based on the very criteria of Corporate Governance which states ethics honesty and trustworthiness as its imperative ingredients.4 As per Mr. Mervyn E. King author of King Committee Report and Former Judge of the Supreme Court of South Africa, the guidelines for proper compliance of Corporate Governance are needed. He further stated that just compliance is not enough as found in the case of Enron. The 2

www.wbcsd.org, Last visited on 14th August, 2009. www.euractiv.com, Last visited on 14th August, 2009. www.sebi.gov.in/commreport/corpgov.html, Last visited on 14th August, 2009.

facts of the case are such that, Enron has all the trapping of governance and had quantitatively complied with the guidelines and it was functional, because it was dishonest and failed to discharge good faith care skill and diligence. Hence, the communication of the director asking themselves the question to any conflict would be in the best interest of the company, its the communication to stakeholders transparent, is the companys acting as a good steward of the companys assets. PUBLIC-BUSINESS-POLICY INTERFACE The corporations have to perform multifarious functions within legal framework, it becomes crucial for them to categorize and make unequivocal and explicit code of ethical behavior to honor its liabilities to the customers, employees and other societal stakeholders. The corporation in todays scenario has socio-economic and competitive character which demands spirited and competitive choice of strategy surrounded by legal, social and ethical boundaries. Hence, each and every act of the corporation must be justifiable in terms of its letter and essence in which the society allows it to operate and function. ETHICAL PRINCIPLE The most important and well established and accepted principles that a business should integrate in companys management and functioning are firstly, ensure that the customers and not cheated by the substandard or defective products or by any other means. Secondly, businessman and traders must not get together and hold stocks of items that are in short supply. Thirdly, conform to fair and unvarnished competition. Fourthly, deject unfair practices to tarnish the image of competitors. Fifthly, competing businessman should not form cartels- which fix prices at which their products are to be sold. Further, make accurate business records available to all authorized

people, pay taxes and discharge other obligations promptly, ensure sincerity in advertising and labeling and packaging and finally competing businessman should not agree to carve out marker shares between themselves. There are three parameters for scrutinizing the ethical reasoning: 1. Ethics of Social Utility; 2. Ethics of Human Rights and 3. Ethics of justice and fairness. The theory of ethics of social utility is used to be analyzed in terms of whether the benefit accrued to the society exceeds the cost of the society. Secondly, human rights are another ingredient to adjudicate ethics, like most human rights are those claims or entitlements that enable a person to survive, to make free choice, and to realize ones potential as human being. Justice and fairness refers to the fair distribution of benefits among the people in a society. That is why its said that if minority and women are treated unequally its social injustice and unethical. This can be incorporated in company by means of permanent board level committee to consider ethical dimensions of the companys policy and procedures. They are called public policy or social responsibility committees. It serves as a symbolic function that communicates to employees and external stakeholders about the companys formal commitment to given ethics. ETHICAL PLAN- THE SCHEME Its one of the most important aspects for Corporate Governance, as the exercise makes it more robust and strong than a stultified view of Corporate Governance as a box-tucking process. The following ethical propositions may be taken into consideration for the purposes ethical conflicts and choices are inherent in business decision making. Secondly, proper ethical behavior exists on

a plane above the law. The law merely specifies the lowest common denominator of acceptable behavior. There is no single satisfactory standard of ethical action agreeable to everyone that a manager can use to make specific operational decisions. The manager should be familiar with a wide variety of ethical standards and discussion of business cases or of situations having ethical implications can make managers more ethically sensitive. There are diverse and sometimes conflicting determinants of ethical action. These stem primarily from the individual, from the organization, from professional norms, and from the values of the society. Individual values are the final standard although not necessarily the determining reason for ethical behavior. Consensus regarding what constitutes proper ethical behavior in a decision making situation diminishes as the level of analysis proceeds from abstract to specific. The moral tone of an organization is set up by the top management. The lower the organizational level of a manager, the greater the perceived pressure to act unethically. Individuals managers perceive themselves as more ethical than their colleagues. Effective codes of ethics should contain meaningful and clearly stated provisions, along with enforced sanctions for non compliance. Employees must have a non punitive, fail safe mechanism for reporting ethical abuses in the organization. Every organization should appoint a top level manager or director to be responsible for acting as an ethical director in the organization. ETHICS CODE The applications of Ethical Codes decide the presence of Good Governance in an organization. The objective of these codes it to establish uniform ethical ambiance within the organization, thereby providing consistent, reliable and steady decision-making progression. The magnitude of

the written codes for large organization is such that it has miscellaneous configuration which can be tacit and controlled from these codes. These codes may be diverse for each organization as these are drawn after consultations and sessions with the employees. NOTIONS OF ETHICAL GOVERNANCE To attain good governance from the application of corporate governance elements one ought to appreciate polarization between goodness and profit. Hence, the first key concept is the business as a value input or output system. The business input elements such as capital and commitment of labor force, and puts out finished goods or services. It also lives off confidence and expectations both of customer and creditor, and off relationships with suppliers, regulatory officials and shareholders. It may dwell upon the discernment of the community as to its intentions like local or international economy or ecosystem. This call may be advanced or damaged by how the business has carried out its activities would be the output. All this aid the manager or director to decide the degree of value before making any decision.5 The definition of a sphere of responsibility is another key factor relevant for ethical code of conduct in corporate governance. As quoted in Cadbury Report which converses the case of Caparo6 stating the requirement of responsibility to stakeholders would lead to ..liability in an indeterminate amount for an indeterminate time for an indeterminate class.7 The definition of a sphere of responsibility mush include the identification of the key foreseen consequences of the activities of an organization should business, stipulation of the range of stakeholders interest

N. Gopalsamy, A Guide to Corporate Governance, (1st Edn., New Age International Ltd., 2006, Delhi) [1990] 2 AC 605 Cadbury Report quoted Cardozo CJ.

which the business consider as relevant, statement of the degree of responsibility the business will accept, statement of process of monitoring the above stated ingredients.8 This is also stated in the customer charters and statements of key organizational values. The ethical attitude of the governing body or bodies would intend the fundamental polarization of key values which each individual is committed to. However, individuals in the organization do not recognize explicitly the real values driving out of their activities. The board of a company or local authority or NHS trust can intend to manage the values of their organization as a part of their culture, and then it can be materialized through policy.9 The basic fundamentals of Ethics can be formulated as:1. Business should sustain utmost principles of actions which would lead to turnover for the industry, employees customers, shareholders and society. 2. Business based on transparency, disclosure and consistency. Goods and services must conform to all the commitment promised to customers. Hence, business must be realistic and truthful in stating claims. 3. Business service and treatment to the customers must be given with due respect and fairness. It depends on the working of the management, action and dealing of the company. As per the principles of Ethics selflessness, integrity, objective, accountability,

Dr. Saleem and Professor William Rees, Corporate Governance and Corporate Control, (1st Edn. Reprint,

2000, Cavendish Publishing Ltd.) 9

Ibid.

openness, honesty and leadership are few more essentials which apply to all aspects of public life.10 4. Business must opt for the principles of self-regulation. Best way of raising sky-scraping principles of industry to carry out is through self regulation. The code has intended as an device of selfregulation to serve as voluntary guideline towards superior quality of life and advanced standards of business practices.11 CORPORATE SOCIAL RESPONSIBILITY The concept of Corporate Social Responsibility flows from the notion of corporate governance and business ethics. As a famous saying goes- With great power comes great responsibility. A corporate from its inception and subsistence use all the infrastructural and other supports derived out of the society/community it exists in and thus it has some moral as well as social responsibilities towards the society which are collectively known as Business Ethics. The other part of the paper would deal with the fundamentals of corporate social responsibility. Corporate governance is a phenomenal set of systems and processes to ensure that a company is managed to safeguard the interest of all the stakeholders. The stakeholders may be internal stakeholders (promoters, members, workmen and executives) and external stakeholders (customers, lenders, dealers, vendors, bankers, community, government and Regulators).

10

The document prepared by Department of Administrative Reforms and Public Grievances has laid emphasis on following principles in its Code of Ethics for the Public Services in India,

the

india.gov.in/citizen/public_service_bill.php, Last visited on 14th August, 2009. 11

The Code of Ethics, PHD Chamber of Commerce and Industry, www.phdcci.in/Codeofethics, Last visited on 14th

August, 2009.

Corporate governance is to balance between the economic and social returns by harmonizing between individual and common goals. In the age of globalization, the corporations and business enterprises have crossed the national boundaries and have become international enterprises. And these enterprises have been using the natural resources and other raw material for creation of wealth and profits for a long time. Moreover the business enterprises are part of the society and thus inevitably affects and enter different areas of social life. Hence this gives the rise to their responsibility towards the society. In India and elsewhere there is growing realization that the business entities are born out of the society and thus they must also serve it for their own progressive sustenance in their own self interest of sustainable development.12 Due to the emerging market trends the corporate also have the insight that sustainable development and shareholder value cannot be achieved solely through maximizing short term profits, but instead through market oriented and responsible behavior. Companies have well recognized that they can achieve sustainable development by managing their functions so as to enhance the economic growth and increase competitiveness meanwhile taking care of environmental protection and promoting social responsibility, including consumer interests.13 MEANING OF CORPORATE SOCIAL RESPONSIBILITY (CSR) Corporate social responsibility can be explained by understanding all the three terms individually and then summarizing them up. 12

www.sustainability.com/insight/liability-article, Last visited on 14th August, 2009. The Institute of Company Secretaries of India, Corporate Governance, (6th Edn., Taxmann Publications (P)

13

Ltd.)

1. Corporate means organized business 2. Social means everything dealing with the people 3. Responsibility means accountability between the two. Corporate Social responsibility is necessarily an evolving term that does not have a standard definition as such or fully specified set of criteria. There is no commonly accepted definition but it can be summed up taking the US and UK tradition as: Corporate Social responsibility is operating a business in a manner which meets or excels the ethical, legal, commercial, and public expectations that a society has form the business According to Browin H.R., social responsibility is defined as the obligation of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of objectives and values of society. Corporate entity is supposed to take such activities which are vital for the benefits of the society.14 NEED OF CORPORATE SOCIAL RESPONSIBILITY There can be four major reasons why a company needs to be responsible to the society and those are: 1. Purely humanitarian reasons. 2. Internal reasons like employee morale and customer and shareholder satisfaction. 3. External reasons like satisfying local communities, publicity and tax benefits.

14

Supra Note 13

4. Enlightened self interest, wherein a stable social environment and increasing prosperity means a larger market, and hence more profits in the long term.15 A company may serve its stakeholders in many ways through: 1. Through its core business activities, which look at the policies, operations and production, suppliers, and distributors, practices and customer relations 2. Social investment and humanitarianism; i.e. moving from ad hoc contributions to strategic approached to building community partnerships, applying core competencies to such investments and linking community investments to mainstream business strategy. 3. Public policy dialogue for changes in policy that may benefit the business with the core motivation being public interest. While recognizing survival, growth and maximizing shareholders values are legitimate concerns of companies, In India reality is that there re 350 million peoples below poverty line they will not get any redressal if company restricts its social responsibility activities only to what is covered by core business activities. Instead, greater emphasis must be given to people and communities; 4. Other than those who are contractually obliged; and who are socially and economically disadvantaged FRAMEWORK OF REPORTING UNDER CORPORATE SOCIAL RESPONSIBILITY The Following are some of the main standards for social, ethical and environmental reporting currently in use internationally16: 15

Supra Note 13 Paul Hohnen, Jason Potts, Corporate Social Responsibility: An Implementation Guide for Business, International

16

Institute of Sustainable Development, 2007

1. Accountability: Accountability is a non-profit membership organization whose aim is to promote accountability innovations that advance responsible business practices and the broader accountability of civil society and public organizations. Its AA1000 Series are principles-based standards intended to provide the basis for improving the sustainability performance of organizations, and are applicable to organizations of any size, sector and region.17 2. Global Reporting Initiative (GRI): The GRI is a multi-stakeholder developed and governed framework for developing sustainability reporting guidelines. The GRIs guidelines are available for use by public agencies, firms and other organizations wishing to understand and communicate aspects of their economic, social and environmental performance.18 3. Marine Stewardship Council (MSC): Similar to the FSC, the MSC is an independent, multi-stakeholder non-profit organization whose role is to recognize, via a certification program, well-managed fisheries and to harness consumer preference for seafood products bearing the MSC label of approval.19 4. Social Accountability International (SAI): SAI is a non-profit organization whose mission is to promote respect for international labour standards. Its SA8000 international certification system is internationally recognized as an assurance of good labour practices in international manufacturing supply chains.20

17

http://www.accountability21.org.uk, Last visited on 14th August, 2009. http://www.globalreporting.org, Last visited on 14th August, 2009. http://www.msc.org, Last visited on 14th August, 2009. http://www.sa-intl.org., www.cepaa.org, Last visited on 14th August, 2009.

18

19

20

5. The Good Corporation: global standards of corporate social responsibility developed by the institute of Business Ethics. This covers fairness to employees, suppliers, customers and providers of finance; contribution to the community; and protection of the environment. Company performance is assessed annually by an independent verifier.21 CORPORATE SOCIAL RESPONSIBILITY CONTRIBUTION TO SUSTAINABLE DEVELOPMENT CSR is generally seen as the business contribution to sustainable development22 which has been defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs, and is generally understood as focusing on how to achieve the integration of economic, environmental and social imperatives. CSR also overlaps and is many times synonymous to other related concepts such as corporate sustainability, corporate citizenship, corporate stewardship, etc. The Green Paper (2001)23 by the Commission of the European Communities identifies two main dimensions of CSR dividing it into internal dimensions and External dimensions which are as follows: 1. Internal Dimensions: This relates to practices internal to the company which need to be modified to incorporate CSR practices.24 21

www.goodcorporational.com, Last visited on 14th August, 2009. www.sustainability.com/insight/liability-article, Last visited on 14th August, 2009. Brussels, EU Green Paper (2001), Promoting a European Framework for Corporate Social responsibility,

22

23

Commission of the European Communities, Retrieved from 111.btpcl.com, Last visited on 13th August, 2009. 24

Sandeep K. Krishnan & Rakesh Balchandran, Corporate Social Responsibility as a determinant of Market

Success: An explanatory Analysis with the specific reference to MNCs in emerging markets, (NASMEI International Conference, 2004)

environment for lifelong learning for employees, employee empowerment, better information flow, improving the balance between work, family, and leisure, diversified work force, profit sharing and share ownership schemes, concern for employability as well as job security among others. Active follow up and management of employees who are off work due to disabilities or injuries have also safety and labour health have been documented to be having a direct impact on productivity of the labour force. Although legal measures exist in most nations on maintaining standards for ensuring worker safety and providing health benefits, recent trends have made it imperative for companies to adopt a pr (2001)25 by the Commission of the European Communities: Restructuring in a socially responsible manner means to balance and take into consideration the interests and concerns of all those who are affected by the changes and decisions. In practice the process is often as important as the substance to the success of restructuring. In particular this involves seeking the participation and involvement of those affected through open information and consultation. Furthermore, restructuring needs to be well prepared by identifying major risks, calculating all the costs, direct and indirect, associated with alternative strategies and

25

Supra Note 20

policies, and evaluating al Management of Environmental Impacts: Optimization of resource utilization and reducing environmentally damaging effluents can reduce the environmental impact. This will also enable the firms to affect significant cost savings in energy bills and pollution costs. Many firms in emerging markets have had to face serious repercussions from the state and society for over exploitation of natural resources and disregard for environmental safety measures. 2. External Dimensions: This dimension relates to practices concerning external stakeholders. The significance of this dimension of CSR has come to the forefront with the advent of globalization leading to the development of international standa relations with the local community and thereby the accumulation of social capital is particularly relevant for non-local companies. These relations are being increasingly used by multinational companies to support the integration of their subsidiaries into various markets in which they are present. Deep understanding of the local community and social customs is an asset which can be utilized by the companies to gain strategic adv relationships of sound ethical foundation with suppliers, customers (and even competitors in rare occasions) will enable companies to meet customer expectations better while reducing complexity and costs. Companies should realize their CSR practices will be judged taking into account the

26

Supra note 24

practices of their partners and suppliers throughout the supply chain. The effect of corporate social responsibility activities will not remain limited to the company itself, but will also touch upon their bbins (2000): Companies operating in countries where human rights are regularly violated may experience a climate of civil instability and corruption that makes for uneasy relations with government officials, employees, local communities and shareholders. ensure the protection of human rights in their own operations. They also have a responsibility to use their influence to mitigate the violation of human rights by governments, the forces of law and order or opposition groups in the countries in which they operate.27 CORPORATE SOCIAL RESPONSIBILITY- INDIAN CONTEXT Since 1990 there has been profound change in Indias economic paradigm and the shift from the protectionism regime to liberal one have a significant effects on corporate India. Structural adjustments lead to increasing role of corporate sector and freedom of controls and opportunity

27

Robbins, N. (2000), Position Paper on Emerging Markets and Human Rights, Henderson Global Investors ,

www.ampcapital.com.au, Retrieved on 12th August, 2009.

of immense proportions. And thus the globalization increased the competition both from within and from outside which lead to the increased needs of Corporate Social Responsibility in India.28 CORPORATE SOCIAL RESPONSIBILITY SURVEYS IN INDIA A number of surveys have been conducted in India so as to understand what Corporate Social responsibility means in Indian context, what are the expectations of the different stakeholders and the drivers and barriers facing companies. The survey conducted by the Tata Energy Research Institute (TRI) called Altered Images: the 2001 State of Corporate responsibility in India Poll, traces back the history of CSR in India and identified four models. 1. The ethical model: As suggested by Father of the Nation Mahatma Gandhi, where committed to public welfare and participated in national building. 2. The Statist model: Post independence period model propounded by Pt. Jawaharlal Nehru this model calls for state ownership and legal requirements of CSR. 3. The Liberal Model: Propounded by Milton Friedman talks about CSR being limited to private owners or shareholders. 4. The Stakeholder Model: laid down by R. Edward Freeman, which call for companies to respond to all stakeholders need.29 All four of the above models still exists in India till today even though a survey by Environics International in July 2001 concluded that India was last in the amount of the CSR demanded by 28

S. Krishnan, Corporate Social Responsibility: How and Why in India , (2001), Retrieved from

www.indiaresource.org, Last visited on 13th August, 2009. 29

Supra Note 24

the companies in a country. One of the weaknesses of the current system is that the agenda is set by the industrial world little understanding of the diversity of approaches and of the track in the other parts of the world. Altered Images surveyed workers, company executives and the public in the four metropolitan cities. Some of the main findings were: 1. Environmental pollution and its protection were regarded with great concern by all groups. 2. The main expectations from the companies by the public was that the companies provide good quality products at low prices, treat employees well without discrimination, protect the environment, help bridge the gap between the rich and the poor, and the help in social and economic development. Expectations however, differed across regions. 3. Companies thought non-governmental organizations (NGO) were the most trustworthy to work with, in the interest of the country. Employees and the public believed in the media and the religious groups. The government was not rated highly in this respect. Similarly companies were not trusted to report fairly on their initiatives and performances. External and independent verification was trusted the most. Hence, there is a great role of NGOs and media can play a role in moving the agenda forward. 4. Child labour was no seen as an issue by the company executives and workers. But workers did consider gender discrimination as a cause of concern CORPORATE SOCIAL RESPONSIBILITY INITIATIVES A large number of companies globally are becoming conscious about their societal role and have taken initiatives in the area. Closer to home, in India many industries and corporate groups have

been and are in the process of doing their part as far as CSR is concerned. To mention a few TATAs have been very active in area of town planning, education, community, health, water management and many more, so as the Birlas, Godrej, Bajaj, Mahindra, Infosys, Wipro etc. TRIPLE BOTTOM LINE APPROACH IN CSR The concept of BL is based on the premise that the business entities have more to do than make just profits for the owners of the capital, only bottom-line people understand. Hence, there is need to add two more bottom line environmental and social. Thus, it assesses the corporate functioning and activities on basis of its impacts on environment, society and profitability. 30 The need to apply the concept of TBL is caused due to1. Increased consumer sensitivity to CSR 2. Growing demands for transparency from shareholders/stakeholders 3. Increased environmental regulations 4. Legal costs of compliances and defaults 5. Concerns over global warming 6. Increased social awareness 7. Awareness for Human rights 8. Medias attention to social issues 9. Growing corporate participation in social upliftment.31

30

Founded by John Ellington in 1997, noted management consultant. Elkington, John, 1997, Cannibals with Forks: the Triple Bottom Line of 21st Century Business, (Capstone

31

Publishing, Oxford), http://www.zipcon.net, Last visited on 14 th August, 2009.

SOCIAL AUDIT Social auditing is a process which enables an organization to assess and demonstrate its social, economic, and environmental benefits and limitations. It is a way of measuring the extent of which an organization lives up to the shared values and objectives it has committed itself to. It provides for an assessment of the impact of an organizations non-financial objectives through systematically and regularly monitoring its performance and the views of its stakeholders. Social audits are generated by the organizations themselves which are being examined by outside body which may constitute a person or panel of people external to organization. CO-RELATION BETWEEN ETHICS AND CORPORATE GOVERNANCE In this paper the endeavor is to identify the inter-relation between Ethics and Corporate Governance. Subsequently, to know what provides an ethical base for the business? How the emerging trends in corporate governance and related developments are pertinent for the same? The fundamental issue of Corporate Governance is of ethics and therefore, good governance should come from within since it cannot be imposed by legislations or laws. 32 It requires intellectual honesty and qualitative compliance rather than mere quantitative approach. The application of Corporate Governance will empower an effective role for the independent directors to assess and reorient the policies and strategies of the company. This would lead the institutional directors to work in the interest of the stakeholders, thereby for the company as a whole instead of merely protecting and shielding their investment interests. The consequences of above would be that periodical performance appraisals, environmental and energy audits and 32

Speakers at 4th International conference on Governance, Indian Merchants Chamber and the Asian Centre for

Corporate Governance, Mumbai.

effective legal compliance would become part of Corporate Governance, which provides an ethical and moral base for the business to grow. Therefore, Good Corporate Governance, in so far as it caters to all interest, is a fundamental and essential part of Business Ethics. Business is indebted to the community, corporation and society. INTERFACE FLANKED BY BUSINESS ETHICS AND SOCIAL RESPONSIBILITY Ethics is important in international business; the United Nations formed the code of conduct on transnational corporations. Many of these standards are ethical in nature and standards. The objective of code is to provide standards of integrity and conduct to apply the code to all the executives and employees in the Public sector enterprise and the officers concerned with them. The very fact that a researcher poses a particular theory and research question can have major social implications even if the research is never performed. The interpretation and application of socially sensitive research findings raises a host of ethical concerns. In societies where there has been democratic rule of law for many generations one can expect that overall with occasional exceptional inequities, legislation and taxation structure will be accepted by the majority of the people. The employees are the heart, mind and muscle of business; they should not be treated as mechanical arms and legs. Hence, the key is honest competition in which businesses vie with one another to attract and retain customers by meeting their needs, better than any other organization, is a vital foundation stone of a market economy.33

33

Manuel G. Velasquez, Business Ethics: Concepts and Cases, (6th Edn., Prentice Hall of India Private Ltd.,

2007)

EMERGING TRENDS IN CORPORATE GOVERNANCE In order to promote better Corporate Governance, the listing agreement and SEBI rules and regulations have undergone many recent changes and modifications. There has been development in various aspects as follows: 1. Independent directors; 2. Audit committee; 3. Remuneration committees; 4. Directors responsibility statement in the Directors Repot; 5. Corporate Governance compliance certificate as part of Directors Report etc. These are few things and issues which have advanced the whole idea of Corporate Governance to great transformation in the art of corporate management. The result is now the corporate board is managing and supervising the affairs with developed accountability and precision to the shareholders and transparency of operations with better disclosure of both financial and nonfinancial data through annual and periodical reports. In India, works can be illustrated and exemplified from the Naresh Chandra and Narayanamurthy Committee Reports34 which duly intends and aims to bring further the ongoing reforms projected at corporate re-structuring and reforming.35 Even the Cadbury Committee primarily deals with questions relevant to all organizations highlights the importance of ethics for clear understanding of standards of Governance.36 34

finmin.nic.in/downloads/REPORTS/newreport.html, www.nfcgindia.org/library/narayanamurthy2003.pdf, Last

visited on 14th August, 2009. 35

Chartered Secretary. p. 1679 November 2003.

GROWING RECOGNITION OF CORPORATE SOCIAL RESPONSIBILITY CSR has found recognition among enterprises, policy makers and stakeholders as an important element of new and emerging forms of governance, which can help them to respond to the following fundamental changes37: 1. Globalization has created new opportunities for the enterprises, but it has also increased their organizational complexities and the increasing extension of business activities abroad has led to responsibility on a global scale, particularly in developing countries. 2. Consideration of image and reputation play an important role in the competitive business environment, as consumers and NGOs ask for more information about the conditions in which products and services are generated and sustainability impact thereof, and tend to reward with their behavior, socially and environmentally responsible firms. 3. Partly as consequences of this, financial stakeholders ask for the disclosure of information going traditional financial reporting so as to allow them to better identify the success and risk factors inherent in a company and its responsiveness to public opinion. 4. As knowledge an innovation become increasingly important for competitiveness, enterprises have a higher interest in retaining highly skilled and competent personnel.

36

business.gov.in/corporate_governance/cadbury_report.php, last visited on 14th August, 2009. Consultancy and Research of Environmental Management, Corporate Social Responsibility in India: Policy and

37

Practices of Dutch Companies, (Amsterdam, the Netherlands, February 2004).

RECOMMENDATIONS 1. Companies should not only identifies the generic question of ethical nature but these should be integrated with usual questions on matters relating to legal, financial and marketing areas, in which company operates. 2. There is need for dynamic approach and compliance with the framing of governance standards. 3. A clear framework for understanding of standards, measuring and evaluating the ethical values underpinning an organizations governance to be hammered out for bringing Good Governance. 4. Need of Strong Boards- Directional leadership and control need to be exercised by a representative board of director constituted of financial institution nominees, business executives and professional non executive members. For example in USA boards regularly act strongly to check executives performance. 5. Right composition of board- Training for Directors is required in an ever changing environment for different functionaries in a company. Its prudent looking at the increase of life expectancy in the present situation in India for men that directors should retire at age of 70 than 65 as prescribed. Hence, it will be worthwhile for company boards to lay down a rule that directors should retire at the age of 70 or at the latest at 75. 6. There is need for different committees which would depend on the size and intricacy of the operations of committee of directors, shares and securities transfer committee of directors,

executive nomination and compensation committee of directors, investment committee of directors and audit committee.38 7. The functions of audit acts as an effective tool for matters concerning constitution of an audit committee of director of a certain size. In such committees a part time director would be the chairman. Sometimes the members can also act as the part time director. The expert assistance is provided by the finance director and CEO who is a permanent invitee would be present in these meetings as well. This meeting functions on the issues of detection and correlation of system failure and lack of adequate internal controls. Hence, this set of directorial would facilitate better corporate governance of companies. 8. Incorporation of recommendations of Confederation of Indian Industry for effective corporate governance in India is required.39 9. A group of companies can centralize its community development activities by creating a trust/foundation to do all related works. This trust could be founded by all the companies on pre-determined formula. Trust can work with NGOs and thus, be entitled to external funds also if required. 10. Help to local community by transfers of skills and providing them with leisure activities for e.g., School, institutes, temples, auditoriums, etc.

38

Prof. (Col.) P.S. Bajaj & Dr Raj Agrawal, Business Ethics: An Indian Perspective, (Edn. 2004, Published by

Biztantra, New Delhi). 39

www.cii.in, Last visited on 14th August, 2009.

11. CSR scheme can even achieve better education, improved health care and raising literacy levels among women if concentrated by enterprises. 12. Used assets can be generously donated for further effective use. 13. Sharing of experience and skills can be of immense value to new ones and a unique way of contributing time and empathy. 14. Companies should make more use of CSR risk assessment of CSR scans. This will overall enhance positive effects on their CSR policies and practice: a) It will stimulate pro-active approach of companies b) It will reveal sector and company specific CSR issues, and local stakeholders will have involvement in the process. c) If the CSR risk assessment is taken carefully it may even encourage the Supply chain responsibility related to production.