Companies have realised that their success is not just an outcome of the management

and large shareholders’ efforts. There are a lot of shareholders who contribute to it.

As a result, stakeholder rights are now very high on their list of priorities. It consists of
policies, procedures and regulations that define how the management must deal with its
stakeholders, and the remedies available to them in case of a violation.

 SHAREHOLDER RIGHTS :
Shareholders are collective owners of a company. And, they have a wide array of rights.
Principal among them are

Right to timely and accurate receipt of information about its working,

Appropriate use of their funds.
Accountability in this respect is ensured through the submission of annual and quarterly
reports.
Right to seek additional information from the management about any aspect of the
company’s business.
Right to vote on significant matters through a vote.

Shareholder votes are sought on all significant matters of the company such as those
related to business combinations (mergers and acquisitions), major investments in
assets and appointment of the board. Unless the shareholders ratify these proposals
with the required majority, the management can’t go ahead with these activities.

BOARD OF DIRECTORS :

The principal tool for governing shareholder rights in a company is its board of directors.
It is a body elected by the stakeholders periodically for explicitly looking into the
protection of their interests
It is particularly useful for small stakeholders who neither have the time to maintain
active oversight on the management nor the expertise and influence to rein it in. Let’s
look at how the board ensures this.
BOARD’S AUDIT FUNCTION :

One of the primary concerns of shareholders is the accuracy of financial reporting and
the proper use of their money. In order to ensure this, SEBI requires public listed
companies to get their accounts verified by an external party before submitting them as
a part of their annual report. This is called external audit.
BOARD INDEPENDENCE :
 In order to devote themselves completely to the cause of stakeholders, it is
critical that board members are beyond the influence of the management. This
can only be ensured if the board has an overwhelming majority of independent
directors.

A mechanism for settling complaints or disputes which could arise

between companies and stakeholders.

A mechanism for compensating stakeholders in case of violation of their

rights which are set by regulations and protected by contracts.

Periodically, provide stakeholders with access to reliable

information and data which are relevant to their activities on a
timely basis.
Corporate Excellence
Defined as the ability of the company to outsmart Competitors consistently over a long period of
time. In this context, successful organizations are different from excellent organizations. Success
may be of one dimensions but excellence is of multiple dimensions in the company * .

In the ever-changing business environment, the following are the critical areas that facilitate the
company to achieve excellence

(1) BUSINESS PROCESS REENGINERING:-

As the business scenario is fast changing day by day, to meet the ever-changing demands of the
market, the organizations need to restructure & redesign their Business processes. The BPR
facilities reinvents the way the business is carried out, and ultimately helps the company to
engender corporate excellence. As, striving for excellence is a continuous process, corporate
excellence can't be a Destination, it is a journey.

(2) GROWTH – SUSTAINABLE DEVELOPMENT: -

The corporate objective of mere growth may just lead to maximization of sales Revenue or profits,
which don't help the organization to be excellent Hence the companies need to redefine their
objectives towards sustainable development.

(3) CORE – COMPETENCE: -

A unique strength either in technology or in the processing of functional areas, that an organization
enjoys exclusively and which can't be copied by the competitors is called – Core Competence. This
unique strength helps the company to get competitive advantage over a long period of time, which
in turn facilitates the company to excel.

A company can achieve competence superiority only by means of core competence, and it will
lead to corporate excellence.

E.g.: Honda has got its core competence in the design and manufacturing of automobile engines.

(4) RESOURCE UTILIZATION: -

Excellence can be achieved through proper utilization of the Human, Physical & financial,
resources. New and advanced technologies have to be adopted in all the functional areas like –
production, marketing, finance, HRD, of the organization. Organizations need to strengthen their
Research and Development departments in order to embrace latest technologies.

(5) E-COMMERCE: -

As the competition in business area is growing rapidly the business organizations started redefining
their business activities. "Electronic Commerce is the new industrial order. It will change the
relationship between consumers & Producers.

As Electronic Commerce involves the exchange of products, Services, and information of payment
through the electronic medium of computers & networks, it facilitates the continuum relation
between the company and the customer, which is a pre requisite for a company to excel.

(6) CRM (CUSTOMER RELATIONSHIP MANAGEMENT): -

In the process of achieving corporate excellence in the present day highly competitive market, the
organizations ability to compete depends on its relationship with its target customers. The basis
for continuity of relation between the company and the customer, over a period & time is value
maximization to customers, which will lead to customer loyalty. In an attempt to achieve
corporate excellence the organizations should try to develop strong Customer Relationship
Management.

(7) SOCIAL CONSCIOUSNESS:-

Organizations can achieve corporate excellence by means of contributing to the well being of the
society. As the customers are becoming aware of the cause and effect of polluted environment, all
the business firms should have a concern for society, by introducing ecologically friendly products
or services.

Many companies in India are redesigning their business activities, giving importance to society and
are launching Non-Government Organizations.

Example :- Satyam Computers of Hyderabad started Byrraju Foundation, which is specialized in

the field of rural development. Emergency ambulance services by the name 108 has been a mega
hit in various districts of Andhara Pradesh.

Dr. Reddy's Laboratories of Hyderabad floated Dr. Reddy's Foundation in field of youth welfare and
development.

(8) BUSINESS ETHICS :-

In order to achieve excellence, the companies should have basics positive values and attitudes.
Ethics deals with what is wrong and what is right in various disciplines of the organization.
Unethical practices may yield short term gains but organization can't be successful in the long run.
The organization should develop and formulate the right approaches and strategies to excel.
Because it is to be noted that being right in ethical behavior always pays off.

Besides the above said elements, there are certain areas by which corporate excellence is
facilitated in the modern business world. Young entrepreneurs and business mangers must pay
attention to all these areas in order to see their organization excel

(a) EXCELLENCE THROUGH MANUFACTURING :-

In the manufacturing area, a new concept called – World Class Manufacturing ( WCM ) has
emerged recently. The companies adopting WCM are able to introduce the products and services
very much closer to the needs and wants of the costumer. This helps the company to be successful
because WCM has the following characteristics

I). Products of high quality

II.) Products with enhanced features
III.) Products at the right price.
(b) EXCELLENCE THROUGH MARKETING MIX :-

The basic concern is to accomplish corporate excellence through effective management of

Marketing Mix of the company. Innovation in product attributes, reasoning in prices, wide spread &
easy reach in placing, the right distribution networks, objective in promotion, are the fields that a
firm seeking excellence should concentrate on.

(c) EXCELLENCE THROUGH HRM:-

Among all the organizational resources, the human resources are the most vital and require
constant refinement. Organizational objectives and strategies must match with HR strategies.
Since the change is the fundamental element in achieving corporate excellence, change
management is to be backed by human resources of the firm. The change can be facilitated by
means of HR activity- Training. Hence the training programmes in the new age business
organizations should focus on - Team work, leadership, initiation, interpersonal communication.

(d) EXCELLENCE THROUGH INFORMATION :-

In this present networking era, information has become a major resource after physical, financial,
human resources of the organization. Proper management of information is the best way to get
competitive advantage. Computer based information systems help the organization to convert raw
data in to meaningful information, which helps the manger in taking effective decisions, which in
term improve business performance and ultimately lead to corporate excellence. Information
systems like TPS (Transaction Processing System), MIS (Management Information Systems), DSS
(Decision Support Systems), ESS (Executive Support Systems) if used intelligently helps the
organization to reach the pinnacle in the competition.

define an independent director?

As per sub-section 6 of Section 149 of the Act, ID means a director other than a managing director or
whole- time director or a nominee director,

a. Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and
experience;

b. 1. Who is or was not a promoter of the company,

2. Who is not related to promoters or directors in the company

c. Who has or had no pecuniary relationship with the company

d. None of whose relative has or had pecuniary relationship or transaction with the company.

e. Who, neither himself nor any of his relative---

i. Holds or has held the position of a key managerial personnel

 ii. Is or has been an employee or proprietor or a partner, in any of the three preceeding
financial years.

iii. Holds together with his relative two per cent or more of the total voting power of the
company; or

iv. Is a Chief Executive or director, of any nonprofit organization, or who possesses such
other qualifications as may be prescribed.

section 149 of the Company Act, 2013 deals with the appointment and
qualification of ID’s on the board of the Company and their importance in good
corporate governance in the Company.

As per clause 49 of the listening agreement, an independent director is a non-executive

director who does not have
(a) Any pecuniary relationship with the company, its promoters, senior management
or affiliate companies.
(b) Is not related to promoters or the senior management or has not been an
executive with the company in the three preceding financial years.

(c) Should not have been a partner or executive director of the

auditors/lawyers/consultants of the company in preceding three years

(d) Should not hold 2% or more of shares of the company.

(e) he should not be a supplier, service provider or customer of the company.

How many independent directors should a board have?

The board of director of a company should have both executive and non-executive
directors. At least 50% of the board should have non-executive directors.

If the chairman of the board is a non-executive director, then at least one-third of the
board should comprise independent directors.

If the chairman is an executive director, then independent directors should make up at

least half of the board.
 If an independent director resigns or is removed from the board, he/she has to be
replaced by a new independent director within 180 days from the day of such
resignation or removal.

Role of IDs

Role of independent directors for a good corporate governance

Being a member of the Board, their role and responsibilities are very much
similar to any other director of the Board. The fiduciary duties of care, diligence
and acting in good faith apply equally to independent directors as to other
directors.

To improve corporate credibility and governance standards.

To Function as watchdog.

Play vital role in risk management.

Role of independent directors towards shareholders

To protect the interests of the minority shareholders vis-à-vis the promoters by
evaluating the board's or management decisions in respect of employees, creditors and
other suppliers of major service providers.

The significance of the independent directors on corporate board lies in its ability to
take an independent decision on a given subject without being influenced in any
manner

To bring about a sense of objectivity to board processes in the general interest of the
company and to the benefit of all stakeholders including minority and small share
holders.
Providing transparency in respect of the disclosures in the working of the company as
well as providing balance towards resolving conflict areas.

Role in Committee Membership

The Companies Act, 2013, provides for mandatory appointment of independent

directors in following committees so as to meet the corporate governance requirements:

 Nomination committee
 Remuneration committee
 Committee related to investor relations,
 Audit committee.

The chairman of the audit committee is an independent director according to the clause.
The audit committee’s responsibilities include overseeing the functioning of the financial
reporting process, monitoring the choice of accounting policies and principles,
monitoring internal control process and so on.

Role towards the Board

It is the duty of the independent director to ensure that all those concerns that
are important for the company are properly addressed by the board of directors.

CORPORATE GOVERNANCE AND STAKEHOLDER RIGHTS

Companies have realised that their success is not just an outcome of the
management and large shareholders’ efforts. There are a lot of shareholders
who contribute to it.

As a result, stakeholder rights are now very high on their list of priorities.
The sum total of all the mechanisms put in place by a company to protect
stakeholder rights, in particular shareholders rights, is referred to as its
corporate governance structure.

It consists of policies, procedures and regulations that define how the

management must deal with its stakeholders, and the remedies available to
them in case of a violation.
1. Shareholder rights

Shareholders are collective owners of a company.They have a wide array of rights. Principal
among them are :-

(a) Right to timely and accurate receipt of information about the working of the company ,
and the appropriate use of their funds. This is ensured through the submission of annual and
quarterly reports providing detail about the company’s activities during the period and plans for
the future.

(b) Right to seek additional information from the management about any aspect of the
company’s business. They also have the right to weigh on significant matters through a vote.

(c) Shareholder votes are sought on all significant matters of the company such as those
related mergers and acquisitions, major investments in assets and appointment of the board.
Unless the shareholders ratify these proposals with the required majority, the management can’t
go ahead with these activities.
2. Board of directors

(a) The principal tool for governing shareholder rights in a company is its board of
directors. It is a body elected by the stakeholders periodically for explicitly looking into
the protection of their interests.
(b) The board is a means for the shareholders to exercise their authority. As their
guardian, it is responsible for formulating and enforcing the moral code and systems of
governance for the company.
3. Audit Function - One of the primary concerns of shareholders is the accuracy of
financial reporting and the proper use of their money. In order to ensure this, SEBI requires
public listed companies to get their accounts verified through an external audit. The board of
directors forms an audit committee to look into all matters related to internal and external audit.
4. Board Independence - In order to devote themselves completely to the cause of
stakeholders, it is critical that board members are beyond the influence of the management.
This can only be ensured if the board has an overwhelming majority of independent directors.
5. Lenders - Rights of lenders are protected by a document called bond indenture. It
contains positive and negative covenants that state the activities a company must and must not
indulge in, respectively. The indenture is enforceable by law.
6. Customers - Most companies have a dedicated customer service team to look into
customers issues. However, government plays a central role in ensuring that the customer
rights are not abused. Customers are basically concerned about the quality of the product and
the price at which it is sold.
Changing Role of Corporate Boards in Changing times
Over the past few years due to the financial crisis, the role of the Board of Directors has evolved
to address changing times. A combination of economic, investor and regulatory pressures has
reshaped that role. These are :-
The Basics

Directors have certain basic fiduciary duties to their company and its shareholders. While the
Board needs to trust management (or replace management if that trust is lost), directors still
need to ask probing questions and test management's recommendations in a respectful and
constructive manner. The directors' expectations have been raised in these challenging times,
they must provide healthy oversight but rely on management to run day-to-day operations.

Executive Sessions

There has evolved the more common practice of "Executive Sessions" of independent
directors. The purpose of such executive sessions is simple - to create a convenient forum to
discuss the performance of the CEO/President without the CEO/President being present.

The Pressure From Regulators

With the enhanced regulatory scrutiny and exploration of mergers and recapitalizations, Boards
must strike a fine balance between enhanced oversight and day-to-day management.

Finding a Balance

Boards will have to raise the bar a bit and provide thoughtful, meaningful oversight, while
avoiding micromanagement.

Takeaways

Boards are tasking selected directors to host off-site meetings to facilitate interaction between
directors and the management team to establish new commitment and prepare the board and
management to make bolder decisions about resourcing new ideas and pursuing new
directions.

Boards are viewing succession planning and talent pipelines as important areas in which they
can contribute because of the substantial executive experience of their directors.

Boards are beginning to realise that investor relations is not only about financial results, but also
about governance, which can be best led by board members.

Boards are expanding their roles beyond conventional governance to include strategy
development, talent management, and shareholder relations. Most boards are reviewing
strategy each year, and encouraging one another to ask deeper questions about market
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What is 'Corporate Social Responsibility'
Corporate social responsibility, often abbreviated "CSR," is
a corporation's initiatives to assess and take responsibility for the company's
effects on environmental and social wellbeing.

The term generally applies to efforts that go beyond what may be required by
regulators or environmental protection groups.

CSR may also be referred to as "corporate citizenship" and can involve incurring
short-term costs that do not provide an immediate financial benefit to the
company, but instead promote positive social and environmental change.

Companies can invest in local communities in order to offset the negative impact their
operations might have.

For example - A natural resources firm that begins to operate in a poor community
might build a school, offer medical services or improve irrigation and sanitation
equipment. Similarly, a company might invest in research and development in
sustainable technologies, even though the project might not immediately lead to
increased profitability.

In 2010, the International Organization for Standardization released ISO 26000, a

set of voluntary standards meant to help companies implement corporate social
responsibility.

EVOLUTION OF CSR IN INDIA

The Companies Act, 2013 is a landmark legislation that made India the first
country to mandate and quantify CSR expenditure.
The inclusion of CSR is an attempt by the government to engage the businesses
with the national development agenda.
The details of Corporate social responsibility is mentioned in the Section 135 of
the Companies Act, 2013. The maor areas are:-

Eradicating hunger, poverty and malnutrition and promoting preventive health

care and sanitation .

(ii) promoting education and employment enhancing vocation skills.

 (iii) promoting gender equality and empowering women and setting up
facilities for senior citizens and measures for reducing inequalities faced by
socially and economically backward groups;

(iv) ensuring environmental sustainability, ecological balance, protection of flora

and fauna.

(v) protection of national heritage, art and culture including restoration of

buildings and sites of historical importance .

(vi) measures for the benefit of armed forces veterans, war widows and their
dependents.

(vii) training to promote rural sports, nationally recognised sports, paralympic

sports and Olympic sports;

(viii) contribution to the Prime Minister’s National Relief Fund or any other fund
set up by the Central Government for socio-economic development and relief
and welfare of the Scheduled Castes, the Scheduled Tribes, other backward
classes, minorities and women;

(ix) contributions or funds provided to technology incubators located within

academic institutions which are approved by the Central Government;

(x) rural development projects;

(xi) slum area development.

The Act came into force from April 1, 2014, every company, private limited or
public limited, which either has a net worth of Rs 500 crore or a turnover of Rs
1,000 crore or net profit of Rs 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.
The CSR activities should not be undertaken in the normal course of business
and must be with respect to any of the activities mentioned in Schedule VII of
the act.

The corporations are required to setup a CSR committee of the Board consisting
of three or more directors, out of which at least one director shall be an
independent director. It develops a CSR policy which is approved by the board
and encompasses the CSR activities the corporations is willing to undertake.
The act also has penal provisions for corporations and individuals for failure to
abide by the norms.
The Indian companies in the last two years have invested majorly in education
& skill development, healthcare & sanitation, rural development projects and
environment after being mandated to allocate a portion of their profits towards
community development.

Importance of CSR

Advanced Public Image

Companies engaged in CSR activities are perceived as less self-regarding and

are actually favored by customers. People find companies with social
responsibilities as more approachable as it reflects an empathetic side of the
company.

Boosts Government Relations

To be favoured by politicians and government regulators, companies must

present a positive public perception on its seriousness about social
responsibility.

Customer & Employee Engagement

With a little effort on social responsibilities, a company reaches more public in

new ways than it might do without CSR. Today’s generation is ambitious and
they’re in the constant lookout for being associated with companies that have a
good public image and is always in the media for its positive decisions.

Brand Distinction

Corporations are trying out new ways to build up their goodwill by

experimenting on their social responsibilities. They’re not only taking it seriously
but bringing in a lot of creativity so that they serve their visionary purpose
along with creating a distinct image for themselves in the market.

Positive Workplace Environment

Corporations that care about the lives outside the barriers of their business
inspire and motivate employees to work eagerly. This enhances the relationship
between the management and the workers as they go on to believe that a
united approach could do wonders.
Retaining investors who want to constantly know that their funds are being used
properly.

Creating strong partnership between nonprofit organizations and the companies

and dig out the best of their workforce.