corporate governance and csr

7/25/2019 Corporate governance and CSR

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IPCC Paper 2:Business Law, Ethics & Communication Chapter 8

Dr. Anil Kumar

1


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Meaning of Corporate Governance

Understanding the term Stakeholder

Corporate Governance Initiatives in India & Abroad

Understanding Corporate Social Responsibility

Implementation of CSR

Benefits of CSR


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Corporate governance is the act or manner ofgoverning a company.

It is the relationship among various participants indetermining the direction and performance ofcompanies.

The system by which companies are directed andcontrolled.


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Corporate governance is about maintaining anappropriate balance of accountability between

three key players:

The corporationsowners

The directors whomthe owners elect,

The managers whomthe directors select


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Share

Holders

Board of Directors

Management


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It ensures that a company is managed in a manner that fits the best interests of all thestakeholders.

It helps in brand formation and development.

Good corporate governance also minimizes wastages, corruption, risks and mismanagement.

It provides proper inducement to the owners as well as managers to achieve objectives thatare in interests of the shareholders and the company.

There is a positive impact on the share price.

It lowers the capital cost.

Strong corporate governance maintains investors confidence, as a result of which,company can raise capital efficiently and effectively.

Good corporate governance ensures corporate success and economic growth.


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A typical list of stakeholders of a company would be

Employees Trade Unions CustomersShareholders

and investorsSuppliers

Localcommunities

Government

Stakeholders describes such constituents of anorganisation - the individuals, groups or other

organizations which are affected by, or can affect theorganisation in pursuit of its goals.


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An introduction


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The Blue Ribbon Committee set up in the U.S. in 1998 by New York StockExchange and National Association of Securities Dealers studied theeffectiveness of audit committees and provided recommendations forimprovement.

The Cadbury Report, 1992 in UK became a pioneering reference code forstock markets.

Began in the early 1990s in UK.


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The OECD (Organization for Economic Co-operation andDevelopment ) Principles 1999 and 2004 reflect global consensusregarding the critical importance of corporate governance .

In 2002 the Sarbanes Oxley Act, passed in response to majorcorporate scandals, is considered to be one of the mostsignificant.


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Corporate governance measures include appointingindependent directors.

Placing constraints on management power andownership concentration.

Ensuring proper disclosure of financial informationand executive compensation.


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1

India has a long corporate history evolving from the enactment of itsfirst Companies Act in 1850, but corporate governance assumedimportance in India only in 1993.

2

Interestingly, the first initiative in India, in this direction was voluntary,taken by the Confederation of Indian Industry (CII).

3

It adopted a desirable code of corporate governance which despitebeing voluntary found quite a few takers among corporates in India.

4

The Securities and Exchange Board of India (SEBI), the Indian marketregulator, set up the Kumar Mangalam Birla Committee in 1999 tosuggest measures to improve corporate governance.


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5

SEBI, on the recommendations of the Committee, released itscode of corporate governance on a standard-rule basiscompulsory for all the listed companies operating in India.

6

The code of corporate governance is being implemented in

India as part of the Listing Agreement with the stockexchange.

7

Clause 49 was revised in 2005 on the basis of therecommendations of the Narayana Murthy Committee. So, atpresent Revised Clause 49 is relevant.


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CSR can mean different things to different

people:

For an employee it can mean fair wages, no discrimination,acceptable working conditions etc.

For a shareholder it can mean making responsible andtransparent decisions regarding the use of capital.

For suppliers it can mean receiving payment on time.

For customers it can mean delivery on time, etc.

For local communities and authorities it can mean takingmeasures to protect the environment from pollution.

For non-governmental organisations and pressure groups it canmean disclosing business practices and performance


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Improved employee recruitment, retention and motivation, improvedstakeholder relations and a more secure environment in which to operate.

A stable socio-political-legal environment for business as well as enhancedcompetitive advantage through better corporate reputation and brand

image.

The benefits of good corporate citizenship include:

Corporate citizenship denotes the extent to which businesses meet the

legal, ethical, economic and voluntary responsibilities placed on them bytheir stakeholders.


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CSR is pursued by businesses to balance

their economic, environmental and socialobjectives while at the same timeaddressing stakeholder expectations andenhancing shareholder value.


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CorporateSocial

Responsibility

EconomicResponsibilities

LegalResponsibilities

EthicalResponsibilities

DiscretionaryResponsibilities


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CorporateSocialResponsibility

(CSR) refersto operating abusiness in amanner thataccounts forthe social and

environmentalimpactcreated by thebusiness.

Common CSR policies

include

Adoption of internal controls reform in the wake of Enronand other accounting scandals;

Commitment to diversity in hiring employees and barringdiscrimination;

Management teams that view employees as assets ratherthan costs;

High performance workplaces that integrate the views ofline employees into decision- making processes;

Adoption of operating policies that exceed compliancewith social and environmental laws;

Advanced resource productivity, focused on the use ofnatural resources in a more productive, efficient and

profitable fashion


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1

Increased Stakeholder Activism

2Proliferation of Codes, Standards, Indicators and Guidelines

3Accountability Throughout the Value Chain

4Transparency and Reporting

5Convergence of CSR and Governance Agenda

6 Growing Investor Pressure and Market-Based Incentives

7Advances in Information Technology

8Pressure to Quantify CSR Return on Investment


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1

Companies implement CSR by putting in place internal management

systems that generally promote :

2 Adherence to labour standards by them as well their business

partners;

3 Respect for human rights;

4 Protection of the local and global environment;

5 Reducing the negative impacts of operating in conflict zones;

6 Avoiding bribery and corruption and;

7 Consumer protection.


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The Iron Law of Responsibility

Achievement of long term objectives

Enhanced Brand Image and Reputation

Checks Government Regulation /Controls

Helps minimise Ecological Damage


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Improved Financial Performance

Reduced Operating Costs

Increased Sales and Customer LoyaltyIncreased Productivity and Quality of Work life

Increased Ability to Attract and Retain Employees


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IPCC Nov 2012 MM 5


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Question

What is meant by

stakeholder? Give the listof such stakeholders.


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Stakeholders describes such constituents of an organisation - the individuals, groups or otherorganizations which are affected by, or can affect the organisation in pursuit of its goals.

List of Stakeholders

Shareholders and Investors

Employees

Customers

Suppliers

Local community

Government


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IPCC May 2012 MM 5


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Question

Explain the role played by differentcommittees in regulating thecorporate governance.


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Ensures that the company is run to enhance the interest of theshareholders while protecting the interest of other shareholders.Board of Directors

Ensures adequacy of internal control, audit and financial disclosure.Audit Committee

Recommends the compensation of the executive directors and othersenior executives.

CompensationCommittee

Recommends nomination of directors on the board and the chiefexecutive.

NominationCommittee

Looks after the grievances of the investors.Investors GrievancesCommittee


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Corporate

Governance

Is the system, processesand mechanism bywhich a company is

directed and controlled.

It is about promotingfairness, transparency

and accountability.

Stakeholders

Are the constituents of acompany - the

individuals, groups orothers which are

affected by, or can affect

the company in pursuitof its goals.


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Denotes the extent to whichbusinesses meet the legal, ethical,economic and voluntary responsibilitiesplaced on them by their stakeholders.

Corporatecitizenship

Is balancing the economic, environmentaland social objectives while at the sametime addressing stakeholder expectationsand enhancing shareholder value.

CSR

Adherence to labour standards; Respectfor human rights; Protection ofenvironment; consumer protection; andothers

CSRMeasures

include


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corporate governance and csr

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