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SolvedScanner Appendix

CS Professional Programme Module-IV(Solution upto June - 2013 & Questions of Dec - 2013 Included)

Paper - 8: Governance, Business Ethics and Sustainability

Chapter - 1: Evolution and Development of Concept of Corporate Governance

2013 - June [1] {C} (a)

A corporate does not exist by itself and it does not operate in vacuum. Its work is

organized and facilitated with the help and co-operation of all the constituents of the

society in which it functions.

The fundamental basis of corporate governance and responsibility in the value system

of the corporation includes the following:

(i) its human resource principles - respect and dignity for all.

(ii) its dedication to accurate and transparent accounting and financial standards.

(iii) its concern for the environment, for good business ethics and conduct for

social advancement.

(iv) its focus to serve customers and to guarantee its products and services.

(v) its insistence on fair treatment of suppliers and competitors.

(vi) its commitment to comply with government laws and regulations in all

countries in which it operates.

(vii) its desire to work with others to lead society to a better economic standard and

quality of life.

A good structure of corporate governance satisfies these needs and interests of

different stakeholders in a way that provides for long- term growth in the value of the

company and its contribution to society.

In the Indian context, the arena of corporate governance is continually evolving. Clause

49 of Listing Agreement is the foremost amongst legislations on corporate governance,

which was included in the Listing Agreement in February, 2000.

Solved Scanner Appendix CS Professional Programme Module - III Paper 8 2

In the recent years Corporate Social Responsibility and sustainability is being regarded

as an important element of corporate governance. In this context, the Ministry of

Corporate Affairs issued the CSR Voluntary Guidelines in 2009. Keeping in view the

feedback from stakeholders, review of 2009 Guidelines was undertaken resulting in the

formulation of 2011 Guidelines entitled “National Voluntary Guidelines on Social,

Environmental and Economical Responsibilities of Business” that will mainstream the

subject of business responsibilities. The Guidelines were released by MCA on July 8th,

2011.

2013 - June [4] (b) (i)

Please refer 2012 - June [4] (b) (i) on page no. 25

Chapter - 2: Issues and Challenges of an Effective Board

2013 - June [4] (b) (iii)

Please refer 2011 - June [2] (a) (i) on page no. 30

Chapter - 3: Committees of the Board

2013 - June [3] (c)

Please refer 2012 - June [3] (b) on page no. 52

Chapter - 4: Internal Control Systems, Risk Management, Transparency and

Disclosure

2013 - June [2] (a) (iii)

Please refer 2010 - Dec [4] (a) (iv) on page no. 59

2013 - June [3] (b)

Please refer 2010 - June [2] (a) (i) on page no. 56

2013 - June [4] (b) (ii)

Reputation Risk:

Reputation is the trust that an organization has gained over the years by the products,

services, brands it has provided to the society. It is an intangible assets that is broad

and far- reaching and includes image, goodwill and brand equity. If ruined can

devastate the financial health and welfare of an organization.

Component of Reputation Risk Management:

C Management of Reputation Risk.

C Preparation for Reputation Crises.

C Handling of Reputation Crises.


Chapter - 5: Legislative Framework of Corporate Governance in India

2013 - June [2] (a) (ii)

Continual disclosure:

Continual disclosure is envisaged under SEBI (Substantial Acquisition and Takeover)

Regulation 2011 by a person who together with persons acting in concert with him, hold

shares or voting rights entitling him to exercise 25% or more of the voting rights in a

target company and promoter of every target company shall together with persons

acting in concert with him, disclose their aggregate shareholding and voting rights as

of the 31st day of March, in such target company in such form as may be specified.

In terms of SEBI (Prohibition in Insider Trading) Regulation, 1992, any person who

holds more than 5% of shares for voting rights in any listed company shall disclose to

the company the number of shares or voting rights held and change in shareholding or

voting rights, if such change results in shareholding falling below 5%, if these has been

change in such holdings from the last disclosure made and such change exceeds 2%

of total shareholding or voting rights in the company.

Any person who is a director or officer of a listed company is required to disclose to the

company and the stock exchange where the securities are listed, the total number of

shares or voting rights held and change in shareholding or voting rights, if there has

been a change in such holdings of such person from the last disclosure made and the

change exceeds ̀ 5 lakh in value or 25,000 shares or 1% of total shareholding or voting

rights, whichever is lower.

2013 - June [2] (b)

To

The Board of Directors

XYZ Ltd.

A Model Board Charter may include the following:

C Code for Board of Directors and Board Committee.

C Board Charter and Role of Board of Directors.

C Duties of the Directors.

C Role of the Board and Management.

C Procedure for selection and appointment of the Board Members.

C Board membership criteria.

C Board orientation and induction.

C Board structure and performance.

C Size of the Board.

C Board composition.

C Tenure of Board members.

C Compensation to Directors.


C Ethics and conflicts of interest.

C Boards interaction with institutional Investors, Press, customer etc.

C Selection of Chairman and Chief Executive Officer.

C Selection of Lead Independent Director.

C Board interaction with senior management.

C Board meeting.

C Remuneration committee charter.

C Board Performance Evaluation.

C Director liability insurance.

Sd\-

Company Secretary

Chapter - 7: Corporate Social Responsibility

2013 - June [2] (a) (iv)

CSR Assessment:

CSR audit has yet to gain momentum but the concept aims to give an independent

opinion by external auditor on the extent of alignment of CSR objectives with the

business goals and level of managerial commitment and performance with regard to

attainment of social responsibility objectives defined by the Company’s Board.

Chapter - 8: Corporate Communication Investor Relations and Investor Protection

and Shareholder Activism and Role of Institutional Investors

2013 - June [2] (a) (i)

Corporate Blogs:

A corporate blog is a blog published or with the support of an organization to reach the

organization goals. The word blog is derived from the word weblog wherein regular

entries of commentary description of events are published. Corporate blog is used by

an organization to reach its organization goals. The advantage of the blog is that posts

and comments are easy to reach and follow due to centralised hosting and generally

structured conversation threads. Corporate blog is very popular as economical,

effective, has wide coverage is expedient and cost effective. As a marking and public

relation tool, its value is immense.

2013 - June [3] (a)

Please refer 2010 - Dec [2] (a) (iii) on page no. 98


2013 - June [4] (a)

To

The Board of Directors

ABCD Limited

Corporate Communication Policy defines the role and responsibilities of the

employees in the communication structure of the company.

Corporate communication policy may specifically focus on:

(a) Information to Employees - Internal Communications:

All the relevant information should be communicated to the employees through

internal channels.

(b) Media Relations:

This involves building and maintaining a positive relationship with the media.

(c) External Event:

Could involve vendor/supplier/distributor meets, channel partner meetings, event

related to product launches, important initiatives etc.

(d) Investor Communication:

Investor relation cell can held responsible for coordinating communications with

investors.

(e) Brand Management:

Major responsibility of corporate communication is image or brand building.

(f) Legal Communication:

Regulators are the external players having considered role in communication by

the company. At various points communication are to be made to the stock

exchange, government and judicial authorities. Secretarial and legal department

may be held responsible for timely and accurate communication.

(b) (iv) Corporate Governance in Insurance Sector:

The Insurance Regulatory and Development Authority (IRDA) has outlined

corporate Governance Guidelines for Insurance Companies. These are in

addition to provisions of the Companies Act, 1956, Insurance Act, 1938 and

requirement of any other laws or regulations framed thereunder. Where any

provisions of the Corporate Governance Guidelines appear to be in conflict

with the provisions contained in any law or regulations, the legal provisions will

prevail. However, where the requirements of the Guidelines are more rigorous

than the provisions of any law, the Guidelines shall be followed.

Chapter - 10: Business Ethics - Genesis, Significance and Scope

2013 - June [5] (a)

Please refer 2011 - June [7] (a) of Chapter - 12 on page no. 159


(b) (iv) Ethics in Finance:

The ethics issue in finance that companies and employees are confronted with

include:

C In accounting - window dressing, misleading financial analysis.

C Related party transaction not at arms length.

C Insider trading, securities fraud leading to manipulation of the financial

markets.

C Executive compensation.

C Bribery, Kickbacks, over billing of expenses, facilitation payments.

Chapter - 11: Ethical Principles in Business

2013 - June [5] (b) (i), (ii)

(i) Please refer 2012 - Dec [5] (b) (iii) on page no. 150

(ii) Integrity Pact:

The Integrity Pact (IP) is a tool aimed at preventing corruption in public

contracting. It was developed by Transparency International. It consists of a

process that includes an agreement between a government or a government

department and all bidders for a public contract. It contains rights and obligations

to the effect that neither side will pay, offer, demand or accept bribes, collude

with competitors to obtain the contract, or engage in such abuses while carrying

out the contract. The Integrity Pact also introduces a monitoring system that

provides for independent oversight and accountability.

2013 - June [6] (a), (b)

(a) Please refer 2009 - Dec [6] (c) on page no. 138

(b) Please refer 2010 - Dec [7] (c) on page no. 143

2013 - June [7] (c)

Please refer 2009 - June [7] (b) (i) on page no. 134

Chapter - 12: Concept of Stakeholders Organization and Managing Ethics

2013 - June [5] (b) (iii)

Please refer to 2009 - June [7] (b) (ii) on page no. 152


2013 - June [6] (c)

The ethical dimension of an activity can be determined with the help of the following grid

which is self explanatory.

Activity Analysis (Ethical)

Parasite Win-win Situation

Helping Self

Injuring Others

Helping Self

Helping Others

Martyr Total Loss

Helping Others

Injuring Self

Injuring Self

Injuring Others

The first block in the grid - help self and injuring others is obviously unethical. The

second block that is helping others and injuring self may appear to be ethical, however

it is not ethical. The third grid wherein one helps self and also helps others is the most

ideal and ethical situation. The win-win situation. The last grid is a situation that should

be avoided at all costs and is highly unethical.

2013 - June [7] (a), (b)

(a) Stakeholder engagement is an alliance - building tool. Corporations practice

stakeholder engagement in an effort to understand the needs of their stakeholders

create partnership and promote dialogue. Stakeholder engagement identifies

stakeholders, assesses stakeholders needs, develops stakeholders relations plans

and forms alliances with stakeholders.

Stakeholder engagement leads to increased transparency, responsiveness,

compliance, organisational learning, quality management, accountability and

sustainability. Stakeholder engagement is a central feature of sustainability

performance.

Stakeholder engagement involves following steps:

1. Identify stakeholder.

2. Establish the goals and objectives of the company for stakeholder

engagement.

3. Identify stakeholder needs and interests.

4. Determine the stakeholder engagement strategy.

5. Evaluate outcome and internalize learnings.

(b) Please refer 2009 - Dec [7] (b) on page no. 155


Chapter - 13: Corporate Sustainabil ity - Genesis, Meaning, Scope and

Significance

2013 - June [8] (ii)

As a good corporate citizen, the companies are required to focus on the following key

aspects:

1. Absolute value creation for the society.

2. Ethical corporate practices.

3. Worth of earth through environmental protection.

4. Equitable business practices.

5. Corporate social responsibility.

6. Innovate new technology/process/system to achieve eco-efficiency.

7. Creating market of all.

8. Switching over from stakeholder dialogue to holistic partnership.

9. Compliance of statutes, rules and regulations, standards.

Chapter - 14: Sustainability Reporting

2013 - June [8] (i), (iii)

(i) The primary responsibility for administration and implementation of the Policy of

the Government of India with respect to environmental management,

conservation, ecological sustainable development and pollution control rests with

the Ministry of Environment and Forest (MoEF). The MoEF is the agency

responsible for the review and approval of Environmental Impact Assessment.

Under this notification certain activities must obtain clearance from Central and

State Government and also to obtain no objection certificate before

commencement of the operations.

The MoEF is responsible to enforce the Regulations established pursuant to

major legal enactment which include:

C The Water (Prevention and Control of Pollution) Act, 1974.

C The Air (Prevention and Control of Pollution) Act, 1981.

C The Environment (Protection) Act, 1986.

C National Environment Appellate Authority Act, 1997.

C The Prevention of Cruelty to Animals, Act 1960.

C Wild Life (Projection) Act, 1972.

C Scheduled Tribes and other Traditional Forest Dwellers (Recognition of Forest

Rights) Act, 2006.

C Forest Conservation Act, 1980.

C Indian Forest Act, 1927.

C Biological Diversity Act, 2002.

(iii) Please refer 2011 - June [8] (iii) on page no. 175


Chapter - 15: Conventions and Treaties on Environment, Health

2013 - June [8] (iv)

The Rio-Declaration on Environment and Development consists of following 10

principles intended to guide future sustainable development around the world.

1. Human beings are at the centre of concerns for sustainable development.

2. The right to development must be fulfilled so as to equitably meet developmental

and environmental needs of present and future generations.

3. In order to achieve sustainable development, environmental protection shall

constitute an integral part of the development process and cannot be considered

in isolation from it.

4. States should reduce and eliminate unsustainable patterns of production and

consumption and promote appropriate demographic policies.

5. States shall enact effective environmental legislation.

6. In order to protect the environment, the precautionary approach shall be widely

applied by states according to their capabilities.

7. Women have a vital role in environmental management and development. Their

full participation is therefore essential to achieve sustainable development.

8. The creativity, ideals and courage of the youth of the world should be mobilized to

forge a global partnership in order to achieve sustainable development and ensure

a better future for all.

9. The environment and natural resources of people under oppression, domination

and occupation shall be protected.

10. Peace, development and environmental protection are interdependent and

indivisible.

Chapter - 16: Principle of Absolute Liability and Case Studies

2013 - June [8] (v)

The statement was made by the Supreme Court in the Writ petition filed by the

environmentalist and lawyer M.C. Mehta, as a public interest litigation. [M.C. Mehta and

another (Petitioners) v. Union of India and others (Respondents) and Shriram Foods

and Fertiliser Industries (Petitioners) v. Union of India (Respondents). The petition

raised some determining questions concerning the principles and norms for determining

the liability of large enterprises engaged in manufacture and sale of hazardous

products, the basis on which damage in case of such liability should be quantified and

whether such large enterprises should be allowed to continue to function in thickly

populated areas and if they are permitted so to function, what measures must be taken

for the purpose.

The pressing issue which the Supreme Court had to decide immediately in the petition

was whether to allow the caustic chlorine plant of Shriram Foods and Fertilizer

Industries to be restarted.


The accused Company, Delhi Cloth Mills Ltd., a public limited company having its

registered office in Delhi, ran an enterprise called Shriram Food and Fertilizer

Industries. A major leakage of oleum gas took place from one of the units of Shriram

and this leakage affected a large number of people, both amongst the workmen and the

public. The leakage resulted from the bursting of the tank containing oleum gas as a

result of the collapse of the structure on which it was mounted and it created a scare

amongst the people residing in that area. The Delhi Administration issued two orders,

on the behest of Public Health and Policy, to cease carrying on any further operation

and to remove such chemical and gases from the said place.

The Inspector of Factories and the Assistant Commissioner (Factories) also issued

separate orders to shut down both plants. Aggrieved Shriram filed a writ petition

challenging the two prohibitory orders issued under the Factories Act of 1948 and

sought interim permission to reopen the caustic chlorine plant.

The Supreme Court after examining the reports of the various committees held that

pending consideration of the issue whether the caustic chlorine plant should be directed

to be shifted and relocated at some other place, the caustic chlorine plant should be

allowed to be restarted by the management subject to certain stringent conditions which

were specified.

The Court said that it is not possible to adopt a policy of not having any chemical or

other hazardous industries merely because pose hazard or risk to the community. If

such a policy were adopted, it would mean the end of all progress and development.

Such industries, even if hazardous have to be set up since they are essential for the

economic development and advancement of well being of the people. The option

available was to reduce the element of hazard or risk to the community by taking all

necessary steps for locating such industries in a manner which would pose least risk

or danger to the community and maximizing safety requirements in such industries.

Chapter - 17: Objective Questions

2013 - June [1] {C} (b) (i), (ii), (iii), (iv), (v)

(i) The statement is false: As per Clause 49 of the Listing Agreement, the

performance evaluation of non-executive directors could be done by a peer

group comprising the entire board of directors, excluding the director being

evaluated.

(ii) The statement is true: Section 299 imposes a specific duty on every director

to disclose his interest to the full board. Every director of a company must

disclose the nature of his concern or interest in any transaction of the company

at a meeting of the Board of Directors and not by circulation.

(iii) The statement is true: CSR is about how a company aligns their values to

social causes by including and collaborating with their investors, suppliers,

employees, regulators and the society as a whole.


(iv) This statement is false: The company may establish a mechanism for

employees to report to the management concerns about unethical behaviour

actual or suspected fraud or violation of the company’s code of conduct or ethics

policy.

(v) This statement is false: The agenda, setting out the business to be transacted

at the meeting and notes on agenda should be given at least seven days before

the date of the meeting.

Question Paper of December - 2013

Chapter - 1: Evolution and Development of Concept of Corporate Governance

2013 - Dec [1] {C} (a) “Corporate governance is the acceptance by management of the

inalienable rights of shareholders as the true owners of the corporation and of their own

role as trustees on behalf of the shareholders. It is about commitment to values, ethical

business conduct and making a distinction between personal and corporate funds in the

management of a company.”

Discuss the scope of corporate governance in the backdrop of this statement.

(10 marks)

2013 - Dec [3] (a) Corporate governance is still evolving in India. Trace the major

principles of corporate governance in India as recommended by Kumar Mangalam Birla

Committee and N.R. Narayana Murthy Committee appointed by the Securities and

Exchange Board of India (SEBI). (7 marks)

Chapter - 2: Issues and Challenges of an Effective Board

2013 - Dec [2] (a) Write short notes on the following:

(i) Shadow director (3 marks)

2013 - Dec [3] (b) “The Board of directors plays a pivotal role in ensuring good

governance.” In the light of this statement, discuss the role of directors in a company.

(4 marks)

2013 - Dec [4] (b) Discuss briefly the following:

(i) Training of directors (3 marks)

Chapter - 4: Internal Control Systems, Risk Management, Transparency and

Disclosure


(iii) Internal control (3 marks)

2013 - Dec [4] (a) What is ‘risk’? Discuss various phases of risk management cycle.

(6 marks)


Chapter - 5: Legislative Framework of Corporate Governance in India


(iv) Related party transactions. (3 marks)


(iv) Corporate governance in insurance sector. (3 marks)

Chapter - 6: Legislative Framework of Corporate Governance- an International

Perspective

2013 - Dec [3] (c) “UK Corporate Governance Code, 2010 is the refragmentation of the

earlier one with several structural changes.” Discuss the Board composition in

compliance with the new code in the light of this statement. (4 marks)

Chapter - 7: Corporate Social Responsibility

2013 - Dec [2] (b) You are a Company Secretary of Blue Bells Ltd., a telecom company.

Your company wants to prepare its corporate social responsibility (CSR) policy in

compliance with the Corporate Social Responsibility Voluntary Guidelines, 2009. Draft

a note for the CMD of the company containing the core elements, which should normally

be covered in the CSR policy of the company as per the above guidelines. (6 marks)

Chapter - 8: Corporate Communication Investor Relations and Investor Protection

and Shareholders Activism and Role of Institutional Investors

2013 - Dec [2] (a) Write short notes on the following.

(ii) External communication (3 marks)

2013 - Dec [4] (b) Discuss briefly the following.

(ii) Shareholder activism (3 marks)

Chapter - 9: Corporate Governance Forums


(iii) National Foundation for Corporate Governance (3 marks)

Chapter - 10: Business Ethics - Genesis, Significance and Scope

2013 - Dec [5] (a) “It is now well recognised that the business ethics and financial

performance of companies are interlinked.” Discuss this statement and highlight the

benefits of business ethics. (6 marks)

(b) Discuss briefly the following:

(ii) Ethics in marketing

(iii) Egoism (3 marks each)


2013 - Dec [7] (c) “Sexual harassment at work place has been a matter of debate.”

Discuss this statement in the light of ethics in human resources. (5 marks)

Chapter - 11: Ethical Principles in Business


(i) Organisation structure and ethics

(iv) Ethics programme. (3 marks each)

2013 - Dec [7] (a) Discuss the best practices in an ethics programme. (5 marks)

(b) “An effective leader is required to balance profit motivated entrepreneurial skills and

corporate citizenship.” Discuss the role of leadership in business ethics in the light of

this statement. (5 marks)

Chapter - 12: Concept of Stakeholders Organization and Managing Ethics

2013 - Dec [6] (a) “Ethical business behaviour and practices could have prevented

Satyam fiasco emanating from financial fraud and poor corporate governance.”

Comment. (5 marks)

(b) What is understood by the term ‘stakeholder’? Enumerate the different stakeholders

of any corporate entity. (5 marks)

(c) “Most of the ethical decisions have uncertain consequences.” Comment.

(5 marks)

Chapter - 13: Corporate Sustainabil ity - Genesis, Meaning, Scope and

Significance

2013 - Dec [8] Explain the following statements:

(i) Kyosei philosophy reflects a confluence of social, environmental, technological

and political solutions.

(ii) ‘Sustainable development’ and ‘corporate sustainability’ are intermingled.

(iii) The scheme of ‘Ecomark’ was launched by Government of India to increase

consumer awareness for easy identification of environment friendly products.

(5 marks each)

Chapter - 14: Sustainability Reporting

2013 - Dec [8] Explain the following statement:

(v) Supreme Court’s judgement in the Ganga water pollution case has become a

landmark judgement in handling the pollution of river Ganga. (5 marks)

Chapter - 15: Conventions and Treaties on Environment, Health

2013 - Dec [8] Explain the following statement:

(iv) ‘Ecological footprint’ is a measure of human demand on the earth’s ecosystems.

(5 marks)

Chapter - 17: Objective Questions


2013 - Dec [1] {C} (b) State, with reasons in brief, whether the following statements are

true or false:

(i) Corporate social responsibility (CSR) is nothing but spending on non-business

activities by corporate entities.

(ii) Whistle blowing is a warning given by the auditor to the management that there

is something wrong in the entity.

(iii) Constitution of the audit committee is mandatory under the Companies Act, 1956

as well as the listing agreement.

(iv) UK Stewardship Code, 2010 follows the concept of ‘comply or explain’.

(v) Kautilya’s fourfold duty of a king are equally applicable to corporate governance.

(2 marks each)

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