SHAREHOLDER WEALTH MAXIMIZATION

TO CORPORATE

GOVERNANCE
Shareholder Wealth Maximization In a Shareholder Wealth Maximization model (SWM), a firm should strive to maximize the return to shareholders, as measured by the sum of capital gains and dividends, for a given level of risk. Alternatively, the firm should minimize the level of risk to shareholders for a given rate of return. The SWM model assumes as a universal truth that the stock market is efficient. An equity share price is always correct because it captures all the expectations of return and risk as perceived by investors, quickly incorporating new information into the share price. Share prices are, in turn, the best allocators of capital in the macro economy. The SWM model also treats its definition of risk as a universal truth. Risk is defined as the added risk that a firms shares bring to a diversified portfolio. Therefore the unsystematic, or operational risk, should not be of concern to investors (unless bankruptcy becomes a concern) because it can be diversified. Systematic, or market, risk cannot however be eliminated.

Agency theory
Agency theory is the study of how shareholders can motivate management to accept the prescriptions of the SWM model. Liberal use of stock options should encourage management to think more like shareholders. If management deviates too extensively from SWM objectives, the board of directors should replace them. If the board of directors is too weak (or not at arms-length) the discipline of the capital markets could effect the same outcome through a takeover. This outcome is made more possible in Anglo-American markets due to the one-share one-vote rule. Shareholder Wealth Maximization Long-term value maximization can conflict with short-term value maximization as a result of compensation systems focused on quarterly or near-term results. Short-term actions taken by management that are destructive over the long-term have been labeled impatient capitalism. This point of debate is often referred to a firms investment horizon (how long it takes for a firms actions, investments and operations to result in earnings). Shareholder Wealth Maximization In contrast to impatient capitalism is patient capitalism. This focuses on long-term SWM.

Many investors, such as Warren Buffet, have focused on mainstream firms that grow slowly and steadily, rather than latching on to high-growth but risky sectors. Corporate Wealth Maximization In contrast to the SWM model, continental European and Japanese markets are characterized by a philosophy that a corporations objective should be to maximize corporate wealth (the CWM model). In this context, a firm should treat shareholders on a par with other corporate interest groups, such as management, labor, the local community, suppliers, creditors and even the government. This model, also called the stakeholder capitalism model focuses on earning as much as possible in the long-run while retaining enough to increase the corporate wealth for the benefit of all interest groups. Corporate Wealth Maximization The definition of corporate wealth is much broader than just financial wealth (cash, marketable securities and lines of credit). Corporate wealth includes technical, market and human resources. This measure goes beyond financial reports to include the firms market position, employee knowledge base and skill sets, manufacturing processes, technological proficiencies, marketing and administration capabilities. Corporate Wealth Maximization The CWM model does not assume that equity markets are either efficient or inefficient. In fact, market efficiency does not matter as the firms financial goals are not exclusively shareholder-oriented. This model assumes that long-term loyal shareholders should influence corporate strategy, not transient portfolio investors. Corporate Wealth Maximization The CWM model assumes that total risk, operating and financial risk, does count. In the CWM model, it is a corporate objective to generate growing earnings and dividends over the long run with as much certainty as possible given the firms mission statement and goals. Risk is measured more by product market variability than by short-term variation in earnings and share price. Corporate Wealth Maximization Although the CWM model avoids the impatient capitalism as seen in the SWM, it has its own flaw in that management is tasked with meeting the demands of multiple stakeholders. This leaves management without a clear signal about the tradeoffs, which management tries to influence through written and oral disclosures and complex compensation systems. Corporate Wealth Maximization In contrast to the CWM model, the SWM model requires a single goal of value maximization. While both forms of wealth maximization have their strengths and weaknesses, two trends in recent years have led to a focus on the SWM model. As non Anglo-American markets privatize their industries the SWM model becomes more important in the overall effort to attract foreign capital Many analysts believe that shareholder-based MNEs are increasingly dominating their global industry segments.

Yet the concern is on promoting Corporate Governance because of failure of companies like Enron and Worldcom.

In each case, prestigious auditing firms missed the violations or minimized them, presumably because of lucrative consulting relationships or other conflicts of interest. In addition, security analysts urged investors to buy the shares of firms they knew to be highly risky (or even close to bankruptcy). Top executives themselves were responsible for mismanagement and still received overly generous compensation while destroying their firms. In USA the response came in the form of The Sarbanes-Oxley Act

The Sarbanes-Oxley Act This act was passed by the US Congress, and signed by President George W. Bush during 2002 and has three major requirements: CEOs of publicly traded companies must vouch for the veracity of published financial statements Corporate boards must have audit committees drawn from independent directors Companies can no longer make loans to corporate directors Penalties have been spelled out for various levels of failure. Most of its terms are appropriate for the US situation, but some terms do conflict with practices in other countries. There is a need to understand Stakeholder framework to appreciate Corporate Governance better. Stakeholder framework Building relationships is one of most important areas in business today Can be associated with organizational success and misconduct Stakeholder framework helps identify internal and external stakeholders Helps monitor and respond to needs, values, and expectations of stakeholder groups Issues such as sustainable development, environmentalism and corporate social responsibility are emerging as concerns for society, and of course management as businesses look toward the future. What Is a Stakeholder? Stakeholders are those who have a stake or claim in some aspect of a companys products, operations, markets, industry and outcomes Customers Investors Employees Suppliers Government agencies Communities Stakeholders can influence and are influenced by businesses

Primary vs. Secondary Stakeholders Primary stakeholders: Those whose continued association is necessary for a firms survival Employees, customers, investors, governments and communities Secondary stakeholders: Are not essential to a companys survival Media, trade associations, and special interest groups Stakeholder Orintation The degree to which a firm understands and addresses stakeholder demands can be understood through : Three activities: Generation of data about stakeholder groups Distribution of the information throughout the firm Organizations responsiveness to this intelligence CSR reconciles stakeholder expectations as follows : Meet customers legitimate needs (Marketplace) Innovate, recognizing they have choices Provide products fit for purpose; safe to use and that do no harm to the environment Provide value for money; avoid rent-seeking behavior 2. Meet employees needs (Workplace) Treat them with respect and dignity Recognize the importance of merit and reward performance reinforcing fairness Give them fulfilling jobs that build self-respect Provide safe and pleasant working environments Allow appropriate work-life balance 3. Meet societys needs (Community) Pay fair share of taxes Recognize impact of externalities and mitigate them Protect the environment and the neighborhood from degradation Contribute to society 4. Meet shareholders needs Make sufficient profits to cover costs of Innovation and R&D, experiments and mistakes, product launches Upgrades of plant, facilities and people Capital and shareholder expectations Social Responsibility and the Importance of Stakeholder Orientation From a social responsibility perspective, business ethics embodies standards, norms, and expectations that reflect concerns of major stakeholders Social responsibility is associated with: Increased profits Increased employee commitment Greater customer loyalty Social Responsibility and Ethics

Social responsibility can be viewed as a contract with society Business ethics involves carefully thought-out rules (heuristics) of conduct that guide decision making

Corporate Governance
Clause 49. Corporate Governance I. Board of Directors (A) Composition of Board i. The Board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non-executive directors. ii. Where the Chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors. Provided that where the non-executive Chairman is a promoter of the company or is related to any promoter or person occupying management positions at the Board level or at one level below the Board, at least one-half of the Board of the company shall consist of independent directors. Explanation-For the purpose of the expression related to any promoter referred to in sub-clause (ii): a. If the promoter is a listed entity, its directors other than the independent directors, its employees or its nominees shall be deemed to be related to it; b. If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it. iii. For the purpose of the sub-clause (ii), the expression independent director shall mean a non-executive director of the company who: a. apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director; b. is not related to promoters or persons occupying management positions at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three financial years; d. is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: i. the statutory audit firm or the internal audit firm that is associated with the company, and ii. the legal firm(s) and consulting firm(s) that have a material association with the company. e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director;

f. is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares. g. is not less than 21 years of age Clause 49- Corporate Governance Explanation For the purposes of the sub-clause (iii): a. Associate shall mean a company which is an associate as defined in Accounting Standard (AS) 23, Accounting for Investments in Associates in Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India. b. Senior management shall mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads. c. Relative shall mean relative as defined in section 2(41) and section 6 read with Schedule IA of the Companies Act, 1956. d. Nominee directors appointed by an institution which has invested in or lent to the company shall be deemed to be independent directors. Explanation: Institution for this purpose means a public financial institution as defined in Section 4A of the Companies Act, 1956 or a corresponding new bank as defined in section 2(d) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 [both Acts]. (B) Non executive directors compensation and disclosures All fees/compensation, if any paid to non-executive directors, including independent directors, shall be fixed by the Board of Directors and shall require previous approval of shareholders in general meeting. The shareholders resolution shall specify the limits for the maximum number of stock options that can be granted to non-executive directors, including independent directors, in any financial year and in aggregate. Provided that the requirement of obtaining prior approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 1956 for payment of sitting fees without approval of the Central Government. (C) Other provisions as to Board and Committees i. The board shall meet at least four times a year, with a maximum time gap of four months between any two meetings. The minimum information to be made available to the board is given in Annexure I A. ii. A director shall not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a director. Furthermore it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place. Explanation:

Clause 49- Corporate Governance 1. For the purpose of considering the limit of the committees on which a director can serve, all public limited companies, whether listed or not, shall be included and all other companies including private limited companies, foreign companies and companies under Section 25 of the Companies Act shall be excluded. 2. For the purpose of reckoning the limit under this sub-clause, Chairmanship/membership of the Audit Committee and the Shareholders Grievance Committee alone shall be considered. iii. The Board shall periodically review compliance reports of all laws applicable to the company, prepared by the company as well as steps taken by the company to rectify instances of non-compliances. iv. An independent director who resigns or is removed from the Board of the Company shall be replaced by a new independent director within a period of not more than 180 days from the day of such resignation or removal, as the case may be: Provided that where the company fulfils the requirement of independent directors in its Board even without filling the vacancy created by such resignation or removal, as the case may be, the requirement of replacement by a new independent director within the period of 180 days shall not apply (D) Code of Conduct i. The Board shall lay down a code of conduct for all Board members and senior management of the company. The code of conduct shall be posted on the website of the company. ii. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The Annual Report of the company shall contain a declaration to this effect signed by the CEO. Explanation: For this purpose, the term senior management shall mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads. II. Audit Committee (A) Qualified and Independent Audit Committee A qualified and independent audit committee shall be set up, giving the terms of reference subject to the following: i. The audit committee shall have minimum three directors as members. Two-thirds of the members of audit committee shall be independent directors. ii. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. Clause 49- Corporate Governance Explanation 1: The term financially literate means the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows. Explanation 2: A member will be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or

background which results in the individuals financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. iii. The Chairman of the Audit Committee shall be an independent director; iv. The Chairman of the Audit Committee shall be present at Annual General Meeting to answer shareholder queries; v. The audit committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company. The finance director, head of internal audit and a representative of the statutory auditor may be present as invitees for the meetings of the audit committee; vi. The Company Secretary shall act as the secretary to the committee. (B) Meeting of Audit Committee The audit committee should meet at least four times in a year and not more than four months shall elapse between two meetings. The quorum shall be either two members or one third of the members of the audit committee whichever is greater, but there should be a minimum of two independent members present. (C) Powers of Audit Committee The audit committee shall have powers, which should include the following: 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other professional advice. 4. To secure attendance of outsiders with relevant expertise, if it considers necessary. (D) Role of Audit Committee The role of the audit committee shall include the following: 1. Oversight of the companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. Clause 49- Corporate Governance 3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. 4. Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to: a. Matters required to be included in the Directors Responsibility Statement to be included in the Boards report in terms of clause (2AA) of section 217 of the Companies Act, 1956 b. Changes, if any, in accounting policies and practices and reasons for the same c. Major accounting entries involving estimates based on the exercise of judgment by management d. Significant adjustments made in the financial statements arising out of audit findings

e. Compliance with listing and other legal requirements relating to financial statements f. Disclosure of any related party transactions g. Qualifications in the draft audit report. 5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval 5A. Reviewing, with the management, the statement of uses / application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and the report submitted by the monitoring agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter. 6. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems. 7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8. Discussion with internal auditors any significant findings and follow up there on. 9. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board. 10. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. 11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors. 12. To review the functioning of the Whistle Blower mechanism, in case the same is existing. 12A. Approval of appointment of CFO (i.e., the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience & background, etc. of the candidate. 13. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. Clause 49- Corporate Governance Explanation (i): The term "related party transactions" shall have the same meaning as contained in the Accounting Standard 18, Related Party Transactions, issued by The Institute of Chartered Accountants of India. Explanation (ii): If the company has set up an audit committee pursuant to provision of the Companies Act, the said audit committee shall have such additional functions / features as is contained in this clause. (E) Review of information by Audit Committee The Audit Committee shall mandatorily review the following information: 1. Management discussion and analysis of financial condition and results of operations;

2. Statement of significant related party transactions (as defined by the audit committee), submitted by management; 3. Management letters / letters of internal control weaknesses issued by the statutory auditors; 4. Internal audit reports relating to internal control weaknesses; and 5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee III. Subsidiary Companies i. At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of a material non listed Indian subsidiary company. ii. The Audit Committee of the listed holding company shall also review the financial statements, in particular, the investments made by the unlisted subsidiary company. iii. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company. Explanation 1: The term material non-listed Indian subsidiary shall mean an unlisted subsidiary, incorporated in India, whose turnover or net worth (i.e. paid up capital and free reserves) exceeds 20% of the consolidated turnover or net worth respectively, of the listed holding company and its subsidiaries in the immediately preceding accounting year. Explanation 2: The term significant transaction or arrangement shall mean any individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the material unlisted subsidiary for the immediately preceding accounting year. Explanation 3: Where a listed holding company has a listed subsidiary which is itself a holding company, the above provisions shall apply to the listed subsidiary insofar as its subsidiaries are concerned. IV. Disclosures Clause 49- Corporate Governance (A) Basis of related party transactions i. A statement in summary form of transactions with related parties in the ordinary course of business shall be placed periodically before the audit committee. ii. Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee. iii. Details of material individual transactions with related parties or others, which are not on an arms length basis should be placed before the audit committee, together with Managements justification for the same.. (B) Disclosure of Accounting Treatment Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the managements explanation as to why it believes such alternative treatment is more representative of the true and fair view of the

underlying business transaction in the Corporate Governance Report. (C) Board Disclosures Risk management The company shall lay down procedures to inform Board members about the risk assessment and minimization procedures. These procedures shall be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework. (D) Proceeds from public issues, rights issues, preferential issues etc. When money is raised through an issue (public issues, rights issues, preferential issues etc.), it shall disclose to the Audit Committee, the uses / applications of funds by major category (capital expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and place it before the audit committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. This statement shall be certified by the statutory auditors of the company. Furthermore, where the company has appointed a monitoring agency to monitor the utilisation of proceeds of a public or rights issue, it shall place before the Audit Committee the monitoring report of such agency, upon receipt, without any delay. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter. (E) Remuneration of Directors i. All pecuniary relationship or transactions of the non-executive directors vis--vis the company shall be disclosed in the Annual Report. Clause 49- Corporate Governance ii. Further the following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the Annual Report: a. All elements of remuneration package of individual directors summarized under major groups, such as salary, benefits, bonuses, stock options, pension etc. b. Details of fixed component and performance linked incentives, along with the performance criteria. c. Service contracts, notice period, severance fees. d. Stock option details, if any and whether issued at a discount as well as the period over which accrued and over which exercisable. iii. The company shall publish its criteria of making payments to non-executive directors in its annual report. Alternatively, this may be put up on the companys website and reference drawn thereto in the annual report. iv. The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report. v. Non-executive directors shall be required to disclose their shareholding (both own or held by / for other persons on a beneficial basis) in the listed company in which they are proposed to be appointed as directors, prior to their appointment. These details should be disclosed in the notice to the general meeting called for appointment of such director (F) Management

i. As part of the directors report or as an addition thereto, a Management Discussion and Analysis report should form part of the Annual Report to the shareholders. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the companys competitive position: 1. Industry structure and developments. 2. Opportunities and Threats. 3. Segmentwise or product-wise performance. 4. Outlook 5. Risks and concerns. 6. Internal control systems and their adequacy. 7. Discussion on financial performance with respect to operational performance. 8. Material developments in Human Resources / Industrial Relations front, including number of people employed. ii. Senior management shall make disclosures to the board relating to all material financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.) Explanation: For this purpose, the term "senior management" shall mean personnel of the company who are members of its. core management team excluding the Board of Directors). This would also include all members of management one level below the executive directors including all functional heads. (G) Shareholders Clause 49- Corporate Governance i. In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information: a. A brief resume of the director; b. Nature of his expertise in specific functional areas; c. Names of companies in which the person also holds the directorship and the membership of Committees of the Board; and d. Shareholding of non-executive directors as stated in Clause 49 (IV) (E) (v) above ia. Disclosure of relationships between directors inter-se shall be made in the Annual Report, notice of appointment of a director, prospectus and letter of offer for issuances and any related filings made to the stock exchanges where the company is listed. ii. Quarterly results and presentations made by the company to analysts shall be put on companys web-site, or shall be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site. iii. A board committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressal of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. This Committee shall be designated as Shareholders/Investors Grievance Committee.

iv. To expedite the process of share transfers, the Board of the company shall delegate the power of share transfer to an officer or a committee or to the registrar and share transfer agents. The delegated authority shall attend to share transfer formalities at least once in a fortnight. V. CEO/CFO certification The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act, 1956 and the CFO i.e. the whole-time Finance Director or any other person heading the finance function discharging that function shall certify to the Board that: a. They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief : i. these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; ii. these statements together present a true and fair view of the companys affairs and are in compliance with existing accounting standards, applicable laws and regulations. b. There are, to the best of their knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violative of the companys code of conduct. c. They accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the company pertaining to financial reporting and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies. Clause 49- Corporate Governance d. They have indicated to the auditors and the Audit committee i. significant changes in internal control over financial reporting during the year; ii. significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and iii. instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the companys internal control system over financial reporting. VI. Report on Corporate Governance i. There shall be a separate section on Corporate Governance in the Annual Reports of company, with a detailed compliance report on Corporate Governance. Noncompliance of any mandatory requirement of this clause with reasons thereof and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted. The suggested list of items to be included in this report is given in Annexure- I C and list of non-mandatory requirements is given in Annexure I D. ii. The companies shall submit a quarterly compliance report to the stock exchanges within 15 days from the close of quarter as per the format given in Annexure I B. The report shall be signed either by the Compliance Officer or the Chief Executive Officer of the company

VII. Compliance 1. The company shall obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated in this clause and annex the certificate with the directors report, which is sent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchanges along with the annual report filed by the company. 2. The non-mandatory requirements given in Annexure I D may be implemented as per the discretion of the company. However, the disclosures of the compliance with mandatory requirements and adoption (and compliance) / non-adoption of the nonmandatory requirements shall be made in the section on corporate governance of the Annual Report. Annexure I A Information to be placed before Board of Directors 1. Annual operating plans and budgets and any updates. 2. Capital budgets and any updates. 3. Quarterly results for the company and its operating divisions or business segments. 4. Minutes of meetings of audit committee and other committees of the board. 5. The information on recruitment and remuneration of senior officers just below the board level, including appointment or removal of Chief Financial Officer and the Company Secretary. Clause 49- Corporate Governance 6. Show cause, demand, prosecution notices and penalty notices which are materially important 7. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems. 8. Any material default in financial obligations to and by the company, or substantial nonpayment for goods sold by the company. 9. Any issue, which involves possible public or product liability claims of substantial nature, including any judgement or order which, may have passed strictures on the conduct of the company or taken an adverse view regarding another enterprise that can have negative implications on the company. 10. Details of any joint venture or collaboration agreement. 11. Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property. 12. Significant labour problems and their proposed solutions. Any significant development in Human Resources/ Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc. 13. Sale of material nature, of investments, subsidiaries, assets, which is not in normal course of business. 14. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material. 15. Non-compliance of any regulatory, statutory or listing requirements and shareholders

service such as non-payment of dividend, delay in share transfer etc.

Social Audit
Overview of Social Auditing (Source : GRI website and other books and web resources ) Historical Roots To casual observer social auditing is a new phenomenon. In reality, the concept of a social audit was formed much earlier in the 1940s when a depression era academic Theodore Kreps called on companies to acknowledge their responsibilities to citizens. Historical Roots In the United States and Europe during the 60s, public repudiation of the war in Vietnam triggered a movement to boycott the goods and shares of some companies that were associated with the conflict. Society demanded a new ethical attitude and some companies began to provide accounts for their social actions and objectives. Drawing up and publishing annual reports containing information of a social nature led to what we now know as "the social audit". Social Audit The Roots In Brazil the idea began to be discussed in the 70s, but only in the 80s the first social audits were published. From the 90s onward, corporations of various sectors began to publish their results annually. Social Audit The Roots The issue only gained national attention in June 1997 when sociologist Herbert de Souza - Betinho launched a campaign for companies to publish their social audit on a volunteer basis. With the support and participation of prominent business personalities, the campaign took off and led to a series of debates in the media and in seminars and forums. Historical Roots-contd 1960-70s a fresh wave of interest in social and ethical accounting, auditing and reporting (SEAAR). Concept of stakeholders emerges and organizations like the US Chamber of Commerce made the link between improvements in corporate social performance and long term profitability.

While most of the early theorizing about Social Auditing came from the US, most of the practical experimentation took place in Europe. What is Social Auditing ? SA is a management tool and accountability mechanism which can enhance an organizations capacity to: Evaluate their impact on stakeholders Determine how well they are living up to the values they espouse. Improve their strategic planning process by identifying potential problems before they come up; and Increase their accountability to the groups they serve and depend on. What is Social Auditing? Social auditing is a process that enables an organisation to assess and demonstrate its social, economic, and environmental benefits and limitations. It is a way of measuring the extent to which an organisation lives up to the shared values and objectives it has committed itself to. Social Auditing Social auditing provides an assessment of the impact of an organisation's non-financial objectives through systematically and regularly monitoring its performance and the views of its stakeholders. HPCL- Unnati Programme The Unnati programme was conceived in order to develop knowledge about computers for students of economically backward schools so that they are at par with other mainstream school students when they reach high school. The schools were chosen by HPCL in areas where they had their centers so that the monitoring of the programme would be easier and the local environment in which HPCL existed would profit from the initiative. Social Auditing Social auditing requires the involvement of stakeholders. This may include employees, clients, volunteers, funders, contractors, suppliers and local residents interested in the organisation. Stakeholders are defined as those persons or organisations who have an interest in, or who have invested resources in, the organisation. Ex.NIIT in Unnati Social Auditing

Social audits are generated by the organisation themselves and those directly involved. A person or panel of people external to the organisation undertakes verification of the social audit's accuracy and objectivity. Yet local HPCL office is only the monitoring and funding agency that steps in at their terms and is not fully corporative and supportive during the implementation. What does Social Auditing Involve? The social auditing process requires an intermittent but clear time commitment from a key person within the organisation. This social auditor liases with others in the organisation and designs, coordinates, analyses and documents the information collected during the process. What does Social Auditing Involve? Social auditing information is collected through research methods that include social bookkeeping, surveys and case studies. The objectives of the organisation are the starting point from which indicators of impact are determined, stakeholders identified and research tools designed in detail. What does Social Auditing Involve? The collection of information is an on-going process, often done in 12-month cycles and resulting in the organisation establishing social bookkeeping and the preparation of an annual social audit document/report. What does Social Auditing Involve? Experience has shown that it is important to provide training to the social auditor as well as mentoring during the first few years. If well facilitated, social auditors from different organisations can become self-supporting for subsequent years. Social & Ethical AAR SEARR involves accounting for, reporting on, and auditing an organizations policies, procedures and impacts with respect to employees, communities (local and global), suppliers, customers and the environment. This can involve disclosure regarding, interalia commitments to workplace conditions, fairness and honesty in dealing with suppliers, customer service standards, community and charitable involvement and non-exploitive business practices in developing countries Social Audit When put together by multiple professionals, the social audit shows and measures the company's concern about people and about life in our planet.

 SEAAR Principles & Standards One of the leading voices in the world of social accounting is ISEA - the Institute of Social and Ethical Accountability. Founded in the UK in 1996, ISEA is an international professional body committed to strengthening social responsibility and ethical behaviour of the business community and non-profit organisations. AA1000 It was ISEA that further developed the social accounting methodology first employed by Traidcraft in 1993 and launched the Accountability 1000 (AA1000) standard in 1999. AA1000 (Institute of Social & Ethical AccountAbility) specifies principles and processes to be followed in order to secure the quality of SEAAR SEAAR Principles & Standards AA1000 has not been positioned as a certifiable compliance based standard, but rather as a set of key principles which should stimulate innovation above an agreed quality floor, rather than encouraging the development of a more rigid compliance oriented culture.Focused around engagement with stakeholders, AA1000 aims to link the defining and embedding of an organisation's values to the development of performance targets, thus tying social and ethical issues into the organisation's strategic management. AA1000

As a process standard, rather than performance standard, AA1000 specifies theprocesses that an organisation should follow to account for its performance,not the levels of performance the organisation should achieve. SEAAR Principles & Standards Since the development of AA1000, there has been an often bewildering proliferation of standards and guidelines relating to differing approaches to CSR. The most relevant of these include SA8000 and The Global Reporting Initiative (GRI). SA 8000 (Council on Economic Priorities) encouraging enlightened labour/management practices in 3rd world.

Global Reporting Initiative (GRI) sustainability reporting guidelines SA8000

SA8000 was developed by the US based Council on Economic Priorities Accreditation Agency (CEPAA), now known as Social Accountability International (SAI). It aims to be a universal standard based on International Labour Organisation (ILO) conventions, the United Nations Convention on the Rights of the Child, and the Universal Declaration on Human Rights. SA8000

SA8000 is a performance standard, covering the specified areas of: Child labour; Forced labour; Health & safety; Freedom of association; Discrimination; Discipline; Working hours; Compensation; and management systems. Market FTSE4Good Index Series The FTSE4Good Index Series has been designed to objectively measure the performance of companies that meet globally recognised corporate responsibility standards. Transparent management and criteria make FTSE4Good a valuable tool for consultants, asset owners, fund managers, investment banks, stock exchanges and brokers when assessing or creating responsible investment products. Ethibel Sustainability Index (Standard & Poors) The Ethibel Sustainability Index is a sustainability index which allows investors to compare financial performance of sustainable investments with traditional equity The Global Reporting Initiative (GRI) The Global Reporting Initiative (GRI) was formed in 1997 by the Coalition for Environmentally Responsible Economies (CERES) in collaboration with the Tellus Institute. From its inception, the GRI has possessed a clear mission: To enhance responsible decision making by promoting international harmonization in reporting relevant and credible corporate economic, environmental, and social performance information (GRI, 2002). GRI

To this end, the GRI has developed and published reporting guidelines based upon the TBL reporting concept first developed by Elkington,

The guidelines follow the broad TBL reporting of economic, environmental, and social performance with the social grouping being further subdivided in terms of labor practices, human rights, society, and product responsibility. The GRI Guidelines and supplements The GRI Guidelines Sector supplements providing guidance that captures sustainability issues faced by specific industry sectors, e.g. financial services, telecommunications, auto manufacturing, mining Technical protocols providing detailed measurement methods and procedures for reporting on indicators contained in the core guidelines e.g. energy indicators providing definitions (e.g. direct vs. indirect energy) and measurement methodologies (e.g. conversions, units) National annexes providing national (local) country perspectives and particular influences, nuances and contexts to sustainability Issue guidance documents on topics such as diversity and productivity GRI Profile disclosures set the overall context for understanding performance - such as strategy and governance. Management Approach disclosures explain how specific sustainability issues are managed, including goals and targets. Performance Indicators elicit comparable information on economic, environmental, and social performance. Measuring Economic Performance according to GRI The economic dimension of sustainability concerns the organisations impacts on the economic conditions of its stakeholders and on economic systems at a local, national, and global levels (GRI3.1). They show: Flow of capital among different stakeholders Main economic impacts of the organisation throughout society
Steps in conducting SA Assemble organization and secure agreement and commitment.

Define and prioritize the organizations objectives and establish the action it intends to perform to meet them.

Identify the organizations stakeholders Agree upon indicators, information, benchmarks and targets. Data gathering systems put in place. Collating, analyzing and interpreting results External verification process Disclosure and act on results
Why Social Audits ? To permit the enterprise to effectively monitor performance.

To permit the stakeholders in the enterprise affect its behaviour. To allow enterprise to report on its achievements based on verified evidence rather than on anecdote and unsubstantiated claims. Permits those who invest in the enterprise and its stakeholders to judge if it is achieving the values which it set out to achieve. - Pearce (1996) Potential Issues SA has excellent promise as a management tool but some potential problems remain: Reporting organization can deliberately limit audit scope in order to avoid controversies. Process can be managed internally to the disadvantage of some external stakeholders. Some significant stakeholders may be omitted. Organization may use arbitrary or inappropriate indicators to evaluate outcomes. The standards, independence and honesty of the auditor may be open to question.

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Source : Address by one of the CVCs on the issue of Corruption

BATTLING INDIAS MAL AISE OF CORRUPTION

Address to the India CEO Forum Organised by International Market Assessment India Pvt. Ltd.

STATUS OF CORRUPTION IN INDIA: 1. There is no denying the fact that there is widespread corruption in India. Petty corruption which affects the basic rights and services of the common man is highly rampant besides the grand corruption scandals which break out every now and then. A report on bribery in India published by Trace International in January, 09 states that - 91% of the bribes were demanded by govt. officials. - 77% of the bribes demanded were for avoiding harm rather than to gain any advantage. - Of these 51% were for timely delivery of services to which the individual was already entitled. Example, clearing customs or getting a telephone connection. 2. Indian economy is 6th largest in the world and it fares pretty well in some of the global competitive indices. In terms of the strength of the financial institution, business sophistication and innovation, we are among the first 30 countries in the world, while in terms of corruption we are ranked 85th by the Corruption Perception Index of Transparency International. That means half of the countries of the world are less corrupt than India. The Transparency Internationals Bribe Payer Index for 2008 ranks India in very poor

position - 19th among 22 countries. This means that Indian firms are perceived by international business as highly likely to engage in bribery when doing business abroad. Most of the corruption as 2 well as governance indicators show that there is little change in Indias position over the years. IMPACT OF CORRUPTION: 3. Corruption is a serious economic issue as it adversely affects the countrys economic development and achievement of developmental goals. It promotes inefficiencies in utilisation of resources, distorts the markets, compromises quality, destroys the environment and of late has become a serious threat to national security. It adds to the deprivation of the poor and weaker sections of the economy. 4. Various attempts have been made to indicate the impact of corruption in quantitative terms. Some estimates show that govt. loses about Rs. 2 lakh crores annually due to tax evasion while about Rs. 40,000 crores is lost due to delay in projects. Transmission and distribution losses in the Power Sector are estimated to be about 50%, out of which about 30% is attributed to theft in connivance with the Electricity Boards employees. According to one estimate if corruption was not there, the Public Sector Enterprises would have improved their profit margin by almost 20%. According to a corruption economist (Mauro) if corruption in India is reduced to the level of the Scandinavian countries, then investment would rise by 12% annually and GDP

would grow at an additional 1.5%. CAUSES OF CORRUPTION: 5. The important causes of corruption in India are poor regulatory framework, exclusivist process of decision making aggravated by discretion and official secrecy, rigid bureaucratic structures and processes; and absence of effective internal control mechanism. Social acceptability and tolerance for corruption and absence of a 3 formal system of inculcating the values of ethics and integrity further propagates corruption. 6. Significant levels of corruption exist in India despite the existence of a relatively strong governance structure, institutions, legal framework and policies. The anti-corruption laws and institutions coupled with a strong oversight system consisting of the CVC, CAG and the CIC have been well acknowledged. The problem lies in implementation and there is a huge gap between the policies and practice. 7. Public procurement is an activity highly prone to corruption and which has serious impact on the industry as well as the market. According to World Bank estimate, the average bribe to obtain a public contract is estimated at 15% of the contract value. The CVC therefore maintains a high focus in this area. ANTI-CORRUPTION EFFORTS UNDERTAKEN: 8. The Central Vigilance Commission though created in 1964, became an independent statutory body only in 2003 by an Act of parliament based on a judgement of the supreme court. Its

mandate is to oversee the vigilance administration and to advice and assist the executive in matters relating to corruption. It investigates cases of corruption arising out of complaints or detection by vigilance wings in the various departments and recommends punishment wherever required. It is then for the executive to punish the individual official. Anti-corruption efforts were so far focussed only on enforcement wherein it was assumed that strict enforcement of anti-corruption laws and punishing the corrupt public servants will have a serious deterrent effect. This approach has not been effective because of the cumbersome process involved in punishing the errant and the 4 deterrent effect is lost due to delay and dilution of punishment. Therefore having realised the shortcoming of an enforcement focussed strategy, the Central Vigilance Commission is now proposing to lay greater emphasis on prevention and education and generation of awareness among the people as a more effective and sustainable means of fighting corruption. We plan to develop a sound preventive vigilance framework which would enable organisations to assess the risk of corruption and take steps to correct the policies, procedures and systems and strengthen their internal controls to eliminate the scope for corruption in the first place. 9. One of the preventive strategies successfully deployed by the CVC is the leveraging of technology to combat corruption, by persuading organisations to adopt IT and automate the activities and process

vulnerable to corruption. The results of this exercise have been encouraging and our efforts been internationally recognised. 10. An important requirement for the success of anti-corruption efforts is that it should be participative i.e. involve all the stakeholders and establish coordination among all agencies fighting corruption. These elements have been lacking so far. ROLE OF PRIVATE SECTOR IN FIGHTING CORRUPTION: 11. Anti-corruption efforts in India have been largely focussed on the Public Sector which is called the demand side in the parlance of corruption economics. The private sector which forms the supply side, which actually pays the bribes, has been largely ignored. The supply side theories often put the onus of fighting corruption on the private sector. It states that firms pay bribes primarily for overcoming their shortcomings in terms of - poor quality of their product/service, high price of their product or to create a market for their goods which otherwise are not in demand. Thus they pay 5 bribe to stay in competition despite these handicaps or to avoid true and fair competition. Corruption is the anti-thesis of a free, fair, competitive and efficient market, as it distorts the objectivity, transparency and fairplay in the market. It may therefore be argued that business entities are obliged to maintain integrity in order to maintain the efficiency and sanctity of the market. It would be self destructive to distort the very market on which they are dependent for their existence. Therefore the theory X of corruption economics advocates that given an opportunity and if

the fears of the private sector are allayed, they will at all cost stand up against corruption. It is this thinking that has given rise to instruments like Code of Conduct and Integrity Pact through which we try to involve the private sector in fighting corruption. 12. International efforts have equally focused on tackling the supply side of corruption and most of the countries have either formulated their own Foreign Corrupt Practices Act or are signatories to Anti-Bribery Conventions. Therefore international pressure is building up on countries to formulate laws and take action against the private business in their countries who attempt to bribe foreign governments to obtain contracts. This is aimed at achieving fairplay and competitiveness in international business. International economic and financial organisations are strongly pursuing this. As Indian companies are becoming globally competitive, we may sooner or later have to address these concerns.

ALSO REFER TO http://www.un.org/en/sustainablefuture/sustainability.shtml INTRODUCTION TO SUSTAINABILITY CONCEPT

FOR

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FRIDAY, MARCH 29, 2013

corporate social responsibility - introduction Definitions of social responsibility Corporate social responsibility (CSR) is:

An obligation, beyond that required by the law and economics, for a firm to pursue long term goals that are good for society The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as that of the local community and society at large About how a company manages its business process to produce an overall positive impact on society Corporate social responsibility means: Conducting business in an ethical way and in the interests of the wider community Responding positively to emerging societal priorities and expectations A willingness to act ahead of regulatory confrontation Balancing shareholder interests against the interests of the wider community Being a good citizen in the community Is CSR the same as business ethics? There is clearly an overlap between CSR and business ethics Both concepts concern values, objectives and decision based on something than the pursuit of profits And socially responsible firms must act ethically The difference is that ethics concern individual actions which can be assessed as right or wrong by reference to moral principles. CSR is about the organisations obligations to all stakeholders and not just shareholders.

There are four dimensions of corporate responsibility

Economic - responsibility to earn profit for owners Legal - responsibility to comply with the law (societys codification of right and Ethical - not acting just for profit but doing what is right, just and fair Voluntary and philanthropic - promoting human welfare and goodwill Being a good corporate citizen contributing to the community and the quality of

wrong)

life

The debate on social Not all business organisations behave in a socially responsible manner

responsibility

And there are people who would argue that it is not the job of business organisations to be concerned about social issues and problems There are two schools of thought on this issue: In the free market view, the job of business is to create wealth with the interests of the shareholders as the guiding principle

The corporate social responsibility view is that business organisation should be concerned with social issues Free market view - a summary The role of business is to create wealth by providing goods and services There is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profit so long as it stays will the rules of the game, which is to say, engages in open and free competition, without deception or fraud. [Milton Friedman, American economist] Giving money away is like a self imposed tax Managers who have been put in charge of a business have no right to give away the money of the owners Managers are employed to generate wealth for the shareholders - not give it away Free markets and capitalism have been at the centre of economic and social development Improvements in health and longevity have been made possible by economies driven by the free market To attract quality workers it is necessary to offer better pay and conditions and this leads to a rise in standards of living and wealth creation Free markets contribute to the effective management of scarce resources It is true that at times the market fails and therefore some regulation is necessary to redress the balance But the correcting of market failures is a matter for government - not business Regulation should be kept to a minimum since regulation stifles initiative and creates barrier to market entry The free market case against corporate social responsibility The only social responsibility of business is to create shareholder wealth The efficient use of resources will be reduced if businesses are restricted in how they can produce The pursuit of social goals dilutes businesses primary purpose Corporate management cannot decide what is in the social interest Costs will be passed on to consumers It reduces economic efficiency and profit Directors have a legal obligation to manage the company in the interest of shareholders and not for other stakeholders CSR behaviour imposes additional costs which reduce competitiveness CSR places unwelcome responsibilities on businesses rather than on government or individuals The corporate responsibility view Businesses do not have an unquestioned right to operate in society Those managing business should recognise that they depend on society Business relies on inputs from society and on socially created institutions

There is a social contract between business and society involving mutual obligations that society and business recognise that they have to each other Stakeholder theory The basic premise is that business organisations have responsibility to various groups in society (the internal and external stakeholders) and not just the owners/ shareholders The responsibility includes a responsibility for the natural environment

Decisions should be taken in the wider interest and not just the narrow shareholder interest Arguments for socially-responsible behaviour It is the ethical thing to do It improves the firm public image It is necessary in order to avoid excessive regulation Socially responsible actions can be profitable Improved social environment will be beneficial to the firm It will be attractive to some investors It can increase employee motivation It helps to corrects social problems caused by business Enlightened self interest This is the practice of acting in a way that is costly and/or inconvenient at present but which is believed to be in ones best long term interests There is a long history of philanthropy based on enlightened self interests e.g. Robert Owens New Lanark Mills, Titus Salts Saltaire as well the work of the Quaker chocolate makers such as Cadbury at Bournville and Rowntree in York.

Enlightened self interest is summed up in this quotation from Anita Roddick (founder of the Body Shop):Being good is good for business CSR behaviour can benefit the firm in several ways It aids the attraction and retention of staff It attracts green and ethical investment It attracts ethically conscious customers It can lead to a reduction in costs through re-cycling It differentiates the firm from its competitor and can be a source of competitive advantage It can lead to increased profitability in the long run

In the 1970s, the noted economist Milton Friedman, who eventually guided the Reagan administrations economic policies, launched an entire school of economic thought that famously insisted the only social obligation of corporations was to increase profits for their

shareholders. He firmly believed that spending investors money on social causes was a moral wrong, and that corporations should leave charity up to the individual investors and employees who should make their own decisions. Yet in the 21st century, the world has greatly changed. We are living in a complex, interconnected environment where the actions of one company or one executive can negatively impact millions of people in seconds. We need a new approach to the issues of corporate responsibility. It is time for consumers to demand social contract theory be applied to corporations, binding them to act like responsible citizens in return for the tacit authorization society gives them to operate. The new logic must be that corporations are no different from individuals; since they exist within society, which grants to them the right to do business among the people, they have an obligation to behave and give up some of their self-interest for the greater good.

Social contract theory emphasizes the social nature of the corporation which exists as the result of a highly implicit and flexible contract that determines its duties and rights. The corporation is portrayed as responsible to and subject to the will of society (i.e., the people). Both the state and the law are creatures of society. Since, from the perspective of communitarians, corporations are created by the government which, in turn, owes its existence to society, it follows that corporations are actually made by society and are responsible to the public to serve whatever is deemed to be in the public interest or for the common good. Since the corporation only exists because of social permission, society is said to be able to legitimately demand that a corporation perform certain activities that the owners and managers do not wish to perform. Social contract theory posits that every citizen on the planet has inalienable rights, but to live among others in society, each of us must tacitly agree to yield some of those natural rights in exchange for the benefits of mutual peace and prosperity. Everyone living under the social contract has a duty to act responsibly, to obey the laws, and to abandon certain natural self-interest rights that conflict with the general good.

Similar argument is given in Sustainability and Triple bottom line approach.

Sustainability and Triple bottom line

The phrase the triple bottom line was first coined in 1994 by John Elkington, the founder of a British consultancy called SustainAbility. His argument was that companies should be preparing three different (and quite separate) bottom lines. One is the traditional measure of corporate profitthe bottom line of the profit and loss account. The second is the bottom line of a companys people accounta measure in some shape or form of how socially

responsible an organisation has been throughout its operations. The third is the bottom line of the companys planet accounta measure of how environmentally responsible it has been. The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a TBL is taking account of the full cost involved in doing business. In some senses the TBL is a particular manifestation of the balanced scorecard. Behind it lies the same fundamental principle: what you measure is what you get, because what you measure is what you are likely to pay attention to. Only when companies measure their social and environmental impact will we have socially and environmentally responsible organisations. Today, quantifiable environmental impacts include consumption of finite resources, water quality and availability, and pollution emitted. Social impacts include community health, worker safety, education quality, and diversity. It is argued by many that companies that factoring these impacts into their overall corporate balance sheets will be more successful because it delivers greater efficiency, makes them more competitive and sparks innovation -- all drivers of profitability over time. Another concept often linked to triple bottom line is that of sustainability. We sometimes speak of adopting sustainable business practices or building sustainable businesses. But what does that really mean? The best definition was created in 1987 by the United Nations Bruntland Commission, which defined sustainability as "Meeting the needs of the present generation without compromising the ability of future generations to meet their own needs." It's a simple, powerful statement. Make sure our decisions today take future costs into account. By adding time it asks us to think in four dimensions and not one.Rosabeth Moss Kantor writes in her recent book about SuperCorps, which embedded the idea of serving society into their business definition and strategy. She cites companies like GE, which focused its mission on helping the world transition to a more sustainable energy infrastructure. Growing awareness of corporate malpractice in these areas forced several companies, including Nike and Tesco, to re-examine their sourcing policies and to keep a closer eye on the ethical standards of their suppliers in places as far apart as Mexico and Bangladesh, where labour markets are unregulated and manufacturers are able to ride roughshod over social and environmental standards. It also encouraged the growth of the Fairtrade movement, which adds its brand to products that have been produced and traded in an environmentally and socially fair way (of course, that concept is open to interpretation). From small beginnings, the movement has picked up steam in the past few years. Nevertheless, the Fairtrade movement is still only small, focused essentially on coffee, tea, bananas and cotton. Business Excellence A key vector that has helped Tata companies grow and establish themselves on the global stage as business leaders in their respective fields is the strong business excellence movement in the group. One of the initiatives in the business excellence movement is a framework known as the Tata Business Excellence Model (TBEM), which has been adapted from the renowned

Malcolm Baldrige archetype. The essence of this framework is a proactive attitude rather than a reactive one. It is about changing the business and running it effectively and efficiently. The TBEM assessment covers seven core aspects of business operations: leadership; strategic planning; customer focus; measurement, analysis and knowledge management; workforce focus; process management and outcomes of financial and nonfinancial parameters; and business results. The model works under the aegis of Tata Quality Management Services (TQMS), an inhouse organisation mandated to help different Tata companies achieve their business excellence and improvement goals. In recent years, the TBEM framework has been adapted to include new business and societal initiatives such as governance, safety, climate change and innovation. The other core elements of the Tata business excellence movement are the Tata Code of Conduct (TCoC), a mandatory pan-Tata policy that defines how Tata employees can conduct themselves, and the Management of Business Ethics, a programme that helps Tata companies drive ethics and values in the organisation. As a result, the business excellence processes have come to characterise the Tata way of enhancing and conducting its business endeavours, and to a great extent, have helped define the Tata brand. The TBEM movement in Tata has a built-in reward and recognition mechanism wherein companies that have achieved a score of 600 on the TBEM framework are felicitated with the JRD QV Award. TQMS Tata Quality Management Services (TQMS), a division of Tata Sons (the principal promoter holding company of the Tata group of companies), is entrusted with the mandate of setting standards of excellence and partnering closely with Tata companies to achieve their business excellence and improvement goals. TQMS is the custodian of the TBEM assessment process and the Tata Code of Conduct training and interventions. TQMS aims to offer value to group companies in enhancing their performance and global competitiveness. It collaborates with Tata companies, through long- and short-term initiatives, on the following key areas: TBEM assessment, TBEM training, improvement services, climate change, innovation, corporate governance and ethics, safety and education excellence. Through TBEM, TQMS helps Tata companies gain insights on their strengths and their opportunities for improvement. This is managed through an annual process of 'applications and assessments'. Each company writes an application wherein it describes, in the context of the TBEM matrix, what it does and how it does it. This submission is then gauged by trained assessors, who study the application, visit the company and interact with its people. The assessors map out the strengths and improvement opportunities existing in the company before providing their feedback to its leadership team.

Implicit in the TQMS approach is the belief that its wide-ranging methodology will enable Tata companies to become exemplars on business as well as ethical parameters in their respective spheres.

TBEM The TBEM methodology has been moulded to deliver strategic direction and drive business improvements. It contains elements that enable companies following its directives to capture the best of global business processes and practices. The model has retained its relevance thanks to the dynamism built into its core. This translates into an ability to evolve and stay in step with ever-changing business performance parameters. The TBEM matrix is used for the organisational self-assessment of Tata companies, recognition and awards, and for providing feedback to applicants. In addition, TBEM plays three important supportive roles in strengthening the competitiveness of Tata companies: 1. It helps improve business excellence practices, capabilities and results 2. It facilitates communication with a common language of excellence across all Tata companies and the sharing of best practices among them 3. It serves as a working tool for understanding and managing performance, for providing planning guidance, and for identifying learning opportunities The TBEM methodology comprises a set of questions that applicant Tata companies have to answer. Its main objectives are to enhance value for all stakeholders and contribute to marketplace success; maximise enterprise-wide effectiveness and capabilities; and deliver organisational and personal learning. The core values and concepts of TBEM are embodied in seven categories: leadership; strategic planning; customer focus; measurement, analysis and knowledge management; workforce focus; process management and outcomes of financial and non-financial parameters; and business results. The TBEM system focuses on certain key areas of business performance: customerfocused results; product and service results; financial and market results; human resource results; organisational effectiveness results; governance and social responsibility results.

JRD QV Award While quality has always been one of the cornerstones of the Tata way of business, the need to introduce a formal system that calibrated how different group companies were faring on this scale began to be felt in the early 1990s. That led to the institution, in 1995, of the JRD Quality Value Awards, the forerunner to TBEM. Named after JRD Tata, the late chairman of the group and a crusader for the cause of business excellence in Tata companies, the awards have now been incorporated in TBEM.

Jehangir Ratanji Dadabhoy Tata, or JRD, as he was popularly known in business circles, guided the destiny of Indias largest business house for well over half a century. Over the years that he was at the helm of affairs of the group, JRD Tata helped establish many new enterprises. He was always conscious about the importance of quality, and ensured that this quality consciousness prevailed in all the organisations that belonged to the Tata group. He was proud that the companies within the group were known, domestically and internationally, for the quality of their products and services. As a tribute to his quest for perfection in every sphere of activity, the JRD Tata Quality Value Award was instituted in his memory. The JRD QV Award is modelled on the lines of the Malcolm Baldrige National Quality Award, integrating beneficial attributes from other national quality awards. The award recognises a company within the Tata group, which excels in quality management and has achieved the highest levels of quality. This is an annual award presented to the winning company on July 29 each year, the birth anniversary of JRD Tata. The objectives of the award are:

To create awareness on the importance of the value of quality and the need for total customer satisfaction in all areas of operations within the Tata group To achieve and sustain continuous excellence and consequently leadership in the marketplace What is the significance of Affirmative action in the Indian Context?

Affirmative action is thought in general as public policy that helps the State attain social justice. It achieves this end through quotas or by giving priority or some benefits to people that are members of a minority or a discriminated group. The term justice in the Preamble embraces three distinct forms- social, economic and political, secured through various provisions of Fundamental Rights and Directive Principles. Social justice denotes the equal treatment of all citizens without any social distinction based on caste, colour, race, religion, sex and so on. It means absence of privileges being extended to any particular section of the society, and improvement in the conditions of backward classes (SCs, STs, and OBCs) and women. Economic justice denotes on the non- discrimination between people on the basis of economic factors. It involves the elimination of glaring in equalities in wealth, income and property. A combination of social justice and economic justice denotes what is known as distributive justice. Political justice implies that all citizens should have equal political rights, equal voice in the government. The ideal of justice- social, economic and political- has been taken from the Russian Revaluation (1917).

Indias bold experiment with politics of social representation and policies of affirmative action in the twentieth century is among the largest and more successful examples of social engineering across the globe. The system of reservations for Scheduled Castes and Scheduled Tribes in government jobs and legislatures continues to yield positive outcomes, better than anything that existed earlier, or any scheme that seeks to replace it. In some cases like job reservations for SC and ST, caste can continue to be the sole criterion for some time to come. In some other cases, as in job reservations for OBC, caste can be used as the primary criterion, but supplemented by class and gender as secondary criteria for exclusion or sub-division. In many other cases, reservation for backward classes in education is a prime candidate here, caste can become just one of the many variables in a multi-dimensional deprivation index. This approach would open itself to newer categories of disadvantage that do not enter our discussion today: physically handicapped, disadvantaged minorities, victims of displacement and so on. Gradually the regime of affirmative action needs to shift from the first category to the third.

Surrogate Advertising Product advertising for liquor and cigarette companies is banned in the country since 1995 by Cable Television Network (Regulation) Act. According to Rule 7 (2) of the Act, no broadcaster is permitted to show advertisement which promotes directly or indirectly promotion, sale or consumption of cigarettes, tobacco products, wine, alcohol, liquor or other intoxicants, infant milk substitution, feeding bottle or infant food. This ban is now likely to be extended to advertising of extended brands. In June 2002, the Indian Information and Broadcasting (I&B) Ministry served notices to leading television broadcasters to ban the telecast of two surrogate ads of liquor brands McDowell No.1 and Gilbeys Green Label. The Ministry also put some other brands ---Smirnoff Vodka, Haywards 5000, Royal Challenge Whiskey and kingfisher beer on a watch list. The surrogates used by these advertisements ranged from audiocassettes, C Ds, perfumes to golf accessories and mineral water. A market survey in 2001 revealed that advertising has a direct influence on the consumption habits of 431 million people in India and an indirect impact on 275 million `aspirants' from the lower income group. Considering this and realizing that nearly 50 per cent of the television owners have access to cable channels, there is no doubt that the hidden call for alcohol consumption behind the surrogate advertisements is not escaping the eyes of viewers in the world's fourth highest liquor-consuming country. The very purpose of banning liquor advertisements is defeated by surrogate advertising. A surrogate advertisements is one in which a different product is promoted using an already established brand name. Such advertisements or sponsorships help in contribute to brand recall. The different product shown in the advertisement is called the Surrogate. It could either resemble the original product or could be a different product altogether, but using the established brand of the original product. The sponsoring of sports/cultural/leisure events and activities also falls under the purview of surrogate advertising. In India, the trend of surrogate advertisement gathered momentum with the Cable TV Network Regulation Act, which prohibits tobacco and liquor advertisements on TV channels. The liquor industry has intentionally blurred the line between products, advertising `old wine' in a `new bottle,' only this time with a soft-drink label. By August 2002, the I&B Ministry had banned 12 advertisements and leading satellite TV

channels including Zee, Sony, STAR and Aaj Tak were issued show cause notices to explain their rationale behind carrying surrogate liquor advertisements. Answering to the notices, Zee and STAR stopped telecasting the advertisements, followed soon by Aaj Tak and Sony. In addition, the I&B Ministry hired a private monitoring agency to keep a watch on all the advertisements for violation of the Act.