Вы находитесь на странице: 1из 47

CHAPTER 1.

INTRODUCTION
The concept of Governance is as old as human civilization. The term Governance simply means
the process of decision- making and the process by which decisions are implemented.
The root of the word Governance is from gubernate, which means to steer. Corporate
governance would mean to steer an organization in the desired direction. The responsibility to
steer lies with the board of directors/ governing board.
On the basis of medieval period and the times of colonial rule some political scientist use the in
describing the system of governance and one such scientist said1the marvel of all history is the
patience with which men and women submit to burdens unnecessarily laid upon them by their
governments. Governance is concerned with the intrinsic nature, purpose, integrity and identity
of an organization with primary focus on the entitys relevance, continuity and fiduciary aspects.
The world has come a long way since the times of such skepticism. The majority of the member
states of the comity of nations today are founded on the principles of Welfare State striving to
achieve the common good and n the process affording optimum opportunity and involvement of
the individual so as to serve the societal interests.
This has lead to emergence of the concept of Good Governance as opposed to mere
governance, as the umbrella concept encompassing within it a system of governance that is able
to unequivocally discover the basic value towards the society where standards concern
economic, political and socio- cultural issues including those involving human rights and follow
the same through an accountable and upright administration.
Good Governance signifies the way an administration improves the standard of living of the
members of its society by creating and making available the basic amenities of life, providing its
people security and instill hope in their heart for a promising future, providing an equitable basis,
access to opportunities for personal growth, affording participation and capacity to influence in
the decision making in public affairs, sustaining a responsive judicial system which dispenses
justice on merits in a fair, unbiased and meaningful manner and maintain accountability and
honesty in each wing of the government.
1 William H. Borah

CONCEPT
Corporate Governance may be defined as a set of systems, processes and principles which ensure
that a company is governed in the best interest of all stakeholders. It is the system by which
companies are directed and controlled. It is about promoting corporate fairness, transparency and
accountability. In other words, 'good corporate governance' is simply 'good business'. It ensures:

Adequate disclosures and effective decision making to achieve corporate objectives;

Transparency in business transactions;

Statutory and legal compliances;

Protection of shareholder interests;

Commitment to values and ethical conduct of business.

In other words, 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 deals with conducting the affairs of a company such that there is fairness
to all stakeholders and that its actions benefit the greatest number of stakeholders. In this regard,
the management needs to prevent asymmetry of benefits between various sections of
shareholders, especially between the owner-managers and the rest of the shareholders.
It is about commitment to values, about ethical business conduct and about making a distinction
between personal and corporate funds in the management of a company. Ethical dilemmas arise
from conflicting interests of the parties involved. In this regard, managers make decisions based
on a set of principles influenced by the values, context and culture of the organization. Ethical
leadership is good for business as the organization is seen to conduct its business in line with the
expectations of all stakeholders.
The aim of "Good Corporate Governance" is to ensure commitment of the board in managing the
company in a transparent manner for maximizing long-term value of the company for its

shareholders and all other partners. It integrates all the participants involved in a process, which
is economic, and at the same time social.
The fundamental objective of corporate governance is to enhance shareholders' value and protect
the interests of other stakeholders by improving the corporate performance and accountability.
Hence it harmonizes the need for a company to strike a balance at all times between the need to
enhance shareholders' wealth whilst not in any way being detrimental to the interests of the other
stakeholders in the company. Further, its objective is to generate an environment of trust and
confidence amongst those having competing and conflicting interests.
It is integral to the very existence of a company and strengthens investor's confidence by
ensuring company's commitment to higher growth and profits. Broadly, it seeks to achieve the
following objectives:

A properly structured board capable of taking independent and objective decisions is in


place at the helm of affairs;

The board is balance as regards the representation of adequate number of non-executive


and independent directors who will take care of their interests and well-being of all the
stakeholders;

The board adopts transparent procedures and practices and arrives at decisions on the
strength of adequate information;

The board has an effective machinery to sub serve the concerns of stakeholders;

The board keeps the shareholders informed of relevant developments impacting the
company;

The board effectively and regularly monitors the functioning of the management team;

The board remains in effective control of the affairs of the company at all times.

The overall endeavour of the board should be to take the organization forward so as to
maximize long term value and shareholders' wealth.

DEFINITION
1. Cadbury Committee ( U.K.), 1992 has defined corporate governance as such : Corporate
governance is the system by which companies are directed and controlled. It encompasses the
entire mechanics of the functioning of a company and attempts to put in place a system of
checks and balances between the shareholders, directors, employees, auditor and the
management.
2. Corporate governance is the system by which business corporations are directed and
controlled. The corporate governance structure specifies the distribution of rights and
responsibilities among different participants in the corporation, such as, the board, managers,
shareholders and spells out the rules and procedures for making decisions on corporate affairs.
By doing this, it also provides this; it also provides the structure through which the company
objectives are set, and the means of attaining those objectives and monitoring performance. [2]
3. Definition of corporate governance by the Institute of Company Secretaries of India is as
under :
Corporate Governance is the application of best Management practices, Compliance of law in
true letter and spirit and adherence to ethical standards for Effective Management and
distribution of wealth and discharge of social Responsibility for sustainable development of all
stakeholders.

As per the United Nations Commission on Human rights, the key attributes of good
governance include transparency, responsibility, accountability, participation and
responsiveness to the needs of the people.

According to Robert Ian (Bob) Tricker- He who introduced the words corporate governance for
the first time in his book in 1984 as Corporate Governance is concerned with the way
corporate entities are governed, as distinct from the way business within those companies are
managed. Corporate governance addresses the issues facing Board of Directors, such as the
interaction with top management and relationships with the owners and others interested in the
affairs of the company.
Good corporate governance involves a commitment of a company to run its business in a legal,
ethical and transparent manner - a dedication that must come from the very top and permeate
throughout the organization.2
It has much to do with the ethical grounding of governance and must be evaluated with reference
to specific norms and objectives as may be laid down. It looks at the functioning of the given
segment of the society from the point of view of its acknowledged stakeholders and beneficiaries
and customers. It must have firm moorings to certain moral values and principles.
Good governance, as a concept, is applicable to all sections of society such as the government,
legislature, judiciary, the media, the private sector, the corporate sector, the co-operatives,
societies registered under the Societies Registration Act, duly registered trusts, organizations
such as the trade unions and lastly the non-government organizations (NGOs).
James D. Wolfensohn said that Corporate Governance is about promoting corporate fairness,
transparency and accountability.
Thus, Good governance creates a sound, ethical and sustainable strategy, acceptable to the
institution as a whole and to other key stakeholders. Good governance oversees the
implementation of such strategy through well-considered processes in an open, transparent and
honest manner.
Good governance is essential to the grant or assertion of autonomy. Boards of Governors, by
embracing good governance approaches, accept, unequivocally, their own collective and
individual responsibilities. Good governance facilitates decision-making that is rational,
2 Mr. Naresh Chandra,
http://www.mca.gov.in/Ministry/latestnews/Draft_Report_NareshChandra_CII.pdf

informed, and transparent which leads to organizational efficiency and effectiveness that
supports and fosters the development of high quality education and research.3

CHAPTER2. Prerequisites and Constituents


Today adoption of good Corporate Governance practices has emerged as an integral element for
doing business. It is not only a pre-requisite for facing intense competition for sustainable growth
in the emerging global market scenario but is also an embodiment of the parameters of fairness,
accountability, disclosures and transparency to maximize value for the stakeholders.
Corporate governance is beyond the realm of law. It cannot be regulated by legislation alone.
Legislation can only lay down a common framework the "form" to ensure standards. The
"substance" will ultimately determine the credibility and integrity of the process. Substance is
inexorably linked to the mindset and ethical standards of management.
Studies of corporate governance practices across several countries conducted by the Asian
Development Bank, International Monetary Fund, Organization for Economic Cooperation and
Development and the World Bank reveal that there is no single model of good corporate
governance.
3 World Bank Working Paper 190: Governance of Technical Education in India

The OECD Code also recognizes that different legal systems, institutional frameworks and
traditions across countries have led to the development of a range of different approaches to
corporate governance. However, a high degree of priority has been placed on the interests of
shareholders, who place their trust in corporations to use their investment funds wisely and
effectively is common to all good corporate governance regimes.
Also, irrespective of the model, there are three different forms of corporate responsibilities which
all models do respect:

Political Responsibilities: the basic political obligations are abiding by legitimate law;
respect for the system of rights and the principles of constitutional state.

Social Responsibilities: the corporate ethical responsibilities, which the company


understands and promotes either as a community with shared values or as a part of larger
community with shared values.

Economic Responsibilities: acting in accordance with the logic of competitive markets


to earn profits on the basis of innovation and respect for the rights/democracy of the
shareholders which can be expressed in terms of managements' obligation as 'maximizing
shareholders value'.

In addition, business ethics and corporate awareness of the environmental and societal interest of
the communities, within which they operate, can have an impact on the reputation and long-term
performance of corporations.
The three key constituents of corporate governance are the Board of Directors, the Shareholders
and the Management.

The pivotal role in any system of corporate governance is performed by the board of
directors. It is accountable to the stakeholders and directs and controls the management.
It stewards the company, sets its strategic aim and financial goals and oversees their
implementation, puts in place adequate internal controls and periodically reports the

activities and progress of the company in the company in a transparent manner to all the
stakeholders.

The shareholders' role in corporate governance is to appoint the directors and the auditors
and to hold the board accountable for the proper governance of the company by requiring
the board to provide them periodically with the requisite information in a transparent
fashion, of the activities and progress of the company.

The responsibility of the management is to undertake the management of the company in


terms of the direction provided by the board, to put in place adequate control systems and
to ensure their operation and to provide information to the board on a timely basis and in
a transparent manner to enable the board to monitor the accountability of management to
it.

The underlying principles of corporate governance revolve around three basic inter-related
segments. These are:

Integrity and Fairness

Transparency and Disclosures

Accountability and Responsibility

The Main Constituents of Good Corporate Governance are:

Role and powers of Board: the foremost requirement of good corporate governance is
the clear identification of powers, roles, responsibilities and accountability of the Board,
CEO and the Chairman of the board.

Legislation: a clear and unambiguous legislative and regulatory framework is


fundamental to effective corporate governance.

Code of Conduct: it is essential that an organization's explicitly prescribed code of


conduct are communicated to all stakeholders and are clearly understood by them. There

should be some system in place to periodically measure and evaluate the adherence to
such code of conduct by each member of the organization.

Board Independence: an independent board is essential for sound corporate governance.


It means that the board is capable of assessing the performance of managers with an
objective perspective. Hence, the majority of board members should be independent of
both the management team and any commercial dealings with the company. Such
independence ensures the effectiveness of the board in supervising the activities of
management as well as make sure that there are no actual or perceived conflicts of
interests.

Board Skills: in order to be able to undertake its functions effectively, the board must
possess the necessary blend of qualities, skills, knowledge and experience so as to make
quality contribution. It includes operational or technical expertise, financial skills, legal
skills as well as knowledge of government and regulatory requirements.

Management Environment: includes setting up of clear objectives and appropriate


ethical framework, establishing due processes, providing for transparency and clear
enunciation of responsibility and accountability, implementing sound business planning,
encouraging business risk assessment, having right people and right skill for jobs,
establishing clear boundaries for acceptable behaviour, establishing performance
evaluation measures and evaluating performance and sufficiently recognizing individual
and group contribution.

Board Appointments: to ensure that the most competent people are appointed in the
board, the board positions must be filled through the process of extensive search. A well
defined and open procedure must be in place for reappointments as well as for
appointment of new directors.

Board Induction and Training: is essential to ensure that directors remain abreast of all
development, which are or may impact corporate governance and other related issues.

Board Meetings: are the forums for board decision making. These meetings enable
directors to discharge their responsibilities. The effectiveness of board meetings is
dependent on carefully planned agendas and providing relevant papers and materials to
directors sufficiently prior to board meetings.

Strategy Setting: the objective of the company must be clearly documented in a long
term corporate strategy including an annual business plan together with achievable and
measurable performance targets and milestones.

Business and Community Obligations: though the basic activity of a business entity is
inherently commercial yet it must also take care of community's obligations. The
stakeholders must be informed about the approval by the proposed and on going
initiatives taken to meet the community obligations.

Financial and Operational Reporting: the board requires comprehensive, regular,


reliable, timely, correct and relevant information in a form and of a quality that is
appropriate to discharge its function of monitoring corporate performance.

Monitoring the Board Performance: the board must monitor and evaluate its combined
performance and also that of individual directors at periodic intervals, using key
performance indicators besides peer review.

Audit Committee: is inter alia responsible for liaison with management, internal and
statutory auditors, reviewing the adequacy of internal control and compliance with
significant policies and procedures, reporting to the board on the key issues.

Risk Management: risk is an important element of corporate functioning and


governance. There should be a clearly established process of identifying, analysing and
treating risks, which could prevent the company from effectively achieving its objectives.
The board has the ultimate responsibility for identifying major risks to the organization,
setting acceptable levels of risks and ensuring that senior management takes steps to
detect, monitor and control these risks.

Good corporate governance recognizes the diverse interests of shareholders, lenders, employees,
government, etc. The new concept of governance to bring about quality corporate governance is
not only a necessity to serve the divergent corporate interests, but also is a key requirement in the
best interests of the corporate themselves and the economy.
CHAPTER3. Characteristics of Good Corporate Governance:Good governance has 8 major characteristics. It is participatory, consensus oriented, accountable,
transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of
law. It assures that corruption is minimized, the views of minorities are taken into account and
that the voices of the most vulnerable in society are heard in decision-making. It is also
responsive to the present and future needs of society.

Participation- Participation by both men and women is a key cornerstone of good


governance. Participation could be either direct or through legitimate intermediate
institutions or representatives. It is important to point out that representative democracy
does not necessarily mean that the concerns of the most vulnerable in society would be
taken into consideration in decision making. Participation needs to be informed and
organized. This means freedom of association and expression on the one hand and an
organized civil society on the other hand.
Rule of law- Good governance requires fair legal frameworks that are enforced
impartially. It also requires full protection of human rights, particularly those of

minorities. Impartial enforcement of laws requires an independent judiciary and an


impartial and incorruptible police force.
Transparency- Transparency means that decisions taken and their enforcement are done
in a manner that follows rules and regulations. It also means that information is freely
available and directly accessible to those who will be affected by such decisions and their
enforcement. It also means that enough information is provided and that it is provided in
easily understandable forms and media.
Responsiveness- Good governance requires that institutions and processes try to serve all
stakeholders within a reasonable timeframe.
Consensus oriented- There are several actors and as many view points in a given society.
Good governance requires mediation of the different interests in society to reach a broad
consensus in society on what is in the best interest of the whole community and how this
can be achieved. It also requires a broad and long-term perspective on what is needed for
sustainable human development and how to achieve the goals of such development. This
can only result from an understanding of the historical, cultural and social contexts of a
given society or community.
Equity and inclusiveness- A societys well being depends on ensuring that all its
members feel that they have a stake in it and do not feel excluded from the mainstream of
society. This requires all groups, but particularly the most vulnerable, have opportunities
to improve or maintain their well being.
Effectiveness and efficiency- Good governance means that processes and institutions
produce results that meet the needs of society while making the best use of resources at
their disposal. The concept of efficiency in the context of good governance also covers
the sustainable use of natural resources and the protection of the environment.
Accountability- Accountability is a key requirement of good governance. Not only
governmental institutions but also the private sector and civil society organizations must
be accountable to the public and to their institutional stakeholders. Who is accountable to

whom varies depending on whether decisions or actions taken are internal or external to
an organization or institution. In general an organization or an institution is accountable
to those who will be affected by its decisions or actions. Accountability cannot be
enforced without transparency and the rule of law.4
Thus, it can be clearly said that the characteristics of good corporate governance is a set of
systems, processes and principles which ensure that a company is governed in the best interest of
all stakeholders. It is the system by which companies are directed and controlled. It is about
promoting corporate fairness, transparency and accountability. In other words, 'good corporate
governance' is simply 'good business'. It ensures:

Adequate disclosures and effective decision making to achieve corporate objectives;

Transparency in business transactions;

Statutory and legal compliances;

Protection of shareholder interests;

Commitment to values and ethical conduct of business.

4 http://www.unescap.org/pdd/prs/ProjectActivities/Ongoing/gg/governance.asp

The Aim and Objectives of Good Corporate Governance:Corporate governance, in plain terms, refers to the rules, processes, or laws by which businesses
are operated, regulated, and controlled. The term can refer to internal factors defined by the
officers, stockholders or constitution of a corporation, as well as to external forces such as
consumer groups, clients, and government regulations.5
In recent times, corporate governance has received increased attention because of high-profile
scandals involving abuse of corporate power and, in some cases, alleged criminal activity by
corporate officers. An integral part of an effective corporate governance regime includes
provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in
the name of the enterprise.
The aim of "Good Corporate Governance" is to ensure commitment of the board in managing the
company in a transparent manner for maximizing long-term value of the company for its
shareholders and all other partners. It integrates all the participants involved in a process, which
is economic, and at the same time social.
The fundamental objective of corporate governance is to enhance shareholders' value and protect
the interests of other stakeholders by improving the corporate performance and accountability.
Hence it harmonizes the need for a company to strike a balance at all times between the need to
enhance shareholders' wealth whilst not in any way being detrimental to the interests of the other
stakeholders in the company. Further, its objective is to generate an environment of trust and
confidence amongst those having competing and conflicting interests.
It is said that good corporate governance helps an organization achieve several objectives and
some of the more important ones include:
Developing appropriate strategies that result in the achievement of stakeholder objectives.
Attracting, motivating and retaining talent.
Creating a secure and prosperous operating environment and improving operational
performance
5 http://business.gov.in/corporate_governance/concept_objectivess.php

Managing and mitigating risk and protecting and enhancing the companys reputation.
Some aspects covered in the poll include:
Corporate governance regulations in India
Corporate governance concerns in India and role of independent directors and audit
committees in addressing these concerns
Board practices, board oversight of risk management and the importance given to integrity and
ethical values
Practices that are fundamental to improved corporate governance.6
Thus, 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 deals with conducting the affairs of a company such that there is fairness to
all stakeholders and that its actions benefit the greatest number of stakeholders. In this regard,
the management needs to prevent asymmetry of benefits between various sections of
shareholders, especially between the owner-managers and the rest of the shareholders.
It is about commitment to values, about ethical business conduct and about making a distinction
between personal and corporate funds in the management of a company. Ethical dilemmas arise
from conflicting interests of the parties involved. In this regard, managers make decisions based
on a set of principles influenced by the values, context and culture of the organization. Ethical
leadership is good for business as the organization is seen to conduct its business in line with the
expectations of all stakeholders.

6 http://newsdawn.blogspot.in/2012/01/corporate-governance-in-india-aimsand.html

CHAPTER4. The Challenges Set For Good Corporate Governance:In recent years the word governance has become a very fashionable term and is being used in a
variety of ways and that covers a large number of organizations both in public and private

domains.7 An efficient, effective and democratic government is the best guarantor of social
justice as well as an orderly society. Similarly, there is also emphasis on the fact that the
administrative system has to be country specific and area specific taking in view not only the
institutions of governance and its legal and regulatory mechanisms but also its market, its civil
society and cultural values of the people.
The government would, therefore, have the singular responsibility to create an enabling
environment where development program get properly implemented and that creative minds do
not get stifled or their energies diverted from undertaking new initiatives or enterprises. The
principal response of the state, therefore, would be to facilitate, to enable, and to coordinate.
Neither the market nor the civil society can perform this role as effectively as the government
and thus they cannot become substitutes for the government. India is not excluded from this
global debate or transition from socialist order to capitalist growth models.
Good corporate governance is an essential element in the efficient running of all organization.
Whilst, corporate governance requirements vary from sector to sector and organization to
organization, essentially all are about the underpinning processes by which organizations are
directed and controlled and the associated transparency and accountability.
Corporate governance is, therefore, concerned with the structures and process for decisionmaking and accountability, controls and behaviour at the top of organizations. Simply, it
describes the need for any organization to have a clear direction and accountability and
appropriate working arrangements in place to ensure that it achieves what it sets out to do.

7http://workspace.unpan.org/sites/Internet/Documents/Challenges%20for%20Good
%20Governance%20in%20India.pdf

Importance of Good Corporate Governance:Corporate governance has been a high profile topic in recent years principally because of public
concern at a lack of control at the top of organizations. There is evidence of public perception
that, in certain cases, senior managers appear to have been able to act without restraint and that
inadequately designed systems have failed to prevent fraudulent, inefficient or inappropriate
behaviour.
Indeed, a survey undertaken by the Committee on Standards in Public Life in 2006, focusing on
public attitudes towards conduct in public life, demonstrated that the publics confidence that
office holders will be held accountable for their conduct is limited. While the majority believes
that public service organizations are committed to improving standards in public life, only a
minority say they are confident that these organizations will generally uncover wrong doing or
that they will punish those in public office who are caught doing wrong.
In the early 1990s, developments in corporate governance gained momentum partly as a result of
scandals involving directors or other senior staff in private sector organizations. For example,
many people lost faith in company pension schemes after 1991, when Robert Maxwell was
found to have stolen more than 400 million from 32,000 members of the Mirror Group Pension
Fund. The Bank of Credit and Commerce International (BCCI) was forced to shut its doors by
the Bank of England in 1991 amid fraud allegations, resulting in around 20 local authorities
across the UK losing up to 30 million in investments.

Effective corporate governance is therefore critical to the efficient and effective leadership of
local authorities. Good corporate governance will help to:
improve the performance of services, through effective scrutiny and reporting;
ensure resources are efficiently deployed to achieve the councils performance
expectations;
improve customer satisfaction, through the delivery of improved services and a focus on
the needs of communities.
build public trust and confidence in public services by ensuring accountability,
transparency and high standards of conduct.
Effective corporate governance enhances to external financing by firms, Leading to greater
investment as well as high growth and employment.
Thus, in the words of Mervyn King "Good corporate governance is about 'intellectual honesty'
and not just sticking to rules and regulations, capital flowed towards companies that practiced
this type of good governance".8
CHAPTER5. The Need For and Value of Good Corporate Governance:Corporate Governance is needed to create a Corporate culture of Transparency, accountability
and disclosure. It refers to compliance with all the moral & ethical values, legal framework and
voluntary adopted practices. This enhances customer satisfaction, shareholder value and wealth.
Corporate Performance: Improved governance structures and processes help ensure
quality decision-making, encourage effective succession planning for senior management
and enhance the long-term prosperity of companies, independent of the type of company
and its sources of finance. This can be linked with improved corporate performanceeither in terms of share price or profitability.
8
http://www.dfdl.com/images/stories/Articles/News/Corporate_Governance_in_India.p
df

Enhanced Investor Trust: Investors consider corporate Governance as important as


financial performance when evaluating companies for investment. Investors who are
provided with high levels of disclosure & transparency are likely to invest openly in those
companies. The consulting firm McKinsey surveyed and determined that global
institutional investors are prepared to pay a premium of up to 40 percent for shares in
companies with superior corporate governance practices.
Better Access to Global Market: Good corporate governance systems attracts
investment from global investors, which subsequently leads to greater efficiencies in the
financial sector.
Combating Corruption: Companies that are transparent, and have sound system that
provide full disclosure of accounting and auditing procedures, allow transparency in all
business transactions, provide environment where corruption will certainly fade out.
Corporate Governance enables a corporation to compete more efficiently and prevent
fraud and malpractices within the organization.
Easy Finance From Institutions: Several structural changes like increased role of
financial intermediaries and institutional investors, size of the enterprises, investment
choices available to investors, increased competition, and increased risk exposure have
made monitoring the use of capital more complex thereby increasing the need of Good
Corporate Governance. Evidence indicates that well-governed companies receive higher
market valuations. The credit worthiness of a company can be trusted on the basis of
corporate governance practiced in the company.
Enhancing Enterprise Valuation: Improved management accountability and operational
transparency fulfill investors expectations and confidence on management and
corporations, and return, increase the value of corporations.
Reduced Risk of Corporate Crisis and Scandals: Effective Corporate Governance
ensures efficient risk mitigation system in place. The transparent and accountable system
that Corporate Governance makes the Board of a company aware of all the risks involved
in particular strategy, thereby, placing various control systems to monitor the related
issues.

Accountability: Investor relations is essential part of good corporate governance.


Investors have directly/ indirectly entrusted management of the company for the creating
enhanced value for their investment. The company is hence obliged to make timely
disclosures on regular basis to all its shareholders in order to maintain good investors
relation. Good Corporate Governance practices create the environment where Boards
cannot ignore their accountability to these stakeholders.

CHAPTER6. EVIDENCE OF CORPORATE GOVERNANCE FROM THE


ARTHASHASTRA:-

Kautilyas Arthashastra maintains that for good corporate governance, all administrators,
including the king were considered servants of the people. Good governance and stability were
completely linked. If rulers are responsive, accountable, removable, recallable, there is stability.
If not there is instability. These tenets hold good even today.
Kautilyas fourfold duty of a king are as follows:The substitution of the state with the corporation, the king with the CEO or the board of a
corporation, and the subjects with the shareholders, bring out the quintessence of corporate
governance, because central to the concept of corporate governance is the belief that public good
should be ahead of private good and that the corporation's resources cannot be used for personal
benefit.

Raksha literally means protection, in the corporate scenario it can be equated with the

risk management aspect.


Vriddhi literally means growth, in the present day context can be equated to

stakeholder value enhancement


Palana literally means maintenance/compliance, in the present day context it can be

equated to compliance to the law in letter and spirit.


Yogakshema literally means well being and in Kautilyas Arthashastra it is used in
context of a social security system. In the present day context it can be equated to
corporate social responsibility.

Arthashastra talks self-discipline for a king and the six enemies which a king should overcome
lust, anger, greed, conceit, arrogance and foolhardiness. In the present day context, this addresses
the ethics aspect of businesses and the personal ethics of the corporate leaders.
Corporate Governance is managing, monitoring and overseeing various corporate systems in
such a manner that corporate reliability, reputation are not put at stake. Corporate Governance
pillars on transparency and fairness in action satisfying accountability and responsibility towards
the stakeholders.
Fairness Responsibility Corporate Governance Transparency Accountability

The long term performance of a corporate is judged by a wide constituency of stakeholders.


Various stakeholders affected by the governance practices of the company:
Vendors Customers Employees Stakeholders Society Government.
Global competitions in the market need best planning, management, innovative ideas,
compliance with laws, good relation between directors, shareholders, employees and customers
of companies, value based corporate governance in order to grow, prosper and compete in
international markets by strengthen their strength overcoming their weaknesses and running
them effectively and efficiently in an efficient and transparent manner by adopting the best
practices.
Corporate India must commit itself as reliable, innovative and prompt service provider to their
customers and should also become reliable business partners in order to prosper and to have all
round growth.
Corporate Governance is nothing more than a set of ideas, innovation, creativity, thinking having
certain ethics, values, principles etc which gives direction and shape to its people, employees and
owners of companies and help them to flourish in global market.
Indian Corporate Bodies having adopted good corporate governance will reach themselves to a
benchmark for rest of the world; it brings laurels as a way of appreciation. Corporate governance
lays down ethics, values, and principles, management policies of a corporation which are
inculcated and brought into practice. The importance of corporate governance lies in promoting
and maintains integrity, transparency and accountability throughout the organization.

HISTORY & NEED OF CORPORATE GOVERNANCE


Corporate governance concept emerged in India after the second half of 1996 due to economic
liberalization and deregulation of industry and business. With the changing times, there was also

need for greater accountability of companies to their shareholders and customers. The report of
Cadbury Committee on the financial aspects of corporate Governance in the U.K. has given rise
to the debate of Corporate Governance in India.
Need for corporate governance arises due to separation of management from the ownership. For
a firm success, it needs to concentrate on both economical and social aspect. It needs to be fair
with producers, shareholders, customers etc. It has various responsibilities towards employees,
customers, communities and at last towards governance and it needs to serve its responsibilities
at the best at all aspects.
The corporate governance concept dwells in India from the Arthshastra time instead of CEO at
that time there were kings and subjects. Today, corporate and shareholders replace them but the
principles still remain same, unchanged i.e. good governance.
20th century witnessed the glossy of Indian Economy due to liberalization, globalization, and
privatization. Indian economy for the 1st time here was together with world economy for
product, capital and lab our market and which resulted into world of capitalization, corporate
culture, business ethics which was found important for the existence of corporation in the world
market place.
Corporate governance is concerned with set of principles, ethics, values, morals, rules
regulations, & procedures etc. Corporate governance establishes a system whereby directors are
entrusted with duties and responsibilities in relation to the direction of the companys affairs.
The term governance means control i.e. controlling a company, an organization etc or a
company & corporate governance is governing or controlling the corporate bodies i.e. ethics,
values, principles, morals. For corporate governance to be good the manager needs to meet its
responsibilities towards its owners (shareholders), creditors, employees, customers, government
and the society at large. Corporate governance helps in establishing a system where a director is
showered with duties and responsibilities of the affairs of the company.
For effective corporate governance, its policies need to be such that the directors of the company
should not abuse their power and instead should understand their duties and responsibilities
towards the company and should act in the best interests of the company in the broadest sense.
The concept of corporate governance is not an end; its just a beginning towards growth of
company for long term prosperity.

CHAPTER7. ROLE OF LAW IN CORPORATE GOVERNANCE


Law can only provide a minimum code of conduct for proper regulation of human being or
company.[4] Law is made not to stop any act but to ensure that if you do that act, you will face
such consequences i.e. good for good and bad for bad. Thus, in the same manner, role of law in
corporate governance is to supplement and not to supplant. It can not be only way to govern
corporate governance but instead it provides a minimum code of conduct for good corporate
governance. Law provides certain ethics to govern one and all so as to have maximum
satisfaction and minimum friction. It plays a complementary role. Role of law in corporate
governance is in Companies Act which imposes certain restrictions on Directors so that there is
no misrepresentation of documents, there is no excessive of power, so that it imposes duty not to
make secret profit and make good losses due to breach of duty, negligence, etc, duty to act in the
best interest of the company etc.
PERSPECTIVES OF CORPORATE GOVERNANCE
Before dealing with perspectives of corporate governance lets understand what is meant by the
term perspective. Oxford Advanced Learner Dictionary defines the term perspective as:1.

The Art of drawing solid objects on a flat surface so as to give the right impression of their

relative height, width, depth, distance, etc.


2. Apparent relation between different aspects of a problem.
In simple terms it means the right impression.
Mainly we will deal with the perspectives of corporate governance from three points of view:
1. Shareholders (Capital Market) Control perspective
2. Organization (Management) Control perspective
3. Stakeholders - Control perspective
1. Shareholders: as providers of a risk capital have final control on resource allocation
decisions.
2. Organization: have the main purpose is to control i.e. through skills, intelligence, innovation,
ideas, professionalism etc. Therefore, here in this perspective, resource allocation decision
should rest with them.
3. Stakeholders: here, it says that for long term business, only shareholders value maximization

should not be seen as sole goal but it should be for well being of all groups with stake of long run
of business and it should be goal of corporate governance.
IMPORTANT ISSUES IN CORPORATE GOVERNANCE
There are several important issues in corporate governance and they play a great role, all the
issues are inter related, interdependent to deal with each other. Each issues connected with
corporate governance have different priorities in each of the corporate bodies.
The issues are listed as below:
1.

Value based corporate culture

2.

Holistic view

3.

Compliance with laws

4.

Disclosure, transparency, & accountability

5.

Corporate governance and human resource management

6.

Innovation

7.

Necessity of judicial reforms

8.

Globalization helping Indian companies to become global giants based on good corporate

governance.
9.

Lessons from Corporate failure

1. Value based corporate culture: For any organization to run in effective way, it needs to have
certain ethics, values. Long run business needs to have based corporate culture. Value based
corporate culture is good practice for corporate governance. It is a set of beliefs, ethics,
principles which are inviolable. It can be a motto i.e. A short phrase which is unique and helps in
running organization, there can be vision i.e. dream to be fulfilled, mission and purpose,
objective, goal, target.
2. Holistic view: This holistic view is more or less godly, religious attitude which helps in
running organization. It is not easier to adopt it, it needs special efforts and once adopted it leads
to developing qualities of nobility, tolerance and empathy.
3. Compliance with laws: Those companies which really need progress, have high ethical
values and need to run long run business they abide and comply with laws of Securities
Exchange Board Of India (SEBI), Foreign Exchange Regulation Act, Competition Act 2002,
Cyber Laws, Banking Laws etc.

4. Disclosure, transparency, and accountability: Disclosure, transparency and accountability


are important aspect for good governance. Timely and accurate information should be disclosed
on the matters like the financial position, performance etc. Transparency is needed in order that
government has faith in corporate bodies and consequently it has reduced corporate tax rates
from 30% today as against 97% during the late 1970s. Transparency is needed towards corporate
bodies so that due to tremendous competition in the market place the customers having choices
dont shift to other corporate bodies.
5. Corporate Governance and Human Resource Management: For any corporate body, the
employees and staff are just like family. For a company to be perfect the role of Human Resource
Management becomes very vital, they both are directly linked. Every individual should be
treated with individual respect, his achievements should be recognized. Each individual staff and
employee should be given best opportunities to prove their worth and these can be done by
Human Resource Department. Thus in Corporate Governance, Human Resource has a great role.
6. Innovation: Every Corporate body needs to take risk of innovation i.e. innovation in
products, in services and it plays a pivotal role in corporate governance.
7. Necessity of Judicial Reform: There is necessity of judicial reform for a good economy and
also in todays changing time of globalization and liberalization. Our judicial system though
having performed salutary role all these years, certainly are becoming obsolete and outdated over
the years. The delay in judiciary is due to several interests involved in it. But then with changing
scenario and fast growing competition, the judiciary needs to bring reforms accordingly. It needs
to speedily resolve disputes in cost effective manner.
8. Globalization helping Indian Companies to become global giants based on good
governance: In todays age of competition and due to globalization our several Indian Corporate
bodies are becoming global giants which are possible only due to good corporate governance.
9. Lessons from Corporate Failure[6]: Every story has a moral to learn from, every failure
has success to learn from, in the same way, corporate body have certain policies which if goes as
a failure they need to learn from it. Failure can be both internal as well as external whatever it
may be, in good governance, corporate bodies need to learn from their failures and need to move
to the path of success.
CHAPTER8. CORPORATE GOVERNANCE IN INDIA PAST, PRESENT & FUTURE

Good corporate governance in the changing business environment has emerged as powerful tool
of competitiveness and sustainability. It is very important at this point and it needs corporation
for one and all i.e. from CEO of company to the ordinary staff for the maximization of the
stakeholders value and also for maximization of pleasure and minimization of pain for the long
term business.
Global competitions in the market need best planning, management, innovative ideas,
compliance with laws, good relation between directors, shareholders, employees and customers
of companies, value based corporate governance in order to grow, prosper and compete in
international markets by strengthen their strength overcoming their weaknesses and running
them effectively and efficiently in an efficient and transparent manner by adopting the best
practices.
Corporate India must commit itself as reliable, innovative and prompt service provider to their
customers and should also become reliable business partners in order to prosper and to have all
round growth.
Corporate Governance is nothing more than a set of ideas, innovation, creativity, thinking having
certain ethics, values, principles etc which gives direction and shape to its people, employees and
owners of companies and help them to flourish in global market.
Indian Corporate Bodies having adopted good corporate governance will reach themselves to a
benchmark for rest of the world; it brings laurels as a way of appreciation. Corporate governance
lays down ethics, values, and principles, management policies of a corporation which are
inculcated and brought into practice. The importance of corporate governance lies in promoting
and maintains integrity, transparency and accountability throughout the organization.
Corporate governance has existed since past but it was in different form. During Vedic times
kings used to have their ministers and used to have ethics, values, principles and laws to run their
state but today it is in the form corporate governance having same rules, laws, ethics, values, and
morals etc which helps in running corporate bodies in the more effective ways so that they in the
age of globalization become global giants.
Several Indian Companies like PepsiCo, Infuses, Tata, Wipro, TCS, and Reliance are some of the
global giants which have their flag of success flying high in the sky due to good corporate
governance.

Toady even law has a great role to play in successful and growing economy. Government and
judiciary have enacted several laws and regulations like SEBI, FEMA, Cyber laws, Competition
laws etc and have brought several amendments and repeal the laws in order that they dont act as
barrier for these corporate bodies and developing India. Judiciary has also helped in great way by
solving the corporate disputes in speedy way.
Corporate bodies have their aim, values, motto, ethics and principles etc which guide them to the
ladder of success. Big and small organizations have their magazines annual reports which reflect
their achievements, failure, their profit and loss, their current position in the market. A few
companies have also shown awareness of environment protection, social responsibilities and the
cause of upliftment and social development and they have deeply committed themselves to it.
The big example of such a company can be of Deepak Fertilizers and Petrochemicals
Corporation Limited which also bagged 2nd runner up award for the corporate social
responsibility by business world in 2005.
Under the present scenario, stakeholders are given more importance as to shareholders, they even
get chance to attend, vote at general meetings, make observations and comments on the
performance of the company.
Corporate governance from the futuristic point of view has great role to play. The corporate
bodies in their corporate have much futuristic approach. They have vision for their company, on
which they work for the future success. They take risk and adopt innovative ideas, have futuristic
goals, motto, and future objectives to achieve.
With increase in interdependence and free trade among countries and citizens across the globe,
internationally accepted corporate governance standards are of paramount importance for Indian
Companies seeking to distinguish themselves in global footprint. The companies should always
keep improving, enhancing and upgrading themselves by bringing more reliable integrated
product and service quality. They should be more transparent in their conduct.
Corporate governance should also have approach of holistic view, value based governance,
should be committed towards corporate social upliftment and social responsibility and
environment protection. It also involves creative, generative and positive things that add value to
the various stakeholders that are served as customers. Be it finance, taxation, banking or legal
framework each and every place requires good corporate governance.
Hence corporate governance is a means and not an end, corporate excellence should be end.

CHAPTER9. Conclusion and Suggestions:Recently the terms "governance" and "good governance" are being increasingly used in
development literature. It should be clear that good governance is an ideal which is difficult to
achieve in its totality. Very few countries and societies have come close to achieving good
governance in its totality. However, to ensure sustainable human development, actions must be
taken to work towards this ideal with the aim of making it a reality.9
Today, even law has a great role to play in successful and growing economy. Government and
judiciary have enacted several laws and regulations like SEBI, FEMA, Cyber laws, Competition
laws etc and have brought several amendments and repeal the laws in order that they dont act as
barrier for these corporate bodies and developing India. Judiciary has also helped in great way by
solving the corporate disputes in speedy way.
Governance is the act, process or power of governing an organization. Good governance allows
organizations to do the right thing, in the right way, for the right people, in a timely, open, honest
and accountable way. A good governance framework will include the systems, processes,
cultures and values used to direct and control organizations and through which they answer to,
get involved with and, where appropriate, lead their communities.
Good governance has been a growing area of focus since the early 1990s. Various documents
good practice have been on produced and improved as reform has taken place. Governance, and
in particular local accountability, has played an increasingly important role in public services.
Various relevant Committees in developing good governance frameworks in local
government are as follows: The report of the Committee on the Financial Aspects of Corporate Governance (The Cadbury
Report 1992) identified three essential principles for corporate governance openness, integrity
and accountability.

9 http://www.unescap.org/pdd/prs/ProjectActivities/Ongoing/gg/governance.asp

The Committee on Standards in Public Life examined concerns about the conduct of people
who hold public office and published its First report In May 1995.This Defined seven general
principles, known as the Nolan principles. These are selflessness, integrity, objectivity,
accountability, openness, honesty and integrity.
In 2004 the Independent Commission on Good Governance in Public Services published a set
of common principles that all public-sector organizations should adopt. The Good Governance
Standard for Public Services built upon the Nolan Principles for the manner of individuals in
public life. It did so by setting out six core principles that should form the backbone of the
governance arrangements of all organizations. Organizations should:
1. Focus on the organizations purpose and outcomes for Citizens.
2. Clearly define functions and roles.
3. Promote values of good governance.
4. Make informed and open decisions and manage risk.
5. Develop the ability and skills of the governing body.
6. Involve stakeholders (those with an interest) and Make accountability real
To achieve Good Governance the Government shall be on a mission to follow clarity, conviction,
compassion and consistency in governance which are prerequisites to achieve the principles and
vision of good governance. Clarity promotes transparency, participatory and efficient
governance. Conviction promotes accountable and effective governance. Compassion promotes
consensus oriented, equitable and inclusive governance.
In a nutshell, Good corporate governance entails effective participation in public policy making,
the prevalence of the rule of law and judicial system and a system of institutional checks and
balances through horizontal and vertical separation of powers and effective oversight agencies.
It is further said that the mother earth has enough for everyones need , but not enough for
anyones greed If the business owners and managers follow the righteous path, it is a win- win
situation for all the true corporate social responsibility in order to achieve a good corporate
governance. Although it seems difficult, but it is not possible, all that is needed little effort with
pure heart

The pendulum needs to swing a little for people to realize that corporations serve a useful
purpose, but they are right to expect high accountability.10
Thus, India has made a significant achievement in the area of Corporate Governance and is yet to
go a long way in ensuring good corporate governance in line with the leading economies of the
globe. Indian companies are focusing on good corporate governance so as to accomplish the
short term and long term corporate plans simultaneously ensuring the overall interests of the
various stake holders.
The good corporate governance helps an organization in attracting the best talents in various
domain areas, as well as in motivating and remaining the talent thereby facilitating the overall
process of talent management which acts as a backbone or the engine of any organization. Good
corporate governance facilitates the management of visualizing, analyzing and managing the
various types of risk so as to ensure a secure and prosperous operating environment to improve
the operational performance and productivity.
Good corporate governance is characterized by a firm commitment and adoption of ethical
practices by an organization across its entire value chain and in all of its dealings with a wide
group of stakeholders encompassing employees, customers, vendors, regulators, and
shareholders (including the minority shareholders), in both good and bad times, to achieve this
certain checks and practices need to be whole heartedly embraced

10 Ravanan and Mindtree

CHAPTER10. CORPORATE SOCIAL RESPONSIBILITY


The vast amount of literature available on the subject ensures that there exist innumerable
definitions of corporate governance. To get a fair view on the subject it would be prudent to give
a narrow as well as a broad definition of corporate governance.
In a narrow sense, corporate governance involves a set of relationship amongst the companys
management, its board of directors, shareholders and other stakeholders. These relationships,
which involve various rules and incentives, provide the structure through which the objectives of
the company are set, and the means of attaining those objectives and monitoring performance are
determined. Thus, the key aspects of good corporate governance include transparency of
corporate structures and operations; the accountability of managers and the boards to
shareholders; and corporate responsibility towards employees, creditors, suppliers and local
communities where the corporation operates.
In a broader sense, however, good corporate governance- the extent to which companies are run
in an open and honest manner- is important for overall market confidence, the efficiency of
international capital allocation, the renewal of countries industrial bases, and ultimately the
nations overall wealth and welfare.

It is important to note that in both the narrow as well as in the broad definitions, the concepts of
disclosure and transparency occupy centre-stage. In the first instance, these concepts create trust
at the firm level among the suppliers of finance. In the second instance, they create overall
confidence at the aggregate economy level. In both cases, they result in efficient allocation of
capital.
Corporate governance is important for the following reasons:

It lays down the framework for creating long-term trust between companies and the
external providers of capital

It improves strategic thinking at the top by inducting independent directors who bring a
wealth of experience, and a host of new ideas

It rationalizes the management and monitoring of risk that a firm faces globally

It limits the liability of top management and directors, by carefully articulating the
decision making process

It has long term reputational effects among key stakeholders, both internally (employees)
and externally (clients, communities, political/regulatory agents)

Independent directors are the trustees of good corporate governance. An active and
involved board consisting of professional and truly independent directors plays an
important role in creating trust between a company and its investors, and is the best
guarantor of good corporate governance. Increasingly, institutional investors, both in
India and internationally, are closely scrutinising the corporate governance practices and
the quality of boards before taking investment decisions. As Indian companies look
towards accessing funds from foreign institutional investors and tapping global financial
markets, the credentials of their independent directors will become important.

Finally, competent and qualified independent directors play an important role in the
stewardship and strategy formulation of companies. Indian corporates that have

appointed such directors to their Board have benefited immensely from their guidance
and inputs.

The National Foundation for Corporate Governance (NFCG) has been set up the
Department of Company Affairs, Government of India, in partnership with Confederation
of Indian Industry (CII), Institute of Company Secretaries of India (ICSI) and Institute of
Chartered Accountants of India (ICAI) with the goal of promoting good corporate
governance practices in India.

The NFCG will focus on the following areas:

Creating awareness on the importance of implementing good corporate governance


practices both at the level of individual corporations and for the economy as a whole. The
foundation would provide a platform for quality discussions and debates amongst
academicians, policy makers, professionals and corporate leaders through workshops,
conferences, meetings and seminars.

Encouraging research capability in the area of corporate governance in the country and
providing key inputs for developing laws and regulations which meet the twin objectives
of maximizing wealth creation and fair distribution of this wealth.

Working with the regulatory authorities at multiple levels to improve implementation and
enforcement of various laws related to corporate governance

In close coordination with the private sector, work to instil a commitment to corporate
governance reforms and facilitate the development of a corporate governance culture

Cultivating international linkages and maintaining the evolution towards convergence


with international standards and practices for accounting, audit and non-financial
disclosure.

Setting up of National Centres for Corporate Governance across the country, which
would provide quality training to Directors and aim to have global recognition and
acceptance
The evolution of corporate social responsibility in India refers to changes over time in
India of the cultural norms of corporations' engagement of corporate social
responsibility (CSR), with CSR referring to way that businesses are managed to bring
about an overall positive impact on the communities, cultures, societies and environments
in which they operate.[1] The fundamentals of CSR rest on the fact that not only public
policy but even corporates should be responsible enough to address social issues. Thus
companies should deal with the challenges and issues looked after to a certain extent by
the states.[2]
Among other countries India has one of the oldest traditions of CSR. But CSR practices
are regularly not practiced or done only in namesake specially by MNCs with no cultural
and emotional attachments to India. Much has been done in recent years to make
Indian Entrepreneurs aware of social responsibility as an important segment of their
business activity but CSR in India has yet to receive widespread recognition. If this goal
has to be realised then the CSR approach of corporates has to be in line with their
attitudes towards mainstream business- companies setting clear objectives, undertaking
potential investments, measuring and reporting performance publicly.

The history of CSR in India has its four phases which run parallel to India's historical
development and has resulted in different approaches towards CSR. However the phases are not
static and the features of each phase may overlap other phases.
The First Phase
In the first phase charity and philanthropy were the main drivers of CSR. Culture, religion,
family values and tradition and industrialization had an influential effect on CSR. In the preindustrialization period, which lasted till 1850, wealthy merchants shared a part of their wealth
with the wider society by way of setting up temples for a religious cause.[citation needed] Moreover,
these merchants helped the society in getting over phases of famine and epidemics by providing

food from their godowns and money and thus securing an integral position in the society.[citation
needed]

With the arrival of colonial rule in India from the 1850s onwards, the approach towards

CSR changed. The industrial families of the 19th century such


as Tata, Godrej, Bajaj, Modi, Birla, Singhania were strongly inclined towards economic as well
as social considerations. However it has been observed that their efforts towards social as well as
industrial development were not only driven by selfless and religious motives but also influenced
by caste groups and political objectives.[3]
The Second Phase
In the second phase, during the independence movement, there was increased stress on Indian
Industrialists to demonstrate their dedication towards the progress of the society. This was
when Mahatma Gandhi introduced the notion of "trusteeship", according to which the industry
leaders had to manage their wealth so as to benefit the common man. "I desire to end capitalism
almost, if not quite, as much as the most advanced socialist. But our methods differ. My theory of
trusteeship is no make-shift, certainly no camouflage. I am confident that it will survive all other
theories." This was Gandhi's words which highlights his argument towards his concept of
"trusteeship". Gandhi's influence put pressure on various Industrialists to act towards building
the nation and its socio-economic development.[4] According to Gandhi, Indian companies were
supposed to be the "temples of modern India". Under his influence businesses established trusts
for schools and colleges and also helped in setting up training and scientific institutions. The
operations of the trusts were largely in line with Gandhi's reforms which sought to abolish
untouchability, encourage empowerment of women and rural development.
The Third Phase
The third phase of CSR (196080) had its relation to the element of "mixed economy",
emergence of Public Sector Undertakings (PSUs) and laws relating labour and environmental
standards. During this period the private sector was forced to take a backseat.[citation needed] The
public sector was seen as the prime mover of development.[citation needed] Because of the stringent
legal rules and regulations surrounding the activities of the private sector, the period was
described as an "era of command and control". The policy of industrial licensing, high taxes and

restrictions on the private sector led to corporate malpractices.[citation needed] This led to enactment of
legislation regarding corporate governance, labour and environmental issues. PSUs were set up
by the state to ensure suitable distribution of resources (wealth, food etc.) to the needy. However
the public sector was effective only to a certain limited extent. This led to shift of expectation
from the public to the private sector and their active involvement in the socio-economic
development of the country became absolutely necessary.[citation needed] In 1965 Indian academicians,
politicians and businessmen set up a national workshop on CSR aimed at reconciliation.[citation
needed]

They emphasized upon transparency, social accountability and regular stakeholder

dialogues. In spite of such attempts the CSR failed to catch steam.


The Fourth Phase
In the fourth phase (1980 until the present) Indian companies started abandoning their traditional
engagement with CSR and integrated it into a sustainable business strategy. In the 1990s the first
initiation towards globalization and economic liberalization were undertaken. Controls and
licensing system were partly done away with which gave a boost to the economy the signs of
which are very evident today. Increased growth momentum of the economy helped Indian
companies grow rapidly and this made them more willing{Gajare, R.S. (2014). A conceptual
study of CSR development in India. In D.B. Patil & D.D. Bhakkad, Redefining Management
Practices and Marketing in Modern Age Dhule, India: Atharva Publications (p. 152-154).} and
able to contribute towards social cause. Globalization has transformed India into an important
destination in terms of production and manufacturing bases of TNCs are concerned. As Western
markets are becoming more and more concerned about labour and environmental standards in
the developing countries, Indian companies which export and produce goods for the developed
world need to pay a close attention to compliance with the international standards. [5]
CSR is not a new concept in India. Ever since their inception, corporates like the Tata Group,
the Aditya Birla Group,and Indian Oil Corporation, to name a few, have been involved in serving
the community. Through donations and charity events, many other organizations have been doing
their part for the society. The basic objective of CSR in these days is to maximize the company's
overall impact on the society and stakeholders. CSR policies, practices and programs are being
comprehensively integrated by an increasing number of companies throughout their business

operations and processes. A growing number of corporates feel that CSR is not just another form
of indirect expense but is important for protecting the goodwill and reputation, defending attacks
and increasing business competitiveness.[6]
Companies have specialised CSR teams that formulate policies, strategies and goals for their
CSR programs and set aside budgets to fund them. These programs are often determined by
social philosophy which have clear objectives and are well defined and are aligned with the
mainstream business. The programs are put into practice by the employees who are crucial to this
process. CSR programs ranges from community development to development in education,
environment and healthcare etc.[7]
For example, a more comprehensive method of development is adopted by some corporations
such as Bharat Petroleum Corporation Limited, Maruti Suzuki India Limited. Provision of
improved medical and sanitation facilities, building schools and houses, and empowering the
villagers and in process making them more self-reliant by providingvocational training and a
knowledge of business operations are the facilities that these corporations focus on. Many of the
companies are helping other peoples by providing them good standard of living.
Also, corporates increasingly join hands with non-governmental organizations (NGOs) and use
their expertise in devising programs which address wider social problems.
CSR has gone through many phases in India. The ability to make a significant difference in the
society and improve the overall quality of life has clearly been proven by the corporates. Not one
but all corporates should try and bring about a change in the current social situation in India in
order to have an effective and lasting solution to the social woes . Partnerships between
companies, NGOs and the government should be facilitated so that a combination of their skills
such as expertise, strategic thinking, manpower and money to initiate extensive social change
will put the socio-economic development of India on a fast track.[8]
Corporate social responsibility (CSR, also called corporate conscience, corporate
citizenship or sustainable responsible business/ Responsible Business)[1] is a form
of corporate self-regulation integrated into a business model. CSR policy functions as a selfregulatory mechanism whereby a business monitors and ensures its active compliance with the

spirit of the law, ethical standards and international norms. With some models, a firm's
implementation of CSR goes beyond compliance and engages in "actions that appear to further
some social good, beyond the interests of the firm and that which is required by law."[2][3] CSR
aims to embrace responsibility for corporate actions and to encourage a positive impact on the
environment and stakeholders including consumers, employees, investors, communities, and
others.
The term "corporate social responsibility" became popular in the 1960s and has remained a term
used indiscriminately by many to cover legal and moral responsibility more narrowly construed.
[4]

Proponents argue that corporations increase long term profits by operating with a CSR
perspective, while critics argue that CSR distracts from business' economic role. A 2000 study
compared existing econometric studies of the relationship between social and financial
performance, concluding that the contradictory results of previous studies reporting positive,
negative, and neutral financial impact, were due to flawed empirical analysis and claimed when
the study is properly specified, CSR has a neutral impact on financial outcomes.[5]
Critics[6][7] questioned the "lofty" and sometimes "unrealistic expectations" in CSR.[8] or that CSR
is merely window-dressing, or an attempt to pre-empt the role of governments as a watchdog
over powerful multinational corporations.
Political sociologists became interested in CSR in the context of theories
of globalization, neoliberalism and late capitalism. Some sociologists viewed CSR as a form of
capitalist legitimacy and in particular point out that what began as a social movement against
uninhibited corporate power was transformed by corporations into a 'business model' and a 'risk
management' device, often with questionable results.[9]
CSR is titled to aid an organization's mission as well as a guide to what the company stands for
to its consumers. Business ethics is the part of applied ethics that examines ethical principles and
moral or ethical problems that can arise in a business environment. ISO 26000 is the recognized
international standard for CSR. Public sector organizations (the United Nations for example)

adhere to the triple bottom line (TBL). It is widely accepted that CSR adheres to similar
principles, but with no formal act of legislation.
Business dictionary defines CSR as "A companys sense of responsibility towards the
community and environment (both ecological and social) in which it operates. Companies
express this citizenship (1) through their waste and pollution reduction processes, (2) by
contributing educational and social programs and (3) by earning adequate returns on the
employed resources."[11]
"Corporate Governance is concerned with holding the balance between economic and social
goals and between individual and communal goals. The corporate governance framework is there
to encourage the efficient use of resources and equally to require accountability for the
stewardship of those resources. The aim is to align as nearly as possible the interests of
individuals, corporations and society" (Sir Adrian Cadbury in Global Corporate Governance
Forum, World Bank, 2000)
The basis for recent international work (see, for instance, the World Banks work
inwww.gcgF.org) on Corporate Governance is the OECD "Principles of Corporate Governance"
(www.OECD.org) which cover the rights of shareholders, the equitable treatment of
shareholders, the role of stakeholders in corporate governance, disclosure and transparency and
the responsibilities of the board. The World Bank notes, however, that there is no single model of
corporate governance with systems varying by country, sector and even in the same corporation
over time. Among the most prominent systems are the US and UK models, which focus on
dispersed controls; and the German and Japanese models which reflect a more concentrated
ownership structure.
Corporate social responsibility is concerned with treating the stakeholders of the firm ethically
or in a socially responsible manner. Stakeholders exist both within a firm and outside.
Consequently, behaving socially responsibly will increase the human development of
stakeholders both within and outside the corporation. This definition (from glossary) is much
wider than the stakeholder definition used, to date, by the OECD and the World Bank. For
instance the OECD principles imply that a key role for stakeholders is concerned with ensuring

the flow of external capital to firms and that stakeholders are protected by law and have access to
disclosure. While the World Bank have been intrigued by a June 2000 Investor Opinion Survey
of McKinsey (survey) that finds that investors say that board governance is as important as
financial performance in their investment decisions and that across Latin America, Europe, the
USA and Asia investors (over 80% of those interviewed) would be willing to pay more for a
company with good board governance practices. Poor governance was defined by McKinsey as
a company that has:

Minority of outside directors

Outside directors have financial ties with management

Directors own little or no stock

Directors compensated only with cash

No formal director evaluation process

Very unresponsive to investor requests for information on governance issues


Good governance was defined by McKinsey as:

Majority of outside directors

Outside directors are truly independent, no management ties

Directors have significant stockholdings

Large proportion of director pay is stock/options

Formal director evaluation in place

Very responsive to investor requests for information on governance issues


Given the questions, it is not surprising that the figure of 80% was arrived at, but the point is that
Good Governance has a very narrow fit to the OECD principles and even narrower when
compared with corporate social responsibility sentiments.
Nevertheless, there is increasing advocacy of a broader and more inclusive concept of corporate
governance that extends to corporate responsibility and has a wider concept of stakeholder than

that used by the OECD (see schematic). These ideas are reflected in the King Report for South
Africa, the Commonwealth principles of business practice, the UKs Tomorrows Company etc.

Schematic kindly supplied with permission of Mervyn King of the King Commission, South
Africa
In conclusion, the notion of corporate governance fits well into current concerns of management
structure at the top of corporations and is becoming increasingly better defined thanks to the
work of the World Bank and OECD etc., but hardly encompasses the concerns of corporate
social responsibility notions. On the other hand, notions of corporate social responsibility have
not advanced as far as the corporate governance school with its agreed set of principles. There is
light on the horizon thanks to work by King and others and also in the Cadbury definition itself
that notes that the aim of corporate governance is to align as nearly as possible the interests of
individuals, corporations and society.

"CSR is about how companies manage thebusiness processes to produce an overall positive
impact on society -

Mallenbaker

INTRODUCTION: Corporate Social Responsibility (CSR), can be described as, the continuous
commitment by corporations towards the economic and social development of communities in
which they operate. The concept of corporate social responsibility of large industrial groups has
occupied a prominent place in the greater national discourse on economic issues since the preindependence era in India. Gandhi described large business as trusts of the wealth of the
people and thus emphasized on the larger social purpose that industrial wealth should serve in
independent India. In the early days of the post- independence period, the Indian state under the
heavy influence of Nehruvian socialism encouraged private industries to play an active role in
the economic and social development of the backward sections of the society, while at the same
time setup a mammoth public sector for serving larger societal interests. As Nehrus gentle
socialism gave way to the more radical policies of nationalization and extensive state regulation
of the Indira Gandhi era, industrial groups desperate to avoid the draconian state policies and
regulations in economic affairs resorted to large scale corporate welfare programs to demonstrate
that private wealth also played a important role in poverty alleviation and the socio-economic
development of the nation and was not anti-people. An impeding crisis in Indian economy led the
Rajiv Gandhi and Narashima Rao governments to dismantle the license raj and introduce muchneeded economic reforms in the country, which marked the beginning of the economic
liberalization and the free market economy in India. The major impact of these economic reforms
has been the increased presence of transnational corporations in the country and transformation
of Indian businesses into large global enterprises. In this scenario, there is an increased focus on
the social role of these private enterprises by both the proponents and opponents of liberalization
in India. In this paper we analyze the fundamental changes in paradigm of corporate social
responsibility and the new innovative practices being applied for its implementation in the last
decade in India, in the context of the liberalization of the Indian economy. Our central argument
in the paper is that the rise of private enterprise in the free market setup has radically transformed
the perception and understanding that corporations have of their large role in society and
consequently, their has been a revolution in implementation of corporate social responsibility
programs at the ground level.

ROLE OF CSR: o Boost in brand image and reputation. o Increased sales and customer loyalty. o
Reduction in operating costs. o Higher productivity and quality. o Attract and retain employees. o
Reduced regulatory oversight. STAKE HOLDER PARTICIPATION IN CORPORATE SOCIAL
RESPONSIBILITY: The conceptualization of corporate social responsibility uptill the 1990s
was purely in terms of philanthropy or charity. Welfare programs or initiatives were introduced
not as a duty or a responsibility but as a form of charity that was supposed to indicate the virtues
of the company or the organization. Many industrial groups like the Tatas or Birlas setup
charitable trusts that provided financial grants for various worthy causes. Although there were
some cases where the corporation took up a more active role like the establishment of the Birla
Institute of Technology, Pillani by the Birlas or setting up of primary schools by several major
industrial groups for their workers s children but even in these cases the approach was
philanthropical. The problem with the philanthropy based model has several problems there are
as follows: The corporation does not commit its resources fully behind such a project and often
confines itself to one-time or periodical financial grants. Since its an act of charity, the
corporation does not feel the need for community participation in the designing or management
of such initiatives and people participation, if any, is restricted to limited implementation aspects
reducing the efficiency and effectiveness of corporate social responsibility measures at the
ground level. The lack of involvement from the primary resource provider i.e. the corporation
leads to low levels of accountability and transparency at the implementation level. THE NEW
INVOVATIONS IN IMPLEMENTING CORPORATE SOCIAL RESPONSIBILITY: With the
shifting of the corporate social responsibility paradigm to a stakeholder centric approach,
practices at the ground level have also undergone a radical transformation. In every aspect of
corporate social responsibility measures the last decade has seen corporations innovating to
increase efficiency, effectiveness and accountability. The focus has been on initiatives that are
people-centric with active community participation at all levels. Further, the corporations
themselves have moved away from the charitable initiatives like giving financial grants or
sponsorships to providing products and services in a manner that would make a real difference in
the target communities. The first perceptible change has been the introduction of a host of
innovative programs and schemes in several areas like education, healthcare, rural development,
environment protection, protection of artistic and cultural heritage and disaster management that

are customized to meet the specific needs of the target group and corporations devote not only
financial resources but expertise, manpower, products and services for the successful
implementation of these schemes: LUPIN INDIA LTD, Indias third largest manufacturer of
pharmaceuticals has started a project for providing sustainable development in 154 villages
across Rajasthan. The scheme instead of providing for piece-meal assistance that does not lead to
effective alleviation of poverty or adequate development is designed as a holistic action plan that
includes an Agricultural Income Generation Scheme, land cultivation and fruit plantation
programs, fodder preservation schemes, sericulture and water-recycling programs, establishment
of medical and educational centres, adult literacy programs and credit schemes. CIPLA,
another Indian pharma major has found a novel approach to fulfil its corporate social
responsibility obligations by offerering to sell a cocktail of three anti-HIV drugs, Stavudine,
Lamivudine and Nevirapine, to the Nobel Prize-winning voluntary agency Medicine Sans
Frontieres (MSF) at a rate of $350, and at $600 per patient per year to other NGOs over the
world. This offer has to lead to a significant decrease in the prices of these drugs worldwide
increasing the accessibility of these drugs especially in the developing countries. RANBAXY,
one of Indias major pharmaceutical firms operates seven mobile healthcare vans and two urban
welfare centres that reach over a lakh people in various parts of northern and central India as part
of its corporate social responsibility initiative. TATA CONSULTANCY SERVICES (TCS) has
set up a fullyequipped computer training laboratory for children from the Society for the Welfare
of the Physically Handicapped and Research Centre, in Pune for imparting basic computer
knowledge. NIIT has launched a highly popular hole-in-the-wall scheme where it places a
computer on a public wall in urban and rural areas so that neighborhood children can learn
computer basics using the playway method. BHARAT ELECTRONICS LTD built cyclone
proof houses for the victims of the super cyclone in with the help of the victims themselves so
that the houses are built according to their needs.
CORPORATE SOCIAL RESPONSIBILITY IN PUBLIC ENTERPRISES: In our narrative so
far, we have focused on the private sector and its greater societal obligations. India, also, has a
large public sector with several huge corporations. And companies operating in various sectors
like petroleum, heavy industries, aviation, mining, steel, equipment manufacturing and shipping.
The Indian public sector has had a long tradition of corporate social responsibility and the

initiatives of corporations like the Oil and Natural Gas Commission (ONGC), Steel Authority of
India Ltd (SAIL) and Gas Authority of India Ltd. (GAIL) have critical in the development of
several backward regions of the country. Indian Airlines and Bharat Heavy Electronics have been
widely acclaimed for their disaster management efforts. The era of liberalization has led to the
privatization of several public sector units and others being forced to make switch from being
monopolies to being free market players with intense private competition. These dynamic
processes have raised several key questions related to the corporate social responsibility of the
public sector: What should the social involvement levels of a company or corporation once it is
privatized? Should public sector units continue to play the same social role as they did in the
pre-independence era or is there a need to scale back their social responsibility initiatives? These
are questions that are central to the post-liberalization debate and need further analysis and
research. Meanwhile the opponents of privatization have used an corporate social responsibility
argument for their cause, they argue that considering the vital importance of the social role
played by the public sector in India, there should not be any privatization of these vital
industries. Once again the lack of adequate research specifically empirical data restricts us from
an objective examination of this issue. CONCLUSION: The new economic era in India i.e. the
post-liberalization phase of the Indian economy was a catalyst for the radical transformation in
the corporate social responsibility related practices in the country, the change was two fold:
transformation of the conceptual understanding of corporate social responsibility and innovations
at the implementation level. At the conceptual level, there was a fundamental transformation
from the charity-oriented approach to the stakeholderoriented approach. Even though the
company is an artificial person it has some responsibility like human. It can provide more social
responsibility oriented activities to the society for economic development. According to
Goldman Saches If India continues the same economic development activities definitely it will
become the Motor for world economy in 2035.