Law and Ethics Legal framework must ensure ethical business behavior. Widely accepted set of consistent rules.

s. Law must represent collective moral standard. Law based on the idea of attaining justice & fairness. Business does not operate out of altruistic motives, hence the need for legislation. Relationship between law & ethics All legal provisions are not ethical. All ethical actions are not governed by laws. Law is a published & established document, ethics is not. Law represents minimum standard, ethics encourage positive behavior. Punishment and obedience orientation is encouraged by imposition of law. Ethics believes in far greater evolution of behavior. Law represents minimum standards of behavior. Ethics precedes action, law follows it. Laws are not a replica of the ethical system. They merely provide a guideline. Law has universal applicability, ethics does not. Role of various bodies in enforcing ethical behavior Government(s) Exerts control on state and central level on Entry Conduct Results The Indian Constitution Safeguards ones rights and ensures social, economic and political justice . The six fundamental rights recognized by the constitution are: 1. The right to equality 2. The right to freedom 3. The right to freedom from exploitation 4. The right to freedom of religion 5. Cultural and educational rights 6. The right to constitutional remedies Right to equality, including equality before law, prohibition of discrimination on grounds of religion, race, caste, gender or place of birth, and equality of opportunity in matters of employment. Right to freedom of Religion, including conscience and free profession, practice, and propagation of religion. Right to freedom of speech and expression, assembly, association or union, movement, residence, and right to practice any profession or occupation. 4. Right against exploitation prohibiting all forms of forced labour, child labour and traffic in human beings Cultural and Educational Rights including the right of any section of citizens to conserve their culture, language or script, and right of minorities to establish and administer educational institutions of their choice. 6. Right to constitutional remedies for enforcement of Fundamental Rights. Directive Principles of State Policy Instructions/guidelines to the governments at the center as well as states. Fundamental in the governance of the country. The idea of Directive Principles of State Policy has been taken from the Irish Republic. They were incorporated in the Constitution in order to provide economic justice and to avoid concentration of wealth in the hands of a few people.

They are directives to the future governments to incorporate them in the decisions and policies to be formulated by them. Directive Principles of State Policy have been grouped into four categories. These are: (1) The economic and social principles. (2) The Gandhian principles. (3) Principles and Policies relating to International Peace and Security and (4) Miscellaneous. The economic & social principles Providing adequate means of livelihood for both men and women. Reorganizing the economic system in a way to avoid concentration of wealth in few hands. Securing equal pay for equal work for both men and women. Securing suitable employment and healthy working conditions for men, women and children Making effective provisions for securing the right to work & education. Assistance in case of unemployment, old age, sickness and disablement . Making provisions for securing just and humane conditions of work. Taking steps to secure the participation of workers in the management of undertakings etc. Promoting education and economic interests of working sections of the people especially the SCs and STs. Making efforts to raise the standard of living and public health MISCELLANEOUS-To save environment from pollution and protect wild life. INDIAN BUSINESS LAW- IMPACT ON ETHICAL BEHAVIOR 1. Business laws 2. Labour laws BUSINESS LAWS: The Industries(Development & Regulation) Act. Foreign Exchange Regulation Act 1973 The Companies Act 1956. The MRTP Act 1969. The Essential Commodities Act 1955. The Industries Development & Regulation Act (IDRA) Main objectives (i) to take necessary steps for the development of industries. (ii) to regulate the pattern and direction of industrial development. (iii) to control the activities, performance and results of industrial undertakings in the public interest. MRTP Act 1969 Brought into force on 1st June 1970. Main objectives: 1. Prevention of concentration of economic power to the common detriment. 2. Control of monopolistic, restrictive and unfair trade practices. Major changes in the act during the Liberalization drive of 1991. Monopolistic Trade: A trade practice which has or is likely to have the effect of unreasonably preventing or lessening competition in the production, supply or distribution of any goods or services, limiting technical development or capital investment to the common good or allowing the quality of goods and services to deteriorate. Restrictive Trade: A practice which has the effect, actual or probable of restricting, lessening or destroying competition. Such trade practices may bring about obstruction to the flow of production or bring about manipulation in the prices to the common detriment.

Unfair Trade Practice: A practice which is for the purpose of promotion of sale, use or supply of any good or the provision of any service adopts one or more unfair trade practice and thereby causes loss or injury to the consumers of such goods or services, whether by eliminating or restricting competition. The following may result in an unfair trade practice: 1. False representation and misleading advertisement of goods and services. 2. Falsely representing second-hand goods as new. 3. Misleading representation regarding usefulness, need, quality, standard, style etc of goods and services. 4. False claims or representation regarding price of goods and services. 5. Giving false facts regarding sponsorship, affiliation etc. of goods and services. 6. Giving false guarantee or warranty on goods and services without adequate tests. Companies Act 1956 Provides for governmental control over the formation and management of companies. Provision of minimum standard of ethical behavior. Recognition of legitimate interest of shareholders to receive reasonable information. A check on the transactions where conflict of interest and duty might arise. A provision for investigation into the operations of the company in order to prevent oppression of minority shareholder. Enforcement of the performance of the duties by the management of the company. Foreign Exchange Regulation Act 1973 Applies to all citizens inside and outside India and to branches of companies registered or incorporated in India. Conservation of foreign exchange resources. Repealed later and replaced by FEMA- Foreign Exchange Management Act 1999. Objectives of FEMA 1. To facilitate external trade and payments. 2. To promote the orderly development and maintenance of foreign exchange market Essential Commodities Act 1955 The Essential Commodities Act, 1955 was enacted to ensure the easy availability of essential commodities to consumers and to protect them from exploitation by unscrupulous traders. The Act provides for the regulation and control of 1. production, 2. distribution and 3. pricing of commodities which are declared as essential for maintaining or increasing supplies or for securing their equitable distribution and availability at fair prices. Categories ) Drugs; (2) Fertilizer, inorganic, organic or mixed; (3) Foodstuffs, including edible oilseeds and oils; (4) Hank yarn made wholly from cotton; (5) Petroleum and petroleum products; (6) Raw jute and jute textile; (7) (i) seeds of food-crops and seeds of fruits and vegetables; (ii) seeds of cattle fodder; and (iii) jute seeds. Recently cotton seed was also included in the list. The Act is implemented by the state governments and

 union territories, leaving the central government to merely monitor the action taken by states in implementing the provisions of the Act. State and UT administrations use the powers of the Act to impose stock or turnover limits for various commodities and impose penalty on those who hold them in excess of the limit.

Labour Laws
Article 43 of the Indian Constitution directs the government to secure by suitable legislation or economic organization or in any other way to all workers, agricultural, industrial or otherwise: Work, A living wage, Conditions of decent standard of life, Full enjoyment of leisure; social and cultural opportunities. Basic objective is to regulate employer-employee relation in order to 1. prevent exploitation of employees. 2. Ensure social justice. 3. Practice labour welfare. Various Labour Laws Trade Union Act, 1926. Industrial Disputes Act, 1947. The Workers Compensation Act 1923. The Employment of Children Act, 1983. The Factories Act 1948. Consumer Protection Act 1986 Amended in 1991, 1993, 2002 The basic objective/purpose of this Act is to provide for better protection of the interest of the consumers and for that purpose to make provisions for the establishment of consumer councils and other authorities for the settlement of consumers dispute and for matters connected therewith. Need 1. Illiteracy 2. Unorganised consumer market. 3. Spurious goods 4. Deceptive advertising Rights Guaranteed 1. Right to be protected against the marketing of goods and services which are hazardous to life and property 2. Right to be informed about the quality, quantity, potency, purity, standard and price of goods or services. 3. Right to be assured , wherever possible , access to a variety of goods and services at competitive prices 4. Right to be heard and to be assured that consumers' interests will receive due consideration at appropriate forums 5. Right to seek redressal against unfair trade practices and unscrupulous exploitation of consumers 6. Right to consumer education. Three tier dispute-settlement mechanism The Consumer Protection Act provides for a three tier system of redressal agencies: (1) District level known as District Forum,

(2) State level known as 'State Commission', and (3) National level known as 'National Commission'. A complaint is to be made to the district forum of the concerned district where the value of goods and services and compensation, if any, is up to Rs 20 lakhs. A complaint is to be made to the 'State Commission' between Rs 20 lakhs and Rs 100 lakhs. A complaint is to be made to the National Commission for more than Rs 100 lakhs Ways of granting relief Repair of defective goods (b) Replacement of defective goods (c) Refund of the price paid for the defective goods or service (d) Removal of deficiency in service (e) Refund of extra money charged (f) Withdrawal of goods hazardous to life and safety (g) Compensation for the loss or injury suffered by the consumer due to negligence of the opposite party (h) Adequate cost of filing and pursuing the complaint Steps taken by the government Jaago Graahak Jaago. National Consumer helpline. Publicity though print media using newspaper advertisements. Hold drawing competitions in the schools by giving relevant themes. Instances Call dropping. Warning on cigarette packet. Overbooking of flights. Right to Information Act 2005 Any citizen may request information from a "public authority" (a body of Government or "instrumentality of State") which is required to reply expeditiously or within thirty days. The Act also requires every public authority to computerize their records for wide dissemination and to proactively publish certain categories of information. This law was passed by Parliament on 15 June 2005 and came fully into force on 13 October 2005. Information disclosure in India was hitherto restricted by the Official Secrets Act 1923 and various other special laws, which the new RTI Act now relaxes The Act specifies that citizens have a right to: 1. request any information (as defined). 2. take copies of documents. 3. inspect documents, works and records. 4. take certified samples of materials of work. 5. obtain information in form of printouts, diskettes, floppies, tapes, video cassettes or in any other electronic mode' or through printouts Information exempted from disclosure Information which has been expressly forbidden to be published by any court of law or tribunal or the disclosure of which may constitute contempt of court. Information, disclosure of which would prejudicially affect the sovereignty and integrity of India. Information, the disclosure of which would cause a breach of privilege of Parliament or the State Legislature. Information including commercial confidence, trade secrets or intellectual property. Information received in confidence from foreign Government.

 Information, the disclosure of which would endanger the life or physical safety of any person or identify the source of information or assistance given in confidence for law enforcement or security purposes. Information which would impede the process of investigation or apprehension or prosecution of offenders. Cabinet papers including records of deliberations of the Council of Ministers, Secretaries and other officers. Fair Trade Practices Avoidance of monopolistic trade practices. Reasonably pricing the product. Offering the products of quality and service consistent with their claims. Restricting the practice of resorting to artificial scarcity. Avoiding making exaggerated claims about the product in their advertisements. Providing timely and accurate information to creditors and suppliers. Paying taxes honestly and promptly. Restraining from bribing the public servants, buying political favours. Not procuring business secrets of competitors. Not making the organisation deliberately sick so as to avoid obligations. Corporate Governance Defined The formal system of accountability and control for organisational decisions and resources. Accountability refers to how well the content of workplace decisions is alligned with the organisations stated strategic decisions. Control refers to the process of auditing and improving organisational decisions and actions. It is concerned with processes for decision making, accountability, control and behaviour at the top level of organisations. Parties involved CEO Board of Directors Management Shareholders Auditors It is therefore the process whereby the people in power direct, monitor and lead corporations, and thereby either create or modify the structure and systems under which they operate.

Agency Theory An agency relationship exists when: Shareholders (Principals) Firm Owners Hire Managers (Agents) Decision Makers which creates Agency Relationship Risk Bearing Specialist (Principal) Managerial Decision-Making Specialist The agency problem occurs when: The desires or goals of the principal and agent conflict and it is difficult or expensive for the principal to verify that the agent has behaved appropriately

Example: Over diversification because increased product diversification leads to lower employment risk for managers and greater compensation Solution: Principals engage in incentive-based performance contracts, monitoring mechanisms such as the board of directors and enforcement mechanisms such as the managerial labor market to mitigate the agency problem Need Inadequacies and failures of the prevalent system. Need for better accounting standards. Equity allotment at discount rates to the controlling groups. Greater accountability to the share-holders. Evolution India 1. 2. 3. 4. 5. Initiative driven by CII- Confederation of Indian Industry. In 1995 CII setup a taskforce to design a voluntary code of corporate governance. The draft was released in 1998 and was called Desirable Corporate Governance: A Code Between 1998 and 2000, over 25 major companies of India like Dr. Reddys Laboratories, Bajaj Auto, Hindalco, HDFC, voluntarily followed the code SEBI Clause 49 Appointment of Independent Directors, Audit committee, Code of conduct, Disclosures of : Related party transactions, Remunerations, Compliance of accounting standards, Compliance Certification & Whistle-blower policy (optional); Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees. In 2001-02, certain accounting standards were modified to further improve financial disclosures. These were: Disclosure of related party transactions. Disclosure of segment income: revenues, profits and capital employed. Deferred tax liabilities or assets. Consolidation of accounts Following this, SEBI set up a committee under Kumar Mangalam Birla to design a code for the listed companies. The Birla Committee Report was approved in Dec 2000. Committees were set up to look into various aspects of Corporate Governance these includes: Kumar Mangalam Birla Committee(1999) The Naresh Chandra Committee(2002) The Narayan Murthy Committee(2003) Clause 49 of the Listing Agreement, which deals with Corporate Governance that a listed entity should follow was 1st introduced in the F.Y.2000-01 based on the recommendations of Birla Committee.

After these recommendations were in place for about 2yrs, SEBI in order to evaluate the adequacy of the existing pratices set up Narayana Murthy Committee, which after holding 3 meetings submitted a Draft recommendations on Corporate Governance norms accordingly Clause 49 of Listing Agreement was revised but industry had some objections which forced the Murthy Committee to revise Clause 49 again. This revised recommendations have considerably diluted the Original Murthy Committee recommendations Advantages Widespread goodwill and brand reputation, which leads to: 1. Widening customer base 2. Ready market for new practice 3. Access to global market. Better access to human capital Transparency and Disclosure Reliable and timely information increases confidence among decision-makers. Information also affects decision makers outside the entity-shareholders, investors and lenderswho must decide where and at what risk to place their money. Disclosure helps public understanding of a company's activities, policies and performance with regard to environmental and ethical standards, as well as its relationship with the communities where the company operates. Disclosure and transparency, as well as proper auditing, serve as a deterrent to fraud and corruption, allowing firms to compete on the basis of their best offerings. Disclosure and transparency also enhance stock market liquidity. Disclosure based Regulation Components & types of disclosure Disclosures Disclosures by whom for whom Companies Intermediaries Stock Exchanges Mutual Funds Analysts & advisors Shareholders Investors Intermediaries Regulator Government Other stake holders

Disclosures (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 individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee. (B) Disclosure of Accounting Treatment To disclose in the financial statements, if an accounting treatment other than prescribed in Accounting Standard has been followed alongwith explanation. (C) Board Disclosures Risk management Internal and external business risks Procedures to inform Board members about the risk assessment and minimization. (D) Proceeds from public issues, preferential issues etc.

 To disclose to the Audit Committee, on use/application of funds as and when any issue is made. (E) Additional disclosures: In the Annual Report the criteria of making payments to be disclosed or a reference to be made that the same is available on the companys website number of shares and convertible instruments held. shall disclose their shareholding (both own or held by / for other persons on a beneficial basis) in the company in which they are proposed to be appointed as directors, prior to their appointment. F) Management A Management Discussion and Analysis report to form part of the Annual Report. G) Shareholders Disclosures to shareholders in case of appointment /reappointment of directors, quarterly results and presentations made, shareholders grievance committee and share transfer committee, shareholding pattern-change. Basic shareholder's rights should include the right to secure ways of registering ownership, transfer shares, obtain timely and relevant information on the corporation, vote in general shareholder meetings, elect members of the board, and share in the profits. Shareholders should have the right to participate in, and be sufficiently informed on decisions concerning fundamental corporate changes such as amendments to the statutes and extraordinary transactions that in effect result in the sale of the company. Shareholders should be given: sufficient and timely information about the date, location and agenda, as well as issues to be decided at the meeting; opportunity to ask questions of the board and to place items on the agenda of general meetings, subject to reasonable limitations; the right to vote in person or in abstentia with equal treatment of such votes. All shareholders should receive equitable treatment, including minority and foreign shareholders and all shareholders should be able to obtain effective redress for violation of their rights Board of Directors Board responsibilities include: Approve a core philosophy and mission Monitor and evaluate corporate performance Monitor and evaluate corporate strategy Determine executive compensation Evaluate senior management performance Manage Executive Director/CEO succession Maintain legal and ethical practices Communicate with shareholders Evaluate board performance Auditors Auditors ensure that the financial statements comply with established accounting and disclosure standards. The auditor's opinion enhances the credibility of financial information, thus helping management, shareholders and other relevant stakeholders to make sound decisions Audits should be conducted by a qualified and independent auditor.

Auditors should alert accounting and auditing standard setters about emerging techniques of dubious propriety. National professional accounting bodies should ensure that their members, as auditors of financial statements, comply with applicable professional standards. Rights of an Auditor

Right to access books of accounts of the company. Right to information and explanation from the officers of the company Right to visit branches where he is not satisfied with the details given by the branch auditor Right to receive notice of Annual General Meeting. Issues in Corporate Governance Board of directors Shareholders and investors Internal control and risk management: 1. Safeguards corporate assets and resources, 2. protect reliability of corporate information, 3. Ensure compliance with regulations. 4. Limits management opportunism 5. Timely access to information. 6. Ensures accuracy of financial statements 7. Increases accountability. Executive compensation The DoddFrank Wall Street Reform and Consumer Protection Act is a federal statute in the United States that was signed into law by President Barack Obama on July 21, 2010 shareholders of public companies will be given the opportunity to cast an advisory vote, commonly referred to as a "Say on Pay," as to whether they approve of their company's executive compensation practices The Act provides that the SEC shall require disclosure in a company's statement of the relationship between executive compensation actually paid and the company's financial performance, taking into account any change in the value of the company's shares and dividends and any distributions. This information may be disclosed by graphical representation. Companies will also be required to disclose in their statements: (i) the median annual total compensation for all employees, not including the CEO, (ii) the CEO's annual total compensation and (iii) the ratio of the median employee compensation to that of the CEO.