BUSINESS ETHICS &

CORPORATE GOVERNANCE

(INDIVIDUAL PROJECT)

Submitted by:

Vanita Agarwal

Roll no.: 01

TYBBI

K C College
 ACKNOWLEDGMENT

I would like to confer my heartiest thanks to our Prof. Rupa for

giving us the opportunity to expel & work in the field of Business
Ethics & corporate Governance & to select of our choice for the
project. I thank you for your kind support and co operation. It was
an enriching experience.
I would also like to thank all those people who directly or indirectly
helped me in accomplishing this project.
Q1. Recommendations of Kumar Mangalam Committee report on Corporate
Governance. (Oct 2006)

Ans.: Kumar Mangalam Birla headed the committee appointed by SEBI on May 7, 1999 with
the following objectives:

• Promote & raise the standards of corporate governance

• Draft a code of corporate bets practices

• Suggest safeguards to be instituted within the companies to deal with insider

information & insider trading

Following are the recommendations made by Kumar Mangalam Birla Committee:

• At least 50% of the board should comprise of non-executive directors. At least one
third of the board should comprise of independent directors where chairman is non-
executive & at least half of the board should be independent in case of an executive
chairman. Non-executive chairman should have an office & should be paid for related
expenses.

• Maximum 10 directorships & 5 chairmanships per person . Directors should inform the
company about the committees positions & changes

• A qualified & Independent Audit Committee should be set up by the board of the
company. It’s Chairman should attend AGM to answer shareholders queries. This
enhances the credibility of financial disclosures of company & promoting
Transparency.

• The Board Should set up Remuneration Committee to determine on their behalf & on
shareholders behalf, the company’s policy on remuneration packages for executive
directors including pension rights & compensation payments.

• A committee under the chairmanship of a non-executive director/independent director

should be set up by the board to look into shareholders issues including share
transfers & redressing shareholders complaints & grievances.

• To expedite the process of share transfers, board should delegate the power of share
transfer to an officer or committee or to registrars & share transfer agents. The
delegated authority should attend to share transfer formalities at least once a fortnight.

• The corporate Governance section of Annual report should make disclosures on

remuneration paid to directors in all forms including salaries, bonus, benefits, stock
options, pension & other fixed as well as performance linked incentives paid to
directors.

• The board meetings should be held at least 4 times in a year, with a maximum gap of
4 months between any 2 meetings & all information recommended by SEBI committee
should be placed before the board.
• Management Discussion & analysis of annual report including discussion of industry
structure & development, opportunities & threats, financial & operational performance
in HR front should form a part of the annual report to the shareholders

• Quarterly results, Presentation to analysts etc. should be communicated to investors

through company’s website or may be sent in such a form so as to enable stock
exchange on which company is listed to put it on it’s own website

• There should be separate section in annual report on corporate Governance, with

details on level of compliance by the Company. Non-compliance of mandatory
recommendations of Clause 49 with reason thereof & extent to which non-mandatory
recommendations have been adopted should be specified

• The company should provide a brief resume, expertise in specific areas & names of
companies, in which the person holds both directorship & committee membership of
Board, while appointing a new director or re-appointing an existing director. These
should form a part of notice to the shareholders

• Disclosures to be made to the Board by the management relating to all material,

financial & commercial transactions, where they have personal interest that may have
a potential conflict with the interest of large. These include dealing in company shares
etc

• The half yearly declaration of financial performance including summary of the

significant events in last 6 months should be sent/mailed to each household of the
shareholders

• Financial Institutions should not have direct role in decision making or should not have
nominees on the board of the company. But if board of Borrower Company has
nominees of financial institutions, then the nominee directors should take equal
responsibility

• A certificate from auditors on compliance should form a part of annual report & annual
return & a copy should be sent to stock exchanges
Q2. Define Social Responsibilities. What are various social responsibilities towards
various sections of the Society? (Oct.2008)

Ans.: Definition: Following US-UK tradition Social responsibility is defined as

follows-‘Operating Business in a manner that meets or excels the ethical, legal, public &
commercial expectations that public has from businesses’.

The European Commission's definition of CSR is:

"A concept whereby companies integrate social and environmental concerns in their business
operations and in their interaction with their stakeholders on a voluntary basis."
According to Carroll’s Pyramid of CSR (1991) corporation should strive to make profit, obey
law, be ethical & be a good corporate citizen. This can be depicted from the Diagram below:

Legal Responsibilities (Obey the Law)

Philanthropic responsibilities Ethical Responsibilities

(Be a good corporate citizen) (Be ethical, be profitable)

Following are the various social responsibilities towards various sections of the Society:

1. Responsibility towards enterprise itself:

• To earn adequate profits every year for Survival, growth & discharging social
obligations honestly by optimally utilizing the available resources fully

• To earn profits through efficient business management, cost control & quality
improvement

• To follow business laws, maintain cordial relations & create good corporate image
through systematic image building measures

2. Responsibility towards Consumers/customers:

• To provide good quality products & services as per needs of customer & provide
maximum satisfaction to customers

• To avoid monopolistic/restrictive/unfair trade practices which are harmful to customers

• To ensure that product supplied has no adverse effect on the life & health of the
customer

• To avoid hoarding & malpractices such as adulteration & short weights & ensure
equitable & fair distribution

• To supply goods at a fair & reasonable price & provide satisfactory after sales service
to consumers
• To maintain customer cells for addressing the complaints of customers & thereby
protecting rights of customers

• To reveal correct information in advertising, packaging & labelling to customers

• To give fair profit margin to retailers so that they do not enter in unfair trade practices

3. Responsibility towards Employees/Workers:

• To provide Opportunities to develop their capabilities through education, training &

promotion

• To provide safety of Job so as to raise their morale & loyalty towards organisation

• To create best working conditions, provide welfare activities & make arrangements
recreation so that they can put their best efforts to achieve company’s objectives

• To protect Rights of Workers: right to fair wages, right to participate in decisions

affecting their jobs, right to join trade unions, right to strike etc.

• To introduce impartial promotional & transfer policies for labour force of the company

• To introduce grievance handling machinery in consultation with the Trade Union

• To recognize, appreciate & encourage special skills of employees

• To introduce schemes of Participative Management

4. Responsibility towards Shareholders:

• To earn profits & provide fair return for the investment made by shareholders in the
form of Dividend so as to appreciate the long term value of shares

• To keep the Enterprise Financially stable & dynamic by running the business in cost
conscious & effective manner

• To give full & accurate information about financial position of the company to inform
the owners that capital has been used fruitfully

• To undertake R&D activities for growth, diversification & expansion to face competition
& provide safety to investment of Shareholders

• To raise Public image of the company so that Shareholders feel proud about their
company
 5. Responsibility towards Society/Community:

• To improve Quality of products, generate employment opportunities & provide a better

life & welfare to all members of the community

• To avoid bad effluent, smoky chimneys, ugly buildings & ensure environmental &
ecological balance

• To rehabilitate the population affected by operation of business, if any

• To contribute to social & cultural activities such as education & rural development & to
introduce social audit by professional experts

• To contribute towards economic growth, economic stability & national security

6. Responsibility towards Government:

• To pay tax, duties, fees etc. Regularly & honestly to government authorities as per rule

• To follow commercial, industrial & other relevant laws, rules & regulations. E.g.: law
relating to licensing, pollution control, industry safety etc.

• To avoid use of corrupt & unethical means to get favours from government & political
parties

• To help Government in raising social welfare & implementing socio-economic &

industrial policies by adopting fair business practices

Q3. Evolution of corporate Governance in India (Nov. 2006)

1. In India, till recently relatively little attention was paid to the process by which
companies were governed. The various aspects of this issue crept into India after the
report of the Cadbury committee in U.K. in 1992, which evoked considerable interest
in Indian companies.

2. The confederation of Indian industries (CII) thereafter published a Desirable Code

Governance, which some companies voluntary adopted.

3. Many companies voluntarily established high standards of corporate governance;

however there were many others who did not pay adequate attention to the interest of
the shareholders. They did not attend to investors also who suffered on account of
unscrupulous companies, which raised capital from the market at very high premium.

4. SEBI initiated several steps for strengthening corporate governance through the
amendment of the listing agreement.

5. However SEBI continued to receive a large number of investor complaints daily. This
prompted SEBI to constitute a Committee under the chairmanship of Shri Kumar
 Mangalam Birla, to suggest changes in the Listing Agreement to promote corporate
governance.

6. Based on the recommendations of the Committee and the feedback, the SEBI Board
at its meeting held on January25, 2000 considered the recommendations of the
Committee and decided to make amendments to the listing Agreement in pursuance
of these recommendations.

7. It was advised that a new clause, namely Clause49 be incorporated in the agreement
covering the following primary areas:

i. Board of Directors (specifying a minimum number of independent directors and

board procedures).

ii. Audit Committee (introducing the mandatory requirement of an audit committee

and its roles and responsibilities).

iii. Director’s remuneration (disclosures of Director’s remuneration).

iv. Disclosures (mandatory Management Discussion and Analysis section in

Annual Reports and other disclosures).

v. Board Procedure

vi. Management Discussion and Analysis Report

vii. Shareholders/Investors Grievance Committee and Other shareholders’ issues

viii. Report on Corporate Governance

ix. Certificate of Compliance

8. In August 2002, the Department of Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed a High Level Committee, under the
Chairmanship of Naresh Chandra, Former Cabinet secretary “to examine the Auditor-
Company relationship, role of independent directors and disciplinary mechanism over
auditors in the light of regularities committed by companies in India and abroad.”

(a) In late2002, SEBI, having analyzed the disclosures made by companies under
Clause 49 and observed that there was considerable variance in the extent and
quality of disclosures made by companies in their annual reports and concluded
that there was also a need to review the existing code on corporate governance.

(b) Thus, the SEBI Committee on Corporate Governance was constituted under the
Chairmanship of N R Narayan Murthy to look into these matters.

(c) The Narayan Murthy Committee report (February 2003), reviewed existing best
practices in corporate governance and also drew upon the recommendations of the
Kumar Mangalam Birla Committee and the Naresh Chandra Committee to
 recommend further improvements in the existing system of corroborate
governance applicable to Indian companies.

9. The Revised Clause 49

In October 2004, SEBI amended Clause 49 of the listing agreement in alignment with
the recommendations of the Narayan Murthy Committee. These changes primarily
strengthened the requirements in the following areas:

i. Board composition and procedure

ii. Audit committee responsibilities

iii. Subsidiary companies

iv. Risk management

v. CEO/CFO certification of financial and internal controls

vi. Legal compliance

vii. Other disclosures

Conclusion:

India has increased & improved its exposure to Corporate Governance over the years, but
there is still a lot of scope for improvement & this is evident by the number of frauds & scams
taking place in corporate sector.
 BIBLIOGRAPHY
 www.google.com

 www.investopedia.com

 www.wikipedia.com

 Book- Business Ethics & corporate governance (Vipul Prakash)