Professional Documents
Culture Documents
Group #28
Group No 28
Abhaya Mishra - PGP-10-093 Mansi Mahajan - PGP-10-130 Md Nasrullah Khan - PGP-10-133 Niharika Goel - PGP-10-140 Rohan Rambhia - PGP-10-155 Sachit Mohan - PGP-10-158
Business Environment
Group #28
To set aside ones prejudices, ones present needs, and ones own self-interest in making a decision as a director for a company is an intellectual exercise that takes constant practice. In short, intellectual honesty is a journey and not a destination. - Mervyn King (Chairman: King Report)
Introduction:
The world is increasingly witnessing a surge in the prominence of corporations in the functioning of the society. Corporations have become powerful and dominant institutions and have reached every corner of the globe in different sizes, capabilities and influences. Even the erstwhile non-businesses such as hospitals, universities and social works have started to function in a corporate style with a defined management structure and commercial goals focusing on sustainability and innovation. The advent of management thinking, as Peter Drucker states, made possible a new society: A society of Organizations. Thus, effective functioning of organizations or corporate reflects conspicuously on the effective functioning of the society. With the emergence of globalization and its capitalistic benefits, corporate are increasingly becoming multi-national. As a result, there is a greater deterritorialization and less of government control, which results in a greater need of accountability. Thus, the way in which corporate are governed has assumed great importance, with the stakes of a societys economic and social confidence dependent on the good governance of its corporate.
Stakeholders:
Corporate governance, in a simple manner, can be defined as a set of processes, policies and laws for controlling and directing an organization. It constitutes a set of rules that govern the relationship between management, shareholders and the several stakeholders, which include the society at large. The goal of corporate governance is to protect and enhance the interests of its diverse stakeholder groups. It also aims to preserve the reputation of a company and its business against any fraudulent acts committed by its directors and officers. The following illustration depicts a firms interaction with different possible stakeholders. [1]
Business Environment
Group #28
Shareholders
Government
Customers
FIRM
Board of Directors Suppliers
Employees
Society at Large
Business Environment
Group #28
To stand up to the above values, the principles of corporate governance that are commonly accepted are [2]:
Rights and fair relationship with Shareholders: Corporate should appreciate the rights
of the shareholders and in fact, help them to exercise their rights by effectively communicating information that is clear and easy to obtain. Coming out with effective strategy to protect the enhance the shareholders value Functions and Duties of the board: The board should be skilled enough to tackle various business issues and be able to handle, monitor and challenge the performance of management. The size of the board should also be appropriate and it must be committed to fulfil its obligations and responsibilities. Typically, an appropriate mix of executive and nonexecutive directors is maintained to have a balance of an assortment of perspectives. Ethics: The importance of ethics cannot be overstated. A corporation is a creation of the society as well, and unless it provides the society with its profits and fair deal, its foundation itself becomes dubious and eventually leads it to fail. The company must not rely on the ethics of individuals but have a comprehensive compliance to values and ethics kind of program to avoid the firm becoming vulnerable to step outside legal and ethical boundaries Transparency and Communication: All the stakeholders must be regularly updated on the progress made by the company towards the corporate goals and particularly in fulfilling the specific interests of the stakeholders being addressed. It also needs to delineate how the responsibilities of the board and the management are being achieved to provide shareholders with a sense of accountability. Measures should be taken to enable fairness and clarity in the firms financial reporting. Stakeholders: The corporate must recognize that they have legal and other obligations to all the stakeholders.
Business Environment
Group #28
Board of Directors
The board is the source and focus of proper accountability of management to shareholders. A small group of some 12 members (U.S. average) who are are mandated with review and oversight and are accountable to shareholders.
Managers
Responsible for the companys daily operations and daily affairs. Provides and updates conditions and incentives for the companys performance. A small, powerful group with access to information and control of daily affairs of the company. But - they must report to board and shareholders.
Shareholders
Powerful (in theory) because they elect board and vote at AGMs. In order to exert influence, they should be: committed knowledgeable long-term. In practice, A diverse and relatively powerless group with one common goal - they want to see good financial performance. But - they control capital and can exercise oversight by selecting accountable board members.
Business Environment
Group #28
2. Japanese corporate governance system: The Japanese system consists of a large board of directors (of as many as 50 members). It usually contains only insiders to the company. When a company's financial performance is poor, majority shareholders send representatives to the company's board of directors.
Government
minority shareholders independent directors - A Keiretsu is a group of closely-related Japanese companies: They own each others shares and bonds, and give each other preferential treatment as business partners. Each keiretsu is formed around a large bank. Similar to the anglo-US model Banks have a variety of functions in japanese model, it acts as : Lender Depository Voting Agent
Keiretsu
Management
Bank
Thus, essentially effective corporate governance is about having a formidable team of directors, managers and shareholders charting out and implementing efficient processes and steps which are sensitive to the ever changing challenges of the business landscape and reaping socio-economic benefits to all the stakeholders concerned. [3]
Business Environment
Group #28
Employees:
One of the biggest challenges in a merger is to give a fair treatment to its employees in terms of safeguarding their position in the company and coming out with fair policies that prevent favouritism towards a particular company in the merger. The successful policies employed in the HP-Compaq merger are a pertinent case in point to employee fairness in times of acquisitions.
Social Responsibility:
The acquired co. may have undertaken certain corporate social responsibility programmes. In the event of any alteration in these programs, the decision should be properly and timely communicated so that misrepresentation or misunderstandings do not happen. Arcelor Mittal coming out with a detailed manual on high standards and best practices in community engagement is a good example in point.
Business Environment
Group #28
Judicious behaviour
Responsibilities of a company:
If a company has to ensure to perform ethical practices it has to run its business activities in a responsible manner. Responsible behaviour in existing activities or innovative thinking which leads to change in business practice of company is essential towards maintaining ethical norms. Apart from this company should attempt on social welfare which includes giving chances to underprivileged persons like SC/STs and physically handicapped.
Responsibility towards Employees: Group which works for the company and lays the foundation of success is its employees and following measures can make it ethical while taking care of employees. Equitable Payment: It can be ensured by giving employees pay they deserve.
Business Environment
Group #28
Employee Satisfaction: By recognizing employees efforts and rewarding his/her efforts satisfaction can be established. It should promote and create avenues for welfare activities. Providing better work culture: It may incur cost but as a responsible company, it is responsibility of the company to provide better work conditions and fair work standards as per norms. Employee involvement: It is unethical for company not to give employee a chance to involve in decision making. It is employee who work and face the challenges hence setting up the grievance handling calls can help company to show its intent towards responsibility towards employees. Strengthening the employee: Preparing them for future and increase their skill-set is responsibility of the company. Hence regular training and awareness of work is what makes company more responsible towards its employee. Example: Most of the companies like Google, Microsoft etc are known for their responsibilities towards employee. These are the one of the most ethical companies towards employees.
Responsibility towards Consumers: It is the end consumer which buys the product and provides revenue and support to grow further. Providing value for money: It is ethical responsibility of the company to provide the products at reasonable prices which gives customer a value for money for firms products. Consistent satisfying customer requirement: As customer trust on company it is necessary to facilitate research and development to meet the customer requirements. Aware customer about the product: Company should provide sufficient and necessary information about the product to make customer aware and help him take decisions. Adequate service and distribution system: To provide adequate distribution system and pre-purchase and post purchase services to the customer to not only provide but also maintain services. Example: Nokia and HUL are the company well known for their ethics towards the consumers while TV advertisements now-a-days targeting children are considered to be unethical. Drug companies are always in purview of agencies as they have to ensure correct information.
Business Environment
Group #28
Preserving ecological balance: It is responsibility of corporate to maintain ecological balance in the society it works. It should work making it pollution free for not only human being but for every living creature. Preserve resources available: Corporate should use the resources with efficient system to ensure lesser wastage of resources. They should also work on developing alternative resources to prevent current resources as it is used extensively. Working towards a better society: There is a lot much scope especially in India where corporate can contribute towards improvement of standard of living of society. With help of R&D department they can work to make consistent innovations to improve it further. Social welfare efforts: Society needs a direct hand of corporate which should work as welfare activities. It can be in form of Teach India initiatives or supporting NGOs indirectly. These all are efforts to promote social welfare. Example: TATA is very well known for its innumerable initiatives towards society which carries its ethics flag. IBM with it smarter planet initiatives wants to increase its ethical vale.
Appendix:
1. 2. 3. 4. 5.