1. Business Ethics, Corporate
Governance & CSR
MCT-O64
Prof. S.K.Palhan
skpalhan@selfeffectiveness.com

2. Business Ethics,
Corporate Governance &
Corporate Social Responsibility
It would be covered in the following
4 sessions
1.Introduction to corporate governance
2.Framework
3.Ethics in society & business
4.Corporate social responsibility

3. Session-1
Introduction to Corporate Governance
• Fundamentals of corporate governance
• Definition of corporate governance
• The concept of corporate governance
• Importance of corporate governance

4. Session-2
Framework of Corporate Governance
• Frame work
• The key players
• Elements of good corporate governance
• Commonly accepted principals of corporate
governance
• Major issues in corporate governance
• Mechanisms for control
– Internal
– External
• Good practices in corporate governance

5. Session -3
Ethics in Society & Business
• Ethics & their relevance
• Dimensions of responsibility
– National interest
– Legal
– Ethical behaviour

6. Session-4
Corporate Social Responsibility
• Importance of corporate social responsibility
• Steps to implement CSR
• Financial implication of CSR
• Role of social audit in CSR
• Conclusion

7. Session-1
• Fundamentals of Corporate Governance

8. Fundamentals of Corporate
Governance
• Corporate governance is the set of processes ,
customs, policies, laws, and institutions affecting
the way a corporation is directed, administered
or controlled.
– Set of processes-e.g. for selection of board members,
accounting, audit, dividend declaration etc.
– Customs –i.e. the way business is conducted
– Policies –related to employment, customers, import,
environment etc
– Laws – e.g. company law, tax laws , labour laws etc.
– Institutions – like SEBI, RBI, IRDA, TRAI which direct or
control the operation / administration of a corporate

9. Fundamentals of
Corporate Governance
• Corporate governance also includes the
relationships among the many stakeholders
involved and the goals for which the
corporation is governed.
• Stakeholders are persons or organizations
which are affected positively or negatively by
the operation of the corporate, now or in
future

10. Corporate Governance
• The principal stakeholders are the promoters
,shareholders/members, management, and
the Board of Directors. Other stakeholders
include labour (employees), customers,
creditors (e.g., banks, bond holders),
suppliers, regulators, and the community at
large.

11. Stakeholders
• Internal
– Management
– employees
• External
– Customers
– Investors
– lenders
– Suppliers
• Regulatory
– Government e.g. SEBI, RBI, IRDA, TRAI, Environmental Laws etc.
• Social
– Local community
– NGOs

12. Stakeholder an example
in a corporate building a hydro project
• Internal
– Promoters ,Management,
– project leader, employees
• External
– Customers- state government, local municipality
– Investors- Financial institutions, individuals through IPO, world bank, LIC,
Pension funds
– Lenders- debentures or Banks,
– Suppliers- of materials, consultancy, equipment, manpower etc.
• Regulatory
– Government e.g. SEBI, RBI, NHPC, Environmental Laws etc.
• Social
– Local community : displaced by the project , or getting employment
– NGOs, social activists etc

13. Stakeholders
• Managing stakeholders is very important for
any corporate to run effectively
• e.g. Tehri dam project ran into many
problems since the local persons displaced by
the project could not be managed effectively
by the project authorities & this lead to
– Delay in execution
– Increase in cost of project

14. Corporate Governance-
another definition; comprehensive
• It is a system of structuring, operating and
controlling a company with a view to achieve
long term strategic goals to satisfy
shareholders, creditors, employees, customers
and suppliers, and complying with the legal
and regulatory requirements, apart from
meeting environmental and local community
needs.

15. Corporate Governance-
another definition; comprehensive
• It is a system of
• structuring, operating and controlling a company
• with a view to achieve long term strategic goals
– to satisfy shareholders,
– creditors,
– employees,
– customers and suppliers,
• and complying with the legal and regulatory
requirements,
• apart from meeting environmental and local
community needs.

16. SEBI definition
• Report of SEBI committee (India) on
Corporate Governance defines corporate
governance as 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 is about
commitment to values, about ethical business
conduct and about making a distinction
between personal & corporate funds in the
management of a company.

17. Corporate Governance
SEBI definition
• Defines corporate governance as
– the acceptance by management of the inalienable
rights of shareholders as the true owners of the
corporation
– and of their own role ( i.e. management ) as trustees
on behalf of the shareholders.
– It is about commitment to values, about ethical
business conduct and
– about making a distinction between personal &
corporate funds in the management of a company.

18. Importance of
Corporate Governance
• It lays down the framework for creating long term trust
between companies & external providers of capital
• Improves strategic thinking at the top
• It rationalizes the management & monitoring of risks a
firm faces globally
• It limits the liability of top management & directors by
carefully articulating the decision making process
• It ensures integrity of financial reports
• Provides a degree of confidence that is necessary for
the proper funding of a market economy

19. Lack of Corporate Governance
result
• Lack of corporate governance has lead to
many corporate scams in India & abroad
– Mundhra scam
– Harshad Mehta scam in 1992-involving bond &
equity market- Rs54billion
– Plantation companies vanishing with Rs.50,000
crores collected from investors-1995-6
– Mutual fund scam-in 1995-8- Rs.15,000 crores
– M.S.Shoes-insider tradibg-1994-Rs. 170 million

20. Lack of Corporate Governance
result
– IT scam –1999-2000, which led to dotcom bubble
burst
– Ketan Parikh-price manipulation-2001-
– Satyam scam-
• International scams
– Collapse of Russian economy in 1998
– Enron scam
– Collapse of many American corporates due to frauds
in2000
– Layman bothers scam

21. Lack of Corporate Governance
result
• Each scam is a result of poor corporate
governance.
• In the recent case of Satyam it affected
– The image of the promoters
– Image of the company
– Loss of business
– Loss of credibility of IT sector in India
– Loss of national pride
• In the international level lack of corporate
governance in Lehman case triggered the major
problems faced by the US economy.

22. All corporates are not bad !
• There are many examples in India where
corporates have excellent corporate
governance e.g. Tatas, L&T, Infosys.
• Good corporate governance leads to
– High goodwill ;credibility in market
– Long term sustainability & growth
– Profitability
– Economic growth of the country

23. Summary of session-1
• In this session we have learnt
– the different definitions of corporate governance
– The stakeholder concept
– Role of management in corporate governance
– Importance of corporate governance
– Good corporate governance pays & helps the
economy of the country
• In session-2 in the series, we will discuss the
frame work for corporate governance

24. Thank you
&
Now is the time for any
questions ,
clarifications
or comments
you may like to make at this stage