1. Corporate social responsibility
(CSR, also called corporate conscience, corporate citizenship, social performance, or
sustainable responsible business/ Responsible Business)[1] is a form of corporate self-regulation
integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism
whereby a business monitors and ensures its active compliance with the spirit of the law, ethical
standards, and international norms. In 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 is a process with the aim to embrace
responsibility for the company's actions and encourage a positive impact through its activities on
the environment, consumers, employees, communities, stakeholders and all other members of the
public sphere who may also be considered as stakeholders.
• Corporate Citizenship (CC). Corporate citizenship is manifested in the strategies and
operating practices a company develops in operationalizing its relationships with and
impacts on stakeholders and the natural environment (Waddock, 2002). Some degree of
corporate citizenship (on a scale from poor to excellent) is present in all of these
relationships and in the ways that companies treat stakeholder/nature. Note that this
definition attempts to integrate two separate streams of thinking: corporate (social)
responsibility/performance (in various iterations to be discussed below) and stakeholder
theory. Corporate citizenship is an increasingly popular term in business practices, albeit
there is considerable controversy about whether a corporation can (or should) act as a
citizen.
o Business Citizenship. Business citizenship is similar to corporate citizenship,
involving the ‘broader perspective on business rights and duties, stakeholder
relationships, opportunities, and challenges that accompany the …global economy.
(Wood & Logsdon, 2001; Logsdon & Wood, 2002).
• Corporate Responsibility (CR). Corporate responsibility is the degree of (ir)responsibility
manifested in a company’s strategies and operating practices as they impact stakeholders
and the natural environment day-to-day.. Some level of responsibility is integral to any
corporate action or decision that has impacts. Corporate responsibility cannot be avoided
because it is integral to action, and thus forms the root or foundation of corporate
citizenship. Notably, this terminology is increasingly being used in business practice as a
substitute or alternative for corporate citizenship, hence the definitions are used
interchangeably.
o Corporate Social Responsibility (CSR or CSR1). Corporate social responsibility
is the subset of corporate responsibilities that deals with a company’s
voluntary/discretionary relationships with its societal and community stakeholders.
CSR is typically undertaken with some intent to improve an important aspect of
society or relationships with communities or non-governmental organizations
(NGOs) (nonprofits). CSR is frequently operationalized as community relations,
philanthropic, multi-sector collaboration, or volunteer activities. CSR as generally
used falls into what Carroll (1979, 1998) termed the discretionary and ethical
responsibilities of business.
Nature of business (CSR)
Milton Friedman and others have argued that a corporation's purpose is to maximize returns to its
shareholders, and that since only people can have social responsibilities, corporations are only

2. responsible to their shareholders and not to society as a whole. Although they accept that
corporations should obey the laws of the countries within which they work, they assert that
corporations have no other obligation to society. Some people perceive CSR as incongruent with the
very nature and purpose of business, and indeed a hindrance to free trade. Those who assert that
CSR is contrasting with capitalism and are in favor of the free market argue that improvements in
health, longevity and/or infant mortality have been created by economic growth attributed to free
enterprise.[56]
Critics of this argument perceive the free market as opposed to the well-being of society and a
hindrance to human freedom. They claim that the type of capitalism practiced in many developing
countries is a form of economic and cultural imperialism, noting that these countries usually have
fewer labour protections, and thus their citizens are at a higher risk of exploitation by multinational
corporations.[57]
A wide variety of individuals and organizations operate in between these poles. For example, the
REALeadership Alliance asserts that the business of leadership (be it corporate or otherwise) is to
change the world for the better.[58] Many religious and cultural traditions hold that the economy
exists to serve human beings, so all economic entities have an obligation to society (see for example
Economic Justice for All). Moreover, as discussed above, many CSR proponents point out that CSR
can significantly improve long-term corporate profitability because it reduces risks and
inefficiencies while offering a host of potential benefits such as enhanced brand reputation and
employee engagement.
Internal/ External stakeholders
Stakeholders are people who have a vested interest in the company. Internal stakeholders include
Employees, Managers, Owners/Shareholders. They are all effected by wages and job stability.
Managers may get bonuses so they want the business to be very successful. Owners/Shareholders
want the best for the company so they make more money.
They work for the busines directly and if something happens to the company they will be effected.
External stakeholders include Customers, Suppliers, Government. They are involved with the
company but not employed directly by the company. Customers are interested in prices and quality
of the product. Suppliers are intersted in the success and stability of the company so they can ensure
they will have a customer in the future. The Government is interested as company's (especially large
ones) pay taxes and emply people.
Stakeholder priorities
Increasingly, corporations are motivated to become more socially responsible because their most
important stakeholders expect them to understand and address the social and community issues that
are relevant to them. Understanding what causes are important to employees is usually the first
priority because of the many interrelated business benefits that can be derived from increased
employee engagement (i.e. more loyalty, improved recruitment, increased retention, higher
productivity, and so on). Key external stakeholders include customers, consumers, investors
(particularly institutional investors), communities in the areas where the corporation operates its
facilities, regulators, academics, and the media.
Branco and Rodrigues (2007) describe the stakeholder perspective of CSR as the inclusion of all
groups or constituents (rather than just shareholders) in managerial decision making related to the
organization’s portfolio of socially responsible activities.[82] This normative model implies that the
CSR collaborations are positively accepted when they are in the interests of stakeholders and may
have no effect or be detrimental to the organization if they are not directly related to stakeholder
interests. The stakeholder perspective suffers from a wheel and spoke network metaphor that does

3. not acknowledge the complexity of network interactions that can occur in cross sector partnerships.
It also relegates communication to a maintenance function, similar to the exchange perspective.[83]
Sustainable development
Sustainable development is an organizing principle for human life on a finite planet. It posits a
desirable future state for human societies in which living conditions and resource-use meet human
needs without undermining the sustainability of natural systems and the environment, so that future
generations may also have their needs met.
Sustainable development ties together concern for the carrying capacity of natural systems with the
social and economic challenges faced by humanity. As early as the 1970s, 'sustainability' was
employed to describe an economy "in equilibrium with basic ecological support systems."[1]
Scientists in many fields have highlighted The Limits to Growth,[2] and economists have presented
alternatives, for example a 'steady state economy',[3] to address concerns over the impacts of
expanding human development on the planet.
The term 'sustainable development' rose to significance after it was used by the Brundtland
Commission in its 1987 report Our Common Future. In the report, the commission coined what has
become the most often-quoted definition of sustainable development: "development that meets the
needs of the present without compromising the ability of future generations to meet their own
needs."[4][5]
The concept of sustainable development has in the past most often been broken out into three
constituent domains: environmental sustainability, economic sustainability and social sustainability.
However, many other possible ways to delineate the concept have been suggested. For example, the
Circles of Sustainability approach distinguishes the four domains of economic, ecological, political
and cultural sustainability. This accords with the United Cities and local governments specifying of
culture as the fourth domain of sustainability.[6] Other important sources refer to the fourth domain
as 'institutional' [7] or as 'good governance.' [8]
Definitions
In 1987, the United Nations World Commission on Environment and Development released the
report Our Common Future, now commonly named the 'Brundtland Report' after the commission's
chairperson, the then Prime Minister of Norway Gro Harlem Brundtland. The report included what
is now one of the most widely recognised definitions: "Sustainable development is development
that meets the needs of the present without compromising the ability of future generations to meet
their own needs." [9] The Brundtland Report goes on to say that sustainable development also
contains within it two key concepts:
• The concept of 'needs', in particular the essential needs of the world's poor, to which
overriding priority should be given
• The idea of limitations imposed by the state of technology and social organization on the
environment's ability to meet present and future needs.[9]
The United Nations 2005 World Summit Outcome Document refers to the "interdependent and
mutually reinforcing pillars" of sustainable development as economic development, social
development, and environmental protection.[10] Based on this 'triple bottom line', numerous
sustainability standards and certification systems have been established in recent years, in particular
in the food industry.[11][12] Well-known standards include organic, Rainforest Alliance, fair trade, ,

4. The natural resource of wind powers these 5MW wind turbines on this wind farm 28 km off the
coast of Belgium.
Indigenous people have argued, through various international forums such as the United Nations
Permanent Forum on Indigenous Issues and the Convention on Biological Diversity, that there are
four pillars of sustainable development, the fourth being cultural. The Universal Declaration on
Cultural Diversity (UNESCO, 2001) further elaborates the concept by stating that "... cultural
diversity is as necessary for humankind as biodiversity is for nature”; it becomes “one of the roots
of development understood not simply in terms of economic growth, but also as a means to achieve
a more satisfactory intellectual, emotional, moral and spiritual existence". In this vision, cultural
diversity is the fourth policy area of sustainable development.
A useful articulation of the values and principles of sustainability can be found in the Earth Charter.
It offers an integrated vision and definition of strong sustainability. The document, an ethical
framework for a sustainable world, was developed over several years after the Rio Earth Summit in
1992 and launched officially in 2000. The Charter derives its legitimacy from the participatory
process in which it was drafted, which included contributions from hundreds of organizations and
thousands of individuals, and from its use since 2000 by thousands of organizations and individuals
that have been using the Earth Charter as an educational instrument and a policy tool.
Economic Sustainability: Agenda 21 clearly identified information, integration, and participation as
key building blocks to help countries achieve development that recognises these interdependent
pillars. It emphasises that in sustainable development everyone is a user and provider of
information. It stresses the need to change from old sector-centered ways of doing business to new
approaches that involve cross-sectoral co-ordination and the integration of environmental and social
concerns into all development processes. Furthermore, Agenda 21 emphasises that broad public
participation in decision making is a fundamental prerequisite for achieving sustainable
development.[13]
According to Hasna Vancock, sustainability is a process which tells of a development of all aspects
of human life affecting sustenance. It means resolving the conflict between the various competing
goals, and involves the simultaneous pursuit of economic prosperity, environmental quality and
social equity famously known as three dimensions (triple bottom line) with the resultant vector
being technology, hence it is a continually evolving process; the 'journey' (the process of achieving
sustainability) is of course vitally important, but only as a means of getting to the destination (the
desired future state). However, the 'destination' of sustainability is not a fixed place in the normal
sense that we understand destination. Instead, it is a set of wishful characteristics of a future system.
Green development is generally differentiated from sustainable development in that Green
development prioritizes what its proponents consider to be environmental sustainability over
economic and cultural considerations. Proponents of Sustainable Development argue that it
provides a context in which to improve overall sustainability where cutting edge Green
Development is unattainable. For example, a cutting edge treatment plant with extremely high
maintenance costs may not be sustainable in regions of the world with fewer financial resources. An
environmentally ideal plant that is shut down due to bankruptcy is obviously less sustainable than
one that is maintainable by the community, even if it is somewhat less effective from an
environmental standpoint. However, this view depends on whether one determines that it is the
development (the plant) which needs to be sustainable, or whether it is the human-nature ecology
(the environmental conditions) in which the plant exists which should be sustainable. It follows,
then, that an operational but heavily polluting plant may be judged as actually 'less sustainable' than
having no plant at all.
Sustainability educator Michael Thomas Needham referred to 'Sustainable Development' "as the
ability to meet the needs of the present while contributing to the future generations’ needs."[22]
There is an additional focus on the present generations' responsibility to improve the future
generations' life by restoring the previous ecosystem damage and resisting to contribute to further

5. ecosystem damage.
Triple bottom line
In traditional business accounting and common usage, the "bottom line” refers to either the “profit”
or “loss”, which is usually recorded at the very "bottom line" on a statement of revenue and
expenses. Over the last 50 years, environmentalists and social justice advocates have struggled to
bring a broader definition of "bottom line" into public consciousness, by introducing full cost
accounting. For example, if a corporation shows a monetary profit, but their asbestos mine causes
thousands of deaths from asbestosis, and their copper mine pollutes a river, and the government
ends up spending taxpayer money on health care and river clean-up, how do we perform a full
societal cost benefit analysis?
The concept of a triple bottom line (abbreviated as TBL or 3BL) adds two more "bottom lines”:
social and environmental concerns. The three together are often paraphrased as "Profit, People,
Planet", or referred to as "the three pillars" [1] With the ratification of the United Nations and
ICLEI TBL standard for urban and community accounting in early 2007,[2] this became the
dominant approach to public sector full cost accounting. Similar UN standards apply to natural
capital and human capital measurement to assist in measurements required by TBL, e.g. the
EcoBudget standard for reporting ecological footprint.
An example of an organization seeking a triple bottom line would be a social enterprise run as a
non-profit, but earning income by offering opportunities for handicapped people who have been
labelled "unemployable", to earn a living recycling. The organization earns a profit, which is
controlled by a volunteer Board, and ploughed back into the community. The social benefit is the
meaningful employment of disadvantaged citizens, and the reduction in the society's welfare or
disability costs. The environmental benefit comes from the recycling accomplished.
In the private sector, a commitment to corporate social responsibility (CSR) implies a commitment
to some form of TBL reporting. This is distinct from the more limited changes required to deal only
with ecological issues.
Agency theory
Agency Theory in Corporate Governance
Definition
A theory explaining the relationship between principals, such as a shareholders, and agents, such as
a company's executives. In this relationship the principal delegates or hires an agent to perform
work. The theory attempts to deal with two specific problems: first, that the goals of the principal
and agent are not in conflict (agency problem), and second, that the principal and agent reconcile
different tolerances for risk.
“ According to the agency theory, when there is a dispute between shareholders and the company's
executives, the shareholders typically hire an agent to help resolve the problem. ”

6. Agency theory relative to corporate governance assumes a two-tier form of firm control: managers
and owners. Agency theory holds that there will be some friction and mistrust between these two
groups. The basic structure of the corporation, therefore, is the web of contractual relations among
different interest groups with a stake in the company.
Features
• In general, there are three sets of interest groups within the firm. Managers,
stockholders and creditors (such as banks). Stockholders often have conflicts with
both banks and managers, since their general priorities are different. Managers seek
quick profits that increase their own wealth, power and reputation, while
shareholders are more interested in slow and steady growth over time.
Function
• The purpose of agency theory is to identify points of conflict among corporate
interest groups. Banks want to reduce risk while shareholders want to reasonably
maximize profits. Managers are even more risky with profit maximization, since
their own careers are based on the ability to turn profits to then show the board. The
fact that modern corporations are based on these relations creates costs in that each
group is trying to control the others.
• One of the major insights of agency theory is the concept of costs of maintaining the
division of labor among credit holders, shareholders and managers. Managers have
the advantage of information, since they know the firm close up. They can use this to
enhance their own reputations at the expense of shareholders. Limiting the control of
managers itself contains costs (such as reduced profits), while profit seeking in risky
ventures might alienate banks and other financial institutions. Monitoring and
limiting managers itself contains sometimes substantial costs to the firm.
Significance
• The agency model of corporate governance holds that firms are basically units of
conflict rather than unitary, profit-seeking machines. This conflict is not aberrant but
built directly into the structure of modern corporations.
Effects
• It is possible, if one accepts the premises of agency theory, that corporations are
actually groups of connected fiefs. Each fief has its own specific interest and culture
and views the purpose of the firm differently. In analyzing the function of a
corporation, one can assume that managers will behave in a way to maximize their
own profit and reputation, even at the expense of shareholders. One might even
understand the manager's role as one of institutionalized deceit, where the
asymmetry of knowledge permits managers to operate with almost total
independence.
Transaction cost theory
Introduction
Transaction cost theory is part of corporate governance and agency theory. It is based on the
principle that costs will arise when you get someone else to do something for you .e.g. directors to

7. run the business you own.
Transaction cost theory
Transaction cost theory is an alternative variant of the agency understanding of governance
assumptions. It describes governance frameworks as being based on the net effects of internal and
external transactions, rather than as contractual relationships outside the firm (i.e. with
shareholders).
External transactions
Transaction costs
Transaction costs will occur when dealing with another external party:
• Search and information costs: to find the supplier.
• Bargaining and decision costs: to purchase the component.
• Policing and enforcement costs: to monitor quality.
The way in which a company is organised can determine its control over transactions, and hence
costs. It is in the interests of management to internalise transactions as much as possible, to remove
these costs and the resulting risks and uncertainties about prices and quality.
For example a beer company owning breweries, public houses and suppliers removes the problems
of negotiating prices between supplier and retailer.
Transaction costs can be further impacted

8. • Bounded rationality: our limited capacity to understand business situations, which limits the
factors we consider in the decision.
• Opportunism: actions taken in an individual's best interests, which can create uncertainty in
dealings and mistrust between parties.
The significance and impact of these criteria will allow the company to decide whether to expand
internally (possibly through vertical integration) or deal with external parties.
The variables that dictate the impact on the transaction costs are:
• Frequency: how often such a transaction is made.
• Uncertainty: long term relationships are more uncertain, close relationships are more
uncertain, lack of trust leads to uncertainty.
• Asset specificity: how unique the component is for your needs.
Internal transactions
Transaction costs still occur within a company, transacting between departments or business units.
The same concepts of bounded rationality and opportunism on the part of directors or managers can
be used to view the motivation behind any decision.
The three variables are said by Williamson to operate as an economic formula to determining
behaviour and so decisions:
• Asset specificity: amount the manager will personally gain.
• Certainty: or otherwise of being caught.
• Frequency: endemic nature of such action within corporate culture
The degree of impact of the three variables leads to a precise determination of the degree of
monitoring and control needed by senior management.
Possible conclusions from transaction cost theory
• Opportunistic behaviour could have dire consequences on financing and strategy of
businesses, hence discouraging potential investors. Businesses therefore organise themselves
to minimise the impact of bounded rationality and opportunism as much as possible.
• Governance costs build up including internal controls to monitor management.

9. • Managers become more risk averse seeking the safe ground of easily governed markets.
Transaction cost theory versus agency theory
Transaction cost theory and agency theory essentially deal with the same issues and problems.
Where agency theory focuses on the individual agent, transaction cost theory focuses on the
individual transaction.
• Agency theory looks at the tendency of directors to act in their own best interests, pursuing
salary and status. Transaction cost theory considers that managers (or directors) may arrange
transactions in an opportunistic way.
• The corporate governance problem of transaction cost theory is, however, not the protection
of ownership rights of shareholders (as is the agency theory focus), rather the effective and
efficient accomplishment of transactions by firms.
Stakeholder Theory of Corporate Governance
Stakeholder Theory of Corporate Governance
Stakeholder theory stresses the dependency of many different groups on the firm's
management. This approach to corporate governance strongly suggests that corporations are run by
loosely defined groups of people, each seeking something different from the organization. This
theory can show who benefits from a firm, as well as who, in fact, controls its corporate policy.
Other People Are Reading
1.Types
• Stakeholders should not be confused with “shareholders.” The latter
only refers to one group of stakeholders, those who have invested money in the firm.
Stakeholders are those who have a “stake” in the firm and its
performance. These include customers, suppliers, employees, the community and
even the government and its regulatory agencies, not to mention the IRS.
Features
• The primary feature of the stakeholder theory of corporate governance is that those
who have a stake in the functioning of the firm are made up of large and diverse
groups. Simply put, stakeholders are those who seek some benefit from the optimum
running of the firm. Stakeholders have different goals and seek different benefits
from the firm. Workers seek job security, the IRS wants its tax payments, investors
want dividends,and the community wants a solid economic base. The stakeholder
theory holds that these different interests do, in fact, control the firm in their own
specific ways, and none has any better right to have its voice heard than any other.
•

10. Function
• The stakeholder theory is both a descriptive and a normative theory. It is descriptive
in that it functions as a way of describing how a company is constituted and
controlled. In this case, one can see how customers or investors all have their say in
how the firm markets its products, for example. It is a normative theory in that it
suggests how a firm should be run. It mandates that a well organized firm will take
all “stakeholder” groups into account in formulating basic policies.
Benefits
• Stakeholder theory is a highly democratic and participatory concept of corporate
governance. Under this model, the firm is not merely a profit-making machine for
elite investors and major executives. It is a profoundly social institution that is meant
to serve more than its shareholders. It is a communal institution that benefits large
segments of the local population. Thousands of lives are potentially connected to and
dependent upon the proper workings of the firm.
Problems
• Since stakeholders are from large and very diverse groups, it seems hard to make
them components of a workable theory of corporate “governance.”
The groups mentioned as possible or actual stakeholders are so varied and wide that
it is practically impossible that they speak with a common voice, let alone actually
serve in an oversight capacity. The stakeholder theory might be successful in
identifying those who have a vested interest in the firm, but whether these
stakeholders can actually “run” a firm is a very different matter.
*******************************************************************************
III. Stakeholder value – Why stakeholder value should be taken into consideration under the
stakeholder theory?
It is ostensibly apparent that if a company merely concentrates on delivering high shareholder value
today, it may tend to be on the brink of collapse tomorrow (at [449]). In other words, firms of which
the sole concentration is to maximize profits to shareholders may diminish the wealth currently
created by the company. Moreover, as the shareholders are also listed as a special genre of
stakeholders (at [448]), thereby, taking other values into consideration is a wise approach that the
company establishes and sustains its wealth capacity for the future. It is unexaggerated that
corporate success is contributed by shareholders, however, it is also significantly dedicated by
stakeholders who are significantly affected by the actions of companies (Keay A, at [42]). Thereby,
the stakeholder theory holds that the cardinal responsibility of a corporation should not solely
maximize shareholder wealth as with the contribution towards companies, the stakeholders deserve
protection, their interests should be taken into account by managers (Keay A, at [42]).
Comprehensively, “the company is an agent that serves all stakeholders and not just the
shareholders.”(Florent Noel, “Downsizing, Financial Performance and Corporate Social
Responsibility” in J. Allouche, Corporate Social Responsibility (Palgrave Macmillan, 2006), 69)
Additionally, stakeholders, in the essence of short-term advantage, are much more susceptible than
shareholders “who have more of an opportunity” to get rid of corporations. (at [379]) As “they can
“do the Wall Street Walk” and sell their shares on a stock exchange, whilst other stakeholders are
not able to exit so easily. (at [379]) Furthermore, it is ostensibly reasonable that shareholders, based
on the target of profits, may somehow sabotage and deteriorate the generally progressive growth of

11. companies by merely concentrating on gaining short-term profitability. Hence, the assurance of
long-term success and profitable growth of companies by balancing the interests of all members
including both shareholders and stakeholders are necessarily required (Simpson J and Taylor J, at
[120]). Accordingly, pursuant to the UK Company Act 2006, directors are obliged to promote the
process of the company by acting in good faith to create benefits for the corporation’s members and
also in the respect to the interests of employees, a good rapport with suppliers, customers and
others, the impact of the company’s operations towards the community and the environment, the
maintenance of reputation for high standards of business conduct and the fairness of acting between
members of the company. (Article 172(1)).
III. Whether there should a dominant value in corporate governance?
It is plain that companies are considered as “profit-making” corporations (Keay A, (at [3])), in
addition, concurrently as the most critical institutions “for social wealth creation in capitalist
economies” [at 195]. It has been for several years since the early years of twentieth century,
shareholder value theory and stakeholder value theory have been underlined to answer the query
based on what purpose that directors should manage their companies [at 448]. Blatantly, it might be
a mistake to separate the shareholder theory and the stakeholder theory as rivalling in the day-to-
day management of companies since the maximisation of profits is emanated from well-managed
companies and how companies are well-managed is based on the idea of stakeholder theory.
Correspondently, they should be appropriately emerged to be taken advantage of positive and
beneficial advantages – generally, a so-called proper constellation of shareholder primacy and
stakeholder theor
What is Sustainable Development?Environmental, economic
and social well-being for today and tomorrow
Sustainable development has been defined in many ways, but the most frequently quoted definition
is from Our Common Future, also known as the Brundtland Report:[1]
"Sustainable development is development that meets the needs of the present without compromising
the ability of future generations to meet their own needs. It contains within it two key concepts:
• the concept of needs, in particular the essential needs of the world's poor, to which
overriding priority should be given; and
• the idea of limitations imposed by the state of technology and social organization on the
environment's ability to meet present and future needs."
All definitions of sustainable development require that we see the world as a system—a system that
connects space; and a system that connects time.
When you think of the world as a system over space, you grow to understand that air pollution from
North America affects air quality in Asia, and that pesticides sprayed in Argentina could harm fish
stocks off the coast of Australia.
And when you think of the world as a system over time, you start to realize that the decisions our
grandparents made about how to farm the land continue to affect agricultural practice today; and the
economic policies we endorse today will have an impact on urban poverty when our children are
adults.
We also understand that quality of life is a system, too. It's good to be physically healthy, but what if
you are poor and don't have access to education? It's good to have a secure income, but what if the
air in your part of the world is unclean? And it's good to have freedom of religious expression, but
what if you can't feed your family?
The concept of sustainable development is rooted in this sort of systems thinking. It helps us

12. understand ourselves and our world. The problems we face are complex and serious—and we can't
address them in the same way we created them. But we can address them.
4.1 Corporate Governance
Difference between governance and management
A major obstacle in the governance of community organisations is ensuring the Governing Body
and Managers are able to delineate their different responsibilities. "Governance" is the strategic task
of setting the organisation's goals, direction, limitations and accountability frameworks.
"Management" is the allocation of resources and overseeing the day-to-day operations of the
organisation.
The word 'Governance' was introduced to denote the way state affairs was organised and handled.
Similarly, 'management' was coined in the quest of enhancing efficiency and overall performance in
a particular setting...
Governance refers to processes and traditions of decision making. It is about who makes decisions
and how the decisions affect the target audiences. It is a social function involving the establishment
and administration of rights, rules and decision-making procedures to direct actors along pathways
that are collectively desirable. It is designed to inter alia, generate social capital needed to solve a
variety of collective-action problems (Graham et al., 2003; Delmas and Young, 2009; Young, 2012.
Management on the other hand is how decisions are turned around through efficient allocation and
use of various capital assests to achieve desirable ends.
Management, as a practice, traditionally is oriented more to setting direction. Governance is usually
oriented towards setting and enforcing bounds.
Governance is a set of relationships between the Board, management of the organization,
shareholders and the stakeholders. It deals with the macro policy issues related to the operation of
an organization. It normally reflects on Board practices, top management, transparency and
accountability, risk management, and structural issues. Management is the operational issues that
implement the policies. Governance sets the broader framework for the management to work wit
Purpose of good governance
Good governance is an indeterminate term used in international development literature to
describe how public institutions conduct public affairs and manage public resources. Governance is
"the process of decision-making and the process by which decisions are implemented (or not
implemented)".[1] The term governance can apply to corporate, international, national, local
governance[1] or to the interactions between other sectors of society.
The concept of "good governance" often emerges as a model to compare ineffective economies or
political bodies with viable economies and political bodies.[2] The concept centers around the
responsibility of governments and governing bodies to meet the needs of the masses as opposed to
select groups in society. Because the governments treated in the contemporary world as most
"successful" are often liberal democratic states concentrated in Europe and the Americas, those
countries' institutions often set the standards by which to compare other states' institutions when
talking about governance.[2] Because the term good governance can be focused on any one form of
governance, aid organizations and the authorities of developed countries often will focus the
meaning of good governance to a set of requirement that conform to the organization's agenda,
making "good governance" imply many different things in many different contexts
“Good corporate governance should contribute to better company performance by helping a board
discharge its duties in the best interests of shareholders; if it is ignored, the consequence may well
be vulnerability or poor performance. Good governance should facilitate efficient, effective and
entrepreneurial management that can deliver shareholder value over the longer term

13. 4.1 OECD
the Organisation for Economic Co-operation and Development (OECD) shall promote policies
designed:
– to achieve the highest sustainable economic growth and employment and arising standard of
living in member
countries, while maintaining financial stability, and thus to contribute to the development of the
world economy;
– to contribute to sound economic expansion in member as well as non-member countries in the
process of economic development; and
– to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in
accordance with international obligations
Principles

17. 4.1 Corporate Social Responsibilty: Friedman's View
A reader asks:
I'd like to more clearly understand Milton Friedman's (and others as necessary) views on corporate
social responsibility. Did Friedman believe it was inappropriate for corporations to do all they
could to minimize potentially injurious "externalities" such as toxic waste dumps or harmful work
environment that result from the corporations’activities in pursuit of their business and its
profitability?
What are a corporation’s “social responsibilities?” Milton Friedman’s well-known response is: “a
corporation’s responsibility is to make as much money for the stockholders as possible.” At first
blush this sounds uncivil, severe, potentially even cruel. What about worker safety? Pollution?
Child labor in less-developed countries? Are issues like these to be ignored by corporations? This
indeed sounds like an uncivil, potentially unpleasant society.
But dig a little deeper, think about the issues as an economist would, and we see that there is no
contradiction between corporations pursuing profit and a civil and civilized society. An economist
would recognize that Friedman’s admonition (that firms should only pursue profits) is a good route
to a civil and civilized society. Friedman (I have no doubt) would have argued that it is more likely
to produce social good than exhortations or rules that firms should be “socially responsible”.
The explanation lies in the second, less-well-known part of Friedman’s famous statement (the
italicized phrase, with my emphasis added): “In [a free economy] there is one and only one social
responsibility of business―to use its resources and engage in activities designed to increase its
profits so long as it stays within the rules of the game.” (Capitalism and Freedom, University of
Chicago Press, 2002 Fortieth Anniversary Edition, p 133).
Although it is generally the first part of the statement we remember, the second is equally
important. Friedman says a few sentences later: “It is the responsibility of the rest of us to establish
a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith
again, ‘led by an invisible hand to promote an end which was no part of his intention.’” (p. 133). It
is that framework of law― rules around issues such as property rights, liability, and so on―hat
push profit-maximizing firms to behave “responsibly” (or irresponsibly).
Take as an example pollution externalities. If these are important and controlling them is an
important social end, then the political process and the legal system are the appropriate forum to
“establish a framework of law.” Property rights and liability laws that hold a firm responsible for
pollution compel the firm to take those external costs into account; firms internalize the external
costs. The firm still maximizes profits, but the profits account for the pollution costs now included
in the cost of doing business.
An economist would argue, as does Friedman, that “If businessmen do have a social responsibility
other than making maximum profits for stockholders, how are they to know what it is? Can self-
selected private individuals decide what the social interest is?” The appropriate forum for such
decisions is the political and legislative arena or the legal system. The pros and cons of such
policies can be debated and voted upon, or adjudicated according to precedent and law.

18. An economist argues for effective means to manage externalities and other social responsibilities. It
is neither efficient nor reliable to impose ill-defined social responsibilities that may be open to
arbitrary interpretation by firm managers. It is far better to establish a framework of law that will
clearly and transparently induce the firm to internalize costs. Within that framework, firms should
single-mindedly pursue profit maximization.
In the end I do not believe Friedman thought it inappropriate for corporations to do all they could to
minimize potentially injurious externalities. I think Friedman’s argument was about the means more
than the end. He was arguing, even if such ideas seem counterintuitive at first blush, that single-
minded profit maximization (allied with an appropriate framework of law) would be more likely to
produce social good than exhortations that firms be socially responsible.
4.1 Stakeholder theory
Stakeholder theory is a theory of organizational management and business ethics that addresses
morals and values in managing an organization. It was originally detailed by R. Edward Freeman in
the book Strategic Management: A Stakeholder Approach, and identifies and models the groups
which are stakeholders of a corporation, and both describes and recommends methods by which
management can give due regard to the interests of those groups. In short, it attempts to address the
"Principle of Who or What Really Counts."[1]
In the traditional view of the firm, the shareholder view, the shareholders or stockholders are the
owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase
value for them. Stakeholder theory argues that there are other parties involved, including
employees, customers, suppliers, financiers, communities, governmental bodies, political groups,
trade associations, and trade unions. Even competitors are sometimes counted as stakeholders - their
status being derived from their capacity to affect the firm and its stakeholders. The nature of what is
a stakeholder is highly contested (Miles, 2012),[2] with hundreds of definitions existing in the
academic literature (Miles, 2011).[3]
The stakeholder view of strategy integrates both a resource-based view and a market-based view,
and adding a socio-political level. This view of the firm is used to define the specific stakeholders
of a corporation (the normative theory (Donaldson) of stakeholder identification) as well as
examine the conditions under which these parties should be treated as stakeholders (the descriptive
theory of stakeholder salience)
4.2Agency theory
The agency relationship is seen as a contractual link between the shareholders (the principals) that
provide capital to the company and the management (agent) who runs the company. The principals
engage the agent to perform some services on their behalf and would normally delegate some
decision-making authority. However, as the number of shareholders and the complexity of
operations grew, management, who had the expertise and essential knowledge to operate the
company, increasingly gained effective control and put them in a position where they were prone to
pursue their own interests .
The literature on agency theory addresses three types of problems that could transpire from the
separation of ownership and management, which might consequently affect firm value. They are the
effort problem, the assets’ use problem and differential risk preferences problem. The effort problem
concerns whether or not managers apply proper effort in managing corporations so as to maximize
shareholders’ wealth. Problems arise because principals are not able to determine if the managers
are performing their work appropriately. Managers may not exert the same high effort levels

19. required for firm value maximization as they would if they owned the firm.
The use of assets problem concerned the insiders who control corporate assets. They might abuse
these assets for purposes that are harmful to the interests of shareholders such as diverting corporate
assets, claiming excessive salaries and manipulating transfer prices of assets with other entities they
control . The differential risk preferences problem arises because the principal and managers have
different views on risk taking. Managers may not act in the best interest of shareholders and may
have different interests and risks preferences. For example, managers have a wider range of
economic and psychological needs (such as to maximize compensation, security, status and to boost
their own reputation), which may be adversely affected by a project that increases a firm’s total risk
or has rewards in the longer-term. This may result in managers being too cautious in making
investments and thus failing to maximise shareholders’ wealth.
Hence, agency theorists recommended that corporate governance mechanisms are needed to reduce
these agency conflicts and to align the interests of the agent with those of the principal. These
mechanisms include incentive schemes for managers which reward them financially for maximising
shareholder interests. Such schemes typically include strategies whereby senior executives acquire
shares, conceivably at a bargain price, thus aligning financial interests of executives with those of
shareholders. Other mechanisms include fixing executive compensation and levels of benefits to
shareholders returns and having part of executive compensation deferred to the future to reward
long-run value maximisation of the corporation. Besides that, appointing more NEX on the boards
to check on managers’ behaviour could also reduce agency costs.
4.2Transaction cost theory
Main article: Transaction cost
The model shows institutions and market as a possible form of organization to coordinate economic
transactions. When the external transaction costs are higher than the internal transaction costs, the
company will grow. If the external transaction costs are lower than the internal transaction costs the
company will be downsized by outsourcing, for example.
According to Ronald Coase, people begin to organise their production in firms when the transaction
cost of coordinating production through the market exchange, given imperfect information, is
greater than within the firm.[3]

20. Ronald Coase set out his transaction cost theory of the firm in 1937, making it one of the first (neo-
classical) attempts to define the firm theoretically in relation to the market.[3] One aspect of its
'neoclassicism' lies in presenting an explanation of the firm consistent with constant returns to scale,
rather than relying on increasing returns to scale.[7] Another is in defining a firm in a manner which
is both realistic and compatible with the idea of substitution at the margin, so instruments of
conventional economic analysis apply. He notes that a firm’s interactions with the market may not
be under its control (for instance because of sales taxes), but its internal allocation of resources are:
“Within a firm, … market transactions are eliminated and in place of the complicated market
structure with exchange transactions is substituted the entrepreneur … who directs production.” He
asks why alternative methods of production (such as the price mechanism and economic planning),
could not either achieve all production, so that either firms use internal prices for all their
production, or one big firm runs the entire economy.
Coase begins from the standpoint that markets could in theory carry out all production, and that
what needs to be explained is the existence of the firm, with its "distinguishing mark … [of] the
supersession of the price mechanism." Coase identifies some reasons why firms might arise, and
dismisses each as unimportant:
1. if some people prefer to work under direction and are prepared to pay for the privilege (but
this is unlikely);
2. if some people prefer to direct others and are prepared to pay for this (but generally people
are paid more to direct others);
3. if purchasers prefer goods produced by firms.
Instead, for Coase the main reason to establish a firm is to avoid some of the transaction costs of
using the price mechanism. These include discovering relevant prices (which can be reduced but not
eliminated by purchasing this information through specialists), as well as the costs of negotiating
and writing enforceable contracts for each transaction (which can be large if there is uncertainty).
Moreover, contracts in an uncertain world will necessarily be incomplete and have to be frequently
re-negotiated. The costs of haggling about division of surplus, particularly if there is asymmetric
information and asset specificity, may be considerable.
If a firm operated internally under the market system, many contracts would be required (for
instance, even for procuring a pen or delivering a presentation). In contrast, a real firm has very few
(though much more complex) contracts, such as defining a manager's power of direction over
employees, in exchange for which the employee is paid. These kinds of contracts are drawn up in
situations of uncertainty, in particular for relationships which last long periods of time. Such a
situation runs counter to neo-classical economic theory. The neo-classical market is instantaneous,
forbidding the development of extended agent-principal (employee-manager) relationships, of
planning, and of trust. Coase concludes that “a firm is likely therefore to emerge in those cases
where a very short-term contract would be unsatisfactory,” and that “it seems improbable that a firm
would emerge without the existence of uncertainty.”
4.6 Sarbanes-Oxley Act of 2002
On July 30, 2002, President Bush signed the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) into
law
Sarbanes-Oxley is the most important securities legislation affecting public companies, and thus,
officers and directors of public companies, since the Securities and Exchange Commission (SEC)
was formed in 1934
While the new law was prompted by problems encountered in the U.S., these problems are global in
dimension

21. Sarbanes-Oxley’s provisions generally make no distinction between U.S. and foreign issuers who
seek to access U.S. capital markets
The terms “issuer” and “public company” as used in many places throughout Sarbanes-Oxley mean
an issuer the securities of which are registered under the Securities Exchange Act of 1934
(Exchange Act), which is required to file reports under the Exchange Act, or that has filed a
registration statement for a public offering of its securities under the Securities Act of 1933 that has
not become effective and that has not been withdrawn
SEC’s mandate is to implement Sarbanes-Oxley fully for all issuers, foreign and domestic, but it is
prepared to consider how it may fulfill this mandate through rulemaking and interpretive authority
in ways that accommodate home country requirements and regulatory approaches to foreign issuers
and accountants
SUMMARY OF SARBANES OXLEY PROVISIONS
AFFECTING DIRECTORS, CEOs AND CFOs
Listed company audit committee independence requirements and responsibilities (Section 301)
CEO and CFO financial statement-related certifications (Sections 302 and 906)
Unlawful for any officer or director or person acting under the direction thereof to fraudulently
influence, coerce, manipulate or mislead any independent accountant engaged to audit the financial
statements of an issuer for purposes of rendering the financial statements materially misleading
(Section 303)
If there is a material restatement of an issuer’s reported financial results due to the material
noncompliance of the company, as a result of misconduct, the CEO and CFO shall reimburse the
issuer for any bonus or incentive or equity-based compensation received within the 12 months
following the filing with the financial statements subsequently required to be restated (Section 304)
Prohibition on personal loans to executive officers and directors of the issuer, subject to limited
exceptions (Section 402)
OX Sections 302 & 404: Full Text
SEC. 302. CORPORATE R
ESPONSIBILITY FOR FINANCIAL REPORTS.
(a) REGULATIONS REQUIRED. — The Commission shall, by rule, require, for each
company filing periodic reports under section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m, 78o(d)), that the principal executive officer or officers and
the principal financial officer of officers, or persons performing similar functions, certify
in each annual or quarterly report filed or submitted under either such section of such
Act that —
(1) the signing officer has reviewed the report;
(2) based on the officer's knowledge, the repo
rt does not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which such statements were
made, not misleading;
(3) based on such officer's knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the financial
condition and results of operations of the issuer as of, and for, the periods presented in
the report;
(4) the signing officers:
(A) are responsible for establishing and maintaining internal controls;
(B) have designed such internal controls to ensure that material information relating
to the issuer and its consolidated subsidiaries is made known to such officers by

22. others within those entities, particularly during the period in which the periodic
reports are being prepared;
(C) have evaluated the effectiveness of the issuer's internal controls as of a
date within 90 days prior to the report; and
(D) have presented in the report their conclusions about the effectiveness of
their internal controls based on their evaluation as of that date;
(5) the signing officers have disclosed to the issuer's auditors and the audit committee
of the board of directors (or persons fulfilling the equivalent function) —
(A) all significant deficiencies in the design or operation of internal controls
which could adversely affect the issuer's ability to record, process, summarize,
and report financial data and have identified for the issuer's auditors any material
weaknesses in internal controls; and
(B) any fraud, whether or not material, that involves management or other
employees who have a significant role in
the issuer's internal controls; and
(6) the signing officers have indicated in the report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of their evalua
tion, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Attachment 1 - Page 2
(b) FOREIGN REINCORPORATIONS HAVE NO EFFECT. — Nothing in this
section 302 shall be interpreted or applied in any way to allow any issuer to lessen the
legal force of the statement required under this section 302, by an issuer having
reincorporated or having engaged in any other transaction that resulted in the transfer of
the corporate domicile or offices of the issuer from inside the United States to outside of
the United States.
(c) DEADLINE. — The rules required by subsection (a) shall be effective not
later than 30 days after the date of enactment of this Act.
SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.
(a) RULES REQUIRED. — The Commission shall prescribe rules requiring
each annual report required by section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal
control report, which shall —
(1) state the responsibility of management for establishing and maintaining an
adequate internal control structure and procedures for financial reporting;
and
(2) contain an assessment, as of the end of the most recent fiscal year of the
issuer, of the effectiveness of the internal control structure and procedures
of the issuer for financial reporting.
(b) INTERNAL CONTROL EVALUATION AND REPORTING. — With respect
to the internal control assessment
required by subsection (a), each
registered public accounting firm that prepares or issues the audit report
for the issuer shall attest to, and report on, the assessment made by the
management of the issuer. An attestation made under this subsection
shall be made in accordance with standards for attestation engagements
issued or adopted by the Board. Any such attestation shall not be the
subject of a separate engagement.

23. 404.
Corporate Governance: Analysis of Clause 49 of Listing Agreement
I.Board of directors: -
The board of directors is accountable to the shareholders for creation & protection of shareholders’
value & responsible to them for adequate, timely & transparent reporting.Therefore, in order to
discharge this function properly following provisions are inserted by wayof part 1 of Clause 49 of
Listing Agreement.
•
Board of Directors the company shall have an optimum combination of executive &
non-executive directors with not less than 50% of Board of Directors comprising of non-executive
directors.
KMB committee has observed that there is a practice in most of the Indian companies to fill
their board with the representatives & relatives of promoters & there is a very little scope for
outsidedirectors unless the promoters handpick them. The committee observed that presently the
boardsin India comprise the following group of directors namely –
•
Promoter Directors
•
Executive Directors
•
Non-executive Directors
•
Independent Directors among non-executive directors The term independent director has been
specifically explained in Clause 49 as a director whodoes not have any pecuniary relationship with
the company, its constituents & its subsidiaries.As the non-executive directors, especially
independent Directors have wider perspective &independence to decision-making thus bring an
independent judgment to bear on the board’sdeliberations. In order to ensure that board fulfills its
oversight role objective & holds themanagement accountable, the independence of Directors is a
must.
•
The number of independent Directors would depend whether the chairman isexecutive or non-
executive. In a case of non-executive chairman, at least one-third of boardshould comprise of
independent Directors & in case of an executive chairman, at least half of the board should
comprise of independent Directors. II.
. II.Audit Committee:
One of the primary objectives of ushering of good Corporate Governance is ensuring proper
Object 1

24. accountability to the stakeholders & in present scenario to the shareholders & investors. TheKMB
committee has rightly observed that: A system of good Corporate Governance promotesrelationship
of accountability between the principal actors of sound financial reporting- The board, the
management & the Auditors. In order to properly assess the board in discharge of itsfunctions of
accountability & transparency, the part-2 of Clause 49 contains comprehensive provisions regarding
constitution and composition of Audit committee, frequency of its meetings& quorum, its powers &
its role.
A.
Composition of Audit committee
:
•
A qualified & independent committee shall be setup & that committee shall haveminimum three
members, all being non-executive Directors, with majority of them beingindependent, & with al
least one Director having financial and accounting knowledge.
The chairman of the committee shall be an independent Director.
The chairman shall be present at AGM to answer shareholders’ queries.
The Audit Committee should invite such of the executives, as it considers appropriateto be present
at the meetings of the committee, but on occasions it may also meet withoutthe presence of any
executive of the company. The finance Director, head of internal Audit& when required, a
representative of the external Auditor shall be present as invitees forthe meetings of audit
committee.
B. Frequency of the meetings of the committee:
The Audit committee shall meet at least thrice a year. One meeting shall be held beforefinalization
of accounts & one at every six months.
C. Powers of the Audit committee
Clause 49 specifically vested this committee with the following specific powers: -
To investigate any activity within its terms of reference
To seek information from any employee
To obtain outside legal or other professional advice.
To secure attendance of outsiders with the relevant expertise, if it considers necessary.
D. Role of Audit committee:
•
The Audit committees role is to act as catalyst for effective financial reporting. As thecommittee
acts as a bridge between the board, the statutory auditors & internal auditors, theAudit committee
has been charged with the responsibilities of monitoring the financial reporting& disclosure. Part-D
of Part-II of Clause 49 specifically list out certain areas, where committeehas to play its role.

25. Oversight of the company’s financial reporting process & the disclosure of its financialinformation
to ensure that the financial statement is correct, sufficient & credible.
Recommending the appointment & removal of external auditor, fixation of audit fees &
alsoapproval for payment for any other services.
Reviewing with the management the annual financial statements before submission to the board,
focusing primarily on-
Any changes in accounting policies and practices
Significant adjustments arising out of audit.
Compliance with accounting standards.
Compliance with Stock Exchange & legal requirements concerning financial statements.
Reviewing the companies financial & risk management policy.
III.Remuneration of Directors:
The Board of Directors shall decide the remuneration of the non-executive Director.
There shall be separate section on the Corporate Governance in the annual report whichcontain the
following disclosures on the remuneration of the Directors:
All elements of remuneration package of all Directors ie. Salary, benefit, bonuses, stock options,
pensions etc.
Details of fixed components & performance linked incentives.
Service contract, notice period & severance fees.
Stock options details if any.
IV.Board procedure:
The board meeting shall be held at least four times a year with maximum time gap of four months.
Details of the minimum information to be placed before the Board of Directors:
Annual operating plans & budgets & any updates.
Capital budgets & any updates
Quarterly results for the company & operating divisions or business segments.
Minutes of meetings of audit committee & other committees of the board.
The details of joint ventures or collaboration agreement.
Transactions involving substantial payments towards intangible assets.•
A Director shall not be a member of more than 10 committees or act as a chairman of morethan 5
committees across all the companies in which he is a Director.
vry Director shall annually inform the company about the committee position he occupies
in other companies & notify changes as & when they take place.
V.
Management:
The management is one of the important constituents of Corporate Governance. While theonus of
laying down the policies is with the Board of Directors, the function of implementing the policies,
managing day-to-day affairs of the company, ensuringcompliance with all regulations & laws,
facilitating the working of the board & itscommittees & providing timely & accurate information
rests with the management.Part V of Clause 49 prescribes that: -
•
As a part of Directors’ report a ‘Management Discussion & Analysis Report’ should formthe part of
Object 2

26. annual report including the following matters viz.: -
Industry structure & developments
Opportunities & threats
Segment-wise or Product-wise performance
Internal control system & their adequacy
•
Disclosures relating to all material financial & commercial transactions, where managementhas
personal interest.
VI.Shareholders:
The shareholder is the most important constituent of Corporate Governance.It is the shareholders
prerogative to appoint the directors & the auditors & therefore, it isexpected that the shareholders
exercise all the care & efficiency in selecting the Directors &the auditors & take informed
decisions. Further, they are the beneficiaries of all thedisclosures. Therefore, they should demand
complete information from the board.
In order to enable the shareholders to exercise this function, part VI of Clause 49 requires:
In case of appointment of a new director or re-appointment of a director the shareholdersmust be
provided with the following information:
A brief resume of the director
Nature of his expertise in specific functional areas.
Names of companies in which the person also holds the directorship.
Certain information like quarterly results, presentation made by companies to analysts shall be put
on company’s web sites, or shall be sent to the stock exchanges on which the company islisted.
Information to the stock exchanges shall be sent in such form so as to enable them to put iton their
web site.
Company shall form Board Committee to be designated as ‘Shareholders/InvestorsGrievances
Committee’ under the chairmanship of a non-executive Directors for grievanceredressing of
shareholders/investors like transfer of shares, non-receipt of balance sheet, non-receipt of declared
dividend e
SARBANES-OXLEY AUDIT COMMITTEE
REQUIREMENTS
Sarbanes-Oxley defines “audit committee” for purposes of the Act and the Exchange Act as:
“a committee (or equivalent body) established by and amongst the board of directors of an
issuer for purposes of overseeing the accounting and financial reporting processes of
the issuer and audits of the financial statements of the issuer; and …if no such
committee exists with respect to an issuer, the entire board of directors of the issuer”
For certain purposes, however, Sarbanes-Oxley imposes additional requirements regarding the
composition and responsibilities of an “audit committee”
E.g., Independence under Exchange Act Section 10A(m) means that an audit committee member is
not an affiliate of the issuer or any subsidiary and that the member receives no consulting, advisory
or compensatory fee from the issuer except is his capacity as a member of the audit committee,
another board committee or the board of directors
Section 301 of Sarbanes-Oxley adds new Section 10A(m) to the Exchange Act and requires that by
April 26, 2003 the SEC, by rule, direct the national securities exchanges and NASD to prohibit the

27. listing of securities of any company, including foreign companies, that do not meet the following
requirements:
Each member of the company’s audit committee must be a director and must otherwise be
independent; :
The audit committee must be responsible for hiring and discharging the independent auditors
The audit committee shall be responsible for approval or all audit and non-audit services
The audit committee shall receive reports from the independent auditors regarding critical
accounting polices and practices, discussions that have taken place with management regarding
alternative treatments of financial information under GAAP, and any accounting disagreements and
other material written communications between the auditors and management
The audit committee must establish procedures to receive and address complaints regarding
accounting, internal control and audit issues, and to provide company employees an opportunity to
make confidential, anonymous submissions regarding accounting and auditing matters
SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.
(a) RULES REQUIRED. — The Commission shall prescribe rules requiring
each annual report required by section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal
control report, which shall —
(1) state the responsibility of management for establishing and maintaining an
adequate internal control structure and procedures for financial reporting;
and
(2) contain an assessment, as of the end of the most recent fiscal year of the
issuer, of the effectiveness of the internal control structure and procedures
of the issuer for financial reporting.
(b) INTERNAL CONTROL EVALUATION AND REPORTING. — With respect
to the internal control assessment
required by subsection (a), each
registered public accounting firm that prepares or issues the audit report
for the issuer shall attest to, and report on, the assessment made by the
management of the issuer. An attestation made under this subsection
shall be made in accordance with standards for attestation engagements
issued or adopted by the Board. Any such attestation shall not be the
subject of a separate engagement
5.2 VALUES AND CULTURE
One of the aims of the conference was to provide a platform for discussions among people with
different cultural backgrounds, and to increase understanding between these people. Culture can be
defined to be a common and learned way of thinking and behaving among a group of people. It has
been viewed as everything that people have, do, and think as members of their society (Ferraro
1990). In cultural research there are different approaches (see e.g. Fischer et al. 1995, 129 - 135).
According to Geerz (1973) a culture is a system of meanings, through which people interpret their
expectations, and which directs their behaviour (also Aaltio-Marjosola 1992, 23). Hofstede (1980)
identifies several different levels of cultures, such as nations, genders, generations and
organizations, to use in studying cultures The literature on cultures reveals that cultures differ in
several ways (e.g. Deal & Kennedy 1982, Hofstede 1980). Hofstede, for example, has found four
dimensions according to which national cultures differ from each other. These dimensions are
power distance, uncertainty avoidance, individualism-collectivism and masculinity-feminity. On the
other hand, Deal and Kennedy identify a tough-quy macho culture, a work hard/play hard one, a

28. bet-your-company culture and a process culture. Deal and Kennedy speak of different types of
organizational cultures.Values, as an integral component of cultures, was a theme that was discussed
at the conference. While ethical values are deeply bound within a culture, it is often difficult to
make them visible or to understand them. For instance, in international co-operation it might be
easy to recognize and learn the surface-level phenomena of a culture, such as artefacts and rituals,
but the core values behind those rituals may be difficult for a representative of another culture to
understand.
In the global economy, there is an increasing need for different nations, companies and individuals
to work together in co-operative efforts. This emerging global perspective emphasizes the need for
individuals to behave competently within a different cultural environment. However, individuals
should understand that ethical values may exist in one culture which are different from the ethical
values in their own society. Although different, these values might also be considered right and
good.
4.3"Enlightened Shareholder Value"
Under this "enlightened shareholder value" approach, which has been introduced statutorially in the
United Kingdom, attention to corporate stakeholders, including the environment, employees, and
local communities, is seen as critical to generating long-term shareholder wealth.
considers how enlightened shareholder value intersects with existing corporate governance rules in
the U.S. context and the extent to which it in fact represents a departure from the standard
shareholder wealth maximization norm. In so doing, it offers a response to some of the concerns
surrounding corporate stakeholders that have been raised by skeptics of greater shareholder voice
corporate governance in Public sector
Government as the principal shareholder and promoter in Public Sector
Enterprises should be setting the bar on corporate governance standards
and practices. This is important because the standards of governance in
corporate India is linked closely to the overall governance eco-system
5.4 Business ethics
Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that
examines ethical principles and moral or ethical problems that arise in a business
environment. It applies to all aspects of business conduct and is relevant to the conduct of
individuals and entire organizations.
Business ethics has both normative and descriptive dimensions. As a corporate practice and
a career specialization, the field is primarily normative. Academics attempting to understand
business behavior employ descriptive methods. The range and quantity of business ethical
issues reflects the interaction of profit-maximizing behavior with non-economic concerns.
Interest in business ethics accelerated dramatically during the 1980s and 1990s, both within
major corporations and within academia. For example, today most major corporations
promote their commitment to non-economic values under headings such as ethics codes and
social responsibility charters. Adam Smith said, "People of the same trade seldom meet
together, even for merriment and diversion, but the conversation ends in a conspiracy
against the public, or in some contrivance to raise prices."[41] Governments use laws and

29. regulations to point business behavior in what they perceive to be beneficial directions.
Ethics implicitly regulates areas and details of behavior that lie beyond governmental
control.[42] The emergence of large corporations with limited relationships and sensitivity
to the communities in which they operate accelerated the development of formal ethics
regimes.[43