This document outlines the modules of a course on business ethics and corporate governance. Module I introduces concepts of ethics, morality, and their relationship to law and culture. It discusses ethical theories and values. Module II covers ethical corporate behavior, leadership, decision-making, and workplace issues. Module III addresses ethics in functional areas like operations and marketing. Module IV discusses corporate governance initiatives and failures. Module V focuses on corporate social responsibility, issues like corruption, and obligations to stakeholders.

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BUSINESS ETHICS AND CORPORATE GOVERNANCE
MODULE I
Introduction – Ethics and morality, Ethics and law, Ethics and ethos, Business
Ethics,Concepts, Importance and benefits, Ethical theories, Values and its
relevance in Management, Values for Managers, Ethics in Business and Indian
Value system, Various approaches to ethics-Indian examples.
MODULE II
Ethical CorporateBehavior, its Development, Ethical leadership with examples,
EthicalDecision Making, Work ethics: nature and scope, Ethical issues at
workplace, Ethics andcultural issues, Environmental Ethics, Ethical dilemma,
ethical displacement.
MODULE III
Ethics in Functional Areas: Operations, Marketing, Finance, HR & I. Technology,
Recentchallenges in ethics, Ethics in different countries.
MODULE IV
CorporateGovernance, CorporateGovernance initiatives in India and abroad.
CorporateGovernance failures with examples, General ethical issues and the court
verdicts in the domain of business ethics, obligation to stakeholders.
MODULE V
CSR and its significance in Business, social audit – Ethical Issues-Corruption, -
whistle blowing-competition-privacy-trade secrets, IP rights, Harassment &
Discrimination.

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MODULE - I
WHAT IS ETHICS?
• It is the discipline that examines one’s moral standards (an individual’s, a
group’s or an entire organization’s) or the moral standards of the society.
• Asks how standards apply to lives or their existence and checks whether
standards are rational or irrational
• It is the establishment of transparent norms of interrelationships.
• It is a very practical approachtowards attaining goals in an environment that
involves other people.
• Eg: Satyam Computers manipulating its financial statements
MORALITY
• Is more individualistic.
• Does not require the enrolment of others.
• Or it can be privatized.
• It does not demand acquiescence from others.
• A moralist is not pressured to make morals workable to others.
• Of course, moralists can have strong influence on others, not necessarily
because of any active act of volition on the part of moralist
• Has more to do with right, than what is generally acceptable or what is good,
according to a general view.

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• Eg: Never telling a lie
ETHICS & LAW
• Where there are laws and regulations in place, abiding by the rules and
regulations gives the individual or organization the legitimacy of being
ethical.
• The example of Bajaj Auto,RIL, erstwhile Ranbaxy etc.
ETHICS & ETHOS (CULTUTRE)
• Ethos is the spirit of a culture or era or community as manifested in its
attitudes and aspirations;
• Hence will have a role to play in the ethical behaviours;
• The differences between two societies, say the US and India;
• Ethos may undergo changes over time.
BUSINESS ETHICS
• What is business?
• What are the objectives of business?
1. Profit-an important objective of business;
2.This objective gets over-emphasis in the current market driven scenario;
3. Contributes to many ethical issues: Examples(finance, labour, ads etc)
IMPORTANCE AND BENEFITS
• Lesser energy and resources wasted on litigations;

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• A satisfied set of employees, shareholders and other stakeholders supportthe
business for its success;
• Markets usually assign weightage for ethical companies;(Eg.Infosys,TCS
Vs. Satyam)
• Business gets accepted as a worthwhile institution of the society.
ETHICAL THEORIES
Four Broad types
A. Teleological Ethics Theories
B. Deontological Ethics Theories
C. Virtue Ethics Theories
D. System Development Ethics Theories
A.TeleologicalEthics Theories
“Conceptofgoodness over and above the concepts ofrightness and
obligation or duty or the concepts ofrightness and obligation are defined in
terms of goodness.”
Utilitarianism- proposed byphilosopher Jeremy Bentham(The said
truth is that it is the greatest happinessof the greatest numberthat is the
measure of right and wrong)-takes its cue from teleological theories and
hence according to utilitarianism, our obligation or duty, in any situation, is
to perform the action that will result in the greatest possible balance of good
over evil.

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Types Of Utilitarianism
 Classical -Action right if & only if it produces the greatest balance of
pleasure over pain for everyone.(4 types –discussed later)
 Act-and Rule
Act
We should perform the action that will create the greatest net utility or
producethe best overall results;
Rule
a) a specific action is morally justified if it conforms to a justified moral rule
b) a moral rule is justified if its inclusion into our moral codewould create
more utility than other possible rules (or no rule at all).
 Cost-Benefit based
 Ethical Egoism holds that an action is good if it produces ortend to produce
results that maximize a particular person’s interest as defined by the
individual even at the expense of others.
 Eudaimonism holds that an action is good if it promotes or tend to promote
the fulfillment of goals constitutive of human nature and its happiness. Eg:A
manager enforcing health & safety stds at work, ensures fundamental,
natural components of human happiness.

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4 Types Of ClassicalUtilitarianism
a. Consequentialism
rightness determined solely by their consequences
b. Hedonism
utility identified with pleasure & absence of pain-holds that only pleasure
is ultimately good
c. Maximalism
action not only provides some good consequences but provides greatest
amounts good consequences while taking into consideration bad
consequences too.
d. Universalism
consequences to everyone must be considered
ETHICAL THEORYOF IMMANUAL KANT
 Kant tried to restore reasoning into the moral life.
 Argued that there are certain things that we ought to do and others that
we ought not to do just because we are rational.
 Hence moral obligations have nothing to do with consequences or end
results but arises solely from a moral law that is binding on all rational
beings.
B.DeontologicalEthics Theories.
I. Rights’Theories/The conceptof a ‘Right’
KINDS OF RIGHTS
a. Legal and Moral rights
b. Specific and general rights-

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Some rights are specific because they involve identifiable entities
(individuals, organizations etc.)
Eg. A Contract.
General-Apply to everyone-Eg. Right of speech
c.Negative and positive rights –
• Negative rights are correlated with obligations on the part of others to
refrain from acting in certain ways that interfere with our freedom of
action.Eg. Trespassing into your property.
• Positive Rights-Impose obligations on other people to provide us with
some goods or services & to act positively on our behalf.
Eg(1)The right to health-the corporationhas to provide lots of services
like garbage removal(2)The right to transparency: BOD has to provide
the correct information to the stakeholders (fiduciary role of BOD)
II. Social Contract Theories
• An action is right if it conforms to the terms agreed upon, conditions or rules
for social well-being, negotiated by competent parties.
• Eg: The unemployment wages codespecify normative guidelines arrived at
by consensus
• The relationship that exists between the govt. and the citizens of a country-
by the citizens agreeing to put some of their rights to a common ruler (the
govt.) and rulers agreeing to protectthe interests of the citizens in turn-even
while no formal agreement exists, can be considered to be a social contract.

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III. Social Justice Theories
 An action is right if it promotes the duty of fairness in the distributive,
retributive and compensatory dimensions of social benefits and burdens
 Eg: Injury of non-smokers with secondhand smoke at workplace.
a. Distributive Dimension
distribution of the health risk burden
b. Retributive Dimension
imposition of fines/penalties/punishments on responsible parties
c. Compensatory dimension
compensation to the injured parties
 Managers who adoptthis approachputs emphasis on adherence to std.
procedures, usually decide by the bookregardless of consequences
C. Virtue Ethics Theories
• Habitual development of sound character traits determines the ethical
value of persons. Forthe virtue ethicist, building character is what life is
all about.
• Character-the pattern of intentions, inclinations and virtues that make a
person/organization act ethically.
• Will find persons with strong and weak characters
• Persons with strong character-possessesa consciously cultivated
,intellectual, moral, emotional & social virtues to achieve self-discipline
to do the right thing.
• Persons with weak character-do wrong things or what is truly harmful to
them & make excuses for their irresponsible choices in life.

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Character can be of three types or at three levels:
• Individual character (individual level)
• Work character (work level)
• Professional character (professional level)
Individual character
Individual Character ethics-holds that identification & responsible
development of human traits of nobility (like courage, justice, gratitude, self-
discipline, reliability, caring, simplicity etc) determine the value of all human
ethical interactions. Eg: A personretaining his/her dignity & prospects for
happiness by living a virtuous life even after losing all his wealth, health & even
the loved ones for no fault of him
Work character
Work Character ethics-holds that identification & development of noble
traits at work like competence, creativity, honesty, fairness, co-worker
appreciation, loyalty, shared work pride, tolerance, empathy etc) determine the
ethical quality of work life. Eg: a manager has to serve as a role-model for many of
the traits when facing global competition with a need to higher productivity &
effective team work.
Professional character
Professional Character ethics-expertise, collegiality, trust, truthfulness,
autonomy, independence of judgment, loyalty etc determine the ethical quality of
individuals in associational communities (workplace or a social service orgn:)

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D. System DevelopmentEthics Theories
• The nature and extent of the supportive framework in organizations for
continuous improvement of ethical conductdetermines the ethical values of
actions in organizations.
Eg: Managers create a culture supportive of ethical conduct& implement systems
towards achieving this (like JW & Narayana Murthy)
System Development may target
a. Personal improvement ethics
b. Organizational ethics
c. Extra-organizational ethics
Personal improvement ethics
By promoting personal responsibility for continuous learning, moral excellence
directed at co’s goals.
Organizational ethics
By promoting formal & informal processeslike systemic justice, caring,
innovation in ethical work cultures etc. (Eg: GE & Infosys)
Extra-organizational ethics
By promoting collaborative partnerships ,diversity, social resp. like ecological
concerns, social & philanthropic concerns etc (Eg Infosys Foundation, GE etc)

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VALUES
• A value is something considered worthy in and of itself by a person, a group
or an organization-a policy for everyone to adhere to and believe in.
• Valuesguide people. They identify what behaviour is acceptable, and what
is not.
• Valuesconstitute among the powerful tools in the hands of managers-more
powerful than rules.
• May be explicitly stated or may be implicitly understood and recognized by
all.
• Example:Wipro Values
WIPRO VALUES: What makes us true Wiproites
• Human Values:
We respectthe unique needs of customers and employees. We are sensitive
to their differing needs in our interactions with them
• Integrity:
We deliver what we commit. With honesty, fairness, reliability and
uprightness in whatever we do
• Innovative Solutions:
We consistently offer novel & superior solutions to satisfy the needs of the
customer

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• Value for Money:
Delivering higher value to the customer throu continuous improvement in
quality, cost and speed
The Mirror Test
• JW asked every employee of GE to do the mirror test-”Can you look in the
mirror everyday and feel proud of what you are doing?”
• He argued that people who cheat are not doing it for competitive reasons.
”Excellence & competitiveness are totally compatible with honesty &
integrity.---People who cheat are weak”
APPROACHES TO ETHICS
The approaches to ethics are basically linked to the theories:
• The utilitarianism approach
• The rights approach
• The justice approach-based onjustice, fairness, impartiality and equity
• Virtue approach- actions shall be consistent with certain morally acceptable
virtues leading to full development of humanity
• The common good approach-the interlocking relationships are grounded in
ethical reasoning, respect and compassionfor others, especially to the under-
privileged sections of the society

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MODULE – II
ETHICAL CORPORATEBEHAVIOUR
• Corporates fall in a wide range in terms of ethical behaviours.
• Companies like Satyam, Enron, WorldCom and of late Wolkswagan etc
belong to the group of questionable ethical behaviours.
• Companies like Johnson & Johnson, Intel, Mutual of America Life
Insurance etc belong to the group of highly ethical behaviour.
ETHICAL LEADERSHIP WITH EXAMPLES
• There may occurmany issues during the lifetime of a corporate body.
• Many a time leadership will be tested on ethical aspects.
• Only leaders who have emotional fortitude will be able to take tough
decisions even if it means some kind of sacrifices in terms of reduced
profits, lesser returns to shareholders, and lesser rewards etc will be able to
take the company over a long haul.
• “The day we have to downsize, the day we have to eliminate jobs, my name
will be the first on the list.” said William Flynn, currently Chairman
Emeritus and formerly CEO of Mutual of America Life Insurance to his
employees while he was the CEO.
WORK ETHICS
• Work ethic varies at different levels of hierarchy.

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• At the basic level, it is about discipline(coming to work on time), behaviour
with subordinates, peers, and superiors, being at the work place during
working hours, not wasting time of self and others, completing the tasks
allotted to them in the given time etc.
• At the highest level it is about commitment and accountability.
• Another aspectcould be protecting the interests of the organization and not
denigrating it to outsiders or creating poormorale within the organization by
negative comments.
A person’s work place ethics may be influenced by the corporateculture, the set of
beliefs of the organization, the organizational values, goals, norms and the manner
of solving the problems of employees.
ETHICAL ISSUES AT WORK PLACE
• Gender, caste, religion, race and geographical discriminations
• Lack of fairness in the distribution of rewards and promotions
• Denying legitimate rights of employees
• Harassment of various types
ETHICS & CULTURAL ISSUES
• Culture is a set of values, beliefs, norms, goals and means of solving
problems by members of the organization.
• Culture is not something people do when they are on their own, but when
they interact with one another.
• Culture influences ethical conductat workplace.

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• An organization develops its own culture usually based on the values of the
founders or some leaders of influence who followed them.
• Assumptions that members of an organization share in common also forms
the organizational culture
• Culture varies from organization to organization
• Business ethics depends on creating a definite culture that involves and
enthuses all employees within an organization.
• Hence, business ethics demands that cultural norms are practiced in such a
manner that relations between people are transparent.
HOW TO CREATE AN ETHICAL CORPORATECULTURE?
• Choosethe right leader.
• Adopta codeof conduct.(UniCredit: Integrity Charter)
• Adopttransparency as a policy.
• Hire the right people.
• Fire the wrong people(Remember the GE Value-Performance matrix)
• Reward those who show and promote ethical conduct.(UniCredit: Integrity
Champion)
ENVIRONMENTALETHICS
• Today, more than ever, people are concerned about the environment, and
issues like global warming and its attendant problems are looming large on
us.

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• Both governments(States) and corporates have responsibilities to preserve
nature for all creatures on earth in order to maintain ecological balance.
• All stakeholders –public, media, consumer and environmental groups in
addition to States and corporates have also taken lot of interest in the matter.
• Businesses and corporates have a lot of responsibility to take as normally
production of goods results in some kind of destruction-destruction of
forests, use of scarcewater, over use of irreplenishable resources, pollution
of atmosphere and water etc.
ENVIRONMENTALPRESERVATION:ROLE OF STAKEHOLDERS
The major stakeholders are Public, Media, Environmental groups,Corporations ,
Investors & Government.
• Public:
Public opinion is crucial on the issue. The public can exercise power to
supportinterest groups, elect and lobby officials, pay taxes, work for
companies, consciously buy or reject products, and supportand reject
government policies.(Eg: Mavoor Rayons, Calicut)
• Media:
exerts considerable influence over the public perception of environmental
issues; it disseminates information to the public on various issues of
importance.
• Environmental Groups:
Many env. advocacygroups have evolved; while some are radical in their
approachand try to block corporateor government activities, many are

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moderate and try to co-operate with corporates and governments. There has
been a change in approach-from simply bringing attention to working with
other stakeholders to find solutions (Eg:Greepeace).
• Corporations:
traditionally were insensitive to the environmental issues; but because of
regulatory measures and pressures from environmental groups and public,
corporates have altered their stance on the issue. Many firms today work on
ensuring that no damage to environment is created.
• Investors:
today, investors are also concerned about the various ethical issues like
environmental harms, child labour, gender discriminations etc. Many
investors like mutual fund have decided to make their investments in
ethically acceptable opportunities(Eg:Calvert Social Investment Fund).
FinancialTimes has constituted the FinancialTimes FTSE4Good Index and
Dow Jones has constituted Dow Jones Sustainability World Index, both of
which have become significant in screening good corporatecitizenship of
companies.
• Government:
the state has a responsibility to ensure that the society gets right kind of
leaving free from ethical violations – be it on environment, be it labour, be it
on investments. In order to achieve, the Govt. creates laws & regulations for
the business and corporates to follow. In case of violations, members of the
society can take recourse to laws and regulations. They also try to promote
the causes of good environment by offering certain incentives(like tax

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exemptions on investments on pollution control equipments, use of non-
conventional energy etc)
ETHICAL DILEMMA
• It is a moral situation in which a choice has to be made between two equally
undesirable alternatives.
• For example, an organizational decision maker may face a choice between
two or more options that will have impacts on (a) the company’s
competitiveness and profitability; and (b) its stakeholders.
• Say,what is in the interest of the shareholders may not be of the interest of
customers or society.
• The leaders at J&J probably might have faced a dilemma if there was no
CorporateCredo for them to bank upon.
• Corporates have to maintain a properbalance on the demand from various
stakeholders.
ETHICAL DISPLACEMENT
• Most of the time when development efforts take place in a society, it may
involve displacement of people, many a time depriving them of their means
for livelihood. So, when people get displaced for some development, the
agency who handles development have to act ethically. Normal course of
action usually resorted by industry is to offer jobs to one member of the
families who get displaced.
• Eg. The first chosen location for making Nano by Tata Motors.

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MODULE - III
ETHICS IN FUNCTIONALAREAS
While business ethics may pervade across the corporateas a whole, there are
specific functional-related ethical issues.
ETHICAL ISSUES IN OPERATIONS
• Safety of the worker
• Safety of the product
• Quality of the product(Eg:Volkswagen)
• Harming the environment
• Closure of production facilities
• Rights of workers
ETHICAL ISSUES IN MARKETING
• Marketing is playing a stellar role in being instrumental in developing and
delivering products of great value to society.
• It not only meets the known need of customers but also create an “Aha!”
feeling by even surprising customers by meeting their unarticulated needs.
• While the above aspects are positive, there are certain negative aspects that
may arise from marketing: it becomes instrumental in making and delivering
unsafe products, selling products that have certain side effects, encourage
use of materials like plastics that are not bio-degradable and hence harmful

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for the environment, banks compromise on the underlying confidentiality by
supplying customer data bases to other marketers etc.
• Persuade people to buy products by hiding certain information,
• Promote through wrongful advertising(Eg.Fair & Lovely) etc.
• Failing to meet service obligations after promising them to get orders.
ETHICAL ISSUES IN FINANCE
Can be classified broadly into two:
• Financial Accounting
• Financial Management
Financial Accounting
• In the area of financial accounting, ethical problems arise when
management, in their anxiety to project better performance, resorts to fudge
the financial statements- like inflating revenues by making bills for items
which are yet to be manufactured and supplied, postponing revenue
recognition to future months if the future order bookposition is not very
bright, deviating from accounting standards without proper declaration, not
disclosing certain transactions etc.
• A large number of corporategovernance failures have primarily occurred
due to frauds in accounting in which auditors have colluded with company
managers.

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Financial Management
Ethical issues in finance revolves around three aspects:
• Ethical issues in financial markets
• Ethical issues in financial services and
• Ethical Issues involving finance professionals
Financial Markets
• With respect to financial markets, ethical violations happen in terms of
information flows-some people may have access to privileged information
and make extra-ordinary gains, while others who don’thave such access
may suffer losses; markets gets fooled by certain new innovative
instruments in the hands of the financial whiz-kids etc.
• Various market regulators create regulations to prevent such violations from
happening but market players find ways and means of circumventing the
laws and regulations.(Read Ch 7)
ETHICAL ISSUES IN HUMAN RESOURCES
• Discrimination issues; gender, caste, race, geography, performance,
experience, disabilities etc.;
• Denying democratic rights to workers to unionize, bribing union leaders
etc.;
• Privacy issues: in organizations, lot people from different castes,
religions or race may work together but each of them have a right to
pursue their social, political or religious beliefs, personal lifestyles etc
which are private matters and any intrusion into them could be ethical

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violations. Tapping of phones, observing them over CCTVat places
except work places etc could also be violations. In an internet era, lots of
privacy violations can happen.
• Safety & Health: Most of the industrial equipments and practices are
hazardous. The hazards could result from high speed and noisy
machinery, processes requiring high temperatures, handling highly
inflammable materials, and sometimes the nature of work itself like in
construction of underground and underwater tunnels, oil drilling and
mining. Accidents involving death, injuries and illness are very common
the construction jobs. Corporates do not take care to install safety
precautionary measures as they may involve costand usually dismiss
them as occupational hazards.
• The pressure for increased productivity is also creating mental stress in
employees.
• Performance appraisal: This is yet another area where unethical practices
are happening is the performance appraisals of employees. Many a time
the process involves bias or lack of fairness. Extraneous factors like
assessee’s personalequation with the assessor, orbiases on caste,
community or religion many a time influence the appraisal.

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ETHICS IN INFORMATION TECHNOLOGY
• Plagiarism: with internet sources available, the instances of plagiarism have
been increasing.
• Piracy: Illegal copying of software; it is estimated that about 50% of all the
programs in PCs are pirated copies. Programmers spend months or even
years designing software programs.
• Hacking: it is breaking into a system and very often is dangerous and hence
unethical. But, there may be a positive side of hacking to break into crimes.
• Viruses: Writing and spreading virus programs can lead to disastrous
consequences like loss of data, system crashing etc.
• Health issues: Continuous working in front of computer screens have found
to be leading to health issues like mental strain, eye strain, back problems
etc.
RECENT CHALLENGES IN BUSINESS ETHICS
• Ethical dilemma
• Shareholder Vs. Stakeholder conundrum
• CorporateSocial Responsibility or Socially Responsible Business
• Day-to-day confusions(as we discussed in Ethical Ruleof Thumb)
• One individual can create ethical violations that can affect many and even
the organization, however meticulous care leaders take to create an ethical
environment.

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ETHICS IN DIFFERENT COUNTRIES
• Countries or societies vary based on the culture they have, values they
imbibe and systems of interaction that exist. Some countries are more
transparent and open in their approaches while some countries or societies
are closed and opaque.
• Some societies are corruptand to get things done, they resort to corrupt
practices. Transparency International is an organization that has created an
index for corruption (Corruption Perception index) and publishes the list of
countries based on the index every year. The scorevaries from 0(highly
corrupt )to 100(very clean).
• According to the 2014 List with 174 countries, Denmark tops the list with a
scoreof 92 followed by New Zealand with 91 and Finland 89.United
Kingdom is at 14th with a scoreof 78,US at 17th with 74,India at 85 with a
scoreof 38,while China is at 100 with a scoreof 26,Brazil at 69 with a score
of 43, Russia at 136 with a scoreof 27 and South Africa at 67 with a score
of 44.

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MODULE – IV
CORPORATEGOVERNANCE
• “CorporateGovernance is an umbrella term that includes specific issues
arising from interactions among senior management, shareholders, boards of
directors and other corporate stakeholders”. Philip Cochran & Stevan
Wartick, 1988
• Another definition which is more precise for practice:” CG deals with the
appropriate board structures, processesand values to copewith the rapidly
changing demands of both shareholders and stakeholders in and around their
enterprises”. Bob Garratt in Thin On Top

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Since the board is the legitimate bodyinvolved in directing the corporationin its
relationship with other stakeholders and regulators, CG is said to be the discipline
concerned with the structure and processes ofthe board & its relationships with
shareholders, regulators, auditors, top management and any other legitimate
stakeholders
CORPORATEGOVERNANCE INITIATIVES
Global Scenario
The first ever organized initiative :Cadbury committee in UK 1992 ; submitted
the report titled “The financial aspectof CG” Advocated :-

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• I,NEDs
• Audit Committees
• Separation between Chairman & CEO
• Remuneration Committee
• Codeof best practices
Other initiatives
• Hilmer Report – Australia – 1993
• Greenbury Report – UK – 1995 – On Remuneration of Ds.
• Hampel Reportin UK – 1998 –(to check whether changes in the CG
system reqd- no major changes but more common sense than box-ticking
recommended)
• Public Company Accounting Reform and Investor Protection Act
(Sarbanes – Oxley Act – 2002 –USA)
• Higgs Report – UK 2003 – Role and Effectiveness of NEDs.
Indian Scenario
• CII Code– 1998-first formal effort
• K. M.Birla Committee(SEBI) Report – 2000- Recommendation
implemented as listing agreements
• Audit Committee with majority IDs mandatory
• Naresh Chandra Committee Report – 2002
• Narayana Murthy Committee Report - 2003

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Clause 49 of the listing agreement
• Originally issued in February 2000
• Compliance by Group A companies March 31,2001
• Compliance by other companies-Cos with minimum Paid-up capital of
Rs.10 crores and networth Rs.25crores –byMar 31,2002 and remaining
listed cos with paid-up capital of Rs.3crores or networth of Rs.25 crores by
March 31,2003
Clause 49 amended
 Compliance by April 1,2005.Extended to Dec 31,2005 after SEBI meeting
on March 23,2005
 Tighter qualification criteria for independent directors
 Time gap between two board meetings-3 months(4 months)
 Audit committee meetings- min 4(min 3)
Audit committee members shall be financially literate and at least one should have
accounting/financial management expertise
 Wider role for the audit committee
DUAL REGULATION IN INDIA FOR CG
• Company Law(Broader, mostly incorporation related aspects of CG)
• Clause 49 of SEBI(mostly capital market related aspects of CG)
• There used to overlaps which have of late been taken care of by the 2013
Company Law

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A Typical Board Consists Of The Following Types Of Directors:
• Promoter Directors and their Nominees
• Whole-time directors(Executive directors) and Part-time directors(Non-
Executive Directors)
• Independent directors
• Institutional nominees
DIRECTING IS NOT MANAGING
• Directors shall have a “brain-on” rather than a “hands-on” attitude
• Directors’ task is to continuously overview of four (opposing)forces of
a. Organizational effectiveness-LT customer perception (good value for
money)
b. Organizational efficiency-ST focus on costreduction & efficiency gains
c. Board performance-external focus-competitive (strategic) positioning
d. Board conformance-internal focus-pre-setgoals of accountability to
stakeholders
GOVERNANCE STRUCTURE IN INDIA AND ABROAD
Board and Committees of the Board
Committees
1. Audit
2. Remuneration/Compensation
3. Nomination/Corporate Governance
4. Investor Grievance

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5. Special Committees – MCs
- CODs etc.
The Ideal Board (A Wish List)
• Decide on the role-watchdog or pilot
• Have a board charter for governance
• Independence in thoughts, attitude ie substancerather than form
• CEO & the entire board should understand that collegiality & Collective
wisdom will result in performance
• Periodical review of performance of the CEO by the board & constructive
feedback
• Properinduction & orientation for new recruits on the board by chairman/ a
senior member
• Self-evaluation of the board at frequent intervals
• Continuous learning for existing directors
• Stack the board with talent
• Performance than conformance
• Plan for succession(both CEO & Director level)
• Treat board as a competitive weapon for gaining competitive advantage
CORPORATEGOVERNANCE FAILURES
• Corporategovernance failures occurwhen corporates and their boards don’t
act in the requisite manners or when they violate good governance
principles.
• Once failures happen, that will attract lot of publicity and everybody
concerned will try to find scapegoats.

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• All interested parties, regulators, law makers, accounting and auditing
related bodies, corporategovernance experts, investor bodies, rating
agencies, organizations monitoring corporategovernance and even
Government will suddenly spring into action.
• Deficiencies in the governance processes and loopholes or shortcomings in
laws or regulations will suddenly be revealed. But, very often the pains and
lessons will be forgotten, till the next episode of failure happens.
• While the organizations and board of directors have inbuilt mechanisms
for detecting poorgovernance practices through the structures created, very
often failures happen because these mechanisms fail to act.
Some Of The Reasons For Failures:
• Corporates don’t distinguish between management and governance
functions.
• Positions of Chairman & CEO are usually combined in one person.
• IDs don’tact their designated roles; many a time the independence of the
IDs itself becomes questionable.
• In family managed companies, promoters will play an overwhelming
role.
• Lack of rigour by the audit committee.
• Lack of rigour in the appointments of CEO and other directors including
independent directors.
• Failures in disclosures.
• Too much of pressure on CEO and the organization to better performance
every quarter.
• Lack of involvement of investors other than promoters.
• White collar crimes were given a lenient view in the earlier era.

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• Collusion between management and auditors to inflate profits or suppress
information.
• Last, but not the least, corporateand executive greed.
An example for corporategovernance failure in India is that of Satyam Computer
Services Ltd., which occurred in 2009. (For details, refer Corporate Governance
by Kumar, pp11-16,OUP) .
From a global perspective, there are a number of examples, the bestone provided
by Enron(Refer Kumar,pp65-73). Others include WorldCom, Global
Crossing,Tyco International(US), Parmalat (Italy),Adelphia (Netherlands) etc.
GENERALETHICAL ISSUES
• Thosethat have binding on governance are mostly in the area of finance, HR
and marketing.
• In the finance area, it can be related to audit committees (constituted mostly
of Independent Directors), accounting and auditing bodies, auditors, rating
agencies, analysts(so called gatekeepers).One of the reasons for the ethical
violations is the conflicts of interests.
• In marketing, it is mostly related to taking customers for a ride(through
wrong claims on products)or through restrictive trade practices.
• In HR, it could be related to violation of labour related laws & regulations
• Regulators have of late made stringent regulations to include all these so
called gatekeepers in the context of good governance.

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COURT VERDICTS
• Court verdicts in matters related to corporate governance have of late
become severely punishing even in India.
• In the case of Satyam, while no action has been taken against the
independent directors, the CEO and top management have been handed jail
terms along with the individual auditors and the auditors have also been
barred form practicing auditing professionfor life.

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MODULE – V
CSR & ITS SIGNIFICANCE IN BUSINESS
• Businesses offer products orservices that help members of the society in
many ways.
• Businesses thrive because members of the society buy their products or
services. Businesses take and use lots of resources from society.
• Again, while indulging in the economic processes ofproductionor service,
they also at times harm the society and its inhabitants.
• Hence, it is believed that businesses have a serious responsibility towards
the society or they must do things in return for the way the society helps it to
achieve its objectives and goals.
• Even though businesses do lot of good to the society, by giving them
products and services that improves the lives, by and large public considers
business as self-serving for the people behind them.
• Indulging in CSR improves the acceptability of businesses in the society.
• It improves the profiles of individual companies in the marketplace.

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SOCIAL AUDIT
• It is the process ofevaluating a firm's various operating procedures, code
of conduct, and other factors to determine its effect on a society.
• The goal is to identify what, if any, actions of the firm have impacted the
society in some way.
• A social audit may be initiated by a firm that is seeking to improve its
cohesiveness or improve its image within the society. If the results are
positive, they may be released to the public.
• For example, if a factory is believed to have a negative impact,
the company may have a social audit conducted to identify actions that
actually benefit the society.
The Need ForSocial Audit
• Social consciousness
• Monitor unethical practices
• Social accountability
• Informative system
• Evaluating performance of the various CSR initiatives
Advantages Of Social Audit
• Trains the community on participatory planning
• Encourages community participation
• Benefits everybody including disadvantaged groups

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• Promotes collective decision making sharing of responsibilities
• Develops people and social capital
Limitations
• Cumbersome & time consuming
• No standard methodology
• Definition of scopedifficult
• Subjective
• Lack trained people and trainers
• Limited practical utility
Examples of Social Audit in India
Tata Steel was the first company to do a social audit in India(in 1982).They did it
again 1992 and 2003.
CORRUPTION
• Is the dishonest or faudulent conductby those in power
• Lots of such acts happen in the corporates
• It could be compromises in quality of products /services, offering bribes
to get orders/favourable decisions, make changes in accounting practices
or financial reports to make numbers, poordisclosure of facts etc.
WHISTLE BLOWING
• Is calling attention to wrongdoings that happen

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• Many corporates have instituted whistle blowing policies. Eg.Infosys(Ref.
Moodle)
• Initially it was non-mandatory requirements by SEBI under Clause 49 but
made mandatory from Oct1, 2014
• The mechanism would also need to have necessary safeguards to protect
whistle-blowers from victimization
PRIVACY
• Privacy refers to an individual’s right to be free from intrusion or
interference by others. It is a fundamental right in a free and democratic
society.
• Privacy issues assumes lots of importance in organizations where people
work long hours together and share official secrets.
• In this context, privacy refers to protecting a person’s private life from
intrusive and unwarranted action by employers.
• Individuals have privacy interests in relation to their bodies, personal
information, expressed thoughts and opinions, personal communications
with others, and spaces they occupy.
• Religious ,social and political beliefs,personal lifestyles etc are private
matters which everyone wants to safeguard from public gaze.
• Another important aspectof privacy is the right to control information about
oneself.

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• Privacy is respected if an individual has an opportunity to exercise control
over personal information by consenting to, or withholding consentfor, the
collection, use and/or disclosure of information.
• Workplace surveillance through CCTVs, tapping of phones, reading
computer files without the consent of employees are all breaches of privacy.
CONFIDENTIALITY
• The ethical duty of confidentiality refers to the obligation of an individual or
organization to safeguard entrusted information.
• The ethical duty of confidentiality includes obligations to protect
information from unauthorized access, use, disclosure, modification, loss or
theft.
TRADE SECRETS
• A trade secret or intellectual property is confidential information which
allows a business to have a competitive edge over their competition. This
could be anything from a sales methods, distribution methods, consumer
profiles, advertising strategies, lists of suppliers and clients, manufacturing
processes,designs, and formulas.
Eg: The Coca-cola formula, or the recipe of Colonel Sanders(KFC)
• The unauthorized use of such information by persons other than the owner is
regarded as an unfair practice and a violation of the trade secret. Loss of
trade secrets can costcompanies millions of dollars.

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INTELLECTUAL PROPERTYRIGHTS AND ETHICS
• Intellectual property rights are a socio-economic tool that create a temporary
monopoly for inventor firms and enable such firms to charge prices for their
innovations that are many times higher than the marginal costof production
of the innovations.
• This allows the inventor firms to salvage their research-costs and secure a
profit on their innovations. A large bodyof contemporary philosophical and
interdisciplinary literature suggests that intellectual property rights give rise
to a number of ethical problems.
• While IP Rights are given to somebodyor organizations in order to prevent
others from copying the knowledge in order to create commercial success.
• The inventor might have spent lots of money and efforts before they
successfully invented something and hence the protection offered to them.
• The protection is offered for a specific period by the patent authority.
• Anybody who copies such products/services which are protected by patents
are liable to be punished.
• A number of such issues of plagiarism has arisen, especially in the caseof
pharma products.

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THE CONTROVERSYOF IP RIGHTS
• While the intention of protecting the rights of the inventor might look very
justified, the right at times gives the patent owner to exploit the consumers
and make huge profits.
• Also, the higher prices of such patented products leads to the
underprevileged people not able to benefit from the breakthrough
inventions(Eg.Drugs).