Corporate Governance and Ethics: Key Players, Principles, and Global Perspectives, Lecture notes of Ethics

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Corporate governance &Ethics

Key players (stakeholders)

Corporate governance & ethics

Meaning of corporate governance

• (^) The way a corporation is governed, is technique by which companies are directed

and managed.

• (^) Carrying the business as per the stakeholders’ desires. It is actually conducted by

the board of directors and the concerned committees for the company’s

stakeholder’s benefit.

• (^) It is all about balancing individual and societal goals, as well as, economic and

social goals.

• Interaction between various participants (shareholders, board of directors, and

company’s management) in shaping corporation’s performance and the way it is

proceeding towards.

• (^) The relationship between the owners and the managers in an organization must be

healthy

KEY TAKEAWAYS

 Corporate governance is the structure of rules, practices, and

processes used to direct and manage a company.

 A company's board of directors is the primary force

influencing corporate governance.

 Bad corporate governance can cast doubt on a company's

operations and its ultimate profitability.

 Corporate governance entails the areas of environmental

awareness, ethical behavior, corporate strategy,

compensation, and risk management.

 The basic principles of corporate governance are

accountability, transparency, fairness, and responsibility.

Corporate governance &Ethics -Key players

(stakeholders)

Structure of corporate governance

Key players- stakeholders

Stakeholders could be:

Employees who, without the company, would not have jobs

Bondholders who would like a solid performance from the company

and, therefore, a reduced risk of default

Customers who may rely on the company to provide a particular goods

or service

Suppliers who may rely on the company to provide a consistent

revenue stream

Shareholders may be the largest stakeholders (affected directly by a

company’s performance)

Global & Indian Perspective of Corporate Governance

1. Continental Europe :- Netherlands, Germany-two

tiered BOD-Executive (Business decision &)

Supervisory board (deals with stakeholders)

2. UK & US :- Anglo American model, single tier BOD

selected by non-executive directors elected by

shareholder.

3. India :- External body SEBI governs as acceptance by

management of inalienable rights of shareholders as

the true owners

Corporate Social Responsibility (CSR)

• It is the continuing commitment by

business to behave ethically and

contribute to economic development

while improving the quality of life of

the workforce and their families as

well as of the local community and

society at large”.

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COMPANIES ACT, 2013

Companies Mandated to constitute a CSR Committee

Networth of Rs 500 Crore or more

Turnover of Rs 1000 Crore or more

Net profit of Rs 5 Crore or more

CSR Committee to have

Three or more directors

At least one is to be an independent director

Board’s Report shall disclose the constitution of CSR Committee

CSR Committee will

Formulate CSR policy and recommend to board indicating the activities

Recommend the amount of expenditure to be incurred

Monitor CSR Policy from time to time

• They are required to spend at least 2% of their average net profits of 3 preceding

years in eligible CSR activities.

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