1. Briefly discuss the concept and importance of Corporate Governance?

Corporate governance is a set of mechanisms through which outside investors protect

themselves against expropriation by the insiders. They define “the insiders” as both
managers and controlling shareholders.
Or
Corporate governance refers to the manner in which the affairs of a corporate body
should be conducted in order to serve and protect the individual and collective interests
of all stakeholders.
The key concepts in corporate governance can be defined best by the synonym
(HAIR DRIFT)
Honesty or (Probity): Create a culture of honesty & ethical stance within the organization.
Accountability: Providing comprehensive information to all concerned stakeholders and
effective risk management within the organization.
Integrity: Have a high standard of strict moral and ethical values or codes.
Responsibility: Having a clear responsibility for corporate governance decisions and the
clarification of individual roles and responsibilities.
Decision Taking: Take clear cut decisions to improve the wealth of an organization.
Reputation: Maintain a culture to develop reputation and moral stance and also to
comply with the corporate governance concepts.
Independence: There should not be a conflict of interest between the executive directors
and non-executive directors. NED's or non-executive directors should be fully free and
independent to make their decisions within the organization.
Fairness: All stakeholders should be dealt ethically and equal by the organization and
should take into account their legitimate interests.
Transparency: Organization agents or directors should have an honest and open
relationship with all stakeholders in their decision making process. And provide full
disclosure of all material matters (whether financial or non-financial) which concern the
company and this should be done in an ethical and transparent manner.
Importance of Corporate Governance
Corporate governance is of paramount importance to a company and is almost as
important as its primary business plan. When executed effectively, it can prevent
corporate scandals, fraud and the civil and criminal liability of the company. It also
enhances a company's image in the public eye as a self-policing company that is
responsible and worthy of shareholder and debt holder capital. It dictates the shared
philosophy, practices and culture of an organization and its employees. A corporation
without a system of corporate governance is often regarded as a body without a soul or
conscience. Corporate governance keeps a company honest and out of trouble.

The need, significance or importance of corporate governance is listed below.

Changing Ownership Structure: In recent years, the ownership structure of companies
has changed a lot. Public financial institutions, mutual funds, etc. are the single largest
shareholder in most of the large companies. So, they have effective control on
the management of the companies. They force the management to use corporate
governance. That is, they put pressure on the management to become more efficient,
transparent, accountable, etc. The also ask the management to make consumer-friendly
policies, to protect all social groups and to protect the environment. So, the changing
ownership structure has resulted in corporate governance.
Importance of Social Responsibility: Today, social responsibility is given a lot of
importance. The Board of Directors have to protect the rights of the customers,
employees, shareholders, suppliers, local communities, etc. This is possible only if they
use corporate governance.
Growing Number of Scams: In recent years, many scams, frauds and corrupt practices
have taken place. Misuse and misappropriation of public money are happening every day
in India and worldwide. It is happening in the stock market, banks, financial institutions,
companies and government offices. In order to avoid these scams and financial
irregularities, many companies have started corporate governance.
Indifference on the part of Shareholders: In general, shareholders are inactive in the
management of their companies. They only attend the Annual general meeting. Postal
ballot is still absent in India. Proxies are not allowed to speak in the meetings.
Shareholders associations are not strong. Therefore, directors misuse their power for
their own benefits. So, there is a need for corporate governance to protect all the
stakeholders of the company.
Globalization: Today most big companies are selling their goods in the global market. So,
they have to attract foreign investor and foreign customers. They also have to follow
foreign rules and regulations. All this requires corporate governance. Without Corporate
governance, it is impossible to enter, survive and succeed the global market.
Takeovers and Mergers: Today, there are many takeovers and mergers in
the business world. Corporate governance is required to protect the interest of all the
parties during takeovers and mergers.
 2. Comprehensively discuss various types of Shareholders. Also highlight the
role of common shareholders in Corporate Governance?

Types of Shareholders

Common Shareholder
Shareholders who own common stock have the right to vote to elect the board of
directors. These shareholders also may vote on matters such as stock splits and company
goals. Common stock shareholders are entitled to dividends when the company declares
them, although those dividends may fluctuate. However, holders of common stock are
second in line behind preferred stock holders if the company goes bankrupt. In other
words, common stock holders only get their money back when and if preferred stock
holders are paid.
Preferred Shareholder
Preferred Shareholder holders can't vote on company matters, but they receive a steady
dividend that does not fluctuate and get their dividend payments before common stock
shareholders do. In the event of bankruptcy, preferred shareholders get paid before
holders of common stock. The company does not have to pay any dividend if it can't afford
to, but if it pays a partial dividend, preferred shareholders may be paid when common
stock shareholders are not.
Institutional Investors
Institutional shareholders buy large quantities of shares. Mutual funds, hedge funds and
pension funds, for example, invest millions of dollars at a time and will buy either common
or preferred stock. Institutional investors have the ability to move the market. A sale of
millions of shares in a stock gets the market's attention and could drive the stock price
down if investors perceive that the institution has doubts about the stock. Similarly, if an
institutional investor buys millions of shares, prices can go up because investors assume
the institution has analysts that know something good about the stock. For these reasons,
institutional investors receive different treatment from individual investors. They may be
invited to tour company premises, meet executives and preview new products, whether
they own common shares or preferred stock.
Individual Investors
Individual investors, also called retail investors, do not move markets. Selling a few
hundred or a few thousand shares does not draw attention, just as buying shares doesn't
send any signals. Retail investors spend a lot of time trying to guess what institutional
investors are going to do next. For example, some individuals follow the purchases of
mutual funds to anticipate increased demand for a stock. Such individuals may sell a stock
if they see an institutional investor selling. Individuals may purchase either common or
preferred shares, as there is no minimum purchase amount of either class of shares.
Common Shareholders' Six Main Rights

1. Voting Power on Major Issues:

This includes electing directors and proposals for fundamental changes affecting the
company such as mergers or liquidation. Voting takes place at the company's annual
meeting. If you can't attend, you can do so by proxy and mail in your vote. (see The
Purpose and Importance of Proxy Voting)
2. Ownership in a Portion of the Company:
previously we discussed the event of a corporate liquidation where bondholders and
preferred shareholders are paid first. However, when business thrives, common
shareholders own a piece of something that has value. Said another way, they have a
claim on a portion of the assets owned by the company. As these assets generate profits,
and as the profits are reinvested in additional assets, shareholders see a return in the
form of increased share value as stock prices rise.
3. The Right to Transfer Ownership
Right to transfer ownership means shareholders are allowed to trade their stock on an
exchange. The right to transfer ownership might seem mundane, but the liquidity
provided by stock exchanges is extremely important. Liquidity is one of the key factors
that differentiates stocks from an investment like real estate. If you own property, it can
take months to convert your investment into cash. Because stocks are so liquid, you can
move your money into other places almost instantaneously.
4. An Entitlement to Dividends
Along with a claim on assets, you also receive a claim on any profits a company pays out
in the form of a dividend. Management of a company essentially has two options with
profits: they can be reinvested back into the firm (hopefully increasing the company's
overall value) or paid out in the form of a dividend. You don't have a say in what
percentage of profits should be paid out - this is decided by the board of directors.
However, whenever dividends are declared, common shareholders are entitled to receive
their share. (To continue reading, see how and why do Companies Pay Dividends?)
5. Opportunity to Inspect Corporate Books and Records:
This opportunity is provided through a company's public filings, including its annual
report. Nowadays, this isn't such a big deal as public companies are required to make
their financials public. It can be more important for private companies.
6. The Right to Sue for Wrongful Acts:
suing a company usually takes the form of a shareholder class-action lawsuit. A good
example of this type of suit occurred in the wake of the accounting scandal that rocked
WorldCom in 2002, after it was discovered that the company had grossly overstated
earnings, giving shareholders and investors an erroneous view of its financial health. The
telecom giant faced a firestorm of shareholder class-action suits as a result. (Want to read
more about frauds? See The Biggest Stock Scams of All Time.)
Shareholder rights vary from state to state, and country to country, so it is important to
check with your local authorities and public watchdog groups. In North America, however,
shareholders rights tend to be more developed than other nations and are standard for
the purchase of any common stock. These rights are crucial for the protection of
shareholders against poor management.
 3. Keeping in view Governance of Corporation. Highlight Corporate
Social Responsibilities?
Corporate governance has gained a much higher profile in the last two decades in the
wake of various corporate scandals and collapses. Corporate social responsibility (CSR) is
now becoming much more a part of mainstream corporate governance as there is a
recognition that a company cannot – in the long-term – operate in isolation from the
wider society in which it operates. This view is encapsulated by Sir Adrian Cadbury: ‘The
broadest way of defining social responsibility is to say that the continued existence of
companies is based on an implied agreement between business and society’ and that ‘the
essence of the contract between society and business is that companies shall not pursue
their immediate profit objectives at the expense of the longer-term interests of the
community’

Corporate governance is a function of leadership, internal operations, organizational

principles, and relationships with employees and other stakeholders, all of which must
evolve in response to external forces that include shifting macroeconomic conditions. Like
most aspects of business, effective governance can only be achieved through a
continuous process of innovation, realignment, and refinement. Cisco has always aimed
to align our operations and resources so we can respond quickly to changing market
conditions, drive customer success, and seize emerging opportunities. Most recently, that
has involved taking a leadership role in the industry by moving from a centralized
command-and-control governance model to a more collaborative model based on a
culture of shared goals, a structured planning process, and cross-functional councils,
boards, and workgroups.
Corporate Governance is ensuring that an organization is run in a responsible manner by
ensuring accountability, transparency and compliance with due regard to its key
stakeholders. It is the whole set of legal, cultural, and institutional arrangements that
determine what publicly traded corporations can do, who controls them, how that control
is exercised, and how the risks and returns from the activities they undertake are
allocated (Margaret Blair, 1995)
Corporate Social Responsibility (CSR) is corporate form of self-regulation integrated into
the business model to create a positive impact on the stakeholders and the environment.
CSR is a concept whereby companies integrate social and environmental concerns in their
business operations and in their interactions with their stakeholders on a voluntary basis
(European Commission, 2001).
A traditional view suggested a contradiction between CSR and Corporate Governance.
Corporate Governance was related to profit maximization and provided protection to
shareholders who have provided capital to firm, while CSR apparently was against profit
maximization because it suggested a set of actions beneficial for external stakeholders
that may not be good for a shareholder. But not anymore. Corporate Governance is an
umbrella term and CSR is gradually getting fused into the company’s corporate
governance practices. Their relationship can be interpreted by abandoning the standard
view of the firm as a shareholder value maximizer and embracing the view of a firm as a
stakeholder value maximizer. This convergence paves the way for Corporate Governance
to be driven by ethical norms and the need for accountability, and it enables CSR to adapt
prevailing business practices. Today both Corporate Governance and CSR focus on ethical
practices in business and the responsiveness of an organization to its stakeholders and
the environment in which it operates.
 4. What do you mean by the Board of Directors? Highlight the power and functions
of a corporate Board of Directors?
A board of directors is a team of people elected by a corporation's shareholders to represent the
shareholders' interests and ensure that the company's management acts on their behalf. The
head of the board of directors is the chairman or chairperson of the board. The board of directors
for a corporation is responsible for steering the corporation through the rough waters of its
mission to the shareholders. A corporate board also has legal duties and other duties.
A board of directors is a group of individuals that are elected as, or elected to act as,
representatives of the stockholders to establish corporate management related policies
and to make decisions on major company issues.
Functions of the Board
 Oversight (Watchful and Responsible)
 Directional
 Advisory
The Oversight Function
 Approving and monitoring Company’s Strategic Plans.
 Approving annual budgets and plans.
 Engaging outside auditors.
 Ensuring integrity of financial statements
 Review of major operational activities.
The Directional Functions
 Setting Mission Statement, Vision Statement and Value Statement.
 Appointment of CEO / Senior Managers
 Planning for succession of these managers as well as outside directors
 Appointing various committees
 Prescribing code of conduct for the management.
The Advisory Function
 General guidance to management.
 What is happening in the rest of the world?
 Specialized input in certain areas
Powers of Board of Directors
 Determine the Organization's Mission and Purpose
 Select the Executive
 Support the Executive and Review His or Her Performance
 Ensure Effective Organizational Planning
 Ensure Adequate Resources
 Manage Resources Effectively
 Determine and Monitor the Organization's Products, Services and Programs
 Enhance the Organization's Public Image
 Serve as a Court of Appeal
 Assess Its Own Performance
 Hire an internal auditor who shall serve at the pleasure of and report directly to
the board on the internal operations of the authority;
 Conduct annually an independent audit of the financial condition of the
authority; and perform all other acts necessary or convenient in the exercise of
any power, authority, or jurisdiction over the authority, either in the
administration
 5. Discuss various committees of the board of Directors?
The Company constituted Audit Committee, Stakeholders Relationship Committee,
Compensation and Remuneration Committee, Executive Committee, Nomination and
Governance Committee and Corporate Social Responsibility (CSR) Committee. All
committees have a combination of Executive, Non-Executive and Independent Directors.
The Chairman of all the committees is an Independent Director.
As per the charter of respective committees, committees deliberate on the matters referred
to it by the Board. Information and data that is important to the committees to discuss the
matter is distributed in writing to the members of the committees well in advance of the
meeting. Recommendations of the committees are submitted to the Board to take decision
on the matter referred.
Audit Committee
a. To oversee the Company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statements are correct, sufficient and credible;
b. To review, with the management, annual financial statements before submission to the
Board for approval, with particular reference to
c. Changes, if any, in accounting policies and practices and reasons for the same;
d. Major accounting entries involving estimates based on the exercise of judgment by
management;
e. Significant adjustments made in the financial statements arising out of audit findings;
f. Compliance with listing and other legal requirements relating to financial statements;
g. To review, with the management, the quarterly financial statements before submission to
the Board for approval;
h. To recommend to the Board, the appointment, re-appointment and if required, the
replacement or removal of the statutory auditor and fixation of audit fees;
i. To grant approval of payment to statutory auditors for any other services rendered by the
statutory auditors;
j. To hold discussion with the statutory auditors before the audit commences, about the
nature and scope of audit as well as post-audit discussion to ascertain any area of
concern;
k. To review management letters / letters of internal control weaknesses issued by the
statutory auditors;
l. To recommend appointment, removal and terms of remuneration of the Chief Internal
Auditor;
m. To review, with the management, performance of statutory and internal auditors and
adequacy of internal control systems;
 Stakeholder Relationship Committee
 To supervise and ensure efficient share transfers, share transmission, transposition, etc;
 To approve allotment, transfer, transmission, transposition, consolidation, split, name deletion
and issue of duplicate share certificate of equity shares of the Company;
 To redress shareholder and depositor complaints like non-receipt of Balance Sheet, non-receipt
of declared Dividend, etc.
 To review service standards and investor service initiatives undertaken by the Company;
 To address all matters pertaining to Registrar and Share Transfer Agent including appointment of
new Registrar and Share Transfer Agent in place of existing one;
 To address all matters pertaining to Depositories for dematerialization of shares of the Company
and other matters connected therewith; and
 To attend to any other responsibility as may be entrusted by the Board within terms of reference.
Compensation & Remuneration Committee
 To determine at such intervals, as the Compensation Committee considers appropriate, the
persons to whom shares or options may be granted;
 To determine the exercise period within which the employee should exercise the option and
condition in which option will lapse on failure to exercise the option within the exercise period;
 To decide the conditions under which shares or options vested in employees may lapse in case of
termination of employment for any reason;
 To lay down the procedure for making a fair and reasonable adjustment to the number of shares
or options and to the exercise price in case of rights issues, bonus issues and other corporate
actions;
 To lay down the right of the employee to exercise all the options vested in him at one time or at
various points of time within the exercise;
 To specify the grant, vest and exercise of shares / option in case of employees who are on long
leave;
 To construe and interpret the plan and to establish, amend and revoke rules and regulations for
its administration; The Compensation And Remuneration Committee may correct any defect,
omission or inconsistency in the plan or any option and/or vary/amend the terms to adjust to the
situation that may arise;
 To make recommendations to the Board about the Company’s policy on specific remuneration
packages for Executive Directors including pension rights and any compensation payment;
 To advise the Board in framing remuneration policy for key managerial persons of the Company
from time to time;
 Executive Committee
 To review and follow up on the action taken on the Board decisions;
 To review the operations of the Company in general;
 To review the systems followed by the Company;
 To examine proposal for investment in real estate;
 To review, propose and monitor annual budget including additional budget, if any, subject to the
ratification of the Board;
 To review capital expenditure against the budget;
 To authorize opening and closing of bank accounts;
 To authorize additions/deletions to the signatories pertaining to banking transactions;
 To approve transactions relating to foreign exchange exposure including but not limited to
forward cover and derivative products;
 To approve donations as per the policy approved by the Board;
 To delegate authority to the Company officials to represent the Company at various courts,
government authorities and so on; and
 To attend to any other responsibility as may be entrusted by the Board to investigate any activity
within terms of reference.
Further, the Executive Committee is empowered to do the following
 To seek information from any employee as considered necessary;
 To obtain outside legal professional advice as considered necessary;
 To secure attendance of outsiders with relevant expertise; and
 To investigate any activity within terms of reference.
Nomination & Governance Committee
 To develop a pool of potential director candidates for consideration in the event of a vacancy on the
Board of Directors;
 To determine the future requirements for the Board as well as its Committees and make recommendations
to the Board for its approval;
 To identify, screen and review individuals qualified to serve as executive directors, non-executive
directors and independent directors;
 To provide its recommendation to the Board for appointment of CEO;
 To evaluate the current composition and governance of the Board of Directors and its Committees and
make appropriate recommendations to the Board, whenever necessary;
 To review the suitability for continued service as a director of each Board member when his or her term
expires and when he or she has a significant change in status such as employment change etc., and shall
recommend whether or not the director should be reappointed;
 To evaluate and recommend termination of membership of an individual director for cause or for other
appropriate reasons;
 To evaluate and make recommendations to the Board of Directors concerning the appointment of
Directors to Board Committees and the Chairman for each of the Board Committees;
 To recommend to the Board candidates for (a) nomination for reelection of Directors by the Shareholders;
and (b) any Board vacancies which are to be filled by the Board; and
 To play a consultative role for any appointment at top management level namely, COO, CMO, CFO,
President of Persistent Systems, Inc., or appointment requiring Board approval such as Company
Secretary.
The Nomination and Governance Committee is further empowered to
 To conduct or authorize studies of matters within the Committee’s scope of responsibility with full access
to all books, records, facilities and personnel of the Company;
 To hire legal, accounting, financial or other advisors in their best judgment;
 To have sole authority to retain or terminate any search firm to be used to identify Director candidates;
 To have sole authority to approve the search firm’s fees and other retention terms;
 The Committee may act on its own in identifying potential candidates, inside or outside the Company or
may act upon proposals submitted by the Chairman of the Board; and
 The Committee may consider advice and recommendations from the management
 6. Comprehensively discuss external influences on Corporate
Governance?

External Forces:

Political: External political forces are the primary factor in determining the corporate
governess model used by a firm. Corporate governance defines the ways in which a
company safeguards the interests of its financiers (investors, lenders, and creditors)
which has a big impact on reputation.
The problem with this argument relates to the nature of business in question: the public
sector should see the political aspect as a major factor as decisions will have a direct
impact to that area. Small privately owned firms may have no political forces that directly
impact on their reputation, although political policies may play a big part in their
profitability. These small privately owned companies should still see the political arena as
an important factor: policy changes can quickly alter a business reputation, particularly
when related to the environment. The stability of the political system is also an important
factor.
Economic: There are now many messages around the issues of corporate social
responsibility and the effect of the economy on social values. In a period when many
manufacturing jobs have moved to the Far East the ability to secure employment for a
local community will have a major impact on CR.?
These external economic drivers can also shape the perception of a whole industry. Two
examples are the financial sector and university education. Regardless of which institution
is reviewed, the general public will already have a fixed perception of that market.
Pharmaceutical companies will need to take into consideration the current economic
down turn and the pressure on the health sector when reporting profits.
Social: at the most basic level, public interests are linked to a working democracy. There
is a growth in interest groups that have generated a ground swell of public pressure that
influence a number of topics. There is a need for the media to promote diversity; this is
where Corporations can begin to endorse their own messages.
Technology: there are two drivers related to technology, the first is that which relates to
a company’s product and/or service technologies, the second is the new mode of
information carriers. A review of the global rankings for corporate reputation has
highlighted that the technology companies have the highest positive ranking. The
perception of “coolness” of their products and services is the main driver for these
rankings.
The impact of social media is the other aspect of technology which is driving the increasing
transparency of corporations. Dell, to their detriment, have experienced the full force of
such technologies.
Legal: Companies that ignore the changes in legislation relating to the environment risk
damaging their reputation and losing business. There are many other legislative drivers
that could potentially tarnish the image of a company: pharmaceutical companies must
continue to focus on those related to the health sector.
Environmental: As with technology, there are two drivers within the environmental field.
The first is the physical environment a company operates in and the second is the
environmental issues that are now widely discussed. The physical location and fabric of
the offices will play an important part to the perception of a company’s reputation. As an
example, fashion companies need to have a presence in London, New York, Paris and
Milan. In terms of the fabric, it is well documented about Google’s offices.
Monetary Policies: The political environment, by influencing fiscal and monetary policies
has a substantial impact on corporate governance practices.
Government influence: The government interferes with the work of regulatory and
supervisory bodies with regard to appointments or incentives for company executive
within firms
Politician influences
Politician exert undue influence over the ministries and agencies responsible for
monitoring and enforcement of corporate governance guidelines and regulation within
firms
Total ownership structure: This is proxy as the variable for ownership structure effects
upon corporate governance; it is the addition of all the statement
Regulatory authorities: Level of corruption influence the ability of the regulatory
authorities to enforce compliance within corporate governance principles an d accountability
within firms
 7. What is Whistle Blowing? Discuss the purpose and Characteristics
of Whistle Blowing?

A whistleblower (also written as whistle-blower or whistle blower) is a person who exposes any
kind of information or activity that is deemed illegal, unethical, or not correct within
an organization that is either private or public. The information of alleged wrongdoing can be
classified in many ways: violation of company policy/rules, law, regulation, or threat to public
interest/national security, as well as fraud, and corruption. Those who become whistleblowers
can choose to bring information or allegations to surface either internally or externally. Internally,
a whistleblower can bring his/her accusations to the attention of other people within the accused
organization such as an immediate supervisor. Externally, a whistleblower can bring allegations
to light by contacting a third party outside of an accused organization such as the media,
government, law enforcement, or those who are concerned. Whistleblowers, however, take the
risk of facing stiff reprisal and retaliation from those who are accused or alleged of wrongdoing.
Purpose of Whistle-Blowing:

The purpose of whistleblowing is to eradicate unethical behavior in the workplace.

A key component to workplace ethics and behavior is integrity, or being honest and doing
the right thing at all times. “It is believed that whistleblowers are not any different from
other employees. They do not seem to be at a higher stage of moral development, nor
are they either more or less loyal to the company than their peers. Instead they tend to
be people who happen to know about the wrongdoing and believe that by acting they can
do something to stop it.”
The Whistleblower Policy is intended to encourage employees and others to make good
faith reports of suspected fraud, corruption, or other improper governmental activity, or
health and safety concerns within the university to appropriate university officials and to
describe the process that will be followed by the university in evaluating and investigating
such reports.

Key Characteristics of a Whistleblower. A Whistleblower is honest and fearless; he or she

has to be courageous and brave enough to expose misconduct. Tenacity and a fighting
spirit is a requirement because whistleblowing can be a long a drawn out process and a
difficult road to bear. The individual has to be determined to go all the way no matter the
consequences. We mention that whistleblower must have tenacity, reasoning for the
characteristics is because they will bounder public scrutiny, co-workers will avoid them,
and before and justice is obtained, there will be long tiring and vigorous legal battles. The
most significant key characteristics is being able to combat retaliation. Employers will
threaten to fire or suspend a whistleblower, being able to combat retaliation will help in
this fight.

 Unselfishly motivated.
 Serviceable.
 Impassive in altering their behavior.
 Allows own attitudes and beliefs to guide.
 Often are well-educated and holds professional positions.
 8. Discuss the role of Ethics in Corporate Governance?

Ethics is a conception of right and wrong behavior, defining for us when our actions are
moral and when immoral Ethic
Business Ethics Business is the art and discipline of applying ethical principles to examine
and solve complex moral dilemmas. Business Ethics business is considered to be ethical
only if it tries to reach a tradeoff between pursuing economic objective and its social
obligations.

Role of Ethics in Corporate Governance

Ethical is all about developing trust maintaining it fruitfully so that the firm flourishes
profitably and maintain good reputation. Trust leads to predictability and efficiency of the
business.
Trust is used as an indicator variable of ethics. Basically trust is three dimensional i.e.,
trust in supplier relationships, trust in customer relationships, and employee
relationships. If the company is able to maintain trust Relationship with all stakeholders,
then we call that company an ethical company.

Factors highlighting the importance of business ethics

In the second decade of the third millennium, we can cite four major factors which
highlight the importance of business ethics (we define business ethics here):

1. Long-term growth: sustainability comes from an ethical long-term vision which

takes into account all stakeholders. Smaller but sustainable profits long-term must
be better than higher but riskier short-lived profits.
2. Cost and risk reduction: companies which recognize the importance of business
ethics will need to spend less protecting themselves from internal and external
behavioral risks, especially when supported by sound governance systems
and independent research
3. Anti-capitalist sentiment: the financial crisis marked another blow for the
credibility of capitalism, with resentment towards bank bailouts at the cost of
fundamental rights such as education and healthcare.
4. Limited resources: the planet has finite resources but a growing population;
without ethics, those resources are replete for purely individual gain at huge cost
both to current and future generations.
 BENEFITS OF BUSINESSETHICS

Goodwill of the Business:

People like to build long term relationships with organizations that perform their tasks on
the principles of ethics. Following a code of ethics enhances the goodwill of the
organization and organization possess a strong public image. Moreover strong public
image leads to continual loyalty and attracts new investors
Prevention from Legal Action:
By implementing ethical practices organizations are automatically prevented from illegal
and objectionable activities as business ethics instruct to avoid all that is wrong or evil.
Such organizations have no fear of legal action and social boycott.
Business ethics have substantially improved society. Establishment of anti-trust laws,
union’s another regulatory bodies has contributed to the development of the society.
Ethical practices create a strong public image. Organization with strong ethical practices
will possess a strong image among the public. This image would lead to strong loyalty.
Strong public image results in attracting new investors
Ethics practices support employee growth
Ethics in the workplace helps employees face reality, both good and bad -- in the
organization. Employees feel full confidence and therefore they can deal with any sort of
situation.
Strong teamwork and high productivity:
Constant check and dialogue will ensure that the employee matches to the value of
organization which will in turn results in betters cooperation and increased productivity
Build trust with key shareholders:
Implementation of ethics helps organization to gain trust of their shareholders.
Shareholders feel confidence that company is well monitored.
High Profits Business ethics create high returns or profits for the company:
Reputation of the company and its share prices also increase if the company acts upon
corporate social responsibility (CSR).
Business Ethics & Good Governance•: Most of the benefits received from business ethics
are the goals of corporate governance. Thus we can say that ethics have a strong impact
on corporate governance and the implementation of business ethics can ensure good
governance.