CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY

Corporate Governance

Satyam Vada Dharmam Chara

Forever speak the truth and follow the dharma - Taittariya Upanishad

INTRODUCTION
Corporate governance has traditionally specified the rules of business decision making that apply to the internal mechanisms of companies & it is the set of processes, customs, policies, laws and institutions affecting the way a corporation [or company] is directed, administered or controlled. Simultaneously, the corporate social responsibility (CSR) movement has developed the notion of corporate governance as a vehicle for pushing management to consider broader ethical considerations.

Driving Forces of CG in India 1) Unethical Business Practices Security Scams ---Harshad Mehta Security Scam Equity allotments at discount rates to the controlling groups Disappearance of Companies (1993-94) around 4,000 companies with 25,000 crores without starting business Misdeed of Companies Plantation, Sheep rearing, etc.

2) Impact of Globalization Integration with Foreign Market Foreign Investors expectations New Business Opportunities --- IT & ITES, BPO etc., New Capital formation FII, FDI 3) Impact of Privatisation New structure of ownership Multinational Companies

Brief history of corporate governance in India

Unlike South-East and East Asia, the corporate governance initiative in India was not triggered by any serious nationwide financial, banking and economic collapse The initiative in India was initially driven by an industry association, the Confederation of Indian Industry In December 1995, CII set up a task force to design a voluntary code of corporate governance.

The final draft of this code was widely circulated in 1997. In April 1998, the code was released. It was called Desirable Corporate Governance: A Code.
Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddys Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others

The key drivers for CSR are:

1. 2. 3. 4. Enlightened self-interest Social investment Transparency and trust Increased public expectations of business

Benefits of CSR
CSR as a strategy is becoming increasingly important for businesses today because of these benefits: Changing social expectations Increasing affluence Globalization

Limitation of CSR

CASE STUDY
SATYAM COMPUTERS

Satyam's balance sheet on 30 September 2008 contained: Inflated figures for cash and bank balances of 5,040 crore (US$1.09 billion) as against 5,361 crore (US$1.16 billion) reflected in the books. An accrued interest of 376 crore (US$81.59 million) which was non-existent. An understated liability of 1,230 crore (US$266.91 million) on account of funds was arranged by himself.An understated debtors' position of 490 crore (US$106.33 million) (as against 2,651 crore (US$575.27 million) in the books).

Effect On Shares
The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009. India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January. Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80.

ICSI National Award for Excellence in Corporate Governance

Best Governed Companies

Conclusion
Code of CG should be redesigned to reflect international best practices

Stringent enforcement of Law

More effective coordination and cooperation between SEBI, DCA CG mechanism should be flexible and suitable Overall ethical values in all segments should be promoted for effective accounting, auditing, disclosure and transparent system.

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