BUSINESS ETHICS AND

CORPORATE
GOVERNANCE

WHAT IS CORPORATE GOVERNANCE

It is a set of Methods / Practices by which business
is carried on, directed and controlled in a corporate
form of business organization.
Board of Directors are primarily responsible for
governance.
Quality of Corporate Governance determine the
growth and future of the business.

CORPORATE GOVERNANCE
Corporate Governance means doing everything
better, to improve relations between companies and
their shareholders; to improve the quality of outside
Directors; to encourage people to think long term;
to ensure that information needs of all stakeholders
are met and to ensure that executive management
is monitored properly in the interest of
shareholders.

Corporate governance is about promoting fairness,
transparency and accountability.


CORPORATE GOVERNANCE
Corporate governance structure specifies the
distribution of rights and responsibilities among
different participants in the company such as
board, management, shareholders and other
stakeholders and spells out the rules and
procedures for corporate decision-making.
By doing this it provides the structure through
which the companys objectives are set along
with the means of attaining these objectives as
well as for monitoring performance.
FEATURE OF CORPORATE
GOVERNANCE
It is not merely the rules of play for the distribution
of power between owner and management, it
include the interface between company and other
shareholders.
Corporate governance relates to laws, procedures,
practices and implicit rules that determine
companys ability to take improved managerial
decision from social point of view.
NEED FOR CORPORATE GOVERNANCE
Corporate Performance
Enhanced Investor Trust
Better Access to Global Market
Combating Corruption
Easy finance from Institutions
Reduced risk of corporate crisis and scandals
Accountability
OBJECTIVE OF GOOD GOVERNANCE
A properly structured board capable of taking independent and
objective decisions is in place at the helm of the affairs.
The board is balanced as regards the representation of adequate
number of non- executive and independent directors who will take
care of the interest and well being of all the stakeholders.
The board adopts transparent procedures and practices and arrives
at decisions on the strength of adequate information.
The board has an effective machinery to sub serve the concerns of
stakeholders.
The board keeps the shareholders informed of relevant
developments impacting the company
The board effectively and regularly monitors the functioning of the
management team
The board remains in effective control of the affairs of the company
at all times.
MAIN ISSUES THAT THE CORPORATE
GOVERNANCE FOCUSES ON:
The larger interest of the company, its purpose,
vision and mission
The issue of an ethically responsible corporation.
The issue of better accountability.
The issue of conflict of interest.

MECHANISM OF CORPORATE
GOVERNANCE
In our country, there are six mechanisms to ensure
corporate governance

1) The Companies Act.
2) Securities law-SEBI Act
3) Discipline of the capital market
4) Nominees on company board
5) Statutory audit
6) Code of conduct
ROLE OF SECURITIES AND EXCHANGE
BOARD OF INDIA ( SEBI) IN CORPORATE
GOVERNANCE
-Formed by GOI in 1992
-SEBI has taken initiatives to protect the investors.
Some of these initiatives are:
Issue of guidelines
Public interest advertisements
Dealing with complaints of investors
Investors education.
Investors surveys
Disclosures by companies
Code regarding takeovers.
IMPORTANT CONCEPTS IN
CORPORATE GOVERNANCE
Insider trading
Whistle blowing

Insider Trading
Insider trading refers to trading on price sensitive
information by company employee or individuals
closely connected with the company. This information
has not been disclosed to other market participants.
WHISTLE BLOWING
Meaning- It is an attempt by a member or ex-
member of an organization to disclose wrong doing
in or by the organization.
CORPORATE GOVERNANCE DEVELOPMENTS
ABROAD.

The trend of developing corporate governance guidelines
and codes of best practice began in early 1990s in UK and
Canada in response to problems in performance in some
leading organisations presumably due to lack of Board
oversight, leading to pressure from institutional investors for
change.
The Cadbury report, 1992 in UK became a pioneering code
for Stock markets.
The Blue Ribbon committee set up in US in 1998 by NY
stock exchange and National Association of Securities
dealers suggested recommendations for improvement in
effectiveness of Audit committees.


The Sarbanes Oxley (SOX) act was passed in 2002 in
response to major corporate scandals. The act
recommended prison terms for top management
personnel found guilty of misconduct as also heavy fines.


The OECD ( Organisation for Economic Co operation
and Development) Principles1999,2004 reflects Global
consensus regarding the critical importance of Corporate
Governance
CORPORATE GOVERNANCE MEASURES.

Corporate Governance measures include,
Appointing non executive Directors,
Placing constraints on management power and
ownership concentration,
Ensuring proper disclosure of financial information and
executive compensation.
Establishing ethics/or social responsibility committees on
their Boards to review strategic plans, assess progress
and offer guidance on social responsibilities of their
business.
Some Companies have adopted guidelines governing
their policies and practices around such issues like Board
diversity, independence, and compensation.

INDIAN COMPANIES ARE REQUIRED TO COMPLY WITH
CLAUSE 49 OF THE LISTING AGREEMENT PRIMARILY
FOCUSSING ON THE FOLLOWING AREAS:


1) Board composition and procedure.
2) Audit committee responsibilities
3) Subsidiary companies
4) Risk management
5) CEO/CFO certification of financial statements and
internal controls
6) Legal compliance
7) Other disclosures.

DEVELOPMENTS IN INDIA

Code of corporate Governance framed by The Confederation of
Indian industry (CII) in April 1998.
Kumara mangalam Birla Committee appointed by SEBI submitted
report accepted in December 1999 applied in clause 49 of the
listing Arrangement of all stock exchanges of India,
Committee headed by Naresh Chandra was appointed by Dept of
Company affairs, Govt. Of India to examine the Auditor-Company
relationship, role of independent Directors ,disciplinary
mechanism for auditors committing irregularities and the
CEO/CFO certification introduced by SOX.
A review committee under chairmanship of N R Narayana Murty
reviewed the disclosure norms under clause 49 of listing listing
agreement . The views were incorporated in Revised clause 49.

BENEFITS OF GOOD CORPORATE GOVERNANCE.

Protection of investor interests and strong Capital
markets.
Good governance is rewarded with a higher market
valuation
Ensures commitment of the Board in Managing the
company in a transparent manner.