Professional Documents
Culture Documents
Becg Notes
Becg Notes
Becg Notes
The word ‘Ethics has been derived from the ancient Greek word ‘Ethikos’-meaning of which is essence of
values and habits of a person or group. The term ethics describes a set of principles that provide a
framework for conduct. Ethics is all about rules governing the way in which we determine what is ‘right’
or ‘wrong’, ‘Good’ or ‘bad’. In other words Ethics about our actions and decisions. When we act in a
way which is consistent with our beliefs we all characterise that as acting ethically. When our actions are
not consistent with our values- our sense of right, good and just-we will view that as acting unethically.
Ethics is perceived as a set of societal standards of conduct and moral judgement that encompasses the
norms of a given community. Ethics are a personal set of values used by an individual a group or a
profession, so as to guide them in their action and help them fulfil or carry out their obligation. Its
subjective rather that ‘objective’ and its relative to our perception of reality dependent on circumstances
and life experiences of the individual or group, thus making it a continuously evolving code of conduct.
It addresses issues pertaining to morality, i.e., good and bad, right or wrong etc.
No doubt, Ethics is a subjective topic that may mean different things to different people, it’s still very
important in all types of Corporate settings.
Business ethics refers to basic guidelines to study and analyze a sense of right and wrong and goodness
and badness of our tasks. In context of business performance, there are certain principles and
guidelines, based on ethical conducts are given here:
Loyalty: Employees who work for a loyal employer want to maintain the relationship and will
work harder toward that end.
Concern : An ethical business has concern for anyone and anything impacted by the
business. This includes customers, employees, vendors and the public.
Unethical issues : There must be a strong corporate governance to control the unethical issues and
activities .
Bribery : Accepting bribe create a conflict of interest between the person receiving bribe and
his organization . And this conflict would result in unethical practices.
Coercion : It is forcing a person to do things which are against his personal believes . E.g.
blocking a promotion , loss of job or blackmailing.
Insider Trading : Misuse of official position . Here the employee leaks out certain confidential
data to outsiders or other insider which effect the reputation and performance of company
Conflicts of interest : When private interest s are important for employees which are against
the desire of employer.
Unfair Discrimination : Unfair treatment or given privileges to persons on the base of race,
age, sex, nationally or religion. It is failures to treat all persons equally
Political donations and gifts : Gifts and donations or contribution to political leaders or parties
to get any unconditional act done example : sanctioning of any special contract, issue of
licenses etc.
Presentation of false returns of income and statements : It is to prepare false income
returns and statements of accounts for evasion of tax and getting various govt. benefits and
incentives.
It is a well known fact that management plays a vital role in shaping the future of any
organization as the optimum utilization of all resources hinges upon the efficacy of the
management.
Normally, decisions are being taken within the framework of the policies and guidelines in place.
Now, there could be critical situations wherein the policy in question would need to be slightly
deviated from, in order to take the right decision, in the best interests of the organization.
Experience has taught us that it is the Economic Downturn, as we witness worldwide today,
rather than Up Swing, which raises sharp focus on issues relating to Ethics & Corporate
Governance
The two Major Reasons for Corporate failures have been “Greed” and “Excess Leverage”. The
moot point is whether these two need to be completely done away with? If so, what is the
Incentive for Aggressive growth and competition? If not, how are these to be kept within
controllable limits and yet higher growth achieved? It is here that Business Ethics & Corporate
Governance need to be focused on.
Independent Directors are expected to be “Watch Dogs”. They can at best be accused either of
‘Lack of application of mind’ or of, consciously or otherwise overlooking the “slip” that has taken
place.
They need to Set & Follow Policies pertaining to “Conflict of Interest”. All Directors must
therefore be “above Board”.
. They would be required to diligently & keenly watch the changes in Assets & Liabilities in the
Balance Sheet, to ensure quick corrective action if needed.
Globalization is a process where an increased proportion of economic, social and cultural activity is
carried out across national borders. The process of globalization has significant economic business
and social implications.
Globalization is perhaps best though of as a process that results in some significant changes for markets
and business to address: for example
STAKEHOLDERS PROTECTION
Corporate Governance deals with maximizing the shareholder’s wealth . In broader perspective, it
considers the welfare of the all stakeholders and the society .
Business Ethics is the art and discipline of applying ethical principles to examine and solve complex
moral dilemmas.
UNIT II
CONCEPTUAL FRAMEWORK OF CORPORATE GOVRNANCE : MEANING , GOVRNANCE VS GOOD
CORPORATE GOVRNANCE , CORPORATE GOVRANCE VS CORPORATE EXCELLENCE, INSIDER TRADING ,
RATING AGENCIES , BENEFITS OF GOOD CORPORATE GOVRANANCE , CORPORATE GOVERNANCE
REFORM INITIATIVES IN INDIA.
The term ‘Governance ‘ is derived from the Latin word ‘ Gubernare’ which means ‘to steer ‘ usually
applying to the steering of ship (steer means to direct or control the course of a ship, boat , car, etc.)Thus
, ‘Governance ‘ implies direction or control that is one of the prominent functions of management. Thus,
in defining the term Governance, his focus is on the way a company is directed and controlled.
Corporate Governance also includes the relationships among the many stakeholders involved and the
goals for which the corporation is governed.
(i) Accountability : Ensure that management is accountable to the Board and Ensure that the Board is
accountable to shareholders.
2) Fairness : Protect shareholders rights , Treat all shareholders including minorities, equitably and
Provide effective redress for violations.
(3) Transparency : Ensure timely, accurate disclosure on all material matters, including the financial
situation performance , ownership and corporate governance.
(4) Independence : Procedures and structures are in place so as minimize, or avoid completely
conflicts of interest .
Corporate Governance and Corporate Excellence closely connected. It is difficult to achieve excellence
without good governance in long term.
1. Satisfied Stakeholders :
2. Closeness to customers
3. Productivity through people
4. Value driven organization
INSIDER TRADING & RATING AGENCIES
Rating agencies :
Credit Rating agencies are regulated by SEBI . Registration with SEBI is mandatory for
carrying out the rating Business .
A credit rating agency can be promoted by :
(i) public financial institution , Scheduled Bank, Foreign bank operating in India with
RBI approval .
(ii) Foreign credit rating agency having at least five years experience in rating securities.
(iii) Any company having a continuous net worth of minimum 100 cores for the
previous five years .
Eligibility criteria : Is set up and registered as a company and has a minimum net worth of
Rs.5 cores. Has employed persons with adequate professional and other relevant experience ,
as per SEBI directions.
The first rating agency ‘ credit rating information services of india ltd , CRISIL was promoted in 1987
jointly by the ICICI and UTI . Other shareholders included ADB, LIC, HDFC LTD , GIC
It becomes public in 1993 and In 1996 it formed a strategic alliance with S&P rating group.
Services offered by CRISIL L
(i) Credit Rating Services : The principle function of CRISIL is to rate mandated debt
obligations of Indian companies , chit fund, real estate developers , NBFC.
Example : Rating of debt obligations, Rating of structured obligations, Rating of real
estates developers , Bond fund ratings, Bank loan rating , Collective investment
schemes.
(ii) Advisory Services : The main focus of these services is transaction and policy level
assignments in the area of energy, transport ,banking and finance disinvestment ,
privatization and valuation.
(iii) Training Services:
ICRA has been promoted by IFCI LTD as the main promoter and started operation
1991. Other shareholders are UTI , LIC, GIC, EXIM BANK, HDFC and ILFS.
It provides Rating , Information and Advisory services ranging from strategic consulting
to risk management and regulatory practice.
The main objective of ICRA are to assist investors both individual and institutional in
making well informed decisions.
It provides rating services, information services, and advisory services.
Rating services : ICRA rates debt instrument issued by manufacturing companies ,
commercial banks, NBFCs financial institutions , PSUs .
(i) The instruments rated by it include bonds/debentures , fixed deposits
commercial paper and certificate of deposit.
(ii) It also provides corporate governance rating , rating of claims paying ability of
insurance companies.
Information services :
(i) Value added services include equity grading providing a critical input on a
company’s earning prospects and inherent risks in decision making process of
equity investors and equity assessment.
(ii) Other services include corporate reports, equity assessment and sector
/industry specific publication
Advisory services : Advisory service including (a)Strategic consulting , strategic
practice(b)Risk management (credit risk , market risk and operational risk ) (c)
Regulatory practice ( d) Information
Credit Analysis and research ltd or CARE is promoted by IDBI jointly with Financial
Institution , Public /Private sector banks and private financial companies. It commenced its credit
rating operations in October 1993 and offers a wide range of products and services in the field of
credit information and equity research . It offers like :
In your text book see the page no 17 and 18 ( three points : (i)capital market regulations ,(ii) Initiatives
by banks and other financial institutions, (iii) Initiatives by public sector enterprises (PSUs)
UNIT III
MAJOR CORPORATE GOVERNANCE FAILURES : JUNK BOND SCAM (USA) , ANDERSEN WORLDWIDE (USA)
SATYAM COMPUTR SERVICES LTD (INDIA) KINGFISHER AIRLINES (INDIA) HARSHAD MEHTA SCAM(INDIA)
COMMON GOVERNANCE PROBLEMS IN VARIOUS CORPORATE FAILURES.
Started with the vision for people with a taste for luxury Kingfisher Airlines (KFA) is the airline offshoot
of the United Breweries Kingfisher Beer brand based in India.
The airline started commercial operations on 9th May 2005 with a fleet of four new Airbus A320-200s
operating a flight from Mumbai to delhi . It started its international operations on September 3, 2008
By connecting Bengaluru with London. Kingfisher’s head office is located in the Mumbai and its
registered office is located in UB city Bengaluru .
Facts about Kingfisher :
1. Kingfisher was rated as Asia Pacific’s Top Airline Brand’ in a survey conducted by TNS on ‘Asia
Pacific’s Top 1,000 Brands for 2008.
2. KFA had not made profit since its inception 2005.
3. Vijay Mallya bought from Captain Gopinath in 2007 LCC Air Deccan and rebranded it into
Kingfisher Red to complete on the LCC market .
4. KFA was the second largest airline till june 2011 with a market share of 19%. By August 2012 it
became the smallest with a 3.2% market share.
5. Kingfisher Airlines for the very first time declared in the year 2011 that it was having some
serious cash flow problems.
6. KFA had accumulated losses of Rs. 8000 crore. And KFA had Rs. 5,695 cr long term loans and KFA
had Rs. 7600 cr – debt incurred form 17 banks .
7. The International Air Transport Association (IATA) has also suspended Kingfisher from its
International Clearing House dealing a fresh blow to the ailing carrier as it sought funds to stay
aloft.
8. In March 2012 the service tax department freezed as may as 40 bank accounts of Kingfisher
airlines for non-payment of dues to the tune of Rs.40 crore.
9. The Directorate General of Civil Aviation (DGCA) had sent a show – cause notice to KFA late
February 2012 asking why the airlines should not be shut.
10. 1st October 2012 the KFA had to declare a partial lockout. There were only two options for the
lenders – to either sell the securities and recover what they can or sell the airline.
11. KFA had stopped flying on October 1st 2012 and its license expired on December 31 st 2012.
Following are the common governance problems noticed in the collapse of satyam :
1. Unethical Conduct
2. Case of Insider Trading
3. Flase books and Bogus Accounting
4. Unwarranted Acquisitions proved heavy
5. Fake Audit
6. Questionable Role of Audit Committee
7. Dubious Role of Rating Agencies
8. Questionable role of Banks
9. Double role of Company Secretary
10. False Disclosures and Promoter’s Pledging of Shares
11. No Action on Whistleblower’s Information
12. Political contributions Generated off the Books
In your text book see the page numbers : 130 & 131 ,
UNIT IV
REGULATORY FRAME WORK OF CORPORATE GOVERNANCE IN INDIA : SEBI NORMS BASED ON KM
BIRLA COMMITTEE , CLAUSE 49 OF LISTING AGREEMENT , CORPORATE GOVERNANCE IN PUBLIC
SECTOR .
Companies Act 1956 : Most companies in India , whether listed or unlisted, are governed by the
companies act administered by the Ministry of Corporate Affairs (MCA). Among other things, the act
deals with (i) rules and procedures regulating incorporation(ii) issue of prospectus (iii) allotment of
shares and debentures(iv) annual returns (v) maintenance of accounts(vi) board of directors (vii) conduct
of directors and shareholders’ meetings(viii) prevention of mismanagement and oppression of minority
shareholder rights ; and the power of investigation by the government , including powers of the
Company Law Board.
Securities Contract (Regulation) Act 1956 (SCRA) : It cover all types of tradable government papers,
shares , stocks, bonds, debentures, and other forms of marketable securities issued by companies. The
SCRA defines the parameters of conduct of stock exchanges as well as its powers.
Securities and Exchange Board of India (SEBI) Act 1992. : The Act establishes an independent capital
market regulatory authority e.g. SEBI with the objectives : (i) To protect the interests of investors in
securities (ii) promote and regulate the securities market.
(a) SEBI acted fast in bringing radical changes and making Indian capital markets march towards
global standards.
(b) These revolutionary changes on corporate governance proposed by SEBI were initially resisted
by the corporate sector, but once the corporate sector realized the intention behind the
changes, it fell in line quickly with the changes introduced by SEBI.
(c) There is no denying the fact that during the last few years there has been significant progress in
corporate governance in India.
Depositories Act 1996. : The act establishes share and securities depositories, and created the legal
framework for dematerialization of securities.
Clause 49 of the listing agreement of stock exchanges : clause 49 state the Corporate Governance
practices that listed companies must follow. Based on the recommendations of KM committee , clause
49 on corporate governance was inserted in the listing agreement in 2000.
Key Factors covered : The committee has identified the three key constituents of corporate governance
as (i) Shareholders (ii) Board of Directors and (iii) Management
Fundamental to this examination and permeating throughout this exercise is the recognition of the three
key aspects of corporate governance, namely; Accountability , Transparency and equality of
treatment for all stakeholders. The pivotal role in any system of corporate governance is performed by
the board directors. It is accountable to the stakeholders and directs and controls the Management.
The committee divided the recommendations into two categories , namely mandatory and non-
mandatory.
Mandatory Recommendations :
Non-Mandatory Recommendations :
Role of Chairman
Remuneration committee of board
Corporate restructuring
Further issuer of capital
Venturing into new businesses
UNIT V
Corporate Social Responsibility (CSR) : Meaning CSR and Corporate Sustainability, CSR and Business
Ethics, CSR and Corporate Governance, Environmental Aspect of CSR, CSR Models.
Meaning CSR : In your text book see the page number 263 & 264
CSR AND Corporate Sustainability : In your text book see the page number 267
CSR and Business Ethics : In your text book see the page number 267
CSR and Corporate Governance: In your text book see the page number 268
Environmental Aspect of CSR : In your text book see the page numbers 269 to 271
CSR Models : In your text book see the page number 272