Corporate governance

Corporate governance covers corporate conduct, character, order,

philosophy & practice.
It is all about fairness in all dealings with all stakeholders.
Stakeholders include internal members like shareholders, employees,
executives etc. & external members like supply chain participants,
customers, competitors, regulatory bodies, government, tax
authorities, trade associations, society etc.

It is concerned with the quality of interactions between the

corporate body on the one hand & the divergent stakeholders
on the other.
It is the accountability of the board of directors towards its
stakeholders.
It ensures how effectively the board of directors & mgt. are
discharging their functions in building & satisfying
stakeholders confidence.

Principles of corporate governance

Transparency accurate, adequate & timely disclosure of

relevant information to different stakeholders.
Accountability since the top mgt. has considerable authority
over the use of resources, they must accept accountability for all
their decisions & actions.

Independence board of directors or top mgt. should be

independent, strong & non-partisan body where all decisions are
based on business prudence.

 Reporting adequate reporting to various stakeholders on major

developments.

Need for corporate governance:

Today, a company has a very large number of shareholders

spread all over the world because of which the idea of
shareholders democracy remains confined only to statute .

Various govt. dept. have observed frequent violation of law by

the corporate entities.

Institutional investors are capable of affecting the major

decisions of the entities by holding majority of shares.

Societys expectations from the corporate world have

undergone lot of changes. for e.g. care for the environment.

Because of intense competition, there is no job security for the

employees.

Heavy compensation package of top executives.

Complications due to mergers & takeovers.

Business ethics:
Ethics means the science of moral duty or the science of ideal human
character.
In common usage it can mean morality, goodness, justness, honesty
etc.
Ethics consists of moral rules or principles.

A law is usually concerned with only the minimum regulations

necessary to work in different capacities; but business ethics
ensure that the business adheres to rules & regulations which is
much more above the minimum requirements.
Business ethics refers to the moral principles which should govern
business activities.
It provides a code of conduct for the managers.
It is concerned with what is right & what is wrong in human behavior.

Some of the examples are

To charge fair price

To pay tax honestly
To earn reasonable profit
Fair treatment to workers

Business ethics in the behavior of employees:

Employee ethics in relation to work

Employee ethics in relation to superior
Employee ethics in relation to subordinates
Employee ethics in relation to colleagues
Employee ethics in relation to organization

Business ethics in the behavior of top mgt.

 Ethical behavior in dealings within the organization consists of

internal relationship like fair work load, impartiality, fair wage
policy, decent work environment good conflict resolution,
respect for pvt. life of employees etc.

Ethical behavior in dealings with the outside world fairness in

dealing with customers, with competitors, with channel
members, with trade unions etc.

Social responsibility of business:

It is the recognition that organizations have significant influence
on the social system & that influence must be properly
considered & balanced in all organizational actions.
It is the obligation of business firms to function as part of a
larger social system because they are, in fact, a part of that
system.
It is the obligation of an organization to protect & enhance the
social context in which the organization functions.
Social responsibility of business simply reinforces the
interdependence among business, society & environment.

As the business draw resources from the society &

environment, they have a responsibility to serve the society &
protect the environment in return.
The assumption of social responsibility implies recognition &
understanding of the aspirations of the society &
determination to contribute to its achievement

Responsible to whom (constituents):

The constituents to whom business is responsible are multiple like

employees, suppliers, customers, creditors, owners (shareholder),
trade associations, local community, local, state or union
governments. etc.
The concept of social responsibility has two phases firstly the
businessmen recognise that they have a broad obligation to the
society affecting public welfare such as employment, uninterrupted
supply of essential goods at fair price etc. & secondly, to nurture &
develop human values like motivation, morale, cooperation etc in
work. Thus, social responsibility refers to both socio-economic &
socio-human obligation of the business.
Why social responsibility? ( arguments in favor)

Use of societys resources

Long term business interest

Moral justification

Better public image

Conscious customers

Strong trade unions

Fear of govt. intervention

Social obligation v profit objective

There is an argument against social obligation saying that if social
responsibilities are taken care of at the cost of economic
objectives, the survival of business will be in danger.
However, an enterprise earning profit can serve the society better
than an enterprise running into loss.
Profit objective can not be eliminated as the very survival of business
depends on it.

But if it is earning sufficient profit, a part of it can be spent for the

welfare of the society.
Thus, mgt. should consider earning of profit as well as performing of
social obligations simultaneously.

Business process reengineering:

Reengineering basically strives to break away from the old rules
about how we organise & conduct business; by recognising &
rejecting some of them & then finding imaginative new ways to
accomplish work.
Business process reengineering (BPR) or simply process
reengineering concentrates on business process rather than
production process.
Business process cuts across all functional lines of the enterprise;
while production process concentrates only on production
process/activity.
Poor BP will take away customers more definitely than poor
production process.
Thus, BPR is gaining more & more significance these days.

Business process: what is it?

A business process consists of an activity or set of activities, to
transform one or more inputs into one or more outputs that
represent solutions from the internal or external stakeholders point
of view.
An organization may have many business processes. Each process
might consist of many sub-processes which, in turn, might cut
across departments.

Some of the typical examples are order processing, purchase

process, inventory planning, performance appraisal process, credit
approval process, selection process, budget preparation etc.

Business process reengineering is concerned with questioning the

statusquo as to the way a particular process is carried out.
It is always concerned with improving efficiency & effectiveness of an
overall process.
Work simplification, cutting down layers of decision-making & timely
task completion are the essence of BPR.
Some of the advantages of BPR are improved customer focus,
better linkage between strategy, plan & business operations,
improved process efficiency etc.
However, choosing the wrong process to reform, inadequate change
mgt. rigid organizational structure etc. are some of the pitfalls.

Total quality management (TQM):

One popular approach for improving quality is that of TQM.
TQM involves organizations long term commitment to the
continuous improvement of quality throughout the
organization, & with the active participation of all members at
all levels to meet & exceed customers expectations.
It demands a careful analysis of the customers needs, an
assessment of the degree to which these needs are currently met,
& a plan to fill the possible gap between the current & the desired
situation.
The success of TQM often needs the cooperation among its
participants.

To make TQM program effective, top managers must be involved.

They must provide a vision, reinforce (strengthen) values
emphasising quality, set quality goals & arrange resources for the
quality program.
It is obvious that for its success TQM demands a free flow of
information vertically, horizontally & diagonally.
Training & development of the staff is very important for developing
skills & for learning how to use tools & techniques relevant to TQM.
Any quality improvement effort requires not only the support but also
active involvement of all levels of mgt. All the people concerned
should be willing to accept changes from time to time.

The quality improvement efforts need to be continuously monitored

through data collection, evaluation, feedback & improvement
programs.
TQM is not a one-time effort; but it is a continuous, long-term effort.
When implemented effectively, TQM results in greater customer
satisfaction, fewer defects & less waste, increased total
productivity, reduced cost & improved profitability. Thus, it
ultimately results in an environment where quality has high priority.
Ultimately, the concept of TQM need not be restricted to corporate
world alone; it can even be applied to govt. depts. or NGOs or even
to non-profit making organizations.

Feed forward (pre-action) control:

In mgt. control should always be directed towards future if it is to be
effective. Feedback (post-action) as a control mechanism just
shows deficiency in the historic or past event. This feedback about
past events is not good enough for control. It is nothing more than
postmortem where no one has found way to change the past.

What managers need for effective control is a system that will tell
them, in advance, to take corrective action, & that problems will
occur if they do not do something about them right now.
Feed forward control involves evaluation of inputs & taking corrective
measures before a particular sequence of operations is completed.

It is based on timely & accurate information about changes in the

environment. Therefore, if right information is not available in
time, then feed forward control is not going to be effective.
Preventive maintenance program is an important example for feed
forward control.
Feed forward control can be effective if following guidelines are
followed. (Requisites)

Thorough planning & analysis must be done.

Careful discrimination must be applied in selecting input
variables.

Data on input variables must be regularly collected & processed .

The system of feed forward control must be kept dynamic or up to
date. i.e. it should be flexible.

Corrective action must be taken as suggested by feed forward

control

Feed forward v feedback system:

Simple feedback system measures output of a process & provides an
assessment to take corrective action to reach the desired results.
Feed forward system monitors inputs into a process to ascertain
whether the inputs are as planned; if they are not, then are to be
changed in order to obtain desired results.

Real-time information control (concurrent control):

Real-time information is information about what is happening while it
is happening.
Today, it is technically possible with the use of information technology
& satellite service to obtain real-time data on many operations. It is
also called steering control.
An executive can have access to up to date information about a
particular operation as & when the transaction is taking place.
Some people see real-time information as a means of exercising realtime control in areas of importance to managers.

Management information system (MIS)

MIS is a formal method of collecting timely & accurate information in

a presentable form in order to facilitate effective decision making &
implementation of these decisions in order to carry out
organizational operations for the purpose of achieving the
organizational goals.
MIS is a system designed to provide selected decision-oriented
information needed by mgt. to plan, control & evaluate the activities
of the enterprise.

Why MIS?
Todays organizations have grown in size & complexity. The dynamics
of the environment further adds to the complexity of organizational
operations. Some of the continuously changing factors in the
environment affecting the individual org. are

Economic factor information about changes in the economic

structure, inflation rate, interest rate, unemployment rate, GNP
etc. are required on a continuous basis in formulating strategies
& policies.

Technological factors include new technological innovations in

different areas

Social factors like changes in socio-cultural set up, education

level, value systems etc.

Politico-legal factors changes in the political system, change

in the government, law & regulations affecting business etc.

Need to control mgt. decisions large organizations going for

decentralization & hence they need more & more accurate &
timely information about the operation of the whole unit.

 Computerization computers becoming more powerful & less

expensive to operate. Have more data storage capacities.
Developing MIS:
Developing of MIS basically consists of design phase &
implementation phase.

Design phase involves the following steps

Identifying various decisions that must be made to run an

organization.

Set objectives for the system (MIS)

Prepare a feasibility report emphasizing the necessity as well
as economic feasibility of developing & implementing the
system.

Preparing a technical report regarding the hardware &

software needed; also indicating various components of the
system & the methodology of implementing the system.

Implementation stage involves the following steps

Acquiring necessary facilities, equipments & personnel

Training the personnel
Installing the new MIS
Testing the new MIS
Operating the system
Evaluating MIS to see if it is doing what it is supposed to do

MIS & misconceptions/mistakes:

Some of the common misconceptions about MIS & some of the
common reasons for the failure of the system are -

More information is better for effective decisions

reality is, it is not the quantity; but the quality & timeliness of
information that matters in making the decision taken effective.

Lack of managerial involvement

Top mgt. must be actively involved in the implementation of the
system.

Failure of proper communication

Inter-departmental communication must be clear & precise.

Computers cannot do everything

Use of computers is only supplementary to good decision making; &
not substitute for good decision making.

Human acceptance
Ultimately, the success of MIS depends on the acceptance of the
people who are supposed to use it.

Guidelines for improving MIS:

Involvement of top mgt.

Proper coordination between designers of the system & the
users of the system.

Developing a master pan explaining about the whole system

 Accountability for the success of the system on both designers

& users.