UNIT I

BUSINSS ETHICS : MEANING , PRINICIPLES OF BUSINESS ETHICS, CHARACTERISTIC OF ETHICAL

ORGANIATION, ETHICS , ETHICS OF CORPORATE GOVRNANCE , GLOBALIZATION AND BUSINESS ETHICS,
STAKEHOLDERS PROTECTION , CORPORATE GOVERNANCE AND BUSINESS ETHICS.

BUSINSS ETHICS : MEANING

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.

Definition of Business Ethics:

According to Wheeler, ‘Business Ethics is an art and science for maintaining harmonious relationship
with society, its various groups and institutions as well as recognizing the moral responsibility for
rightness and wrongness of business conduct.’

PRINICIPLES OF BUSINESS ETHICS :

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:

1. Principle of Conscience : This principle is based on inner-feeling of persons to analyze a sense of

right and wrong . On this basis the businessmen can determine different roles and behaviors at
their levels.
2. Principle of Wishless Work : The principle emphasize that there is no need to perform all the
task to be self centered or self interest. Accordingly , we should be performed all the role and
 behavior to another persons for their esteemed interest. We should be devoted our efforts to
do the work for others.
3. Principle of Esprit : Businessmen should give due attention to make best possible services and
try to develop the feeling of devotion and truthfulness in services.
4. Principle of Publicity : All the activities and performance as conducting in business houses,
should be will informed to every person or organization who are directly or indirectly attached
with business.
5. Principle of Purity : Every businessmen should followed the politeness, truthfulness and
tolerance for developing the feelings of mental peace.
6. Principle of Humanity : Should be followed the human values, human decorum and human
aspects within their policies, programmes and different working areas. The ethical behavior may
determine the path of humanity .
7. Principle of universal values : it is required that every businessmen should conduct and perform
task and different business act ivies to be based on universal assumptions, customs and overall
accepted norms and principles by society.
8. Principle of Commitment : Should be able to fulfill their commitments and assurances as given
to other persons.
9. Principle of Communicability : There is need to make effective means of communication with
the internal and external persons as engaged with business houses.
10. Principle of Transparency : Ethics denotes the concept of purity and truth . all the business
activities and transactions should be well informed with justified manners with their different
stakeholders and society .
11. Principle of Satisfaction : Required to create and develop their role and behavior to establish
pleasure and happiness with other persons and the society at large. Fore mostly, in business as
per their products and services, the customers, should be satisfied at every stage.
12. Principle of Due process : All the persons and different employees, as engaged in business are
required to involved in decision making process and different important task.
13. Principle of Non-Cooperation in Evils : It is needful that businessmen should try to make non-
cooperation or discourage the evils, misconduct and unethical behavior not only with different
customers but with society also.
14. Principle of Cooperation with other : Ethical norms motivate the feeling of collaboration and
team spirit. It is required that on the basis of capacity and available resource, the businessmen
should make full cooperation of different other persons as per their good conduct and value
based behavior .

CHARACTERISTIC OF ETHICAL ORGANIATION

An ethical organization exhibits a number of key characteristics, such as honesty,

integrity, accountability, respect, loyalty and concern. These characteristics must be
exhibited by organizational leaders and trickle down to the organization's lowest-paid
workers.
 Honesty : To be truthful and forthright in dealings with customers and stakeholders.
(i) To tell truth in all situations and at all times.
(ii) To offer products of value that do what we claim in our communications.
 (iii) To honor our explicit and implicit commitments and promises.

 Integrity : Integrity is an all-encompassing characteristic of an ethical business. The ethical

business adheres to laws and regulations at the local, state and federal levels. It treats its
employees fairly, communicating with them honestly and openly. It demonstrates fair
dealings with customers and vendors including competitive pricing, timely payments and the
highest quality standards in the manufacture of its products.

 Accountability: The obligation of an individual or organization to account for its activities,

accept responsibility for them, and to disclose the results in a transparent manner. It also
includes the responsibility for money or other entrusted property.

Read more: http://www.businessdictionary.com/definition/accountability.html

 Respect : To acknowledge the basic human dignity of all stakeholders.
(i) To value individual differences even as we avoid stereotyping customers or
depicting demographic groups in a negative or dehumanizing way in promotions.
(ii) To make a special effort to understand suppliers, intermediaries and distributors
from other cultures.
(iii) To listen to the needs of customers and make all reasonable efforts to monitor and
improve their satisfaction on an ongoing basis.

 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.

ETHICS OF CORPORATE GOVRNANCE

 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 AND BUSINESS ETHICS

Globalization and Business Ethics are linked as they affect a company’s ability to commit to its
shareholders, in particular to external investors, and preserve the trust needed for further investment
and growth.

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

 An Expansion of trade in goods and services between countries .

 An increase in transfer of financial capital across national boundaries including foreign direct
investment (FDI) by multi –national companies and the investments by sovereign wealth funds.
 The internationalization of products and services and the development of global brands.
 Shifts in production and consumption - the expansion of outsourcing and off shoring of
production and support services .

STAKEHOLDERS PROTECTION

This view is commonly referred to as ‘ stakeholders ‘ model of corporate governance where

‘stakeholders’ may include customers, suppliers , providers of complementary services and
products, distributors, and employees. Therefore , this theory holds that corporations ought to be
managed for the benefit of all who have some stake in the firm.

1. Government and Investors :

(i) Participate in the collection of national energy policy and legislation to contribute
corporate experience .
(ii) Guide and influence public policy
(iii) Hold summit talks with host countries.
(iv) Enhance information disclosure
2. Employees :
(i) Establish trade unions at various levels
(ii) Hold workers congress meetings on regular basis
(iii) Setup employees advice box
(iv) Investigate and assist employees in difficulty
(v) Listen to opinions of working class employees
3. Clients and consumers :
(i) Carry out “caring for consumers” activities.
(ii) Publish product quality information .
 (iii) Conduct “high-quality service competition “ activities.
(iv) Ask for opinions of clients and consumers.

4. Business partners (contractors and suppliers) :

(i) Daily meeting
(ii) (ii) Letters and telecommunication
(iii) Hold multinational business talks and technological meeting .
(iv) Publish management rules for suppliers and contractors
(v) Share management experience and technical standards.

CORPORATE GOVERNANCE AND BUSINESS ETHICS.

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.

Four Pillars of corporate governance :

(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 .

GOVRNANCE VS GOOD CORPORATE GOVRNANCE

CORPORATE GOVERNANCE VS CORPORATE EXCELLENCE

Corporate Governance and Corporate Excellence closely connected. It is difficult to achieve excellence
without good governance in long term.

Corporate excellence is achieved by :

1. Satisfied Stakeholders :
2. Closeness to customers
3. Productivity through people
4. Value driven organization
 INSIDER TRADING & RATING AGENCIES

In text book see page number 11 to 14

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.

There are four credit rating agencies in India

CRISIL (CREDIT RATING INFORMATION SERVICES OF INDIA LIMITED )

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 ( INFORMATION AND CREIDT RATING AGENCY OF INDIA LTD )

ICRA Limited (ICRA) is an Indian independent and professional investment information and
credit rating agency. It was established in 1991, and was originally named Investment
Information and Credit Rating Agency of India Limited (IICRA India).

 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

CARE : CREDIT ANALYSIS & RESEARCH LTD

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 :

 Credit rating of debt instruments

 Advisory services like securitization transactions, structuring financial instruments, financing
infrastructure projects and municipal finance
 Information services like providing information to companies , industry and business.
 Equity research

BENEFITS OF GOOD CORPORATE GOVRANANCE ,

 Increase in revenue /profit growth

 Increase in profitability
 Increase in growth in market shares
  Provides stability and growth to the company
 Building brand image ( a case of Infosys)
 Building confidence among investors
 Reduces perceived risks, consequently reducing cost of capital
 Well governed companies enthuse employees to acquire and develop company specific skills.
 Satisfied stakeholders : (i) Shareholders (ii) employees (iii) suppliers(iv) creditors (v) Government

CORPORATE GOVERNANCE REFORM INITIATIVES IN INDIA.

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.

HARSHAD MEHTA SCAM 1992 :

Harshad Mehta born on 29 July, 1954 in a modest Gujarati family and known as be :BIG BULL of the
trading floor” was an Indian stock broker and well known for his wealth and for having been charged
With numerous financial crimes that took place during the early 1990s.
He is alleged to have engineered the rise in the Bombay Stock Exchange during the year 1992. He and
his associates drew off funds from inter-bank transactions and bought shares heavily at a premium
across many segments, triggering a rise in the sensex. When the scheme was exposed, the banks
Started demanding the money back, causing the collapse. The broker was dipping illegally into the
banking system to finance his buying. The amount that was involved in this scam was approx to 5000
crores.

IMPORTANT POINTS IN HARSHAD MEHTA SCAM :

 In order to pursue his dream , he immediately started working as a dispatch clerk in the New
India Assurance Company after completing his graduation.
 Mehta gradually rose to be come a stock broker during the early 1980s.
 During his peak in the early 90s Harshad Mehta commanded a large resource of funds and
finances as well as personal wealth.
 Harshad’s illcit methods of manipulating the stock market were exposed on april 23 1992,
when veteran journalist SUCHETA DALAL wrote an article in India’s national daily . The Times
of India.
 The immediate impact of the scam was a sharp fall in the share prices. The index fell 4500 to
2500 representing a loss of around Rs. 1,00,000 crores in market capitalization.
 Harshad Mehta was arrested and investigations continued for over a decade.
 Harshad Mehta had altogether 28 cases registered against him
 The two important mechanisms that Harshad Mehta relied on heavily was the ready forward
(RF) deals and the bank receipt (BR).
 Harshad Mehta ’s second weapon to massive accumulation of wealth during the short span of
time was the massive use of Bank Receipts (BR) .
 He was intelligent enough to figure out banks that can issue fake BRs or BRs not backed by any
government securities.

KINGFIHSER AIRLINES 2013

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.

Reasons for the collapse of Kingfisher airlines may be summarized as follows:

1. Strong Initial Opposition : When the idea of starting an airline was debated at the UB
headquarters, there was strong opposition from his close aides.
2. Low cost Air Deccan Treated as a Step-Child : There was a disconnect between the two
arms of the airline models ‘Air Deccan and Kingfisher’ . Low –cost Air Deccan was
treated as a step-child. Post the merger, whenever there was an Air Deccan and KFA at
almost the same time-slots, a decision was to do away with the air deccan flight in the
hope that the passengers will graduate to Kingfisher full-service.
3. Lack of Delegation : Lack of delegation is being talked about as the major move that
Mallya did not undertake when running the airline.
4. Frequent changes in strategy and direction :
5. Frequent change In Focus
6. Defaulted on Paying Salary
7. Trouble Paying Fuel Bills
8. Unable to pay the Aircraft Lease Rentals on time
9. Accumulated dues of Airports Authority of India.
10. Non Payment of Service Tax and Bank Arrears , Bank Accounts Frozen
11. Unwallauted Acquisition of Air Deccan
 12. Rising Fuel Prices and 2008 Recession

Corporate Governance Issues in KFA

Ethical issues noticed in the collapse of KFA
1. Disappointing role of Independent Directors
2. Questionable role of Audit Committee
3. Handsome pay packages to the Top Management.
4. Defective Accounting Policies
5. Auditors overruled by Management
6. Lack of Professional Management and Money was diverted to IPL
7. Failure of Risk Management
8. Unwarranted Expansion , III – Timed Merger , political Nexus

Satyam Computer 2009

In your text book see the page numbers : 163-198

Governance Flaws Noticed :

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

MAJOR CORPORATE GOVERNANCE FAILURES : JUNK BOND SCAM (USA) ,

In your text book see the page numbers : 130 & 131 ,

ANDERSEN WORLDWIDE (USA)

In your text book see the page numbers : 147 to 149

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 .

REGULATORY FRAME WORK OF CORPORATE GOVERNANCE IN INDIA : The corporate governance

framework in India Primarily consists of the following legislations and regulations :

 Companies Act 1956

 Securities Contract (Regulation) Act 1956 (SCRA)
 Securities and Exchange Board of India (SEBI) Act 1992.
  Depositories Act 1996.
 Clause 49 of the listing agreement of stock exchanges

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.

K M BIRLA COMMITTEE (KUMAR MANGLAM COMMITTEE)

Corporate Governance is considered an important instrument of investor protection, and it is therefore a

priority on SBI’s agenda. In the above mentioned context, the Securities and Exchange Board of India
(SEBI) appointed the Committee on corporate governance on May 7 th 1999 under the Chairmanship of
Shri. Kumar Mangalam Birla member SEBI Board, to promote and raise the standards of corporate
governance.

The Committee’s terms of the reference were to :

 1. Suggest suitable amendments to the listing agreement executed by the stock exchanges with the
companies and any other measures to improve the standards of corporate governance in the
listed companies.
2. Draft a code of corporate best practices ; and
3. Suggest safeguards to be instituted within the companies to deal with insider information and
insider trading .

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 :

 Applies to listed Companies (Applicability )

 Composition of Board of Directors
 Audit Committee
 Remuneration Committee
 Board Procedures
 Management Discussion and Analysis Report
 Information sharing with shareholders

Non-Mandatory Recommendations :

 Role of Chairman
 Remuneration committee of board
 Corporate restructuring
 Further issuer of capital
 Venturing into new businesses

Structures and rules are important because they provide a framework.

 Applies to listed Companies (Applicability ) : The recommendations should be applicable to all

the listed companies.
(i) These companies would cover more than 80% of the market capitalization .
(ii) Paid up share capital of Rs. 10 Crore and above, or net worth of Rs. 25 crore or more any
time in the history of the company.
 Composition of Board of Directors: The boards comprise of following groups of directors –
promoter directors, executive and non executive directors, a part of whom are independent.
  Audit Committee : The audit committee should have minimum three members , with at least
one director having financial and accounting knowledge.
 Remuneration Committee : The committee was of the view that a company must have a
credible and transparent policy in determining and accounting for the remuneration of the
directors.
 Board Procedures : Board meetings should be held at least four times in a year . A director
should not be a member in more than 10 committees.
 Management Discussion and Analysis Report: Implementing and comply with the code of
conduct as laid down by the board.
 Information sharing with shareholders : The shareholders must show a greater degree of
interest and involvement. Shareholders have a right to participate in, and be sufficiently
informed on decisions.

49 OF LISTING AGREEMENT , CORPORATE GOVERNANCE IN PUBLIC SECTOR .

See your text book page numbers form 51 to 65

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