1. Protection Of Various Stakeholder 2. Corporate Governance Practices In Indian Context

1. Unit -4
 Corporate Social Responsibility
1. Protection Of Various Stakeholder
2. Corporate Governance Practices
In Indian Context

3. Introduction
 The stakeholder concept was first used in a
1963 internal memorandum at the Stanford
Research Institute.
 “A person, group, organization, member or
system who affects or can be affected by an
organization's actions.
 Stakeholder, an entity that can be affected
by the results of that in which they are said
to be stakeholders, i.e., that in which they
have a stake”
 Stakeholders influence programs, products,
and services.

4.  As defined by the U.S. General
Accounting Office,
 “An individual or group with an interest in
the success of an organization in
delivering intended results and
maintaining the viability of the
organization's products and services.”
 Stakeholders have some kind of
involvement….

5. Types
 People
 An individual or group
 Any organization
 A participant in a community
mobilization effort
 Market (or Primary) Stakeholders
 Non-Market (or Secondary)
Stakeholders

6. Objectives and Focuses
of Stakeholders
1. Government and investors
2. Employees
3. Clients and consumers
4. Business partners (contractors and
suppliers)
5. Related institutions
6. Communities

7. Government and investors
 National energy security
 Stable market supply
 State assets retention and appreciation
 Create value for investors
 Balance economic, environmental and
social responsibilities
 Develop with technical innovation

8. Employees
 Employment promotion
 Protection of employees' rights and
interests
 Career development
 Personal value realization
 Health and safety
 Respect employees and promote the
concord of diversified cultures

9. Clients and consumers
 Provide safe, environmentally friendly,
clean, and efficient products
 Continuously improve service quality
 Win their trust and support

10. Business partners
 Observe commercial ethics and laws
and regulations
 Strictly standardize production and
operation system
 Strictly carry out licensing system
 Mutual benefit to achieve win-win
situation
 Eliminate use of child and forced labor

11. Related institutions
 Participate in the research, discussion
and compilation of relevant public
policies, industrial standards, etc.
 Pay attention to industrial trends and
policy changes
 Promote sustained development of
enterprise and industries

12. Communities
 Protect local environment
 Promote community development
 Support public welfare
 Support and promote the construction of
a harmonious society

14. Government and investors
 Participate in the collection of national energy policy
and legislation to contribute corporate experience.
 Guide and influence public policy.
 Hold summit talks with host countries.
 Enhance information disclosure.

15. Employees
 Establish trade unions at various levels.
 Hold workers' congress meetings on regular basis.
 Set up employees' advice box.
 Investigate and assist employees in difficulty.
 Listen to opinions of working class employees.

16. Clients and consumers
 Carry out "caring for consumers" activities.
 Publish product quality information.
 Conduct "high-quality service competition"
activities.
 Ask for opinions of clients and consumers.

17. Related institutions (including
domestic and overseas
industrial organizations)
 Contribute with corporate concept and experience.
 Daily contact.
 Join relevant activities.
 Promote international exchanges.

18. Communities
 Safety and environmental protection education.
 Community visit.
 Participate in community development.
 Discuss with government and people in poor areas
to decide.
 Enhance information disclosure.

19. Business partners
(contractors and suppliers)
 Daily meeting.
 Letters and telecommunication.
 Hold multinational business talks and technological
meeting.
 Publish management rules for suppliers and
contractors.
 Share management experience and technical standards.

20.  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.

23. Corporate Governance
CORPORATE GOVERNANCE is the system by which
companies are directed and controlled by the management
in the best interest of the shareholders and others
ensuring greater transparency and better and timely
financial reporting. The Board of Directors are responsible
for governance of their companies.”
 “CORPORATE GOVERNANCE is needed to create a
corporate culture of consciousness, transparency and
openness. It refers to combination of laws, rules,
regulations, procedures and voluntary practices to enable
the companies to maximize the shareholders long-term
value. It should lead to increasing customer satisfaction,
shareholder value and wealth.”

24.  SEBI Committee on Corporate Governance defines it is the
"acceptance by management of the basic rights of
shareholders as the true owners of the corporation and of their
own role as trustees on behalf of the shareholders. It is about
commitment to values, about ethical business conduct and
about making a distinction between personal & corporate
funds in the management of a company.“
 It has been suggested that the Indian approach is drawn from
the Gandhi principle of trusteeship and the Directive Principles
of the Indian Constitution, but this conceptualization of
corporate objectives is also prevalent in Anglo-American.

25. PRINCIPLES OF CORPORATE GOVERNANCE
FOR STAKEHOLDER
 Stakeholders and shareholders agree that effective corporate
governance requires the following principles,
 Transparency: Full disclosure of financial and non-financial
information.

 Accountability: Ensuring that management is effectively
overseen (and, where necessary, replaced) by appointing an
independent and competent governing body.


26.  Fairness: Equitable treatment of investors
 Responsibility: Ensuring the corporation fulfills its proper role
in society Corporate governance systems vary in how they
achieve these goals, but by focusing on one group --in this
case employees-- we can further develop the notion of how a
stakeholder group can strengthen the corporate governance
system.

27. On account of dishonest management of the
companies in the past that has raised capital from
the market at higher valuation and had performed
worse than the reported figures and thus had left
the investors suffer huge losses.”
 “Enough law exists, but corporate governance
is considered as one of the important instrument
for investors protection and was rated high in the
priority on the SEBI‟s agenda for investors
protection .”

28.  Corporate governance has, of course, been an
important field of query within the finance
discipline for decades. Researchers in finance
have actively investigated the topic for at least a
quarter century.
 the differences in the quality of corporate
governance in these developed countries fade
in comparison to the chasm that exists between
corporate governance standards and practices
in these countries as a group and those in the
developing world.

29.  Indeed corporate governance and economic
development are essentially linked. Effective
corporate governance systems promote the
development of strong financial systems –
irrespective of whether they are largely bank-
based or market-based – which, in turn, have an
obviously positive effect on economic growth and
poverty reduction.

30.  Good corporate governance also lowers of the
cost of capital by reducing risk and creates higher
firm valuation once again boosting real
investments.
 Effective corporate governance mechanisms
ensure better resource allocation and
management raising the return to capital.
 Good corporate governance can significantly
reduce the risk of nation-wide financial crises.
There is a strong inverse relationship between the
quality of corporate governance and currency
depreciation.

31.  Finally, good corporate governance can remove
mistrust between different stakeholders, reduce
legal costs and improve social and labor
relationships and external economies like
environmental protection.
 The Indian financial sector is marked with a
relatively simple equity market weak to
manipulation and with basic analyst activity; a
dominance of family firms; a history of managing
agency system; and a generally high level of
corruption. All these features make corporate
governance a particularly important issue in India.

32. Central issues in Corporate
Governance The numerous shareholders who contribute to the
capital of the company are the actual owners of
business. They elect a Board of Directors to monitor the
running of the company on their behalf. The Board, in
turn, appoints a team of managers who actually handle
the day-to-day functioning of the company and report
periodically to the Board. Thus mangers are the agents
of shareholders and function with the objective of
maximizing shareholders‟ wealth.

33.  The central issue is the nature of the contract between
shareholder representatives and managers telling the
latter what to do with the funds contributed by the
former managers wield an enormous amount of power
in joint-stock companies and the common shareholder
has very little say in the way his or her money is used
in the company.
 Most shareholders do not care to attend the General
Meetings to elect or change the Board of Directors and
often grant their “proxies” to the management.
 The underlying premise is that shareholders
dissatisfied with a particular management would simply
dispose of their shares in the company. As this would
drive down the share price, the company would
become a takeover target.

34. The shrinking role of
government
 In the past, governments have relied on
legislation and regulation to deliver
social and environmental objectives in
the business sector. Shrinking
government resources, coupled with a
distrust of regulations, has led to the
exploration of voluntary and non-
regulatory initiatives instead.

35. Demands for greater
disclosure
 There is a growing demand for
corporate disclosure from stakeholders,
including customers, suppliers,
employees, communities, investors, and
activist organizations.

36. Increased customer
interest
 There is evidence that the ethical
conduct of companies exerts a growing
influence on the purchasing decisions of
customers. In a recent survey, it was
found that more than one in five
consumers reported having either
rewarded or punished companies based
on their perceived social performance.

37. Competitive labour
markets
 Employees are increasingly looking
beyond paychecks and benefits, and
seeking out employers whose
philosophies and operating practices
match their own principles. In order to
hire and retain skilled employees,
companies are being forced to improve
working conditions.

38. Supplier relations
 As stakeholders are becoming
increasingly interested in business
affairs, many companies are taking
steps to ensure that their partners
conduct themselves in a socially
responsible manner. Some are
introducing codes of conduct for their
suppliers, to ensure that other
companies' policies or practices do not
tarnish their reputation.

41.  family businesses and corporate groups are common
in many countries including India. managerial control
of these businesses are often in the hands of a small
group of people, commonly a family, who either own
the majority stake, or maintain control through the aid
of other block holders like financial institutions. Their
own interests, even when they are the majority
shareholders, need not coincide with those of the
other – minority – shareholders. This often leads to
expropriation of minority shareholder value through
actions like “tunneling” of corporate gains or funds to
other corporate entities within the group. Such
violations of minority shareholders‟ rights also
comprise an important issue for corporate
governance.

42. Legal environment, ownership patterns
and Corporate Governance
 The legal system of a country plays a crucial role
in creating an effective corporate governance
mechanism in a country and protecting the rights
of investors and creditors. The legal environment
encompasses two important aspects – the
protection offered in the laws (de jure protection)
and to what extent the laws are enforced in real
life (de facto protection).

43.  legal system of a country to the very structure of
its financial and economic architecture arguing
that the connection works through the protection
given to external financiers of companies -
creditors and shareholders.11 Legal systems in
most countries have their roots in one of the
four distinct legal systems – the English
common law, French civil law, German civil law
and Scandinavian civil law. The Indian legal
system is obviously built on the English
common law system.
 This difference in protection of shareholders‟
rights has led to completely different
trajectories of financial and economic
developments in the different countries.

44.  The ratio of the stock market capitalization held by
minority shareholders (i.e. shareholders other than
the three largest shareholders in each company) to
the GNP of a country averages a remarkable 0.60
for the English-origin countries, substantially higher
than the average ratio for German, Scandinavian
and French-origin countries of 0.46, 0.30 and 0.21
respectively. India has 7.79 companies per million
citizens, one of the lowest for English-origin
countries but higher than many French-origin
countries and Germany. As for the ratio of external
capital to GNP, India has a score of 0.31 which puts
it in the upper half of the sample.

45.  It is believed that this is a result of the
ineffectiveness of the legal system in
protecting property rights. Concentrated
ownership and family control are important in
countries where legal protection of property
rights is relatively weak. Weak property rights
are also behind the prevalence of family-
owned businesses organizational forms that
reduce transaction costs and asymmetric
information problems.
 Recent research has also investigated the
nature and extent of “tunneling” of funds
within business groups in India.

46.  The contribution of nominee directors from financial
institutions to monitoring and supervising
management is one such area. Improvements are
also necessary in the enforcement of certain laws
and regulations like those pertaining to stock listing
in major exchanges and insider trading as well as in
dealing with violations of the Companies Act – the
backbone of corporate governance system in India

47. Corporate Governance of
BanksNo where is proper corporate governance more crucial than for
banks and financial institutions. Given the essential role that banks
play in the financial and economic system of a developing country,
bank failure owing to unethical or incompetent management action
poses a threat not just to the shareholders but to the depositing
public and the economy at large. Two main features set banks apart
from other business – the level of opaqueness in their functioning
and the relatively greater role of government and regulatory
agencies in their activities. The ambiguity in banking creates
considerable information asymmetries between the “insiders” –
management – and “outsiders” – owners and creditors.