Ethics in Corporate Gov

8/2/2019 Ethics in Corporate Gov

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Corporate Governance is concerned with holdingthe balance between economic and social goalsand between individual and communal goals.

The corporate governance framework is there toencourage the efficient use of resources and

equally to require accountability for thestewardship of those resources.

The aim is to align as nearly as possible theinterests of individuals, corporations and society

- Sir Adrian Cadbury


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The primary purpose of corporate leadership is tocreate wealth legally and ethically.

This translates to bringing a high level of satisfactionto five constituencies --customers, employees,investors, vendors and the society-at-large.

The raison d'tre of every corporate body is to ensurepredictability, sustainability and profitability ofrevenues year after year.

- N R Narayana Murthy


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Unlike South-East and East Asia, the corporate governanceinitiative in India was not triggered by any seriousnationwide financial, banking and economic collapse

Also, unlike most OECD countries, the initiative in India wasinitially driven by an industry association, the Confederationof Indian Industry In December 1995, CII set up a task force to design a voluntary code

of corporate governance The final draft of this code was widely circulated in 1997 In April 1998, the code was released. It was called Desirable

Corporate Governance: A Code Between 1998 and 2000, over 25 leading companies voluntarily

followed the code: Bajaj Auto, Hindalco, Infosys, Dr. ReddysLaboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and

many others


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Following CIIs initiative, the Securitiesand Exchange Board of India (SEBI) setup a committee under Kumar MangalamBirla to design a mandatory-cum-recommendatory code for listed

companies

The Birla Committee Report wasapproved by SEBI in December 2000

Became mandatory for listed companiesthrough the listing agreement, andimplemented according to a rollout plan


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Following CII and SEBI, the Department of CompanyAffairs (DCA) modified the Companies Act, 1956 toincorporate specific corporate governance provisionsregarding independent directors and auditcommittees

In 2001-02, certain accounting standards weremodified to further improve financial disclosures.These were:

Disclosure of related party transactions Disclosure of segment income: revenues, profits

and capital employed

Deferred tax liabilities or assets

Consolidation of accounts

Initiatives are being taken to (i) account for ESOPs,(ii) further increase disclosures, and (iii) put in placesystems that can further strengthen auditorsindependence


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Enhancement of ShareholderValue, keeping in view theInterests of other Stakeholders

CG a Way of Life rather than aCode


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The Board of Directors Pivotal role

Accountable to stakeholders

Directs management

The Shareholders & Stakeholders

To participate in appointment of directors To hold the BoD accountable for governance through

proper disclosures

The Management To act on the direction of the BoD

To provide requisite information to the BoD fordecision making

To implement and monitor control systems


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An effective disclosure based regulation(DBR) implies greater responsibilities on

the company directors, its management

and advisers

An effective DBR promotes investor

activism

Markets believe that perceived benefits

outweigh perceived costs


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Disclosures Disclosures

by whom for whom

Public Listed Cos. ShareholdersIntermediaries Investors

Stock Exchanges MARKET Intermediaries

Mutual Funds Regulator

Analysts & advisors GovernmentOther stake -

holders


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Components & types of disclosures

Initial Disclosures Disclosures for raisingcapital by companies, mutual funds in offerdocuments

- Public Offers

- Private Placement

Continuous disclosures financial / non-financial

Frequency of disclosure

Dissemination process electronic, physical,centralised, dispersed

Accessibility of information


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Initial Disclosures Continuous disclosures

Corporate Governance

Financial disclosures Risk based disclosures for intermediaries

Disclosures for stock exchanges


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Board of Directors: information that must besupplied

Annual, quarter, half year operating plans, budgets andupdates

Quarterly results of company and its business segments

Minutes of the audit committee and other board committees

Recruitment and remuneration of senior officers

Materially important legal notices and claims, as well as anyaccidents, hazards, pollution issues and labor problems

Any actual or expected default in financial obligations

Details of joint ventures and collaborations

Transactions involving payment towards goodwill, brandequity and intellectual property

Any materially significant sale of business and investments

Foreign currency and other risks and risk management

Any regulatory non-compliance


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Disclosures to shareholders in addition tobalance sheet, P&L and cash flow statement

Board composition (executive, non-exec, independent) Qualifications and experience of directors Number of outside directorships held by each director

(capped at director not being a member of more than 10board-level committees, and Chairman of not more than5)

Attendance record of directors Remuneration of directors Relationship (familial or pecuniary) with other directors Warning against insider trading, with procedures to

prevent such acts Details of grievances of shareholders, and how quickly

these were addressed Date, time and venue of annual general meeting of

shareholders


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Disclosures to shareholders in addition to balance

sheet, P&L and cash flow statement

Dates of book closure and dividend payment

Details of shareholding pattern

Name, address and contact details of registrars

and/or share transfer agents

Details about the share transfer system

Stock price data over the reporting year, and how thecompanys stock measured up to the index

Financial effects of stock options

Financial effects of any share buyback

Financial effects of any warrants that are to be

exercised Chapter reporting corporate governance practices


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Disclosures to shareholders in addition to

balance sheet, P&L and cash flow statement

Detailed chapter on Management Discussion

and Analysis focusing on markets, operations,

finances, accounts, risks, opportunities and

threats, internal control systems

Consolidated financial statement, incorporating

accounts of all subsidiaries (over 50% shares

held by reporting company)

Details of all significant related party

transactions

Detailed segment reporting (revenues, costs,operating profits and capital employed)

Deferred tax liabilities and assets and

debit/credit in the P&L for the reporting year


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(A) Basis of related party transactions

I. A statement in summary form of

transactions with related parties in the

ordinary course of business shall be placed

periodically before the audit committee.

II. Details of material individual transactions

with related parties which are not in thenormal course of business shall be placed

before the audit committee.

III. Details of material individual transactions

with related parties or others, which are not

on an arms length basis should be placedbefore the audit committee, together with

Managements justification for the same


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(B) Disclosure of Accounting Treatment

To disclose in the financial statements, ifan accounting treatment other than

prescribed in Accounting Standard has

been followed alongwith explanation.

(C) Board Disclosures Risk management

Internal and external business risks

Procedures to inform Board members about

the risk assessment and minimization. Periodically reviewed


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(D) Proceeds from public issues, rights issues,preferential issues etc.

To disclose to the Audit Committee, onuse/application of funds as and when any issueis made

(E) Additional disclosures:

In the Annual Report the criteria of makingpayments to NEDs to be disclosed or a reference

to be made that the same is available on thecompanys website

number of shares and convertible instrumentsheld by NEDs.

NEDs shall disclose their shareholding (both ownor held by / for other persons on a beneficialbasis) in the company in which they areproposed to be appointed as directors, prior totheir appointment.


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F) ManagementA Management Discussion and Analysireport to form part of the Annual Report.

G) Shareholders

Disclosures to shareholders in case oappointment /reappointment of directorsquarterly results and presentations madeshareholders grievance committee anshare transfer committee, shareholdin

pattern-change


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The CEO, i.e. Managing Director and the CFO i.e.

whole-time Finance Director or head of the financefunction to certify to the Board that:

(a) They have reviewed financial statements and thecash flow statement for the year and thesestatements:

(i) do not contain any materially untrue statement or omitany material fact or contain statements that might bemisleading;

(ii) together present a true and fair view of the companysaffairs and are in compliance with existing accountingstandards, applicable laws and regulations.

(b) no transactions entered into by the companyduring the year which are fraudulent, illegal orviolative of the companys code of conduct.


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(c)They accept responsibility for establishing andmaintaining internal controls and that they have

evaluated the effectiveness of the internal controlsystems of the company and they have disclosed tothe auditors and the Audit Committee, deficienciesin the design or operation of internal controls, ifany, of which they are aware and the steps theyhave taken or propose to take to rectify thesedeficiencies.

(d)They have indicated to the auditors and the Auditcommittee(i) Significant changes in internal control during the

year;(ii) Significant changes in accounting policies during the

year and that the same have been disclosed in thenotes to the financial statements; and

(iii)Instances of significant fraud of which they havebecome aware and the involvement therein, if any, ofthe management or an employee having a significantrole in the companys internal control system


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The word ethics is derived from thGreek word ethos meaning characte

and latin word mores meaning customs To better understand ethics let u

understand and contrast the definition oethics and law

Law is a consistent set of universal rule

that are widely published, generallaccepted and usually enforced. Thesrules describe the ways in which peoplare required to act in society.

Ethics defines what is good for thindividual and for society and establishethe nature of duties that people owe toneself and others in society


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The principle of conduct

professional ethics A system or philosophy of conduct

A discipline dealing with what is good and bad-moral duty and obligation

A set of moral principles or values.


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Reflection in a companys operations of thevalues and moral principles used in thecommunities in which they operate

Successful markets and corporate performanceare founded on a commitment to basic ethicaprinciples aligned as much as possible to theinterests of individuals, corporations and society.

Ethical standards may be expressed in acompanys formal conduct requirements, ocontained in generally stated principles thaguide a companys preferred conduct or behavior

Most companies have put in place a code o

ethics for its employees to conduct themselves ina particular manner while doing business.


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Ethics are the guiding principles. Where the proposed business activity/

operation of the company borders on thunknown, the company needs to apply thethics principle to decide on the project.

Ethics help make relationships mutuallpleasant and productive- imbibes a sense ocommunity among members- a sense obelongingness to society.


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To define acceptable behavior

To promote high standards of practice

To provide a benchmark for self-evaluation

To establish a framework for professional behavior and responsibilities

As a vehicle for occupational identity

As a mark of occupational maturity.


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OriginalCompliance

Enforcement

Punishment

Directive

Secretive

Integrity

Inspiration

Motivation

Educational

Open

Revised


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Written code of ethics

Employee commitment

Employee training

Discipline process

Full disclosure Building expectations

Resolution process conflict management


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A formal code of business conduct and ethics.

To be signed and adhered to by employees.

Action against any employee for violation thereof.


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General standards of conduct Management of conflicts of interest

Prohibition of exploitation of corporate opportunities

Protection ofcompanys confidential information

Obligations under securities laws

Use of assets

An entire section on responsibilities to customers and stakeholders.


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THANK YOU

Documents

Ethics in Corporate Gov