THEME ARTICLES · 2008-01-05 · - Dr J. P. Sharma & Astha Dewan 9. Calibrating Competence for Professional Excellence 55 - Vipin Agarwal 10. Legal Process Outsourcing (LPO) – The

35th NA35th NA35th NA35th NA35th NATIONAL CONVENTION OF COMPTIONAL CONVENTION OF COMPTIONAL CONVENTION OF COMPTIONAL CONVENTION OF COMPTIONAL CONVENTION OF COMPANY SECRETANY SECRETANY SECRETANY SECRETANY SECRETARIESARIESARIESARIESARIESB M BIRLA AUDITORIUM, JAIPUR20, 21 & 22 SEPTEMBER, 2007

THEME ARTICLES

Page No.

1. Excellence through Business Value Addition- A New Paradigm 1- J. Krishnamurthy

2. Building Customer Satisfaction through Value, Service and Quality 10- R Soundara Rajan

3. Professionalise for Business Excellence 15- Dr. V. Balachandran & M Govindarajan

4. Corporate Compliance Management 19- Prakash Pandya

5. Corporate Compliance Management – For Addition of SubstantialBusiness Value 22

- S. M. Gupta

6. The Process of Corporate Compliance Management 37- Sudheendhra Putty

7. Corporate Compliance and "Due Diligence" — Value Addition 42- J Sundharesan

8. Segment-wise Role of Company Secretaries 45- Dr J. P. Sharma & Astha Dewan

9. Calibrating Competence for Professional Excellence 55- Vipin Agarwal

10. Legal Process Outsourcing (LPO) – The Emerging Space andSome Realities 61

- Ranjan Mukherjee

11. Opportunities & Challenges Before the Corporate Professionals-An Overview 64

- Dr. R.N.Nigam & Dr. (Ms.) Poonam Vij

12. Most Convenient Way of Raising Finance and Improving theDebt Equity Ratio 68

- Kaushik Mukherjee

13. Global Dimensions of Business Value 78- Divya Saxena

14. Corporate Social Responsibility (CSR) for Business Excellence 97- Naresh Kumar

15. Corporate Governance and Expectations of Stakeholders 103- S B Mathur

Excellence through Business Value Addition — A New Paradigm

A – 1

EXCELLENCE THROUGH BUSINESS VALUE ADDITION —EXCELLENCE THROUGH BUSINESS VALUE ADDITION —EXCELLENCE THROUGH BUSINESS VALUE ADDITION —EXCELLENCE THROUGH BUSINESS VALUE ADDITION —EXCELLENCE THROUGH BUSINESS VALUE ADDITION —A NEW PARADIGMA NEW PARADIGMA NEW PARADIGMA NEW PARADIGMA NEW PARADIGM

J KRISHNAMURTHY*J KRISHNAMURTHY*J KRISHNAMURTHY*J KRISHNAMURTHY*J KRISHNAMURTHY*

It is futile to try to ignore the changes and to pretend that tomorrow will be like yesterday, only more so. - Peter F. Drucker

One moment has the power to create history; one idea has the power to move millions; one person has thepower to change a nation. – AIG India

Democracy,IT and a world-class corporate sector are the principal elements of India’s soft-power - ET Leader

Remember that respect for India today is only because of its corporate sector. In the last 10 to 12 years, thecorporate sector has created some of the best global Indian companies in the world – NR Narayana Murthy

* FCS.

Excellence is a laudable endeavour that delights allthe stakeholders in the case of a company. Businessvalue addition is a critical driver in such endeavour inthe context of markets becoming global and businessprocesses getting performed at different locations acrosscontinents. It is that ‘value addition’ which translatesitself into business ‘growth’.

India to be a developed nation by 2020

Free India is celebrating its shashtiabdhapoorthistanding at the threshold of a new destiny marked by ahigh potential of fast-growth in its economy ( with GDPgrowth-rate likely to cross 9%). The internationalcommunity has recognized the country’s aspiration ofbecoming a fully developed nation by 2020, thanks toits brain power and service capabilities. India Inc andthe professional community should rise as one man tohelp the nation achieve this goal,even surpass it.

There are, undoubtedly, complex challenges to befaced, like global competition, climate change andenvironment protection, natural resources depletion,poverty and social inequalities etc along with regionalissues like regional imbalances, terrorism and the like.

The purpose of tomorrow’s global company will be

“to provide ever better goods and services in a waythat is profitable and ethical and that respects theenvironment, individuals and the communities in whichit operates” and one of its major challenges in this regardwill be to meet the increased customer expectations.

Value addition – a must for meeting the fastchanging business dynamics

To address its role as above, India Inc needs toidentify its ‘value stream’ which, apart from supply,production and marketing chains, consists of a logicalcollection of its people, skills, tools and tasks that interactto promote customer satisfaction which, in turn,generates value to the business. Moreover, businessoperates today inclusively.

Today’s business value distinguishes itself from thevalue of yesteryears which was measured in a variety ofways from time to time, such as size, volume, rangeand scale of operations, profitability, geographicalspread etc. Today’s value is being assessed in termsof ‘triple bottom-line’ with benefits from businessgetting extended to all the stakeholders including thesociety and the planet in terms of safety of itsenvironment.

A – 2

35th National Convention of Company Secretaries

Business value addition depends on a successfulbalancing of the following five elements which formthe basis for enterprise profitability, healthy communityand a safe environment.

— Business as a balance of power between itself,government and civil society;

— Business and individuals think globally;

— Businesses are communities of people;

— Business thrives where society thrives; and

— For people to thrive, the planet must thrive.

In the past, value addition was made in a variety oftraditional ways as dictated by the demands of the day.They included modernization, diversification, capacityaddition, mergers and acquisitions, businessreengineering and a host of others. However, followingglobalization and liberalization of the Indian economyon the one hand and the information technologyrevolution on the other, a new dimension has beenadded – that of steep multiplication of business volumeswith quality and utility of products and services havingto get benchmarked to world-standards to survive globalcompetition and to grow, without in any waycompromising on the traditional values and ethics.

Continuous Process Improvements (CPI) processthat underlies today’s business involves customersatisfaction, business leadership, managing informationand analysis, planning, human resource utilization, qualityassurance and quality results. CPI, BPR, BPO, KPO etcworking together have led to business value addition inrecent years through unprecedented high-volumes ofbusiness conducted 24x7 by giant-sized business,industrial and commercial units located andinterconnected across the globe. This value additionshould translate itself in terms of additional benefitsto all the stakeholders as well as our planet MotherEarth.

Inclusive growth and sustainability – the newmantra for business success

Inclusive growth of business will be the new enginefor the country’s future economic progress. Despite rapidstrides made in technological and industrial revolutions,radical improvements in the working of financial marketsand creation of world-class scientists, doctors andengineers a continuing aspect of worry is the rising trendin social and economic inequalities in the country.

Individual productivity, and consequently the

productive capacities of the whole nation stand severelylimited by the following constraints:-

— Half of the country’s population of childrenbelow the age of 5 is said to be still sufferingfrom malnourishment and nearly 65% of thoseentering the primary classes are said to be dropouts into manual labour force.

— Nearly 30% of children do not receive evenprimary education.

— More than 60% of the labour force still remainsdependent on agriculture which contributesless than 25% to India’s GDP.

— About 40% of population are said to be out ofthe banking fold.

— 150 million Indians do not have access todrinking water - 750 million Indians do not havedecent sanitation.

It is estimated that by 2020, while the world willhave a shortage of 47 million working people; India willhave a surplus of about 40-50 million. Sustained growthtrajectory and profitability of India Inc is feared to beunder attack by the rampant HIV/AIDS scourge as alarge percentage of those affected by this deadly diseaseare in the industrial workforce. In addition, drug-resistantstrains of infectious diseases like polio, TB are said toclaim more than 14 million lives a year the world over.All this could affect the fortunes of many industries,notably, those relying on migrant workers such realestate, capital goods, power and transport, throughattrition of the workforce, increased medial payouts,reduction in the number and purchasing power ofconsumers etc.

The above situation can be remedied only by jointefforts by the Government and the Industry who willnecessarily have to reorient their respective agendas bymaking the growth process more socially and financiallyinclusive and regionally balanced. Only then, India Incwill be in a position to accelerate its pace, innovate itsprocesses and products so as to ensure better goodsand services. It is however distressing to note thecountry’s PM’s observations thus: “The emergingchallenges, at home and globally, should make us firmin our resolve to be united and to be co-operative. I donot see enough commitment to such consensual agendain our political parties, in our media, in our intelligentsia,and in our social elite. On this 60th anniversary of ourIndependence, I call upon every Indian to think of Indiafirst and work to make India first.”


A – 3

Dhanendra Kumar, Indian representative of IFC,Washington has recently said “A poised and confidentIndia has set larger goals for inclusive growth andsustainable development. IFC is providing valuableadvice and financing to help the private sector contributeto these goals”.

Long-term competitive advantage – Newmillennium policy measures for value-addition

A new cutting edge has emerged – Globalisation– where a company with global perspective andoperating policies develops such policies and actionssensitive to the local conditions - to enable penetrationinto the international markets through innovativemeasures detailed below in order to secure megaadditions to business volumes, turnover and profits whilemaintaining and improving the product/service qualityand utility to the customer and reducing, even avoiding,any damage to the environment.

1. Unlock Innovation, create Intellectual propertythrough relentless R & D

It is only through systematic innovation that acompetitive edge would be maintained and long-term strategic intent for economic regeneration canbe developed. Innovation should become a partand parcel of the economic activity.

Corporate India, in recent years, is said to bespending 2.5 times more in paying for technologicalknow-how than in developing its own. Earlier, itwas even more at 10 times. It is said that it takes,on an average, 12 long years for a new drug totravel from the lab to the patent and costs anestimated $802 million in the process. Thereforeunlock innovation by removing all barriers andhurdles to it. Do not restrict innovation only to thebusiness product; work on processes, organizationalstructure, business model and the market too. Lookfor innovation from diverse and multiple sourcesfor it can stem from employees, partners, suppliersand consumers too.

India’s new patent regime has prompted domesticpharma companies to considerably increase theirR&D spend over the last five years. Success of anyR&D is not so much in the number of patentsobtained but in evolving those patents intomarketable products. Towards this end, it is necessaryfor companies to rev up their research efforts tofind new manufacturing processes that we canproudly call our own and that are aimed at usheringin new technology, specialty applications capable

of being used by Indian industry to position itselfwell in world markets and reap the benefits ofincreased efficiency, lower costs and highermargins.

The new products are also aimed at helping to evenout the cyclical business fluctuations while openingup new frontiers. Learning to compete with globallybenchmarked norms is integral to our effort atbuilding high-value intellectual property. We haveto pursue a growth path that breaks away from lowmargin products to stable and high margin newproducts of world-standards.

India needs to leverage its affordable cost-base todeliver high value innovation to global markets bybuilding excellence and to climb up the value chain.There is great potential in SMEs to rise above theircurrent levels of productivity, if they centralize theirR & D efforts in a common resource centre. Thefuture is in moving the SME businesses ( which haveover 40% share in industrial output consisting ofover 8000 value-added products and 35% of directexports) into high-growth knowledge intensivesectors such as bio-technology and education, wellinter-connected to each other and to sources ofcommon funding.

To cite an example, Megha Insulations promotedby a first-generation entrepreneur is the onlycompany in India that produces CSI (calcium silicateinsulation) using indigenous technology andsupplying equipment to companies like Essar, ACC,Gujarth Ambuja, Hindalco, BHEL and L&T, amongothers. Most of these companies have been ableto reduce power consumption significantly at theirplants using Megha’s heat insulation products.Hindalco unit of UP has reported reduction of energyconsumption from 16,800 to less than 14,500 kwhper ton of aluminium produced. The cementindustry in general is reported to have saved about15% of energy costs through saving of 28,000 tonsof steam coal worth about Rs.8 crore per year.

Though globally, on an average, intangible brands,know-how contracts and other intangibles formroughly 62% of the enterprise value, in India it is76% (as against 71% in USA and 72% in Australia).RIL’s brand value is put at $ 5.8 billion while thevalues of TCS and WIPRO are put at $4.02 billionand $2.65 billion, respectively.

2. New initiatives in areas like bio-technology & bio-materials (eg. neem-coated urea and zinc-coated

A – 4


urea and designing organism that can produce betterchemicals or enzymes which can act as industrialcatalysts to either produce valuable chemicals ordestroy hazardous chemicals to name a few), metals(extraction of alumina from bauxite), rural education,health and entertainment.

3. Developing CDM (Clean Development Mechanism)Projects

CDM projects are undertaken not only to aidinternational efforts at greening the Mother Earthby 2012 (as part of their CSR) but also, thoughincidentally, to tap the huge financial (mostly foreignexchange) potential in selling the resultant carboncredits/CERs ( Carbon emission reductions/rights)representing reductions in greenhouse gasemissions. India is said to have already cornered43% of the carbon credits market while China hassecured so far only 17% of the market. MorganStanley, the world’s second biggest securities firm,is reported to have created a ‘carbon bank’ to sellgreenhouse gas credits to factories, airlines andoffices to voluntarily offset emissions blamed forglobal warming.Global voluntary emissions creditmarket had traded volumes of about 23.7 m metrictones last year worth $91 m.

Indian companies should take up high CER-yieldingprojects like HFC23. ITC, Suzlon, Shriram Fertiliser,Tata Steel, Balrampur Chini and others have alreadymonetized their energy conservation in theInternational Carbon Credit Exchanges. Recently,GACL (Gujarat Alkalies and Chemicals) is reportedto have earned Rs.16.56 crore by selling carboncredits in the international market (due to its switch-over to natural gas fuel from naphtha for its powerplant at Dahej. This income is currently accountedfor as ‘Other income’ pending development of anaccounting standard for carbon-credits. GACL is saidto be now eyeing more revenues by achieving evenhigher fuel efficiency using cleaner fuels for itsplants, through three more CDM projects underKyoto protocol, which will enable GACL to earnmore carbon credits. The Ministry of Environmentand Forests, GOI has estimated the global businessopportunity to be valued over $ 10 billion.

Environment friendly tag is not yet a value additionpoint in India but it has great value abroad.Protecting the Environment has become necessaryfor companies abroad to improve their ranking inthe international business and capital markets.International retail majors are insisting on social

compliance by their suppliers and service-providers.Likewise, large institutional investors like Pensionfunds, Trusts etc have, as a policy, support capitalissues of managements of only those companieswho have established a creditable track record ofCSR that includes environment protection.

Indian companies should therefore gear themselvesup soon in this regard and arrange, in addition,external assurance also. Green products are a rarityhere Eco-tourism, green buildings, environment-friendly hotels, organic food etc account for aminiscule percentage of our economy whileconsumption expenditure contributes about 64%of the GDP. “The environmental issues as well astechnology development are key requirements fora company’s competitive advantage. In the not toodistant future, environmentally benignmanufacturing will become one of industry’sgreatest strategic challenges, not only from anengineering perspective, but from business andmarketing perspectives as well”, says Moon B Shin,MD, LG Electronics India. A new breed of green-minded consumers are increasingly opting forenvironment-friendly producs like paper bags, CNG,biodegradable detergents and soaps, environment-friendly sprays, natural dyes, organic vegetables andfruits, non-polluting fuel, HCFC-free refrigeratorsand the like.

4. Re-engineering & Restructuring exercises

4.1 Unlocking value from unused or under-used assets/properties

FMCG giant HUL is reported to be putting up forsale its real estate assets valued over Rs.400 crore(in cities like Mumbai and Bangalore). Telecom(Cellular) companies are understood to have decidedto hiveoff their self-owned tower projects toindependent ‘stand alone’ tower companies Thismeasure is said to unlock investments by individualcellular companies valued over Rs.36, 000 crore(about $10 billion) per year (for additional 90,000towers each required in FY08 and FY09) Thismeasure will improve returns on investment andthus benefit customers and shareholders.

4.2 Corporate & Business Restructuring : Pruning awayless effective businesses in terms of growth potentialand returns on capital and leaving a smaller but richermix of businesses for the future. Mergers andamalgamations is yet another mode. Diversification,de-centralisation are also to be considered.


A – 5

4.3 Outsourcing non-core operations & promoting e-commerce

New collaborative business models need to bedeveloped, nurtured and strengthened. Take, forinstance, Blue Bird (India) which has outsourcedcapacity to assemble high quality notebookcomponents manufactured by it to the local players(under the UNEP Global Action Plan (GAP) successmantra ‘Think globally-Act locally’). It has alsoentered into manufacturing and marketing co-branded products in association with strong localbrands developed by the local manufacturers in smallniche markets.

Promoting e-commerce - i.e., use of computernetworks to facilitate the transactions involvingproduction, distribution, sale and delivery of goodsand services in the market place- is essential tosupport global markets. Driving business on theinternet – e-commerce- breaks barriers of spaceand time; it thus holds considerable promise forthe companies and for the country majority of whosepopulation is in villages and towns. E-commerce ispoised to take over the country in the next fewyears after cyber legislation is further tightened.Buying and selling of cars, electronic goods, textiles,life-style products, real estate, entertainment goodslike TV, Computers, Health equipments andservices, Investment products etc. will boost theeconomic growth manifold.

All this is part of corporate strategy to furtherstrengthen its market position. Thanks to the dropin revenues due to strengthened rupee in overseasmarket, WIPRO, the IT major, is planning fordiversification – by making a foray into consumerproducts (said to be the business with which itstarted initially).

5. Innovative & Cost-effective fund-raising and capitalrestructuring

Raising funds from NRIs, FIIs, PEs or through ECBs,FCCBs, with attendant exchange risk coveredadequately, to reap financial advantages of minimaldebt-service charges and/or tax savings. Manyoverseas private equity funds have already enteredIndia in a big way, with more to follow. ET of 7thAugust 2007 has reported thus under the captionowing reliance on cheaper ECBs helps companiesbring down cost of funds”: “The aggregate interestpayment as percentage of total borrowings hascome down from 6.4% in FY 06 to 5.6% in FY07

for 719 listed companies for which audited resultswere available……The reason for the reduction inthe cost of funds is the rising share of externalcommercial borrowings (ECB) which is available atmuch cheaper rate due to prevailing liquidityconditions globally.

Outstanding ECB is said to have gone up by 84%against an increase of only 21% in domesticborrowings. As a result, the share of ECB in totalborrowing has gone up from 21% in FY06 to 29%in FY07. Domestically, the minimum rate at whicha medium term (5-6 years) loan is available foreven AA rated companies is about 11% ascompared with ECB rate of about 8-9%. Most ofthese companies belong to the manufacturingsector”. The Union Government recently classifiednon-convertible and optionally convertiblepreference shares as part of ECB. ECB approvalshave reportedly picked up during the first quarterand amounted to $ 8.7 billion during April-June2007 compared to $ 4.4 billion in the correspondingquarter of the previous fiscal year.

6. Cash management and shareholder value additionthrough Buy-back of shares

This is a measure that helps the company withmanagement of cash surpluses, boost its capitalvaluation, and lead to improved image in the capitalmarket; it also helps the investor with funds forfresh investment in addition to a better rate of returnon the remaining investment. It helps retention ofkey managers, especially those at senior levels.

7. Undertaking more mega cross-border mergers andtake-overs, that help us to sustain in global marketsthrough inorganic expansion and scaling up ofoperations. Wockhardt, Tata, DRL are some of thosewho have accessed European and American markets.It takes years, even decades, to access these marketsif traditional regulatory route were to be followed.Wockhardt, for instance has not only accessed the$2-billion generic drug market in France but alsoextend Negma’s ( target company’s) patentedportfolio to other markets where the Indiancompany has a strong presence such as the UK,Germany and Ireland.

Tatas are weighing $2-billion bid for ArizonaBeverages of USA. RIL is planning to set up a refineryin Gautemala, Central America. US-based PE fundCarlyle has made the highest PE investment in India($416 million) in a single deal (HDFC) in the firstseven months of 2007.

A – 6


8. Building-up brand value

Brand is the face of the business for all stakeholders,including employees. The importance of brands increating value for business cannot beoveremphasized. A good brand name is the resultof the goodwill that the company has acquired overthe years, through its activities, performance andits esteem and acceptance in society. A company isperceived as an excellent place to work, based onits people, processes, and policies, values and theleadership. The company needs to be committedto its people, processes, and values anddemonstrates the highest levels of ethics andcommitment to its employees in all times.

Even ex-employees are being increasingly reckonedas brand ambassadors in many organizations likeMarico, L & T, Sapient, NIIT and Tata Steel. As a HRstrategy, these companies have a separate forumfor gathering these ex-employees on selectoccasions or events to win their goodwill by seekingtheir views, opinions on company matters and inturn making them feel proud and loyal to their ex-employers.

Globally, it is said on average, intangible brands,know-how (R&D, patents etc) contracts and otherintangibles (processes, latest Carbon credits etc)make up roughly 62% of enterprise value; in Indiait is higher at 76%. Companies have realized thatworking with established design houses (at homeor abroad) gives them a deep understanding ofconsumer preferences with regard to branding anddesign. Collaborations/symbiotic relationships willshorten the gestation period for the brands apartfrom adding considerable value through credibility,class and finesse which in turn will enable theIndian company to gain entry into a promisingemerging market with something as innocuousas a notebook.

RIL that pioneered retail participation in the capitalmarkets under its founder Dhirubhai Ambani is saidto command brand value of $5.8 billion. The TataGroup’s crown jewel and India’s largest softwarecompany, TCS, are on their way to be among India’stop three brands with a valuation of $4.02 billion.Wipro follows as the second most valuable IT brandwith a valuation of $ 2.65 billion Infosys with a brandvalue of $1.61 billion ranks as third most valuableIT brand. Among Banks, SBI ranks No.1 with a brandvalue of $ 3.14 billion followed by ICICI Bank with$ 2.04 billion.

9. Improve image value by pledging increasedcommitment to corporate social responsibility (CSR),by taking more and more new initiatives like PPP,to make a meaningful difference to the lives of allthose people who support and sustain Indianindustry. Promotion of health care, education, self-employment opportunities, skill development andup-gradation for rural youth, providing safe drinkingwater, building and maintaining roads that giveaccess to rural markets, income generating schemesfor women will ultimately unfold economic benefitsback to the industry itself.

AP Government has recently promoted the first-ever state-level Bankers’ Institute of EntrepreneurialDevelopment (APBIED) in financial collaborationwith NABARD and a couple of Banks. This Instituteproposes to impart high-quality training programmesto rural poor and unemployed youth in medicaltranscription, computer accounting packages,hardware servicing, hotel management and the like.Training programmes for women self-help groups(SHGs).

10. Protecting, Promoting and upgrading humanresource skills

The 21st century workforce would work more withtheir minds than with their hands in the past as theworkforce will be more in charge of work than ofpeople. Moreover, the business will mostly operatebeyond national boundaries – more and moremultinational- business managers will have to dealwith diverse cultures, multiplicity of traditions andethnic backgrounds.

As they stride into uncharted global territory forinorganic growth, companies will have to hone theiremployee-skills, especially with e-learning toenhance their performance and productivity. Withimmense competition in the market, companiesneed to continuously upgrade their systems,products and obviously their employee proficiencies,to meet the challenge of technologicaladvancements. Today, it is only the leanerorganisation that survives and wins. Knowledge andtalent management are crucial for any organization.

Indian industry should encourage and rear some ofits own personnel to become independententrepreneurs at an appropriate stage of their career.This initiative adds tremendous value to theorganization adding to its goodwill, an intangibleand ever-appreciating asset whether on the balance


A – 7

sheet or outside. “The Government haa to make itsimple for small entrepreneurs to start companiesin India” says Mr. Narayana Murthy of Infosys whileadding” Entrepreneurial activity can have atremendous impact on a country’s development; itis the only way to create jobs and wealth today”.

Large enterprises must help the small and mediumenterprises in the country which provide support totheir business and aid the country’s economy byproviding employment to a vast section ofpopulation.

Thanks to the CII initiative, many companies haveinstalled or committed to install measures formanaging anti retro-viral centres (ARVs) – somewith assistance from ILO to overcome HIV scourge.Many State Governments have embarked uponprogrammes for attracting children of illiteratefamilies into school. Many industries havecommenced programmes for skill up-gradation oftheir work force.

11. Risk Management, for risk mitigation and protectionfor innovation

A penny saved is a penny earned. Global businessnecessarily involves considerable business risks-environmental, political, legal, accidental,technological etc.. Risk management is all aboutincreasing the ability to take risks, risk identification,risk monitoring and assessment while minimizingthe risks and protecting against unavoidable risks.Post 26/7 and 7/11 the dimension of risk haswidened to natural disasters to terrorism too.Enterprise wide risk management framework isdeveloped as a solution which involves participationof industry specialists for planning andimplementation including development ofcontingency action plan to face and mitigate risks.

There is a direct correlation between risk and rewardand a climate conducive to innovation andentrepreneurship is a sine qua non to long termeconomic prosperity.

12. Financial inclusion measures to accelerate economicgrowth

Industry must collaborate with Government inachieving financial inclusion- taking banking andfinancial services to geographical areas and peoplewho have little or no access to such services – byallowing no-frills bank accounts, utilization of theservices of NGOs and micro-finance institutions in

providing banking services, tying up with the postaldepartment for branchless banking, setting up offinancial literacy and credit counseling centres, issueof smart cards, facilitating low-cost remittanceproducts and the like. They could use the $125million fund already established by the Governmentof India for the purpose; in addition World Bankassistance also could be sought. This has greatpotential for boosting up e-commerce.

13. Value addition through external professionalassurances

The core of any free market economy is the freeexchange of information and the availability ofquality information. The quality of capital marketsdepends on credible financial information withassurance regarding all requisite legal compliancesbeing available to investors and other users of annualreports of companies to take informed decisions.Audit and Secretarial certifications/confirmationsregarding compliances play a key role in the successof the economic system. They provide the stampof quality and credibility to the corporate documentswhether sent to members or others including theGovernment (ROC) SEBI, Stock Exchanges, RBI,Financial Institutions and the like. In an era of self-regulation, this assumes special significance.Professionals like Company Secretaries becomecritical intermediaries in this scenario.

14. Fixing Vision & Defining Mission

There must be a well defined corporate visionand mission to guide the organization. Whilevision refers to a possible and desirable futurestate of a company, its mission will refer to thepurpose, strategy, behaviour standards and values.A mission is the bedrock of company’s strength,identity and success – its ultimate character andpersonality.

A company’s culture and its mission will beartestimony to the contemporary political supremacyenjoyed by the country of is origin. Mission is anissue which involves both heart (culture) and themind (strategy) of an employee. Tomorrow’scompany should seek to identify a purpose, an idealwhich is far greater than the combined needs of allstakeholders. Strategy will define the business thatthe company intends to compete in, the positionthat the company plans to hold in that business,and the distinctive competence or competitiveadvantage.

A – 8


Role of Professionals- as change agents and aspartners in achieving Excellence

In each of the above business value additionendeavours, professionals like Company Secretaries havea significant role to play. There is a difference, however.Marketing professional service has come to mean sellingprofessional’s ability to honour a promise to the clientcoupled with an assurance to the society that relies onthe professional. .

They should recognize the changes that havewitnessed the managerial scene over the last fewdecades – that owners have become professional bythe time professionals have become owners ; that ownersand managers have learnt to recognize their mutualfriendly existence as a future recipe for business success;that their distinct individual identities and boundaries ofthe past have blurred and dimmed over the years.Especially the new first generation entrepreneurs – likesof Ambanis, Bajajs, Rajus, Murthys – have realized theimportance of modern tools of management in promotingtheir entrepreneurship to greater heights. Theprofessionalisation of corporate management from thedays of managing agents to the present day of CEOs,CFOs and CSs has been a long and successful journeyindeed.

They therefore should increasingly aim to excel inrendering their services. Given the educational andprofessional qualifications and the rigorous trainingprovided to him by ICSI, the Corporate Sector, theRegulators, the Government agencies, a CompanySecretary should endeavour to develop not only a zealfor achieving excellence in every professional assignmentawarded to him but also develop an innovative ‘walk-the-talk’ approach so that his contribution is no moremeasured by the bulkiness of his report or certificatebut the benefits that the company actually reaps anddemonstrates to the outside world. In addition, he/shemust also act, in a way, as a trustee for the quality ofthe service to be provided, discharging its socialresponsibility.

For example, in Mergers & Takeovers, Carbon Creditpurchases, financial assistance to sick units, a CompanySecretary is ideally suited to act as consultants andundertake due diligence study of the target company/unit and subsequently, join discussions with legal expertsin documentation. CDM consulting is very lucrative.Likewise, in case of intellectual property, he can assistin patent registration and deal with all legal andsecretarial issues surrounding it. Similarly, in fundmobilization, he can team up with his counterpart abroad

to secure requisite clearances of RBI, Ministry of Financeand SEBI etc. and undertake the responsibility ofcompleting entire documentation to the satisfaction ofboth the lender and borrower.

In matters pertaining to brand value promotion, upgradation of HRD, training facilities at home and abroad,he can ideally support the client by off-loading workpertaining to due diligence, negotiations, liaison, co-ordination, documentation, follow-up and the like withthe authorities concerned including collaborating withUniversities/ Management Institutes at home andabroad. For achieving excellence in these areas, heneeds to develop an effective and sustaining (informal)net-work of colleagues in the profession and co-professionals in disciplines of law, accountancy,management and the like (through proposed LLP, ifdesired formally). What are required are a strong will,commitment and perseverance to excel in everyprofessional endeavour coupled with dedication.

Way forward - a concerted strategicpartnership between Industry, Government,Regulators, and the Professionals

Currently, the world business indictors for India arenot very encouraging for a variety of reasons includingterrorism.

What is needed, therefore, are proactive policiesof the Governments at the Centre and in the States forpromotion of cutting-edge technology in Indian industrycoupled with progressive labour policies that providethe requisite flexibility in engaging and disengaging soas to subserve the country’s long term competitiveadvantage. Sensible R & D as well as infrastructureinvestments has a multiplier effect, reviving upefficiencies and opening up new, emerging vistas foreconomic growth.

Our Hon'ble Prime Minister has been suggesting R& D funding at not less than 2% of GDP by 2012. Inaddition, exports must be made competitive with apragmatic currency exchange and fiscal initiatives jointlyby RBI and Ministry of Finance, IFC is reported to havereaffirmed its commitment to contribute to India’seconomy by expanding its investments in privateenterprises in sectors where the funding agency isneeded most.

The way ahead is thus concerted action by all theplayers including the Industry, the Regulators, theInvestors, the Professionals, the NGOs and others tocreate stronger frameworks of law and regulation forthe world’s markets. There must be a clear-cut long-


A – 9

term policy that assures continual technology up-gradation and due operational autonomy for Industrysupplemented by forward-looking fiscal and monetarypolicies designed to usher in business and industrialefficiency with productivity, right across the board. It isin the interest of global companies to be proactive andwork in partnership with civil society, policy makers andothers to help international organisations andgovernments create the frameworks necessary tostrengthen and guide the market.

As a recent UK report put it “Companies need tofocus on three specific priorities:

— Redefining success - defining and measuringsuccess in a way that aligns and integrates thesocial, environmental, human and financialaspects of companies’ work;

— Embedding values – defining, living by, andbeing judged by values that are publiclyespoused and applied rigorously in challengingsituations; and

— Creating frameworks - supporting soundnational regulatory frameworks and internationalagreements, working with governments, NGOsand others to create them”.

The report further added that ‘together these actionswould reinforce each other and enable companies to“expand the space” in which they operate - havinggreater impact and influence over a longer timescale.This is not about philanthropy or companies being seento be ‘doing well’. These are actions that serve the long-term interests of any company.”

As Mr. Nandan Nilekani of Infosys put it “We arewitnessing profound change in the way we live, workand interact in an increasingly global, interconnected

world. This changing landscape presents us withchallenges and opportunities we need to work with,and status quo is not an option. Business, as a force forgood, has to respond to this changing landscape andmake a positive impact on society and the environment.Truly global companies will need to develop acompelling vision which enables sustainable, profitabledevelopment of their business whilst benefiting thesociety at large.”

SEBI should take forward its crusading effort toimprove corporate governance with collaborative supportof the Government (MCA) and specialist bodies likeICSI, ICAI, IIMs and the PEs. Professionals mustcontinually update and upgrade their professionalknowledge and skills for achieving excellence in theirperformance through active participation in, andknowledge contribution to, the continuing educationprogrammes conducted for them by their respectiveInstitutes.

Other regulatory bodies like RBI, IRDA and theJudiciary should direct their action in unison with theabove philosophy.

All this should take India Inc forward, by creatingwealth for itself and additional value for the stakeholders.It should also enable India Inc to address effectivelyissues such as climate change, social inequalities etc.which, in turn, will enable the country to address itsown emerging socio-political challenges successfullyand maintain a sustained growth for its economy..For this to happen, India Inc needs to position itselfas a global leader aided and ably supported byProfessionals like Company Secretaries who shouldplay their role of catalysts in this laudable nationaleffort effectively. A concrete strategy would make aworld of difference.

A – 10


BUILDING CUSTOMER SATISFACTION THROUGHBUILDING CUSTOMER SATISFACTION THROUGHBUILDING CUSTOMER SATISFACTION THROUGHBUILDING CUSTOMER SATISFACTION THROUGHBUILDING CUSTOMER SATISFACTION THROUGHVALUE, SERVICE AND QUALITYVALUE, SERVICE AND QUALITYVALUE, SERVICE AND QUALITYVALUE, SERVICE AND QUALITYVALUE, SERVICE AND QUALITY

R SOUNDARA RAJAN*R SOUNDARA RAJAN*R SOUNDARA RAJAN*R SOUNDARA RAJAN*R SOUNDARA RAJAN*

There are five types of companiesThose who make things happen.

Those who think they make things happen.Those who watch things happen.

Those who wonder what happened.And those that did not know that

anything had happened.

Anonymous

INTRODUCTION

“Customer satisfaction occurs when you meet yourcustomer expectations. Customer delight occurs whenyou not only exceed your customer expectations butalso give what they want or desire” — Jo Anna Brandi,

President, ‘Working Relationship/ IntegratedMarketing System.

Customers provide the revenue stream for theorganization continuity and sustenance. The very successof any organization is largely depends on its ability tosatisfy and retain customers. A business without focuson ‘Customer Satisfaction’ is at the mercy of market.It is 5 to 10 times more expensive to acquire a newcustomer. Most companies lose 40 per cent to 45 percent every five years. The greatest challenge is todiscover how to produce ‘Product' or ‘Services’ whichcan give value to the customer, so that they can beloyal and give their continued support.

The terminology ‘Customer’ refers in a narrow sensethe buyers of the product who provides a revenue stream.But in modern world, companies use more broader viewand replace the term customer with stake holders. Thecustomer delight cannot be achieved without the‘Employee Satisfaction’, and ‘Employee Engagement’.

* BE (Hons.), AICWA, ACS, MBA, MPhil (Management), CQA. Company Secretary EIL.

Suppliers provide the quality materials and no doubt theshareholders and financiers provide the capital. All ofthem are partners in the process of building a sustainedgrowth. Hence the stakeholders cover all segmentsincluding the customers, employees, shareholders,financiers, distributers and suppliers. Kotler (1998) pointsout for sustainable value addition, the following aspectsto be addressed- Stakeholders, Key processes,Resources, and Organization. (Fig 1)

Fig. 1: Elements for Value Addition

[Source : Philip Kotler, Marketing Management, PrenticeHall of India (9th edition) p. 65]

CUSTOMER SATISFACTION

“A customer is the most important visitor on ourpremises. He is not dependant on us. We are dependanton him. He is not an interruption in our work. He isthe purpose of it. He is not the outsider to our business.He is part of it. We are not doing a favour by servinghim. He is doing us a favour by giving us the opportunityto do so” — Mahatma Gandhi.

Building Customer Satisfaction through Value, Service and Quality

A – 11

Customer is a person, household or company thatover time yields a revenue stream. The customer is calledprofitable customer if the revenue stream exceeds thecompany’s cost stream of attracting, selling and servicingthat customer by a acceptable level. A good customerwho provides more profit with less resource is alwaysscarce because the customer is more knowledgeableand the competition is fierce. Satisfaction is a person’sfeeling of pleasure or disappointment resulting fromcomparing a product’s perceived performance (oroutcome) in relation to his or her expectation. Expressingthe same in the form of expression:

SATISFACTION = PERCEIVED PERFORMANCE –EXPECTATION

Customer is satisfied if the delivered value fromthe product or service is more than the customer cost.Total customer value is the bundle of benefits customerexpect from the given product or service. Total customervalue is the sum of Product Value, Service Value,Personnel Value and Image Value. The total customercost is the cost that the Customer incur in evaluating,obtaining and using the product or service. The costcan be monetary Cost, Time Cost, and Energy Cost.Customers use Value/ Price ratio for comparing theoffers.

Fig. 2 : Customer Delivered Value

CUSTOMER RELATIONSHIP

‘Look at our balance Sheet. On our asset side, youcan see so and so many aircraft worth so and so manybillions. But it is wrong; We are fooling ourselves.

What we should put on our asset side is , last yearSAS carried so and so many happy passengers. Becausethat is the only asset we have got- people who are

happy with our service and willing to come back andpay for it again.” — Jan Carlson, SAS Airline

“Customer delight is a very delecate balancing act.You have to be part diplomat, part soother, part goodlistener and creative with the way you think”

— Jo Anna Brandi PresidentWorking Relationship/ Integrated Marketing System

Organizations evolve different strategies to satisfyCustomers. Traditionally marketing strategies focusedon 4 Ps (price, product, promotion and place) to increasemarket share. The main concern of any organization isto increase the volume of transaction with thecustomer /client. Volume of transaction is considereda good measure of performance of marketing strategies.To increase profitability and revenue through customersatisfaction concepts such as ‘Customer RelationshipManagement’ (CRM) is evolved by modern business.

To add value to the customer and improve thecustomer relations the company has to:

(a) Identify the valuable customer and retain themwith care and respect. Customers to bedifferentiated on lifetime value. From CRMperspective, the customer longtime profitabilityand relationship to the company is important.‘Treat each customer uniquely’ is the keyfor retaining valuable customer.

(b) Stay in touch with the customer regularly tounderstand their requirement. CustomerLoyalty can be increased by personalizationprocess. Personalization means the content andservices to customer should be designed basedon customer preferences and behavior.Demonstrate that you care about the quality ofservice. Call customers and ask them questionslike:

Are you pleased with the service you received?

What did you like most working with us ?

What would you like to see improved ?

(c) Treat people with courtesy and respect.Remember that every contact with customerwhether it is by Email , phone, writtencommunication or face to face meeting leavesimpression. Use phrases like ,

“Sorry to keep you waiting”,

“ Thanks for your Order”,

“ You are Welcome”.

A – 12


(d) Be Credible and Worthy of confidence.Credibility increases when appointments arekept and promises are acted. Failure to keeppromises and to live up to the expectations cankill a budding relationship.

(e) Make the customer’s experience so pleasantthat the customer returns for repetitive orders.Be courteous, efficient and ethical in alldealings. Always be customer friendly and costeffective to clients. Always adhere to the timeschedule given to the clients.

OTHER STAKEHOLDERS

“The only thing that works is management by values.Find people who are competent and really bright, butmore importantly people who care exactly about samethings you care about”. — Steve Jobs, Co- founder of

Apple Computer

Peter Drucker, known management guru observedthat a company’s first task is to ‘create customers’.Iacocca, elaborated the same idea when he said that,‘the only job security anybody in this company (chrysler)comes from quality, productivity and satisfied customer.The customer satisfaction and delight can be achievedonly through ‘Employee Engagement’. I would liketo quote the experience of Stphen Covey, the authorof ‘The seven Habits of Highly Effective People’. Hewas scheduled to train 175 shopping center managersat a particular hotel. When he arrived at the hotel, hewas amazed at the level of service and the employeeengagement to their work and service to customers.The service culture had impregnated the minds, heartsand attitudes of every employee there. It wasspontaneous and at every level of employees withoutsupervision. Every one owned the organization’s visionand mission statement. It was in their blood.

He was in the side lobby looking at some art objects.Some one from the hotel came up and said, ‘Mr Covey,

would you like to see a book that describes the art objectsin the hotel’. He next observed one employee high upon a ladder cleaning windows in a lobby. From hisvantage point, he saw a woman having a little difficultyin a garden with a walker. She had not really fallen, asshe was with other people. But he climbed down thatladder, went outside, helped the woman into lobby andsaw that she was properly taken care of. Then he wentback and finished his cleaning work. This clearly indicatesthe level of engagement. This reflected the courtesyand the culture of the organization. Customers wouldnaturally love to associate with such organization forlife time.

How such motivation and employee orientation ispossible? Employee oriented policies keep employeesmotivated and results in high quality service. The qualityservice creates value to customers and results inCustomer Satisfaction and Customer Loyalty. The loyalcustomers repeat orders and a continuous revenue chainis created. In other words who creates the loyalcustomer? It is the employee. The corporateperformance is leveraged through service profit chainlinking employees and customers through employeeoriented policies (Fig. 3).

Perhaps the most valuable lesson what we can learnfrom Ken Blanchard’s book ‘The One Minute Manager’is his recommendation on giving ‘one minute praising’at every opportunity. The one on one relationships thatindividual workers have with their managers, and thetrust, respect and consideration their managers showtowards them on daily basis are the drivers to createenergize work force. People come alive when theirleader offer excitement, support, broader horizon andnew challenges.

START WITH THE VISION

“If we keep doing what we are doing, we are goingto keep getting what we are getting”. — Stephen Covey

"Great business ‘ decide’ their future. They are notdictated by it”

The overriding objective of the corporationshould be to optimize over the time the returnsto its stakeholders. To achieve this objective thecorporation should endeavor to ensure the long termviability of its business and to manage effectively itsrelationship with its stake holders.

‘If you don’t know where you are going any roadwill lead you’. For effective functioning the companyshould set its vision and mission. Inspirational leaders

Building Customer Satisfaction through Value, Service and Quality

A – 13

create an inspiring culture within the organization. Hesets a vision for the company. He sets the mission toachieve by his team.

A vision statement outlines what a company wantsto be. It focuses on tomorrow; it is inspirational; itprovides clear decision-making criteria; and it is timeless.A mission statement outlines what the company is now.It focuses on today; it identifies the customer(s); itidentifies the critical process(es); and it states the levelof performance.

When a company collaboratively decides to expressits vision, beliefs, goals, values and mission in words, itwill give direction to everyone in the company.Therefore, it is important to involve all employees andgive them a chance to indicate how they perceive thecompany and to identify what is important to them.Without involvement, there is no commitment. Whenthere is no commitment, systems and procedures areonly documents.

Hewlett-Packard employees have long known thatradical change in operating practices, cultural norms,and business strategies does not mean losing the spiritof the HP Way - the company’s core principles.” HP’score ideology which has guided the company since itsinception includes a deep respect for the individual, adedication to affordable quality and reliability, acommitment to community responsibility, and a viewthat the company exists to make technical contributionsfor the advancement and welfare of humanity.

Johnson & Johnson continually questions its structureand revamps its processes while preserving the idealsembodied in its credo written by General Robert WoodJohnson more than fifty years ago. Their corporatemission statement and guiding philosophy, Our Credo,covers four main areas of responsibility: customers,employees, communities, and shareholders.

Another company, 3M sold off several of its largemature businesses in 1996 - a dramatic and surprisingmove - to refocus on its enduring core purpose of solvingunsolved problems innovatively.

Take McDonalds. People do not swarm to theworld’s 11000 McDonald’s outlets solely because theyhave delicious hamburger or they love hamburger. Thereare many restaurants make better tasting hamburgers.

People are flocking to a system, not hamburgers.This fine tune system delivers throughout the world ahigh standard of what McDonald’s calls QSCV- Quality,Service, Cleanliness, and Value.

McDonald is effective only to the extent that it workswith suppliers, Franchise, Owner, Employees and Othersto deliver exceptionally high value to its customers.

— Philips KotlerMarketing Management

The way that the vision and mission arecommunicated is important. This requires fullcommitment from senior management and may resultin several changes depending on where the companypresently is and how well it presently represents its vision.Once the direction is defined, then it will impact suchthings as strategic planning, objectives and goals.Strategic planning includes reviewing the vision andmission of the company and then determining what hasto be done in order to achieve the goals of thesestatements. This normally translates into Objectives(Strategic Focus). Next, the company determines howit will know when the statements have been achieved.This translates into Objective Measures. From themeasures, each department can set goals, objectivesand measures that will help the company achieve itsstrategic objectives . When a company defines its valuesand guiding principles, one side effect is that someemployees may find that their own value systems donot match the company’s and they may decide to leave.It is important to stress that everyone needs to supportthe vision, mission, values and guiding principles if theyare to be achieved.

RESOURCES AND PROCEDURES

“Great Things are not done by Impulse but by aseries of small things brought together” — Anonymous

Every company has to recognize its strategicresources. For a service organization, Human Intellect,Technology and Processes (HTP) are the three keyresources. The corporate governance provides thestructure and spells out the systems for making decisionson corporate affairs, through which the companyobjectives are set, as well as the means of attaining andmonitoring the performance of those objectives.

Systems and processes deal with matters such asdelegation of authority, rules, procedures andrelationships. The rules may be internal to control andmonitor the processes or external for compliance ofapplicable laws. To lead and operate an organizationsuccessfully, it is necessary to break the company’soperation into processes. The processes are furtherdivided into sub-processes and procedures are evolvedfor managing them. Process managed enterprises

A – 14


supports, empowers and energizes employees and focusthem to provide customer friendly services.

Relationships include those between all relatedparties, the most important of which are the owners,managers, directors of the board, regulatory authoritiesand employees and the community at large. Rules andprocedures are set to manage the processes by creatingdisciplined and repeatable design. The pay off is quiethigh. Cost is minimized. Productivity is increased. Qualityis achieved through standardization. Resource utilizationis optimized. Success can come only by continuousperformance improvement while addressing the needsof interested parities and aligned to organizationalculture, values and ethics.

CONCLUSION

“To day customer don’t ask ‘ what product do youoffer ?’ They ask, ‘ What value you stand for?’, ‘Whatpractices have you developed to live those values daily?’,‘What value addition you are providing to me? ’………..”

The essential element for the sustained growth isthe customer satisfaction and loyalty. This is achievedby employees through productivity, quality and theirengagement with the organization. Leadership throughtheir good governance set the tone for suchorganizational culture with a positive attitude in everyonein the organization. Let us re-call the value systemquoted by Shiv Khera in his book ‘YOU CAN WIN’’.

“There was a man taking a morning walk at a beach.He saw that along with the morning tide came hundredsof starfish and when the tide receded, they were left

behind and with the morning sunrays they would die.The tide was fresh and the starfish were alive. The mantook a few steps, picked one and threw it into the water.He did that repeatedly.

Right behind him there was another person whocould not understand what this man was doing.. Hecaught up with him and asked, “What are you doing?What difference does it make?” This man does not reply,took two more steps, picked up another one and threwit into the water and said ‘it makes a difference tothis one’. This is what the positive attitude towards lifeis.

No person was honoured for what he received.Honour has been the reward for what he gave. Leadersnurture and develop these values. They culture thishabit in the organization to develop a team whichcarry the Mission, Vision and Core values of theorganization to achieve Excellence. They set the rightpolicies to motivate employees and other stake -holders. These loyal employees, create ServiceOriented Architecture (SOA) and a culture whichcreates value for customers.

Such organization requires no governance as theyare self governing, involved and committed. The leadermay change but the culture lives. Rules and regulationsdo not bind these ethical organizations. They never allowany WorldCom and Enrons to happen. These championcompanies, develop excellence through goodgovernance. “Good governance is a journey, notdestination”. The journey continues step by step forexcellence and never ends. It is eternal.

Professionalise for Business Excellence

A – 15

PROFESSIONALISE FOR BUSINESS EXCELLENCEPROFESSIONALISE FOR BUSINESS EXCELLENCEPROFESSIONALISE FOR BUSINESS EXCELLENCEPROFESSIONALISE FOR BUSINESS EXCELLENCEPROFESSIONALISE FOR BUSINESS EXCELLENCE

DR. V BALACHANDRAN* & M GOVINDARAJAN**DR. V BALACHANDRAN* & M GOVINDARAJAN**DR. V BALACHANDRAN* & M GOVINDARAJAN**DR. V BALACHANDRAN* & M GOVINDARAJAN**DR. V BALACHANDRAN* & M GOVINDARAJAN**

INTRODUCTION

Today, there are professions, which nobody wouldhave considered to be a profession in the past. While abusinessman pays more attention to maximization ofhis profit, a professional is more concerned to providean unmatched quality of service to his clients.Furthermore, every professional is required to havecertain special characteristics compared to other sectionsof society, which give him a good status and image inthe community. The ever changing businessenvironment, complexity in our legislative frameworkand emerging new regulatory norms require businessenterprises to seek the assistance, advice and supportof competent professionals in different spheres ofactivities.

An enduring image of reliability and trust based onhis knowledge, competence, experience and expertise,thorough honesty, integrity, good health, sharp memoryline, constructive attitude, right approach, goodtemperament and behaviour, quick ability to grasp theessence of a problem from mass data of information,analytical skill and persuasive character are some of theingredients that make an individual a respectedprofessional in his own right. More than anything aprofessional should have a strong character, ethical valuesand professional commitment to serve the needs andaspirations of various segments of society. In simple termsif a corporate entity does not follow the prescribed legalrequirements, the professional who is involved shouldhave the courage and conviction to make his commentsand observations on any matter for the benefit ofcompany’s shareholders and creditors which have anyadverse effect on the functioning of the company inclear cut terms rather than keeping quiet.

* Professor of Corporate Secretaryship, Alagappa University, Karaikudi.** Chairman, Madurai Chapter of SIRC of ICSI.

BUSINESS EXCELLENCE

Business excellence is the achievement ofoutstanding results through use of quality managementprinciples. It is the systematic improvement of businessperformance based on the principles of customer focus,stakeholder value, and process management. Keypractices in business excellence applied across functionalareas in an enterprise include continuous andbreakthrough improvement, preventative managementand management by facts. Business excellence, asdescribed by the European Foundation for QualityManagement (EFQM), refers to ”outstanding practicesin managing the organisation and achieving results, allbased on a set of eight fundamental concepts”, thesebeing “results orientation, customer focus, leadershipand constancy of purpose, management by processesand facts, people development and involvement,continuous learning, innovation and improvement;partnership development, and public responsibility”.

In general, business excellence models have beendeveloped by national bodies as a basis for awardprograms. For most of these bodies, the awardsthemselves are secondary in importance to thewidespread adoption of the concepts of businessexcellence, which ultimately leads to improved nationaleconomic performance. By far the majority oforganizations that use these models do so for self-assessment, through which they may identifyimprovement opportunities, areas of strength, and ideasfor future organisational development. Users of theEFQM Excellence Model, for instance, do so for self-assessment, strategy formulation, visioning, projectmanagement, supplier management, and mergers.

A – 16


BUSINESS EXCELLENCE EMBEDDED IN THE TATAGROUP

Business excellence has been embedded in the TataGroup through a holistic methodology that enablescompanies to heed the call of quality. Words such as‘quality’ and ‘business excellence’ have become somuch a part of the management lexicon that they aresometimes taken for granted, observed more in thebreach or by faddish rote. Not so in the Tata Group,where they have been embraced with a passion thatreflects a deeper understanding of their significance tothe health and wealth of all entrepreneurial activity. Thequality movement in the Tata Group is defined by aframework known as the Tata Business Excellence Model(TBEM), which has been adapted from the renownedMalcolm Baldrige archetype. The Model works underthe aegis of Tata Quality Management Services (TQMS),an in-house organisation mandated to help different Tatacompanies achieve their business objectives throughspecific processes. These processes — which have cometo characterise the Tata way of enhancing and conductingits business endeavours — essentially relate to twofactors: business excellence and business ethics.

PROFESSIONAL SERVICES

Professional excellence, whether in traditional orthe novel forms of professional services, cannot beachieved today unless there is clear passion for valueaddition and provision of value through professionalservices. One has to be a champion of business valuewhile rendering services to large small enterprises; shapevalue through excellence in compliance management.

Professional services though having similarcharacteristics has wide range of areas and activities.They involve rendering of expertise in the respectivefields. A mixture of activities like, accounts, taxation.finance, legal etc. require specific knowledge and skills.Professional aptness of an individual is defined by theformal educational qualifications and by the quality ofexperience including upto date knowledge over theworking span. Persons at the upper skill range in anyoccupation or group are recognised as professionalpersons and their occupations are referred to asprofessions. Examples of such professions are—Doctors,Engineers, Scientists, Architects, Lawyers, CharteredAccountants, Company Secretaries etc.

While interacting with a professional person, onegenerally comes across two features:

— Level of expertise

— Manner of conducting professional work.

— Services have been extensively defined, as ahuman activity aide to satisfy a human needand does not constitute a tangible commodity.

QUALITIES OF A PROFESSIONAL

With the complexity of business deals, stress ontransparency of business operations, ethical executionof business transactions and investor-friendlymanagement of business houses, and above all, the deepand great importance or recognition given to the needto achieve good corporate governance, the importanceof company secretary is felt even more keenly.

The following ten qualities may be reasonablyattributed to one such person:

1. Specialized skill and knowledge

2. Intellectual and practical training

3. High degree of sense of responsibility

4. Some degree of professional autonomy

5. Fiduciary relationship with clients

6. Code of conduct and ethics

7. Professional ideology and values

8. Operating organization’s testing competence

9. Embargo on unfair methods of attractingbusiness, and

10. High degree of discipline.

Thus, a professional, with the above qualities, shallautomatically reposition himself to the changing needsand demands of the business environment. CompanySecretaries both in employment and in practice have apivotal role to play by counselling corporate bodiesagainst improper, unethical, unfair, unlawful orquestionable business practices. In reality, it isestablished that professionals are often found to beplaying a supportive role to many company managementsto hide facts about non-compliance of legalrequirements or for window dressing of vital financialinformation.

VALUE CREATION

Value is created with the ultimate customer in mindin order to make a decent profit for not only theproprietors or owners but for various other stakeholders,like, employees, suppliers, lenders, management, andthe society at large. In the context of increasing marketcompetition, the process of creation of value has

Professionalise for Business Excellence

A – 17

become more customer-focused and customer-oriented.Customer, again, is judged from the context of theprocess at the end of which he is supposed to benefit.Therefore, there are external customers as well asinternal customers. The idea has, therefore, changedfrom creation of value to co-creation of value. Further,this is done during and at the end of each smallestprocess in the link of processes that the business consistsof. By enriching the content, the process and thecultivated perception at the beginning, during and atthe end of each business process, a business createsexcellence. Excellence is again further carried toperfectionism through the improvement of quality. Forthis purpose, the end-result or the purpose of eachprocess is clearly defined. The enrichment continueseven after the ‘“ customer, internal or external, hasreceived the product or service created for him. Thus,continuous enrichment of value that is conceived,invented, processed and created is what leads toexcellence and the continuous excelling the excellence.

VALUE PROPOSITION

Value-added businesses seek to be rewarded foraddressing identified needs of specific customersegments. Because customers may be unaware of theseneeds or using solutions for them. Value-addedbusinesses must turn them on to their solutions bypresenting their solutions clearly and persuasively. Value-added business can do this well if they have a well-defined and articulated value proposition. Valueproposition is how a product or service (solution) isdistinguished from all others in its domain so that targetcustomers consciously select it as a superior option.

The value propositions of many companies emergefrom their interactions with customers. However, in highlycompetitive and rapidly changing markets, wherecustomers are time starved and overloaded withinformation, it can be risky to pretend they will discoverthe uniqueness embedded in an offer on their own.The process of discovering, developing andcommunicating one’s value proposition is as importantto business success as one’s ability to deliver on thevalue proposition itself.

Today, Company Secretaries are required tocompete globally. Shri. Raju, Chairman, Satyam, whileinaugurating the convention on, “Beyond CreatingValue” emphasised that the need of the hour wasleadership from the manufacturing sector to create valuein the service sector. Satyam has adopted a “full lifecyclevalue – creation model”, which involves three concepts–thinking, doing and communicating.

The characteristics, the unique selling proposition,the value adding propensities, the advantages offeredby the service – product should be clear and palpable inall aspects when the product is positioned in the servicemarket. The preparation and presentation of the serviceproduct should be preceded by competition research,customer need research. Company Secretaries shouldrecognise the importance of and methodology ofcreation of value with the customer. CompanySecretaries, firms should develop customer centricculture, which includes:

— Understanding what customers seek

— Mapping competition

— Evolving a Positioning Strategy

— Bringing the value proposition alive

— Keeping track of changing needs

Value proposition emerges from the identifiedmarket gaps discovered during opportunity scoping. Itrecognizes that there are multiple approaches toaddressing any market gap and begins with a thoroughassessment of these competing approaches. Thecompeting solutions are defined broadly to include bothcurrent and future solutions to ensure acute awarenessof competitors as well as potential sources ofobsolescence. Careful assessment of competingsolutions to the problem can produce insights into howthe defined solution can be improved to ensure itscompetitiveness.

PROFESSIONAL EXCELLENCE

A Company Secretary who would aim for excellingthe excellence and a continuous improvement towardsperfectionism is the one who will recognize thepreciousness and surpassing propriety of the process ofvalue creation. Provision of professional services needsto be immaculately drenched in perpetual continuity inthe depth of enriching value creation. A profoundapproach to nudge creative and beautiful solutions tovarious kinds of business problems will require theexcellence of professional mind that is continuouslygenerating energy, cheer and positive attitude. Tounderstand business problems from the point of viewof the customer and to co-create value by finding outthe best and cost effective solutions to those problemswill require a high quality of knowledgeable interactiveskills.

MEETING THE CUSTOMERS’ EXPECTATIONS

Meeting the customers' expectations is always anarduous task. For, value is obtained by sheer hardwork,

A – 18


patience and perseverance. Value is a customerperception, defined as the satisfaction-to-acquisition costratio. Low satisfaction and high acquisition costs yieldlow values and high satisfaction and low acquisition costsgenerate high values. The term acquisition cost includesmoney, time and effort expended in acquiring and usinga solution. "Satisfction is a relative term. It is a functionof expectations and confirmation of expectations".Higher expectations of customers compel the valueadded businesses to provide them with better solutions.Thus by fulfilling their higher level expectations, valueadded businesses must endeavour to retain thecustomers at any point of time.

High expectation and low confirmation result indisappointment. No doubt the disappointment will leadto dissatisfaction. The dissatisfied customer will switchover to other professional with the same expectations.Contrarily, low expectation and high confirmation canresult in pleasant-surprise satisfaction. At any givenacquisition cost, customer loyalty is higher for solutionsthat create the highest satisfaction. It is of clearmanifestation from the above discussion that value addedbusinesses must strive to retain their customers by settingthe appropriate expectations about a solution. They mustalso strive to fulfil their expectations. In other words,they have to ensure what is promised is consistently

confirmed by customers. It implies that customer loyaltyis higher for solutions that create higher satisfaction.

CONCLUSION

The profession of Company Secretaries which madea humble beginning in the sixties has now come ofage. With profound knowledge, expertise and sharpmanagement skills, they have reached the higherechelons of management hierarchy, making a niche forthemselves. The clear and blended knowledge of variouslaws, taxation, finance, computers and corporategovernance that they possess have made them versatileprofessionals capable of rendering wide range of servicesin diversified fields. Company Secretaries, as aprofession, needs to understand the expectations of thecustomers so as to acquire competencies, skills andspeed of work that will enable it to establish and nourishbetter relationships with customers. It is through suchrelationships that better business value can be added.The concept of customer has now expanded to coverall stakeholders who have expectations from thecorporate entity or, for that matter, the business entity.For better corporate governance, which is the professedarea of specialization of Company Secretaries, it isnecessary that relationships with all stakeholders arecontinuously improved through better management andchampioning of stakeholder relationships.

REFERENCES

1. Balwant Kulkarni, "Global Marketing and BrandBuilding of Company Secretaries", Souvenir, 33rdNational Convention of ICSI, p.15.

2. Bhasker. B.S., “Repositioning the Profession inthe Changing International BusinessEnvironment” Souvenir, 30th NationalConvention of ICSI, p.A64.

3. Vincent Amanor – Boadu, Value PropositionDefinition for Agricultural Value AddedBusinesses.

4. www”en.wikipedia.org/wiki/Business_Excellence”

Corporate Compliance Management

A – 19

CORPORATE COMPLIANCE MANAGEMENTCORPORATE COMPLIANCE MANAGEMENTCORPORATE COMPLIANCE MANAGEMENTCORPORATE COMPLIANCE MANAGEMENTCORPORATE COMPLIANCE MANAGEMENT

PRAKASH PANDYA*PRAKASH PANDYA*PRAKASH PANDYA*PRAKASH PANDYA*PRAKASH PANDYA*

Corporate compliance management is as deep andvibrant as ocean. In this, various agencies includinggovernment and professional institutes, besidescorporate have role to play. Of course without individualsno organization or government can exist. Thus, the roleand approach of administrator, judiciary and law makingagency as well as that of entrepreneurs and professionalsis of immense significance. There is no doubt thatcompliance management, with no exception tocorporate compliance management, extends beyondlegal compliance and procedures, code of conduct andbest practices. It is about managing compliance of legal,procedural and contractual obligations and national andinternational treaties, code of conduct and more. In thiswrite up the focus is on legal compliances.

STRUCTURED APPROACH

A corporate can manage compliance of laws in abetter manner, if approach is not casual but structuredone. As a stepping stone, the Board of Directors andtop management need to have compliance attitude.Benefits of compliance and risk of non-complianceshould be clear. Thereafter, the scope of legalcompliance need to be determined, debated and agreedupon. Some of the questions that may be confrontedbefore proceeding in determining the scope of legalcompliance could be -

(a) Whether entire operations of the organizationto be covered or only one/few operations tobe covered ? For example, only exports or onlymanufacturing unit at particular location.

(b) What should be covered ? Whether onlystatutory compliance or only contractualobligations or both ?

* Practising Company Secretary, Mumbai.

(c) Who will carry out the functions from withinthe organization ? Whether help of outsideprofessionals should be obtained ?

(d) Who will monitor entire process and report tothe Board of Directors ?

(e) What will be the cost? Monetary cost of internalauditors, involvement of staff (by way ofovertime), external independent professionalsand what will be time involvement ?

HOW TO GO ABOUT IT ?

As a first step, companies need to identify the lawsapplicable to it. Until we have module on industry specificlaws, corporate need to carry out exercise on their own.Few corporates have already done this exercise and fewothers are in the process. However lot of duplication ofefforts are happening, so long as companies in the sameindustry are concerned. Consequently, there are diversepractices within the same industry on legal compliances.Here, independent professionals certainly provideassistance and their experience becomes useful.

Once laws applicable is known to corporate, thenthe compliance requirements under various contractsmay be assessed to get the comprehensive view ofcompliance requirements.

Thereafter, corporate need to check/run a test onthe existing internal control systems to ensurecompliance of laws. This can be achieved by calling forinformation from departmental heads. Sometimesdepartmental heads takes help of local professionals.Departmental heads, conventionally deals with business(day to day operations) and hence have no time toensure legal compliances.

A – 20


To ensure value addition, companies need to besmart to carry out audit where it is not legally requiredand risk factor is high. Increasingly, it is noticed thatcompanies carry out audit in areas where the law compelsthem to do so. For example, compliance certificate oflisting agreement from independent professional onmajor clauses are required under the law. In such cases,there is no point in carrying it out again and publishingin annual report about the same. Companies need tofind out laws where the legal compliance certificationor audit may not be required under the law but is criticalto its operation. To name a few, compliance of ForeignExchange Management Act, Foreign Direct Investments,Industrial Policy, Intellectual Property Rights, TakeoverRegulations and Prohibition of Insider Trading Regulationsare critical to most entities listed on stock exchanges inIndia.

By remaining focussed on need of the companyand ensuring legal compliance as per its own need,companies can not only reduce the time and cost ofcompliance but also gain the highest benefits (valueaddition) to its efforts.

Based on assessment of existing setup inorganization to ensure legal compliance, corporate needto take call on need for checklist of applicable laws andexamining existing checklists, if any.

The corporate then need to look at developingsustainable structure of legal and contractual compliance.Use of information technology like intranet on need toknow basics is one of the effective means to achievethat.

It is good to decide at early stage in assigning risklevels to critical legal and contractual compliances.Depending upon level of compliance and risk associatedtherewith, corporate may decide to develop checklistson its weaknesses.

Since laws are ever changing, many a times byignorance, non-compliance may also occur. As said inlegal maxim ignorance of law is no excuse, one cannotescape responsibility by stating that laws are everchanging. Some times such ignorance of law turn outto be embarrassing moments for CEO and image ofcorporate also gets badly affected. To avoid suchsituations, corporate also need to ensure constantlyupdating checklists.

Legal compliance management and developing itssystem is not a one time process. Once system of legalcompliance is in place, corporate need to continue on

an ongoing basis to acquire knowledge, may be throughtraining and seminars and effective communication ofchanges in laws in a timely manner to avoid non-compliance and avail benefits under the law (particularlyunder tax laws).

The corporate may determine tools for spreadingknowledge, its updation and review in multiple ways.Few of them could be using intranet in companies,spreading latest changes, discussing implications ofchange of laws and modifying/updating masterchecklists. Some times internal control mechanism mayneed modifications.

Corporate may choose to have audit done eitherinternally or by independent professional to assess thelevel of compliance in the organisation. Report on non-compliance may then be prepared and discussed withdefinite action plans and their time limits.

Besides regular internal audit of legalcompliances, companies may carry out full legalcompliance audit by an independent professionalonce in two/three years.

ROLE OF GOVERNMENT

Review of existing laws. Wherever possible toreframe/modify/re-enact existing laws as well as enactnew laws which are as far as possible business friendlyso that multiple social benefits arises like providingemployment avenues and promote/create desire foreducation. Laws should be such that justice deliveryshould not only happen but also be felt by all. Helppromote professional institutes to come out with industryspecific applicable laws and compliances thereof. Peopleneeds to be convinced about the necessacity and modeof administering laws.

ROLE OF PROFESSIONAL INSTITUTES

Indian professional institutes need to come togetherand bring out manuals on Industry wise applicable laws.The Institute of Company Secretaries of India has alreadytaken lead in this front by first coming out with Segmentwise modules, proposing uniform practices for companiesin the form of non-mandatory Secretarial Standards andcontinuing further with its efforts to introduce labourlaws compliance management. If other institutes joinhands with ICSI in this drive of compliance management,purpose of having industry wise modules on applicablelaws can be achieved faster. The fruits whereof wouldbe that entrepreneurs of particular industries and newgenerations will know laws that they need to comply

Corporate Compliance Management

A – 21

with. People will have better opportunities to specialisefor particular industry of their liking. Though the exerciseseems simple and is generally taken for granted andexpected of professionals, in reality the position isdifferent. It is mammoth task as there are Central laws,State laws, local laws, international treaties andcontractual obligations. Today harsh reality is thatentrepreneurs of even some of the best governedcompanies cannot be sure that they are complyingwith all applicable laws! Such an approach ofgovernment will give confidence to entrepreneurs thatwhat laws they need to comply with.

ROLE OF CORPORATES

Corporates can also contribute to research initiativesof the professional institutes so that its fruits in the form ofready material of industry specific laws applicable is availableto them. This can also help government and industry onacceptable level of compliance and its monitoring.

Lastly, it cannot be overlooked that mere compliancein letter is of no use. We have seen some of the largest,well known, profit making fortune companies though wereconsidered to be following best practices have failed.Corporate compliance management, to conclude, calls forprinciples oriented approach.

A – 22


CORPORATE COMPLIANCE MANAGEMENT —CORPORATE COMPLIANCE MANAGEMENT —CORPORATE COMPLIANCE MANAGEMENT —CORPORATE COMPLIANCE MANAGEMENT —CORPORATE COMPLIANCE MANAGEMENT —FOR ADDITION OF SUBSTANTIAL BUSINESS VALUEFOR ADDITION OF SUBSTANTIAL BUSINESS VALUEFOR ADDITION OF SUBSTANTIAL BUSINESS VALUEFOR ADDITION OF SUBSTANTIAL BUSINESS VALUEFOR ADDITION OF SUBSTANTIAL BUSINESS VALUE

S M GUPTA*S M GUPTA*S M GUPTA*S M GUPTA*S M GUPTA*

Company Secretary Profession can add substantialbusiness value and generate corporate delight in a perfectmanner by enhancing investor confidence andconfidence of other stakeholders in the companyincluding Banks, Financial Institutions, Government andOther Regulatory Authorities. These Professionals canensure technical as well as actual compliance of differentlegal requirements not merely as a tick the box exercisebut in their true spirit and purport so that all thestakeholders in particular and the society in generalderives the benefits which are due to them. A companyis also a corporate citizen and hence it has a greatercorporate social responsibility. Moreover, corporategovernance is required to encompass the technicalboundaries of company law compliance and should reachbeyond distribution of dividends to make its efforts anenriching experience for all sections of the society.

Corporate compliance management can addsubstantial business value only if the compliance is donewith due diligence and is taken seriously. The termcompliance and due diligence were earlier limited topublic offering and equity investments but this is asubject which should be taken in broader perspectiveas research/analysis is also a part of due diligence. Itmay be mentioned here that the corporate professionalsnormally assist in making a deal after due diligence butpost deal compliance is equally important. Making adeal may be easy but compliance is not. This is thereason why many companies have made corporaterestructuring and other business deals but have producedlittle business value for the company. A large numberof companies make a great deal of fuss by assembling ahuge team and allocating a big budget but they loosetheir perspective in the momentum of the transactionand end up verifying only the target company’s financial

* B.Com., F.C.S, LL.B., F.A.S.M., M.I.M.A. Practising Company Secretary and Past Chairman - EIRC of The ICSI.

statements rather than conducting a fair analysis of thestrategic logic and sustainability of the two businessentities and of course the acquirer’s ability to realisevalue from the deal or even enhance business value tothe company.

Corporate compliance management is the effortmade by an ordinarily prudent or reasonable party toavoid harm to another party or himself by due diligencebefore the deal and proper regulatory compliance afterthe deal. Compliance management is used for a numberof concepts in large business decisions involving eitherthe performance or strategical aspects of a business orthe overall necessity of a deal with a certain standard ofcare. Hence, the role of a corporate professional ingeneral and Company Secretary in particular is veryimportant.

Corporate compliance management also involves afull process of research and analysis that takes place inadvance for an acquisition, strategic investment,business partnership or even bank/institution finance inorder to determine the value of the subject of the duediligence or whether there are any shortcomings in thedocumentation process.

Corporate compliance management also involvesinvestigation and evaluation of the whole teams’characteristics, investment philosophy of the group andother terms and conditions before committing any capitalinvestment. This exercise is undertaken in order todetermine the potential issues which is expected toprovide a realistic picture of how the entity is performingnow and how it is likely to perform in the future andwhether it will add and enhance business value andhere the role of corporate professional is very veryimportant.

Corporate Compliance Management — For Addition of Substantial Business Value

A – 23

Corporate compliance management should broadlyinclude compliance of :

(A) Corporate Laws

(B) Intellectual Property Right Laws

(C) Labour Laws

(D) Tax Laws

(E) Securities Laws and

(F) All other Laws affecting the companyconcerned depending upon the type ofindustry/activity.

(A) CORPORATE LAWS

Corporate laws are the main field of work for aCompany Secretary and corporate compliancemanagement broadly requires complete compliance ofcorporate laws. There are various laws which are requiredto be read and understood by a Company Secretaryprofessional to discharge his day to day duties for theoverall compliance management system. Someimportant Acts are discussed herein below in brief -

Companies Act,1956

Companies Act is the main Act from where theprofession of Company Secretaries derives its existence.It was in 1975 that Sec 383A was inserted in the Act forthe first time through the Companies (Amendment) Act,1974 making it compulsory w.e.f. 1.2.1975 for allcompanies having a paid up capital of Rs.25 Lakh ormore to compulsorily appoint a qualified CompanySecretary as prescribed in the Company SecretariesQualification Rules. Subsequently the limit of Rs.25 Lacswas increased to Rs.50 Lakhs and thereafter to Rs.2Crores from 11.06.2002. Section 2(45) was substitutedby the Companies (Amendment) Act, 1988 w.e.f1.12.1988 to mean a Company Secretary within themeaning of clause 2(1)(c) of the Company SecretariesAct, 1980. The definition provided for an individualpossessing the qualifications prescribed under theCompanies (Appointment and Qualifications ofSecretary) Rules, 1988 only to be appointed as aSecretary to perform the duties which may beperformed by a Secretary under this Act and any otherministerial or administrative duties. The concept of apracticing Company Secretary was for the first timeinserted w.e.f. 15.6.1988 describing a Secretary inWhole time practice under section 2(45A) meaning aSecretary who shall be deemed to be in practice withinthe meaning of section 2(2) of the Company Secretaries

Act, 1980 and who wil l not be in ful l t imeemployment.

Thus, it is the Companies Act which is the parentAct for the profession of Company Secretaries whichhas gone from the year 1975 to the present stage byproviding required impetus and the Central governmenthas reposed its confidence in the profession to a largeextent which is evident from the fact that S.383A wassuitably amended in the year 2000 to provide for everycompany which is not required to employ a whole timeCompany Secretary and having a paid up share capitalof Rs.10 Lakh rupees or more to file with the Registrarof Companies a certificate from a Secretary in wholetimePractice called the Compliance Certificate certifying asto whether the company has complied with all theprovisions of this Act. A copy of this ComplianceCertificate is required to be attached with the DirectorsReport and is also required to be filed separately withOffice of the Registrar of Companies with filing fees.The Compliance Certificate Rules provide for the formatand other requirements of the same including that thesaid certificate will be laid by the company before itsmembers in the Annual General Meeting.

Compliance certificate u/s 383A (proviso)

Section 383A of the Companies Act read with theCompanies (Compliance Certificate) Rules, 2001 providefor annexing a certificate by a practising CompanySecretary (PCS) to the Directors’ Report of a companyhaving the prescribed paid up capital and the saidcertificate inter-alia provide necessary information to thereader of the financial statements.

This journey of a Company Secretary from 1975onwards and the support extended by the erstwhileDepartment of Company Affairs now known as Ministryof Corporate Affairs is the testimony to the fact that theprofession of Company Secretaries is capable of takingchallenges and opportunities provided by the corporatesector not only in compliance management but also asa corporate manager to meet global competitiveness.

Corporate Compliance management for a CompanySecretary starts right from Companies Act, 1956 andwhether in employment or in practice he has to be fullyconversant with the following broad functions of acompany.

Compliance will definitely depend upon the natureof business of a particular company and also on the factwhether it is a private company, public company, listedcompany, NBFC, sharebroking company, Investmentcompany or otherwise but the broad principles of

A – 24


Corporate Compliance under Company Law have to beunderstood by every Company Secretary. Some of themmay be summarized as follows:

(1) Meetings

Essentials of a valid meeting

— Properly convened

Proper notice must be sent by the properauthority to person entitled to attend themeeting. Explanatory Statement must beannexed to the notice of the meeting as astatement setting out materials facts relatingto each special item of business.

— Properly constituted

Proper person must be in the chair and rules asto quorum must be observed and theregulations governing the meeting must becomplied with.

— Properly conducted

The Chairman must conduct the proceeding inaccordance with the law relating to generalmeetings as per Companies Act (Sections 171to 185) and the Company’s own Articles ofAssociation.

Types of Meetings

(i) Shareholders’ Meeting

(a) Statutory Meeting : Statutory Meeting isthe first meeting of shareholders. Everycompany limited by shares and everycompany limited by guarantee and havingshare capital must hold the meeting withina period of not less than one month andnot more than six months from the date ofcommencement of business. A privatecompany is not required to hold suchmeeting.

(b) Annual General Meeting (AGM) : The firstAGM of every company must be heldwithin 18 months from the date ofincorporation or within 9months from theclose of the accounting year which ever isearlier. Every subsequent AGM must beheld at the earliest of the following dates:

— One meeting in each calendar year

— Not more than 15 months has elapsedfrom the previous AGM

— Within six months from the date ofclose of financial year

(c) Extra Ordinary Meeting (EOGM): EOGMis a shareholders’ meeting called by any ofthe following:

— By the Board of Directors on its ownmotion

— By the Board of Directors on requisitionof the members

— By the members if the board fails tocall the meeting

— By the Company Law Board

(ii) Class meetings

(a) Preference shareholders Meeting: Thismeeting is called only when the rights ofPreference shareholders are effected.

(b) Debenture holders Meeting: This meetingis called for the purpose of debentureholders when their rights are required tobe varied or otherwise.

(iii) Board Meetings and Committee Meetings

Section 285 of the Companies Act says that incase of every company a meeting of its Boardof Directors shall be held at least once in every3 months and at least 4 such meeting shall beheld in every year. Clause 49 of listingagreement provides that in case a of listedcompany, there should be at least four boardmeetings in a year and maximum time gapbetween two Board meetings should notexceed four months.

Section 286 of the Companies Act says thatnotice of every Board Meeting shall be givenin writing to every Director for the time beingin India, and at his usual address in India toevery other Director. The Act does not provideany time length for notice of Board meeting.However, as per Secretarial Standard, at least15 days notice must be given for a Boardmeeting.

Section 287 deals with Quorum for BoardMeetings which provides that the quorumshould be one-third of its total strength (anyfraction contained in one-third being rounded-off as one) or two directors whichever is higher.


A – 25

Section 289 deals with passing of boardresolution by circulation. No resolution shall bedeemed to have been duly passed by the Board,unless the resolution has been circulated indraft, together with necessary papers to alldirectors then in India (not being less in numberthan the quorum fixed for the board meeting),and to all other Directors at their usual addressin India and approved by such of the directorsin India or by a majority of such of them as areentitled to vote on the resolution.

Section 292 says that certain powers have tobe exercised by the Board only at a boardmeeting -

— Power to make calls on share holders

— Power to authorize the buy back up to 10%of total paid up equity capital and freereserves

— Power is issue debentures

— Power to borrow moneys otherwise thanon debentures

— Power to invest the funds of the Companysubject to Section 372 A

— Power to make loans subject to Section 295and Section 372A

Section 293 says that there are certain powerswhich the board can exercise only with theconsent of the company in general meeting,i.e. before exercising there powers, necessaryresolution has to be passed in the generalmeeting.

Audit Committee

(i) Clause 49 requires constitution of differentCommittees by all listed companies suchas the:

(a) Audit Committee (b) RemunerationCommittee (c) Shareholders’ GrievanceCommittee etc;

(ii) Companies Act requires (undersection 292A) constitution of an AuditCommittee by every Public companyhaving paid up capital of not less than Rs.5Crores consisting of not less than threedirectors and such number of other directorsas the Board may determine of which two-

third of the total number of membersshould be Directors other than managingor whole-time director. The Section alsoprovides for some other compliances bythe Company.

(iii) Similarly all Non- Banking FinancialCompanies having assets of 50 crores andabove are required to constitute an AuditCommittee consisting of not less thanthree members of its Board of Directorsfor monitoring the transactions and fortransacting other business as per thenotification being notification no. DBS.192/DG(VL)-2007 and DNBS.193DG(VL)2007both dt. 22.02.2007 issued by the ReserveBank of India.

(iv) Schedule XIII of the Companies Act,1956requires compulsory constitution ofRemuneration Committee by certaincompanies to be able to make payment ofremuneration to their managerialpersonnel.

(iv) Court Convened Meetings :

These meetings are held with directionsof the High Court under chairmanship of aCourt appointed Chairperson. Thesemeetings relate to amalgamation , mergers,reconstructions etc; and one of the mostimportant thing to be noted for compliancein these meetings is that - a majority innumber representing three fourth in valueof the creditors or class of creditors ormembers or class of members as the casemay be present and voting either in personor where proxies are allowed, by proxy, atthe meeting, agree to any compromise orarrangement, the compromise orarrangement shall, if sanctioned by theCourt, be binding on all the creditors, allthe creditors of the class, all the members,or all the members of the class; as the casemay be, and also on the company asrequired u/s 391(2) of the Act. OtherProcedures for such Court Convenedmeetings are to be followed as per thedirections of the Hon’ble Court.

(v) Postal Ballot

Section 192A was inserted recently w.e.f15.6.2001 to provide that a listed Public

A – 26


Company may, and in the case ofresolutions relating to such business as theCentral Government may, by notification,declare to be conducted only by PostalBallot, shall, get any resolution passed bymeans of a postal ballot, instead oftransacting the business in GeneralMeeting of the Company. The sectionfurther provides for different complianceand includes voting by electronic mode.Subsequently Companies (passing of theresolution by Postal Ballot) Rules, 2001 wereframed and the same were also amendedsubsequently. It is important to note thatthe following items of agenda are requiredcompulsorily to be passed through PostalBallot only:-

(a) alteration in the objects clause ofMemorandum;

(b) alteration of Articles of Association inrelation to insertion of provisionsdefining private company;

(c) buy back of own shares by thecompany under sub-section (1) ofsection 77A;

(d) issue of shares with differential rightsas to voting or dividend or otherwiseunder sub-clause (ii) of clause (a) ofsection 86;

(e) change in place of Registered Officeoutside local limits of any city, townor village as specified in sub-section (2) of section 146;

(f) sale of whole or substantially the wholeof undertaking of a company asspecified under sub-clause (a) of sub-section (1) of section 293;

It is recommended that therequirement of Postal Ballot shouldapply to leases or creation ofmortgages and charges by companies,where such mortgage or chargeconfers on the other party the right totake over the business of theundertaking in specified circumstances.

(g) giving loans or extending guarantee orproviding security in excess of the limitprescribed under sub-section (1) ofsection 372A;

It is suggested that investment by wayof acquisition, subscription, purchaseor otherwise of the securities of anyother body corporate in excess of thelimits prescribed under sub-section (1)of Section 372A of the Act should bemade on the authority of a Resolutionpassed by the shareholders by votingthrough Postal Ballot, though thisrequirement is not expressly providedat item (g) above;

(h) election of a director under proviso tosub-section (1) of section 252;

(i) variation in the rights attached to a classof shares or debentures or othersecurities as specified under section 106.

As per Section 192A besides the items ofbusiness mentioned as above, a listed PublicCompany may seek the approval of itsshareholders through voting by postal ballot forany other item of business as it may decide butthe following four items of ordinary businessare required to be transacted at the AnnualGeneral Meeting only and not otherwise:

(1) consideration of accounts, balance sheetand the report of the Board of directorsand auditors,

(2) declaration of dividend,

(3) appointment of directors in place of thoseretiring, and

(4) appointment of, and the fixing ofremuneration of, the auditors;

In addition to the above four items certainspecial agenda like removal of Director, removalof Auditor and items requiring special resolutionu/s 190 should also be transacted only atGeneral Body Meeting of shareholders.

(2) Accounts and Audit:

Every company is required to maintain Accounts.and get them audited as required u/s 209 to 223 forAccounts and 224 to 233B for Audit. It may bementioned here that earlier the things were differentwhen Manufacturing and Other Companies (Auditors’Report) Order, 1988 (MAOCARO) was there and theAccounting Standards were being prescribed by theInstitute of Chartered Accountants of India. Lot ofchanges have taken place globally in the wake of certainaccounting irregularities resulting in a large crisis in


A – 27

developed countries and public debate and discussionon the role of accounting professionals. The Sarbanes -Oxley Act came not only to regulate the accountingprofession but also to bring transparency and disclosurein corporate dealings. Corporate governance has alsobeen brought in a big way by Regulatory Authorities inIndia and other countries. In this backgroundMAOCARO was replaced with CARO and it wassubsequently amended by putting greater responsibilityon Auditors. Secondly, a National Advisory Committeehas been constituted by the Central Government onAccounting Standards pursuant to Section 210A of theCompanies Act, 1956 and now the AccountingStandards have become a part of the said Act, as thesame have been notified as Companies (AccountingStandards) Rules, 2006.

CARO requires reporting by auditors on a largenumber of following important items which aremandatory:-

(i) Whether the company is maintaining properrecords showing, full particulars includingquantitative details and situation of fixed assetsand other matters related thereto.

(ii) Whether physical verification of inventory hasbeen conducted by the management atreasonable intervals and matters related thereto.

(iii) Has the company either granted or taken anyloans (secured or unsecured) to/ from thecompanies, firms or other parties covered inthe Register maintained u/s.301 of the Act.

(iv) Is there an adequate internal control procedurecommensurate with the size of the companyand the nature of its business and other mattersrelated thereto.

(v) Whether transactions that need to be enteredinto the Register in pursuance of Section 301have been so entered and matters relatedthereto.

(vi) In case the company has accepted depositsfrom the public whether the directives issuedby the RBI and Provisions of Sections 58A and58AA of the Act have been complied with andmatters related thereto.

(vii) In case of listed companies and othercompanies whether the company has aninternal audit system commensurate with itssize and nature of its business.

(viii) Where maintenance of cost records has been

prescribed, whether such records have beenmaintained.

ix) Is the company regular in depositingundisputed statutory dues including

money into the Investors’ Education andProtection Fund.

(x) Whether in case of a company which has beenregistered for a period not less than 5 years itsaccumulated losses at the end of the Financialyear are not less than 50% of its net worth andmatters related thereto.

(xi) Whether the company has defaulted inrepayment of dues to financial institutions orbanks or debenture holders.

(xii) Whether adequate documents and records aremaintained in cases where the company hasgranted loans and advances on the basis ofsecurities by way of pledge of shares/debentures.

(xiii) Whether the provisions of any Special Statutesapplicable to Chit Funds have been dulycomplied with.

(xiv) If the company is dealing in shares andsecurities whether proper records have beenmaintained of the transactions and whethertimely entries have been made therein.

(xv) Whether the company has given any guaranteefor loans taken by others from banks andfinancial institutions and whether the terms andconditions thereof are prejudicial to the interestof the company.

(xvi) Whether term loans were applied for thepurpose for which the loans were obtained.

(xvii) Whether the funds raised on short term basishave been used for long term investments andvice- versa. If so, the nature and amount arerequired to be indicated.

(xviii) Whether the company has made anypreferential allotment of shares to parties andcompanies covered in the Register maintainedu/s.301 of the Act and if so, whether the priceat which shares have been issued is prejudicialto the interest of the company.

xix) Whether securities have been created in respectof debentures issued.

A – 28


(xx) Whether the management has disclosed on theend use of money raised by public issues andthe same has been verified.

(xxi) Whether any fraud on or by the company hasbeen noticed or reported during the year andif so, the nature and the amount involved is tobe indicated.

(3) Dividend

Dividend includes interim dividend as defined insection 2(14A) of the Act and the same is declared bythe Board of Directors. Final dividend is recommendedby the Board to be declared at the AGM. Section 205 toSection 207 deal with the manner and time of paymentof dividend. One of the important amendment on thissubject was brought about in the year 2000 to providefor the following:

(a) The amount of dividend shall be deposited in aseparate bank account within five days fromthe date of declaration of such dividend

(b) The dividend is to be paid within 30 days fromthe date of declaration

(c) If it is unpaid/unclaimed upto seven days fromthe expiry of the said 30 days then it is to betransferred to a special account called “UnpaidDividend Account of ……..Company Ltd./Company Pvt.Ltd” within seven days

Thereafter as required under section 205C, the sameis required to be transferred to the Investor Education &Protection Fund (IE&PF) after the expiry of seven years.It may be noted here that earlier when the unpaid/unclaimed amount were being transferred undersection 205A to the General Revenue Account of theCentral Government a shareholder could apply to getback his money but now once the money goes to IE&PFno one will be able to claim his money back from thefund. Moreover, earlier only unclaimed/unpaid dividendwere being transferred under section 205A but nowthe amount relating to the following amounts are alsorequired to be transferred to the fund:-

(a) amounts in the unpaid dividend accounts ofcompanies;

(b) the application moneys received by companiesfor allotment of any securities and due forrefund;

(c) matured deposits with companies;

(d) matured debentures with companies;

(e) the interest accrued on the amounts referredto in clauses (a) to (d);

(f) grants and donations given to the Fund by theCentral Government, State Governments,companies or any other institutions for thepurposes of the fund; and

(g) interest or other income received out of theinvestments made from the Fund

(4) Fixed Deposit Management

Section 58A has been amended to provide stringentmeasures for companies accepting public deposits.There are two types of companies which accept publicdeposits (i) Non- Banking Financial Company (NBFC)and (ii) Manufacturing Companies. While section 58Aapplies to both types of Companies, NBFCs are alsorequired to comply with the directions issued by theRBI from time to time.

Companies (Acceptance of Deposits) Rules asamended prescribe the Rules for acceptance andrepayment of deposits and maintenance of liquids assetsby them. The RBI directions for NBFCs which areaccepting public deposits require more compliances tobe done by them. Auditors of NBFC are also required togive separate report to RBI for these deposit acceptingNBFCs. Section 58AA and section 58 AAA were insertedby the Companies (Amendment) Act, 2000 providingfor the following measures :

(i) Section 58AA has been inserted to protect smalldepositors with deposits of a sum not exceedingRs.20,000 with the company in any financialyear. This Section requires companies to informthe Company Law Board within sixty days fromthe date of default if a company failed to makerepayment of deposits on maturity to smalldeposit holders. The company Law Board maymake an order within thirty days from the dateof receipt of intimation of the default callingupon the company to repay the deposit inquestion and the company shall be bound tocomply with the order. The persons who areresponsible for any default (both in respect ofrefund of deposits and compliance with CLBorders) shall be punishable with imprisonment,which may extend to three years and shall alsobe liable to fine of not less than Rs.500 per dayduring which such default continues.

(ii) Section 58AAA has been inserted to providethat the offences under sections 58A and 58AA


A – 29

connected with or arising out of acceptance ofdeposits shall be cognizable offence underCriminal Procedure Code, 1973.

Section 58A(9) provides for the depositors to makean application to Company Law Board in case of nonpayment of their deposit by any company. The CompanySecretaries of deposit taking companies must be verycareful as any default in repayment of deposit and notcomplying with the above provisions of law will renderthem liable for prosecution as they are officers in defaultand this offence is a non-compoundable offence.

If any company makes any default in repayment ofpublic deposit then they cannot take advantage of certainprivileges available to these Companies otherwise.

(5) Transfer and Transmission

This is a very important compliance to be done bythe Company Secretary and his department. There hasbeen a complete change of scenario from paper sharescript to paperless shares due to the advent ofdematerialization. Although most of the shares of allbig companies are in De-mat form but still papersecurities are in circulation to some extent and theyneed to be transferred/ transmitted as and whenpresented to the company. SEBI had mandated that allcompanies are required to have a common registry forboth physical as well as de-mat mode, which may eitherby in-house or outsourced. In-house facility has to beregistered with SEBI under the SEBI(Registrar to an Issueand Share Transfer Agents) Rules,1993 otherwise thecompany has to appoint an independent Shares TransferAgent (STA) or RTA for both the modes.

(6) Corporate Restructuring

Corporate restructuring has been widely used indeveloped economies as growth strategy and isincreasingly becoming an order of the day in the Indiancontext to achieve competitive edge. In the presentGlobal scenario, business organisations can survive onlyif they develop a high level of sustainablecompetitiveness. In order to maximise value creation itis important to focus on core competencies. It istherefore equally important to plan for selling a business,as it is to acquire a business. Acquisition of shares of awell-run and established company is the easiest way oftaking over the same instead of setting up a new ventureand facing all kinds of uncertainties. Mergers andacquisitions save the company from adverse effects ofgestation period and teething trouble and achievesustainable competitive advantage.

Business restructuring is required for one or moreof the following reasons: -

1. Achieve financial viability

2. Acquire market share and tackle competition

3. Synergy of operations leading to optimumutilisation of resources

4. Get rid of loss making units and get sick unitsat throwaway prices

5. Enter new areas of business thereby savinggestation period

6. To focus on core business where the group ismarket leader and exit non core areas

7. Acquire Trade marks / Patents / Goodwill

8. Get tax benefits – accumulated losses, carriedforward losses, depreciation, capital gains

9. Need to be pro-active to events happeningaround by updating the technology

10. Simplify organizational structures to gaincustomer focus and change from productiondriven approach to market driven approach

11. To focus on cost reduction drive by tacklingsurplus man power and eliminating chronicproblem of low productivity

12. To meet the challenges arising out of thecurrencies becoming fully convertible, whichmakes possible instant movement of largeamounts of capital across national boundaries.

13. To tackle in bringing down the debt equity ratioby sale of unwanted loss making unit and toreduce interest burden.

14. To expand dealer and consumer network

A scheme of merger or de-merger should be fairand reasonable. It should not be detrimental to publicinterest. So far as tax planning is concerned it may bementioned here that tax planning may be legitimatebut it should be done within the framework of law andsubject to approval by the High Court. While doingthe planning for amalgamation the following aspectsare required to be kept in mind: -

1. All the properties of the amalgamating companyor companies should vest with theamalgamated company.

2. All the liabilities of the amalgamating company

A – 30


or companies should become the liabilities ofthe amalgamated company or companies.

3. The shareholders holding not less than three-fourths in value of the shares in theamalgamating company should becomeshareholders of the amalgamated company byvirtue of the amalgamation.

In case of de-merger the following points shouldbe taken care of: -

1. All the de-merged entities are companies. TheIncome Tax Act has defined a demergedcompany as a company whose undertaking istransferred, pursuant to a demerger, to aresulting company.

2. De-merger involves transfer of one or moreundertakings of the demerged company to theresulting company. A resulting Company hasbeen defined inter-alia to mean one or morecompanies to which the undertaking of thedemerged company is transferred in a demergerand, the resulting company in consideration ofsuch transfer of undertaking, issues shares tothe shareholders of the demerged company.

3. Transfer is pursuant to a scheme of arrangementunder sections 391 to 394 of the CompaniesAct, 1956.

4. All the property of the undertaking immediatelybefore the de-merger becomes the propertyof the resulting company.

5. All the liabilities relatable to the undertakingimmediately before the de-merger becomesthe liabilities of the resulting company.

6. The property and liabilities of the undertaking(s)of the demerged company are transferred atvalues appearing in its books of accountimmediately before the de-merger (ignoringrevaluation).

7. The resulting company issues in considerationof the demerger its shares to the shareholdersof the demerged company on a proportionatebasis.

8. Shareholders holding not less than three fourthin value of the shares in the demerged companybecome shareholders of the resulting companyby virtue of the demerger.

9. The transfer of the undertaking is on a goingconcern basis.

10. The demerger is in accordance with the conditions,if any, notified under section 72A(5) of theIncome Tax Act by the Central Government inthis behalf from time to time.

The procedure for mergers, demergers, takeoversand other forms of business restructuring is very complexand lot of preparation is required before the same canbe taken up. This not only involves the compromisesor arrangements between the company and its creditorsor any class of shareholders but it also involves safeguardof public interest and compliance with various laws. Theprofessionals are therefore required to do a lot ofhomework before embarking upon any scheme or planfor undertaking business restructuring.

(7) Registration and Modification of Charges

Section 134 of Companies Act provides that acharge can be filed by the company or by any personinterested in the charge within 30 days from the dateof creation of charge together with the instrumentcreating the charge.

If charge is not filed within the above 30 daysRegistrar of Companies (ROC) may allow next 30 daystime on payment of such additional fees specified inschedule ‘X’ if there is sufficient cause for not filingcharge timely. If a charge is not filed within the abovetime limit then the company has to make anapplication/ petition before the Company Law Board(CLB) for extension of time. CLB will grant extensionof time u/s 141 if it is satisfied that the omission to filewith ROC is accidental or due to some sufficient cause.

(8) Appointment of Managerial Personnel andpayment of Remuneration

The company has to comply with the relevantprovision of the Act while making appointments ofManagerial personnel including sections 198, 269 and309 read with schedule XIII of the Act. Every companyhaving a paid-up capital of Rs. 5 Crores or more iscompulsorily required to appoint a Managerial Personneleither Managing Director or Whole-time Director orManager. While doing so compliance of Schedule XIIIis also necessary which inter-alia prescribes the table ofpayment of remuneration in different parts dependingupon the profitability and other factors. If a company isunable to comply with Schedule XIII then it is requiredto make an application to Central Government for itsapproval.


A – 31

Competition Act, 2002

The Indian Market has to gear itself to promoteand sustain fair competition. Accordingly, the existinglaw on matters relating to competition - the MRTP Act,1969, is being repealed by the Competition Act, 2002once it becomes fully operational. In the light ofinternational economic developments the focus of thisAct is on promotion of fair competition rather thancurbing monopolies.

Establishment of Competition Commission of India(CCI): There shall be established CompetitionCommission of India to prevent practices having adverseeffect on competition. The CCI shall replace the existingMRTP Commission under the MRTP Act, 1969.

This Act seeks to ensure fair competition in India,by prohibiting trade practices, which cause appreciableadverse effect on competition. Three such practiceshave been identified and shall be regulated by this Act,which are as follows: -

(i) Anti-competitive Agreements,

(ii) Abuse of Dominant Position,

(iii) Elimination/ reduction of competitors in marketachieved through Combination.

An option has been given to the person/ enterpriseentering into a combination to give intimation of theproposed combination to the CCI who on receipt ofinformation or suo moto shall determine the effect ofthe combination. In terms of the Act, if a combinationhas or is likely to have adverse effect on competitionwithin the relevant market in India, such combinationshall be void.

The Act empowers the CCI to inquire intoagreements, abuse of dominant position, orcombinations taking place outside India, if they have orare likely to have an appreciable adverse effect oncompetition in India. If we consider a situation wherethere is a merger between two enterprises abroad, suchas Company in U.K. and Company in U.S.A., whichhave subsidiaries in India, then the CCI will have powersto inquire into such a combination.

The Competition Act was enacted in 2002 keepingin view the economic developments that have resultedin opening up of the Indian economy, removal ofcontrols and consequent economic liberation whichrequired that the Indian market be geared to facecompetition from within the country and outside. TheCompetition Act, 2002 provided for the establishment

of a Commission to prevent practices having adverseeffect on competition, to promote and sustaincompetition in markets, to protect the interests ofconsumers and to ensure freedom of trade carried onby other participants in markets, in India, and for mattersconnected herewith or incidental thereto

E-governance regime for e-filing of forms underMCA-21 Programme.

The MCA-21 project was inaugurated on18.02.2006 at the ROC Office in Coimbatore wherethe first Company in India was registered through e-filing. Thereafter it was made on-line on 24.04.2006 atMumbai and 30.07.2006 at Kolkata. The last location togo on-line was Jammu on 04.09.2006. Now all ROCoffices in the country have gone on-line and areaccepting Company documents in e-mode.

The Central Government started this Project underits e-Governance programme. The initiative was rightlynamed as MCA-21 to show the shape of things to comefor all of us in the 21st century which envisages totaltransformation of the work at the Registrar of Companies(ROC) and RD Offices throughout the country takingus from a paper-based to a paperless environment.Prime Minister Dr. Manmohan Singh had launched thee-filing in Delhi on 18th March 2006 which shows theimportance of the project. The system had gone fullylive from 16.09.2006 under which all documents arerequired to be filed by Companies in electronic modeusing digital signatures.

With the above system the entire e -filing isexpected to be done from the virtual office. The presentsystem of filing physical documents with the offices ofROC has already been replaced by the above project.The stake-holders are not required to visit ROC officesanymore and they can complete their transaction on a24X7 and anytime/anywhere basis in the comfort oftheir own offices in the future scheme of things underthis project. The future Company Law is poised formaking the life of a citizen easy at least to this extent.

Benefits of MCA-21 Project

MCA-21 seeks to fulfill the requirements of variousstakeholders including the corporates, professionals,public, financial institutions and banks, Government andthe MCA employees. The key benefits of MCA-21project are as follows:

(a) On-line incorporation of companies

(b) Simplified and easy mode of filling of Forms/Returns

A – 32


(c) Registration as well as verification of chargesanytime and from anywhere

(d) Inspection of public documents of companiesanytime from anywhere

(e) Building up a centralised database repositoryof corporates operating in India

(f) Enhanced service level fulfillment and customerrelationship building

(g) Total transparency through e Governance

(h) Timely redressal of investor grievances

(i) Availability of more time for MCA employeesfor qualitative analysis of corporate information

(B) INTELLECTUAL PROPERTY LAWS

The whole concept of intellectual property is anage-old concept. The importance underlying intellectualproperty historically has been that of recognition andrewards associated with ownership of inventions andcreative work to encourage inventive and creativeactivity to stimulate economic growth of a nation. Weare moving globally from BPO to KPO. This is the ageof knowledge economy. The professionals have to playa very important role not only in acquiring knowledgebut also in reprocessing and reengineering it for commongood. In the corporate parlance also expertise in theform of technology or other intellectual input is rewardedby liberal grant of Employee Stock Options and otherincentives. In our country, in the wake of globaldevelopments we have updated our Intellectual PropertyRights laws to make them compatible with therequirements of WTO and TRIPs. Some of the newlegislations in the field on intellectual property are asfollows:

A. Patents Act, 1970

B. Trade Marks Act, 1999

C. Design Act, 2000

D. Semi Conductor Integrated Circuits LayoutDesign Act, 2000

E. The Protection of Plant Varieties and FarmerRights Act, 2001

F. The Geographical Indications of Goods(Registration and Protection) Act, 1999

G. Information Technology Act, 2000

The future laws under the intellectual property rightsconcept will also have an important element of riskmanagement. The ownership and control of intellectualproperty also attract certain risks and this requires

strategies and plans to mitigate those risks.The mostimportant among others being the infringement of rightsin intellectual property. The risk management strategyshould take into consideration the situations wherecompany’s own Intellectual Property rights (IPRs) mayinfringe the IPRs of a third party and the company has avalid claim of infringement against the third party. It isalso important to analyze the scope of any grant of rightsin intellectual property assets , which may includelicenses, distribution agreements, reseller arrangementsand any other agreement or transaction involving transferof IPRs that may impact its value.

Making Indian Intellectual Property Rights lawscompatible with global trends

We are one of the few developing countries whichhave taken initiative to protect Intellectual PropertyRights (IPR) and the same is evident from the fact thatour Government has taken several steps to make ourIPR laws compatible with the TRIPS agreement bymaking amendments to Copyrights Act, Trade MarksAct and the Patents Act. Moreover we have alsobrought out a new Designs Act to keep pace with thetechnological developments. Necessary Rules andRegulations are also being brought out to make theselaws fully compatible with the relevant globalrequirements. The Trade Marks Act, 1999 was broughtinto force by a notification-dated 15.09.2003. The recentCopyright (Amendment) Act, 1999 is taking care of theprotection of copyright issues and covers many areas,which were hitherto disputed. The Patents(Amendment) Act 2002 will take care of properregistration of Patents and protection of IntellectualRights relating thereto. Earlier the Government hadenacted the Information Technology Act in the year 2000to provide statutory recognition and necessary legalframework for computer and other cyber related issues.In our country we are far ahead of other membercountries of WTO in providing due protection to IPRand setting global legal standards.

(C) LABOUR LAWS

The following Labour Laws are important forCompany Secretary Professionals under their over allCompliance Management System-

(1) The Industries( Development and Regulation)Act,1951

(2) Minimum Wages Act, 1948

(3) Payment of Bonus Act, 1965

(4) Payment of Gratuity Act, 1972


A – 33

(5) Employees’ Provident Funds and MiscellaneousProvisions Act, 1952

(6) Employees’ State Insurance Act, 1948

(7) Workmen’s Compensation Act, 1923

(8) Contract Labour (Regulation and Abolition) Act,1970

(9) Industrial Disputes Act, 1947

(10) Industrial Employment (Standing Orders) Act,1946

(11) Factories Act, 1948

(D) TAX LAWS

Direct Tax:

— Income Tax Act, 1961

Indirect Tax Laws:

— Sales Tax Laws( both State Act & Central SalesTax Act)

— Central Excise Act, 1944

— Customs Act, 1962

— Service Tax

— Value Added Tax (VAT)

— Profession Tax

The above taxation Laws are some of the importantLegislation which a Company Secretary Professionalshould know as he is the Principal officer of a company.Two new subjects are discussed here below:

Value Added Tax (VAT)

It has been often said that the prevailing sales taxsystem in different states with different rates of taxes,turnover taxes, entry taxes and octroi etc; requiringdifferent kinds of documents for interstate transport ofgoods are difficult and complex. Taxation of inputs andoutputs results in payment of tax on tax with consumerspaying more than they are needed to pay. The levy ofCentral Sales Tax also results in the richer states collectingtax from the consumers in poorer states. In thisbackground it is necessary to transform the whole systeminto a simple value added tax(VAT). Switching over toVAT is essential in the present scenario of open economyand is the need of the hour. It will provide level playingfield to domestic trade and industry and consumer willalso be benefited by getting goods at competitive prices.It is a well known fact that the existing system of salestax does not allow local manufacturers to compete withthe importers and the whole system is unable to meet

the international competition for domestic exports. Thissystem is non- neutral and results in multiplicity oftaxation thereby leading to economic distortion. Thus,introduction of VAT is a timely step in the right direction.The corporate professional are required to be well versedin VAT laws of different states to be able to complywith the same.

Service Tax

Service tax was introduced in India in the year 1994and till now there is no separate Act for levy of servicetax. However, certain sections of the Central Excise Act,1944 have been made applicable to the service tax law.Initially service tax levy had started only with threeservices but now they are covering a wide ambit ofservices provided in the country. Professionals werebought into this tax net in the year 1998. The rates ofservice tax have also gone up from a small percentageto 12% now with an education cess of 2% and additionalsecondary and higher education cess of 1% on servicetax. The country is now moving towards uniform Goodsand Service Tax law which will replace sales tax in phases.The corporate professionals are required to acquaintthemselves to be able to comply with service tax lawsalso.

(E) SECURITY LAWS

Securities issue management and due diligence isone of the prime responsibility of a Company Secretaryprofessional as he is also the Compliance Officer namedin all offer documents. Companies raise capital/debtinter-alia through the following issues:-

— IPOs/Public Issue

— Rights Issue

— Bonus Issue

— Preferential Issue

— Employees Stock Option Scheme

— Debt Instruments

— GDRs/ADRs

— ECB/FCCBs etc;

Some of the Important Acts/Rules relating to capitalissue management are discussed here below:

— Securities Contracts (Regulation) Act, 1956

— Foreign Exchange Management Act, 1999

— Depositories Act, 1996

— Securities and Exchange Board of India Act, 1992& SEBI Guidelines

A – 34


Securities and Exchange Board of India Act , 1992& SEBI Guidelines

The Securities & Exchange Board of India( SEBI) is aRegulatory Authority which was set up by the CentralGovernment for the twin purpose of Regulation of Capitalmarket and protection of investors. SEBI has come along way since its inception in the year 1992 and hascome out with many Rules and Regulations. Some ofthe Regulations which are important for our day to dayfunctioning are:

(i) SEBI( Substantial Acquisition of Shares andTakeovers) Regulations, 1997

(ii) SEBI (Prohibition of Insider Trading)Regulations,1992

(iii) SEBI(Buy-Back of Securities) Regulations, 1998

(iv) SEBI (Disclosure and Investor Protection)Guidelines,2000 as amended from time to time.

SEBI (Disclosure and Investor Protection)Guidelines,2002 also referred to as DIP guidelines mainlyprescribes the matters relating to Issue of Securitiesincluding public issue, rights issue, bonus issue,preferential issue and other capital issues. It is dividedinto various Chapters and Schedules and the same arevery comprehensive. These guidelines are being updatedfrequently and the Company Secretary is required toupdate himself regularly with these amendments so asto be able to handle the matters relating to the Capitalissues of his company. Some of the Compliances whichare essential for the Company Secretary going for anycapital issue are the pricing, promoters contribution,lock-in requirements, preparation of offer documents,advertisement, book-building process, allotment , listingand several other aspects connected thereto. Beforeplanning any issue he has to consult the Merchant Bankerabout the whole process and regularly interact with himduring and after the issue. Now-a-days Red herringProspectus is filed and he has to be well versed withthe legal provisions so as to be able to complete his jobwithout any difficulty.

Dematerialization of Securities

Trading of securities through Depository mode(Electronic mode) was introduced in India about adecade ago and has come a long way since then due tocompulsory demat trading which is also known asscriptless or paperless trading. This requires papersecurities to be de-materialised and kept in electronicmode. The system has been put in place after studying

international practices like the US depository basedtrading and the UK depository system. The Indian systemhas taken overall concept from the international Capitalmarket and the same has been fine – tuned to meetIndian conditions. We have to be very careful as thenew system is also not totally free from certain negativeaspects.

India had entered into the era of paperless tradingwith the Government promulgating The DepositoriesOrdinance 1995 on 20th September, 1995 which wassubsequently enacted as The Depositories Act, 1996,providing legal framework for setting up of Depositoriesto record details of ownership of securities in book entryform. This demonstrated India’s commitment andwillingness to increase efficiency and transparency inits Capital Market. The Govt. was convinced that theestablishment of depositories alongwith screen basedtrading will go a long way in boosting the investors’confidence and allaying the apprehensions of foreigninvestors about investing in Indian Capital Market

Listing agreement and Corporate Governance

Compliances under the listing agreement are themain thrust of a Company Secretary professional.

Major Compliances required to be followed underthe Listing Agreement are briefly given hereunder:

Clause Compliances required

Clause 16 Book closure / Record Date to beinformed

Clause 21 Payment of dividend on shares,interest on debentures/bonds,redemption amount of redeemableshares or debentures/bonds

Clause 32 Cash Flow Statement inthe Annual Report, ConsolidatedFinancial Statement and related partydisclosures

Clause 35 Shareholding pattern containing detailsof promoters holding and non-promoters holding

Clause 41 as (a) Un-audited financial results andamended other related itemsrecently vide (b) Half - year results and LimitedSEBI noti- review Report by auditorsfication dt. (c) Auditors Qualification10.07.2007 (d) Quarterly reporting of Segment

wise Revenue, results and CapitalEmployed.


A – 35

(e) Consolidated Quarterly Financialresults of parent company

(f) Annual Results(g) Change of name due to new

activity(h) Explanation regarding variations in

utilization of funds and profitability

(i) Status of number of complaintsreceived from investors andredressed during the quarter

Clause 47 (a) Appointment of CompanySecretary as Compliance Officer

(b) Registration of share Transferwithin 30 days and submission ofa certificate with Stock Exchange(s)on a half yearly basis as per clause47(c )

Clause 49 Corporate Governance

(A) Mandatory Requirements:

(i) Board of Directors

(a) Composition of Board

(b) Non- Executive Directors’Compensation anddisclosures

(c) Other provisions as to Boardand Committees

(d) Code of Conduct

(ii) Audit Committee

(a) Qualified and IndependentAudit Committee

(b) Meeting of Audit Committee

(c) Powers of Audit Committee

(d) Role of Audit Committee

(e) Review of information byaudit committee

(iii) Subsidiary Companies

(iv) Disclosure

(a) Basis of related partytransactions

(b) Disclosure of accountingtreatment

(c) Board disclosures – Riskmanagement

(d) Proceeds from public issue,rights issues, preferentialissues etc;

(e) Remuneration of Directors

(f) Management

(g) Shareholders

(v) CEO/CFO Certification

(vi) Report on Corporate Governance

(vii) Compliance (Certification byPractising Company Secretary orCompany’s Auditor)

(B) Non-Mandatory Requirements:

(i) The Board

(ii) Remuneration Committee

(iii) Shareholder rights

(iv) Audit Qualifications

(v) Training of Board Members

(vi) Mechanism for evaluating non-executive Board Members

(vii) Whistle Blower Policy

SEBI (Substantial Acquisition of Shares andTakeovers) Regulations, 1997 as amended

A committee was constituted under thechairmanship of Justice P. N Bhagwati to remove thedeficiencies of the 1994 Takeover Code and to makeTakeover Regulations more equitable and transparent.On the basis of suggestions / recommendations madeby the committee, SEBI came out with the aboveRegulations. These Regulations have since beenamended from time to time to meet the requirementsof trade and industry and protect interest of investors.It may be noted here that the Takeover Code inter-aliadoes not apply in the following situations: -

1. Acquisition of shares pursuant to a scheme

(i) Framed u/s 18 of Sick Industrial Companies(Special Provisions) Act, 1985

(ii) Of Arrangement or Reconstruction includingamalgamation or merger or demerger underany Law or Regulation, Indian or Foreign

2. Acquisition of shares in companies whose sharesare not listed on any stock exchange provided that

Clause Compliances required Clause Compliances required

A – 36


this exemption will not be available if by virtue ofacquisition or change of control of any unlistedcompany, whether in India or abroad the acquireracquires shares or voting rights or control over alisted company.

3. Acquisition of shares in terms of Guidelines orRegulations regarding de-listing of securitiesspecified or framed by SEBI.

It may also be noted that most of the businessrestructuring is done through the Takeover route andmany of these takeovers are friendly or agreed takeoverswhere the acquirer after agreeing to buy stake from thepromoter group also buys shares from general investingpublic through open offer after complying with the Take-over Regulations and other legal requirements.

SEBI (Prohibition of Insider Trading) Regulations,1992

SEBI had amended Insider Trading Regulations videa notification dated 20.2.2002 completely re-writing theearlier provisions. One of the important aspects of thisamendment was that the Regulatory Authority broughtmany provisions of the Sarbanes Oxley Act into theseRegulations.

The following features reflect this thinking: -

(1) Several definitions were changed and newdefinitions were inserted.

(2) SEBI may initiate criminal prosecution u/s 24 inaddition to any other action under chapter VIA.

(3) Preparation of a code of internal procedure &conduct for listed Companies.

(4) Disclosure of holding by Directors and substantialshareholders.

(5) Provisions for violation of the Regulationsrelating to disclosures.

Although some of the new Regulations were neededbut all of them have, over a period of time, proved tobe a little harsh given the conditions in our country.Generally speaking also all the US situations may notfully fit-in into our country and we have started realizinglately that our own laws are much better then the lawsof other countries.

(F) OTHER LAWS

Pollution and Environment Laws have becomesignificant and therefore a professional must beconversant with these laws in addition to above laws.The knowledge of other laws required for a CompanySecretary will depend upon the type of Company/activities of the Company where he is working. Forexample: A person working in the Banking Sector willbe required to know about the Reserve Bank of IndiaAct,1934 and the Banking Laws required for his day today working. Similarly a person working in the InsuranceSector will be required to have specialized knowledgeof the Insurance laws and he will have to regularly interactwith Insurance Regulatory Development Authority. It istherefore required that Sector specific knowledge mustbe acquired in addition to the knowledge of generallaws applicable in case of all Companies.

It may also be mentioned here that everyprofessional should know General & Commercial lawslike Transfer of Property Act, The Indian Stamp Act, Thelimitation Act, Arbitration & Conciliation Act, NegotiableInstrument Act, The Indian Contract Act, Civil ProcedureCode and Code of Criminal Procedure etc; as a matterof compulsory knowledge to be able to discharge hisduties as a true professional and giving a list of all thesegeneral laws is not possible due to space constraint. Hewill have to learn these laws depending upon theparticular sector in which he is engaged as a CompanySecretary or in other capacity but he should excel inevery field in which he works and acquire knowledgeon a continuous basis.

Conclusion

Corporate Compliance Management may be doneby in house resources or outsourcing the job to consultantsand specialized professionals/intermediaries havingnecessary registration with the Regulatory Authorities. TheCorporate house may also seek legal counsel and otherprofessionals to get expert advice in all areas but in all thecases the corporate professionals whether in employmentor in practice have to understand the law and do their jobprofessionally. There should be a full corporate ComplianceManagement System in place on a sustained basis so thatthe corporate professionals can discharge greaterresponsibilities to achieve this objective for addition ofsubstantial business value.

The Process of Corporate Compliance Management

A – 37

THE PROCESS OF CORPORATETHE PROCESS OF CORPORATETHE PROCESS OF CORPORATETHE PROCESS OF CORPORATETHE PROCESS OF CORPORATECOMPLIANCE MANAGEMENTCOMPLIANCE MANAGEMENTCOMPLIANCE MANAGEMENTCOMPLIANCE MANAGEMENTCOMPLIANCE MANAGEMENT

SUDHEENDHRA PUTTY*SUDHEENDHRA PUTTY*SUDHEENDHRA PUTTY*SUDHEENDHRA PUTTY*SUDHEENDHRA PUTTY*

INTRODUCTION

Every company is bound to act within the laws, rulesand directions laid down by the legislature. Further, it isalso required to comply with the Memorandum andArticles of Association of the company and any otherstipulations imposed by the financial institutions/banksand any other entity (ies) that may have a say in theaffairs of the company by virtue of having a stake in it –financial or otherwise. Further, the management of everycompany has a fiduciary responsibility towards thecompany, the shareholders and other stakeholders suchas the statutory authorities, vendors, customers and thegeneral public. It is a primary expectation of all thestakeholders that the management act with reasonablecare, skill and diligence. This, in brief, is the foundationof corporate compliance management which is thecornerstone and the ethos of good corporate governance.

NEED FOR CORPORATE COMPLIANCEMANAGEMENT

When the Indian economy metamorphosed in theearly 1990s and was in the throes of liberalization, italso ushered in an unprecedented regime of self-regulation/self-management. While several stringentand business restrictive laws were either scrapped orsimplified, the Government also sent down a clearmessage that the onus would be on self-discipline andthat corporates would have to set their house in orderand engage in self-control. In this background, itbecomes pertinent to note that every company has tocomply with a plethora of Acts and Regulations andthat is where Corporate Compliance Management(CCM) gains significance. Without doubt, CCM is

* Company Secretary, Infotech Enterprises Limited, Hyderabad.

1 See Jurix – Secretarial Practice Recorder No. 197D, Legal Compliance Certificate for Board Meetings, Dr. K.R.Chandratre.

emerging as a vital aspect of overall management andcorporate governance process. After all, legal compliancesform the bulwark of good corporate governance.

“The multiplicity of laws, rules, regulations, etc hasnecessitated introduction of a system to ensurecompliances under the laws. This has a two-foldobjective. Firstly, to protect the interests of thecustomers, employees, revenue, environment and thedirectors and officers of the company. Secondly, to avoidany unwarranted legal actions by the law enforcingagencies and other persons as well. In most of the cases,the persons responsible for compliance and liable forpunishment are directors and the principal officers ofthe company. Amongst the directors the responsibilityof the managing and whole-time (executive) directorsis greater. As a result of stricter enforcement of law andrecent judgments of the Courts in some cases havenecessitated making Legal Compliance Reporting Systemmore effective1 ”. The risks of non-compliance of thelaw are many:

— Cessation of business activities

— Civil action by the authorities

— Punitive action resulting in fines against thecompany/officials

— Imprisonment of the errant officials

— Public embarrassment

— Damage to the reputation of the company andits employees

— Plummeting stock price and threat of de-listingof shares (in case of listed companies)

— Attachment of bank accounts.

A – 38


ADVANTAGES OF CORPORATE COMPLIANCEMANAGEMENT (CCM)

Apart from avoiding the risks of non-compliance,there are manifold advantages of CCM. These, interalia, include:

— Better compliance of the law of the land

— Review of the status of legal/statutorycompliances

— Safety valve for directors against unintendednon-compliances/prosecutions, etc.

— Review of the position of pending litigationbefore the judicial/quasi-judicial fora

— Cost savings by avoiding penalties/fines andminimizing litigation

— Eliminating chances of being hit by law oflimitation as pending cases are periodicallyreviewed

— Better brand image and positioning of thecompany in the market

— Enhanced credibility/creditworthiness that onlya law-abiding company can command

— Concerns for the interests of the investors

— Enhanced implementation of the principles ofcorporate governance

— Professional management permeating all levelsof the hierarchy.

STATUTORY RECOGNITION OF CCM

Although loosely worded, couched in ambiguity andlacking in clarity, the concept of CCM has already gainedstatutory recognition – at least for listed companies.Clause 49 of the Listing Agreement with the StockExchanges (as amended in 2004 based on therecommendations of the NR Narayana MurtyCommittee) provides that the Board shall periodicallyreview compliance reports of all laws applicable to thecompany, prepared by the company as well as stepstaken by the company to rectify instances of non-compliance. While this clause is subject to variedinterpretation, what it has done is to provide thenecessary importance to the concept of CCM. Thisstatutory backing will provide the required impetus totake the process along.

THE CCM PROCESS

In general, a manufacturing or trading company maywell be subject to over a 100 legislations – both Centraland State. The CCM process will involve listing outvarious applicable laws to the company and specifyingthe actual compliance requirements. The CCM process,as detailed below, will culminate in presenting beforethe Board a Corporate Compliance Report (CCR). Anillustrative list of the contents of such a CCR is as follows:

A. Corporate Laws

1. Companies Act, 1956 and the various Rulesand Regulations framed thereunder, MCA-21requirements and procedures.

2. Foreign Exchange Management Act, 1999 andthe various Rules and Regulations framedthereunder.

3. Competition Law

4. Secretarial Standards/Accounting Standards/Cost Accounting Standards issued by ICSI/ICAI/ICWAI, respectively.

5. Conservation of Foreign Exchange andPrevention of Smuggling Activities Act, 1974.

6. Foreign Contribution Regulation Act, 1976

7. Emblems and Names (Prevention of ImproperUse) Act, 1947

8. Industrial Licensing (where applicable)

9. SEZ and STP regulations (where applicable)

B. Securities Laws

1. Listing Agreement with the Stock Exchanges.

2. Rules, Regulations and Guidelines issued by SEBIwith particular emphasis on Insider Trading andTakeover Code.

3. Depositories Act, 1996 and Demat relatedmatters.

C. Commercial Laws

1. Indian Contract Act, 1872

2. Sale of Goods Act, 1930

3. Transfer of Property Act, 1882

4. Negotiable Instruments Act, 1881

5. Arbitration and Conciliation Act, 1996

6. Intellectual Property laws – including those onTrade Marks, Copyrights, Patents andGeographical Indications


A – 39

D. Fiscal Laws

1. Income Tax Act, 1961

2. Central Excise Act, 1944

3. Customs Act, 1962

4. Wealth Tax Act, 1957

5. Central Sales Tax/State Sales Tax/VAT

6. Service Tax.

E. Labour Laws

Law relating to payment of bonus, payment ofwages, minimum wages, ESI, provident fund,gratuity, industrial disputes, factories, workmen’scompensation, equal remuneration, industrialemployment (standing orders), apprentices, andrelated laws.

E. Pollution/Environment related Laws

1. Air (Prevention and Control of Pollution) Act,1981

2. Water (Prevention and Control of Pollution) Act,1974

3. Water (Prevention and Control of Pollution)Cess Act, 1974

4. Environment Protection Act, 1986.

G. Industry Specific Laws

Legislations applicable to specific categories ofindustries – electricity, power generation andtransmission, insurance, banking, chit funds, etc

H. Local Laws

These would include Stamp Act, Registration Act,municipal and civic administration laws, shops andestablishments, etc

Individual companies may suitably add or deleteto/from the above list as required. In addition, itwould be a good practice to also report the followingas part of the CCR2 :

(a) Any agreement on stamp paper or plain paper

(b) Agreements with dealers, distributors, servicedealers, OEMs, etc and letters terminating thesearrangements

(c) Supply contracts, purchase orders and orderacceptances

(d) Tender documents

(e) Bank and other guarantees

(f) Indemnities, legal undertakings and comfortletters

(g) Lease and rent agreements

(h) Service contracts, agreements or letters ofappointments

(i) Consultancy or technical assistance agreements

(j) Tax collection or payment documents

(k) Suits, petitions and affidavits

(l) Reply to show-cause notices or demand notices

(m) Statutory returns, forms and notices

(n) Any document required to be executed underthe common seal of the company

(o) Mortgage, hypothecation or any such documentcreating a charge on the company’s moveableor immovable property.

(p) Notices and other documents in disciplinaryproceedings against employees.

Several companies have in the recent past listed onoverseas bourses and have also set up subsidiariesand joint ventures abroad. A note on theircompliances – including specific compliances underthe City Code in the UK and the Sarbanes OxleyAct in the US would be appropriate and make theCCR truly comprehensive.

NATURE OF COMPLIANCES TO BE REPORTED

The nature of compliances under each of the lawsmust include the following:

— Specific compliance under the relevant section/rule like obtaining of approvals/consents/licences/permits

— Maintenance of records/registers/books in thespecified formats, if any

— Filing of periodic returns/forms with thestatutory/regulatory authorities

— Provision of facilities (mainly under the labourlaws)

— Any other specific compliances under therespective Acts.

NON-COMPLIANCES

The main purpose of placing a CCR before the Boardis to appraise it of the level of compliances of the various2. Jurix, ibid

A – 40


laws applicable to it. In case of non-compliance, theCCR must state the following information:

— Specific description of the non-compliance

— Reasons for the same

— Likely time frame for effecting the compliance

— Penalties/risks due to non-compliance

— Monetary impact of the non-compliance

— Other implications, if any.

In case any legal/quasi-legal proceedings have beeninitiated against the company or a show-cause noticehas been issued against the company, then the CCRmust also disclose the following:

— Summary description of the case/show causenotice

— Steps initiated to refute/rebut/challenge thecase/show-cause notice

— The current status of the same

— Probability of liability (monetary and non-monetary) where identified.

PROCESS OF CORPORATE COMPLIANCEREPORTING

Although the actual process of compiling theinformation under the various laws may vary fromcompany to company and is dependent on various factorssuch as the number of units and scale of operations, abrief process of the CCR mechanism is as follows:

(A) Functional heads for the reporting of variouslaws have to be identified. For instance, theCompany Secretary would be the functionalhead for reporting of company law, listingagreement and commercial laws. Similarly, thehead of the Personnel Department could reportthe compliance of labour and industrial lawsand the fiscal law compliance would be thedomain of finance/accounts departments.

(B) Each of the functional heads may collect andclassify the relevant information (listed above)from the various units/locations and consolidatethem in the form of a report.

(C) The report shall carry an affirmation from thefunctional heads that the said report has been

prepared based on the inputs received fromthe various units/offices and then list out thespecific compliances/non-compliances, asalready circulated to the functional heads.

(D) Each of the functional heads will forward theirrespective compliance reports to the CompanySecretary/Managing Director.

(E) The Company Secretary would then brief theManaging Director and with suitable inputsfrom the Company Secretary, the ManagingDirector would consolidate and present, underhis signature, a comprehensive CCR to theBoard for its information, advice and noting. (Amodel CCR to be furnished by the ManagingDirector to the Board is given at Annexure)

(F) The whole process of CCR is contingent onthe creation and implementation ofcomprehensive legal MIS.

PERIODICITY OF CC REPORTING

The CCR may be placed for review before the Boardby the company on a half-yearly basis. In the case of amulti-product/multi-unit company, it may be placed atquarterly intervals. It must be ensured that as and whenguidelines for holding of board meetings through video/tele-conferencing are issued, the CCRs must be includedin the agenda for physical meetings only.

ROLE OF COMPANY SECRETARY

Although, the Company Secretary’s role hasundergone a marked change over the years and he hastoday emerged as an integrated corporate businessmanager and advisor, the compliance role is like a fulcrumof the profession. As an officer of the company at thecentre of the decision making process, the CompanySecretary is in a powerful position of influence. The BestPractice Guide on the Duties of a Company Secretary3

lists, “Monitoring and laying in place procedures whichallow for compliance with regulatory and legalrequirements, particularly under the Companies Actsincluding legal requirements….” as one of the coreduties of the Company Secretary. CCM will thereforebe the logical extension of the fundamental dutydischarged by Company Secretaries in industry. It willbe both an opportunity and a challenge. The importanceof corporate compliances will now be a matter for reviewat the very highest levels of management. This lays a

3 Issued by the Institute of Chartered Secretaries and Administrators, UK. It is also clarified by the Guide that theCompany Secretary may not be personally involved with all areas of compliance and ‘ensuring compliance’ may beread as ensuring that satisfactory arrangements are in place to secure compliance.


A – 41

tremendous onus on the Company Secretary to devise,put in place and constantly administer a legal MIS forregular reporting and monitoring of the corporate legalcompliances. This will accentuate the CompanySecretary’s role in the corporate governance processand enhance the levels of professionalism.

CONCLUSION

Given the manifold advantages and benefits, it isadvisable that all companies – private, public and section25 companies - implement a CCM process to tone uptheir levels of corporate governance. This is anopportunity for the profession of Company Secretariesto carve out a niche for themselves in their core area ofcompliances.

Annexure

CORPORATE COMPLIANCE REPORT

It is hereby reported that the company has compliedwith the various statutory enactments, rules, regulations,orders, guidelines and notifications of both the Centraland State Governments, relating to the business of thecompany, with specific reference to the following:

(a) The company has complied with the provisionsof the Companies Act, 1956 and the applicablerules and regulations made thereunder.

(b) The company has complied with the variouslabour legislations (list them out) and theapplicable rules framed thereunder, beingapplicable to the company.

(c) The company has complied with the provisionsof the Income Tax Act, 1961 and the applicable

Rules made thereunder and the TDS has beenmade.

(d) The Company has complied with the provisionsof the various pollution control and environmentrelated legislations (list them out).

(e) The company has complied with the provisionsof the various fiscal laws (list them out)

(f) The company has complied with the provisionsof the other applicable laws (list them out).

(Where there are any non-compliances, the aboveclauses may be reworded as follows:

“The Company has complied with the provisionsof the ….laws, subject to……(list out the non-compliances and details thereof). Details of pendinglitigation and show cause notices may also be listedherein, if any.)

This report is based on the confirmations/reportssubmitted by the functional heads and is given by theundersigned in the full knowledge that on the faith andstrength of what is stated in the report, full reliance isplaced by the board of directors.

Date:

Managing Director

REFERENCES

1. JURIX – Secretarial Practice Recorder

2. Legal Compliance Reporting mechanism in BharatElectronics Ltd., Bangalore

3. Website of ICSA – www.icsa.org.uk.

A – 42


CORPORATE COMPLIANCE AND "DUE DILIGENCE" —CORPORATE COMPLIANCE AND "DUE DILIGENCE" —CORPORATE COMPLIANCE AND "DUE DILIGENCE" —CORPORATE COMPLIANCE AND "DUE DILIGENCE" —CORPORATE COMPLIANCE AND "DUE DILIGENCE" —VALUE ADDITIONVALUE ADDITIONVALUE ADDITIONVALUE ADDITIONVALUE ADDITION

J SUNDHARESAN*J SUNDHARESAN*J SUNDHARESAN*J SUNDHARESAN*J SUNDHARESAN*

Corporate Compliance is the latest buzzword in thecorporate world. Today, the Indian business communityhas realized the importance of compliance as a majortool in being competent to achieve excellence throughbusiness value addition and to satisfy the responsibilityin the corporate system. Being diligent has a price andits share of emotions, sentiments, tragedy, comedy andof-course when things finally turn out favorable, a veryhappy ending! It is for this reason that corporates todayare putting sufficient effort to maintain records in-houseand elsewhere.

My experience

My first brush with diligence was in 1996, whileworking for a large telecom group, when we were facedwith the challenge of handling an issue of ADRs, believedto be the first of its sorts in the country. One great thingabout “being first”, I sometimes used to wonder (ofcourse, on a lighter vien), “since no one knows what isto be done, what you do may be the right one!!!”. “

A pre diligence meeting was called for, comprisingthe head of the company and various other departmentalheads. A leading banker was appointed to manage theADR issue and a smart business school graduate informedthe team that he would lead manage and he will be the“censor board” for the proposed diligence and that themembers of the team were supposed to take his approvalbefore committing on “numbers” (if it was the financeteam) or on disclosing the “facts” (if it was the legaland Company Secretary’s team). Not knowing what tosay, and being the first time, all of us just nodded.

It all began with a grand kick off meeting and itreminded me of the opening scene in a bond movie.Even after 11 years, I still think that the “kick off”

* Practising Company Secretary, Bangalore.

meetings have a charm, which makes the diligenceexciting.

What is a Diligence?

Here is an extract from Wikipedia: -

“Due diligence is a term used for a number ofconcepts involving either the performance of aninvestigation of a business or person, or the performanceof an act with a certain standard of care. It can be alegal obligation, but the term will more commonly applyto voluntary investigations.”

Verily, a due diligence is a process built upon theedifice of “Performance”, “Standard of Care” and“Investigation”.

The expression due diligence, in commercialtransactions, include an investigation into the mattersof a company and an assessment of the risks in acommercial context.

Due Diligence, as an exercise, is something whichhas a set of common principles and procedure to befollowed. Depending on the situation, a due diligenceprocess is referred to by different names. As the famoussaying goes, “don’t judge a book by its cover”, so also,the relevance and importance of the due diligence is tobe recognized with reference to the type of duediligence.

“ What is in a name ?’ - You could call a diligencewith many other names -

A Compliance Certificate - this form of diligenceis a requirement under section 383A of the CompaniesAct, 1956 which makes it mandatory for all companieswith a paid up share capital of not less than rupees ten

Corporate Compliance and Due Diligence

A – 43

lakhs and not more than rupees two crores to attachalong with the Directors’ report a certificate from apractising Company Secretary for every financial year.

A Secretarial Audit - Though this form of diligenceis not mandatory many state government companies/companies in private sector have adopted this form ofreporting and have attached to their annual report as amatter of good governance.

Legal Compliance - On an annual basis some ofthe corporate conduct this diligence as an in-houseexercise to check on the various processes that thecompany possesses internally and whether thecompliances are in place.

Annual Compliance Review - Anotherinteresting form of diligence which can be an in houseaffair by leading corporate house to ensure that the houseis in order.

Quarterly Statutory Compliance Reporting -A popular form of health check that is in vogue inmany corporates to protect the interest of the topmanagement. A certification is provided by the CEO tothe board and in turn a back to back certification isobtained by various departmental heads.

Health Check Audit - This form of diligence ispopular among venture capital funds who conduct thisexercise on an annual basis to check if the complianceparameters in the company are under control

CEO / CFO Certification Under Clause 49 - Thisis another form of diligence which is mandatory for alllisted companies in India to attach to its Directors’ reporta certificate to be issued by the CFO/ CEO of thecompany that the company has complied with all therequirements of law.

All this, in today’s parlance, is termed as “corporatecompliance” and as Company Secretaries, we are thetorch bearers of the legal and corporate law diligence,either representing the company when in employmentor doing the actual diligence, while in practice.

There is always a trade off between the personssitting on the opposite sides of a diligence table, onetrying to play an offensive role and the other doingthe defence, which ultimately results in a healthyoutcome.

Stages in a Due Diligence

A due diligence process can be divided into threestages (i) pre diligence, (ii) diligence,and (iii) postdiligence.

A pre diligence is primarily the activity ofmanagement of paper, files and people.

1. Signing the Letter of Intent (LOl) and the NonDisclosure Agreement (NDA).

2. Receipt of documents from the company andreview of the same with the checklist ofdocuments already supplied to the company.

3. Identifying the issues.

4. Organising the papers required for a diligence.

5. Creating a data room.

The first and foremost in a deal for the managementof the target company, is that the investor is to sign aLetter of Intent(LOI) or a term sheet which underlinesthe various terms on which the proposed deal is to beconcluded. Immediately on receipt of the LOl theinvestors sign an NDA with the various agenciesconducting a diligence, be it finance, accounting, legalor a secretarial diligence.

The company, would usually receive a checklist fromthe agency conducting the diligence. The checklist isinvariably exhaustive in nature, and therefore, thecompany may either collate and compile the documentsin-house, or outsource this to an external agency. Whilethe data is being collated care should be taken to ensurethat there are no loose ends that may probably arise.

As regards a data room, some of the importantthings that one should take cognizance of from thecorporate view point are the following:

(a) Do not delay deadlines (leads to suspicion).

(b) Mark each module of the checklist providedfor separately.

(c) In case some issues are not applicable spell itout as “Not Applicable”.

(d) In case some issues can not be resolvedimmediately, admit it.

(e) Put a single point contact to oversee the processof diligence.

(f) Keep a register, to track people coming in andgoing out.

(g) An overview on the placement of files.

(k) Introduction to the point person.

A – 44


During the diligence, care should be taken to adhereto certain hospitality issues, like:

(a) Be warm and receptive to the professionals whoare conducting diligence.

(b) Enquire on the DD team(recommended at leastthrice a day !!).

(c) Join them for lunch.

(d) Ensure good supply of refreshments.

(e) In case of any corrections - admit and rectify.

As regards the process of diligence, as a professionalcare should be taken to scrutinise every document thatis made available and ask for details and clarifications,though, generally the time provided to conduct thediligence may not be too long and though things haveto be wrapped up at the earliest. The company may beprovided an opportunity to clear the various issues thatmay arise out of a diligence .

After the diligence is conducted, the professionalssubmit a report, which in common parlance is calledthe DD report. These reports can be of various kinds, asummary report; a detailed report or the like; and thefindings mentioned in the report can be very significant,in as much as the deal is concerned.

There are certain terms used to define the outcomeof these reports:

Deal Breakers : In this report the findings can bevery glaring and may expose various non-compliancethat may arise - any criminal proceeding or knownliabilities.

Deal Diluters : The findings arising out a diligencemay contain violations which may have an impact in theform of quantifiable penalties and in turn may result indiminishing the value of company.

Deal Cautioners : It covers those findings in adiligence which may not impact the financials, but thereexist certain non compliances which though rectifiable,require the investor to tread a cautious path.

Deal Makers – which are very hard to come byand may not be a reality in the strict sense, are thosereports wherein the diligence team have not been ableto come across any violations, leading them to submitwhat is called a ‘clean report’.

Interestingly, only after the reporting formalities areover and various rectifications are carried out, the“shareholders agreement” (which is the most importantdocument) is executed . This agreement contains certainstandard clauses like the tag along and drag along rights;representations and warranties; condition precedents,and other clauses that have an impact on the deal.

Post diligence : There can be interestingassignments arising out of the diligence made by theteam of professionals. It can range from makingapplications / filing of petition for compounding ofvarious offences or negotiating the shareholders’agreement, since the investors will be on a strong wicketand may negotiate the price very hard.

Hence, arising out of this diligence, there are variousopportunities for a professional in practice, which mayinclude inter-alia, compounding application to thestatutory bodies, amending the various shortcomings andso on. In fact, filing of these applications become a precondition to close the transaction, and therefore, theexpertise of professionals is always in demand. Diligenceis one tool which can add excellence in compliance levels,and is a business value addition as far as a professional isconcerned, whether employed or in practice.

Thus, one can sum up to say that “Compliance isnot the beginning in a well governed company, but is astatement by the management on the attitude of oneand all in an organisation practiced in letter and in spirit”.A due diligence exercise proves the level of compliancein a corporate and acts as a health check to ensure thatthe standards are maintained. A due diligence, therefore,can go as far as the law itself. Though to an extent, itmay be a post-mortem exercise, it is still forward looking,futuristic and brings out the essence of a professional,in the truest sense. Due Diligence irons out the creaseson the path to corporate excellence.

Segment-wise Role of Company Secretaries

A – 45

SEGMENT-WISE ROLE OF COMPANY SECRETARIESSEGMENT-WISE ROLE OF COMPANY SECRETARIESSEGMENT-WISE ROLE OF COMPANY SECRETARIESSEGMENT-WISE ROLE OF COMPANY SECRETARIESSEGMENT-WISE ROLE OF COMPANY SECRETARIES

DR. J P SHARMA* & ASTHA DEWAN**DR. J P SHARMA* & ASTHA DEWAN**DR. J P SHARMA* & ASTHA DEWAN**DR. J P SHARMA* & ASTHA DEWAN**DR. J P SHARMA* & ASTHA DEWAN**

INTRODUCTION

The Board of Directors (Board) is the decision makingbody of any corporate body. It usually consists of achairman, executive and some non-executive directors.A Company Secretary (hereafter referred as CS) is veryclose to the Board that is the apex authority of thecompany. The services of a CS are very crucial for efficientfunctioning of a company. The role profile of a CS coversa wide variety of functions. He/she1 acts as a vital linkbetween the company, Board, shareholders,government and regulatory agencies. When theCompanies Act was enacted in the year 1956, hisfunctions were not defined in the Act. Section 2(45) ofthe Act only provides that any individual possessing theprescribed qualifications and appointed to perform theduties, which must be performed by a secretary underthe Companies Act, and any other ministerial oradministrative duties, is a CS. The present era ofglobalization has offered both challenges andopportunities to CSs. Diversification of the role andfunctions performed by a CS in different areas is theonly answer to meet the challenges and capitalize onthe opportunities. Thus, CSs are exploring opportunitiesand diversifying into new segments such as knowledgesegment, organization segment, scale segment,geography segment and industry segment2.

EVOLUTION OF THE PROFESSION OFCOMPANY SECRETARY

Traditionally, the managing agency system occupiedthe most important place in the management ofcompanies in India. The managing agents were thepromoters, financiers and managers of the companiesand they contributed in a significant way to early industrial

* Department of Commerce (SDC), Faculty of Commerce & Business, Delhi School of Economics, University of Delhi.

** Lecturer, Department of Commerce, Shaheed Sukhdev College of Business Studies, University of Delhi.

development in India. The managing agency system,although its name implied a type of management, hadalso been connected with promotion and financing ofcompanies. During the growth of this system in thenineteenth century, when there were not many industrialentrepreneurs and no facilities of a capital market, thesefunctions in the industrial development of the countrywere more or less concentrated in the hands ofmanaging agents. The managing agents took theinitiative to start new enterprises. The historicalimportance of the system in the promotion anddevelopment of important national industries such asjute, cotton textiles, tea, coal, iron and steel, sugar andcement is well recognized. Even some of the newcompanies floated outside the managing agency systemowed their promotion to well-known agency houses.

The managing agents played an important role inthe supply of equity capital and loans and advances tocompanies. In India, there was shortage of equity capital.The specialized financing institutions generally providedonly loan capital. The managing agents contributed asubstantial part of share capital of companies under theirmanagement. In addition to that, large companies oftenhad easy access to other resources, such as accumulatedreserves and the new issue market. In attracting financethrough new issues on the capital market, the managingagents played an important role. They acted asguarantors for a major part of secured loans from banksand loans from specialist financial institutions. Thus, theyprovided both equity and loan capital. In order to assistthe companies, they not only attracted savings of othersbut also provided personal savings and savings of theircompanies or firms for the use of the companies undertheir management.

A – 46


As regards their managerial function, no definiteconclusions can be established. It is hard to say whetherthe performance of companies under the managingagency system was superior or inferior to that underother systems of management.3 The managing agentsgave their entire time and energy to the growth of theconcern. However, in-group management, when anagency manages several companies, certain economiesof large-scale organization accrue to the managedcompanies. This is an inherent advantage of the system.But a vast majority of managing agencies managed onlyone company each. While there was no scope in theircase for the exercise of economies of groupmanagement, there was also no room for concentrationof economic power. Although, it should make nodifference whether these individual companies weremanaged by managing agents or exclusively bymanaging directors, there seemed to be a slight edgein favour of the managing agents. Where they acted aspromoters of these enterprises, their interests wereclosely linked with the future of the concerns. Therewas identification with the interests of the managementand the company on account of their personal stake inthe business. Apart from this, the security of tenure fora fairly long period and the connection of remunerationwith the net profits of the enterprise, promoted andmaintained incentives for efficiency that were notavailable for salaried executives under other forms ofmanagement. Thus, what seem to be appreciated mostabout managing agents were their entrepreneurial skills,competitive resilience, identification of interests withthe financial fortunes of the principal companies andtheir continuity and integration of their management.

However, the managing agency system wascriticized on account of concentration and improper useof economic power and the cost of maintaining thesystem. Due to several shortcomings and increasingmalpractices in the managing agency system, manyrestrictions were initially imposed on the working ofmanaging agents and ultimately, the system wasabolished in 1970’s. The profession of CompaniesSecretaryship filled the void created by the abolition ofmanaging agency system.

The commitment to develop the profession of CSin India was made by the late C.D.Deshmukh, the thenFinance Minister.4 The profession got a standing and astatus of its own in the year 1968 with the Governmentof India setting up the Institute of Company Secretariesof India (hereafter referred as ICSI). The Institute wasconverted into a statutory body under the CompanySecretaries Act, 1980, to develop and regulate the

profession of CSs in India.5 The ICSI, the apex body forCS professionals in India, has a very important role toplay in training and molding CSs in the light of thechanging economic and legal scenario in India. Theamended provisions provide that all companies with apaid up share capital of Rs. 2 crore or more must have aqualified whole-time Company Secretary. To give extraimpetus to practicing Company Secretaries, the conceptof Secretarial Compliance Certificate (Sec.383A)6 wasintroduced in the Amendment Act of 2000.

POSITION, ROLE & FUNCTIONS

The concept of a Secretary is as old as the corporatesector that goes beyond the companies of the 17thcentury like the East India Company formed in 1600. In1885, Lord Esher in his judgment7 considered him aclerk or servant, who is to do what he is told to do.Similar view was taken in number of pronouncementsin India too.8 As per this traditional view, he had nopower to strike a name off the register of memberswithout Board’s authority9, could not participate in themanagement of the company’s affairs and not negotiatecontracts on behalf of the company10 , not call meetingsof shareholders without board meeting11 , not registertransfers of shares without the Board’s authority12 , andcould not borrow money in the company’s name.13 Thistraditional view of a Company Secretary was altogetherchanged by Lord Denning in his judgment on 26th May,197114 , when considering him an officer of the companywith extensive duties and responsibilities, he observedthat times have changed and the Company Secretary isa much important person now a days than he was in1887.

Today, as a most important statutory officer of thecompany at the center of the decision making process,the Company Secretary is in a powerful position ofinfluence. The changing role and importance of aCompany Secretary has also been incorporated in theStatutes over the years. The present day CompanySecretary is empowered to perform functions under theMRTP/Competition Act, Income Tax Act, FEMA, ExciseCustoms Act, etc.

OBJECTIVE OF THE STUDY

The objective of this study is to examine the role ofCSs with special reference to different segments asidentified by the ICSI. The study also aims at providingsuggestions and recommendations to help CSs functionbetter in their respective areas.


A – 47

RELEVANCE OF THE STUDY

The services of a CS are very crucial for the efficientfunctioning of a company. His work profile covers a widevariety of functions. He is a compliance officer of thecompany as well as a corporate planner and strategicmanager. He also looks after legal, accounts, finance,personnel and administrative functions in the company.He renders services in areas such as corporategovernance and secretarial services, corporate lawsadvisory and representation services, financial marketsservices, taxation services, international trade and WTOservices, management services.15 In recent times,liberalization, de-regulation of controls and rapidcorporatisation has increased the demand for CSs incorporate functions.

Keeping in view the growing need of CSs, the ICSIhas undertaken various professional developmentprogrammes, extensive research projects andbrainstorming sessions to identify the role of CSs in thefast changing scenario. The ICSI and Centre forCorporate Research and Training (ICSI-CCRT) conducteda brain-storming session on segment-wise role of CSs.The ICSI has published various modules on industrysegments highlighting the role and functions of CSs ineach segment. These modules cover banking industry,capital market intermediaries – credit rating agencies,depository participants, merchant bankers, mutual funds,portfolio managers, registrar to an issue and sharetransfer agents, stock brokers and sub-brokers, stockexchanges, venture capital funds; entertainmentindustry; insurance industry, IT enabled services andBusiness Process Outsourcing, non-governmentalorganizations, pharmaceutical industry, power sector andtourism industry etc.

The present study would enable CSs, be it inemployment or in practice, to provide focused, in-depthand innovative services across all the segments. It wouldalso help them to explore different opportunities andventure in new segments and industries, create awarenessabout their potential in various segments and enable themto render value-added diversified services within segment.

RESEARCH METHODOLOGY, SCOPE &LIMITATIONS OF THE STUDY

Both primary and secondary data have been usedfor the study. The study has been conducted using aquestionnaire administered to a sample of 240 CSs inthree segments. These segments are portfolio managers/merchant bankers,16 media and entertainment industryand IT Enabled Services (ITES)/Business ProcessOutsourcing (BPO) industry. The questionnaire was sent

to the CSs through post as well as by e-mail for thepurpose of collecting necessary data. Besides this,discussions and interviews with a number of CSs, whorepresent both the Company Secretaries in employmentand in practice, were also carried out to make the studya comprehensive one. The responses received from CSs(out of 240 CSs approached, only 104 responded to thequestionnaire) formed 43.33% of the planned samplefor the purpose of study. Of the total number ofrespondents, about 40%(42) of the respondents areworking as portfolio managers /merchant bankers whileonly 26.92%(28) fall in the segment of ITES/BPOindustry. In all 32.70% (34) of the respondents representthe media and entertainment industry.

The scope of the study is to have a comprehensive,in-depth analysis of role of the CSs in only three differentsegments. Apart from the basic limitations such asinadequate time and resources needed for conductinga study of this type, low response rate, small size ofsample are the other constraints identified during thecourse of this study.

MAJOR FINDINGS

The study reveals following facts and findings:

(i) With the increase in the presence of womenin different professions, it would be valuableto study the role of women in the professionof CSs. The study reveals that of the totalrespondents, 61.54% are male while substantialportion i.e. 38.46% is female.

(ii) Majority of the respondents (32.69%) fall inthe age group of 30-40 years.

(iii) Most of the respondents (i.e. around 41%) havea work experience of 10-15 years and havechanged the job 3-4 times (around 35%).Changing jobs in their short span of workexperience reflects on the various kinds offactors, which force CSs to shift to some othercompany. These factors could range frommonetary to non-monetary factors such as jobdissatisfaction, lack of role clarity, inadequatesupport from the industry, lack of support fromfamily especially in case of females, etc.

(iv) Of the total respondents, around 62%(40)were Associate Company Secretaries (ACS)while around 38%(64) fall in the category ofFellow Company Secretaries (FCS). It has beenobserved that some of the CSs, even thoughworking in this field for many years, have still notapplied for FCS (senior membership). The reasons

A – 48


why many CSs do not apply for FCS despite havingthe requisite years of experience, is that they havediversified into other corporate regulatory areasrather than confining themselves to the hardcoresecretarial function. Other reasons may be thatmany of the senior CSs are from academics havingnot much interest in continuing with theiraffiliation with the ICSI.

(v) Of the total respondents, 58.65% fall in thecategory of Company Secretaries in employmentwhile 41.35% are Company Secretaries inpractice.

(vi) As revealed by the table1, regulators includingSEBI, RBI, MCA, ROC govern the CSs workingin their respective segment. The Ministry ofInformation and Broadcasting and the SoftwareTechnology Park of India (STPI), both of whichfalls in ‘any other’ category are the majorregulators in the case of media andentertainment industry and ITES & BPO industryrespectively while the SEBI is the majorregulator for CSs working as portfolio managers.

Table 1: Regulators Governing the Segments

Regulators Total No. of Respondents

Portfolio Media & ITES &Manager Entertainment BPO

Industry

SEBI 21 10 8

RBI 2 NIL 1

MCA 10 8 2

ROC 9 4 6

Any other NIL 12 11

Total 42 34 28

Source : Questionnaire based responses

(vii) Table 2 presents different kinds of functions,which a CS performs. The analysis of the tableclearly reveals that representation andcompliance & procedural are the majorfunctions performed by CSs in the case ofportfolio managers and ITES & BPO industry,respectively. In comparison to above twosegments, CSs in media and entertainmentindustry have given the maximum weightageto management functions, which fall in ‘anyother’ category.

Table 2Function-wise Classification

Functions Total No. of Respondentsof CSs


Industry

Compliance& Procedural 4 3 9

Advisory 13 6 8

Due Diligence& Certification 3 9 6

Representation 20 3 3

SecretarialAdministration 2 2 2

Any Other NIL 11 NIL

Total 42 34 28


(viii) Table 3 reveals different compliance andprocedural functions, which a CS performs.In the case of portfolio managers, filling ofreturns and reports to concerned authoritiesis a major function performed under thecompliance and procedural functions head.Analyzing the table with respect to mediaand entertainment industry & ITES & BPOsector, it can be seen that establishinginternal procedures/processes in accordancewith regulations got the maximum weightage of 44.12% and 35.71% of therespondents, respectively.

Table 3Compliance & Procedural Function-wise Classification

Compliance and Total No. of RespondentsProcedural Role Portfolio Media & ITES &

Manager Entertainment BPOIndustry

Regulatory filing 15 3 4Set up internalpolicies/ procedures 6 15 10Monitoring exercise 9 9 7Training 8 5 5Breach reporting 4 2 2

Total 42 34 28



A – 49

(ix) Table 4 presents different advisory functions,which a CS performs. As is clear from the table,in the case of portfolio managers, the maximumnumber of respondents advises their clients onmatters such as capital restructuring, capitaloffering, etc. In the case of media andentertainment industry, it can be seen that

Table 4

Advisory Function-wise Classification

Advisory Role Total No. of Respondents

Portfolio Media & Entertainment ITESManager Industry & BPO

Compliance issues 3 5 7

Regulatory amendments 8 3 5

Senior Mgt. Business agreements NIL NIL 1

New Business InitiativesAdvisory NIL NIL 2

Business partners 2 2 6

Disputes resolution NIL NIL 1

Applicable legislations 3 15 3

Regulatory amendments 6 4 1

Capital restructuring/capital offering 11 3 1

Clients Company incorporation/day-to-day mgt. issues 9 2 1

Total 42 34 28


majority of the CSs play an advisory role onapplicable legislations. When analyzed from thepoint of view of ITES & BPO sector, the tablereveals that the maximum number ofrespondents advise senior management oncompliance issues.

(x) Table 5 reveals different kinds of due diligenceand certification functions, which a CS performs.In the case of all three segments, majority ofthe respondents have given weightage to ‘anyother’ category. According to them, they donot perform the due diligence and certificationfunctions as majority of the respondents of thestudy are Company Secretaries in employment.

Besides this, in the case of portfolio managers,19.05% of the respondents have rankedsecretarial/compliance audit reporting as thenumber one due diligence and certificationfunction, which they perform. In the case ofmedia and entertainment industry, it can beseen that secretarial/compliance audit reportingand annual report certification got equal weight

A – 50


age from of the respondents. From the pointof view of ITES & BPO sector, the data revealsthat 21.43% of the respondents have ranked

secretarial/compliance audit reporting as thenumber one due diligence and certificationfunction they perform.

(xi) Table 6 provides role of representation/liaisonfunction, which a CS performs. The analysis ofthe table in the case of portfolio managers clearlydepicts that liaisoning with shareholders/clients/customers etc. dominates the list with a total votingof 38.10% of the respondents in its favour.

In the case of media and entertainment industry& ITES & BPO sector, it can be seen that around50% of the CSs in both the segments reportedthat they mostly perform representation functionbefore various regulatory authorities for seekingvarious clarifications etc.

Table 6Representation Function-wise Classification

Representation/ Total No. of RespondentsLiaison Role Portfolio Media & ITES &


Judicial / quasi-judicial authorities 4 9 10Regulatory authorities 15 18 14Foreign regulators 7 NIL 1

Shareholders/clients/customers etc. 16 7 3

Total 42 34 28


Table 5Due Diligence and Certification Function-wise Classification

Due Diligence and Certification Total No. of Respondents Function

Portfolio Manager Media & Entertainment ITES &Industry BPO

SEBI guidelines/Certification listing agreement/w.r.t corporate governance 2 1 1

FEMA/STPI regulations 3 NIL 2

Annual Report 5 7 4

Secretarial/Compliance Audit Report 8 7 6

Any other 24 19 15

Total 42 34 28


(xii) Table 7 provides administrative functions, which aCS performs. In the case of portfolio managers, thehighest concentration is in the category of draftingand conveyance with 42.86% of the respondentsfalling in this category i.e. interpretation ofagreements, rules etc. received the maximumnumber of votes from CSs. From the point of viewof media and entertainment industry & ITES & BPOsector, the data reveals that convening meetings ofBoard, shareholders etc. dominates the list with atotal voting of 35.29% and over 30% of therespondents respectively.

Table 7Secretarial Administration Function-wise Classification

Secretarial Total No. of RespondentsAdministration Portfolio Media & ITES &Function Manager Entertain- BPO

mentIndustry

Convene meetings 5 12 9Drafting andsending notices 10 7 6Drafting minutes 9 5 5Drafting & conveyance 18 10 8

Total 42 34 28



A – 51

(xiii) 64.29%, 67.65% and 82.14% of therespondents reported to have been verticallyreporting in the case of portfolio managers,media and entertainment industry and ITES &BPO industry, respectively as is revealed by thetable 8.

Table 8

Vertical Reporting-wise Classification

Vertical Total No. of RespondentsReporting Portfolio Media & ITES &


Yes 27 23 23

No 15 11 5

Total 42 34 28


(xiv) Regarding the persons whom they are reportingto, in the case of portfolio managers, themajority of the respondents give feedback tothe Board (BOD). In the case of media andentertainment industry & ITES & BPO industry,it can be seen that the most of the respondentsreported to Chief Executive Officer as revealedby table 9.

Table 9

Vertical Reporting Role-wise Classification

Role in Total No. of RespondentsVerticalReporting Portfolio Media & Entertain- ITES &

Manager ment Industry BPO

CEO 8 15 13

BOD 22 9 10

MD 12 6 5

Any other NIL 4 NIL

Total 42 34 28


(xv) In the case of portfolio managers, media andentertainment industry and ITES & BPO sector,it can be seen that of the total respondents,69.05%, 76.47% and 85.71%, respectivelyreported to have been horizontally reporting(table 10).

Table 10

Horizontal Reporting-wise Classification

Horizontal Total No. of RespondentsReporting Portfolio Media & Entertain- ITES &

Manager ment Industry BPO

Yes 29 26 24

No 13 8 4

Total 42 34 28


(xvi) Regarding their role in horizontal reporting,the majority of the respondents stated thatliaisoning with department’s head, advisingto business partners on regulatory/legal issuesand collecting information from variousdepartments for presenting before Board etc.is the major role they perform in the case ofportfolio managers, media and entertainmentindustry & ITES & BPO sector, respectively(table11).

Table 11

Horizontal Reporting Role-wise Classification

Role in Total No. of RespondentsHorizontal Portfolio Media & ITES &Reporting Manager Entertain- BPO

mentIndustry

Advising businesspartners on regula-tory/ legal issues 10 14 8

Collecting infor-mation from depts. 7 9 14

Liaison with dept’shead 25 11 6

Total 42 34 28


(xvii) Majority of the respondents are working at thesenior management level in the case of portfoliomanagers & media and entertainment industrywhile in the case of ITES & BPO industry,maximum number of the respondents are atmiddle level (table12).

A – 52


Table 12

Position in Value Chain-wise Classification

Position in Total No. of RespondentsValue Chain


Industry

Senior mgt. 20 18 11

Middle mgt. 12 13 15

Entry level 10 3 2

Total 42 34 28


(xviii) Majority of the respondents in all the threesegments have role clarity [table13 (i)] andare satisfied [table13 (ii)] with the roleassigned to them. The analysis also revealsthat the percentage of respondents havingrole satisfaction is lesser than the percentageof respondents having role clarity. Thus,despite role clarity, there are various otherfactors, which determine the role satisfactionlevel of the CSs such as recognition, supportfrom Government, regulatory authorities,industry etc.

Table 13(i)

Role Clarity-wise Classification

Role Clarity Total No. of Respondents


Industry

Yes 39 29 26

No 3 5 2

Total 42 34 28


Table 13(ii)

Role Satisfaction-wise Classification

Role Total No. of RespondentsSatisfaction


Industry

Yes 26 20 23

No 16 14 5

Total 42 34 28


(xix) As per table 14 the maximum respondents incase of portfolio managers and ITES & BPOindustry, felt that the profession is not receivingdue Governmental support, while on the otherhand, 23 respondents out of a total of 34 incase of media and entertainment industry saidthat profession is receiving support from theGovernment. According to most of the CSs inthese segments, the Government has not beenable to fully recognize the core competenceand value additions to the corporate world beingmade by CS fraternity. Similarly, compulsorysecretarial audit is still waiting to be givenstatutory recognition. There also existsdiscrimination between CA and CS Instituteswith respect to governing the Act, rules,regulations, etc. However, some CSs evenreported that the Government is giving duerecognition and support to them. In their view,provisions of section 383A, regarding thecompulsory appointment of CS and provisionof compliance certificate, have helped CSs inmaking a presence in the market.

Table 14Government Support-wise Classification

Government Total No. of RespondentsSupport


Industry

Yes 13 23 7

No 25 9 19

No comments 4 2 2

Total 42 34 28



A – 53

(xx) A very striking feature of the scheme ofcorporate governance envisaged in Clause 49is the pivotal role played by a CS. The studyelaborates on the role of CSs in the corporategovernance. Of the total respondents, around80% of CSs have rendered services to non-listed organizations while only around 20% ofthem have worked for listed organizations. Thissegregation will help in studying the fact as tohow many organizations where a CS is renderinghis services are complying with therequirements of Clause 49 of the listingagreement (especially the non-mandatoryrequirements). Majority of the respondents inall the three segments are training their Boardmembers in the business model of theorganization (54.81%), sending half-yearlydeclaration of financial performance includingsummary of the significant events in the last sixmonths to each household of shareholders (75%),have established a whistle blower policy (65.38%)but do not have a remuneration committee fordetermining the remuneration package of theexecutive directors (around 70%).

To sum up, one can say that CSs in each of thethree segments perform functions including thecompliance and procedural, advisory, due diligence andcertification, representation and secretarialadministration, but the weightage assigned to each ofthese functions is based on factors including the natureof organization, job profile, their capacity and proficiencyat work etc. Thus, even the role of two CSs working insame segment may differ because of the above factors.

RECOMMENDATIONS

The economic and industrial liberalization measuresare providing challenging and promising opportunitiesto the profession of CS. Getting recognition from theGovernment authorities, updating themselves,competing with other professions, globalisation are fewchallenges which CSs are facing today. Followingrecommendations emerge out of the study to enableCSs provide focused, in-depth and innovative servicesand role across all the segments:

(a) CSs are required to look beyond their traditionalcompliance role and expand the job role indiversified areas; it’s always better to have anadditional qualification in law, finance,accounting or international trade so that thejob role can be expanded to provide continuouschallenges.

(b) Update themselves on all related mattersincluding the RBI regulations, labour laws,excise and custom regulations, IT matters, etc.

(c) A CS should have knowledge of more than oneforeign language, other than English, tocompete with the global professional firms.

(d) Managerial and leadership skills are two of thefew areas where the CS profession lags behind.Therefore, sound knowledge on managementareas like T&D, finance, marketingmanagement, etc. is the present day need of aCS.

(e) The focus must be on client servicing and theirsatisfaction.

(f) The ICSI provides vast knowledge to itsmembers. CSs should try to apply all theiracquired knowledge and ability in themanagement and administration of theirorganization/client organization.

(g) A CS is a custodian of public interest and actsas a vital link between company and otherstakeholders. Keeping this point in view, a CShas corporate social responsibility in additionto his obligation towards the company.

(h) CSs, while issuing certificate regardingcompliance of mandatory conditions ofcorporate governance under clause 49, shouldalso emphasize the organizations to also complywith non-mandatory requirements for the betterfunctioning of the organization and safeguardingpublic interests.

CONCLUSION

A CS provides all inputs, support and assistance toa company in its growth. Therefore, it would not bewrong to say that the career opportunities for CSprofessionals have evolved with times. They are no longerrestricted to companies, financial institutions performingtraditional jobs but their role now include among otherscases of valuation, mergers, amalgamations,management consultancy, indirect and direct taxes,information technology, etc. Hence, with the growth ofthe Indian economy and the setting up of new venturesand business enterprises, the opportunities for CSs haveincreased manifold. Thus, what is required is to repositionthe profession of CSs, from traditional CompanySecretary to strategic corporate manager. He should lookforward to occupy the driver’s seat instead of beingcontended with playing the role of co-passenger in amotor rally.

A – 54


ENDNOTES

1. The profession of CS is practiced by males aswell as by females. To avoid repetition,hereafter he will represent both he/she.

2. http://www.icsi.edu/

3. Basu, S.K (1958), “Managing Agency Systemin Prospect and Retrospect”, Calcutta, p.5.

4. Ramachandran, R. (1993), “CorporateManagement and the Company Secretary”.Chartered Secretary, Oct, 23: 1023.


6. A company having paid up capital of Rs.10 lakhor more is to file with the Registrar ofCompanies a compliance certificate. TheCentral government has prescribed the formatof compliance certificate.

7. Newlands v. National Employer’s AccidentAssociation Ltd., (1885) 53 LJ 242 and reiteratedin Barnett Hoares & Co. v. The South LondonTramways Company C. A., (1887) 18 QBD 815and George White Church Ltd. v. Caranagh(1902) AC 117.

8. Diwan Chand v. Gujranwala Sugar Mills Co.(1937) 7 Comp Cas 203 (Lah); AIR 1937 Lah644.

9. Re. Matlock Old Bath Hydropathic Co.(1873)29 LT 324.

10. Barnett Hoares & Co., 1887.

11. Haycraft Gold Reduction and Mining Co., Re(1900) 2 Ch 230.

12. Chida Mines Ltd. v. Anderson (1905) 22 TLR27.

13. Cleadon Trust Ltd., Re (1938) 4 All ER 518.

14. Panorama Development (Guildford) Ltd. v.Fidelis Furnishing Fabrics Ltd., (1971) 3 ALL ER16 (CA).


16. Now-a-days, merchant bankers are playing adual role i.e., they are also acting as portfoliomanagers, besides discharging their duties as amerchant banker. To avoid repetition, both theterms i.e. portfolio managers and merchantbankers are used interchangeably.

REFERENCES

1. Acharya, Bipin (2003), “Certain Companies tohave Company Secretaries”, Corporate LawAdviser, Jul 55(2) : 34-42.

2. Bajpai, G.S (1988), “Role of CompanySecretaries in Government Companies”.Company Law Journal, 3: 73-7.

3. Desai, S.T (1997), “Mandatory Utilization of theServices of Company Secretaries.” CorporateLaw Adviser June: 25-7.

4. Krishnan, R (1972), “Managerial Role of aCompany Secretary” Company News andNotes, 10: 14-7.

5. Krishnamurthi, S (1990), “Position and Role ofa Secretary”. Corporate Law Adviser, Aug:58.60.

6. Rao, Jagannadha (1973), “Managing AgencySystem in Disguise”. Cuttack Law Times, 39:53-54.

7. Ray, K.K (1977), “Rights and Duties of aCompany Secretary”. Company News andNotes, Mar-Apr, 15: 1-3.

8. Sankaran, C. (1994), “Role of CompanySecretaries in Liberalized Economic andIndustrial Scenario”. Chartered Secretary, June24: 513-9.

9. Sharma, Y (1989), “Role of a CompanySecretary Towards the Shareholders and thePublic”. Lawyer, Feb, 17: 24-8.

Calibrating Competence for Professional Excellence

A – 55

CALIBRATING COMPETENCE FORCALIBRATING COMPETENCE FORCALIBRATING COMPETENCE FORCALIBRATING COMPETENCE FORCALIBRATING COMPETENCE FORPROFESSIONAL EXCELLENCEPROFESSIONAL EXCELLENCEPROFESSIONAL EXCELLENCEPROFESSIONAL EXCELLENCEPROFESSIONAL EXCELLENCE

VIPIN AGARWAL*VIPIN AGARWAL*VIPIN AGARWAL*VIPIN AGARWAL*VIPIN AGARWAL*

The times have changed and the concept ofglobalised world has become much more pronouncednow than envisaged earlier. The genesis of earliernotification to the best of reasonable assumptions musthave arisen from the fear of competition and loosingmarket opportunities for one established breed ofprofessionals. The Hon’ble Supreme court has veryappropriately advocated the cause of learnings, upgradation and widening of knowledge base by goodprofessionals while reasoning out the basis of theirdeciding against the notification issued by the ICAI. Thetechnological advancements have perhaps created farmore opportunities today than ever foreseen inyesteryears creating an even higher demand forprofessionals. However, the moot point which remainsas the foundation of professional success, survival,growth and elite positioning emerges from calibratingcompetence for professional excellence.

All my professional brethren would agree that inspiteof low pass percentages, reasonable legal protectionfor earning the professional livelihood, the pass outsfrom IITs, IIMs are in greater demand eveninternationally, offered higher emoluments inspite of nothaving any legal compulsions for corporate sector toavailing their services. The answer lies simply inperceived excellence the pass outs from such alma materbring for creating value in the market place by corporateenterprises. Coupled with this is the rapidity of changein market place in terms of shortening life cycles, powerof knowledge becoming the engine of successfulenterprises, huge demand on measuring productivity ofwhite collared work force and wider application ofquantitative techniques in real life business scenario.

Therefore, the fundamental theme of professionalexcellence is that it creates a “pull” value juxtaposed

* Chief Financial Officer, Jumbo Electronics LLC, Dubai.

to a “push” value emerging from legal compulsions,notifications and enactments. Excellence signifiesthe execution of activities conveying a finessenotwithstanding the complications, challenges andconstraints involved. For instance, the doctorsperforming complicated surgeries to protect humanlife in sensitive organs like brain, heart, liver areoutcomes of professional excellence. Such excellenceis not an outcome of passing out from the medicalcol lege but a commitment for cal ibrat ingcompetence. The challenges faced by a professionalare not confined to the domestic territory of regulation,but developing ability to deliver as per the regulationsof other countries in the wake of rampant businessprocess / knowledge process outsourcing. The scaleof competencies is not confined to professionalexecution, but also encompasses around a number ofpersonal competencies to effectively present, negotiate,manage and demonstrate comprehensive excellence ona continuous basis.

Calibration of competence in the context of ourprofession can be classified into two broad categories:

(i) Functional calibration of competencies forprofessional excellence

(ii) Generic calibration of competencies forprofessional excellence.

FUNCTIONAL CALIBRATION

Functional calibration for professional excellenceessentially means upgrading the professional knowledgeboth in applied and evolving realms of professionalconduct. To paraphrase this further, functional calibrationcan be subdivided into following categories : -

(i) advanced / higher education

A – 56


(ii) practical applications

(iii) continuous measurement

(iv) competence of communication

(v) working on depth and width

Advanced / post qualification education

It is a matter of great pride that our Institute hascontinuously tried to keep pace with the changesemerging inter-alia anticipated to emerge to navigatethe theme of professional excellence. Apart from therecent launch of post qualification course, the institutelaunched a post membership qualification courseespecially designed for a highly specialized sector offinancial services. The course content encapsulated acomprehensive know how apart from maintaining highstandards of evaluation in examination.

Members who pursue such higher education notonly carry the rhythm of continuous learning but alsoimprove their perspective, horizons and keeping theinquisitiveness to learn. It is an excellent opportunitythe institute provides to calibrate competence forprofessional excellence and more number of membersshould pursue such post qualification courses.

Our profession is neither a pure science nor a pureart, but an amalgam of the two like the classical definitionof economics. However, in today’s world economics isbecoming more of a science with the application ofadvanced mathematical models. Similarly, our professionis poised to be split into an era of micro specialization likemedical profession be it the area of corporate governance,compliance, planning or specific industry types. One suchmajor thrust area emerging in near future would bepertaining to WTO. Calibrating competence in this areawould not only become the basis of professionalexcellence, but also create immense opportunities forprofessional services.

Practical applications

The true test of professional excellence isdemonstrated or comes to test when one is supposedto find quick solutions to problems arising in the practicalworld. Incidentally, as and when such problems arise,there are big business compulsions involved entailinglarge financial stakes. In our professional experience,we have witnessed a number of situations involvingcontradictory opinions, views even with respect tointerpretation of a common guideline, sections of thestatute etc. For instance, the prize winners to the query

published in Chartered Secretary every month arerepeated several months in a year. Of course, it wouldbe safe to assume that the winners are not the onlyrespondents to the queries published eliciting responsefrom the members. However, the winners demonstratean urge to calibrate competence for professionalexcellence by delving deep into the realms of practicalapplications.

Continuous measurement

It is a very common saying in management, “whatgets measured, gets done”. Therefore, for calibratingcompetence, a system of continuous measurement is amust. Incidentally, the evolution of “Quality”paradigms of management processes has ensured thateach and every function, process or activity ismeasurable. Measurement is not restricted to lineactivities having quantifiable targets like number of carsproduced or sold, but extendable to staff functions notresponsible for any such apparent quantifiable targetsof measurements.

Without measurement, it is difficult to define thesteps of progress, performance yardsticks. So if onedrop a day can fill a bucket, one drop signifies themeasure of improvement which results in generatingsome liters of water when accumulated. Illustrations ofsuch measurements could be reduction in fee paid toconsultants, reduction in time taken to carry outcompliances, no of cases getting cleared by regulatoryauthorities in first go, percentage resubmission /rejection, reduction in observations from auditcommittee etc.

Competence of communication

One of the fundamental calibration of competenceour professionals require is with respect to the powerof communication. For achieving success in professionallife, it is paramount that our power of communication ispar excellence. Power of communication indicates thepower to express our mind and intent coherently withthe right words and complete clarity. More often thannot, our professionals are subjected to high rigor ofsensitive communication while dealing with corporateaffairs, board of directors comprising eminentpersonalities, joint venture partners, know how partnersand stakeholders accustomed of finer standards ofcommunication.

Discharging the responsibilities of a principal officercomes under closer scrutiny when the competence ofcommunication shadows the professional excellence.The purpose of communication in spoken form or written


A – 57

form hovers around being clear, concise, crisp andconvincing. This also requires making efforts inunderstanding the language better. Some of thecommon goof ups coming to notice pertain to mixingsimilar sounding words with different meaning, forinstance, precedent vs. precedence, apprise vs.appraise, complement vs. supplement, predecessorvs. successor, benign vs. malign.

Incidentally, much to the popular belief goodcommunication competence is not a function of thetype of schooling or the legacy of family. Prowess ofcommunication is more an outcome of self-effort,dedication and commitment than strictly a function ofour schooling or foundational training.

Another dimension of competence ofcommunication relates to public speaking inter-aliamaking power point presentations. Some of the keycompetencies surrounding good public speaking /delivering power presentations are as follows : -

1. Avoid reading a speech with eyes glued to thelectern or reading text imprinted on the powerpoint slides

2. Establishing rapport with audience is veryimportant and this may need aligning thethought with body language / gesticulations

3. Rehearsing pays

4. Spending five or six seconds looking at eachperson in the audience

5. Pausing instead of inflicting “ums” and “ahs”on the audience

6. Speaking a bit louder than the normal and uselarger gestures than they feel originallycomfortable with

7. Controlling the emotions and being in controlof time, neither too short, nor too long

8. Staying focused on the purpose, content,objective

9. Smile and humor blends well in publiccommunication

10. Building a bridge than churning out amechanical roll out.

Working on depth and width

Assuming the growth in profits of a company reflectthe depth of a company and growth in turnover reflects

the width of the company, then the darling ofshareholders would be a company having good scoresin depth as well as width. To prove this further, manycompanies with high earnings per share enjoy low priceearnings and many companies with good growth inturnover are quoted at discount.

Therefore, growth in depth and width is needed totouch the scale of excellence. In the context of ourprofessional system, the depth would translate toattaining reasonable expertise on the facets of secretarialthroughput, whereas the width would demonstrate theability to develop understanding many other areas drivingthe business performance of a company i.e. strategicplanning, cross functional leadership, customers,suppliers, value chain, processes etc.

GENERIC CALIBRATION

Generic calibration of competence revolves aroundnon functional aspects signifying our individualpersonality, emotional maturity and leadership. Toelucidate this further, we would classify the genericcalibration as follows : -

(i) Self leadership

(ii) Emotional intelligence

(iii) Spiritual intelligence

Self leadership

Before we commence our journey in theprofessional arena, we are first our own client orcustomer. If internally, we feel compressed, incomplete,tentative and in conflict, its difficult to expect excellentresults in the outside world. So the first calibrationhappens with the self. The starting point of thiscalibration is self commandment, personal hygienefollowed by discipline, value system, health andappearance. Some of the salient components of selfleadership are as follows : -

(i) Walking the talk

(ii) Strategic thinking

(iii) Innovative and enterprising

(iv) Influencing and persuasive

(v) Driving and decisive

(vi) Problem solver

(vii) Embracing failure

(viii) Being a learner lifelong

A – 58


Walking the talk

Doing what we want others to do is one of thecore principles of self leadership. By the way, thedefinition of leadership is most commonlymisunderstood to connote a designation in the hierarchy.Each one of us is a leader in our own sphere and oweresponsibility to ourselves to navigate our life. It wouldbe apt to quote the incident of Mahatma Gandhi,excelling in his professional and personal life by anytouchstone, when he did not pay attention to the requestof a woman who wanted him to counsel his young sonto stop eating jaggery until the time Gandhi himselfstopped eating jaggery. Walking the talk builds credibilityfor following.

Strategic thinking

Excellence in profession emerges from the qualityof thinking in the practical world. This translates todeveloping an understanding on the business scenarios,industry trends, product lifecycles for committinginvestments, likely shifts, emerging opportunities andprojecting next five, ten year scenarios of the business.To develop such competencies one has to participate incross-functional teams, read theory and relate thedevelopments with actual happenings in the marketplaceand understand the perspective from variousfunctionaries.

Innovative and enterprising

Being innovative is an essential competence of selfleadership and always precedes excellence. It wouldbe inappropriate to conclude that there is no scope forinnovativeness in the functional area of CompanySecretaryship. Innovativeness is all pervasive thanconfined to areas of applicability. Besides beinginnovative, being enterprising is another competenceof self leadership. Enterprising does not essentiallymeans doing our own business or being self employed,but also includes thinking like the entrepreneur for thegrowth of organization.

Influencing and Persuasive

Organizations are represented by large pool ofqualified manpower working under specific structures.In a competitive world, each function of an organizationis manned by qualified, competent personnel who areno longer susceptible to earlier era of command andcontrol. Therefore, access to the board of directors orsuch other apparent proximity to power centers can nolonger become the basis to have our existence in theorganizational leadership. In order to effectively deal

with internal and external customers, it would beparamount to be influencing, persuasive as tools ofpresenting ourselves. Two key words powering thepersuasiveness are “if” and “then”. For instance, ifyou do this, then this is what happens or likely to happen.

Driving and Decisive

Professional excellence notwithstanding thediscipline of specialization demands the leadership tobe decisive and driving. Indecisiveness only reflectsthe lack of clarity, fear of being wrong, poor competenceand insincerity to the responsibility. Therefore,professional excellence would demand taking quickdecisions even while taking a risk of being wrong insome cases, driving the initiatives with vigor anddevotion, leading from the front than taking shelter insome kind of shadow.

Problem Solving

Problem solving is the touchstone of professionalexcellence. In our day to day life, there are two typesof responses we get, one who reports a problem andwant a pat for being loyal and the other who comeswith two possible solutions while describing the problemalongside.

Embrace Failure

One of the most important and powerful tenet ofself leadership is embracing failure than rejectingfailure. Lincoln appropriately put failure as victory isgoing from one failure to the other. One has to bounceback from failure to moveon. So getting up and tryingagain with due self reflection, self correction to startagain.

Being a Learner Lifelong

People who are open to learning lifelong are alwaysopen to acquire, build new perspectives, keep makingefforts in measuring their learnings from eachexperience, encounter, development courses. Peoplewho are closed to learning are generally limited in theirsphere of knowledge, have too little to add and toolittle to delete, found aloof and isolated, prefer definedroutines, repetitive routines and status quo. Forprofessional excellence, calibrating the process ofcontinuous learning, every day, every hour learning isvery important. We become old if we stop learningirrespective of our biological tabulation.

Emotional intelligence

Emotional intelligence refers to the capacity forrecognizing our own feelings and those of others, control


A – 59

impulse, empathize, self motivation, persisting amidstfrustration, carrying faith in self, maintaining high selfworth, dealing with criticism, rejection, annoyance,restricting need for self approval, self appreciation,separating the subtle messages packed in subtle wordsand being in command than control over self. To quoteAristotle, “ anyone can become angry – that is easy,but to be angry with the right person, to the right degree,at the right time, for the right purpose, and in the rightway- this is not easy”

This competence is one the most importantcompetencies for professionals performing topmanagement roles. Each human individual carriesunique background right from childhood to his adulthoodin terms of experiences, learnings, impressions andformation to dealing with particular situations. Somepeople are termed as aggressors, intimidators, passive,mild, cool, friendly, democratic, people’s man, rulebound, principle bound so on and so forth.

Emotional intelligence allows us to understandingthe types of people we are dealing with and accordinglytrain ourselves to tune our behaviors / emotions. It istypical for factually knowledgeable professionals toimmediately respond in a meeting with connotationslike “not allowed”, “not possible”, “illegal”, “criminaloffence”, “too complicated” etc. Such spontaneouscomments are termed as emotionally immaturecomments since no professional holding a fiduciaryposition in a professional corporation would generallypropose what is precluded by legal framework.However, the discussions around any such propositionsis largely governed by the picture being seen by a largesection of the members of the meeting from thebusiness perspective of growth / expansion. Therefore,invariably such responses are dubbed as “negativepersonality” leading to facing unwarranted disgrace.Competently calibrated professionals can mouldthemselves by acquiring the competence of agreeinginstead of prima facie disagreeing and then passingsubtle comments like “they may like to revert with across check on relevant legal framework on how to dealwith such a subject”.

The other illustrations of emotional intelligence aregetting into debates, arguments, conflicts, proving apoint, confrontations, piloting disagreements andquoting micro specialized facts to demonstratesuperiority of intellect. For instance, in some situationsquotations are made of sub section, circular number,case citation amidst gatherings representing variedbackgrounds.

Some of the illustrations conveying lack of emotionalintelligence : -

(i) Forming membership of smoking gallery andletting loose

(ii) Constantly seeking approval

(iii) Not knowing the importance of silence

(iv) Showing bravado “ It does not matter to me”,“Who cares”, “can’t take such non sense”,“holier than thou”, “ even my father did notdare say this to me, how dare he”, “ won’tcontinue like this for long”

(v) Carrying low self esteem

(vi) Indulging in self defeating patterns

(vii) Trying to be clever and smart

(viii) Showy

(ix) Unconscious of body or non verbal language–for instance, constantly adjusting the spectacles,repeatedly clearing the throat, keeping thehands in pocket, standing crossed arms etc

(x) Using apparently genuine excuses, eg “therewas a break down in computer”, “heavy trafficjam”

(xi) Getting informal too soon

(xii) Discussing wife and kids

(xiii) Not knowing what to talk or where to start,where to stop, what to say and what not to say

(xiv) Feeling uneasy and out of place

(xv) In a hurry, impatient, blaming others

(xvi) Casual dressing

Some of the illustrations conveying emotionalintelligence : -

(i) Empathizing when someone is bemoaning

(ii) Relaxed, cool and calm in stressful situations

(iii) Responding than reacting

(iv) Keeping a strong positive body language

(v) Showing interest and involvement

(vi) Appreciative of others’ viewpoint includingmaking attempts to understanding theirviewpoint before responding back to facilitatehealth interaction

(vii) Being articulate and remaining focused

(viii) Being balanced – including personal life

A – 60


(ix) Ability to connect with people of diversebackground, culture, setup and education

(x) Making mental notes, owning responsibility

(xi) Not indulging in complaining, condemning,criticizing

(xii) Smiling, easy, radiating health, confidence,upkeep of sound professional knowledge andvalues

(xiii) Smart, well groomed business dressing.

Spiritual intelligence

By spiritual intelligence, my reference is essentiallyto the right part of human brain. We all know that leftbrain is the logical, rational, analytical part of humanbody, whereas right brain is the creative, imaginative,intuitive and dreaming part of our body.

We all invariably use more of our left brain, rightlyso, as per the nature of our duties, responsibilities andthe normal conduct of life essentially driven from theleft function of the brain. However, in this process weignore the power of our right brain which if activatedand used effectively can help us calibrate ourcompetence to excellence in life including theprofessional life.

Many a times the excellence is defined ourpresence of mind, sharp reflex, quick suggestion,connecting with right person, book, reference materialwith high degree of spontaneity. To illustrate this further,browsing through July 2007 issue of the CharteredSecretary, my attention is drawn to the upcomingNational Convention and the list of topics to be coveredfor paper writing. With an intention to attemptcontribute a paper after a gap of many years, I have toselect one topic and prima facie, I like all the four topics.So unable to exercise a choice, I drop the idea ofstruggling to select a topic and move on to next pagesuntil my attention is caught by the Supreme Court casejudgment of ICAI vs. ICFAI. In a fraction of second,the topic gets chosen and the process of writingcommences with constant flow of thoughts revolvingaround the subject.

Calibrating competence on this dimensionessentially refers to maintaining calm, poise, serenityand tuning to the creative problem solving of right brain.Dr Frederick Banting invented the insulin injection very

widely used for treating diabetes used his spiritualintelligence or the creativity of right mind to invent thisdrug. Nikola Tesla, a pioneer in the field of electricitydeveloped The Tesla coil which works on principle ofstatic electricity used his right brain to calibrate hiscompetence for professional excellence.

Another aspect of spiritual competence is the powerof giving. On so many occasions, we have observedresentment among people for not getting due increment,being passed over for a promotion / hike, client refusingto honor the bill, terminating professional contract infavor of a cheaper alternative, so on and so forth. Thespiritual competence guides us to continuously measurethe value we deliver through our professionalengagement and only focus on expanding the value weso deliver without focusing on the return on such valuegeneration. Sooner or later, the valid and meritoriouscompensations delayed or denied hitherto startmanifesting in multiples, leave alone the number wewere feeling resentful about.

The process for developing this competence is rathersimple. One has to become more self-conscious,attentive to the internal guidance and flashes arisingwith such attunements. However, this is not to bemixed up with fantasies and castles in the air.

Conclusion

Calibration of competencies for professionalexcellence is not a one-time effort, but an ongoingjourney of self-evolution with no prescription for starttime and end time. Competencies are not restrictiveto good knowledge of one particular aspect ofprofessional subject but revolves around a completeblend of the persona a professional carries. The crucialfactors of success are hidden in the arena of emotionaland self-leadership competencies which play an equallysignificant role in manifestation of scale of success. Forpracticing members, especially the challenges are highsince the standards of professional excellence amidst avaried cross country clientele would revolve around bothsubstance and form. Building competencies wouldrequire investments, effort and determination forpursuing excellence than settling down for average.

Let us collectively rise to the encashment ofopportunities coming our way to excel and service aninternational clientele.

Legal Process Outsourcing (LPO) - The Emerging Space and Some Realities

A – 61

LEGAL PROCESS OUTSOURCING (LPO) —LEGAL PROCESS OUTSOURCING (LPO) —LEGAL PROCESS OUTSOURCING (LPO) —LEGAL PROCESS OUTSOURCING (LPO) —LEGAL PROCESS OUTSOURCING (LPO) —THE EMERGING SPACE AND SOME REALITIESTHE EMERGING SPACE AND SOME REALITIESTHE EMERGING SPACE AND SOME REALITIESTHE EMERGING SPACE AND SOME REALITIESTHE EMERGING SPACE AND SOME REALITIES

RANJAN MUKHERJEE*RANJAN MUKHERJEE*RANJAN MUKHERJEE*RANJAN MUKHERJEE*RANJAN MUKHERJEE*

Introduction

Continuous value creation for all stakeholders in atransparent way of doing business is the call of the day.To achieve this value creation on the reality of fiercecompetition has forced the business entities to eliminatecosts and forced to transfer non-core processes to theexpert service providers. This has become commonacross the world. The reduction of operational costsand lesser turn around time with high quality ofprofessional job are being considered as main gainsfrom outsourcing.

Worth of any profession is always measured in termsof value content of the service of such profession. Theway of creation of value cannot remain static. In fact, itshould change faster than the other changes to satisfythe need of the clients of the profession. This continuouschange of perception creates change in expectation froma professional service. Any knowledge driven professionshould cultivate excellence of knowledge continuouslyand such excellence should create a mark on the deliverysystem for the society and economy where it operates.The value delivery system must deliver visible benefitto the clients, through a bankable way.

The scope of new professional jobs andrevenue

Indian IT industry has been appreciated across theworld in last 15 years for its ability to create valuecontinuously for its clients. This value creation path hasstarted taking visible shape in many knowledge drivenprofessions including legal services.

The objective of this paper is to lay some groundson legal services where the Company Secretaries byvirtue of their own merit, may chip in and gradually

* FCS.

obtain a level playing field amongst the lawyers,accountants and other professionals.

No one perhaps will disagree that the Indian legalprofession is still bounded by many restrictive practiceslike foreign law firms are still not allowed to practice inIndia, advertisement and bank borrowings are still taboos.The Indian legal profession, still also suffers from asignificant degree of nepotism and gender bias, whichprevent many competent legal professionals fromachieving their professional goals within traditionallegal practice. As a result, a significant portion of legalprofessionals who provide significant service in non-litigation areas of legal profession (including CompanySecretaries) remain under-utilised.

However, 850,000 law professionals trained in legalsystem, consistent with laws in the US and the UK (BritishCommon Law), India is the ideal destination foroutsourcing of legal service. It is worth to mention thatabout 75,000 fresh law graduates are coming out everyyear from all law colleges of the country.

The following table shows the volume of jobs beingundertaken by Indian professionals and revenue earnedand future potentiality and corresponding figures of theUSA, which shows the totality.

This table has been drawn from an article [LegalProcess Outsourcing (LPO) – Hope v. Reality] which isthe product of a research work conducted byEvalueserve.

[Evalueserve is an Indian LPO service provider inmainly patent area, founded in 2000, having 160employees and operates from India, China, Chile].

A – 62


2005 2010 2015

Number of Indian legal professionals giving service to US 1,300 5,200 16,000

Revenue [earned and estimated revenue in US$ in million]by Indian legal professionals from their services in the US 56 300 960

Legal professionals available in US[Estimated figures in millions] 0.97 1.125 1.3

Revenue [earned and estimated revenue in US$ in billions]by Legal Professionals 270 360 480

The above shows that there shall be significantgrowth in outsourcing business (from US$ 56 million toUS$ 960 million in a span of 10 years) but if total figurein terms of percentage is seen it shall show only 0.2%[(960/480000)x100] of the total revenue perhaps shallbe outsourced from US to India.

The nature and volume of legal expenses of US

The Chartered Accountant, the monthly journal ofthe Institute of Chartered Accountants of India inNovember 2006 carried an interesting article on thesubject of LPO which gives the following detail relatingto nature and volume of legal expenses of US.

Category of jobs Annual spend $ bn % of total Spend

Office operations 6.2 31.1

Litigation support 4.9 24.6

Word processingand secretarial 2.9 14.6

Information systems 2.5 12.6

Marketing 0.85 4.3

Legal Research 0.62 3.0

Financial & Accounting 0.50 2.5

Library 0.50 2.5

Legal recruiting 0.35 1.8

Human resources 0.20 1.0

Patent & trademarkprosecution 0.40 2.0

Total 19.92 100

The urge to minimize operational costs beside hiringefficiency in non-core areas collectively have givenopportunity to BPO businesses, and lately suchoutsourcing assignments are concentrating in knowledge

driven areas, like finance and accounts, human resourcedevelopment, statistical analysis, market survey, onlineeducation, e-publishing and legal process outsourcing.

Various models relating to legal serviceoutsourcing

The market has witnessed certain models beingfollowed by the industry across the globe, so far as thelegal process outsourcing jobs are concerned.

Outsourcing through procurement wing

Procurement wing of any business is responsiblefor procurement of resources of any kind for the business.There are some reputed companies who have had givenassignment to their own procurement wing to evaluatethe cost and effectiveness of their own legal departmentvis-à-vis outsourcing possibility. These companies areUnited Technologies Corporation, Oracle Corporation,Bayer AG, JP Morgan, Merrill Lynch, Motorola, Pfizer,Tyco, Wyeth etc.

Utilisation of IT

Utilisation of IT in every aspect of legal departmentand in law firms have reduced re-work, costs besidereduction of turn around time to the clients. Thisutilization of IT has taken place in e-billing to thecustomer on online basis, developing knowledge baseand storing knowledge base electronically and taggingthem for easy retrieval beside e-filing of forms with lawimplementing agencies.

Job sharing with the lawyers

Research on law points, beside finding out properdocuments from the clients and tagging them asattachments for the litigation, providing developmentalreport on litigation and preparation of brief for thecounsels are being done by back office brains of thelawyers and mostly these brains are not involved inappearance before the courts.

Legal Process Outsourcing (LPO) - The Emerging Space and Some Realities

A – 63

Fixed price contracts

More and more fixed price contracts are being madefor legal services including all indirect costs for the job.

Offshoring jobs

Subject to compliance of outsourcing laws or exportcontrols for the jobs, many legal services are beingrendered by offshore office based in India for their clientsbased in UK or US.

Capability building

Rendering high caliber professional service requiremany valuable inputs, which the service provider fromLPO has to set in before even seeking for anyassignment. Some of the inputs are as follows:

Infrastructure

Setting up of office should be in such a place wherecity infrastructure and social safety factors are available.The inner side of LPO office should have close circuitsurveillance and access restrictions, beside facilities forvideo conferences and tele-conferences, LANconnections and intra-net connectivity for cross-exchange of knowledge and data base within theorganisation. Ideally, LPO must have locked work rooms,without any connection with media. Employees are notallowed to take pin drives or CDs, personal computers,cameras or cell phones with camera in the work place.No personal possessions (purse, bags) are allowed tobring on the work desk, every employee is supposed tokeep their personal possessions in the locker outsidethe work rooms. No free access to internet is allowedor downloading of files. No employee is allowed to takeaccess into client data base. Surprise checks on everycomputers and physical checking of purse, bags anddrawers, are conducted by the security personnel.Movement of employees in the office is traced throughaccess card. These security aspects are audited by thethird parties to conform international security standards.Clients normally check these security points beforeassigning any job to a LPO. In fact many LPOs in Indiahave already demonstrated high level security besidehigh quality professionals and the same have beenappreciated by foreign clients.

Manpower quality

The LPO should consist of professionals with proventrack record and professionals who are willing to gathernew knowledge and apply such new knowledge in theirperformance on a continuous basis. Success of LPO isdependent on quality of persons and perhaps on nothingelse. LPO should always attract quality professionalsbecause:

— LPO takes a merit based approach relating torecruitment.

— LPO gives variety of experience and scope ofaccruing in-depth knowledge on countryspecific laws.

— LPO may offer superior compensation to youngprofessionals in their early stage of careers.

On the other hand, LPO is not only creating scopefor professionals with legal background. India is havingvery large pool of graduate engineers who are gettingattracted to patent service segment. In early 2006about 400 high quality engineers got engaged inproviding patent services such as literature searches,prior-art-searches, technology and patentabilityassessment, patent claim mapping, etc from India.May be in future more engineers shall join this fieldas professionals.

LPO industry has already introduced a certificationtest called Global Legal Professional, this nicheexamination shall help the industry to screening lawgraduates as prospective candidates for LPO resourcepersons.

Conclusion

The present volume of business of Indian LPO issmall. The experience gathered so far may be utilizedfor further growth, because enough space is stillavailable. It is now a challenge to the professionals includingCompany Secretaries, how best they can fit in to this basketof LPO, by exporting their rich knowledge and expertisein this filed by developing strong network with otherprofessionals within and outside India.

A – 64


OPPORTUNITIES & CHALLENGES BEFORE THEOPPORTUNITIES & CHALLENGES BEFORE THEOPPORTUNITIES & CHALLENGES BEFORE THEOPPORTUNITIES & CHALLENGES BEFORE THEOPPORTUNITIES & CHALLENGES BEFORE THECORPORATE PROFESSIONALS — AN OVERVIEWCORPORATE PROFESSIONALS — AN OVERVIEWCORPORATE PROFESSIONALS — AN OVERVIEWCORPORATE PROFESSIONALS — AN OVERVIEWCORPORATE PROFESSIONALS — AN OVERVIEW

DR. R N NIGAM* & DR. (MDR. R N NIGAM* & DR. (MDR. R N NIGAM* & DR. (MDR. R N NIGAM* & DR. (MDR. R N NIGAM* & DR. (Msssss.) POONAM VIJ**.) POONAM VIJ**.) POONAM VIJ**.) POONAM VIJ**.) POONAM VIJ**

Rapid globalization, cross border investment andbusiness operations coupled with speedy and emergingpattern of changes in business environment,development of information technology, and the overallglobal requirements of both investors and the business,have led to the fast expansion of professional horizons.This has further led the professional bodies- such asthe Institute of Company Secretaries of India and theInstitute of Chartered Accountants of India toincorporate in their curriculum the areas needed inaccordance with the present day worldwiderequirements of business and industry.

Increasing convergence of Accounting andAuditing Standards and integration of India with worldeconomy has thrown open plethora of opportunitiesand avenues for professionals be they in practice orindustry to progressively raise their standards to matchglobal parameters not only in traditional areas but alsoin non traditional areas like Risk Management andHedging, Commercial Arbitration, Mergers andAcquisit ions, Capital Restructuring, ChangeManagement Service, Corporation Governance,Corporate Restructuring, Business Strategy, CorporateFinance Consultancy, Business Valuation , ServicingGlobal Organization, Outsourcing Operations,Protecting IPR and the like with emphasis on greateraccountability and transparency.

Revolutionary development in telecommunication,multimedia and information technology has created atremendous impact on all avenues of professions as inthe case of all sectors of economy. Globalization andproliferation of multinationals have broken down national,

* M.Com., LL.B., Ph.D DCL (ILI), Reader, Department of Commerce, Delhi College of Arts and Commerce, Universityof Delhi.

** M.Com., M.Phil, Ph.D. (Finance), FCA. Senior Lecturer in Commerce, J.D.V.M. P.G. College, C S J M Kanpur University.

regional and political boundaries. All these developmentsare bringing about inexorable changes in our outlook,approach, methodology and tools.

It is, therefore not too late to revisit and repositionthe profession, and to translate the challenges intoopportunities by adapting to rapid changes across globaleconomic environment.

Today the world capital markets do not have anyborders. Physical distances and barriers have beenremoved / reduced by massive developments incommunication, transport and E-commerce. A numberof large companies are establishing their businesses inemerging economies like India and China. Cross bordercapital market transactions, mergers, acquisitions,takeovers, hiking/increasing the stake all over worldhave become normal practice/events among thecorporations and the corporate business events. Itis, therefore high time that professionals should seeprogressive liberalization of services in WTO Regimeas an opportunity in India rather than as a threat. Itwould welcome opening up of the new vistas to theaccounting sector provided professionals from Indiaget effective access to the market of export interest.It can be assumed safely that given a properinstitutional and infrastructural framework and support,the profession in India will rise to the occasion andwould blossom into an internationally competitiveprofession. Following proactive measures are slatedto be further intensified to gear up to meet the urgentimperatives of a globalized profession in currentscenario.

Opportunities & Challenges before the Corporate Professionals - An Overview

A – 65

NETWORKING OF PROFESSIONAL FIRMS

Most Indians, no doubt professional firms aredominated by small and medium size practices (SMP).The large practicing firms constitute a very minisculepercentage of total number of firms. This traditionalmodel may not be viable and ideal to meet the demandof national and transnational corporate sector due totheir inability of not being able to respond to newchallenges faced owing to lack of updated knowledgeand skills for capacity building to practice in nontraditional areas preventing their growth anddevelopment.

Networking of professional firms at domestic,national and international level will be a imperativesolution to meet the emerging challenges andopportunities This would help firms to pool their resourceseffectively without giving up or losing their individualityand to deliver services of one or more types at multilocation points with or without having their physicalpresence. Networking would also facilitate consolidationof firms over a period of time, which will be an addedadvantage. However, it is desirable that all networkingfirms comply with the applicable ethical requirementsprescribed by the competent authority time to time inthis respect.

GLOBALIZATION OF PROFESSION &CONSOLIDATION OF FIRMS

The traditional role of professions has undergone asea change with fast pace of globalization of theeconomy. It leads to the definition of internationalprofessionalism. The Indian call centers are excellentexample of the reach and width of such potential. Theelectronic mobility has replaced physical travel as a resultof which professional can sell their services to anyorganization in any part of the world but how? The answerlies in consolidation/ merger of professional firms.

The corporate world’s cross border mergers,demergers, acquisitions and takeovers have becomecommon these days for securing survival, growth,expansion and globalization of enterprise and achievingmultitude of objectives.

The merger of small and medium size professionalfirms would be effective in acquiring the capacity torender bigger assignments of large national andmultinational companies spread over bigger geographicalarea with a backing of specialists in different areas ofwork. A merged big entity will always be superior to anetwork arrangement. Limited Liability Partnerships(LLP) would facilitate growth of professions as this

structure would facilitate to form multi-disciplinary largepartnership firms with flexibility of operations and wouldprove a good risk mitigation structure in world servicesmarket. The LLP bill introduced in Parliament in 2006 isexpected to become law soon.

MULTI DISCIPLINARY PARTNERSHIPS FIRMS

Globalization is resulting into cross borderinvestment and operations and has an impact on theworking of different professionals. Complexity in lawsdemands specialization. The emerging demand for’single window’ concept in professional services isimperative. Multi Disciplinary partnership (along withemployment/retainers) among Company Secretaries,Cost Accountants, Chartered Accountants, Advocates,Actuaries and Architects would facilitate providing allspecialized services under one roof.

SPECIALIZATION IN MANAGEMENT CONSULTANCYSERVICES

In view of tendency to outsource the decisionmaking process Management Advisory Consultancyservices are gaining importance and prove to providevalue addition to the client’s business. The national andcross border takeovers, acquisitions and mergers are notuncommon these days. A professional firm can aspireto build a team specializing in due diligence, debtsyndication, IPO issue related services, raising finance,KPO & LPO services, financial / operational restructuringof corporate clients, corporate governance and so on.However to achieve comprehension and growthspecialization is the key factor.

If every partner and his supportive team shouldspecialize in particular field of practice with continuousupdating of knowledge, needless to mention, the firmshould be able to render specialized value addedbusiness services globally and would stay fit in the globalcompetitive environment.

No doubt stress on transparency and corporategovernance and emergence of knowledge society haveoffered myriad of present and future opportunities fordeveloping the new skills, technical expertise and afuturistic vision for professionals. However to cash inon these opportunities professionals need to constantlyupdating and enriching their knowledge.

The future will belong to those who can cope withchanges and reinvent themselves in the profession inthe light of diversifying expectation of clients. It is atime to reposition the profession and translate challengesinto opportunities. Let the entire world look at India as

A – 66


a global hub of professional services likes of which areseen in information technology sector.

RENDERING GLOBAL CONSULTANCY SERVICES

Today, the world is passing through an era ofglobalization and business expansion. There is greatshortage of professionals through which different kindsof work such as documentation, compliance of legalrequirements and the like could be done smoothly.Members of the Institute of Company Secretaries ofIndia, Institute of Chartered Accountants of India,Institute of Cost & Management Accountants, BarCouncil of India etc. can be instrumental in this regard.

There are many countries which do not have anyprofessional bodies which have persons who are legallyauthorized and have competency to handle such work.More so, these countries cannot afford to establish theprofessional institutes on the pattern of what we havein India, U.K., U.S. and other countries. Therefore, itis high time for the Indian professionals to grab theseopportunities. The countries which need services ofIndian professionals are ready to assign the above jobsat very competitive costs. These countries are unableto set up professional bodies for the reasons of highcost of establishment. Therefore, they have to dependupon the Indian professionals.

More so, the companies across the border whichare in search of business partners and bring the FDI toIndia, our professionals can be of great help. Theroute through which the investments can be broughtto India which may be more beneficial to the countrywhere from such investment is coming from, by takingthe advantage of fluctuation in the value of currency.Here the time at which such investment can bearranged is also important. To sum up, rendering ofthe above services are highly lucrative for the Indianprofessionals.

HEDGING AND RISK MANAGEMENT SERVICES

Over a period of time the investors, the corporatesector, the mutual funds have realized that in a situationof volatility in the stock market all possible efforts shouldbe undertaken to protect the investments. Since theinvestors- whether individuals, corporate or mutual fundsmay be having professionals on their rolls, they will haveto bank upon the services of professionals. The Indianprofessionals are definitely competent to recommendmeasures for hedging and risk management, so thateither there may be profits or the investors may be in aposition to minimize their losses during the volatility.

CREATING VALUE OF THE PROFESSION ANDBUILDING A BRAND

Value is a conviction that a person holds about aspecific mode of conduct and the importance which heattaches to his convictions. A value represents primeevaluation of moral or social good. Values stem frompersonal beliefs, opinions and standards. They aredynamic because people seek test and change values.Every generation reviews the values of precedinggenerations. Corporate and professional values implywhat a company or profession believes in and standsfor. Values may differ from one company or professionto another and even from individual to individual. Valuesare important to professionals because these reveal whatis really important to an organization. Values are thebasis for any profession, may be chartered accountancyor Company Secretaryship.

Value depends to a great extent upon social values.Social values refer to the beliefs shared by the membersof a society concerning desired and undesired behavior.

Value creation and brand building areinterconnected. One cannot go alone. Customers havea Trust on the brand. The customers/clients want thequality work, for which they are ready to bear any cost.The customers/clients these days go for ‘Brand’. Noclient/customer wants to go for a non-branded productor services. For this reason, first the professionals shouldbuild a strong and popular brand and do all efforts tobring the same to the knowledge of the client/customers. Once a strong brand is built, value of thebusiness and the professionals is bound to be higher inthe domestic and the global markets. For this, theprofessionals will have to develop their strong skill andcompetency. This need to be communicated to thecustomers by arranging seminars, discussions, roundtable conferences and bringing out some journalsdemonstrating the quality services, and professionalcompetency of professionals. In fact, the values andbranding are the fundamental components that havepowered the transformation of any company.

ENSURING GOOD CORPORATE GOVERNANCE –A BIG OPPORTUNITY & CHALLENGE BEFORETHE PROFESSIONALS

Liberalization, privatization and globalization (LPG)wave sweeping through countries and continents andoverwhelming public interest in corporations has ledmore and more corporations to realize that growthwithout a social face cannot be sustained for long. Theyare increasingly heading the concepts like ‘inclusive

Opportunities & Challenges before the Corporate Professionals - An Overview

A – 67

growth'. They are successfully inter winning theirCorporate Social Responsibility (CSR) with their businessstrategies to the benefit of all, As the effect of mis-governance in any corporation initiates chain ofunfortunate events affecting the entire economy inaddition to the considerable damage to the corporations’wealth.

Corporate governance practices are usefully begunby emphasizing that governance is different frommanagement at large. The terms governance andmanagement are used interchangeably thoughconceptual difference exists between the two viz. whilethe management runs the enterprise, whereasgovernance ensures it is being run in the right directionand within the statutory framework. In other words,the management is task oriented and concerns itselfwith execution of tasks to achieve pre-determined goalsand objectives. However the governance is strategyoriented and encompasses framing the policy andensuring disclosure and transparency. The focus under‘management’ is internal to control, direct and monitorthe activities of management/managerial with in themeaning of the Companies Act, 1956, personnel andexecutives and to make them accountable for properimplementation of pre-determined policies. On theother hand, the focus under governance is external, itinvolves accountability of promoters and directors to theoutside world, namely, the stakeholders. Though theconcepts are distinctive, there is a common thread,

which establishes inter-relation between the two-‘better governance leads to bettermanagement’.

The key aspects of good corporate governanceinclude transparency of corporate structures andoperations: the accountability of managers and theboards to shareholder : and corporate responsibilitytowards stakeholders. While corporate governanceessentially lays down the framework for creating long-term trust between companies and the external providersof capital, it would be wrong to think that the importanceof corporate governance lies solely in better access offinance. Companies around the world are realizing thatbetter corporate governance adds considerable value totheir operational performance. Here the professionalscorporate are of great value to the corporate sector.The corporate professionals ensure that the companiesadopt the methodology of good governance within theregulatory framework as prescribed by the law governingthe companies. And there is proper compliance of thestatutory requirements.

To sum up, it is now well established that valuesand brand are the main source of stability in theprofession, and the society. The values and the brandsin the profession are largely based on the social valuesand the trust of the society. The values and brands ofindividual professional collectively determine the overallvalue and brand of the profession’s values.

A – 68


MOST CONVENIENT WAY OF RAISING FINANCE ANDMOST CONVENIENT WAY OF RAISING FINANCE ANDMOST CONVENIENT WAY OF RAISING FINANCE ANDMOST CONVENIENT WAY OF RAISING FINANCE ANDMOST CONVENIENT WAY OF RAISING FINANCE ANDIMPROVING THE DEBT EQUITY RATIOIMPROVING THE DEBT EQUITY RATIOIMPROVING THE DEBT EQUITY RATIOIMPROVING THE DEBT EQUITY RATIOIMPROVING THE DEBT EQUITY RATIO

KAUSHIK MUKHERJEE*KAUSHIK MUKHERJEE*KAUSHIK MUKHERJEE*KAUSHIK MUKHERJEE*KAUSHIK MUKHERJEE*

Raising of finance through preferential issue ofshares is undoubtedly the best way of raising financewhile improving the debt equity ratio. The onlyconsideration for such an issue is, when the share pricesare going up and the trend is expected to continue.Preferential issue can be of equity shares, fullyconvertible debentures , partly convertible debentures,convertible warrants on private placement basis toprospective Investors. The companies can encash theircredibility in the capital market and industry by issuingshare at a handsome premium.

The Securities and Exchange Board of India (SEBI)has got clear cut guidelines on preferential issue underchapter XIII of SEBI ( Disclosure and Investor Protection)Guidelines, 2000. It is always advisable to have latestcopy of guidelines downloaded from website taking anyreference from the same .

The Company should check and ensure the followingbefore embarking on Preferential Issue :

— That the Articles contain provision to makefurther issue of shares /FCD/PCD/ConvertibleWarrants, if not, the Articles must be amended.

— Resolution under section 81(1A) is passed bythe members of the company at a generalmeeting enabling the preferential issue.

— The total holding of the promoters is not already55% or more or, by virtue of such preferentialissue to promoters , their holding should notcross 55%. If so, the issue cannot be made topromoters group. However, the preferentialissue may be made to others.( As perRegulation 11 of SEBI, Substantial Acquisitionof Shares and Takeovers, Regulation 2004

* Company Secretary and Compliance Officer, Phillips Carbon Black Limited.

[SAST]).In case of issue of warrants , howeverpercentage ceiling would be triggered onlywhen warrants are converted into shares andnot at the time of issuance of warrants i.e evenif the warrants is issued to promoters andpercentage goes up by more than 55% , theSAST provision would not be applicable, unlessand until it is converted into shares. Moreoverthe creeping acquisition cap can also becomplied if the conversion of warrants intoshares take place in phases.

Clarification of BSE in this regard is as follows :

A. Regulations 10 and 11 of the TakeoverRegulations are triggered by acquisition ofshares entitling the acquirer to exercisevoting rights beyond the threshold limitsspecified in the said regulations . In caseof an acquisition of convertible securitiessuch as warrants which would entitle theacquirer to exercise voting rights,exceeding the threshold limit specified inregulation 10 or 11, the regulations aretriggered on conversion of warrants, orexercise of option, as the case may be,whereby the acquirer acquires voting rightson such convertible securities. Therefore,at the time of issue of warrants by thecompany, regulations will not be triggered.

B. As per regulation 11(1) of the TakeoverRegulations, no acquirer who, togetherwith the person acting in concert with him,has acquired, in accordance with theprovisions of law, 15 percent or more butless than 55 % of the shares or voting rights

Most Convenient Way of Raising Finance

A – 69

in a company, shall acquire, either byhimself or through or with persons actingin concert with him, additional shares orvoting rights entitling him to exercise morethan 5 % of the voting rights, in anyfinancial year ending on 31st March, unlesssuch acquirer makes a publicannouncement to acquire shares inaccordance with the regulation. "Onperusal of your letters, we understand thatpursuant to the conversion of warrants ,the promoters would acquire less than 5%equity shares in the company in each ofthe financial years ending on March 31,2006, March 31, 2007 and march 31,2008. In view of this, if at the time ofconversion of warrants into equity sharesby promoters of the companyregulation 11(1) as it exists today prevails,the public announcement as required underthis regulation would not be required asthe acquisition of additional shares will bewithin the creeping limit of 5%".

— The “Prospective Investors“ had not sold theirshares during the six months prior to therelevant date i.e the date thirty days prior tothe date on which the meeting of the generalbody of shareholders is held, in terms of section81(1A) of the Companies Act, 1956, to considerthe proposed issue.

PROCEDURAL FORMALITIES

1. Convene the Board meeting to consider andfinalize the preferential issue. No advanceintimation to stock exchanges is required to begiven, as it is not specifically mentioned inClause – 19 of the Listing Agreement. The word“Preferential Issue” of share and warrant isnot covered. However, as a matter of goodcorporate practice, various companies doinform the stock exchanges in advance .Postthe news on the company’s website, if any.This is a “sensitive item”, which will haveinfluence on the market price of the share,hence, care should be taken to ensure that thecompany is really sincere to go for the issue.

2. Procure “Commitment Letters“ from theprospective subscribers before the BoardMeeting , to be placed before the Board.

3. Inform the stock exchanges about the outcome

of Board decision soon after the meeting. Postthe news on company ‘s website , if any. Thenumber of shares, the issue price, the namesof proposed investors and date of GeneralMeeting to pass resolution u/s 81(1A), shouldbe given to the exchanges.

4. The above Board meeting should decide thedate of General Meeting to take necessaryapprovals – to amend capital clause andarticles, if required, to pass resolutions undersection 81(1A). Check whether the currentauthorized capital can accommodate theincreased capital, otherwise, increase it suitably.

5. Dispatch notice to all members of the companyat least 23 days prior to the date of meeting.

6. File six copies of the notice with the stockexchanges as required by the listing agreement.

7. Ensure to obtain the following documents:

A. From Allottees:

(a) Commitment letters mentioning:

(i) The issue price

(ii) No. of shares to subscribe

(iii) Aware that the subscribers knowsabout the lock – in of 1 year/3years

(iv) No. of shares held presently ordeclaration that does not hold any

(b) PAN No.

(c) Demat no., DP name and no.

(d) If the investor is a company

(i) The names , addresses , PAN no.of the directors of thosecompanies.

(ii) If FII or OCB , its RBI registrationno. with an attested copy.

B. From the company:

(a) Passport size photos of all the directors,in such number as equal to the no. ofexchanges.

(b) PAN no. of directors

(c) Present and permanent addresses ofdirectors

A – 70


8. Write a letter to the stock exchanges, enclosinga copy of the Board Resolution and notice ofGeneral Meeting, seeking its checklist forobtaining pre–allotment “in–principle” approvalfor making the allotment. Arrange to obtainstatutory auditors certificates, as perrequirements.

9. Follow up the exchanges till you get thechecklist. Model checklist for BSE and NSE pre-allotment “in – principle” approval underclause 24(a) is enclosed marked as“Annexure–A”.

10. The current holding of the prospective investorsshould be locked in for a period of six monthsfrom the date of proposed allotment. Hence,if there are any such shares, write to NSDL andCDSL to get the appropriate form forinitiating the locking process, in coordinationwith the Registrar of the Company. It is advisableto lock it for 6 month plus 15 days from thedate of General Meeting.

11. Submit all the initial documents to stockexchanges before the date of General Meeting,so that we can obtain their “in – principle“approval at the earliest after the GeneralMeeting with a certified copy of the GeneralMeeting resolution.

12. On the appointed day, convene the generalmeeting as per schedule Intimate the stockexchanges about the outcome of generalmeeting soon after the conclusion of themeeting. Post the news on company’s website,if any. If the meeting gets adjourned for anyreason then to inform the Stock Exchanges toget adequate extension of time for allotmentof Shares

13. Immediately after the General Meeting followup for In-principle approval from StockExchanges and upon receipt to get the cheques/DDs from the prospective investors towards theissue price.

14. After Bank confirmation of realisation of cheque,convene Board Meeting/Allotment Committeemeeting to allot shares.

15. Issue letters of allotment to all the subscribers.

16. Inform the Stock Exchanges about allotment assoon as the meeting is over within 15 minutes,as per listing agreement.

17. Organise to get the following four requiredcertificates from statutory auditors of thecompany:

(a) “lock in” of shares confirmation certificate

(b) Compliance of Section 81(1A) certificate.

(c) Confirmation of receipt of allotment moneycertificate.

(d) Compliance of SEBI guideline certificate.

Plan to obtain the certifications by next day ofallotment of shares. The Managing Directorshould also give all the four certifications.

18. File Form No. 2 and 5, if applicable, with ROC.Though 30 days time is available, this shouldbe filed immediately, as the proof is to besubmitted to stock exchanges.

19. Intimate NSDL, CDSL and Registrars about theallotment giving the distinctive numbers ofshares. Though the physical certificates may notbe given but the shares will be credited todemat accounts, the distinctive numbers shouldbe generated.

20. Follow up to get the post allotment In – principleApproval and listing,trading approval from thestock exchanges. Close monitoring and followup with the Exchanges is required to completethe process. Model checklist for BSE and NSEpost- allotment “In – Principle” approval andlisting, trading approval is enclosed marked as“Annexure –B”.

21. Submit the whole lot of documents to stockexchanges, as per the checklist, in the sameserial order, to avoid further queries and delays.Sign all the pages with the company’s stamp.

22. Write Individual letters to all the subscribersintimating the credit of shares into their demataccounts and the date upto which they arelocked in.

Registrars do the “Corporate Action“ in co –ordination with depositories.

23. Submit the “Credit Confirmation Letters“ fromthe depositories to the stock Exchanges, forobtaining their final “ Listing and Trading“approvals. The Stock exchanges will issue thefinal listing approval letter with intimation tobrokers.


A – 71

POSTAL BALLOT VIS A VIS GENERAL MEETINGRESOLUTION

Various companies are going for postal ballot forpassing the section 81(1A) instead of General Meeting.There is no restriction that it has to be passed in a Generalmeeting, but if it is by way of postal ballot , the shareprice can never be mentioned in the postal ballot notice.The reason being, postal ballot has to give minimum 30days time to the investors to take the decision and 35to 40 days time is required for the declaration of resultby the Chairman i.e. from the date of dispatch of noticeby postal ballot to the declaration of result by theChairman. Since the “Relevant Date” is the date 30days prior to the date of declaration of result by theChairman , the share price cannot be ascertained at thetime of issue of notice of Postal ballot. Hence in thecase of postal ballot, share price can never be mentionedin the notice. The Investors has to take the decision onprice, which they have to calculate based on SEBIGuidelines. However till date there has been norestriction from SEBI or Stock Exchanges in this regard.In fact various companies have done preferential issueby way of postal ballot for the simple reason that it giveswider opportunity to the scattered shareholders toexercise their franchise

SEPARATE ISIN

In respect of Convertible Warrants or fully or PartlyConvertible Debentures, the Company may apply toNSDL and CDSL for creation of separate ISIN No. Toidentify such new instrument. Once such no. is createdby the Depository, the Warrants/FCDs/PCDs will becredited into that account with individual credit tothe respective allottees. However this is not mandatory.On the date of conversion, those instruments will betransferred from the Warrants ISIN No. to equity sharesISIN no. Correspondingly , the no. of equity shares willincrease to the extent of Converted Warrants/FCDs/PCDs.

ROLE OF COMPANY SECRETARY

For getting approval from stock exchanges, closefollow up is absolutely essential, because the prior andpost in principle approval can take 7 days to 6months, depending upon follow up being done. It isalways advisable to have experience of the whole thingrather than delegate it to the consultant to do theneedful. The stock exchanges welcome the executivesof the company and appreciate their anxiety to havethe allotment in time.

My personal experience is that stock exchanges areextremely professional and they are putting utmost

efforts so that the companies can adhere to the guidelinefor allotment of shares within 15 days from the passingof the resolution. Only in exceptional cases, the stockexchanges give extra time for making the allotment,which is then calculated as 15 days from the date ofletter of stock exchanges granting in principle approval.

Annexure – A

Checklist for BSE – Clause 24(a) approval

1. A certified copy of the resolution passed bythe Board of Directors in which the companyhas propose to issue securities on a preferentialbasis together with a certified copy of theResolution passed u/s 81(1A) of the CompaniesAct, 1956 , by the shareholders of the company.

2. End use of the proceeds to be raised throughthis preferential issue.

3. The present paid up value (i.e towards facevalue ) of these securities should be intimated.

4. The company should intimate that the proposedequity shares to be issued on a preferential basiswould be ranking pari- passu in all respectsincluding dividend with the existing equityshares of the company.

5. A certificate from the Statutory Auditors of thecompany should be submitted certifying thatthe pricing of the shares issued on preferentialbasis is as per SEBI (DIP) guidelines. TheAuditors should specifically mention in detailabout the Relevant Date , average of weeklyhigh and low of the closing price of the sharesquoted on the Stock Exchange during the sixmonths preceding the relevant date and theaverage of weekly high and low of the closingprice of the shares quoted on the StockExchange during the two weeks preceding therelevant date and kindly note that the workingof the pricing of quotation/ rates should bementioned specifically on the Auditorscertificate only.

6. The certified true copies of the proposedallottee’s letter addressed to the company inwhich they have given consent for subscribingto the proposed issue of aforesaid securitiesshould be submitted.

7. The Managing Director of the company shouldcertify that the proposed allotment of securitiesdoes not violate Clause – 40A of the Listing

A – 72


Agreement and the company will continue tomaintain (post issue) the non- promoter holdingin the company as per clause 40A.

8. A certificate from the Managing Director as wellas the Statutory Auditors of the company shouldbe submitted certifying that :

— the proposed allottees of the aforesaidsecurities are holding their existing sharesonly in dematerialized form.

— the proposed allottees of the aforesaidsecurities have not sold/ transferred anyequity share during the six months periodprior to the Relevant date.

— the proposed allottees of the aforesaidshares have not sold / transferred anyequity shares from the relevant date till thedate of execution of the lock- in by theDepositories. (If applicable)

the company has complied with the lock- inprovision as required under clause 13.3.1 (g)of the SEBI (Disclosure and Investor Protection)Guidelines i.e where the shares , warrants ,PCDs, FCDs or any other financial instrumentsconvertible into or exchanged with the equityshares at a later date , are issued on preferentialbasis , the shareholders who have sold theirshares during six months period prior to therelevant date as applicable, shall not eligiblefor allotment of shares on preferential basis andthe details of the lock –in of the equity sharesare as under :

This certificate should be in the following proforma:

Name of the Number of Shares Date of Lock inAllottees From To

Total

9. The company should obtain the confirmationletters from the National Securities DepositoryLtd./ Central Depository services (India ) Ltd.specifically mentioning that they have frozen/kept the entire pre preferential allotmentshareholding of the allottees of the aforesaidsecurities are under lock in as per the request

made by the company in respect of complianceof the lock in provision as required underclause 13.3.1(g) of amendments to SEBI(Disclosure and Investor Protection ) Guidelines,dated the 8th April,2004 and the certified truecopies of the same should be filed with theexchange.

10. A certificate from the Managing Director as wellas Statutory Auditors of the company shouldbe submitted specifically certifying that thecompany has complied with all provisions /guidelines issued by Securities and ExchangeBoard of India under the Preferential IssueGuidelines and further the company has alsocomplied with all the legal and statutoryformalities and no statutory authority hasrestrained the company from issuing theproposed shares.

11. The company should intimate the Exchange theprocess by which the company has identifiedthe allottees of these proposed securities andalso inform that whether the proposed allotteesare related to the directors/promoters of thecompany and/or persons acting in concert withthe directors/promoters of the company.

12. The company should intimate the exchangewhether the allottees of these proposedsecurities are related /connected with eachother’s and/or persons acting in concert witheach other’s.

13. The Managing Director of the company shouldconfirm :

“That the proposed preferential issue to bemade by the company is in accordance withthe provisions of the Substantial Acquisition ofShares and Takeovers Regulations,1997 of theSecurities & Exchange Board of India.

The proposed preferential issue of shares andallotment made does not/does require (strikeoff which is not applicable) the acquirer to makean open offer under the said regulation“.

14. A printed copy of the notice issued to theshareholders of the company for conveying theExtra – Ordinary / Annual General Meetingalong with the Auditors certificate regardingpricing of these shares submitted at the timeof the Extra–Ordinary / Annual General Meetingfor shareholders approval should be submitted.


A – 73

15. Names of the companies, firms of otherparties listed in the register maintainedunder section 301 of the Companies Act, 1956.

16. Names of the companies under samemanagement and having common directorsshould be submitted.

17. Names, addresses together with their P.A.N /GIR Numbers of the allottees of these sharesshould be submitted.

18. Name and addresses of the Directors of theallottee companies should be submitted.

19. Kindly let us know the names of the stockExchanges where the securities of thecompany’s are listed.

20. Latest profile including business activities of thecompany should be submitted.

21. The certified true copies of latest annual Reportsof the company should be submitted.

Kindly note that, the company should submit thedocuments/information as stated above in the sameorder as early as possible. Further the company shouldnot proceed with the allotment of the above – mentionedsecurities without obtaining prior approval of theexchange.

CHECKLIST FOR NSE– CLAUSE 24(A) APPROVAL

1. Certified true copy of the resolution passed bythe Board of Directors approving the issue ofsecurities.

2. Certified true copy of the notice convening theAGM /EGM of shareholders along with theexplanatory statement annexed thereto wherethe proposal for issue of Equity Shares onpreferential basis is to be put for approval.

3. Confirmation from the company stating thatthe proposed allottees have not sold any sharesof the company for the period starting from sixmonths prior to the relevant date till relevantdate.

4. For the allottees not having any pre- preferentialholdings, confirmation from the Company thatthey do not hold any equity shares of theCompany for the period starting from the sixmonths prior to the relevant date till date ofallotment.

5. Confirmation from the Statutory Auditors /

Practicing Chartered Accountant/ PracticingCompany Secretary:-

(a) the entire pre preferential holding of theproposed allottee shall be locked in for theperiod starting from the relevant date upto a period of six months from the date ofallotment (clearly mentioning the quantityof pre –preferential holdings and the lockin release date) and

(b) entire shareholding of the allottees is indematerialized form.

6. Certified true copies of the holding statementsof the beneficiaries account of the allottees(clearly mentioning the quantity of pre –preferential holdings and the lock in releasedate) :-

(a) confirming that the entire pre preferentialholdings of the allottees is under lock infor the relevant period.

(b) confirming that the entire shareholding ofthe allottees is in dematerialized form.

7. If the preferential allotment to promoters, theirrelatives, associates & related entities, forconsideration other than cash, valuation reportof valuation of the assets in consideration forwhich the shares are proposed to be issueddone by an independent qualified valuer.

8. NSDL/CDSL confirmation for corporate actionfor lock in of pre- preferential holdings.

9. If the lock in does not commence from therelevant date :

(a) Confirmation from the Company to theeffect that the proposed allottees havingpre-preferential holdings have not sold anyshares of the company from the relevantdate till the date of commencement oflock-in.

(b) Transaction statement of the BeneficiaryA/c’s of the proposed allottees havingpre- preferential holdings from therelevant date t i l l the date ofcommencement of lock-in.

10. Kindly confirm that the new shares shall rankpari–passu with the existing shares of theCompany, in all respects, including dividend.

A – 74


Annexure - B

BSE – Post Allotment “ In – principle “Approvaland Listing , Trading Approval

(a) For listing of securities allotted on conversion :

1. A certified true copy of the Resolution passedby the Board of Directors in which the companyhas allotted these warrants should be submittedalong with the certified true copy of theResolution passed by the Board of Directors inwhich the company has allotted equity shareson conversion should be submitted.

2. The enclosed form of share holding pattern aswell as distribution schedule form should besubmitted duly filled in as per its format alongwith the relevant Annexures as stated therein(Pre & Post –Issue).

3. The distinctive numbers of these shares shouldbe intimated.

4. The market price of the shares when thesesecurities were allotted should be intimated.

5. The present paid up value (i.e towards facevalue) of these shares should be intimated.

6. The company should pay annual Listing Fee forthe year 2007- 2008 including the enhancedcapital.

7. The company should pay a non – refundableprocessing fee of Rs. 50,000/- for processingthis listing application. Please note that the saidprocessing fee should be sent by a separatedemand draft.

8. The certified true copies of the detailed BankStatement of the account should be submittedin which the company has deposited theapplication /allotment monies received by thecompany from the applicants of the aforesaidshares together with the names of the partiesand such supporting documents in respect ofthe entries of deposits /withdrawals involvingmajor amounts and the entries of the depositsshould be highlighted .

9. A certificate from the Auditors of the companyshould be submitted specifically certifying thatthe certificates of the shares issued onpreferential basis have been stamped with anenfacement as under :

“ These shares will not be sold/ transferred/hypothecated until _____________________

(1/3 years from the date of allotment)

This certificate should be in the followingproforma :

No. of shares Distinctive Date upto whichNumbers they are non –

transferable

10. In case these shares are allotted to other thanpromoters, then kindly submit an auditorscertificate in the under mentioned format :

“We hereby certify that the company hasallotted _______ shares as per section 81–1Aresolution passed by the company on ______to other than promoters .

We hereby further certify that the none of theallottees of these shares were coming underthe definition “Promoters“ and “Person/s actingin concert”.

11. A certificate from the Managing Director as wellas Auditors of the company should be submittedspecifically certifying that the company hasreceived on ______ the 10% upfront moneyamounted to Rs.____ /- against the allotmentof these warrants and 90% Application/Allotment Monies amounted to Rs.___ /-against allotment of equity shares on conversionof the warrants on ____ from the applicants ofthe aforesaid shares.

12. A certificate from the Managing Director aswell as Auditors of the company should besubmitted specifically certifying that thecompany has complied with all the provision /guidelines issued by SEBI under the PreferentialIssue guidelines and further the company hasalso complied with all the legal and statutoryformalities and no statutory authority hasrestrained the company from issuing andallotting the aforesaid shares.

13. A declaration from the Managing Director ofthe company should be submitted specificallycertifying that the documents filed by thecompany with the Exchange are all identicaland same documents filed by the company withthe Registrar of companies /SEBI/ Reserve Bankof India /FIPB in respect of the allotment /enlistment of the aforesaid shares issued on apreferential basis on the exchange.


A – 75

14. A certified true copy of the company’s letteraddressed to Reserve Bank of India intimatingabout the allotment of shares to NRIs/FIIs etc.(if applicable) should be submitted.

15. The company should submit the details of itsBoard of Directors as per the format enclosedfor updating the records of the exchange.

16. Acknowledged copy of form no. 5 as well asform no. 2 filed with ROC in respect of increasein share capital of as well as allotment of theaforesaid shares by the company should besubmitted.

17. Names, address together with their P.A.N /GIRNumbers of the allottees of these shares shouldbe submitted.

18. Name and addresses of the Directors of theallottee companies (If applicable) should besubmitted.

19. The enclosed prescribed listing application formsshould be submitted duly completed in respectof these shares.

(b) For listing of securities allotted on Preferential basis:

1. A certified true copy of the Resolution passedby the Board of Directors in which the companyhas allotted these shares should be submittedalong with the certified true copy of theResolution passed u/s 81(1A) of the CompaniesAct,1956, by the shareholders of the company.

2. The enclosed form of share holding pattern aswell as distribution schedule form should besubmitted duly filled in as per its formatalongwith the relevant Annexures as statedtherein (Pre & Post –Issue).

3. The distinctive numbers of these shares shouldbe intimated.

4. The market price of the shares when thesesecurities were allotted should be intimated.

5. The present paid up value (i.e towards facevalue) of these shares should be intimated.

6. The company should pay annual Listing Fee forthe year 2007- 2008 including the enhancedcapital.

7. The company should pay a non – refundableprocessing fee of Rs. 50,000/- for processingthis listing application. Please note that the saidprocessing fee should be sent by a separatedemand draft.

8. The certified true copies of the detailed BankStatement of the account should be submittedin which the company has deposited theapplication /allotment monies received by thecompany from the applicants of the aforesaidshares together with the names of the partiesand such supporting documents in respect ofthe entries of deposits /withdrawals involvingmajor amounts and the entries of the depositsshould be highlighted .

9. A certificate from the Auditors of the companyshould be submitted specifically certifying thatthe certificates of the shares issued onpreferential basis have been stamped with anenfacement as under :

“These shares will not be sold/ transferred /hypothecated until _________________ .

(1/3 years from the date of allotment)

This certificate should be in the followingproforma :

No. of shares Distinctive Date upto whichNumbers they are non –

transferable

10. In case these shares are allotted to other thanpromoters, then kindly submit an auditorscertificate in the under mentioned format :

“We hereby certify that the company hasallotted _______ shares as per section 81–1Aresolution passed by the company on ______to other than promoters.

We hereby further certify that the none of theallottees of these shares were coming underthe definition “Promoters“ and “Person/s actingin concert”.

11. A certificate from the Managing Director as wellas Auditors of the company should be submittedspecifically certifying that the company hasreceived the Application/Allotment Moneyaggregating to Rs. _____ /- from the applicantsof these shares against the allotment of ___shares.

12. A certificate from the Managing Director as wellas Auditors of the company should be submittedspecifically certifying that the company hascomplied with all the provision/guidelinesissued by SEBI under the Preferential Issueguidelines and further the company has also

A – 76


complied with all the legal and statutoryformalities and no statutory authority hasrestrained the company from issuing andallotting the aforesaid shares.

13. A declaration from the Managing Director ofthe company should be submitted specificallycertifying that the documents filed by thecompany with the Exchange are all identicaland same documents filed by the company withthe Registrar of companies /SEBI/ Reserve Bankof India /FIPB in respect of the allotment /enlistment of the aforesaid shares issued on apreferential basis on the exchange.

14. A certified true copy of the company’s letteraddressed to Reserve Bank of India intimatingabout the allotment of shares to NRIs/FIIs etc.(if applicable) should be submitted.

15. The company should submit the details of itsBoard of Directors as per the format enclosedfor updating the records of the exchange.

16. Acknowledged copy of Form no. 5 as well asForm no. 2 filed with ROC in respect of increasein share capital of as well as allotment of theaforesaid shares by the company should besubmitted.

17. Names, address together with their P.A.N. /GIR Numbers of the allottees of these sharesshould be submitted.

18. Name and addresses of the Directors of theallottee companies (If applicable) should besubmitted.

19. The enclosed prescribed listing application formsshould be submitted duly completed in respectof these shares.

NSE– POST ALLOTMENT “ IN – PRINCIPLE“APPROVAL AND LISTING, TRADING APPROVAL

1. Part I – Letter of Application

2. Part II – Issue Details (in case of equity shares )

3. Part III– Issue Details (in case of securities otherthan equity shares).

4. Part IV – Distribution Schedules along withannexures thereto.

5. Certified copy of the resolution passed by theBoard of Directors approving the issue ofpreferential/private placement.

6. Certified true copy of the notice convening theAGM/EGM of shareholders along with theexplanatory statement annexed thereto wherethe proposal for issue is to be put for approval.

7. Certified copy of the resolution passed by theshareholders at the AGM /EGM approving thepreferential /private placement /increase in theauthorized share capital.

8. Certified copy of the resolution passed by theBoard of Directors for allotment of securitieson preferential /private placement basis.

9. Certified true copy of the shareholding patternof the company , pre and post issue of sharesin the format given as per clause 35 of thelisting agreement as on the date of allotment(Annexure for holding above 1% and footnotefor total foreign holdings to be given.)

10. Certificate from Statutory Auditors that the issueof securities on preferential basis / privateplacement basis has been made in accordancewith SEBI Guidelines.

11. Certificate from Statutory Auditors / PractisingChartered Accountant / Practising CompanySecretary for the following confirmations :

(a) The pricing of the issue along with thedetailed working of the same.

(b) The company has received the entireconsideration payable prior to the allotmentof shares.

(c) The total shares under lock in (along withthe dates of lock-in) and additionallyconfirming that the locked in equity sharesif issued in physical form have beenenfaced with non –transferability condition

(d) The entire pre- preferential holdings of theallottee (mentioning the quantity) is lockedin for the period starting from the relevantdate up to a period of six months from thedate of allotment.

12. If the allottee does not hold any pre –preferential holdings, confirmation from theCompany to that effect.

13. Confirmation from the Company Secretary thatthe allottee has not sold any equity shares ofthe company for a period of six months prior tothe relevant date (to be submitted even in case


A – 77

the allottee does not have any pre – preferentialholdings)

14. Certified true copy of Holding Statement of theallottee issued by the Depository Participantconfirming that :

(a) Entire shareholding of the allottees is indematerialized form.

(b) The entire pre- preferential holding of theproposed allottee is under lock in for theperiod starting from the relevant date upto period of six months from the date ofallotment.

15. Confirmation from the Company Secretary thatthe shares issued to NRIs are as per guidelinesissued by Reserve Bank of India andconfirmation submitted to RBI for the same, ifapplicable . In case not applicable, give reasonsfor the same.

16. In case of preferential allotment to promoters,their relatives, associates and related entities,for consideration other than case , the valuationreport of an independent qualified valuervaluing the assets in consideration of whichsecurities are proposed to be issued.

17. Names of allottees and number of sharesallotted to each allottee.

18. In case allotment under sec 81(3) of CompaniesAct :

(a) A confirmation signed by the complianceofficer of the company duly counter

confirmed by the statutory auditors of thecompany /practicing company secretaryconfirming that the said allotment hasbeen made in accordance with theprovis ion of sect ion 81(3) of theCompanies Act,1956.

(b) Certified true copy of the loan agreementsigned with the Financial Institution dulyidentifying and marking the relevantprovisions that provide the option toconvert such loans into shares of thecompany.

(c) Details of the internal approvals of the Boardof the company to give effect to the optionexercised by the Financial Institution.

(d) Certified true copy of the Article ofAssociation of the Company dulyidentifying and marking the enablingprovisions to convert the loan.

(e) Certified true copy of the correspondencefrom Financial Institution invoking therelevant provisions of the loan agreementwhich provide them the right to exercisethe option.

19. Confirmation from the Company secretary thatthe shares issued rank pari – passu with theexisting equity shares of the company includingdividend.

20. Listing fee as applicable.

A – 78


GLOBAL DIMENSIONS OF BUSINESS VALUEGLOBAL DIMENSIONS OF BUSINESS VALUEGLOBAL DIMENSIONS OF BUSINESS VALUEGLOBAL DIMENSIONS OF BUSINESS VALUEGLOBAL DIMENSIONS OF BUSINESS VALUE

DIVYA SAXENA*DIVYA SAXENA*DIVYA SAXENA*DIVYA SAXENA*DIVYA SAXENA*

INTRODUCTION

Business globalization is leading to widespreadrestructuring of international systems, processes invarious corporations. Traditionally, international businessstrategy is based upon the individual domestic marketsand sets up objectives and policies separately to satisfythe specific requirements of different countries. Asinternational communication and exchanges extend,especially under the trends of political regionalizationand rapid economic growth in various countries, the‘global market’ a new type of international market isemerging. This global market is based on the sharedand common demands of different countries. Itintegrates different national preferences into a core entityact as a fundamental and non-differentiable marketrequirement. Multinational Corporations are, therefore,keen to learn about and develop global or world productsand to restructure their worldwide manufacturingsystems. The emergence of the global market andintensification of global competition is matched by majordevelopments in technology. In general, the new drivingforces—global market opportunity, new patterns ofcompetition and re-organizing potential or possibility—require a new generation of networks beyond theclassical pipeline of physical business transformation. Thelinkages with the environment through sourcing,strategic alliances and R&D networking are of courseimportant for the networks.

A ‘globalised approach’ involves closely managedcoordination of a dispersed business system andintegration of both product and services design,development and production techniques. The globalbusiness is now seen as a unified whole with amechanism of sharing knowledge and / or with elements

* Partner - S K Gupta & Co., Company Secretaries, Kanpur.

of the task being performed in the most advantageousand efficient manner. In recent years, various companieshave started adopting global business strategy bynetworking the Joint ventures in different nations basedon specializing its product lines and centralizing keymanufacturing processes. Based on its aggressive foreigndirect investment, mergers and acquisitions, today’sbusinesses are increasingly faced with decisions involvingglobal considerations and capability development.

CONCEPT OF DIMENSIONS IN BUSINESS

Dimensions grow and change with business needs/choices. The possibilities of creating new dimensionsand changing existing ones are endless, as such it’s easyto add new dimensions on the list and there’s no limitto the number of dimensions, or the number of values,that can belong to each dimension. It enables an easyshift to new and unforeseen business models so as togrow in all kinds of new directions. They enhance thebusiness decision making process.

Scope of Business Dimension

Dimensions for business value creation includes thefollowing:-

— Enterprise readiness and the state of productionapplications;

— Business needs, as prioritized by function;

— Costs of implementation – Incremental versuscomprehensive;

— Enterprise optimization versus functionaloptimization;

— Environmental constraints; and

— Technological constraints.

Global Dimensions of Business Value

A – 79

Thus, the Dimensions Approach help us to betterunderstand where your business is going or moving.Accordingly, the basic advantages of dimensions are asfollows:-

— To explore how your business operates onvarious levels;

— To grow and change your tools along with yourbusiness; and

— To base important decisions on information youcan trust.

Thus, the entire ‘dimensions concept’ is especiallyuseful at the global level, giving the ability to controlcertain dimensions centrally, while leaving others at thediscretion of local offices / branches. It develops theanalytical tools in an easy way and base importantbusiness decisions on reliable information network.Infact, it facilitates simultaneous use of multipledimensions or change existing dimensions to reflect thebusiness processes.

MEANING OF GLOBAL DIMENSIONS

‘Dimensions’ of business in global context denotesdifferent peoples, cultures and languages from around

the world having a huge influence on the society. Thefollowing variables of global dimension must be notedin this context:-

— Social justice, values and perceptions;

— Sustainable development;

— Interdependence;

— Human rights;

— Diversity;

— Global citizenship;

— Appreciate the importance of a global context;

— Make links between local and global issues;

— Critically evaluate values and attitudes,appreciating the similarities between peopleeverywhere and learning to value diversity;

— Understand the global context of business valueproposition; and

— Develop skills that will enable them to combatinjustice, prejudice and discrimination in globalcontext.

Figure-1 : Model describing diversity dimensions of business

A – 80


ASPECTS OF GLOBAL DIMENSIONS

Subject Key Concept Global Dimension Aspect

Business Art and design. Cultural understanding. Diversity, InterdependenceGlobal citizenship.

Corporate Citizenship. Democracy and justice rights and Social justice, human rights,responsibilities identities and diversity, values and perceptions.diversity critical thinking.

Corporate Design and Cultural understanding. Sustainable DevelopmentTechnology. Global citizenship.

International Language Cultural understanding. Values and perceptions,(English). Global citizenship.

Cross Country Geography. Interdependence, Environmental Interdependence, Sustainableinteractions, Cultural understanding Development, Values andand diversity. perceptions, Global Citizenship

Diversity, Social Justice.

The integration of Information Technology withbusiness performance is of major importance. Thesuccessful companies place major emphasis on one ofthree strategies – operational excellence, customerintimacy or product leadership.

FRAMEWORK OF BUSINESS STRATEGY ANDFOCUS

Major Focus Identified Dimensions

Operational excellence,i.e — Organizationalemphasize efficiency and efficiency &reliability; end to end effectivenesssupply chain optimization. — Supplier relations

— Economies ofproduction

Customer intimacy, i.e — Customer relationsemphasize flexibility and — Marketing supportresponsiveness; customerservice, market – placemanagement.

Product leadership, i.e — Product and serviceemphasize creativity, enhancementproduct development, — Competitivetime to market and dynamicsmarket communications. — Business innovation.

For the aforesaid purpose, the companies beclassified into:-

1. Manufacturing firms;

2. Service firms.

PRIMARY STRATEGY OF FIRMS

— Services firms place significantly more emphasison operational excellence i.e efficiency andeffectiveness than do manufacturing firms.

— Product leadership including creativedevelopment is valued more as a strategy formanufacturing firms than for services firms.

— Differences in emphasis are less associatedto hub-sectors of manufacturing such ascomputers and electronics than do servicesfirms.

Strategies to business Manufacturing Services

Operational excellence i.e.emphasize efficiency andreliability, end to end supplychain optimization. 34% 44%

Customer intimacy i.e.emphasize flexibility andresponsiveness, customer/services, market place andmanagement. 36% 36%

Product leadership i.e.emphasize creativity, productdevelopment, time to marketand market communications. 30% 20%


A – 81

RANK AND PERFORMANCE OF BUSINESS VALUEDIMENSIONS

‘Rank’ refers to the executive rank of the strategicimportance to the firm of the business value dimension.However, ‘Ratings’ refers to the executive assessmentof business technology contribution to overallperformance of the business value dimensions.Accordingly, the measurement of business value isgauged in one of the following three ways or in acombination viz; Systemic, Extrinsic, and Intrinsic.

The Systemic Dimension - It is the dimension offormal concepts i.e ideas of how things should be. Thisdimension is the one of definitions or ideals, goals,structured thinking, policies, procedures, rules, laws,oughts and shoulds etc. It is one of perfection. If a personvalues something or someone systemically, then thatperson has to fulfill the idea perfectly. Thus, the valuationis based on total and complete fulfillment of an idea.You either perfectly fulfill the concept (ideal, definition,law, policy, etc.) or you do not fulfill the concept. Whena person pays too much attention to this dimension theresultant behavior is an overemphasis on doing thing,an excessive pre-occupation with planning and havingthings be done perfectly, a strong tendency to measureeverything and everyone against a preset idea of howthey should be and an inability to be comfortable withchanges and surprises.

The Extrinsic Dimension - This is the dimensionof comparisons, relative and practical thinking. It includesthe elements of the real, material world, comparisonsof good / better / best, and seeing things as theycompare with other things in their class. This is thedimension of seeing things and their properties as theyapply in different contexts. This dimension is not actuallyaddressing the thing itself but addressing how the thingor person contains the properties of the group or classto which it belongs. To value a person extrinsically is tocompare that person in relation to other persons. This isthe primary dimension of business. When a person paystoo much attention to the extrinsic dimension, the resultantbehavior will be an overemphasis on getting things donenow, a tendency to see other people as functionalcommodities and a need for things to constantly behappening. When a person does not pay enough attentionto the extrinsic dimension, the resultant behavior will be atendency to avoid unpredictable situations, a devaluing ofwhat it takes to get something done and an avoidance ofthe fulfilling of social norms and values.

The Intrinsic Dimension – It is the dimension ofuniqueness and singularity. This is the dimension of

uniqueness, of person or things as they exist inthemselves. There is no comparison and no fulfilling ofconcepts. The fulfillment of a concept (systemic) or thecontaining of properties (extrinsic) are ignored becauseof the ‘essence’ or ‘being’ of the object. This is thevaluing of an object or person with an eye toward itssingularity, essence, uniqueness, or spiritual being. Whendescribing or valuing persons or objects in this dimension,one becomes personally involved with the object /person.

TECHNIQUES OF GLOBAL BUSINESSDIMENSIONS

The following are the techniques of global businessdimension:-

Techniques of Salient FeaturesGlobal BusinessDimensions

Performance It reflects the extent to which aOrientation community encourages and rewards

innovation, high standards, excellenceand performance improvement etc.

Uncertainty It is the extent to which a society,Avoidance organization, or group relies on social

norms, rules and procedures to alleviatethe unpredictability of future events.

In-Group In-group collectivism is the degree toCollectivism which individuals express pride, loyalty

and cohesiveness in their organizationsor families.

Humane Humane orientation is defined as theOrientation degree to which an organization or

society encourages and rewardsIndividuals for being fair, altruistic,friendly, generous, caring and kind toothers.

Institutional The degree to which organizational andCollectivism societal institutional practices encourage

and reward collective distribution ofresources and collective action.

Future It is the degree to which a collectivityOrientation encourages and rewards future-oriented

behaviors such as planning and delayinggratification.

Assertiveness It is the degree to which individuals areassertive, confrontational and aggressivein their relationships with others.

A – 82


VALUES AND BUSINESS

For business leaders to lead with authenticity,integrity and service to others requires environmentalsustainability, protection of international human rights,employee empowerment, improving the quality of lifein the workplace and overall community development.It is commonly believed that various types of businessescan use their influence, products and services to notonly increase profitability but also to improve the qualityof life for the global community. The primary functionof any business is to create value, by producing andmarketing goods or services whose value on the marketexceeds the sum of the costs of the factors of production.Creation of ‘Value’ is, therefore, the sine qua non ofcorporate profitability. Until recently, only two productionfactors were considered sources of value in theproduction function inspired by classical economics viz;Capital (C) and Labour (L). However, the advent of theinformation society introduced a third source of valuein the production function viz; Knowledge (K).

The value proposition constitutes an essentialdefinition of the activity of a company, its rationale andwhat makes its economic equation possible and thus,encompasses all elements related to products andservices offered by the company, which are valued by

the customer and for which the customer is ready topay. In general, the value proposition comprises threeprincipal dimensions viz; Costs, Time andAttributes.

— ‘Costs’ refers to the price the customer mustpay to obtain the product, of a given quality.

— ‘Time’ includes the time required to findinformation about the product and to order andobtain it, however, the buyer may be willing topay more to reduce the time frame.

— ‘Attributes’ encompass elements that define the“qualities of the proposition” viz; sales conditions,guarantees, regularity of supply by the vendor,customer service policies, complementaryservices, brand image, convenience, etc.

Measures for the business value perspective includesthe following:-

— Value linking

— Value acceleration

— Value restructuring

— Technological innovation.

Domains of Business Value

Business Strategy Business Risks Business Evaluation

— Product or Service Quality — Business strategy risk — Business value

— Customer responsiveness — Exogenous changes, such as — User orientationtechnological advances, providethe opportunity to achieve abetter design via complementarychanges

— Management information — Internal processes

— Process flexibility — Future readiness

FACTORS AFFECTING GLOBAL BUSINESS VALUEPROPOSITION

— ‘Values and Culture’ – ‘Culture’ can be definedto be a common and learned way of thinking andbehaving among a group of people. It has beenviewed as everything that people have, do, andthink as members of their society. A culture is asystem of meanings, through which people interprettheir expectations and which directs their behaviorand identifies several different levels of cultures,such as nations, genders, generations and

organizations, to use in studying cultures. Whileethical values are deeply bound within a culture, itis often difficult to make them visible or tounderstand them. In the global economy, there isan increasing need for different nations, companiesand individuals to work together in co-operativeefforts. This emerging global perspectiveemphasizes the need for individuals to behavecompetently within a different cultural environment.However, individuals should understand that ethicalvalues may exist in one culture which are differentfrom the ethical values in their own society.


A – 83

Evaluating values of another culture in developinga paradigm for international co-operation, first, it isimportant to determine the values of another cultureand then to try to understand those values. A problemwhich arises from this paradigm is whether it ispossible to accept all the values of other cultures.Today, business is subject to a myriad of influencesthat require managers and leaders to equipthemselves with new knowledge and skills - tomanage complexity and address the emotional aswell as the financial aspects of corporate life. Thecorporation is now a complex web of relationshipsoperating principally as a social organism. Added tothis is the growing expectation that corporationsunderstand the need to behave ethically inmanaging the social assets with which they areentrusted viz; employees’ superannuation andpension funds, the interests of the communities inwhich they survive, the safety of employees andcustomers, and welfare of consumers who use theirproducts and services, the natural environment withwhich they interact and for which they areresponsible, the social welfare of citizens of othercountries from which they buy materials andinventory and the integrity of the marketplace itselfin promoting social interests. How the organizationinterprets and responds to these multiple inputs andturns them into complex spectra of light in the formof positive outputs will ultimately shape the ethicallandscape of business and determine its future andfate.

— ‘Ethical Standards’ are not set by business but bysociety as a whole. It is this interface with society’sexpectations and the way business gets done thatis shaping the public debate in which the nature ofbusiness ethics is being defined. Business leaderswill continue to be pressed to move out frombehind- as well as to move beyond legal compliance.They must step up to the challenge of explicitlymanaging stakeholders’ accountabilities arising fromthe impact of their products and services as theethical dimension of their enterprises. The 21stCentury corporate governance requires an ‘ethicalstrategy’ for core business activities that takesaccount of the potential negative impacts of thecorporation and its products and services.“Governance – for Enterprise Architecture—identifies the key elements of the architecture andthe responsibilities behind the definition of thosekey elements. An ‘ethical strategy’ also seeks tobalance the positive benefits and attributes of theoutput of the business with a clear acknowledgment

of the potential harmful effects so that stakeholderscan make informed choices about buying from orworking with the business. Thus, developing aheightened awareness of the interconnectednessof business and the ethical accountabilities arenecessary. In this respect, there are threedimensions of ethics- personal, organizationaland social which can be aligned to nurture acoherent and healthy personal identity while workingco-operatively to build a better future for all in theorganizational spirit. It must be stated that modernday ethics rests on notions of ‘duty of care’ to others,‘individual virtue’ and visions of personal identity,character and concern for the sort of person webecome and the societies we bring forth. ‘Ethics’ isnot just about morality, it can become a challengingdimension of personal and corporate life that willlead to higher performance.

— ‘Innovation’ - In today’s challenging global market,enterprises must innovate to survive and bringsignificant value to their shareholders’, customersand employees. It is important that this innovationoccur in all dimensions—product, process, andorganization—to improve competitiveness andoverall business performance. It must be noted thatthe companies who demonstrate continuousinnovation are consistently result oriented, morerewarding with higher market valuations etc.‘Innovation’ can occur spontaneously in almost anysituation, however, the ability to continuouslyinnovate requires an environment that nurturescollaboration and enables the intellectual assets ofthe enterprise to be leveraged to their maximumpotential. In an environment for innovation,“Enterprises must be able to capture, manage, andleverage their intellectual assets in a proactivemanner.” Product Lifecycle Management (PLM) isthe business strategy that best allows organizationsto establish such an environment. This strategicapproach helps enterprises achieve their businessgoals of reducing costs, improving quality andshortening time to market, while innovating theirproducts, services and business operations.

Figure-2 : Business Value Analysis

A – 84


— ‘Flexibility’ — It implies the ability to shift at leastpart of the enterprise’s focus quickly in response toexternal forces for example, to take advantage ofchanging markets, exploit new technology oraddress increased competition. A successfulcompany can move smoothly into the right positionat the right time. Conversely, an unsuccessfulcompany often is not flexible oriented. Infact, itneeds to be developed and as a set of capabilitiesover time and requires hard work, discipline andleadership.

— ‘Specialization’ — The company focusing on itscore strengths and depend on partners to fill in gapsand exploit opportunity areas. It will facilitatesincerely to dedicate limited resources to those areasof the business that truly differentiate a companyfrom its competitors.

— ‘Simplification’ by looking for opportunities tomake business easier and straight forward, mostcompanies have re-engineered their businessesinternally as well as externally.

— ‘Standardization’ — Implies the interactions ofpeople, processes and technology in the business.‘Standardization and rules’ create an environmentwhere decisions can be made at the point ofinteraction and become the “glue of collaboration.”‘Business standardization’ can thus, facilitate theexpansion into new markets and regions ascompanies aim to globalize their businesses.

— ‘Sensing’ and ‘Adaptability’ — ‘Sensing’ includesexternal impacts to the company, such as newcompetitor products or emerging technologies, aswell as monitoring the internal measurements forareas to improve. On the other hand, ‘Adaptability’is the ability to better respond to the ever changingindustry environment.

— Anticipating customer needs and preferences andto get products to the market in time to meet thoseneeds.

— Aligning tactics and resources to the company’sstrategy.

— Operational changes without changingorganizational structures.

— Changing processes without changing technology.

— Identifying and incorporating emerging technologiesinto products, services and operations.

— ‘Employee Management’ — It includes externalfactors such as market share and marketenvironment, as well as internal company factorsincluding organizational culture, management stylesand human resource management practices.

— ‘Internal process’ — The emphasis is on stability,internal organization and adherence to rules, wherenorms and values are associated with efficiency, co-ordination and uniformity.

— ‘Volunteerism’ — All the Countries have a strongtradition of individuals undertaking voluntary workin their communities. The concepts and practicesof corporate volunteering and formal employeeinvolvement have emerged largely from businessbehaviour and culture in the West. ‘Volunteerismin action’ explores a programme that offers‘volunteering opportunities to its employees,employees’ children, business partners and otherstakeholders’.

— ‘Environmental Issues’ — There areenvironments of varying complexity in which thebusiness scenarios exists and consequently thereare a variety of technologies and tools that may beneeded in these different environments. Executivesneed to explore their beliefs about managing andtheir relationship with others in the Organization.

— ‘Global Strategy’ — Is defined through a patternof goal-directed decisions based on an industryposition in which the competitive forces areperceived to span national boundaries. Because theindustry is linked across countries, the businesspursuing a global strategy considers that its“competitive position in one national market isaffected by its competitive position in other nationalmarkets”. This linking of competitive positions acrosscountry locations implies that the international activitiesof the organization must be integrated in a mannerthat develops and sustains advantage in response tothe cross-national competitive forces.

— ‘Knowledge Management’ — It coversorganizational behavioral science, collaboration,content management and other technologies.

— ‘Managerial Adaptation’ — Due to differencesbetween national cultures so as to effectivelyperform the managerial functions of businessactivities.

— ‘Cultural Diversity’ — Amongst internationaldivisions of a global firm may actually impede efforts


A – 85

to merge activities and expertise between thoseunits. Specifically, direct (market, production,technology) and indirect (knowledge-based)benefits are more difficult to exploit when culturaldiversity makes activity sharing and expertise transferless efficient. It postulates that culturally relatedinternational firms will enjoy greater efficiencies thanculturally diverse multinationals.

— ‘Information Technology’ (IT) as supportingglobal business strategies while at the same timeIT can also be a major catalyst in the globalisationprocess itself.

— ‘Social Responsibility’ is becoming a generallyaccepted principle that applies to a growing varietyof business partnerships involving multinational andlocal enterprises in industrialized and developingeconomies alike. In this context, the ‘CorporateGovernance’ as a global movement progressed infits and starts from the mid-1980s up to 1997. Therewere the odd country-level initiatives such as theCadbury Committee Report in the United Kingdom,1992 or the recommendations of the NationalAssociation of Corporate Directors of the US, 1995.Whereas, the occasional International Conferenceon the desirability of good Corporate Governancehas been directed to improving the quality andfrequency of disclosures. Independent oversight ofmanagement comprises the role of independent,statutory auditors who are appointed by shareholdersto audit the company’s accounts and presents atrue and fair view of the financial health of thecorporation. Indeed the quality and independenceof the statutory auditors are fundamental tocorporate oversight. While it is the job of themanagement to prepare the accounts, it is thefundamental responsibility of the statutory auditorsto scrutinize such accounts, raise queries andobjections (if the need arises), arrive at a true andfair view of the financial position of the companyand report their independent findings to the boardof directors and through them to the shareholdersand Investors of the company. Infact, in the wakeof a number of corporate scandals, the corporategovernance system has to be reinvented to make itmore catalytic, vision customer driven as well asthe community oriented. Besides the concept ofCorporate Social Responsibility (CSR) in gainingimpetus in the present time whereby companiesintegrate social and environmental concerns in theirbusiness operations and in their interaction with theirstakeholders on a voluntary basis. As it is rightly

stated that responsible behavior leads to sustainablebusiness success. CSR is all about managing changeat company level in a socially responsible manner.The main function of an enterprise is to create valuethrough producing goods and services that societydemands, thereby generating profit for its ownersand shareholders as well as welfare for Society,particularly through an ongoing process of jobcreation. However, new social and market pressuresare gradually leading to a change in the values andin the horizon of business activity. There is today agrowing perception among enterprises thatsustainable business success and shareholders’ valuecannot be achieve solely through maximizing short-term profits, but instead through market-orientedyet responsible behaviour. The main features of CSRare as follows:-

— CSR is behaviour by businesses over and above legalrequirements, voluntarily adopted becausebusinesses deem it to be in their long-term interest;

— CSR is intrinsically linked to the concept ofsustainable development viz; the businesses needto integrate the economic, social and environmentalimpact in their operations;

— CSR is not an optional “add-on” to business coreactivities, but about the way in which businessesare managed.

CSR has its coverage in enterprises, amongst policy-makers and other Stakeholders, as an important elementof new and emerging forms of governance, which canhelp them to respond to the following fundamentalchanges:-

— Globalisation has created new opportunities forenterprises, but it also has increased theirorganizational complexity and the increasingextension of business activities abroad has led tonew responsibilities on a global scale, particularlyin developing countries.

— Considerations of image and reputation play anincreasingly important role in the businesscompetitive environment, as consumers for moreinformation about the conditions in which productsand services are generated and the sustainabilityimpact thereof and tend to reward, with theirbehaviour, socially and environmentally responsiblefirms.

— Financial stakeholders ask for the disclosure ofinformation going beyond traditional financial

A – 86


reporting so as to allow them to better identify thesuccess and risk factors inherent in a company andits responsiveness to public opinion.

— As knowledge and innovation become increasinglyimportant for competitiveness, enterprises have ahigher interest in retaining highly skilled andcompetent personnel.

Indeed, awareness of CSR issues and concerns willcontribute to promote more sustainable investments,more effective development co-operation andtechnology transfers. Both processes of trade andfinancial markets liberalization should be matched byappropriate progress towards an effective system ofglobal governance including its social andenvironmental dimensions. By abiding by internationallyaccepted standards, multinational enterprises cancontribute to ensure that international trade marketsfunction in a more sustainable way.

Impact of CSR on Business and Society — CSRcan support the creation of an atmosphere of trust withincompanies, which leads to a stronger commitment of

employees and higher innovation performance. A similaratmosphere of trust in cooperation amongst otherstakeholders (business partners, suppliers, andconsumers) can increase the external innovationperformance. Consumers’ confidence fostered throughCSR can be a major contributor to economic growth.CSR policies can also boost the societal benefit thatenterprises create with regard to innovation. Enterprisesgenerally agree that CSR helps them in managing theirrisks, their intangible assets, their internal processesand their relations with internal and externalstakeholders.

‘Transparency’ is a key element of the CSR debateas it helps businesses to improve their practices andbehavior and also enables businesses and third parties tomeasure the results achieved. CSR benchmarks againstwhich the social and environmental performance ofbusinesses can be measured and compared are useful toprovide transparency and facilitate an effective andcredible benchmarking. The interest in benchmarks hasresulted in an increase of guidelines, principles and codesduring the last decade.

Benchmarks of CSR

Benchmarks of CSR Basis Features

Codes of Conduct To adopt codes of conduct relating to labour issues, human rights and the environment.Codes of conduct are innovative and important instruments for the promotion offundamental human, labour and environmental rights and anti-corruption practices -especially in countries where public authorities fail to enforce minimum standards

Management To face a wide range of complex issues in areas such as labour practices and supplierStandards relations with implications across their organizations, businesses, regardless of sector,

size, structure or maturity would benefit from the inclusion of social and environmentalissues into their daily operations. In this context, CSR Management Systems - like TotalQuality Management Systems - could allow enterprises to have a clear picture of theirsocial and environmental impacts which can help them to target the significant onesand manage them well.

Accounting, Auditing In the last decade, more and more companies have started to publish information onand Reporting their social and environmental performance. Triple bottom line” reporting of economic,

social and environmental indicators is emerging as a good practice.

Brands and Labels As consumers express a growing preference for socially and environmentally responsibleproducts and services, assess to relevant information about the social and environmentalconditions of production is crucial to help them to make informed choices.

Socially Responsible The decision of making investment keeping in view the socially responsible role ofInvestment modern business.


A – 87

— ‘Quality’ is consistently listed as one of topcompetitive priorities and has become a prerequisitefor success in the global marketplace. ‘Quality’ helpsa firm gain a competitive advantage by deliveringgoods to the marketplace that meet customers’needs, operate in their intended manner andcontinuously improve quality dimensions in orderto ‘surprise and delight’ the customer. Qualityremains the foundation of competitive advantage,even if a firm’s short-term attention has drifted tospeed-to-market, cost reduction and other concerns.

— ‘Integrated Risk-management’ involves themanagerial issues relating to management ofbusiness risk through adoption of applicableprotection laws concerning corruption, anti-trust,consumer safety, environmental protection andinsider-trading etc.

— ‘Resource and Training’ have been increasinglyused synergistically to excel the performance ofcorporate responsibility through business networkingsystem.

— ‘Interdependence in Economic Relations’ intrade, investment and global production and also insocial and political interaction among organizationand individual across the world.

— ‘Changing Attitudes and Preferences’ towardsdoing or managing the production and operationsviz; collaboration of competitors to set technologystandards that facilitate the industry growth, commonpromotion of favorable regulations or legislations,cooperation and incentive among firms with theirsuppliers to improve product quality in order to boostdemand.

— ‘Technical and Agency Efficiency’ represents thedegree to which a firm can maximize output for agiven combination of inputs or indicates the firmsability to use the least cost production process, while‘agency efficiency’ refers to the extent to whichthe exchange of goods and services in the verticalchain has been organized to minimize thecoordination agency and transaction cost.

— ‘Competitiveness’ is a function of the company’sability to exploit and leverage their resources inadding value, products and services more efficientlyand effectively than competitors.

— ‘Dynamic Capabilities’ are defined as “the firmsability to integrate build and configure competenciesto address rapidly changing environment”. They are,

therefore, used to manage resource andcompetences which need to be constantly renewedand developed.

— ‘Core Competencies’ build on optimum resourcescombining easily in new and mutually reinforcingways to multiply the competitive value of specializedresources.

— ‘Organizational Structure’ processes and cultureto judiciously concentrate organizational attentionon core competencies. Organization need tofundamentally shift to practices imparting new waveto capitalize on the new resources andcapabilities so as to establish a new and durablebasis for sustainable competitive advantages.

— ‘Organization’s Ability to Communicate’ Thismeans that the Members of an organization needto understand the basic values of their organizationand they need to have opportunities to reflect uponthem together. The trend towards participativeleadership, team management and learningorganization theories might offer opportunities forshared and equal communications about values. Theemergence of corporate governance andcorporate social responsibility (CSR) are two criticalareas of management strategy and operations.

— ‘Ethical Guidelines’ for Multinational Corporations(MNCs) are included in several international accordsadopted during the past four decades. Theseguidelines attempt to influence the practices ofMNCs in such areas as employment relations,consumer protection, environmental pollution,political participation and basic human rights. Theirmoral authority rests upon the competing principlesof national sovereignty, social equity, marketintegrity and human rights.

— ‘Digital Convergence’ is diversification and createsgrowth through new products in new markets. Infact, digital convergence solutions create the mostattractive growth opportunities in globalmarketplace.

— ‘Upgrading’ implies making better products, withgreater efficiency adopting skilled activities. Thus,upgrading means ‘innovating to increasevalue added’. Enterprises may achieve this invarious ways, as for example by entering higherunit value market niches, by entering new sectors,or by undertaking new productive or servicefunctions. It involves the following activities viz;

A – 88


product upgrading, functional upgrading and inter-sectoral.

— ‘Proactivness’ — Cultures that emphasizeentrepreneurial initiative by encouragingentrepreneurs to pursue and anticipate opportunitiesand to participate in new or emerging markets areclassified as proactive. It is crucial to an organizationworking because it is concerned with theimplementation stage of entrepreneurship.

— ‘Competitive Aggressiveness’ refers to aculture’s propensity to promote entrepreneurs tobe achievement oriented by challenging competitorsor improving their position relative to other firms.This is an important component because newventures are much more likely to fail thanestablished businesses. Thus, an aggressive stanceand intense competition are critical to the survivaland success of new start-ups.

— ‘Political / Legal Factors’ — a political systemneeds to be built on freedom of choice, individualrights, democratic rules, and check and balances ofgovernment. Moreover, the direct actions orinactions of governments are very influential for theopportunity conditions for entrepreneurship /business expansion and development. Governmentscan ensure that markets function efficiently byremoving conditions that create entry barriers,market imperfections and unnecessary regulationby providing funding to encourage risky andinnovative research and development, supportingincubator programs, freeing trade policy, practicingdisciplined fiscal policy, increasing the availabilityand productivity of labor, and deregulating industriesand privatizing state owned enterprises,governments can show support for entrepreneurialactivity.

— ‘Social Factors’ A variety of social factors also areregarded as necessary conditions for the businessvalue addition. Societies that place a high value onsocial mobility between classes, independentthinking, a low need for support and conformityand a strong drive towards higher material wealth,tend to be more entrepreneurial in nature as theyencourage autonomy and pro-activeness—allhallmarks of a strong organization.

— ‘Global Marketplace Cultures’ focuses on newmarketplace cultures and the changing roles andresponsibilities of marketers, consumers andmarketing scholars in the global economy.

— ‘Cultural Competencies’ in commercialOrganizations includes the cultural know-how whichcan be seen as a new kind of business capability,which is emerging as a central success factor inglobalizing, extremely competitive markets.

— ‘Enterprise Architecture’ — covers the holisticview of an enterprise’s processes, information andinformation technology assets as a vehicle foraligning business and IT. The challenges usually arisearound how to link the enterprise architecture effortsinto the overall enterprise processes and how toleverage them as assets used regularly by a varietyof stakeholders. To operationalize, enterprisearchitecture, using the dimensions of policies andprinciples, processes, measurement and toolenablement.

Figure-3 : Enterprise architecturegovernance framework

— ‘Global Diversity’ as a business policy provides aframework that supports business processes andprocedures by considering, integrating andleveraging diversity globally. The ‘global diversity’regularly reviews the Global Diversity Policy and isresponsible for making any revision or clarification,as warranted. ‘Managing Diversity ’ in theorganization allows to leverage individual potentialand creativity. The diverse capabilities that residewithin the talented workforce enable to anticipateand fulfill the needs of our diverse customers,providing high quality products and services. Assuch, ‘Global diversity’ is the subject to internalreview by Management and / or HR and / or theGlobal Internal Audit Services.

Business Architecture

Information Architecture

Technical Architecture

Application Architecture

Leadership

Organization

Processes

Enabling Tools

Measurement

Policies

Principles

Investment


A – 89

— ‘Human Values’ such as honesty, transparency,trustworthiness and accountability are the foundationfor all business activities, inappropriate behavior onthe part of an individual not only harm thoseimmediately affected by the negative impact oncollaboration and team efficiency, but also endangersthe good reputation of the company as an employerof choice. Every employee is expected to ensure aworking environment that is free of all forms ofharassment or discrimination. There should not beany direct or indirect discrimination in employmentand promotion decisions or in any personnel actionson the basis of ethnicity, race, culture, gender, age,sexual orientation, mental or physical ability or anyother factor protected by law.

— ‘Business Intelligence’ — It covers businessaspects of efficient and effective cooperation ofevery team within the global organization based ona common understanding of the company’s valuesand objectives, as well as a respectful way of thinkingand acting towards each individual companies canenhance communication and gain a competitiveedge.

— ‘Global Business Interdependence’ — It mustbe stated that for most nations, political andeconomic stability depends on participation in acomplex international trade network. Somecountries depend on the export of manufacturedgoods, while others rely on tourism while someother countries requires raw material imports or laborfrom neighboring nations etc. this implies businessinterdependence on global basis.

— ‘Role of Foreign Direct Investment (FDI)’—Financial stability is critical to global tradedevelopment and economic growth, building strongfinancial system requires high quality internationalstandards in financial management, closesupervision, effective corporate governance andbetter coordination amongst international financialinstitutions.

— ‘Global Branding, Retailing, Distribution andCommunication’ are the critical issues relating tobrand building, product innovation, advertising anddistribution strategies in addition to focusing onnewer organized retailing opportunities in thecontext of a changing global business environment.Companies must harness the coherence and scaleof a global brand, as well as the closeness of a localbrand if they wish to succeed.

— ‘Shared Values’ — The most powerful nation inthe world has to understand that sound governanceis serving all human beings not merely the strong.To deal with global threats, we need legitimate,global cooperation based on globally consistentprinciples. To be globally consistent will mean thatwe should start implementing common values in allaspects of life. To ensure sustainability of peace andstability, it is required to guard the values and applythem consistently not only domestic but also globally.

— ‘Social Entrepreneurship’ — It combines thepassion of a social mission with an image ofbusiness-like discipline, innovation anddetermination commonly associated with forinstance, the high-tech software companies. Thosewho are more innovative in their work and who createmore significant social improvements will naturally beseen as more entrepreneurial. Social entrepreneursare reformers and revolutionaries. They makefundamental changes in the way things are done inthe social sector. Their visions are bold and attack theunderlying causes of problems, rather than simplytreating symptoms and are regarded as the achieversof long term social return on investment.

— ‘Role of Enterprise Policy’ is to help create abusiness environment which supports the world’smost dynamic knowledge-driven economy,entrepreneurship and a sustainable economicgrowth. Its objective is to ensure a balancedapproach to sustainable development whichmaximizes synergies between its economic, socialand environmental dimensions.

— ‘Transparency and Reporting System’ It includeseffective communication network with stakeholders,public reporting or other measures so as to enhancethe transparency in information flow.

— ‘Environmental Policy’ — Environmentalrequirements have developed, over the last 25years, to become most critical factors for businessvalue addition. It may be stated that the globalundertakings which follow sound environmentalstandards, are, in medium and long term, morecompetitive on the international market, asenvironmental standards promote innovation andmodernization of processes and products and leadto cleaner technologies. Enterprises are increasinglysensitive to these demands both to retain existingcustomers and to attract new customers.

— ‘E-commerce’ will bring significant changes tobusiness, consumers, government and the economy.

A – 90


Companies are changing the way that theyundertake their business. E-commerce hassignificant implications for the whole of businessprocess and its adoption has led many organizationsto re-engineer the way that they do business.

— ‘Changes in Prices and Inflation’ — Thecombination of reduced production costs andincreased competition over the internet will have asignificant downward pressure on prices and inflationfurther adding value to business proposition.

— ‘Business Networking’ — In dynamic market,many firms create competitive advantage bycombining their internal resources withcomplementary assets from strategic partnersencouraging division of labour and specialization.The firm’s business network enable them to adaptto new opportunities and challenges by tapping intothe network’s broad and diverse base of resources.

— ‘The Knowledge View of the Organization’—Knowledge of how resources are brought together,coordinated, integrated and put into use is theessence of successful firms. All industries undergosubstantial change, whether driven by thecustomers, competitors and technology. This changecreates continuous pressure for business to improvetheir product and services which ultimately makeslearning the only sustainable source of competitiveadvantages. Knowledge management determinesthe company’s knowledge requirements and theknowledge acquisition and learning processes.Knowledge management strategies determine inoperational terms the learning and innovationcapacity of the firm.

DRIVING FORCES TOWARDS GLOBALIZATION

‘Globalization’ defined as the process of movingfrom an independently managed businesses serving localmarkets to networks of businesses serving thebusinesses’ chosen markets in a coordinated andoptimized way. Thus, ‘capability development’ is oneof the key motivations of the process of globalization. Itis one kind of internationalization involving internalcoordination and external cooperation in businessnetworks. The inter-network relationship, especially withstrategic alliances and other functional departments, isbecoming more and more important ininternationalization. “Globalization is no longer anobjective but an imperative, as markets and geographicalbarriers become increasingly blurred and evenirrelevant.” As such, globalization of business has two

clear characteristics—geographic dispersion andinterdependent coordination between factories, units,branches etc. Understanding of these forces is essentialto the understanding the missions, capabilities andbehaviors of business globalization. Emerging globalmarkets have fuelled development of global productand related strategies in classical global industries suchas pharmaceuticals and electronics and also customerdominated industries. Global competition is anotherdriving force dispersing business domain to accessstrategic resources along the value-adding chain.Regional free-trade and economic deregulation in FDIare clear drivers for the company to adopt its regionallybased global strategy.

ISSUES RELATING TO ‘GLOBAL BUSINESS’

‘Global Business’ implies the intensive study of thefollowing issues:-

— To develop, transform strategy processes to facilitateadopting an international strategy.

— To understand more about international strategicalliances based on business networks.

— To explore wider network relations with otherfunctional departments, especially for global productdevelopment and capability building.

— To explore the detailed relationship betweenbusinesses capabilities, to understand thecontribution of a network to each of its nodes /branches etc.

— To identify the detailed distinctive capabilities ofeach network business configuration so as to makeinternational strategic decision more efficiently.

Apart from the above, a society’s propensity togenerate autonomous, risk-taking, innovative,competitively aggressive and proactive companies, firmsand entrepreneurs will depend on its cultural foundation.The role of economic, political / legal, social factorsand global competition based on agility, creativity, andinnovation are increasingly stressing the need to establisha global business climate whereby entrepreneurshipassumes a prominent role.

FACTORS AFFECTING GLOBAL BUSINESS

— The mobility of employment, capital, products andtechnology is making business increasingly globalin its transaction and its effects.

— Laws and market forces are necessary but insufficientguides for conduct.


A – 91

— Responsibility for the policies and actions of businessand respect for the dignity and interests of itsstakeholders are fundamental.

— Shared values, including a commitment to sharedprosperity, are as important for a global communityas for communities of smaller scale.

— Business can be a powerful agent of positive socialchange.

— To affirm the necessity for moral values in businessdecision making. Without them, stable businessrelationships and a sustainable world community areimpossible.

— Responsible corporate leadership is turning towardindependently formulating a viable and sustainableglobal ethics.

As such, global consciousness is presentlydeveloping within the realm of business and as itdevelops, the business community is socially responsibledeveloping and becoming a buzzword amongst thecorporations rapidly entering a new stage in the evolutionof socially responsible business.

GLOBAL BUSINESS DRIVERS

The global business driver approach provides a toolfor envisioning the business entities to impart effectivemanagement of business on global basis. Accordingly,global business drivers (GBDS) are those entities thatbenefit from global economies of scale and scope andthus contribute to the global business strategy. Theyare the means for assessing high-level global informationrequirements and focus on broad business entities (e.g.,Customers, Suppliers, Orders, Projects, Storage facilitiesetc.) and capture current and future informationrequirements that are shared across dispersed operatingunits within the firm’s business. The alignment ofworldwide computer-based information systems andintegrated business strategies is critical to the successof multinational firms in a highly competitive globalmarket. Information technology (IK) can drive a firmtoward globalization in a number of ways. Usingcomputer and communications technologies, firms canextract the information components from tangibleproducts, or substitute knowledge for material, and theninstantly transport the electronically representedinformation or knowledge throughout the world. Valuecan be added or an information-based product can beused at the most economically advantageous location.Information technology can thus, facilitate a globalstrategy. Henceforth, it can be a key facilitator of day-to-day global operations.

Variables of Global Business Drivers

It includes within its domain the following variables:-

— Joint resources including human resources;

— Rationalized and flexible operations throughglobal interdependencies;

— Risk reduction;

— Global products;

— Quality;

— Suppliers, Customers etc.

Joint Resources — Human resources is a keyglobal business driver for many firms / companies.Historically, organizational design focused on efficientlyallocating people to work tasks is the critical factorimparting efficiency in global business. Throughout theindustrial revolution, corporate hierarchies, departmentalstructures and the scientific management movementall sought to physically align people so as to mostefficiently attack the work. As knowledge flows replacethe material flow in production of goods, firms will learnto electronically share valued human resources on aglobal scale.

Global Interdependencies found in operations canbe global business driver requiring integrated I/Tsolutions. Operational interdependencies might arisefrom the need for rationalized or flexible production ormanufacturing. In rationalized operations, differentcountry unit build different parts of the same productbased on availability of skills, raw materials, or favorablebusiness climate. In Inflexible operations, the operationsare moved from one country to another, such as inresponse to labor strike, or raw material or skill shortages.Flexible operations can also provide new economies ofscale. The ability to shift production schedules from onecountry to another helps to optimally managemanufacturing and service capacity. Firms pursuingstrategies that entail globally dispersed productionfunctions and rationalized and flexible operations find itnecessary to share manufacturing planning systems,process control systems and work-in-process inventorysystem, across country boundaries.

Risk Reduction — Managing the firm’s cash flowsand assets that are affected by real shifts in currencyvalues. This means diversifying the value of the firm’sassets.

Global Products — This business drivers relatedto products being introduced that are identical or nearly

A – 92


identical across national boundaries. The reasons arevaried. First, global products are emerging because ofthe increasing influence of multinational corporatecustomers who seek consistency across their dispersedoperations. Second, globe-traveling consumers demandproducts and services regardless of location. Third, globalproducts can provide the basis for economies of scale.Consumer needs and wants are becoming morehomogenized around the world because of bothcommunication technologies and travel. The morerapidly and more widespread firm can introduce a newproduct, the greater the potential benefits derivable fromboth market saturation and subsequent low-costpositioning. Advances in information technology canhelp meet requirements of timeliness, consistency andlow costs etc.

Quality — ‘Total Quality Management’ is emergingas another key global business driver. As firmsbenchmark their operations against “world class”standards and as interdependence increases betweentheir domestic and international operations, arequirement for a cross-border approach to qualityimprovement is gaining force.

Suppliers — Worldwide procurement offersopportunities for competitive advantage througheconomies of scale, enhanced buyer’s power, increasedreliability. But there are even more compelling globalbusiness drivers that manage the relationship of the firmwith its business partners, customers, and other externalstakeholders. These inter-organizational inter-dependencies are driving firms toward major internaltransformations. Information technology is a key enablerof these transformations. In an industry in whichtechnological innovation is rapid, the advantage will oftengo to the firm that can most quickly diffuse breakthroughsin materials, components, or tools emerging from theirsupplier’s research and development facilities.

Corporate Customers — The most commondrivers of global integration today are the customerswho are themselves seeking globalization. Providingworldwide support requires rapid and accuratecommunication and information processing across thefirm’s country units. Firms that cannot meet their globalcustomers’ requirements will lose in competition tosuppliers’ who can.

To effectively manage the trends of global business,a new type of organizational structure i.e theElectronically-wired Network Organization, can helpsatisfy the global consistency and efficiencyrequirements, while simultaneously maintaining local

responsiveness, flexibility and accountability. Ahierarchical structure often proved to be the mosteffective as firms expanded internationally andencompassed multidivisional, multifunctionalorganizations. E.g Firms like E. I. Du Pont de Nemours& Co., General Motors Corp., Siemens A.G., andMatsushita Electric Industrial Co., Ltd., exploited thistype of structure during the first half of the twentiethcentury.

Techniques of Global Business

— Vertical Disaggregation - The firm’s value chainis dispersed globally and its business functions, suchas product design, development, manufacturing,marketing and distribution are performed byindependent organizations within a network.

— Business Groups - Each function is not necessarilypart of a single organization, business groups areidentified, assembled, placed in a location andcoordinated by means of brokers / agents.

— Market Mechanisms - The major functions areheld together primarily by mechanisms such as‘transfer prices’ between business units rather thanby the plans and controls.

— Full Disclosure / Information Systems - Widelyaccessible computer-based information systems areused as substitutes for authority relationships andlengthy trust-building experiences. A global alliancerequires that we decide on the best organizationalrelationships to establish.

— Independent Profit Center - where authority forproduct development and sales is pushed down toeach independent node.

— Spin-off Partnerships - where independentbusinesses are spawned from the main organizationusing former employees and assets.

— Spin-in Partnerships - where ideas and uniqueassets from external groups are acquired or set upas separate units and become nodes in theorganization itself.

— Licensing - where the Company contracts withindependent businesses to use its brand name, sellits special formulas, or market its technologies.

— Pure Brokering - where the Company contractswith independent businesses to solve problems,perform knowledge-based activities or to undertakedirect production or service activities.


A – 93

BENEFITS OF GLOBAL BUSINESS – the mainbenefits arising out of global business operations are asfollows:-

— Increased business efficiency;

— Rising prosperity;

— Dissemination of technology;

— Expanded consumption possibilities, greaterknowledge and awareness of different cultures.

STRATEGY TO MEET GLOBAL COMPETITION

— To restructure the business operations basedon geographical and cultural characteristics.

— To centralize business units based on therequirement of economies of scale to supportwhole regional market rather than traditionallynational markets.

— At global level, to standardize themanufacturing and managerial processes andshare them with other international regions.

— At product development level, to promote thegeneralization of regional products fromnational ones and further global products fromregional ones, but all of them share thestandardized operating system.

— At group coordination level, to develop,introduce and implement sharable managerialprocesses like new product development andmanufacturing operation benchmarking globally.

— The global coordinated configuration canaccelerate sharing of resources and knowledgeand learning in the group to strengthen theeconomies of scope and scale and othercapabilities for the future.

CHALLENGES AHEAD FOR PROFESSIONALS

Globalization has brought about cataclysmic changesin how business leads to function. There has been ametamorphic change in the competitive landscape. Ascompanies become global, they have to designstrategies to deal with the diversity of needs and interest.There are several trends that represent major challengesfor the management of small and medium sizedenterprise (SMEs). These include the globalization ofthe world economy, influence of IT, information system(IS) and e-business as sources of added value and vectorsof competitiveness and the development of human andintellectual capital as well as organizational learning. It

is vitally important for leading companies to adoptbusiness strategies which combines traditional corporategoals of higher profit and lower cost with a strongcommitment to environmental stewardship and socialimprovement.

Business professionals in such globalised businessscenario must be very proactive to identify businesssolutions that the firm needs to be competitiveworldwide and tie them to strategic businessimperatives. In this context, the role of CompanySecretaries as a corporate professional is very critical asto discharge functions and responsibilities in diligentmanner by being very responsive, alert, enthusiastic,dynamic, risk taking as well as multi-dimensional with afuture foresightedness and keeping a problem solvingapproach. The ability to give the best throughconsciousness of latest corporate trends, developmentsin legislative and regulatory framework so as to furtheract as a facilitator of value addition to modern businessdimension. In this respect, the following points mustbe taken into consideration:-

— For successful implementation of globalbusiness projects, a talented team ofprofessionals belonging to multi culturalenvironment is vital. The internationalcomposition means that the team lives in amulti-cultural environment on a day-to-daybasis.

— Infrastructure - The lack or incompatibility ofstandards in communication and computerinfrastructure is a major problem in developingglobal systems of business. But greatinconsistencies in infrastructure have usuallybeen brought up by the firm’s ownmanagement. The winners will be the firmsthat can align worldwide information systemswith integrated global business strategies.

— Other barriers - A variety of other hurdles awaitthe developer of global business applications.Profit and loss responsibility often lies at thecountry level, complicating project prioritizationand allocation decisions. Cultures, language etc.are some of the predictable problems thoughthe firm may have settled on a single officiallanguage. Even then, however, there will bemajor failures in interpersonal communication.

— Executives desiring to transform their firms mustbegin recognizing the need for their personaltransformation. The development of strategies

A – 94


for matching the competition in the relatedindustry. A more effective strategy involvesexploring the needs of customers and how theycan be better served. Effective leaders aremotivated by an inner vision, purpose andmission. Executives need to explore their beliefsabout managing and their relationship withothers in the Organization. Executives must alsoexamine whether their values are relevant tothe present time, not simply reflections of thepast. They must seek to revitalize theorganization’s shared values. The challengefacing executives is that of transcending thefear and anxiety associated with the forces ofpersonal transformation.

— An organization’s existing structures may be outof alignment with—or even inimical to—asuperimposed regional strategy. Effectivegovernance is needed to coordinate theintegration of the enterprise and ensure anorganization reaches its full potential. Byspecifying policies for how shared services arefunded, accessed, updated and managedacross all business units and incorporating thisguidance into Enterprise ArchitectureGovernance. Governance framework clearlydefines who is empowered to make decisionsand how the business measures progresstowards achieving its goals.

— For achieving satisfactory returns for shareholdersin the long term depends on the sanctioningof the company and its products by a range ofstakeholders viz; employees, consumers,suppliers, competitors, communities, localauthorities, government and others. The ideais that there is a homologous relationshipbetween producer / stakeholder and consumerand incorporating this interface into thebusiness strategy which will help the companyto harmonize its commercial objectives withsocio-economic and environmentalconsiderations.

— Global business needs a framework in whichthe benefits can be transferred and multipliedacross society, without the unintended illconsequences that can arise from globalization.That framework must incorporate recognitionof the needs and interests of individual nationsand communities and greater co-operationbetween business. Both literally andfiguratively, global business is bringing more

and more people to market, giving them newopportunities to trade and exchange, to workdifferently, to access education and training, toacquire property and capital. In all of theseways, global business is liberating people whileat the same time creating new value. Teams ofempowered employees, consultants, suppliers,and customers are thus required.

— In networked organization, ‘structure’ willdominate strategy, credentials will give way toperformance and knowledge and humanresources will be the only sustainableadvantage. They present difficult informationmanagement challenges. Among these aredeveloping a flexible and efficient informationarchitecture, establishing new values, attitudesand behaviors concerning information sharing,building databases that can provide integratedcustomers’ support on a worldwide basis andprotecting personal freedoms and privacy.

— A critical issue in the study of businessescompeting in global industries is the relationshipbetween international strategy andimplementation requirements. Understandinginternational strategy implementation is basedon the following premises (1) The choice ofinternational strategy influences the extent towhich the activities of an international businessmust be linked or integrated across countries.(2) International operational capabilities—defined by the level of coordination, managerialphilosophy and geographic configuration—determine an organization’s ability to managethese intra-organizational linkages.

— The international operational capabilities arecreated and controlled through threeadministrative mechanisms: centralization,formalization, and integrating mechanisms.Businesses competing with a country-by-country or multi-domestic strategy attempt toisolate themselves from global competitiveforces through protected market positions orby competing in industry segments that aremost affected by local differences. Thecompetitive advantage of a multi-domesticstrategy is, therefore, based on developing non-imitable responsiveness within each countrycontext. Enterprise executives have tounderstand that timely, accurate knowledge canmean improved business performance. Twotechnologies have been central in improving


A – 95

the quantitative and qualitative value of theknowledge available to decision makers:business intelligence and knowledgemanagement.

— Many Enterprises are becoming increasingly“knowledge-centric,” and, therefore, a largernumber of employees need access to a greatervariety of information to be effective. Whetheror not entrepreneurs operate in cultures thatsupport new ideas, experimentation, novelsolutions to problems and the creative processesof entrepreneurs will determine the strengthof the innovativeness dimension. Highlyinnovative cultures will likely experiencepositive results in terms of new technologies,products, services, or processes within theirrespective countries.

— The external environment includes economic,political / legal and social forces that providethe broader context for the organization’s tooperations. A favorable external environment,however, will ease all the barriers and encourageentrepreneurial potential.

— Process of continuous innovation, adaptationand learning. Global brands demand a globalbrand management team. The regional andinternational organization is in place to maintainbrand leadership. Companies with large brandportfolios tend to have separate managers foreach brand. Regardless, global brand managershave the authority and resources necessary toimplement key decisions based on performance/measurement. In order to sustain a global brand’slong-term position, there must be consistent andwidespread brand equity measurement.

— Managing and developing customers, suppliers,collaboration relationships and other relatedvalue has become one of the most importantsuccess factors for any company in today’sglobal business environment. One of the goalsis also to develop a framework for networkmanagement that would help in identifying themanagerial competencies and organizationalskills needed in managing networks.Companies, therefore, need to pay moreattention to their internal capability building andnew patterns of manufacturing systemsearching to create a proactive competitiveinfluence rather than a reactive responsivenessto the new industrial environment

LIMITATIONS OF GLOBAL BUSINESSDIMENSIONS

— Over-standardizing or over-simplifying the brand andits management, resulting in a culture of discouragedinnovation at the local level.

— Use of the wrong communication channels, resultingin inappropriate investment and business decisions.

— Underestimating the investment in spending andtime for a market to become aware of the newbrand.

— Not investing in internal branding to ensure regionalemployees understand the brand values and benefitsthat are to be communicated and deliveredconsistently.

— Failing to modulate performance metrics based onlocal variables. Assuming the business strategy callsfor going global and the analysis provides supportfor the strategy, the company must ask whether ithas the culture, organization and processes that lendthemselves to developing a truly global business.

— Lack of global vision and appropriate strategiesduring the internationalization have become majorbarrier to the effective management of internationaloperations.

— The analysis using Global Business Drivers (GBDs)must emphasize the specifics of the business, theirsuppliers, distributors, products and customers.

— Failing to recognize differences within the firm.Global business drivers are seldom exactly the sameacross business units.

— Cultural differences across country units that maymake it difficult to reach consensus initially on theGBDs.

— Lack of senior business management involvementin the GBD Analysis. Senior management must bewilling to sponsor and participate in the GBDAnalysis and play a leadership role in the move toan integrated global information technology.

FUTURE COURSE OF ACTION

What is clear is the need to follow core principlesand management practices when choosing to conceivea global business plan. What separates the winners fromthe losers is a resolute commitment to rigorous strategic,creative, and innovative execution. Assuming thebusiness strategy calls for going global and the analysisprovides support for the strategy, the company must

A – 96


perform a self-examination and determine whether ithas the culture, organization and processes that lendthemselves to developing a truly global organization.Apart from this global branding and marketing ofproducts and services will be the key business issuesthat have direct impact on shareholders’ value and wealthcreation.

CONCLUSION

Information technology simultaneously drives andfacilitates global business. As firms seek to harness theIT to the task of managing the modern globalisedbusiness system, the role of corporate professionals asa catalyst would further enlighten the strategic thinking,management and control keeping in view the globaldimensions of business value by imparting high degreeof flexibility, transparency, reporting, communication,knowledge updation etc. so as to meet the challengesof highly competitive global business environment. Inthis context, it must be stated that the winners in thisglobal environment will be those firms/companies thatcan align worldwide information systems with integratedglobal business strategies. Further, the global business

driver analysis helps to identify the business entitieswhere global coordination can provide a competitiveadvantage. It can rightly be said that the companiesthat will get ahead and stay ahead in today’sinterconnected business environment will be those thattake control of technology and not those that lettechnology take control of them. Accordingly, thebusiness leaders must utilize fruits of informationtechnology so as to reap optimum results throughincreased profits, value addition, brand image as wellas social welfare.

BIBLIOGRAPHY

1. http: // www.businessweek.com

2. http: // www.infosys.webex.com

3. http: // www.ecommerce-now.com

4. The Economic Times Newspaper.

5. Business Standard Newspaper.

6. The Chartered Secretary Journal.

Corporate Social Responsibility (CSR) for Business Excellence

A – 97

CORPORATE SOCIAL RESPONSIBILITY (CSR)CORPORATE SOCIAL RESPONSIBILITY (CSR)CORPORATE SOCIAL RESPONSIBILITY (CSR)CORPORATE SOCIAL RESPONSIBILITY (CSR)CORPORATE SOCIAL RESPONSIBILITY (CSR)FOR BUSINESS EXCELLENCEFOR BUSINESS EXCELLENCEFOR BUSINESS EXCELLENCEFOR BUSINESS EXCELLENCEFOR BUSINESS EXCELLENCE

NARESH KUMAR*NARESH KUMAR*NARESH KUMAR*NARESH KUMAR*NARESH KUMAR*

“The power of money is the power to give it away.”– N.R. Narayana Murty – Infosys’ Iconic Founder

INTRODUCTION

The emerging business environment offersunprecedented opportunities and challenges to thecorporate sector for value addition through excellence.‘Business Excellence’ in the corporate world means notonly making decent profit by optimum utilization ofresources but also contributing for the welfare of thesociety. It is the balancing act between profit earningand social good. With the growing importance ofcorporate governance, the thrust has been on valueaddition both as a strategy for maximizing shareholders’wealth and contributing for the social welfare. In thiscontext an attempt is made to discuss the concept ofbusiness excellence through value addition and offerfew suggestions to the corporate sector.

BASIC CONCEPTS

Following basic concepts are clarified to discuss thesubject in proper perspective:

‘Business Excellence’ is the process of value additionby efficient use of productive resources - manpower,raw material, machinery and capital - into goods andservices to satisfy both material and welfare needs ofthe society.

‘Consumer’ is the king, who rewards the businessfor the value it creates for him. The business, therefore,earns customer loyalty by offering him the best in termsof quality, price and services. He, being at the centreof all economic policies and activities, the business isbecoming more and more customer-focused andcustomer-oriented. The term is used in a broader sense

* MBL, LL.B., M.A. (Economics), FCS, FICS. Advocate-Business Laws & Visting Professor IIFT, New Delhi

to encompass other market participants and segmentsof civil society. An enlightened consumer, by exercisinga choice in favour of ‘socially responsible’ companies,can unleash a powerful force of incentives.

‘Corporate Social Responsibility’ (CSR) is thecommitment of businesses to contribute for sustainableeconomic development by working with the employees,local community and society at large to improve theirlives in ways that are good for business and fordevelopment. It is the contribution of corporate sectorfor the philanthropic causes like education, health, water,environment and community welfare.

“Corporation” is the legal innovation ofcapitalism- an artificial person with perpetualsuccession having rights and liabilities in its own name.It is the most powerful institution of the 19th centurythat has been transforming not only economies butalso quality of life of societies.

‘Economic Value Addition’ (EVA) is the system ofcorporate management that defines profitability in termsof return on capital above the cost of servicing the capitalemployed. It is the barometer of a company’s efficiencyin capital allocation. According to Joel M. Stern–‘Companies that have adopted the EVA framework haveconsistently outperformed their peers in fundamentalperformance and have rewarded their shareholders withbetter wealth creation’. EVA can be enhanced throughinnovation, technology, skill and workmanship.

‘Professional Excellence’ is the instrument of corporategovernance and business ethics. It has acquired a nobleconnotation where business community lends a helpinghand in taking up the socio-economic welfare work, whichis the prime responsibility of the Government.

A – 98


PROFIT EARNING VERSUS SOCIAL WELFARE

There are two divergent schools of thought on roleof corporation. According to one school, corporationhas been created by the society to generate profits byefficient use of resources. Renowned economist MiltonFriedman states -“The business of business must onlybe business. The first and last duty of corporation is tomake profit and serve interests of shareholders.” Hebelieved that for companies to have social objective,would be a distraction from their main task of runningtheir businesses efficiently and making healthy profits,of course, through honest means. Any shouldering ofsocial responsibility by companies may provide incentivesfor the government to shirk its responsibility. It wasfurther argued that private sector initiatives in the domainof government would create a moral hazard problem –providing an escape route to governments not to dotheir job, and shunt their responsibility to corporate.Theoretically, this leads to non-optimal utilization ofproductive resources.

According to the other school of thought,corporation is not an end in itself, but a means to anend, that is, sub-serving the larger interest of society.It is the society, which has created corporation andprovided it resources to grow and develop. It is theresponsibility of corporation to contribute for the qualityof life and welfare of the society, more so because ithas all the needed expertise, competence, talent, abilityand resources. It is, therefore, quite natural for aprofitable and ethical company to contribute for the goodof the society.

Maslow’s theory of hierarchy of needs gives its ownjustification for CSR. According to Maslow human beingshave a hierarchy of needs and they will satisfy themprogressively – first comes the basic needs of hunger,second comes needs of love and affection from fellowhuman beings and finally the self-actualization needs.Applied in the corporate context, this would mean thata company would initially aim at maximizing profitprompted by self-interest. When shareholders andemployees are well taken care of, then altruism is aluxury open to companies, which generate so muchmore wealth that they think beyond themselves andwant to ‘give back’ something to the society, which hasgiven them so much. An appropriate example, whichfits both paradigms of expiation and altruism, is theinstitution of Nobel Prize set up by Alfred Nobel, whoafter making riches through the invention of dynamitepromoted the noble cause of excellence in science andhumanity.

Niall Fitzgerald, CEO, Unilever, resolves thecontroversy by stating that ‘CSR is a hard-edged businessdecision. Not because it is a nice thing to do or becausepeople are forcing us to do it —— because it is goodfor our business.’

CONVENTIONAL AND MODERN BUSINESSSTRATEGY

In the conventional business strategy, companiesconcentrated on the primary goal earning maximumprofit for the shareholders and social responsibility wason the peripheral. In this paradigm, the more the profits,the greater was the capacity to contribute for social good.This model was, however, not sustainable for the simplereason that it created a vicious cycle - companies in theprocess of making profits deteriorated the natural andsocial environment, then more and more resources wererequired to repair the damage. This was like a mancutting off the branch of tree on which he was sitting.The more efficiently he cut, the less sustainable hisposition became. The inability of the planet earth tosupport this paradigm is obvious. The society cannottolerate the self-destructive profiteering model havingno concern for the society.

A good corporate citizen is a business entity, eitherpublic or private, which makes a significant contributionto the public good. It could take a variety of forms, likestrengthening education and health delivery systems,alleviating poverty, furthering the cause of training andemployment, helping the handicapped, giving less-privileged children a better future.

In India, traditional business houses like Birlas andTatas and modern like Infosys and Wipro have not onlycreated wealth but also been aligning themselves withthe community development programmes around theirprojects. They are taking pains to ensure that socio-economic welfare projects promoted by them are self-sustainable. The underlying principle is to involve thelocal community from the beginning so that oncompletion the beneficiaries can successfully take overand manage the project on their own.

According to Azim Hasham Premji, Chairman,Wipro, “First of all, business must do well what it issupposed to do – deliver value to customers, employeesand shareholders – and this with the highest integrityand transparency. That is basic to being bona fidemember of the larger eco-system or society in general.Second, business must act with the realization that theiraction (or inaction) has a significant influence on thesociety of today. And that we must use this influencefor the good of the society, for example, by being


A – 99

responsible ecologically, and by contributing deeply toa cause that has socio-economic impact.”

SOME SHINING EXAMPLES OF BUSINESSEXCELLENCE

Following are some shining examples of businessexcellence where companies that have married thebusiness and social goals with amazing efficiency:

When Nestle got permission from the Indiangovernment in 1962 to set up a dairy plant in Moga,Punjab, the company realized that the area was aridand poorly irrigated. In addition, milk output of thelivestock with farmers was pathetically low, besides thehigh mortality rate of calves. Due to poor infrastructureand lack of resources, milk could not be transportedover even short distances. Nestle, used to source itsneeds in native Switzerland from a large base of smallfarmers, realized that to replicate the same value chainin Moga it would need to marry its competitivenesswith social transformation. Consequently, the companybuilt refrigerated lorries as collection points in each town;and along with the lorries it also sent all kinds of experts(such as veterinary surgeons and agronomists) to providefarmers with technical expertise. Nestle even providedthem with financial and technical support for constructingdeep-bore wells. The availability of water, apart fromaffording enhanced irrigation and access to surplus crops,also improved the quality of livestock’s feed crop, therebynot only improving milk yields but also increasing theirlife-span. The project has resulted in higher livingstandards in Moga, with 90% of households today havingaccess to electricity and telephones. Nestle got accessto its quality raw material and its rural suppliers gained ahigher standard of living. Today, this has become Nestlé’sabiding template in some of its other sourcing markets,such as Brazil.

The Aditya Birla Centre for Community Initiativesand Rural Development is an outstanding example ofuplifting about 3,500 villages around their project acrossthe country. The activities include self-reliance throughthe engine of sustainable livelihood, clean water, healthand employment. The thrust of the approach is onmotivating the social workers and aligning the localcommunity for its betterment projects.

Tatas have been pioneering in promoting educationalinstitutions and hospitals. Recently, Tata TeleservicesLimited is investing about Rs.1,000 crore for its ruralthrust that will include setting up of specialized 3,000base stations in difficult terrains in rural areas. Thecompany will launch mobile handset models to provideconnection to rural areas.

Infosys Technologies disbursement of Rs.126 croreamong its 58,000 employees as 25th anniversary giftthrough the Infosys Employee Welfare Trust in 2006 hasagain enhanced its reputation as creating wealth,managing wealth and distributing wealth to itsstakeholders. Earlier when it touched the US$ one billionrevenue, it had given US$ 1,000 to each employee.The company that has created 58,000 high quality, highdisposable income jobs, contributed to over US$ 2 billiona year to exports and raised the image of India byconducting business legally and ethically. By creatingand sharing the knowledge and wealth, Infosys has raisedthe inspiration of India. According to Nandan Nilekani,Chief Executive Officer, Infosys, “We try to be a rolemodel for how companies need to be regarded in thelarger context of society – in the way we run ourcompany, work practices, ethical behaviour, corporatesocial responsibility and so on. We have to make surethat we are responsive to the environment.”

Azim Premji Foundation, with its vision to“significantly contribute to achieving quality universaleducation to facilitate a just, equitable and humanesociety” has been focusing on improving the standardof elementary education. The Foundation has beenactive in Himachal, Uttaranchal, Punjab, Delhi,Rajasthan, Gujarat, Madhya Pradesh, Chhattisgarh,Orissa, Karnataka, Andhra Pradesh, Pondicherry andTamil Nadu. In less than six years, with over 60,000teachers 250 professionals and 1,000 paid fieldvolunteers. The Foundation has covered 16,600 schools,three lakh children, 60,000 teachers. The aim is todevelop “proof concept” in partnership with thegovernment on a scale that is necessary to influencethe larger system across India. The idea is not to developsmall `islands of excellence’, but to work towardscontributing to systemic changes to help thegovernment deliver quality universal education acrossthe country. The foundation seeks to build partnershipwith local governments, individuals, communities andNGOs.

ITC’s supplementary learning centers, which helppoor students cope up with their lessons and improvetheir abilities, also benefits educated local youth whoserve as tutors. It conducts teacher-training programmesto raise the standard of teaching in government-runprimary schools. It also helps NGOs to organize summercamps, sports and other extra-curricular activities.

ITC’s intervention has been leveraging micro-creditand skills training to generate alternate employmentopportunities. Increased income in the hands of ruralwomen means better nutrition, health-care and

A – 100


education. It has organized village women into micro-credit groups. Group members make monthlycontributions to create a saving corpus. The corpus isused to extend soft loans to group members, therebyweakening the role of the moneylender. The system ofmandatory contribution further strengthens the savinghabit, leading the capital augmentation. Theempowered groups function autonomously and taketheir own decisions, including sanction of loans andcollections of repayments. The result is win-winsituations in which enterprises are able to source theirproducts directly and at the same time sell to a newincome group.

According to Travis Engen, CEO, Alcan: ‘We knowthat the profitable growth of our company depends onthe economic, environmental, and social sustainabilityof our communities across the world. And we know itis our best interests to contribute to the sustainability ofthose communities.’

RECENT SURVEYS

Following surveys demonstrate that enlightenedcompanies are making a conscious effort to build strongbusiness principles and corporate policies, which haspositive impact on the community.

Global Public opinion on the changing role ofcompanies, conducted by Environics International, whichinterviewed around 1,000 people from both developedand developing countries like USA, Canada, Mexico,Britain, France, Germany, Japan, India, Russia andNigeria, revealed that:

— A significant number of investors consider acompany’s social performance while makinginvestment decisions

— In the richer countries, social responsibilitycontributes greatly to the brand image of acompany

— Companies ignoring social responsibilities runthe risk of losing market share

— North American consumers represent the mostsocially demanding market for companies

— Citizens of the developing world areincreasingly putting a lot of pressure oncompanies to assume greater socialresponsibility

Nottingham University Business School, conducteda study covering seven developing countries in Asia(India, Indonesia, Malaysia, Philippines, Singapore, South

Korea and Thailand) to assess the state of CSRinterventions in these countries. The study revealedthat although India is poorer than many of the othercountries covered under the study, it ranked numberone in terms of CSR penetration. About 72% of India’stop 50 companies undertake CSR initiatives supportedby well-defined policies. Countries like South Korea(52%), Thailand (42%) and Singapore (38%) werebehind India in CSR penetration levels.

Some of the important corporate interventions havebeen targeted at sectors like health and education –ranging from adoption of public health facilities bycompanies, supplementing existing governmentprogrammes like the mid-day meal, assessing andimproving learning outcomes in primary educationthrough teacher training and improving overall learningoutcomes. There are well-defined regulations in thearea of environment, health and safety as well as lawsgoverning minimum employee benefits. The emphasisis particularly on community development.

KEY AREAS FOR BUSINESS INTERVENTION

The first priority for business intervention is topromote the cause of primary and secondary educationfor the disadvantaged students. Investment in educationby the corporate sector is investment in the future ofnation. India must realize its full potential in primaryeducation to nurture the capabilities of her future citizensand to become an educated country.

The lack of focus on primary and secondaryeducation, particularly for disadvantaged students is acause of serious concern for the nation. There are 200million children below the age of 14, out of whom 20million are without schools. Almost 35% of children instandard five cannot read and write.

The second priority for business intervention is tocontribute for the harmonious and balanced growth ofurban and rural areas.

The unprecedented growth of metropolitan citiesand haphazard urbanization has resulted in growing air,water and soil pollution. There is lack of potable water.The quality of life is deteriorating because infrastructureand civil facilities are crumbling. The government alonecannot check and remedy the alarming situation. Thepresent multidimensional problems can best be tackledwith the active involvement and cooperation of thecorporate sector.

India has to develop its own model of growth thatstimulates productive economic activity in rural areas.


A – 101

Rural India has to be connected with better roads andtelecommunications for nurturing and stimulating localentrepreneurship. The strategy for India’s growth liesin generating employment and spreading incomethroughout its population, 70 per cent of which live inrural areas.

Integrated development of rural and agriculturaleconomy is the key to socio-economic development.The rural sector has potential to rapidly ‘spread around’rather than ‘trickle down’. In this context, Prof. C.K.Prahalad in ‘Fortune at the Bottom of the Pyramid’ rightlycalls for corporations to design products/services for theenormous population at the bottom of the pyramid. Thebasic assumption is that this segment of population alsohas some disposable income and companies could stillmake profit on large volume by manufacturing andselling tailor-made products having demand in ruralareas. The other aspect is to create wealth at thebottom of the pyramid, by increasing the disposal incomeand buying power in the rural areas. For example,companies can buy artisans’ products and use these forcorporate gifts. Companies can also facilitate spreadingwealth by convening meetings, conferences andprofessional development programmes in rural areasrather than five star hotels in metropolitan cities. InIndia, where only one percent of people own securities,the concept of ‘wealth creation’ must extend beyondthe stock market. Companies have to foster widespreadparticipation of rural population for economictransformation.

There is need for all round harmonious developmentby creating self-sustaining and environment friendlymodern cities, towns and villages by synthesis oftraditional culture, spiritual values and moderninfrastructure. This requires an integrated developmentplan - provision for good housing, community assetbuilding, appropriate sustainable technologies, functionalplanning and user-friendly infrastructure. For healthyliving, it is essential to make available on self-help basisclean environment, satellite communication, potablewater, and renewable energy through solar/wind/bio-gas, school, hospitals, parks, playgrounds and communitycenters. The underlying objective is to promote socio-economic welfare of habitats on sustainable basis.

The management and administration of model cities,towns and villages should be on the principle of“Bhagidari” by a core group of public-spirited personsof high integrity drawn from diverse areas in business,public life and beneficiaries. The infrastructure facilitiesshould be operated and maintained on the principle of

self-sustaining welfare activity. This will also provideavenues for the local people to contribute towards socio-economic activities by pooling their knowledge,experience and skills for the common welfare.

SUGGESTIONS

The hallmarks of business excellence should becreating wealth and contributing for a holistic approachto development - preserving environment and promotinginstitutions of social welfare. In this context, followingsuggestions deserve careful consideration:

1. One of the prime goals of business is tocontribute towards community development.It is an opportunity and challenge for the Indiancorporate sector to promote the concept ofholistic development – quality and standard ofliving for Indians. The corporate sector canintervene to reduce people’s dependency onthe government for health, education andinfrastructure projects through the public-privatepartnership (PPP) model. The PPP model haswell-defined responsibility and accountabilityfor undertaking and implementing the socialwelfare projects. For example, PPP model isideal in the education and health sectors toallow adoption of primary schools and publichealthcare facilities by companies, or leveragingthe services of professionals from the privatesector for delivery of education and publichealth services.

2. The corporate sector can act as a role modelfor building the first few model cities, townsand villages as a pilot-project. The communitycan follow the lead by multiplying the example.In fact, enlightened and professionally managedcompanies are in an ideal position to promotecommunity development programmes throughcapacity building initiatives. They can bridgethe gap of knowledge and resources betweenrural and urban areas and synthesize thedevelopmental approach and efforts ofcorporate, government and NGO sectors. Thecorporate sector has the multidisciplinaryknowledge, skills and financial resources toprovide creative and cost effective solutions tothe complex problems of the society.

3. Generally, a heavy moral overhang shrouds mostCSR intentions. In many companies CSR isdictated by an over-arching sense of moralresponsibility. The choices are usually dictated

A – 102


by the chief executive’s social sensibilities orthe priorities set out by the board of directors.It is a sort of cheque-book CSR. Corporatedonations are given to schools, trusts andcharitable foundations working for social welfareprogrammes. There is lack of sustainedcommitment and genuine concern for the endresult. The CSR should, therefore, be anintegral part of corporate culture and coreresponsibility of the board of directors and ChiefExecutive Officer. They should have a long-term engagement necessary to produce theresults in the vast social fabric. They should beresponsible for the results in terms ofenvironmental sustainability and social goodand not only for the return to shareholders.In fact, commitment to socio-economicdevelopment programmes gives companiesnot only corporate reputation but alsoconsumer patronage for their quality productsand services.

CONCLUSION

In modern society, governments with limitedresources alone cannot cope up with the varied andcomplex needs of modern society. Governments needthe help and support of all stakeholders, particularlyintervention of business community, which has thecapability and resources, to meet the challenges of socio-economic development.

Indian corporate sector is well placed to play a muchlarger role in augmenting national income and socialwelfare. Companies have created assets and facilitiesthat span the length and breadth of the country, and,therefore, constitute the front of the engagement withcivil society. Communities around their catchments canfeel the physical presence of companies. This givesthem an opportunity to directly engage in synergisticbusiness activities for creating livelihood and at the sametime preserving natural resources. In fact, companieshave, more than financial resources, the crucialmanagerial capability to ensure efficient delivery of socialprojects. Thus, Indian corporate sector is in an ideal

position to significantly add to government effortsthrough PPP model in pursing growth with equity.

In India, all stakeholders (the government, privatesector organizations, development agencies, NGOs andother constituents of civil society) have to work togetherto address the developmental needs of the country andprovide worthwhile solutions to the socio-economicproblems. It requires closer interaction amongst thestakeholders for the simple reason that the other cannotreplace efforts of one agency. The challenge primarilylies in creating institutional arrangements andmechanisms to cater to the new requirements andprovide the best results.

The society and people sustain and give freedomof growth to corporate sector because it has beenadding value to the resources. In turn, it is theresponsibility of companies with vision, values,leadership and capability to contribute for the quality oflife of the society, besides pursuing the goals ofentrepreneurship and economic growth. The corporatesector should, therefore, champion the cause of CSRbecause merely earning profits for investors andproducing goods and services for consumers are notsufficient to justify its existence. In the emergingbusiness scenario, market forces are making CSR a crucialcomponent of value creation.

Management expert Michael Porter in Strategy &Society (with co-author Mark R Kramer, Harvard BusinessReview, December 2006) has aptly remarked: “The factis, the prevailing approaches to CSR are so fragmentedand so disconnected from business and strategy as toobscure many of the greatest opportunities forcompanies to benefit society. If, instead, companieswere to analyze their prospects for social responsibilityusing the same frameworks that guide their corebusiness choices, they would discover that socialresponsibility can be much more than a cost, a constraint,or a charitable deed – it can be a source of opportunity,innovation, and competitive advantage.”

Business excellence is applied within the frameworkof a corporate philosophy, which factors the needs ofthe community and the regions in which the corporateentity functions.

Corporate Governance and Expectations of Stake Holders

A – 103

CORPORATE GOVERNANCE ANDCORPORATE GOVERNANCE ANDCORPORATE GOVERNANCE ANDCORPORATE GOVERNANCE ANDCORPORATE GOVERNANCE ANDEXPECTATIONS OF STAKE HOLDERSEXPECTATIONS OF STAKE HOLDERSEXPECTATIONS OF STAKE HOLDERSEXPECTATIONS OF STAKE HOLDERSEXPECTATIONS OF STAKE HOLDERS

S B MATHUR*S B MATHUR*S B MATHUR*S B MATHUR*S B MATHUR*

INTRODUCTION

Corporate Governance is a buzzword but it is lookedat and different authorities on the subject have definedit differently from their own viewpoints. However, thekey to good corporate governance is a well functioning,informed board of directors.

“Desirable Corporate Governance - A Code evolvedby CII; defined the scope of the corporate governanceas follows-

“Corporate Governance deals with laws, procedures,practices, implicit rules that determine a companies abilityto take informed managerial decisions vis-à-vis its claimants– in particular it’s shareholders, customers, the state andemployees. There is a global consensus about the objectiveof ‘good’ corporate governance: Maximizing Long termShareholders Value.”

“This objective follows from a premise that, in wellperforming capital and financial markets, whatevermaximizes shareholders value must necessarily maximizecorporate prosperity, best satisfy the claims of creditors,employee’s, shareholders and the state.”

MAXIMIZATION OF STAKEHOLDERS VALUE.

Maximization of stakeholder’s value can only beachieved only by following an orderly sequence of logicalsteps. However, it can not be denied that basis of thesesteps is Good Corporate Governance.

In his article “The Ultimate Result of CorporateGovernance Value Management” (Chartered Secretary,August 2003) Ranjan Muhkerjee analyses the stepsinvolved in the chain and indicates process involved inmaximization of value for the stakeholders in thefollowing flow chart

* B.Com., LL.B., MBA, ACA, FCS. Advocate, Delhi High Court.

STAKEHOLDERS VALUE

FINANCIAL PERFORMANCE

MISSION AND BELIEF

CORPORATE STRATEGY

STRATEGIC BUSINESS UNITS

MARKET CONDITIONS

The Chart shows that a company operates in amarket place and it has to take advantage of the businessopportunities. Hence the stakeholder’s value isdependent on the market conditions. In view of theauthor no matter what expectation of the stake holdersare ,if the company fails to earn money by generatingthe value from it’s operations, it cannot fulfill any ofthe expectations of any single stakeholders.

At the same time it is to be noted that corporatestrategy drive their broad guideline from the “Mission“of the company, which are to be generated from thefoundation of corporate values. The corporate valuesthemselves emerge from the Good CorporateGovernance and basic tenants underlying the same.

A – 104


ETHICS VS. CREATION OF VALUE

There is a debate in Corporate Circles about themanner in which the objective of value creation shouldbe achieved. In long-term it will be desirable that theBoard of Directors follows the “Code of Best Businesspractices” and the same should be adopted as the verybasis of the Corporate Mission and Corporate Vision.Yet, all stakeholders rate the performance of the Boardon the basis of the long-term value creation for them.It may therefore be a need to strike a balance betweentwo objectives stated above. There is need of a strongcommitment to the code of best business practicesnot only at board level but also throughout thecompany.

STAKEHOLDER’S EXPECTATIONS

The expectations of different category ofstakeholders vary and depend on nature of his stake inthe company. A tabular presentation given belowbroadly spells out the position in this regard:

Stakeholder Nature of interest Expectationsfrom company

Shareholders Ownership of Equity A fair return oninvestment

Creditors/ Loans/Supply of Transparency insuppliers goods terms of contract

and timelysettlement ofsupply bills

Customers Buyer of goods Safety / Qualityof goods and/orservices as perstandard

Employees Provision of Remuneration /Manpower Reward, Career

advancement,Training andEmpowerment

Government Infrastructure Payment of taxesProvision and due, Response toSafe Environment Government

Initiatives

Society Safe working EnvironmentEnvironment and protection,Value System,

Corporate SocialResponsibility.

MEASURES TO MEET THE STAKEHOLDER’SEXPECTATIONS

In order to ensure “Good and Sound CorporateGovernance” in a company and to meet the stake-holder’s expectations, the company should adoptfollowing polices and principles:

— Honesty and transparency

— Accountability and responsibility to stakeholders

— Fairness in dealings

— Independence in Board decisions

— Observe Corporate Social Responsibility

— Compliance of governance rules andregulations

— Building of goodwill and Corporate Image

The provisions of the Companies Act 1956 and itsrules and regulations provide for several measures toenforce Corporate Governance.

Listing guidelines laid down by the SEBI inclause 49 clearly spell out requirements for GoodCorporate Governance. These include:

— Appointment of Independent Directors andChairman

— Adoption of Code of Conduct

— Appointment of Audit Committee

— Appointment of Remuneration Committee

— Appointment of Nomination Committee

— Shareholder’s Grievance Committee.

— Risk Evaluation and Management

— Whistleblower’ Protection.

Laws or rules alone cannot prescribe totality of theCorporate Governance. However, the companies needto adopt the measures as a “Responsible CorporateCitizen”.

FAMILY BUSINESSES AND CORPORATEGOVERNANCE

In India, the traditional and family manage businesshave in the past, followed their own style of “CorporateGovernance”. It was characterized by secrecy in

Corporate Governance and Expectations of Stake Holders

A – 105

operations. The management of the human resourcewas based on staunch personal loyalty to the familymanaging the company and employee’s carrieradvancement and the promotions in management ladderwere based on whether one was a close kin or belongedto their caste.

The financial management of such companiesinvolved a small shareholding of family group in managedcompanies but they controlled the composition of boardof directors through a complex pattern of shares heldby related entities and the Charitable Trusts (in whichfamily members were managing trustees). Themeasures to shift funds and profits were throughrelated party transact ions, which were nottransparently and fully disclosed in the reports ofdirectors to the shareholders.

The stakeholders could not or did not react asthe management gave reasonable dividends and therewas appreciation in the value of shares (because ofindirect support in share market due to family dealingin them).

However, times have changed and these very FamilyManaged Companies are now adapting themselves tomodern business management methods and areadopting the global norms of transparency goodcorporate governance in their companies to satisfystakeholders expectations and to meet requirements oflaws.

CHANGES IN CORPORATE GOVERNANCE INGLOBAL COMPANIES

There is also a material and significant change inbehavior of Indian companies listed on the StockExchanges. Even the companies wanting to attract “Direct Foreign Investment”, especially the ones, whichare forward looking, are voluntarily adopting the GAAPand following Sarbanes-Oxlay Act of U.S.A to enable toget their securities listed in New York Stock Exchange.There is a sea change in the attitude of shareholdersand they are better organized to demand transparencyin the affairs of the company. They are demandingcompliance of the rules of Corporate Governance andcirculation of working results in time.

The shareholders have also become more proactive,this can be judged by following illustrative actions insome cases:

— The shareholders of an international insurancecompany pressed for and succeeded in forcingwithdrawal of Executive Compensation Plan.

— Filed a class action suit against a firm for waving“Executive Loans”.

— Forced that Executive Severance Package begot approved from the shareholders.

— The shareholders are asserting their rights totake important management decisions and theirapprovals can not be taken for granted.

ROAD AHEAD

Corporate Governance is not a subject with staticcontents. It has to move with the changes in businessenvironment. It, therefore, will continue to evolve over aperiod of time. To enhance its effectiveness following stepsmay be considered by Central Government and SEBI:

— Enhance the level of disclosure of informationto capital market

— For shareholders and potential investors

— Ensure the information submitted to authoritiesor shareholders is of “reliable”, “Frequent” and“of Good Quality”

— Measure for an “Effective Corporate Control”be strengthened by providing internal checks,internal audit and constituting a structured andfully empowered Audit Committee

However, there are limitations to what RegulatoryAuthorities can do G.N.Bajpai, former Chairman, SEBIonce observed, “Corporate governance is delivering,satisfying and satiating expectations of the stakeholdersat large. A regulator cannot legislate ethics. They canlay down rules and define structures but good governancehave to emerge from people who manage interest ofstakeholders.”

COMPANY SECRETARIES AND CORPORATEGOVERNANCE

Company Secretary is defined as an “Officer” underSection 2 (30) of the Companies Act, 1956. He is alsonamed as an “officer in default”.

Company Secretary is also the secretary to AuditCommittee, Remuneration Committee, ShareholdersGrievances Committee and Nomination Committee setup as per clause 49 of the listing agreement. He has toensure that meeting of the board and its committeesconsider all prescribed reports, disclosers by directorsof related party transactions and important papers theyare required to peruse as per clause 49 and the provisionsof the Companies Act, 1956. He has to ensure that the

A – 106


Board follows the procedures as prescribed not only asper the Act and rules but also in it’s true sprit. He shouldalso give an impartial advice whenever he is called uponby the Board to do so. No doubt the Company Secretaryshould follow the Secretarial Standards for the Board

meetings as also the Guidance Notes issued by the ICSIfor Corporate Governance. In this way, the CompanySecretaries will continue to play an important role inenhancement of the stakeholder’s value.

Documents

THEME ARTICLES · 2008-01-05 · - Dr J. P. Sharma & Astha Dewan 9. Calibrating Competence for Professional Excellence 55 - Vipin Agarwal 10. Legal Process Outsourcing (LPO) – The