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INVESTOR’S PERCEPTION INVESTOR’S PERCEPTION ABOUT NON-FINANCIAL ABOUT NON-FINANCIAL
INFORMATIONINFORMATION
CA. Rajkumar S. AdukiaCA. Rajkumar S. AdukiaMobile : 93230 61049Mobile : 93230 61049
E-mail: [email protected]: [email protected] www.caaa.in
IntroductionIntroduction
With the internationalization of cross-With the internationalization of cross-border portfolios, and the financial crisis border portfolios, and the financial crisis that have occurred in many parts of the that have occurred in many parts of the world, investors and institutional world, investors and institutional investors in particular, increasingly look investors in particular, increasingly look more carefully at the non financial more carefully at the non financial information of the company particularly information of the company particularly the corporate governance practices of the corporate governance practices of companies and its corporate social companies and its corporate social responsibility information. responsibility information.
InvestorInvestor Investor is one who commits money to investment Investor is one who commits money to investment
products with the expectation of financial return. products with the expectation of financial return. The products an investor may buy range widely, The products an investor may buy range widely,
but include stocks, bonds, real estate, but include stocks, bonds, real estate, commodities, and collectibles (e.g. art). The commodities, and collectibles (e.g. art). The portfolio of an investor commonly includes a portfolio of an investor commonly includes a variety of assets that balance the rewards and risks variety of assets that balance the rewards and risks of each investment. An investor is distinguished of each investment. An investor is distinguished from a speculator, who seeks to make quick, large from a speculator, who seeks to make quick, large gains from price increases on risky assets.gains from price increases on risky assets.
Investor is of two typesInvestor is of two types1.1. Natural PersonNatural Person2.2. Legal PersonLegal Person
PerceptionPerception
Perception is the process of attaining Perception is the process of attaining awareness or understanding of the awareness or understanding of the environment by organizing and environment by organizing and interpreting sensory information. All interpreting sensory information. All perception involves signals in perception involves signals in the nervous system, which in turn the nervous system, which in turn result from physical stimulation of result from physical stimulation of the sense organs.the sense organs.
Investor PerceptionInvestor Perception
Investor perception about a company would mean how the investor Investor perception about a company would mean how the investor envisions or sees the company.envisions or sees the company.
Knowledge of Investor Perception is important for a company Knowledge of Investor Perception is important for a company because:because: The perceptions of investors can influence the company’s The perceptions of investors can influence the company’s
corporate strategy and the investment propositioncorporate strategy and the investment proposition The insights measure the level of understanding of the The insights measure the level of understanding of the
company, gauge sentiment and highlight the degree of supportcompany, gauge sentiment and highlight the degree of support The feedback shapes, amends and reinforces the company’s The feedback shapes, amends and reinforces the company’s
message to the marketmessage to the market The strategic findings of an annual investor perception study The strategic findings of an annual investor perception study
complement the tactical day-to-day feedback provided by complement the tactical day-to-day feedback provided by corporate brokerscorporate brokers
Listening and responding demonstrates awareness, Listening and responding demonstrates awareness, responsibility and good corporate governanceresponsibility and good corporate governance
Investor ProtectionInvestor Protection
Is the combination of efforts and activities to Is the combination of efforts and activities to observe safeguard and enforce the rights and observe safeguard and enforce the rights and claims of a person in his role as an investor. This claims of a person in his role as an investor. This includes advice and legal action. includes advice and legal action.
The assumption of a need of protection is based The assumption of a need of protection is based on the experience that financial investors are on the experience that financial investors are usually structurally inferior to providers of usually structurally inferior to providers of financial services and products due to lack of financial services and products due to lack of professional knowledge, information and/or professional knowledge, information and/or experience. experience.
All outside investors, whether large or small, All outside investors, whether large or small, shareholders or creditors need to have their shareholders or creditors need to have their rights protected. rights protected.
SEBI and Investor ProtectionSEBI and Investor Protection
Securities Exchange Board of India (SEBI) was Securities Exchange Board of India (SEBI) was established with the primary objective of protecting established with the primary objective of protecting the interest of the investors in the securities marketthe interest of the investors in the securities market
With this objective, SEBI issued the SEBI (Disclosure With this objective, SEBI issued the SEBI (Disclosure and Investor Protection) Guidelines, 2000. and Investor Protection) Guidelines, 2000.
SEBI can issue directions to all intermediaries and SEBI can issue directions to all intermediaries and other persons associated with the securities market other persons associated with the securities market in the interest of the investors or for orderly in the interest of the investors or for orderly development of the securities marketdevelopment of the securities market
SEBI has notified the SEBI (Investor Protection and SEBI has notified the SEBI (Investor Protection and Education Fund) Regulations, 2009 Education Fund) Regulations, 2009
SEBI Investor Protection and SEBI Investor Protection and Education FundEducation Fund
The fund shall be used for the following purposes:-The fund shall be used for the following purposes:- Educational activities including seminars, training, Educational activities including seminars, training,
research and publications, aimed at investorsresearch and publications, aimed at investors Awareness programmes through media - print, Awareness programmes through media - print,
electronic, aimed at investorselectronic, aimed at investors Funding investor education and awareness Funding investor education and awareness
activities of investor associations recognized by activities of investor associations recognized by the Boardthe Board
Aiding investor associations recognized by the Aiding investor associations recognized by the Board to undertake legal proceedings in the Board to undertake legal proceedings in the interest of investors in securities that are listed or interest of investors in securities that are listed or proposed to be listedproposed to be listed
Investor Grievance Investor Grievance Redressal MechanismRedressal Mechanism
SEBI and Stock Exchanges have set up investor SEBI and Stock Exchanges have set up investor grievance redressal cells for fast Redressal of grievance redressal cells for fast Redressal of investor complaints relating to securities marketsinvestor complaints relating to securities markets
SEBI has set up a mechanism for redressal of SEBI has set up a mechanism for redressal of investor grievances arising from the securities investor grievances arising from the securities marketmarket
SEBI provides “walk-in” service at its head office SEBI provides “walk-in” service at its head office at Mumbai and its regional offices at New Delhi, at Mumbai and its regional offices at New Delhi, Chennai, Kolkatta and Ahmedabad on all working Chennai, Kolkatta and Ahmedabad on all working days. Investors can meet the officials and get days. Investors can meet the officials and get guidance relating to the grievances that they may guidance relating to the grievances that they may have against issuers. Investors can also meet the have against issuers. Investors can also meet the higher officials of SEBI on specified working days.higher officials of SEBI on specified working days.
Investor Protection and Enhanced Investor Protection and Enhanced Corporate Governance u/Companies Corporate Governance u/Companies
Bill 2011Bill 2011 Protection for Minority Shareholders:Protection for Minority Shareholders:(a) Exit option to shareholders in case of dissent to (a) Exit option to shareholders in case of dissent to
change in object for which public issue was made.change in object for which public issue was made.(b) Specific disclosure regarding effect of merger on (b) Specific disclosure regarding effect of merger on
creditors, key managerial personnel, promoters creditors, key managerial personnel, promoters and non-promoter shareholders is being provided. and non-promoter shareholders is being provided. The Tribunal is being empowered to provide for The Tribunal is being empowered to provide for exit offer to dissenting shareholders in case of exit offer to dissenting shareholders in case of compromise or arrangement.compromise or arrangement.
(c) The Board may have a director representing (c) The Board may have a director representing small shareholders who may be elected in such small shareholders who may be elected in such manner as may be prescribed by rules.manner as may be prescribed by rules.
Contd…Contd…
Investor Protection:Investor Protection:(a) Acceptance of deposits from public subject to a (a) Acceptance of deposits from public subject to a
more stringent regime.more stringent regime.(b) Central Government to have power to prescribe (b) Central Government to have power to prescribe
class or classes of companies which shall not be class or classes of companies which shall not be permitted to allow use of proxies. The Bill also to permitted to allow use of proxies. The Bill also to have provisions to provide that a person shall have have provisions to provide that a person shall have proxies for such number of members /such shares as proxies for such number of members /such shares as may be prescribed.may be prescribed.
(c) Issue and transfer of securities and non-payment of (c) Issue and transfer of securities and non-payment of dividend by listed companies, has to be administered dividend by listed companies, has to be administered by SEBI by making regulations.(Clause 24) by SEBI by making regulations.(Clause 24)
Contd…Contd…
(d) An act of fraudulent inducement of persons to invest (d) An act of fraudulent inducement of persons to invest money is punishable with imprisonment for a term which money is punishable with imprisonment for a term which may extend to ten years and with fine which shall not be may extend to ten years and with fine which shall not be less than the amount involved in fraud, but which may less than the amount involved in fraud, but which may extend to three times the amount involved (Clause 36 & extend to three times the amount involved (Clause 36 & 447).447).
(e) Provisions for Class Action Suits revised to provide (e) Provisions for Class Action Suits revised to provide minimum number of persons who may apply for such minimum number of persons who may apply for such suits. Safeguards against misuse of these provisions also suits. Safeguards against misuse of these provisions also being included.being included.A suit may be filed by a person who is affected by any A suit may be filed by a person who is affected by any misleading statement or the inclusion or omission of any misleading statement or the inclusion or omission of any matter in the Prospectus or who has invested money by matter in the Prospectus or who has invested money by fraudulent inducement (Clause 37).fraudulent inducement (Clause 37).
Contd…Contd…
Enhanced Corporate GovernanceEnhanced Corporate Governance Powers have been given to Courts and Tribunals Powers have been given to Courts and Tribunals
to re-open accounts to re-open accounts Serious Fraud Investigation Office has been Serious Fraud Investigation Office has been
designated as the main investigating agency for designated as the main investigating agency for frauds relating to companies.frauds relating to companies.
Mandatory Internal audit for specific companiesMandatory Internal audit for specific companies Provides for provisions for better disclosure like Provides for provisions for better disclosure like
statement of compliances of all laws in board statement of compliances of all laws in board reports, more disclosures in financial statements reports, more disclosures in financial statements and includes associated companies and joint and includes associated companies and joint ventures in the ambit of consolidated accounts.ventures in the ambit of consolidated accounts.
Contd…Contd…
Mandates applicability of postal ballot for Mandates applicability of postal ballot for private companies, introduces auditing and private companies, introduces auditing and secretarial standards, envisages mandatory secretarial standards, envisages mandatory appointment of independent directors and appointment of independent directors and further mandates the requirement of quorum further mandates the requirement of quorum of a general meeting based on number of of a general meeting based on number of members in the company.members in the company.
Has introduced the concept of Class Action Has introduced the concept of Class Action Suits with an aim to strengthen the rights of Suits with an aim to strengthen the rights of minority stakeholders, , which are already well minority stakeholders, , which are already well established in countries like the UK and the US.established in countries like the UK and the US.
Non financial Non financial InformationInformation
Industry cohort measurements of Industry cohort measurements of performance linked to non-financial value performance linked to non-financial value indicatorsindicators
Industry cohort measurements is information Industry cohort measurements is information that contextualizes performance against that contextualizes performance against peers e.g market share, quality rankings, peers e.g market share, quality rankings, customer satisfaction survey data etccustomer satisfaction survey data etc
Corporate Governance InformationCorporate Governance Information Corporate Social Responsibility InformationCorporate Social Responsibility Information
Non Financial DisclosureNon Financial Disclosure
CARO ReportCARO Report Research & DevelopmentResearch & Development Fraud & CorruptionFraud & Corruption Strategic PlanStrategic Plan Indicators of economic performanceIndicators of economic performance Key relationship with employees, suppliers Key relationship with employees, suppliers Board of Directors ReportBoard of Directors Report Product InnovationProduct Innovation Corporate Governance ReportCorporate Governance Report Risk Management FrameworkRisk Management Framework Environment PolicyEnvironment Policy
Contd….Contd….
Compliance with LawsCompliance with Laws CSR (Corporate Social Responsibility) CSR (Corporate Social Responsibility)
ReportReport Strategic DecisionsStrategic Decisions Industry Perspective (National & Global)Industry Perspective (National & Global) Customer InformationCustomer Information Key Management PersonnelKey Management Personnel Human Resource Human Resource
Core Non financial DriversCore Non financial Drivers
Human Capital – Employees engagementHuman Capital – Employees engagement Customer Relation- customer satisfactionCustomer Relation- customer satisfaction Partnerships- Public perception, supply Partnerships- Public perception, supply
chain managementchain management Environment- Carbon emissions, waste Environment- Carbon emissions, waste
management, life cycle assessmentmanagement, life cycle assessment Innovation- Product/service developmentInnovation- Product/service development Corporate Governance- Ethical integrity , Corporate Governance- Ethical integrity ,
board compositionboard composition
Financial InformationFinancial Information
Record of the financial activities of a business, Record of the financial activities of a business, person, or other entity. person, or other entity.
Statement of Financial PositionStatement of Financial Position: also referred : also referred to as a balance sheet, reports on a to as a balance sheet, reports on a company's assets, liabilities, and ownership company's assets, liabilities, and ownership equity at a given point in time.equity at a given point in time.
Statement of Comprehensive IncomeStatement of Comprehensive Income: also : also referred to as Profit and Loss statement (or a referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, "P&L"), reports on a company's income, expenses, and profits over a period of time. A Profit & Loss and profits over a period of time. A Profit & Loss statement provides information on the operation of statement provides information on the operation of the enterprise. These include sale and the various the enterprise. These include sale and the various expenses incurred during the processing state.expenses incurred during the processing state.
Contd…Contd…
Statement of Changes in EquityStatement of Changes in Equity: explains : explains the changes of the company's equity the changes of the company's equity throughout the reporting periodthroughout the reporting period
Statement of cash flowsStatement of cash flows: reports on a : reports on a company's cash flow activities, particularly its company's cash flow activities, particularly its operating, investing and financing activities.operating, investing and financing activities.
Financial DriversFinancial Drivers
Reduced costsReduced costs Increased salesIncreased sales Increased cash flowIncreased cash flow Brand valueBrand value Risk ManagementRisk Management
Other InformationOther Information
This information is part of financial This information is part of financial statements. It provides detail information statements. It provides detail information on its nature, relation and type of activity.on its nature, relation and type of activity.
ExamplesExamples1.1. Management RemunerationManagement Remuneration2.2. Analytical RatiosAnalytical Ratios3.3. Research ExpensesResearch Expenses4.4. Certain other expensesCertain other expenses5.5. Notes to AccountsNotes to Accounts
GAAP ( Generally Accepted GAAP ( Generally Accepted Accounting Principles)Accounting Principles)
Collection of rules and procedures and conventions Collection of rules and procedures and conventions that define accepted accounting practice; includes that define accepted accounting practice; includes broad guidelines as well as detailed procedures broad guidelines as well as detailed procedures
Common set of accounting principles, standards Common set of accounting principles, standards and procedures that companies use to compile and procedures that companies use to compile their financial statements. GAAP are a combination their financial statements. GAAP are a combination of authoritative standards (set by policy boards) of authoritative standards (set by policy boards) and simply the commonly accepted ways of and simply the commonly accepted ways of recording and reporting accounting information.recording and reporting accounting information.
GAAP cover things such as revenue recognition, GAAP cover things such as revenue recognition, balance sheet item classification and outstanding balance sheet item classification and outstanding share measurements.share measurements.
Corporate GovernanceCorporate Governance
The principles of Governance have been in The principles of Governance have been in existence for centuries. existence for centuries.
History reveals that Kautilya also called History reveals that Kautilya also called Chanakya in 300 BC propounded principles Chanakya in 300 BC propounded principles of good governance. In his celebrated of good governance. In his celebrated treatise on statecraft “Arthashastra”, he treatise on statecraft “Arthashastra”, he provided principles of governance. He states provided principles of governance. He states the fourfold duty of a King as: Raksha the fourfold duty of a King as: Raksha (Protection), Vriddhi (Enhancement), Palana (Protection), Vriddhi (Enhancement), Palana (Maintenance). Yogakshema – (Safeguard)(Maintenance). Yogakshema – (Safeguard)
Contd…Contd…
These four principles can be elaborated in These four principles can be elaborated in the modern context as: the modern context as:
1. Protecting shareholders wealth; 1. Protecting shareholders wealth; 2. Enhancing the wealth through proper 2. Enhancing the wealth through proper
utilization of assets; utilization of assets; 3. Maintenance of that wealth and not frittering 3. Maintenance of that wealth and not frittering
away in unconnected and non profitable away in unconnected and non profitable ventures or through appropriation; and ventures or through appropriation; and
4. Safeguarding the interests of the 4. Safeguarding the interests of the shareholdersshareholders
Corporate Governance Corporate Governance ReportsReports
1992 Sir Adrian Cadbury Committee, 1992 Sir Adrian Cadbury Committee, UKUK
1994 Mervyn E . King’s Committee , 1994 Mervyn E . King’s Committee , South AfricaSouth Africa
1995 Greenbury Committee , UK1995 Greenbury Committee , UK 1998 Hampel Committee, UK1998 Hampel Committee, UK 1999 Blue Ribbon Committee, US1999 Blue Ribbon Committee, US
Contd..Contd..
1999 OECD -Organization for Economic 1999 OECD -Organization for Economic Co-operation and development - Principles Co-operation and development - Principles of Corporate Governanceof Corporate Governance
1999 CACG - Common Wealth Association 1999 CACG - Common Wealth Association for Corporate Governance - Principles for for Corporate Governance - Principles for Corporate Governance in CommonwealthCorporate Governance in Commonwealth
2003 Derek Higgs Committee, UK2003 Derek Higgs Committee, UK 2003 ASX Corporate Governance Council, 2003 ASX Corporate Governance Council,
AustraliaAustralia
Committees in India Committees in India
1998 1998 CII Code on corporate CII Code on corporate governance (Desirable Corporate governance (Desirable Corporate Governance: A Code) Governance: A Code)
1999 1999 Kumar Mangalam Birla Kumar Mangalam Birla CommitteeCommittee
20022002 Naresh Chandra Committee Naresh Chandra Committee 2003 2003 Shri N. R. Narayana Murthy Shri N. R. Narayana Murthy
CommitteeCommitteerajkumarfca-rajkumarfca-
Laws governing Corporate Laws governing Corporate Governance in India Governance in India
Some aspects of corporate governance have Some aspects of corporate governance have been enshrined in the law that is been enshrined in the law that is administered by the Ministry of Corporate administered by the Ministry of Corporate Affairs, Securities and Exchange Board of Affairs, Securities and Exchange Board of India (SEBI) and other sectoral regulators. India (SEBI) and other sectoral regulators.
However, a transparent, ethical and However, a transparent, ethical and responsible corporate governance responsible corporate governance framework essentially emanates from the framework essentially emanates from the intrinsic will and passion for good intrinsic will and passion for good governance ingrained in the business entity.governance ingrained in the business entity.
Contd…Contd…
The Companies Act, 1956 covers corporate governance The Companies Act, 1956 covers corporate governance widely through its various provisions such as inclusion of widely through its various provisions such as inclusion of directors' responsibility statement in the directors' report directors' responsibility statement in the directors' report under Section 217(2AA), constitution of audit committee under Section 217(2AA), constitution of audit committee under Section 292A fixing maximum ceiling on under Section 292A fixing maximum ceiling on remuneration that can be drawn by a director under remuneration that can be drawn by a director under Schedule XIII, and those relating to oppression, Schedule XIII, and those relating to oppression, mismanagement, etc. mismanagement, etc.
Further, environmental and other pieces of legislation also Further, environmental and other pieces of legislation also protect different stakeholders' interest, ensuring, in the protect different stakeholders' interest, ensuring, in the process, good corporate governance.process, good corporate governance.
The Listing Agreement and Clause 49 of Listing The Listing Agreement and Clause 49 of Listing Agreement deals with Corporate Governance norms that a Agreement deals with Corporate Governance norms that a listed entity should follow.listed entity should follow.
Clause 49 of The Listing Clause 49 of The Listing AgreementAgreement
The Listing agreement contains 51 clauses and is The Listing agreement contains 51 clauses and is identical for all Indian stock exchanges. identical for all Indian stock exchanges.
The penal provisions for non compliance of the The penal provisions for non compliance of the conditions of the Listing Agreement are governed conditions of the Listing Agreement are governed by Sec 23(2) and Sec 23E of the Securities by Sec 23(2) and Sec 23E of the Securities Contracts (Regulation) Act 1956Contracts (Regulation) Act 1956
The Securities and Exchange Board of India (SEBI) The Securities and Exchange Board of India (SEBI) monitors and regulates corporate governance of monitors and regulates corporate governance of listed companies in India through Clause 49 of listed companies in India through Clause 49 of the Listing Agreement. the Listing Agreement.
This clause deals with Corporate Governance This clause deals with Corporate Governance norms that a listed entity should follownorms that a listed entity should follow
Contd…Contd…
Clause 49 was first introduced in the financial year Clause 49 was first introduced in the financial year 2000-01 to the Listing Agreement consequent to 2000-01 to the Listing Agreement consequent to the recommendations of the Kumarmangalam Birla the recommendations of the Kumarmangalam Birla Committee on Corporate Governance constituted by Committee on Corporate Governance constituted by the Securities Exchange Board of India (SEBI) in the Securities Exchange Board of India (SEBI) in 1999.1999.
Based on the recommendations of Narayana Murthy Based on the recommendations of Narayana Murthy Committee constituted by SEBI in 2002 to assess Committee constituted by SEBI in 2002 to assess the adequacy of current corporate governance the adequacy of current corporate governance practices and to suggest improvements, a modified practices and to suggest improvements, a modified Clause 49 was issued on October 29, 2004 which Clause 49 was issued on October 29, 2004 which came into operation on January 1, 2006. came into operation on January 1, 2006.
Clause 49 and Investor Clause 49 and Investor PerceptionPerception
According to FICCI-Grant Thornton “Corporate According to FICCI-Grant Thornton “Corporate Governance review of the mid-market listed companies Governance review of the mid-market listed companies in India” 2010-2011 reveals:in India” 2010-2011 reveals:
84% of the companies feel compliance to Clause 49 84% of the companies feel compliance to Clause 49 and the quality of disclosures have improved the and the quality of disclosures have improved the investors’ perception about theminvestors’ perception about them
24% respondents complied even with the non-24% respondents complied even with the non-mandatory provisions of Clause 49. This is a key mandatory provisions of Clause 49. This is a key positive trend and a significant indicator of positive trend and a significant indicator of developments to come as compliance to non-developments to come as compliance to non-mandatory provisions not only helps in better corporate mandatory provisions not only helps in better corporate governance but makes adoption of these standards governance but makes adoption of these standards easier as and when they get regulatory back up.easier as and when they get regulatory back up.
Contd…Contd…
90% investors agreed to the importance of 90% investors agreed to the importance of corporate governance while making an corporate governance while making an investment decision.investment decision.
78% of the investors said corporate governance 78% of the investors said corporate governance related issues were as important as financial related issues were as important as financial ratios while considering a potential investmentratios while considering a potential investment
89% of the investors felt that quality of 89% of the investors felt that quality of information provided by companies was of information provided by companies was of reasonably good quality and was relied upon by reasonably good quality and was relied upon by them in making decisions about their investmentsthem in making decisions about their investments
Meaning of Corporate Meaning of Corporate GovernanceGovernance
Corporate Governance is a broad concept and has Corporate Governance is a broad concept and has been defined and understood differently by different been defined and understood differently by different groups and at different points of time. groups and at different points of time.
The Cadbury Committee - “the system by which The Cadbury Committee - “the system by which companies are directed and controlled”. It is generally companies are directed and controlled”. It is generally understood as the framework of rules, relationships, understood as the framework of rules, relationships, systems and processes within and by which authority systems and processes within and by which authority is exercised and controlled in corporations.”is exercised and controlled in corporations.”
The Kumar Mangalam Birla Committee report - “…The Kumar Mangalam Birla Committee report - “…fundamental objective of corporate governance is the fundamental objective of corporate governance is the ‘enhancement of the long-term shareholder value ‘enhancement of the long-term shareholder value while at the same time protecting the interests of while at the same time protecting the interests of other stakeholders.”other stakeholders.”
Need for good Corporate Need for good Corporate GovernanceGovernance
It lays down the framework for creating long-term It lays down the framework for creating long-term trust between companies and the external providers trust between companies and the external providers of capital of capital
It improves strategic thinking at the top by inducting It improves strategic thinking at the top by inducting independent directors who bring a wealth of independent directors who bring a wealth of experience, and a host of new ideas experience, and a host of new ideas
It rationalizes the management and monitoring of risk It rationalizes the management and monitoring of risk that a firm faces globally that a firm faces globally
It limits the liability of top management and directors, It limits the liability of top management and directors, by carefully articulating the decision making process by carefully articulating the decision making process
It has long term reputational effects among key It has long term reputational effects among key stakeholders, stakeholders,
Principles of Corporate Principles of Corporate GovernanceGovernance
Ethical and disciplined corporate behavior Ethical and disciplined corporate behavior Independent and considered judgment Independent and considered judgment Parity between accountability and responsibility Parity between accountability and responsibility Transparency and effective and adequate Transparency and effective and adequate
disclosures. disclosures. Success of a good governance culture depends Success of a good governance culture depends
upon the perpetual existence and effective and, upon the perpetual existence and effective and, most important, ethical interplay of these planks most important, ethical interplay of these planks not only by themselves, but also with other not only by themselves, but also with other variables in the social and economic environment variables in the social and economic environment (i.e., the stakeholders) of the company(i.e., the stakeholders) of the company
Corporate Social Corporate Social Responsibility (CSR)Responsibility (CSR)
CSR - corporate initiative to assess CSR - corporate initiative to assess and take responsibility for the and take responsibility for the company's effects on the company's effects on the environment and impact on social environment and impact on social welfarewelfare
The three pillars of CSR are The three pillars of CSR are environment, environment, society and society and commercecommerce
CSR in IndiaCSR in India
CSR is still voluntary and it is not mandatory in India.CSR is still voluntary and it is not mandatory in India. The Ministry of Corporate Affairs has issued The The Ministry of Corporate Affairs has issued The
National Voluntary Guidelines on Social, Environmental National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011 in this and Economic Responsibilities of Business, 2011 in this regard. regard.
These guidelines are a refinement over the Corporate These guidelines are a refinement over the Corporate Social Responsibility Voluntary Guidelines 2009, Social Responsibility Voluntary Guidelines 2009, released by the Ministry of Corporate Affairs in released by the Ministry of Corporate Affairs in December 2009. Keeping in view the feedback from December 2009. Keeping in view the feedback from stakeholders, it was decided to revise the same with a stakeholders, it was decided to revise the same with a more comprehensive set of guidelines that more comprehensive set of guidelines that encompasses social, environmental and economical encompasses social, environmental and economical responsibilities of business.responsibilities of business.
CSR u/Companies Bill 2011CSR u/Companies Bill 2011
Clause 135 of the Companies Bill 2011Clause 135 of the Companies Bill 2011 Every company having net worth of Rs. 500 crore or Every company having net worth of Rs. 500 crore or
more, or turnover of Rs. 1000 crore or more or a net more, or turnover of Rs. 1000 crore or more or a net profit of Rs. 5 crore or more during any financial year profit of Rs. 5 crore or more during any financial year shall constitute a Corporate Social Responsibility shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more Committee of the Board consisting of three or more directors, out of which at least one director shall be an directors, out of which at least one director shall be an independent director. independent director.
2% of average net profits of the previous three years 2% of average net profits of the previous three years will have to be spent on corporate social responsibility will have to be spent on corporate social responsibility activities with disclosure to shareholders about the activities with disclosure to shareholders about the policy adopted in the process, giving reasons on policy adopted in the process, giving reasons on failure of implementation failure of implementation
Contd….Contd….
The Corporate Social Responsibility Committee The Corporate Social Responsibility Committee shall formulate and recommend to the Board, a shall formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the indicate the activities to be undertaken by the company as specified in Schedule VII (b) company as specified in Schedule VII (b) recommend the amount of expenditure to be recommend the amount of expenditure to be incurred on the activities referred to in clause (a)incurred on the activities referred to in clause (a)
If the company fails to spend the specified If the company fails to spend the specified amount on corporate social responsibility amount on corporate social responsibility activities, the Board shall, in its report made activities, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amountspecify the reasons for not spending the amount
CSR and the Climate CSR and the Climate Change MechanismChange Mechanism
Public awareness of the threat of climate change has Public awareness of the threat of climate change has risen sharply in the last couple of years and an risen sharply in the last couple of years and an increasing number of businesses, organizations and increasing number of businesses, organizations and individuals are looking to minimize their impact on the individuals are looking to minimize their impact on the climate. climate.
Various National and International treaties for mitigation Various National and International treaties for mitigation of climate changeof climate change
The United Nations Framework Convention on Climate The United Nations Framework Convention on Climate Change (UNFCCC) - International environmental treaty Change (UNFCCC) - International environmental treaty
The Kyoto Protocol - International and legally binding The Kyoto Protocol - International and legally binding agreement. An addition to the UNFCCC treaty. agreement. An addition to the UNFCCC treaty.
The Ministry of Environment and Forests is the nodal The Ministry of Environment and Forests is the nodal agency for climate change issues in India.agency for climate change issues in India.
Sustainable DevelopmentSustainable Development
Sustainable development is a pattern of resource use that aims Sustainable development is a pattern of resource use that aims to meet human needs while preserving the environment so that to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for these needs can be met not only in the present, but also for future generations.future generations.
Principles of Sustainable Development:Principles of Sustainable Development: Concern for the well-being of future generations; Concern for the well-being of future generations; Awareness of the multi-dimensional impacts of any decision Awareness of the multi-dimensional impacts of any decision
(broadly categorized as economic, environmental, social); (broadly categorized as economic, environmental, social); and, and,
The need for balance among the different dimensions across The need for balance among the different dimensions across sectors (e.g. mining, manufacturing, transportation), themes sectors (e.g. mining, manufacturing, transportation), themes (climate change, community cohesion, natural resource (climate change, community cohesion, natural resource management) and scale (local, regional, national, management) and scale (local, regional, national, international). international).
Sustainability ReportingSustainability Reporting
No single, universally accepted definition of No single, universally accepted definition of Sustainability Reporting.Sustainability Reporting.
It is the practice of measuring, disclosing, and It is the practice of measuring, disclosing, and being accountable to internal and external being accountable to internal and external stakeholders for organizational performance stakeholders for organizational performance towards the goal of sustainable development.towards the goal of sustainable development.
Used to describe reporting on economic, Used to describe reporting on economic, environmental, and social impactsenvironmental, and social impacts
A sustainability report should provide a balanced A sustainability report should provide a balanced and reasonable representation of the and reasonable representation of the sustainability performance of a reporting sustainability performance of a reporting organization – including both positive and organization – including both positive and negative contributions.negative contributions.
Dimensions of Sustainability Dimensions of Sustainability ReportingReporting
Sustainability has three important Sustainability has three important dimensions for all organizations: dimensions for all organizations: (a) economic viability, (a) economic viability, (b) social responsibility, and (b) social responsibility, and (c) environmental responsibility(c) environmental responsibility
A Sustainability Report discloses A Sustainability Report discloses information on the company’s information on the company’s activities across the above 3 activities across the above 3 dimensionsdimensions
The Global Reporting Initiative The Global Reporting Initiative (GRI)(GRI)
It is network-based organization that has It is network-based organization that has pioneered the development of the world’s pioneered the development of the world’s most widely used sustainability reporting most widely used sustainability reporting framework. framework.
The reporting framework is developed through The reporting framework is developed through a consensus-seeking process with participants a consensus-seeking process with participants drawn globally from business, civil society, drawn globally from business, civil society, labor, and professional institutions. labor, and professional institutions.
To help improve sustainability reporting, many To help improve sustainability reporting, many organizations have turned to the Global organizations have turned to the Global Reporting Initiative (GRI) as the quasi-standard Reporting Initiative (GRI) as the quasi-standard setter for sustainability reporting. setter for sustainability reporting.
GRI Sustainability Reporting GRI Sustainability Reporting FrameworkFramework
GRI’s Framework consists of the GRI’s Framework consists of the Sustainability Reporting Guidelines, Sector Sustainability Reporting Guidelines, Sector Supplements, National Annexes, and the Supplements, National Annexes, and the Boundary and Technical Protocols.Boundary and Technical Protocols.
The Sustainability Reporting Guidelines are The Sustainability Reporting Guidelines are the foundation of GRI’s Framework. They the foundation of GRI’s Framework. They feature sustainability disclosures that feature sustainability disclosures that organizations can adopt flexibly and organizations can adopt flexibly and incrementally, enabling them to be incrementally, enabling them to be transparent about their performance in key transparent about their performance in key sustainability areas.sustainability areas.
Contd….Contd….
The G3.1 Sustainability Reporting Guidelines are The G3.1 Sustainability Reporting Guidelines are the latest and most complete version. Launched in the latest and most complete version. Launched in 2011, G3.1 completes the content of the G3 2011, G3.1 completes the content of the G3 Guidelines released in 2006. Guidelines released in 2006.
G3.1 features expanded guidance on local G3.1 features expanded guidance on local community impacts, human rights and gender. community impacts, human rights and gender. While G3-based reports are still accepted, GRI While G3-based reports are still accepted, GRI recommends that reporters use G3.1, the most recommends that reporters use G3.1, the most comprehensive reporting guidance available today. comprehensive reporting guidance available today.
The fourth generation of Guidelines – G4 – are The fourth generation of Guidelines – G4 – are currently in development and will be launched in currently in development and will be launched in May 2013.May 2013.
Important WebsitesImportant Websites
For Investor Complaints:For Investor Complaints: Ministry of Corporate AffairsMinistry of Corporate Affairs
http://mca.gov.in/MCA21/http://mca.gov.in/MCA21/
Securities and Exchange Board of India Securities and Exchange Board of India
http://investor.sebi.gov.in/complaintshttp://investor.sebi.gov.in/complaints%20form/lodge%20index.htm%20form/lodge%20index.htm
Important WebsitesImportant Websites
For Investor InformationFor Investor Information http://www.watchoutinvestors.com/http://www.watchoutinvestors.com/
default2a.aspdefault2a.aspPublic service website sponsored and Public service website sponsored and aided by Investor Education and Protection aided by Investor Education and Protection Fund (IEPF). Fund (IEPF).
Investor Education and Protection FundInvestor Education and Protection Fundhttp://iepf.gov.in/default.asphttp://iepf.gov.in/default.asp
SEBISEBIhttp://investor.sebi.gov.in/http://investor.sebi.gov.in/
Contd…Contd…
Investor HelplineInvestor Helplinehttp://www.investorhelpline.in/ih/indehttp://www.investorhelpline.in/ih/index.aspxx.aspx
Portal for Public GrievancesPortal for Public Grievanceshttp://pgportal.gov.in/http://pgportal.gov.in/
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