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CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY •A Corporation is a mechanism established to allow different parties to contribute towards working of a business entity, like – -Investors / share holders who control funds, but not responsible for running the co -Mgt who run the co but do not control funds - Employees who produce goods & services, but do not control funds & mgt •To protect the interest of above 3 groups especially Investors Board of Directors are elected for corporate governance. It has authority & responsibility to frame basic corporate policies & insure implementation & control •Thus corporate governance refers to relationship between Directors, Management & Investors in determining the direction & performance of the corporation •Over the last 2 decades after the opening of the economy, an overall spurt in Business Growth, share holders & other investors have seriously questioned efficient governance by the Board due to lack of involvement, knowledge & professionalism in providing guidance & control to top management towards healthy growth of business •Role & Responsibility of Board -Setting Corporate Strategies & thru’ this Vision, Mission & Direction of business -Organization structure at the top & appointment / removal of top management -Supervising & monitoring progress of the co by guiding top management

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•Review & approve, use of major resources like land building, plant & machinery, technology, areas of business & their future growth, management of money & manpower (5 M’s) In true sense the board is supposed to direct the affairs of the co, but not to manage them Role of Board in Strategic Management •Monitoring profitability & growth, both by keeping an eye on important developments inside & outside the co. important inside factors are profitability, productivity, quality & working environments, where is outside factors are overall economic environment, competition, growth & diversification & marketing strategy •Evaluate & influence - evaluate performance & set direction for future growth, do periodic SWOT analysis & convert weaknesses into strengths as a on going philosophy Only pro active Boards perform this function effectively •Initiate & innovate – this is one of the most important strategic steps & thru’ this the Board develops Vision & Mission to attain leadership / prominent place in Industry, eg Reliance, Infosys, Tata’s, UB group Study of 500 firms indicate that – -40% only work as rubber stamps ( no involvement ) -30% only rectify what management does (minimum involvement ) -30% work actively with top management to set Strategic direction (active involvement )

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Trends in Corporate governance In view of competitive & Global environment, Corporate Boards are becoming more active in shaping the performance of the co. Recent trends in this direction are as under – -In addition to share holders / family reps Boards have professional to guide & shape future growth of co - Institutions like banks, FI’s are putting their nominees on the Board to ensure proper working - Top management Directors are being offered stock options as compensation to increase their involvement - Expert committee’s are set up to regularly evaluate important performance parameters like Finance, Growth & diversification, mergers & acquisitions, Training & Development & efficacy of HRM - Another important criteria which has been added in recent years is fulfilment of Social responsibilities, like environmental protection, employee welfare, social obligations towards society, like education, health, housing or adopting an other social cause as a corporate responsibility, like adopting a town or a village for

Role of top management in Corporate Governance -to accomplish corporate objectives with the help of functional teams in line with Mission, Vision & Values -Provide leadership to convey strategic vision to employees in the co – John Welch in GE, Bill Gates in Microsoft, John Chambers in CISCO, Narayan Murti in Infosys, Prem ji Azmi in Wipro, Ambani’s in Reliance, Naval Tata in TELCO & TISCO & so on -Set & achieve high standards of performance management thru’ *Act as a role model *Establish systems of high performance standards by adopting management techniques like MBO, KRA’s, employee participation & empowerment, *Performance related compensation system *Upgradation of skills thru’ Training & Development Social Responsibilities of Corporate -In recent years Corporates are being looked upon as a part of larger social systems of the society rather than a mere profit making entity for its share holders. This philosophy is being recognized by Corporates as well as Democratic Political system, as an important factor in macro economic system at National level & is gaining social importance day by day -Keeping global practices in mind, social responsibility has been divided in the following 4 segments 4

-Economic

which corporate must do

-Legal

which Corporate has to do

-Ethical

which Corporate should do

-Discretionary

which Corporate may do

Economic responsibilities are to produce goods & services of value to society so that Corporate looks after the interest of share holders/ stock holders – this is primary role & must be performed efficiently, other wise Business activity would perish Legal responsibility obey all statutory laws like taxes, health & safety regulations, Labor & Industrial Laws (Wages, salary, PF, ESI, Employment Laws etc) Ethical should not do illegal activities & other social mal practices, no discrimination against religion, sex etc, other work ethics as per social norms Discretionary social welfare activities like hospitals, schools, housing & other developmental projects, such activities are voluntary. Activity 1 & 2 are obligatory, but 3 & 4 are social responsibilities. Firms which shoulder more & more social responsibilities have high respect & acceptance in Public. Social subjects which are gaining importance these days are as follows* Pollution of environments, especially air &water * Global warming *Energy conservation

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*Waste management *Water conservation & management *Education & health care *Payment of min wages in all sectors of society Social responsibilities of corporate toward their business associates Stock holders – good financial returns, growth, compliance of all legal requirements Creditors – payment of dues as per contractual obligation Employees – economic, social & psychological satisfaction, fair & just treatment, opportunity for learning, growth & progress Customer- satisfaction regarding price, quality, service & spares Suppliers – professional & fair relationship, especially payments & technical backup Govt – adherence to statutory laws Employee Unions – recognition as per law, good IR relations as partners of business Competitors – healthy adherence to trade & industry norms, no under hand practices Community Work – adherence to safety regulations, pollution & waste disposal Public – participation in public causes conformity to local laws, no public inconvenience

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