CHP 4 Disaster Management – Perspectives and Issues

Disaster management
 Concept

The Webster dictionary defines a disaster as “ a grave occurrence having ruinous results”. The
world health organisation defines disaster as “any event concentrated in time and space in
which a society or a relatively self sufficient sub division of a society , undergoes severe
danger and incurs such losses to its member and physical appurtenances that the social
structure is disrupted and the fulfilment of all or some of the essential functions of the
society is prevented”

Disaster can be classified into 2 groups – manmade disaster and natural disasters:

a) Manmade disaster: Include vechicles related accident , forest fires, wars and civil
disturbance , ecological disaster due to deforestation , air , water ans soil pollution , industrial
accident such as gas leaks and fires, etc

b) Natural disaster : which include

 Wind related such as storms , cyclones , Tsunami , hurricanes , tidal waves , etc.
 Water related such as floods and droughts.
 Land related – earthquakes , avalanches , landslides , volcanic eruption , etc.

 Problems/ Challenges of Disaster Management

In the past 2 decades , India public policy on disaster management has shifted from a focus on
relief and rehabilitation efforts to holistic management of disaster. This new policy approach
incorporates pre –disaster issues of prevention , mitigation and preparedness , as well as post –
disaster issues of response , recovery and reconstruction.
Some of the following of disaster management in India are as follows:

1)Challenges of Training: Training programme has to be practical oriented with emphasis on

different scenarios and problem solving exercises. This makes the functionaries aware of the
specific responsibilities , and to discharge the task effective before, during and after the disaster.
The specialised trainers can provide training to a group of community trainers, who in turn can
provide training to the local volunteers.
Good efforts are made by central and state government to impart training to specific groups on
disaster management . However, the effectiveness of trainers is one of the major challenges in
India and several other countries , especially in developing countries.

2) Challenges of Creating awareness and Education :While training is directed to specific

groups according to their training needs, awareness creation is more general in nature and
sensitizes common masses. Electronic , print , and local media can be used to create awareness

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among the masses especially in disaster prone areas. Disaster education is more formalised
curriculum within the education system at various levels. Engineering and architectural courses
can include modules on disaster resistant housing and infrastructure. The disaster management
curriculum has been introduced in schools and colleges in several countries including India . But
the greatest challenge is its effective implementation. The government authorities , NGO’sand
other are making good efforts in this direction. One positive long term outcome of the 2004
tsunami that ravaged parts of India was heightened awareness of disaster preparedness and
mitigation.

3) Challenge of unsafe building practices: Unsafe building practices in rapidly growing urban
settlement constitute one of India greatest challenges for disaster management. A major
earthquake in any of India’s densely and heavily populated cities in seismic zones would be
catastrophic in term of loss of lives and destruction of property. The central and state government
should take frame stringent laws and take strict action on defaulting builders and contractors for
poor quality of building constructions. For instance, those contractors responsible for collapsed
buildings need to be arrested and prosecuted. Government has responsibility to prevent disaster
by doing the needful on time. There is no need to wait till a building collapse when such
buildings could be pulled down once a structural defect is noticed. The public on their part must
be law abiding and should pay adequate attention to safety regulation.

4) Challenge of climate change: Climate change has far-reaching implication for managing
disaster risk in indias , as the frequency and intensity of flash floods, landslide, drought , cyclones
and storm surges are expected to increase in upcoming decade. While significant achievement
have been made in post disaster response and reconstruction , there are still formidable challenges
to reducing the risk of future disaster.

5) Challenges of regional cooperation: Generally , disaster take place within a particular state or
a group of states given that natural disaster do not always follow national; boundaries , cross
boundary issues of disaster management should be addressed through enhanced regional co
operation. Furthermore, an effective regional response system should be developed to pool
capacity for mutual benefits.

6) Challenge during the rescue Phase: The most immediate need during the destructive event
and in its immediate aftermath is to rescue those who can be saved . for instance , during a
tsunami some volunteers may reach out and provide assistance to other in need. The task force ,
specifically deployed at the affected area may have to provide first aid to the victims, and also
provide emotional support.

7)Challenge of Recovery and reconstruction: Among things, the government authorities need to
identify and exchange information about displaced survivors. It is a big challenge to restore vital
service such as electricity , drinking water, communication . etc. Also there is a need to

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reconstruct infrastructure for livelihood and social institution like schools , religious places,
hospital, etc. The reconstruction efforts may take several months or even years.

8) Challenge of unplanned development: In several parts of india , unplanned development

goes unchecked. Unplanned development is a growing environmental concern , which can cause
and aggravate disaster situation. Rescue and relief operation get hampered on account of
unplanned development. In june 2013 , disaster struck Uttarakhand due to heavy rainfall that
caused flooding. Thousands of lives were lost and there was heavy destruction of infrastructure.
The disaster in Uttarakhand was also a result of indiscriminate , unchecked development. Expert
sat that the disaster was expected as dozens of dams and hundreds of kilometre of diverted river
flows in the area. Despite a ban since 2002n on building within 100 meter of a river , construction
along river banks continued to take place. Ironically , the road that were built ignoring
environmental concern are now been washed away. This disaster has been caused by unplanned
development. It is a result of mindless misuse of the state natural resource. She also demanded
that the valley where the ganga , Bhagirathi and allaknanda rivers flow should be declared an eco
sensitive zone.

9) Challenge for nuclear power plants: There are challenges for nuclear power plants to
improve security against disaster. There are often protest by locals protesting the safety concerns
of such plants. The protest were triggered on account of the meltdown of fukushima daiichi power
plant of japan in march 2011.The nuclear fuel at the stricken fukushima Daiichi power plant
began melting just a few hours after the intial earthquake. On may 1oth 2013 , Prime minister of
japan mr Kan announced the Japan is Abandoming its plan to build 14 new nuclear reactors by
2030. Additionally , Chancellor Angela Merkel of Germany temporarily closed seven nuclear
plants built before 1980.

10) Challenge of damage assessments: Damage assessments at the post disaster stage is usually
conducted by ateam of experts. The damage assessment is required of assess the economic losses
such as damage to crops , infrastructure , livestock’s and so on . At times, certain affected person
in disaster affected areas give a faulty of exact damage to their property or asset. Even relief and
compensation distribution is a big challenge to government authorities.

Disaster Management Strategies

 Disaster Prevention Strategies

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Prevention involves all those activities that are requires to prevent the disaster or prevent the
gravity of loss, if the disaster occurs the prevention phase involves active participation of all
groups of the society- Government, non- government organization and other institutions.

The following are the different Strategies of the prevention phase:

1. The State Disaster Management Action Plan:

DMAP has been prepared for its operationalisation by various department and agencies of the
Government of Maharashtra and other Non- Government Agencies expected to participate in
disaster management. This plan provides for intuitional arrangements, roles and responsibilities of
the various agencies, interlinks in disaster management and the scope of their activities. An
elaborate inventory of resources has also been formalized.
The purpose of this plan is to evolve a system to-
 Assess the status of existing resources and facilities available with the various departments
and agencies involved in disaster management in the state.
 Asses their adequacies in dealing with a disaster
 Make the state DMAP an effective response mechanism as well as a policy and planning
tool.
The state DMSP specifically focuses on the role of various governmental departments and
agencies like the Emergency Operations Centre in case of any of the above mentioned disasters.
This plan concentrates primarily on the response strategy.

2. Disaster Warning:
The disaster management authorities need to plan for early warning of impending disaster and its
effect. For instance, storm or hurricane warning provide advance notice to citizens thereby, giving
them time to protect property, safeguard family members and move to safer places.
A warning system is essential to indicate the onset of a disaster. This may range from alarms (e.g.
for fires) and sirens (e.g. for industrials accidents) to public announcement through radio,
television etc. and other traditional modes of communication (e.g. beating of drums, ringing of
bells, hoisting of flags).

Important Elements of Warning:

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 Communities in disaster prone areas are made aware of the warning systems.
 Alternate warning systems must be kept in readiness in case of technical failures (such as
power failure)
 All available warning system should be used.
 The warning should, to the extent possible be clear about the severity, the duration and the
areas that may be affected.
 Warning should be conveyed in a simple, direct and non technical language to incorporate
day to day usage patterns.
 The dos and don’ts should be clearly communicated to the community to ensure appropriate
responses.
 Warning statement should not evoke curiosity or panic behavior. This should be in a
professional language devoid of emotions.
 Spread of rumors should be controlled.
 All relevant agencies and organizations should be alerted.
 Whenever possible, assistance of community leaders and organized groups should be sought
in explaining the threat.
 In the event of a disaster threat receding, an all-clear signal must be given.

3. Education and Training:

There is a need to educate the various sections of the society on disaster management.
Involvement of educational the training institutions, corporate sectors and non- government
organizations in order to generate knowledge on disaster management by conducting various
training and awareness programmes are long term key factor for the prevention and preparedness
relating to disaster management.

 Strategies to cope with disasters

The strategies for coping with disaster are explained from individuals affected by the disaster. An
individual may be able to cope up with the disaster with the help of the following strategies.

1. Physical Coping Strategies:

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A natural disaster can deplete affected persons physically. By taking care of oneself physically,
one may increase the extent to which one can cope with the stress and other effects of a natural
disaster.

 Rest: One needs to get adequate rest to over the problem of stress arising on account of a
disaster. Adequate rest is the foundation of stress management. One needs to establish a routine
and get to bad at a reasonable hour.

 Exercise: One needs to exercise to overcome the problem of stress. Exercise can be done
either early in the morning or in the evening. One may consult a doctor before starting any
exercise routine.

 Eat: One needs to eat a well- balanced diet and at regular intervals, especially when
adequate food is available. At times, after a natural disaster, there may be shortage of food and
whatever food is available may not be adequate.

 Relax: Whenever possible, schedule extra time for relaxing. Choose the activities that one
enjoys or that one find relaxing. The relaxing activities may include – reading, listening to music,
gardening, paining,-whatever one likes to do.

 Avoid alcohol and drugs: One should avoid overdose of alcohol as a means to cope up with
stress arising out of disaster. Also, one should not indulge in drugs, unless a doctor prescribes
certain medicines to deal with the stress or trauma.

2. Mental Coping Strategies:

 Get the facts: One should get information about the effects of the disaster from reliable
sources, than relying on the rumor mill to provide information. Also, relevant information must be
obtained from authentic sources regarding the venue, the dates and timings of relief distribution
by Government and NGOs.

 Prepare a Schedule: Try to establish. Set regular times for meals, waking up in the morning,
or taking with family and friends. A natural disaster can greatly disrupt your regular schedule,
increasing the extent to which your life feels chaotic and out of control. Coming up with a daily,
structured can help you establish a sense of predictability and control.

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 Develop an action plan: One needs to decide who’s going to do what and when. Also, one
needs to assess one’s financial alleviate stress relating to financial concerns. A proper plan may
enable a person to make progress in overcoming the problems arising out of disaster.

 Focus on your strengths: One needs to focus on one’s strengths to cope up with the effects of
disaster. One can make self statement such as “I can handle this crisis”. One needs to be mentally
strong to handle the situation and also to help other in the area to cope up with the post traumatic
stress disorder.

 Reply on your spirituality: Turn the problem over to your spiritual power for guidance and
strength. It is a known fact that the human spirit is very strong. One may read inspirational
writings that make us confident to manage one’s life.

3. Emotional Coping Strategies:

 Connect with social support: Getting social support from others can be a major factor in
helping people overcome the negative effects of a traumatic event and post traumatic stress
disorder (PTSD). Identify local support groups or available counselors may be brought with the
impact of a natural disaster. Take advantage of these opportunities.

 Release emotion and tension: Brainstorm your problem solving ideas with your loved ones,
relatives, neighbours and friends to get their input and ideas. One needs to talk about the disasters
effects or problems so to release emotions and tension.

 Spend time with friends and family: One needs to spend time in enjoyable activities with
friends and family members. This may involve some videos, storytelling or listening, playing
some games, preferably indoor games and so on.

 Recognize anger as a secondary emotion: Anger is often a surface emotion that covers up a
deeper emotion, such as fear, hurt, or feeling of powerlessness. When one finds self with a feeling

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of anger, search for the deeper emotion, and work with it instead. Write about it and talk about it
with others who care and trust you.

 Do not take your anger on relatives and friends: One needs to avoid spilling one’s anger on
relatives and friends. It would be difficult for them to be emotionally supportive, if their feelings
are affected by you. Get cooperative and support from your relative and friends to overcome the
feeling of anger rather than attacking them by spilling one’s anger on to them.

 Disaster Preparedness Measures

Individuals, families, businesses, religious and community groups, non-profit groups, schools and
academia, media organizations, and all levels of governments must take an active role in
preparedness efforts. A disaster can affect the whole community, so everyone must be ready, by
making a plan, being informed and taking action to mitigate the affects of future disasters.
At the Village/Local Level
At the village level, the Gram Panchayat can play an important role in disaster preparedness:
1. Preparedness Action Plan:
Before the onset of a disaster such as a cyclone or flood, Gram Panchayat (committee) members
need to be made in-charge of the disaster warning messages that are being relayed by District
Level, or any other competent authority. Radio sets, or TV sets, telephones lines, etc., must be
kept in good working condition to monitor the warnings.
2. Dissemination of Warnings:
As soon as the warnings are received from the District level or State Head Quarters Control
Room, the Sarpanch and the Panchayat members need to disseminate the warnings to villagers.
Hazard warnings should spread quickly in all wards and lanes of the village.
3. Evacuation:
The Panchayat should make arrangement to evacuate people who are likely to be affected by the
disaster to safer and stronger places. As far as possible, people should be evacuated even from
stronger places. As far as possible, people should be evacuated even from stronger buildings in
the low lying areas, especially at the time of cyclone or flood.
4. Arrangement of Resources:
The local authorities need to make proper arrangement of resources and supplies such as stock of
bleaching powder, lime powder, phenyl, drain cleaning sticks, soaps, and other materials.
In shelter camps, people should be provided with safe drinking water, latrine facilities, food and
medicines. Necessary arrangements should be made for food grains, cooking stoves, edible oils,
etc.
5. Allocation of Responsibilities to Community Members:

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The Panchayat members alone cannot undertake disaster preparedness measures. The Panchayat
needs the support of the local community members. Therefore, there is a need to select local
community members and to give them certain responsibilities, as follows:
 To institute periodic inspections to ensure that precautions are being taken.
 To ensure that equipment required for disaster purposes is available, and is serviceable.
 To ensure that emergency food supplies are available.
 To nominate special wardens or safety officers.
 To designate immediate relief tasks (survey duties, provision of food and temporary shelter,
assistance in clearance, etc.).
At the District Level
At the district level, the concerned authorities need to take disaster preparedness measures:
1.Preparedness before the Onset of Disaster:
The District collector needs to call an emergency meeting of the district members to take stock
of the situation and to take important decisions relating to disaster preparedness.
The District Collector needs to set up control rooms.
There is an urgent need to announce the seriousness of the hazard situation.
There is a need to instruct engineers to tour and identify the weak and vulnerable points of roads,
bridges, buildings, water supply works, etc., and make efforts to strengthen or repair, wherever
necessary
The District collector must assign work to the district officers and hold them responsible for
execution of the various measures.
2.Action plan when Disaster warning is Received or during Disaster:
Mobilize sufficient funds from the state government to meet the situation.
Arrange immediate distribution of relief materials and spares to village Panchayats and other
local bodies.
Coordinate with other districts administration to get their support, whenever possible.
Engineering staff needs to attain all urgent repairs of roads, bridges, bunds, etc.
Immediate disposal of dead bodies and animal carcasses before they are decomposed.
Coordinate with village Panchayats in setting up relief camps, evacuation of affected people.
Coordinate with various agencies including the army, and NDRF.

Measures at State/Central Govt Level

Aerial survey, search and rescue operations.
Damage assessment and provisions of relief assistance.
Organize training to volunteers, self-help groups, NGOs, youth, and employees of government
departments in dealing with disaster.
Stocking of relief material and receiving relief materials from external sources. Prompt supply of
such materials to affected areas and to affected people.
Effective management relief and rehab camps.
Evacuation of people from vulnerable area to safer places.

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Establishment of disaster management and response teams.

Measures at Business Level

Business Firms can take disaster preparedness measures to overcome the industrial disasters as
well as the natural disasters that affect the local community. Business firms may take the
following measures:
Training the employees to avert industrial accidents, by giving necessary instructions regarding
handling and maintenance of machines, and adopting safety measures.
Train or educating the members of the local community to play an active role in disaster
management.
Depute its employees in rescue and relief activities.
Supply of materials, medicines, food items to relief camps and other necessities.
Providing donations to the Govt towards relief and rehab measures.
Giving vital suggestions to Government authorities to manage disasters.

Measures at Social Level

Disaster preparedness measures can be taken by social groups such as voluntary agencies or non-
government organizations. Social groups such as voluntary agencies or small community
organizations are omitted from pre disaster planning activities. Many small groups feel that
preparedness or mitigation activities are beyond their capabilities, or feel that it is not their place
to get involved. Small groups, however, are among the most effective of the coping mechanism
and play a key role in disaster recovery. Thus they should be encouraged to participate to the
fullest extent possible.
There are many roles that small groups can fulfill and activities they can undertake, especially in
preparedness.
At the most basic level, small groups can promote awareness of natural hazards and promote
public action to mitigate or prepare for a pending disaster.
Second, agencies can work together for meeting people’s needs in a disaster and assign
responsibilities for certain task to appropriate groups. This, step, the development of an
organizational framework for coping, is the most important action that can be taken at the local
level.
Actions to reduce losses at local level are called “community-based disaster preparedness”
activities. Voluntary agencies and small groups can be very effective in helping to organize and
implement these measures. For example, in some cyclone-prone rice-producing areas, two ways

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of reducing crop losses could be introduced. If the weather permits, crops could be planted several
weeks earlier so that they could be harvested before the peak of the hurricane season.
Social service agencies, especially religious organizations and their affiliates should learn more
about their role in psychological recovery.
One of the most valuable roles played by these organizations is helping families and individuals
overcome the emotional stresses of a disaster. It is surprising how few groups are adequately
trained or prepared to help individuals and families deal with wide spread traumatic events, such
as mass casualties, family reunification, and the loss of possession.
Organizations with access to resources for longer-term recovery should develop policies to guide
their recovery programs. It should be remembered that in a region-wide disaster, the social
services available at the local level will be minimal, and organizations should determine in
advance what affected groups to serve and the best means for maximizing the resources available.

Measures at Individual Level

Individuals can also play an important role in disaster preparedness. Individuals can volunteer to
help the local authorities in rescue and relief measures. Individuals staying in far way towns and
citizens can work for getting donations, and suppliers like clothes, utensils, food grains, etc. They
can form a volunteer group and visit the affected place and assist the local people in overcoming
psychological effects of disaster.strategic Alliance

CHP 5 Strategic Alliance and Corporate Governance

 STRATEGIC ALLIANCE

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A strategic alliance is an agreement between two or more parties or firms to work together to
achieve certain objectives. Generally , the alliance agreement is for a certain specific period .
When the Objectives are achieved , partners terminate the alliance . The firms remain
independent organisations and work together without forming new entity .The alliance usually
allows transfer of technology , share expense and risks.

An alliance can be defined as a collaborative relationship between two or more entities that share
complementary assets and strength and strength to create greater value for their customer and
their own organization which otherwise could not be accomplished independently.

It is to be noted that some authors make a difference between strategic alliance and a joint
venture . they state that partners to be a joint venture contribute towards the equity , whereas , in
a strategic alliance , they don’t . secondly , a joint venture is a long term alliance with a distinct
identity , whereas , a strategic alliance is of temporary nature for a specific purpose . however , in
reality this distinction does not hold valid .

 Reason for strategic alliance

The emerging globalization due to liberalization is opening up yet another major dimension in
the field of strategic management –the strategic alliance . The concept of strategic alliance is
causing far more impact than that of mere business management practice.

According to Ratan Tata, very few Indian businessmen have the capability of competing on
their own in the emerging environment of globalization . The businessmen are concerned about
their individual soverignty whereas they should be looking at alliances and aggregation of
companies as it so often happens abroad .

Strategies alliance are formed because of the following reasons:

1. Synergetic Advantage- Strategic alliance brings different competences of

partners together . This combined effect of competencies generates synergetic
effect , the alliance helps to produce greater results as compared to the sum of
their individual results. For instance , nowadays, it is difficult to match all the

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 competencies due to various constraints , and therefore, a strategic alliance
permits the partner to complement their competencies , which in turn generates
synergetic advantage .

2. Development Of New Products: New product development cost are quite high ,
especially in the field of pharmaceutical , electronic, etc. For instance, in the field
of pharma , it cost even billion of dollar to develop breakthrough drugs.
Therefore, in order to bear cost, organisations may form, an alliance to share cost
and result of new product outcomes.

3. Global market: At times , global alliances are formed with organisation of other
countries to ease entry barriers as local organisation may be well aware about the
local business conditions. For instance a foreign firm may not be fully aware of
nature of customers in other countries, and therefore, such a firm may collaborate
with a local firm in another country to expand its market .
4. Advantage Of Goodwill : At times, a foreign firm may collaborate with a firm in
another country in order to gain advantage of the goodwill enjoyed by latter. For
instance , a foreign firm may enter into alliance with Tata group in India because
Tata group enjoys name and goodwill in Indian market .The reverse is equally
true ie, a Tata group firm may have an alliance with a foreign firm in a foreign
market .

5) Sharing of risk: Strategic alliance is a method of sharing high business risk

among parties to the alliance . This enables at alliance to undertake larger risk
projects such as R&D projects, where costs and risks are involved .

 Problem With Indian Strategic Alliance

Co-operative spirit between alliance partners is vital for its success and survival.
However, in several cases of alliance in India, there is untimely split which at times may
adversely affect the alliance partners, at least in the short run .

The following are some of the problems with Indian strategic alliance or joint venture.

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 1) Lack of planning A more serious reason for the mismatch , however, is that there is very
little planning that goes into setting up an alliance ,determining the interest of each
partner, analysing their respective contribution and accordingly structuring the alliance .
Some alliance fail due to lack of planning .

For instance , Godrej soaps entered into a joint venture with P7G to manufacture and market
soap brands. Godrej reserved its soap making capacity at Mumbai , to manufactureits own and
P&G brands. However, it appear that no attempt was made to examine the working relationship
closely . Mr Press and Godrej more Intuitive or gut feel approach to marketing was in sharp
contrast to P&G’s approach based on extensive market research to build lasting brands. When the
sales of the JV ‘s brands fell short of projections, relations between the partners began to sour.

2 ) Difference of opinion :

Most JV’s get derailed due to difference in aspirations and approaches. The mismatch of
aspiration and approaches become a bone of contention between the alliance partner. A case in
point is HDFC –Chubb General Insurance – non life insurance alliance which came into
existence in 2002. In 2007 , the Indian company called off its JV with Chubb Corporation, the
world’s largest non-life insurance company, after 5 yrs due to differences on pace of growth .
Obviously , there was a clash of ideologies and culture. This became a bone of contention
between the partners . It became a barrier for the Jv’s rapid roll out, especially in the commercial
segment. .

3) Continuous Disagreements:

There are cases , where there are constant disagreement between the alliance partners that lead to
the collapse of the alliance . For instance , Kinectic India and Honda entered into a join venture
with the objective of manufacturing scooter and mopeds in 1984. As Honda had another joint
venture with Hero to produce motorcycles the joint venture between Kinectic and Honda was
confined to mopeds and scooters.

During the operational phase of the joint venture, several sources of disagreements emerged
among the partners. Kinetic felt that Honda was not sufficiently committed to the venture .For Eg
, Kinectic wanted the company to spend more on advertising but Honda was reluctant to do so.

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Kinectic also felt That Honda was more focused on markets such as Indonesia and Thailand ,
which were growing rather rapidly. The continuing difficulties led to the split between Honda
and Kinectic in 1998.

4)Violation Of Agreement Clauses:Violation of agreement clauses may lead to the collapse of

an alliance . For instance , Titan Industries and Timex Watches entered into a joint venture in
India in 1990.The game plan was that Titan would focus on the price range of RS 1000/- and
above, while Timex would concentrate on the range below Rs 1000/-. Timex benefited from
Timex ‘s technological expertise. The strategy worked well for some time but long term
problems gradually cropped up.

Problems began to emerge between the partners from 1996 onwards. Timex wanted to gain a
controlling share in the joint venture , to which titan was opposed . At the time , Titan began to
compete in lower markets segments, which violated the non compete clause in the
agreement . To counteract this, Timex began its entry in the up scale market segment. On
march 1998 they announced the break up of the venture.

5 )Problem Of Independent Plans:-

Alliance agreement may be signed for a certain specific period. After the specific period , The
parties to the alliance may renegotiate terms and condition. Parties may try to dictate terms at the
time of renegotiation, and may adopt independent plans which may sour the relation between the
alliance partners.

A joint venture between Hero cycles of India and Honda of Japan came into existence in 1984 as
motorcycle and scooter manufacture in india . In 2007 , hero Honda became the largest two
wheeler manufacturing company in India over a million units produced as well as the “World
Number One” in terms of terms of the unit volumes sales for the calendar year .The technology
for manufacturing the bikes was provided by Honda whereas Hero was strong in its distribution
and service network spread across the country.

In 1999, Honda announced that it would set up a subsidiary Honda whereas Hero was strong in
its distribution and service network spread across the country .At the same time , Honda allowed
Hero to have a minority stake in hmsi , and allowed Hero to examine the mororcycle that Hmsi

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would release in the market .Thus, Hero Honda was unable to bring out new bikes with better
technology while competitor came out with better versions, as innovation was solely in the hands
of Honda. .In December 2010, both the companies decide to part ways in a phased manner
because of unresolved differences and independent plans. Honda decided to sell its stake of
26%to the Munjal family and to exit from the venture.

6) Problem of Resource : At times , lack of resource or funds either with one of the parties or
with both the parties to the alliance lead to break up of the alliance .Matters came to a head in
1994, when Maruti Udyog Limited felt an urgent need to increase capacity .With its internal
resource generations not being adequate , Suzuki proposed a combination of additional debt and
equity .Due to financial constraints, Govt of india finally had to reduce its shareholding from
76% in 1982 to 50%in 1992 and less than 20% in the subsequent years. As of December 2013,
Suzuki motors hold over 56 % of the total equity , and the remaining by FII’s, DFi and others.

7)Lack of Trust :

Quite often, the lack of trust between the alliance partners is responsible for the break up. The
alliance partners are reluctant to share ideas and support due to lack of trust.This is possible ,
when strangers are brought together to form an alliance, and therefore , there is no mutual
connection. In many cases, one party to the alliance blames the other for the failure. Shifting the
blame does not solve the problem, but increase the tension between the alliance partners. Several
alliance in India and overseas have failed due to lack of trust causing unsolved problems, lack of
understanding and despondent relationships.

Building trust is the most important and yet most difficult aspect of a successful alliance. Only
people can trust each other and not the firms. The alliance must form the three forms of trust
equality , reliability and responsibility . Developing trust in each other will move towards a
mutual win/win situation

8) Cultural Clashes:

Clash of cultures is probably a major problem that alliance face today worldwide. The cultural
problems include language barriers, egos, and different philosphies towards business, which can
create problems in the functioning of an alliance.

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Language barriers can affect the parties working together. Also, alliance partners may have
different philosophies and priorities. At times there are ego clashes between the alliance
partners. Thus a good number of strategic alliances have broken up within a few years of
operation.

9) Government Regulations:At times , Govt regulations may not favour certain types of
alliance , the alliance are called off. The two companies have reached an agreement to
independently own and operate separate business formats in India. Bharti retail will continue to
operate “easyday” retail stores across all formats and invest to expand the business. Walmart on
its part will continue its investment in India , including cash –and –carry business, supply chain
infrastructure, direct farm programme and supplier development.

Also, at the state level, a change in government may reverse the stand taken by the earlier State
Govt .With this, Delhi has become the first state to withdraw permission for FDI funded retail
stores. The previous delhi government under Sheila dikshit had allowed FDI in multi brand
retail in delhi . The DIPP is now examing the letter sent by the delhi government on withdrawing
permission for FDI in multi brand retail. States have to imitate DIPP about allowing FDI funded
stores . The states that allow FDI funded stores include Maharashtra , Karnataka and Andhra
Pradesh .

Doing away with FDI was one of the steps AAP had mentioned in its manifesto before elections
in Delhi in December 2013. With this , Delhi has become the first state to withdraw permission
for FDI funded retail stores

 Strategic Change

Meaning and Nature of Organisation change

Changes are introduced in strategies , procedure ,objectives , technology , structure , job designs,
and people.

The following are the features of organisational change :

1) Pervasive in nature: Changes are required in all organisations. No organisation can succeed
without a change. Some parts of the organisation may b e affected more than others. Some parts

17
may have a direct impact, whereas , others may have an indirect impact. For instance, the
production department may introduce latest machinery to manufacture the products. The
marketing department would also require adjustment to market the improved or better quality of
product , if any.

2)Necessitates new equilibrium :When a change takes place in any part of the organisation , it
disturb the existing equilibrium in the organisation . A change require the need for new
equilibrium in the organisation. The new equilibrium depends on the degree of change and its
overall impact on the various parts of the organisation.

3) Continuous in nature: Organisation change is continuous in nature . As long as the

organisation exists, there would be changes.

4)Reactive and Proactive: A change may be reactive or proactive . A reactive change is

unplanned and it takes place due to changes in the environment. This would require a reaction
from the organisation , ie, it may resort to changes in its marketing strategy. Proactive change is
the deliberate attempt on the part of the organisation.

5)Changes is different from innovation: Change and innovation are 2 different concept. All
innovation is change , but not every change is innovation. . However, changes involves any
alteration or modification is an organisation established way of doing things.

6)Internal and External Forces: An organisational change can take place due to variety of
factors or forces. The forces can be internal or external. The external forces relate to
competition , government , customer , supplier , dealers, etc.

7)Degree of Change : Changes may differ in terms of degree . Certain changes may be minor,
which may not require changes in organisation structure. For instance , changes in credit policy
of the firm .

8)Risks and Rewards: Changes are subject to risk and rewards . At times , change may result in
negative outcomes due to the risk involved in respect of certain changes . For instance , launch of
new product may turn out to be a big disappointment

 Reasons for strategic change

The main reason or cause for strategic change are as follows:

1) Technological and organisational change: Technology is the most important factor

responsible for a change in the organisation. Technological development requires change in
organisational objectives, policies, procedure , strategies, etc.

2)Shift in management philosophy: The management philosophy may shift from traditional
management philosophy to professional management philosophy This in turn may require

18
changes in various aspect and in functional areas of the organisation Therefore , there will be
changes in the organisation due to a shift in management philosophy.

3) Changes in top management: There may be change in managerial personnel. For instance ,
the ceo may be changed , and a new person may take over the chief executive position.

4)Product Life cycle: Every product passes through a life cycle with consists of phases growth
phase, maturity phase, and decline stage. The product life cycle requires changes in the product
and marketing mix.

5)Environment Forces: There may be changes in the environmental forces such as,

 Changes in competitors strategies

 Changes in consumer tastes and preferences ,
 Changes in government policies, etc.
 The changes in the environmental forces require a change in the business organisation.
Also there may be changes in government policies, which in turn may necessitate
changes in the organisation in order to adopt and to adjust to the changes in the
government policies.

6)Problems in the Existing Practices: There may be problems relating to the present practices
of the organisation. For instance , the present methods and procedure in respect of production
activities may be obsolete.In order to face competition effectively in the market, changes need to
be made in the organisation.

7) Changes in employee expectation: Employee expectations do change over a period of time .

If employee expectation are not fulfilled then there may be non cooperation on the part of
employee and such as the organisation may suffer

8)Changes in Union leadership : There may be changes in the union leadership This would
hesitate changes in the organisation. Management has to deal with new union leadership in a
different manner . Therefore management may have to introduce certain change in the
organisation.

9)Growth and Expansion plans: The organisation may plan for growth and expansion of the
business. Without effective changes it would not be possible to achieve growth and expansion of
the organisation.

 Corporate Governance

Corporation pool capital from a large investor base both in the domestic and in the international
capital markets. In this content , investment is ultimately an act of faith in the ability of a

19
corporation management. In this regards, investor expect management to act in their best interest
at all times and adopt good corporate governance practices.

Meaning of Corporate Governance

Corporate Governance may be defined as a set of rules, regulations procedures and

practices to be adopted by a firm’s management to manage its affairs in the best interest of
its stakeholders , especially the shareholder.

It is about commitment to values , abaout ethical business conduct and about making a
distinct between personal & corporate funds in the management of a company .

 Principle of Corporate Governance

Capital market regular securities and exchange Board of india stated in December 2013 and
in January 2014 that it would soon come out with new corporate governance norms. As
several companies have operation outside India and many more would be venturing in
foreign territorities, there is a need to align rules with the best in the world, SEBI
Chairman Mr . U.K.Sinha stated.SEBI has also proposed to introduce a new concept of
“corporate Governance Rating” by independent agencies to monitor the level of compliance
by the listed companies, in addition to regular inspection by SEBI and stock exchanges.

Therefore , the new set of corporate Governance principles could be based on the OECD
Principles of corporate Governance .The principles were revised in 2004 as mentioned below.
The principles are further likely to be revised in 2014.

The principles Of corporate governance are as follows:

1) Ensuring the basis for an effective corporate governance Framework:

The corporate governance framework should promote transparent and efficient markets, be
consistent with the rule of law and clearly articulate the division of responsibility among
different supervisory , regulating and enforcement authorities

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1) The corporate governance framework should be developed with a view to its impact on overall
economic performance, market integrity and the incentive it creates for market participants and
the promotion of transparent and efficient markets.

2)The legal and regulatory requirement that effect corporate governance practices in a
jurisdiction should be consistent with the rule of law , transparent and enforceable.

3)The division of responsibilities among the different authorities in a jurisdiction should be

clearly articulated should be clearly articulated and ensure that the public interest is served.

2) The rights of shareholders and key Ownership Functions

The corporate governance framework should protect and facilitate the exercise of shareholders’s
rights.

 Basic shareholder rights should include the right to:

a) Secure the methods of ownership registration.

b) Convey or transfer shares,

c) Obtain relevant and material information on the corporation on atimely and regular basis.

d) Participate and vote in general shareholder meetings

e) Elect and remove members of the board

f) Share in the profits of the corporation.

 Shareholders should have the right to participate in, and to be sufficiently informed
on, decision concerning fundamental corporate changes such as

a) amendment to the statutes or articles of incorporation or similar governing documents of the

company

b) The authorisation of additional shares,

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c) Extraordinary transactions including the transfer of all or substantially all assets, that in effect
result in the sale of the company.

 Shareholders should have the opportunity to participate effectively and vote in

general shareholders meeting and should be informed of the rules, including voting
procedure , that govern general shareholder meeting.

a) Effective Shareholders participation in key corporate governance decision such as the

nomination and election of board members should be facilitated. Shareholders should be able to
make their view known on the remuneration policy for board members and key executives. The
equity component of compensation schemes for board members and employees shoukd be
subject to shareholders approval.

b) Shareholders should be able to vote in person or in absentia and equal effect should be given
to votes whether cast in person or in absentia.

c) Capital structures and arrangement that enables certain shareholders to obtain a degree of
control disproportionate to their equity ownership should be disclosed.

 Market for corporate should be allowed to function in an efficient and transparent

manner:

a) Transaction should occur at transparent prices and under fair condition that protects the rights
of all shareholders.

b) Anti take over devices should not be used to shield management and the board from
accountability.

 The exercise of ownership rights by all shareholders , including institutional

investors, should be facilitated .

a) Institutional investors acting in a fiduciary capacity should disclose their corporate governance
and voting policies with respect to their investment, including the procedure that they have in
place for deciding on the use of their voting rights.

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b) Shareholders , including institutional shareholders, should be allowed to consult with each
other on issues concerning their basic shareholders rights as defined in the Principles, subject to
exceptions to prevent abuse.

 The Equitable Treatment of Shareholders

All Shareholders should have the opportunity to obtain effective redress for violation of
their rights.

a) Any changes in voting rights should be subject to approval by those classes of share which are
negatively affected.

b)Votes should be cast by custodian or nominee in a manner agreed upon with the beneficial
owner of the shares.

c) Impediment to cross border voting should be eliminated .

d) Company procedures should not make it unduly difficult or expensive to cast votes.

Insider Training and abusive self dealing should be prohibited.

The role of stakeholders in corporate governance. The corporate governance framework

should recognise the rights of stakeholders established by law or through mutual
agreement and encourage active co operation between corporation and stakeholder in
creating wealth, jobs

1) The rights of stakeholders that are established by law or through mutual agreement are to be
respected.

2) Where stakeholders interest are protected by law, stakeholders should have the opportunity to
obtain effective redress for violation of their rights.

3)Performance –enchancing mechanism for employee participation should be permitted to

develop.

4)Where stakeholders participate in the corporate governance process, they should have access to
relevant , sufficient and reliable information on a timely and regular basis.

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5)The corporate governance framework should be complemented by an effective , efficient
insolvency framework and by effective enforcement of creditor rights.

 Disclosure and transparency

The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matter regarding the corporation including the
financial situation, performance ,ownership and governance of the company.

1) Disclosure should include, but not be limited to , material information on:

a)The financial and operating result of the company .
b) Company objectives.
c) Major share ownership and voting rights.
d) Related party transaction.
e) Foreseeable risk factor .
f) Issues regarding employees and other stakeholder.

2) Information should be prepared and disclosed in accordance with high quality

standards of accounting and financial and non financial disclosure.

3) External auditor should be accountable to the shareholders and owe a duty to the
company exercise due professional care in the conduct of the audit.

4)Channels for disseminating information should provide for equal,timely and cost
effective acess to relevant information by users.

 The responsibilities of the Board.

The corporate governance framework should ensure the strategic guidance of the
company , the effective monitoring of management by the board , and the board
accountability to the company and the shareholders.

1) Board members should act on a fully informed basis , in good faith with the diligence and care
, and in the best interest of the company and the shareholders

2)Where board decision may effect different shareholders groups differently , the board should
treat all shareholders fairly.

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3)The board should apply high ethical standards . it should take into account the interest of
stakeholders.

4) The board should fulfil certain key functions, including:

a) Monitoring the effectiveness of the company’s governance practices and making changes as
needed.

b)Selecting , compensating , monitoring and, when necessary , replacing key executives and
overseeing succession planning .

c)Aligning key executive and board remuneration with the longer term interest of the company
and its shareholders.

d) Ensuring a formal and transparent board nomination and election process.

e) Overseeing the process of disclosure and communication.

5) The board should be able to exercise objective independent judgement on corporate

affairs:

a) When committee of the board are established , their mandate composition and working
procedures should be well defined and disclosed by the board . b)Board should be able to
commit themselves effectively to their responbsibilities

6) In order to fullfill their responsibilities , board members should have access to accurate
, relevant and timely information.

 Corporate Governance Practices in India

Companies act,1956 provides for basic framework for regulation of all the companies. Certain
provision were incorporated in the act itself to provide for checksand balances over the powers
of board viz:

 Loan to directors or relatives or associated entities need Central Govt .permission

 Interested contract needs Board resolution and to be entered in register.
 Interested directors not to participate or vote.

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  Appointment of directors or relatives for office or place of profit needs approval by
shareholders. If the remuneration exceeds prescribed limit, Central Govt approval
required.
 Audit committee for public companies having paid up capital of RS 5 crore.
 Shareholders holding 10% can appeal to court in case of oppression or mismanagement .

The revised clause 49 superseded all the earlier circulars on the subject and became effective for
listed companies from January 01,2006.It is applicable to the entities seeking listing for the first
time and for existing listed entities having a paid up share capital of RS 3 crore and above or net
worth of RS 25 crore or more at any time in the history of the company.

Clause 49 of the equity listing agreement consists of mandatory as well as non-mandatory

provision. Those which are absolutely essential for corporate governance can be defined with
precision and which can be enforced without any legislative amendments are classified as
mandatory. Others, which are either desirable or which may require change of laws are classified
as non mandatory. The non mandatory requirement may be implemented at the discretion of the
company.

Mandatory Provision comprises of the following:

 Audit committee, its comparision , and role,

 Provision relating to subsidiary companies .
 CEO/CFO certification
 Disclosure to audit committee , Board and the shareholders.
 Quarterly report on corporate governance
 Annual compliance certificate.

Non mandatory Provision consist of

 Constitution of remuneration committee

 Despatch of half yearly result.
 Training of Board members.
 Peer evaluation of Board members
 Whistles blower policy

The companies should also submit a quarterly compliance report to the stock exchanges
within 15 days from thr close of quarter as per the prescribed format. The report shall be
signed either by the compliance officer oe the CEO of the company. Apart from clause 49 of
the equity listing agreement , there are certain other clause in the listing agreement, which are
protecting the minority shareholders and ensuring proper disclosures:

 Disclosure of shareholders pattern

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  Maintenance of minimum public shareholding
 Disclosure and publication of periodical result.
 Disclosure of price sensitive information.
 Disclosure and open offer requirement.

Role of the Board – areas of Monitoring

The board should focus on activities connected to its monitoring role. The areas to be mentioned
by the Board may be divided into 4 main segment:

 Strategic planning
 Capital allocation
 Manpower planning
 Performance appraisal

The eminent management expert Bernard Taylor is of the opinion that the board should
perform the following strategies tasks:

a) to improve the performance of the business of the business for the benefits of the
shareholders, the managers , the employees and others having stake in the company like
supplies , customers , local community, etc.

b) To develop a philosophy and a set of principles , which will guide the action of the
people involved in the enterprise .

c) To set the strategy and direction of the business usually for the growth in products and
markets, divestments and acquisition.

d) To provide a set of policies which can be presented publicly in discussion with

government and other external bodies.

Role of Audit committee

The audit committee needs to be meet at least thrice in a year. One meeting needs to be held
before finalization of annual account and one in every six months.

The powers of audit committee include:

 To investigate any activity within its term of reference

 To seek information from any employee.
 To obtain outside legal or other professional advice,
 To secure attendance of outsiders with relevant expertise , if necessary.

The role of audit committee include the following:

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a) Oversee the company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.

b) Recommending the appointment and removal of external auditor, Fixation of audit fee and
also approval for payment for any other service .

c)Reviewing with management the annual financial statements before submission to the board,
focusing primarily on:

 Any changes in accounting policies and practices

 Major accounting entries based on exercise of judgement by management
 Qualification in draft audit report
 Significant adjustment arising out of audit
 The going concern assumption
 Compliance with accounting standards
 Compliance with stock exchange and legal requirement concerning financial statements.
 Any related party transactions ie , transactions of the company of material nature, with
promoters or the management , their subsidiaries or relatives etc. that may have potential
conflict with the interest of company at large .

d) Reviewing with the management , external and internal auditor, regarding the adequacy of
internal control system.

e)Discussion with internal auditor, any significant findings and follow up there on.

f) Discussion with external auditor before the audit commences , nature and scope of audit as
well as post audit discussion to ascertain any area of concern.

g) Reviewing the company’s financial and risk management policies

h) To look into the reason for substantial defaults in the payment to the depositors, debenture
holders, shareholders and creditors.

 FOREIGN DIRECT INVESTMENT

Foreign Direct Investment (FDI) is a long term direct investment in business in a foreign country
by an individual or a company of another country, either by buying a company or trough equity
participation or by expanding operations of an existing business in a foreign country. FDI differs
from portfolio investment, in that portfolio investment is generally short term passive investment

28
in the securities of firms in foreign country.FDI brings certain benefits to the host country such
as :

 Capital inflows which improve capital account balance and if there is a tie up with local
firms, the local firms can use the capital for expansion and modernisation.
 Skills development through training and development by the foreign firm.
 Transfer of technology by the foreign investing firm

Strategies for FDI in India

1) Greenfield Investment -A foreign firm may invest fresh equity capital investment by
setting up a new firm in a foreign country . This may be in response to the initiative taken
by the governments of the country where FDI is invested . The govt may provide special
incentives to attract FDI.
For instance, the GOVT may encourage FDI by increasing the FDI limits. At present
100% FDI is allowed in sectors like hotels and tourism industry, export sector,
pharmaceutical sector, telecom sector, etc. some countries such as china encourage FDI
through various incentives such as lower corporate rates for foreign firms. This mode , a
development perspective is usually the most desirable.

2) Reinvestment of earning – Several countries encourage reinvestment of earnings by

foreign firms by providing special incentives such as tax benefits. This strategy Does not
result in outflow of foreign exchange by way of dividend or transfer of profits .This
strategy adds to the host-country’s capital stock and as such the productive capacity
increases. The host country may also benefits by way of transfer of technology by the
investing firm from abroad.

3) Intra company loans – Usually this strategy is followed by parent company when it
provides additional funds to its subsidiary by way of loans. Initially this strategy may
lead to foreign capital inflows which can be used by the subsidiary for expansion and
modernisation . However, This strategy may require larger outflow of capital by way of
interest payments and repayment of loans by the subsidiary to the parent firm.
Generally ,countries may not prefer this type of investment as compared to equity
participation by foreign firms, because in equity participation there is no obligatiob to pay

29
 dividends or profits to the investing firm and secondly equity participation involves long
term commitment of capital flows.

4) Mergers and acquisition- At times , the govt of the host ountry may attract FDI
through merger and acquisition route. Generally, it is not most desirable mode of FDI
unless FDI is crucial to the success of the privitization of a loss making public enterprise ,
or in the case where the merger of a domestic company with a foreign company takes
place on equal terms . Where a domestic firm becomes sick ,acquisition by a foreign firm
may be deemed desirable.
Merger by parent companies of leading global MNC’S are outside the control of the host
country where subsidiaries of both MNC’S where operating before the merger . Such a
merger may lead to suppression of competition in the host country.

5) Non Equity forms of FDI – These may involve arrangements in the form of
subcontracting , licensing, franchising , etc. Such arrangements may not involve capital flows
from abroad . However, such arrangement contribute to the development of the host country
economic growth and development.

a) Franchising- Certain firm may adopt franchising route to enter in foreign market .
Franchising is a contract between two parties , especially in different countries involving
transfer of right and resource . The franchisor enters into a contract with thefranchisee , whereby
the franchisor agrees to transfer to the franchisee a package of rights and resources , such as :

 Production processes
 Patents, trade marks and brand names
 Loans and equity participation.
 Product ingredients, etc.

b) Licensing - Licensing makes sense when a firm with valuable technical know-how or an
unique patented product has neither the organisation capability nor the funds to enter foreign
markets. This strategy also becomes important if the host country makes entry difficult through
investment. However , there is a danger that the licensee might develop its competence to a point
that it becomes a competitor to the licensing firm.

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Under a licensing agreement, the licensing firm grants rights to another firm in the host country
to produce and/or to sell a product . The licensee pays compensation to the licensing firm in
return for the rights to use technology or patent.

CHP 6 Emerging Trends In Global Business Environment

 Public private participation in India

A public private partnership {ppp} is a public private business venture which is funded and
operated through a partnership of government and one or more private sector companies.

PPP involves a contract between a public sector authority and a private party, in which the
private party along with a government organization undertakes a public project such as roads and
highways. This partnership assumes substantial finance, technical and operational risk in the
project. The various strategies involved in PPP projects are as follows:

-In some types, capital investment is made but the private sector on the basis of a contract with
government and the cost of providing the service is borne wholly or in part by the government.

-in some cases, the cost of using the services is borne by the users of the services, such as road
toll tax.

-government contributions to a PPP may also be in kind .

31
-in projects that are aimed at creating public goods like in the infrastructure sector, the
government may provide a capital subsidy in the form of a one-time grant<so as to make it more
attractive to the private investors.

There are usually two main reasons for the govt to enter in PPP.

-PPP enables the public sector to harness the expertise and efficiencies that the private sector can
provide certain facilities and services.

-in certain, where the private sector does the capital investment, the government is relieved from
the burden of borrowing to finance the project.

PPP IN INDIA

The govt.of India defines a PPP as “a partnership between a public

sector entity and a private sector entity for the creation and or management of infrastructure for
public purpose for a specified period of time concession on commercial terms and in which the
private partner has been procured through a transparent and open procurement system.’

Sector wise, the road project accounts for over 50%of the total projects in numbers, and 46% in
terms of values. Ports come in the second place and accounts for8% of the total projects and21%
of the total values .Other sectors including power, irrigation, telecommunication, water supply
and airports have gained momentum through the PPP model. As of2011,these sectors were
expected to get an investment over rs20 lakhs crore.

PPP INFRASTRUCTURE PROJECTS IN INDIA-APPRAISAL AND APPROVAL

PPP project means a project based on a contract or concession agreement, between a govt r a
statutory entity on the one side and a private sector company on the other side, for investing in
construction and maintenance of or delivering an infrastructure service.

PUBLIC PRIVATE PARTNERSHIP DATABASE

The PPP database is collection of project information on PPP projects undertaken in India. The
database maintains, on regular basis, data initially on the following sectors:

32
-airports

-education

-health care

-ports

-power

-railways

The database captures all the PPP projects since 1996 in India and is updated regularly with any
new development in the existing and under construction projects. The new projects are updated
as and when they are in the public domnent. The database covers only those projects that are
approved by the govt .of India, state government or local bodies.

GOVERNMENTS FINANCIAL SUPPORT FOR PPP PROJECTS

The govt of India has introduced the Viability gap funding scheme for financial support to PPP in
infrastructure.VCF Scheme of the govt of India provides financial support in the form of grants,
one time or deferred ,to infrastructure projects undertaken through public private partnerships
with a view to make them commercially viable. It is a plan scheme administered by the Annual
plans on a year to year basis for the scheme.

The govt also set up India Infrastructure Project Development Fund. The IIPDF would assist
ordinarily up to 75% of the project development expenses .On successful completion of the
bidding process, the project development expenditure would be recovered from the successful
bidder.

PPP PROJECT APPROVAL COMMITTEE

The cabinet committee on economics affairs in its meeting of 27Th oct2005 approved the
procedure for approval of public private partnership approval committee was set up comparing
of the following.

-secretary, department of economics affairs

33
-secretary ,planning commission

-secretary, department of expenditure

-secretary department of legal affairs

The committee would be serviced by the department of economics affairs, which has set up a
special cell for servicing such proposals. The committee may co-opt experts as necessary.

GOVT GUIDELINESS FOR APPRASIAL OF PPP PROJECTS

Different guidelines for different categories of central sector PPP projects have been issued by
the government from time to time.

The guidelines are:

-guidelines for formulations appraisal and approved of public private partnership projects costing
less than rs100 crore.

-guidelines for formulation, appraisal and approved of public private partnership projects.

-Of all sectors costing more than rs 100 crore and less than rs250 crore.

-Under NHDP Costing rs250 crore or more and less than rs 500 crore.

-Procedure for approval of PPP projects and guidelines for formulation, appraisal of public
private partnership projects in central sector.

These guidelines apply to all PPP projects sponsored by central government ministers or central
undertakings, statutory authorities or other entities under their administrative control.

The procedure specified in the guidelines shall apply to all PPP projects with capital costs
exceeding rs100 crores or where the underlying assets are valued at a sum greater than rs100

34
crores .For appraisal of ppp projects involving a lower capital cost value, detailed instructions are
issued by the department of expenditure.

IDENTIFICATION OF PROJECT FOR APPRASIAL /APPROVAL

The sponsoring ministry identifies the project to be taken up through PPPs and undertakes
preparation of feasibility studies, project agreements etc. with the assistance of legal, financial
and technical experts as necessary.

PROCEDURE FOR APPROVAL OF CENTRAL PPP PROJECT BELOW RS100CR.

The sponsoring ministry identifies the projects to be taken up through PPP and undertakes
preparation of feasibility studies, project agreement.etc with the assistance of legal ,financial and
technical experts as necessary.

A request for proposal along with copies of all the agreement that are proposed to be entered
with the successful bidder is sent by the administrative ministry to sfc/efc for seeking approval
before financial bids are invited.

Once cleared by the sfc/efc the projects put to the competent authority for approval.

PROCEDURE FOR APPROVAL OF PPP PROJECT COSTING

The government vide notification no 10/32/2006 dated april2,2007 modified the earlier
guidelines for approval.

Accordingly, REP i.e invitation to submit financial bids must include a copy of all the agreement
that are proposed to be entered into the with the successful bidder. After formulating the draft,
the administrative ministry would seek clearance of the SFC.

Planning commission appraises the project proposal and forwards its appraisal note to the
administrative ministry. Ministry of law and any other ministry involved also forward written
comments to the Administrative ministry. The SFC takes a view on the appraisal note and on the
comments of different ministries, along with the response from the administrative ministry.

Financial bids are invited after approval of the competent authority has been obtained. The
competent authority for each project will be the same as applicable for normal investment

35
proposals costing more than rs 100 cr. However ,pending approval of the competent authority
,financial bids can be invited after the approval clearance by the committee.

 MEANING OF CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is a form of corporate self regulation integrated into a business
model. With the help of CSR POLICY, a business organization monitors and ensures its active
compliance with the spirit of the law ,ethical standards ,and international norms. In some models,
a firms implementation of csr goes beyond compliance and engages in actions that appears to
enhance some social goods, beyond the interests of the firm and that which is required by law.
CSR is a process with the aim to embrace responsibility for the company actions and encourage a
positive impact through its activities on the environment ,consumers, employees, communities,
shareholders and all other members of the society.
LORD HOLME and RICHARD WATTS defines CSR ‘as the continuing commitment by
business to behave ethically and contribute to economics development while improving the
quality of life of the workforce and their families as well as local community and society at
large.”

POTENTIAL BENFITS OF CSR

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1. TRIPLE BOTTOM LINE: CSR enables a firm to achieve a triple bottom line. the triple
bottom line consists of 2 main elements-people ,planet ,and profit

-people relates to fair and beautiful business practices towards employees, the community and
the region where a firm conducts its business. In other words, business should create social
value.

-planet refers to sustainable environment practices. A triple bottom line company does not
produce harmful or destructive products such as toxic chemicals or batteries containing
dangerous heavy metals.
It focuses on eco friendly initiatives such as conservation of natural resources and recycling of
waste.
It also focuses on eco friendly products. I other words, a business needs to create environmental
value.

Profit is the economics value created by the organization after deducting the cost of all inputs,
including the cost of the capital. It is necessary for a firm to create economic value to survive and
prosper.

2 .Human resources: A CSR program can be an aid to recruitment and retention. ESPICALLY
IN ADVANCE countries, potential recruits or employees often ask about a firm csr policy during
an interview and having a comprehensive policy can give an advantage.csr can also help improve
the perception of a company among its staff, particularly when staff can become involved
through payroll giving fundraising activities or community volunteering.

3. Risk Management : Managing risk is a central part of many corporate strategies. Reputation
that take decades to built up can be ruined in hours through incidents such as corruption scandals
or environmental accidents. These can also draw unwanted attention from regulations, courts,
government and media. Building a genuine culture of doing the right thing within a corporation
can offset these risks.

37
4.Brand Differentiation: In competitive business environment, companies strive for a unique
selling proposition that can separate them from the competition in the minds of consumers.CSR
can play a role in building customers loyalty based on distinctive ethical values. Several major
brands are built on ethical values. Business services organization can benefit too from building a
reputation for integrity and best practice.

5. Engagement Plan : An engagement plan assists in reaching a desired audience. A

CORPORATE SOCIAL RESPONSIBILITY TEAM OR INDIVIDUAL IS needed to effectively
plan the goal and objectives of the organization. Determining a budget should be of high priority.
The activities of corporate social responsibility planning.

6. License to operate: Business firms are keen to avoid interference I their business through
taxation or regulations. By taking substantive voluntary steps, firms can persuade govt and the
wider public that they are taking issues such as heath and safety, diversity or the environment
seriously as good corporate citizens with respects to labour standards and impacts on the
environment.

7.Corporate Image: On the whole, csr improves corporate image in the minds of various
sections of the society . customers ,employees, shareholders and other stakeholders respects and
trust business firms that focus on csr activities which are socially desirable.

 ENVIRONMENTAL ACCOUNTING

The term environmental accounting has many meanings and uses. It can support national income
accounting, financial accounting or internal business management accounting. Environmental
protection Agency (EPA) of USA has explained environmental accounting at three levels:

1. Environmental accounting with reference to national income accounting refers to

natural resource accounting, which can entail statistics about a nation or region's
consumption, extent, quality and value of natural resources both renewable and
nonrenewable.

38
 2. Environment accounting with reference to financial accounting refers to the preparation
of the financial environmental reports for external audiences using GAPP (Generally
Accepted Accounting Standards).
3. Environmental accounting as an aspect of management accounting serves business
managers in making capital investment decision, costing determination, process/ product
design decisions, performance evaluation, etc. Thus, environmental accounting at this
level refers to the use of data about environmental costs and performance in business
decisions and operations.
 Identification includes a broad examination of the impact of corporate products,
services and activities on all corporate stakeholders.
 After companies identify the impacts on stakeholders as far as they can, they
measure those impacts (costs and benefits) as precisely as possible in order to
permit informed management decision-making.
 After their environmental impacts are identified and measured, companies
develop reporting systems to inform internal and external decision-makers.

Reasons for Environmental Accounting:

 To help managers make decisions that will minimize their environmental costs;
 To better track environmental costs that may have been previously obscured in overhead
accounts or otherwise overlooked;
 To better understand the environmental costs and performance of processes and products
for more accurate costing and pricing of products;
 To broaden and improve the investment analysis and appraisal process to include
potential environmental impacts; and

Role of Management Accountant in Environmental Accounting

The management accountant has an important role to play on the corporate environmental team.

The management accountant may help develop and implement environmental analysis tools and
techniques in several ways, such as:

 Helping assess the need for new or modified management information and financial
systems;

39
  Developing capital investment and appraisal tools that more effectively incorporate
environmental costs and benefits;
 Isolating and computing individual environmental costs;
 Helping resolve conflicts between environmental management and traditional financial
management systems, such as those that occur in capital investment appraisal;
 Considering the financial costs and risks associated with an investment or product/
process design choice that will likely cause or increase pollution;

TECHNIQUES OF ENVIRONMENTAL ACCOUNTING

Companies use a variety of tools and techniques in order to integrate environmental impacts into
management decisions. Therefore, management needs to focus on three decision-making
processes:

 Costing Analysis
 Investment Analysis
 Performance Evaluation.

I. Costing Analysis

Effective corporate environmental management is impossible without an adequate system to

identify and measure environmental costs. Some of the tools and techniques that can help
companies define the activities, processes and products that causes environmental costs are:

 Allocation of environmental costs;

 Product Life-cycle assessment;
 Hierarchical cost analysis;
 Activity-based costing; and
 Quantification and monetization of externalities and full environmental cost accounting.

1. Allocation of Environmental Costs : It is generally agreed that, decades ago, the lack of
understanding of the environmental impacts of products and services and their related
legal liabilities caused companies to ignore those impacts in their calculation of product

40
 costs. Thus, the products that caused those costs were under costed and probably under-
priced.
Companies generally distinguish among three categories of environmental costs. These
are costs incurred to respond to:
 Past pollution not related to ongoing operations;
 Current pollution related to ongoing operations;
 Future environmental costs related to ongoing operations.
2. Product Life-Cycle Assessment: The momentum toward responsible management of
global energy and environmental resources is unmistakable and irreversible. Proper
Product LCA provides opportunities for impact reduction which includes: minimizing
energy and raw material consumption; introducing closed-loop systems for chemicals;
minimizing activities that destroy habitat; and minimizing release of pollutants.
Professional firms in developed countries are applying various methods and techniques
that encourage a comprehensive evaluation of all "upstream" and "downstream"
effects of their activities or products.
3. Hierarchical Cost Analysis: At the initial stage of implementing a corporate
environmental strategy, companies are seeking the least costly option for complying with
environmental standards. Companies may believe pollution concerns have minimal
importance or value to their success; their investments for environmental projects usually
focus on pollution control
In one such study, the EPA developed a hierarchical costing method to identify, track and
monitor environmental costs for companies. This technique for pollution prevention
contains a four-tier hierarchy of costs including:
 Tier O, Usual Costs - are directly linked with a project, products or process.
They typically include the following:
 Tier I, Hidden Costs - refer to regulatory compliance or other costs that are
"hidden" or lumped into a general account. These are hidden costs because
they are obscured in overhead accounts, making it impossible for managers to
manage them effectively.
 Tier 2, Liability Costs - are costs associated with contingent liabilities that
may result from waste and materials management. Just as the regulatory costs
of Tier 1 are hidden, so too are many of the contingent liability costs.
In Tier 2, Liability Costs - the management needs to:
 Identify waste-management issues with which liabilities can be
associated.

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  Estimate total expected liabilities.
 Estimate expected years of liability incurrence.
 Estimate the firm's share of total future liabilities.
 Tier 3, Less Tangible Costs - are benefits that derive from improved corporate
image, customer acceptance and community goodwill. A company may realize
savings in less tangible costs as a result of reducing or eliminating pollution.
Tier 3, Less Tangible Costs - the management needs to:
 Identify qualitatively less tangible costs and benefits of pollution
prevention.
 Quantify less tangible costs and benefits of pollution prevention.
4. Activity-Based Costing (ABC): When organizations incur environmental costs, not all
processes and products are equally responsible for cost generation. Even in modest sized
manufacturing firms with two or three production lines, environmental costs are not
driven equally by each production line. Various lines may contain more hazardous
materials, generate more emissions per unit of output, require more frequent intensive
inspection and monitoring, and generate greater quantities of waste requiring off-site
disposal.
Traditional accounting systems usually fail to provide accurate environmental cost
information, for two main reasons:
 They often allocate environmental costs to overhead costs;
 They often combine environmental costs into cost pools with non-
environmental costs.
ABC provides two approaches for tracking the costs of activities:
 One approach is to establish sub-accounts in the general ledger, which
allocates costs to various activities in the appropriate proportions. This
approach resembles traditional accounting systems but permits the
organization to emphasize environmental costs.
 The other approach is to mirror more closely the actual flow of costs through
the organization.
5. Quantification and Monetization of Externalities and Full Environmental Cost
Accounting: Despite much progress, corporate costing systems fail to produce a true
picture of environmental costs. For instance, no company has fully implemented a system
to integrate all present and future external and internal environmental costs into its
product costing system. For external costs, it is difficult to measure the cost to society of
such factors as the degradation of quality of life caused by air pollution.
II. Investment Analysis and Appraisal

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In many organizations, traditional investment analysis and appraisal approaches overlook
pollution prevention projects. Pollution prevention projects usually fare poorly because a
systemic bias in traditional investment analysis places them at a competitive disadvantage.

Total Cost Assessment (TCA)

Company investment projects must usually pass a so-called "hurdle rate," or an acceptable
profitability threshold. Environmental projects must compete with other investment alternatives
environmental or otherwise. A critical dimension of this capital allocation process is to examine
how a firm defines and estimates project costs and benefits.

Multi-Criteria Assessment (MCA)

Another technique that offers improvements to traditional investment analysis and appraisal is
multi-criteria assessment (MCA). MCA is designed to help companies systematically evaluate
options according to multiple criteria that are sometimes measured on different and/ or non-
commensurable scales. This evaluation tool enables organizations to consider and trade off all
relevant criteria in decision-making.

The main objectives of MCA are to:

 Display trade-offs among different objectives (i.e., cost, social, environmental,

reliability, risk, etc.)
 Help participants in the decision-making process decide what trade-offs they are willing
to accept, determine which alternatives they prefer, and document the results.

Environmental Risk Assessment and Uncertainty Analysis

Although the terms uncertainty and risk are often used interchangeably, they are distinctly
different.

Uncertainty relates to a situation in which the probability distribution of an event is unknown;

risk relates to a situation in which such a distribution is known. To assess risk in environmental
situations, it is often suggested that the company make adjustments to the cost and benefit

43
profiles rather than to the discount rate. A better approach to this problem is to test the sensitivity
of the outcome of project evaluations to variations in the key parameters.

Environmental decisions are considered complex and risky, and can cause enormous financial
impact. Remediation costs for environmental spills and other accidents, fines, penalties, legal
costs, damages and bad decisions have increased dramatically in recent decades.

III.Performance Evaluation

At this stage, companies are committed to fully integrating environmental considerations into
corporate life and recognize the importance of integrating environmental measurements into their
performance evaluation systems. This ensures that statements of environmental responsibility
articulated by the CEO and in corporate mission statements are properly implemented.

Environmental performance evaluation techniques include:

 Corporate, strategic business units and facilities evaluations;

 Individual incentives;
 Environmental multipliers;
 Internal waste and environmental taxes.

Corporate, Strategic Business Units and Facilities Evaluations

Numerous organizations have developed environmental performance indices to help them gauge
the performance of strategic business units and company facilities. This development is
sometimes prompted by external evaluators and sometimes as part of a comprehensive
performance evaluation system that is used partly to encourage better environmental
performance.

Individual Incentives

The traditional accounting system in most organizations acts as a negative incentive

(disincentive) to report potential hazards or violations of environmental laws, corporate goals
and corporate practices. Employees are sometimes reluctant to notify a manager about a potential
hazard, as they believe that eliminating the hazard might cause the business unit to suffer a short-
term financial loss. This expenditure typically is viewed as an expense rather than an asset and
often reduces a manager's overall rewards.

44
To confront this concern, many companies encourage excellence in environmental performance
by establishing individual environmental goals and tracking progress toward those goals.

Balanced Scorecard Measures

Companies seldom connect various financial performance measures with non-financial measures
of corporate performance in such areas as productivity and environmental management.

The corporate scorecard developed by Kaplan and Norton is based on recognition that managers
need both financial and operational measures to effectively manage an enterprise and that a
choice between the two is unnecessary.

Kaplan and Norton state that "the balanced scorecard is like the dials in an airplane cockpit: it
gives managers complex information at a glance. It also forces managers to recognize how
implementing one corporate policy affects the performance of several variables simultaneously
and to consider whether improvement in one area may have been achieved at the expense of
another."

 ENVIRONMENTAL AUDIT

Environmental audit aims at verification and validation to ensure that various environmental
laws are complied with and adequate care has been taken towards environmental protection and
preservation.

The International Chambers of Commerce (ICC) in its publication Environmental Auditing

(1989) defines environmental auditing as "a management tool comprising a systematic,
documented, periodic and objective evaluation of how well environmental organization,
management and equipment are performing, with the aim of helping safeguard the
environment by:

a. Facilitating management control of environmental practices;

b. Assessing compliance with company policies which would include meeting
regulatory requirements.’’

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The definition given by ICC is unanimously accepted definition. Many leading companies follow
the same basic philosophy and approach as given by this definition.

Features of Environmental Audit:

1. Management Tool: Environmental audit is generally considered as one of the

management tool which is a part of internal control system and is mainly used to assess,
evaluate and manage environmental performance of a company.
2. Aim of Environmental Audit: A green audit may be conducted for many purposes, for
example, to comply with environmental laws or as a social responsibility measure or to
meet some certification requirements. But the main and ultimate aim of any
environmental audit is to evaluate and control the adverse impact of economic activities
of an organization on the environment.
3. Environmental Audit is Different from Environmental Impact Assessment (EIA):
EIA is a tool used to predict, evaluate and analyze environmental impacts mostly before a
project commences. It assesses the potential environmental effects of a proposed facility.
Environmental audit looks at environmental performance for an existing operation or
activity.
4. Systematic Process: Environmental audit is a systematic process that must be carefully
planned, structured and organized. As it is a part of a long-term process of evaluation and
checking, it needs to be a repeatable process so that over time, it can be easily used by
different teams of people in such a way that the results are comparable and can reflect
change in both quantitative and qualitative terms,
5. Documented: Like any other audit, the base of any environmental auditing is that its
findings are supported by documents and verifiable information. The audit process is
designed in such a way that it seeks to verify on a sample basis past actions, activities,
events and procedures with available evidences to ensure that they were carried out
according to system's requirements and in a correct manner.
6. Periodic: Environmental audit is generally conducted at pre- defined intervals. It is a
long-term process because it can sometimes take long time before sustainable
environmental change and improvement can be tracked clearly.
7. Objective Evaluation: Though environmental auditing is conducted using pre-decided
policies, procedures and a proper documented system, there is always an element of
subjectivity in an audit, particularly if it is conducted internally.

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 8. Environmental Performance: As mentioned before, the essence of any environmental
audit is to find out how well the environmental organization, environmental management
and environmental equipments are performing.

Objectives of Environmental Audit

The following are major objectives of environmental auditing:

 Determine and document compliance status;

 Help to improve environmental performance at operational facilities;
 Assist facility management;
 Increase the overall level of environmental awareness;
 Improve the risk management systems;
 Protect the corporation from potential liabilities.

Benefits of Environmental Auditing:

1. Improves efficiency of Environmental Management System (EMS): Environmental

auditing encourages an organization to examine its operations in a constructive manner
and is the cornerstone of an effective EMS. It helps in assessing performance of the EMS,
identifies deficiencies in the system and provides the basis for environmental
improvement plans.
2. Compliance with environmental laws and standards: The most important benefit of
environmental audit is that it ensures cost effective compliance with environmental laws
and regulations, industry guidelines and standards, and company's own environmental
policies.
3. Risk mitigation: There is a growing belief that environmental issues represent a source
of risk in terms of unforeseen or foreseen reputation damage or similar other risks. In
fact, it is the concern regarding environmental risks which has led to the development of
the field of environmental auditing.
4. Meeting stakeholders' expectations: These days, stakeholders have heightened
expectations for a company's environmental performance. They are concerned about
environmental responsibility and want to know about potential hazards and future
environmental liabilities of the companies. Conducting environmental audits will help in

47
 reassuring various stakeholders that the company is living up to its environmental
principles. It helps in enhancing reputation of the company as a good corporate citizen.
5. Reduction in operational inefficiencies: Environmental auditing can highlight areas of
inefficiencies in the operations and processes, for example, where the amount of
resources used are out of proportion to the amount of items or services produced and
sold.
6. Encourages continual improvement: By pinpointing both strengths and weaknesses in
the environmental management and other environmental audit encourages continual
improvement. It is to be noted that environmental audit will cost an organization both
time and money but if approached correctly, the organization should be able to recover
these costs very easily.
7. Compliance with certification requirements: Conducting an environmental audit can
be an important step towards gaining a companywide certifications like, ISO 14001 or
product specific certification from organizations like, Energy Star, LEED (Leadership in
Energy and Environmental Design), the Forest Stewardship Council, Chlorine Free
Products Association, etc.

Environmental Audit Process

Stage I: Pre-audit or Planning Stage.

1. Collect background information about the entity: Collect information about

environmental policy and goals of the organization, relevant environmental laws,
regulations and standards governing the entity, persons responsible for carrying
environmental duties, environmental budget, significant environmental matters like,
material costs, risk areas, etc.
2. Define objectives of audit: What are the goals of the audit?
3. Define scope: areas of a facility (operations) that will be audited - the programmes that
will be audited - the period for which audit will be done.
4. Choose audit criteria: Against what will the facility be audited (e.g., for regulatory
compliance audits, against the specific regulations or standards will the facility be
audited.
5. Select the audit team members: The audit team leader selects team members based on
appropriate knowledge and experience. The team can consist of external consultants, and
internal staff. If internal staff is going to be involved, they should be chosen in a proper

48
 way so as to avoid conflict of interest. The facility environmental manager, for example,
should not be on the audit team.
6. Develop audit plan and protocols: Protocols are written guides for the auditors that
outline the activities to be undertaken in conducting a review of a given topic area during
the environmental audit.
7. Inform the facility: Arrangements for on-site activities need to be made.

Stage II: On-site or Field Audit

1. Opening conference: Communicate the objectives and methods of the audit of key
facility personnel and schedule necessary meetings and interviews.
2. Facility tour: Identify areas of concern for more detailed inspection, get a feel for the
site and modify the audit schedule accordingly.
3. Site/facility inspection: Established protocols should guide the inspection. The team
may also wish to inspect areas of concern or interest that they have been identified in the
facility tour. It may not be possible to inspect the entire facility therefore, sampling
techniques may be an important part of determining the parts of a site to be inspected.
4. Evidence: Collect sufficient, appropriate and reliable audit evidences to check the
activities, performance impacts and reports.
5. Records/ document review: The audit protocols should give instructions as to the types
of records to request as well as what to look for when examining the documents.
6. Staff interviews: Interviews with key informants will yield the least reliable information,
due to the fallibility of human memory, but are important in the identification of potential
problems and in collecting information about facility operations.
7. Initial review of findings: Findings are the result of the evaluation of evidence collected
against audit criteria. It is Important at this stage to review where the facility does not
meet the audit criteria.
8. Closing/exit conference: This is a chance for auditees to identify misunderstandings and
to be introduced to the findings of the audit team.

Stage III: Post – Audit

1. Final evaluation of findings: Findings must be backed by evidence. It is important to

note areas of deficiency that were present during the previous audit, but are not yet
corrected, Often finding are labeled as major or minor depending on the level and types
of risks posed and speed with which the audit team feels they should be addressed.
2. Drafting of preliminary audit report
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 3. Approval of the management
4. Holding of exit conference
5. Discussion on recommendations, if any
6. Preparation and submission of final report.

Stage IV: Follow up or Review Stage

This is also called corrective action follow-up phase. While not technically part of the audit, the
audit manager or team leader may be involved in developing a corrective action plan for
addressing audit findings with the facility. He needs to report to senior management as to the
progress of this plan.

ENVIRONMENTAL AUDIT REPORT

The end product of environmental audit is environmental audit report (EA Report) which
contains findings or results of environmental audit and recommendations for improvement, if
any. EA report should be concise and informative with information displayed in a format that is
easy to interpret and understand.

Contents of Report

A standard EA report should include the following:

1. Executive summary
2. Object of environmental audit
3. Scope of environmental audit
4. Audit criteria
5. Description of Audit approach and methodology used
6. Evidences used
7. Conclusion
8. Recommendations: It includes possible impacts of negative finding and suggested
corrective action and recommendations for environmental performance
improvement.
9. Signatures of auditor with date.

The Audit report should be complete, precise, accurate and balanced. It should contain
constructive and precise recommendations. It must be persuasive and instrumental in inspiring
the managements of entities to take corrective actions. The violations and omissions should also

50
be effectively mentioned in the report. The contents of green audit report should be easy to
understand and free from vagueness or ambiguity, include information which is supported by
complete and relevant audit evidence and be independent, objective fair and constructive.

Tools and Techniques Used in Environmental Auditing

1. Checklists: Checklists are very useful tools used to ensure that different tasks or topics
are included during the audit. They are very useful in specialized cases where a complex
range of issues and questions need to be asked to ensure that nothing is missed.
2. Questionnaires: Audit protocols or audit questionnaires provide the basis and structuring
for most audits. They are based upon checklist questionnaires but are more complex and
include more detail and sometimes logistical information and data relating to the audit
and the site being audited.
3. Questioning: Questioning is one of the most crucial aspects of auditing yet from a
training and awareness point of view, it is often given the least attention. The purpose is
information gathering in nature and not an interrogation. The questioner must, therefore,
be sensitive to the perspective of the auditee and avoid making the questions accusatory,
judgmental or aggressive.
4. Observation: Observation is a vital component of an auditing exercise.
Observation is a disciplined activity which must be carried out in a very deliberate and
controlled manner. The idea of looking at something twice is important because it is part
of the process that checks that the observation is accurately noted, analyzed and
recorded.
5. Photographs: These are a very valuable aid in the audit process. However, in order to
use them, a number of important practical points must be borne in mind. The most
important one is formal approval before using this technique.
6. Research: It is useful to try and undertake some background research and investigation
into the site or company to be audited. Familiarization with the operations, products, raw
materials reports, press material and newspaper articles etc. all provides useful
background information to supplement questioning sessions and help understand the
operational processes.

TYPES OF ENVIRONMENTAL AUDIT

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According to International Organization of Supreme Audit Institutions (INTOSAI)
environmental audits can be broadly classified into three parts:

 Environmental Compliance Audit,

 Environmental Performance Audit,
 Environmental Financial Audit.

A. Environmental Compliance Audit

It consists of verification of environmental activities to check compliance with environmental

legislation, standards, industry guidelines, and company policy. The need for compliance audits
is clear.

1. Objective: To provide assurance that organizational activities are conducted in

accordance with relevant environmental laws, standards, guidelines and policies.
2. Focus: All applicable obligations.
3. Audit Criteria: National law, Supra-national law, International agreements, Applicable
standards, Industry guidelines, or corporate policy.
4. Main Benefits: The main benefits of compliance audit are:
 Helps in ensuring compliance with environmental laws.
 Reduces risks and costs associated with non-compliance.
 Identifies liabilities and risks (present and potential).
 Helps in knowing the gap between promises and results achieved by policies.
 Saves costs by minimizing waste, conserving resources and preventing pollution.
 Helps in improving environmental performance.

There are various types of compliance audits such as energy audit, certification audit,
surveillance audit and supplier audits:

B. Environmental Performance Audit

Measurement of environmental performance and impacts and its reporting to concerned

shareholders has become important in past few decades.

1. Objective: To assess whether an organization meets its environmental objectives, is

effective in producing environmental results, and operates efficiently and economically.
52
 2. Focus: Focus of environmental performance audit is on
 Environmental performance of the audited entity in different areas.
 Conduct of Environmental programmes in an economical, efficient and effective
manner.
3. Audit criteria: Performance indicators prescribed by some professional institutes,
government or non-governmental organizations, supra-national bodies, academic
literature or environmental organizations..

C. Environmental Financial Audit

In environmental financial audit, all financial/ monetary transactions relating to environmental

activities of an organization are verified by the auditor.

1. Objective: To enable an auditor to establish whether the reporting entity has

appropriately recongized, valued and reporting all significant environment costs, benefits,
assests, liabilities, and contingencies.
2. Focus: On accuracy and authenticity of environmental financial information provided in
the annual reports.
3. Criteria: Standards issued by recognized bodies, standard setting authorities, guidance
notes, and other academic literature.

As per International Auditing Practices Statement (IAPS) 1010, following environmental matters
may significantly affect financial statements and hence, should be considered during an audit of
financial statements:

1. Initiatives to prevent or remedy damage to the environment, or to deal with conservation

of renewable and non-renewable resources.
2. Consequences of violating environmental laws and regulations;
3. Consequences of environmental damage done to others or to natural resources; and
4. Consequences of vicarious liability imposed by law (for example, liability for damages
caused by previous owners).

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CONCLUSION
Corporate Governance has become the latest buzzword today. Almost every country has

institutionalized a set of Corporate Governance codes, spelt out best practices and has sought to

impose appropriate board structures. Despite the ‘Corporate Governance revolution’ there exists

no universal benchmark for effective levels of disclosure and transparency. There are several

corporate governance structures available in the developed world but there is no one structure,

which can be singled out as being better than the others. There is no “one size fits all” structure

for corporate governance. Corporate governance extends beyond corporate law. Its fundamental

objective is not the mere fulfillment of the requirements of law but in ensuring commitment of

the board in managing the company in a transparent manner for maximizing long term

shareholder value. The environment in which companies operate in India also changes. In this

dynamic environment the systems of corporate governance also need to evolve. The

recommendations made by different expert committees will go a long way in raising the

standards of corporate governance in Indian companies and make them attractive destinations for

local and global capital. These recommendations will also form the base for further evolution of

the structure of corporate governance in consonance with the rapidly changing economic and

industrial environment of the country in the new millennium.

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BIBLIOGRAPHY

REFRENCE BOOKS/ARTICLES

 Corporate governance: How new rules will change Indian companies

January 8, 2013 John Samuel Raja D , ET Bureau

 Disaster Management By G.K. Ghosh A.P.H. Publishing Corporation

WEBSITES

 http://www.environmental-expert.com/articles/keyword-disaster-management-4773
 http://www.wcpt.org/disaster-management/what-is-disaster-management
 http://www.ey.com/GL/en/Issues/Business-environment/Six-global-trends-shaping-the-

business-world---Emerging-markets-increase-their-global-power
 http://earthsky.org/earth/economic-losses-from-earthquakes-and-natural-disasters-peaked-

in-2011

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