Unit 3: Corporate Governance: Binod Ghimire

Unit 3:
Corporate Governance
Binod Ghimire
Revising Content
Unit 1 Unit 2
a. Meaning and definition of a. Concept of value
ethics b. Types of formation of
b. Concept of business ethics values
c. Need/Importance of ethics c. values and behavior
d. Nature of business ethics d. Organizational values
e. Scope and objectives e. Shared values
business ethics f. Relevance of ethics and
f. Factors influencing values in business
business ethics
g. Ethical decision making
h. Ethics in workplace and
TQM
Chapter Outline
 Introduction
 Code of corporate governance
 Ethical issues in business related to Advertisement
Finance Investment and technology
 Corporate social responsibility of business.
What is Social Responsibility?
 Social Responsibility is the obligation of
organization’s management to make decisions and
take actions that will enhance the welfare and
interests of society as well as the organization.
 Social responsibility is therefore quite important to

the society, organization and human.
 It can be said that social responsibility is not fixed and

has to be related to pressures at a particular point of
time.
 Socially responsible organization (also called corporate social
responsibility, corporate citizenship, and corporate social
opportunity) is a strategy of an organization to conduct its
business in a way that is ethical and society friendly.
Different Levels of Social Responsibilities
1) Economic
2) Legal
3) Ethical
4) Discretionary Responsibility
The Steps of Social Responsibility
Best and Worst Companies for
Social Responsibility
The World’s Most Ethical Companies
4 Groups of Beneficiaries of
Social Responsibility
 Owners/Shareholders
 Employees
 Customers/Consumers
 Community
Responsibility to Owners
 Resources available are used for the benefit of the
owners/shareholders
 Stability of the enterprise
 Ensure that the company grows, so that the shareholder gains

from increase in the market price of his shares
Responsibility to Employees
 Provide adequate monetary, psychological rewards
as well as job security
 Selection of employees should be made fairly.
 Providing educational opportunities & training to

the employee at company’s expense.
 Working conditions should be safe & pleasant.

Responsibility to Consumers
 To provide prompt courteous & dependable service
 Provide adequate quality products at reasonable price

Responsibility to Community
Should improve quality of life of the people in the community it is
established
Binod Ghimire Ph.D. Lecturer, NCC

Concept of corporate governance
 the system by which business corporations are directed and
controlled
 specifies the distribution of rights and responsibilities
among different participants in the corporation, such as
the board, managers, shareholders and other
stakeholders
 spells out the rules and procedures for making decisions on
corporate affairs
 provides the structure through which the company
objectives are set, and the means of attaining those
objectives and monitoring performance
 Investors are not willing to invest in countries/companies
that are corrupt, prone to fraud, poorly managed and
lacking sufficient protection for investors’ rights
 Securities and company law protection may help, but not
enough
 Corporate Governance supplements the legal framework
 Corporate Governance also plays an important role in
maintaining corporate integrity and managing the risk of
corporate fraud, combating against management
misconduct and corruption
Corporate Governance Parties
 Shareholders – those that own the company
 Directors – Guardians of the Company’s assets for the

Shareholders
 Managers who use the Company’s assets

Principles of Corporate Governance
1. Rights and equitable treatment of shareholders
2. Interests of other stakeholders
3. Role and responsibilities of the board
4. Integrity and ethical behavior
5. Disclosure and transparency

Code of corporate governance
 Corporate governance is the framework of rules, practices, and processes by

which a board of directors ensures accountability, fairness, and transparency in
an organization’s relationship with its all stakeholders (shareholders, customers,
suppliers, employees, government, and the society).
It is the structure of rules, practices, and processes used to direct and manage
an organization. The code of corporate governance reflects in the standards for
good practices relating to
1. Leadership
2. Effectiveness
3. Accountability
4. Remuneration
5. Relation with shareholders
 Case study 1
 A manufacturing company provides jobs for many people in a small
town where employment is not easy to find. The company has
stayed in the town even though it could find cheaper workers
elsewhere, because workers are loyal to the company due to the
jobs it provides. Over the years, the company has developed a
reputation in the town for taking care of its employees and being a
responsible corporate citizen.
 The manufacturing process used by the company produces a by-
product that for years has flown into the town river. The by-
product has been considered harmless but some people who live
near the river have reported illnesses. The by-product does not
currently violate any anti-pollution laws.
 What are the issues of integrity, ethics and law posed in the case
study? What options does the company have, and what should it do
and why?
 Lecturer Guidelines
 Some of the issues raised by this case study include the
factors and decisions that led to the current situation, such
as worker loyalty caused by scarce employment and the
power the company holds over the town; whether the
company is acting consistently with its reputation as a good
corporate citizen and whether not doing so affects its
integrity; the ethics of companies compared to persons, and
whether companies should have more or fewer obligations
and why; whether and why the company should take action
even though the by-product does not violate any laws, and
if it should take action,
 whether the company should establish criteria for helping it
decide when to address complaints that do not raise illegal
actions. Is there a problem with the current state of the law,
and if there is, can the company use that to justify non-
action?
Ethics in business related to advertisement
An advertisement is considered unethical when:
It gives false information.
 It degrades the rival’s product or substitutes.
 It is against the national and public interest.
 It gives misguiding information.
 It is obscene or immoral.
Ethical issues related with advertising
1. Surrogate advertising (Surrogate advertising is a form of advertising
which is used to promote regulated products, like cigarettes and alcohol, in the
disguise of another product)
2. Puffery (Exaggeration)
3. Unverified claims
4. Woman stereotype
5. Comparative advertising
6. Use of children in advertisement

Ethical issues in business related to
Finance and Investment
 The most frequently occurring ethical violations in finance relate
to insider trading, stakeholder interest versus
stockholder interest, investment management, and
campaign financing.
 Some Ethical Concerns in Financial Reporting and
Analysis
 Financial Reporting and Analysis: Faking the Numbers. The most
common ethical concern within reporting and analysis is “faking
the numbers“. ...
 Asset Misappropriation. ...
 Disclosure Concerns
 Crossholding
Ethical issues in business related to
technology
 Technology ethics is the application of ethical thinking
to the practical concerns of technology.
Some of the ethical issues in business related to technology
includes
 Privacy
 Cultural norms and values
 Data collection
 Abuse of data
CSR problems and prospects in Nepal
1) Lack of government policies for CSR
2) Low awareness of CSR

3) CSR or window dressing
4) Expense than responsibility
5) Mandatory CSR- a debatable issue
6) Lack of financial and human resources
7) Non compliance with international standard
8) Lack of community participation in CSR activities

Importance of social responsibility
 Improves financial performance and reduces risk thereby
facilitating easier finance or access to capital.
 Enhances brand image and reputation.
 Increases customer loyalty and sales.
 Increases the ability to attract and retain employees.
 Brings less regulatory oversight.
Corporate Governance
Corporate governance is the framework of rules, practices,
and processes by which a board of directors ensures
accountability, fairness, and transparency in an organization’s
relationship with its all stakeholders (shareholders,
customers, suppliers, employees, government, and the
society).
It is the structure of rules, practices, and processes used to

direct and manage an organization.
 Ethical standards are the principles of honesty, fairness and
integrity. It promotes trust, good behaviour, fairness and
kindness.
 There is not one consistent set of standard that are
meaningful for one organization.
 Each companies has the right to develop the standards that
are meaningful for their organization.
 Ethical Standard should not be vague and complex but
specific such as not to share customer’s privacy with
outsiders.
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 Social responsibility is therefore quite important to

 It can be said that social responsibility is not fixed and

 Stability of the enterprise

 Ensure that the company grows, so that the shareholder gains

 Selection of employees should be made fairly.

 Providing educational opportunities & training to

 Working conditions should be safe & pleasant.

 Provide adequate quality products at reasonable price

Binod Ghimire Ph.D. Lecturer, NCC

 Shareholders – those that own the company

 Directors – Guardians of the Company’s assets for the

 Managers who use the Company’s assets

2. Interests of other stakeholders

3. Role and responsibilities of the board

4. Integrity and ethical behavior

5. Disclosure and transparency

 Corporate governance is the framework of rules, practices, and processes by

 It degrades the rival’s product or substitutes.

 It is against the national and public interest.

 It gives misguiding information.

6. Use of children in advertisement

1) Lack of government policies for CSR

2) Low awareness of CSR

4) Expense than responsibility

5) Mandatory CSR- a debatable issue

6) Lack of financial and human resources

7) Non compliance with international standard

8) Lack of community participation in CSR activities

It is the structure of rules, practices, and processes used to

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