Session 14
Session 14
Session 14
Organizational purposes
Corporate governance -Whom should the organization serve? -How should purposes be determined? Business Ethics -Which purposes should be prioritized? Why?
Ethics
What is the objective of the firm/sca/stakeholdrs objective/creating value Why does the firm exist, and in the form it does
CSR
Who are the stakeholders- what type, how do we understand them
Governance
How are the stakeholders interests/objectives taken care of ?
Ethics
The principle of conduct professional ethics A system or philosophy of conduct A discipline dealing with what is good and bad- moral duty and obligation A set of moral principles or values.
Ethical standards may be expressed in a companys formal conduct requirements, or contained in generally stated principles that guide a companys preferred conduct or behavior. Most companies have put in place a code of ethics for its employees to conduct themselves in a particular manner while doing business. Code of ethics for certain professions
Stakeholder approach
In defining or redefining the company mission, strategic managers must recognize the legitimate rights of the firms claimants. These include outside stakeholders affected by the firms actions.
Following CIIs initiative, the Securities and Exchange Board of India (SEBI) set up a committee under Kumar Mangalam Birla to design a mandatory-cumrecommendatory code for listed companies The Birla Committee Report was approved by SEBI in December 2000 Became mandatory for listed companies through the listing agreement, and implemented according to a rollout plan
Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees In 2001-02, certain accounting standards were modified to further improve financial disclosures. These were: Disclosure of related party transactions Disclosure of segment income: revenues, profits and capital employed Deferred tax liabilities or assets Consolidation of accounts Initiatives are being taken to (i) account for ESOPs, (ii) further increase disclosures, and (iii) put in place systems that can further strengthen auditors independence
An effective disclosure based regulation (DBR) implies greater responsibilities on the company directors, its management and advisers An effective DBR promotes investor activism Markets believe that perceived benefits outweigh perceived costs
Agency theory is a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored.
Owners pay executives a premium for their service to increase loyalty Executives receive back-loaded compensation. Creating teams of executives across different units of a corporation can help to focus performance measures on organizational rather than personal goals.
Consequences
Restructuring governance structure in American corporations Heightened role of corporate internal auditors Auditors now routinely deal directly with top corporate officials CEO information provided directly by the companys chief compliance and chief accounting officers