Contents – Business Ethics and Corporate Governance

Contents

Preface

About the Author

Abbreviations

 

PART I

Chapter 1. Business Ethics: An Overview

Introduction

Principles of Personal Ethics

Principles of Professional Ethics

What Is Business Ethics?

What Is Not Business Ethics?

Code of Conduct and Ethics for Managers

Evolution of Ethics Over the Years

Importance and Need for Business Ethics

Significance of Business Ethics

Honesty, Integrity and Transparency Are the Touchstones of Business Ethics

Values and Ethics in Business

Values, Ethics and Business Strategy

Distinction Between Values and Ethics

Roots of Unethical Behaviour

Why Does Business Have Such a Negative Image?

Why Should Businesses Act Ethically?

Ethical Decision-making

How Corporations Observe Ethics in Their Organizations?

Changing Business Environment and Ethical Challenges

Corporate Governance Ethics

How Ethics Can Make Corporate Governance More Meaningful

Benefits from Managing Ethics in Workplace

Characteristics of an Ethical Organization

Recognizing Ethical Organizations

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Satyam Computer Services Limited

Chapter 2. Concepts and theories of Business Ethics

Introduction

Definitions of Ethics

Personal Ethics and Business Ethics

Morality and Law

How Are Moral Standards Formed?

Religion and Morality

Morality, Etiquette and Professional Codes

Management and Ethics

Normative Theories

Ethical Theories in Relation to Business

Some More Normative Theories of Business Ethics

Teachings of the Church

Indian Ethical Traditions

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Biocon—India’s Own Home-grown Biotech Company

Chapter 3. Ethics of Consumer Protection

Introduction

Consumer—An Important Stakeholder

Hidden Taxation on Society

Stakeholder Alliance

Consumer and Consumer Protection

Parties to Consumer Protection

History and Growth of Consumer Protection

Ralph Nader’s Contribution to Consumer Protection

Consumer Protection, Why and How

Consumer Duties and Responsibilities

Consumer Protection: Indian Scenario

Spate of Consumer-oriented Legislations

How Are Indian Consumers Exploited?

Consumer Protection in India

Legal Protection to Consumers

Consumer Protection Act, 1986

Consumer Protection (Amendment) Act, 2002

Prevention of Food Adulteration Act, 1954

Institutional Arrangements Under COPRA

Quality Standards

Standards of Weights and Measures

Role and Initiatives of Voluntary Organizations

Other Initiatives to Promote Consumer Protection

Summary

Key Words

Discussion Questions

Notes

Further Reading

Case Study: Wockhardt Ltd—Divergence Between Precepts and Practices

Chapter 4. Environmental Ethics

Introduction

Environmental Concerns

History of Environmentalism

Environmental Philosophy

Environmental Preservation: Role of Stakeholders

Future Outlook on Environment

Partnerships

International Issues

Sustainable Development

Costs and Benefits of Environmental Regulation

Trade and the Environment

Industrial Pollution

Role of Corporations in Environmental Management

Innovative Business Responses to Environmental Regulations

Waste Management and Pollution Control

Improving Corporate Environmental Performance

Need for a New Approach

Environmental Audit

Managing Environmental Issues

Product Differentiation

Managing Regulation

Redefining Markets

Environmental Risk Management

Environmental Management in India

Charter for Voluntary Pollution Control

Corporate India Gets Eco-friendly

India’s Environment Policy

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study-1: E-Waste: The Latest Contributor to Environmental Degradation

Case Study-2: Tirupur—A Study on Its Environmental Degradation

Chapter 5. Marketing Ethics

Introduction

Role of Marketing

Defining Marketing Ethics

The Context of Indian Economy

Normative Marketing Ethics

Areas in Marketing Ethics

Beyond the Four Ps

Summary

Key Words

Discussion Questions

Notes

Further Reading

Case Study: The Cola Conundrum

Chapter 6. Ethical Issues in Human Resource Management

Introduction

Definition

Genesis and Growth of Human Resource Management

Scope of Human Resource Management

Different Aspects of Human Resource Management

Different Functional Areas of HRM

Emerging Challenges of HRM

Changing Profile of HR Professionals

HR-related Ethical Issues

Role of HRM in Creating an Ethical Organization

Institutional Culture

Creating an Ethical Organization

Human Resource Development in India

Functions

Human Development Index

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study-1: The Phaneesh Murthy Sexual Harassment Case

Case Study-2: HMSI—Better Wages Cannot Suppress Workers’ Demand for Their Rights

Case Study-3: The HR Intervention at Rourkela Steel Plant: Involving People in Quality-driven Improvement Culture

Chapter 7. Ethical Issues in Financial Management

Introduction

Financial Accounting

Management Accounting

Financial Management

Ethical Issues in Finance

Frauds in Banks

Measures Against Bank Frauds

Constraints to Ethical Practices in Indian Nationalized Banks

Frauds in the Insurance Sector

Ethical Issues Arising out of Activities of Professional Players

Mini Case 1: Xeroxing Corruption

Mini Case 2: Foul Play by Soundcraft Industries’ Promoter

Mini Case 3: Tricking Investors for Personal Gain

Mini Case 4: Dereliction of Duty by a CFO

Key Words

Discussion Questions

Notes

Further Readings

Chapter 8. Corporate Ethics: Investors’ Rights, Privileges, Problems and Protection

Introduction

Ethical Governance Needed to Protect Stakeholders

Theoretical Basis—Agency Costs

Long-term Shareholder Value

Rights of Shareholders

Views of Various Committees on the Issue

Poor Track Record of Shareholder Protection in India

Guide for Investors/Shareholders

Investor Protection in India

N. K. Mitra Committee on Investor Protection

Problems of Investors In India

Law Enforcement for Investor Protection

Lacunae in Investor Protection

SEBI’s Poor Performance and Suggestions for Improvement

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: On Insider Trading (HLL–BBLIL Merger)

Chapter 9. Handmaid of Ethics: Corporate Social Responsibility

Introduction

Why Social Responsibility of Business?

Definitions of CSR

Today’s Corporate Social Responsibility

Theoretical Justification for CSR

What Are Corporations Expected to Do?

Models for Implementation of CSR

CSR As a Business Strategy for Sustainable Development

Advantages of CSR

Scope of CSR

Steps to Attain CSR

External Standards on CSR

Prestigious Awards for CSR

The Indian Perspective

India on the Ethical/CSR Matrix

Core-BCSD India

Ethics and Social Responsibility of Business

Social Responsibility and Indian Corporations—A Score Card

Future of Indian CSR

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Dr Reddy’s Laboratories: Commitment to All-round Corporate Excellence

Chapter 10. Ethical Dilemmas, Sources and Their Resolutions

Introduction

What is an Ethical Dilemma?

How Ethical Dilemmas in Business Affect the Stakeholders?

Corporate Dilemma Over Ethical Behaviour

Sources of Ethical Problems

Why Does Business Have a Negative Image?

Why Businesses Should Act Ethically?

How Corporations Observe Ethics to Reduce Dilemmas?

Code of Personal Ethics for Employees

How to Create an Ethical Working Environment?

How Does a Company Establish Ethical Standards?

Walton’s Six Models of Business Conduct

How to Resolve an Ethical Problem?

How to Resolve Ethical Dilemmas?

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: HLL’s Folly: Mercury Spill in Kodaikanal

Chapter 11. Ethical Decision-making in Business

Introduction

Ethical Models That Guide Decision Making

Which Approach to Use?

Ethical Decision Making with Cross-holder Conflicts and Competition

Applying Moral Philosophy to Ethical Decision Making

Kohlberg’s Model of Cognitive Moral Development

Influences on Ethical Decision Making

Personal Values and Ethical Decision Making

Corporate Values and Ethical Decision Making

Role of Corporate Governance In Ensuring Ethics in the Workplace

A Framework of Ethical Decision Making

The Process of Making Good Ethical Decisions

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Global Trust Bank: The Bank That Went Bust

Chapter 12. Globalization and Business Ethics

Introduction

Growth of Global Corporations

Factors Facilitating Globalization

Doing Business in a Diverse World

Role of Multinational Corporations

Current Issues—Multinational Corporations

International Business Issues

Benefits of MNCs to the Host Nation

Disadvantages of MNCs to the Host Country

International Codes of Business Conduct

The Limits of Voluntary Approach

Caux Round Table: Principles for Business

Challenges of Globalization in the Context of Growing Market Economies

Public Awareness and Scrutiny

Technological Challenges and Opportunities

The Physical Environment

The Social Environment

Key Global Issues for Business

Corporate Governance Is a Prerequisite for Globalization

Global Compact

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Sterlite: Using Money Clout to Maximum Advantage

 

PART II

Chapter 13. Corporate Governance: An Overview

Introduction

Capitalism at Crossroads

America’s Hall of Shame—2002

Corporate Misgovernance in India

Series of Scams That Shook Investor Confidence

Illegal Tactics of Indian Corporates

Reasons for Corporate Misgovernance

Increasing Awareness

Global Concerns

What Is Corporate Governance?

Narrow Versus Broad Perceptions of Corporate Governance

Perceptional Differences in Definitions

Governance Is More Than Just Board Processes and Procedures

A Historical Perspective of Corporate Governance

The Growth of Modern Ideas of Corporate Governance from the USA

The Aftermath of the Cadbury Report

Corporate Governance in the Banking Sector

Revival of Corporate Governance Issues in the New Millennium

Issues in Corporate Governance

Relevance of Corporate Governance

Governance and Corporate Performance

Investors’ Preference for Good Governance

Benefits to Society

Benefits of Good Corporate Governance to a Corporation

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Infosys Technologies: The Best Among Indian Corporates

Chapter 14. Theory and Practice of Corporate Governance

Introduction

The Concept of Corporation

What Is a Corporate?

The Concept of Governance

Theoretical Basis of Corporate Governance

Why Corporate Governance?

Contemporary Corporate Governance Situation

Growing Awareness and Societal Responses

Corporate Governance Systems

The Anglo-American Model

German Model

The Japanese Model

Common Features in the German and Japanese Models

Indian Model of Governance

What is ‘Good’ Corporate Governance?

Obligation to Society at Large

Obligation to Investors

Obligation to Employees

Obligation to Customers

Managerial Obligation

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Tata Steel: A Company That Also Makes Steel

Chapter 15. Landmarks in the Emergence of Corporate Governance

Introduction

Developments in the US

Developments in the UK

Corporate Governance Committees

Cadbury Committee on Corporate Governance, 1992

The Paul Ruthman Committee

The Greenbury Committee, 1995

The Hampel Committee, 1995

The Combined Code, 1998

The Turnbull Committee, 1999

World Bank on Corporate Governance

OECD Principles

McKinsey Survey on Corporate Governance

Sarbanes–Oxley Act, 2002

Indian Committees and Guidelines

The Confederation of Indian Industry’s Initiative

SEBI’s Initiatives

Kumar Mangalam Birla Committee, 1999

Non-mandatory Recommendations

SEBI’s Response

Naresh Chandra Committee Report, 2002

SEBI’s Follow-up on Birla Committee Report

Rationale for a Review of the Birla Code

Narayana Murthy Committee Report, 2003

Mandatory Recommendations

Dr J. J. Irani Committee Report on Company Law, 2005

Independent Directors in Listed Companies

Pyramidal Structures

Power to Shareholders

Single Person Company

Self-regulation

Stringent Penalties

Accounts and Audits

Governance Standards

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: ITC Limited: Is Corporate Governance Only Skin Deep?

Chapter 16. Board of Directors: A Powerful Instrument in Corporate Governance

Introduction

Corporate Management Structure

Company Director and the Board

Who is a Director?

Kinds of Directors

Directors’ Appointment

Legal Position of a Director

Duties and Responsibilities of Directors

Qualifications and Disqualifications of Directors

The Board of Directors

Powers of the Board

Nominee Directors

Liabilities of Directors

The Directors’ Liability to the Company

Liability for Breach of Statutory Duties

Liability for Acts of His Co-directors

Power of Court to Grant Relief

Directors with Unlimited Liability

Public Examination of Directors

Validity of Acts of Directors

De Facto and De Jure Directors

Disablities of Directors

Prevention of Management by Undesirable Persons

Fraudulent Persons

Effectiveness of the Board of Directors

Role of the Board in Ensuring Corporate Governance Role of the Board

Governance Issues Relating to the Board

Board of Directors and Corporate Governance

The Role of Directors

Independent Directors

Directors’ Remuneration

Executive Pay, an Unsettled Issue

Emphasis on Transparency and Disclosure

Pay As a Reward for Performance

Performance Hurdles

Remuneration Committee

Severance Payments

Other Remuneration Packages

Directors’ Remuneration in India

Prohibition of Tax-free Payments

Family-owned Businesses and Corporate Governance

Some Pioneering Indian Boards

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: How Unethical Practices Almost Destroyed Worldcom

Chapter 17. Role, Duties and Responsibilities of Auditors

Introduction

Role of Auditors

Defining Audit

Objectives of an Audit

Types of Audit

Defining Auditor

Types of Auditors

Duties of an Auditor

Responsibilities of Auditors

Responsibilities Regarding the Mis-statement of Financial Statements

Responsibilities of an Audit Firm

Audit Failures Leading to Corporate Scams

The American Law Governing Auditors’ Responsibilities

Indian Situation

Preventing Fraudulent Auditing Practices

Audit Committee

Rotation of Auditors

Naresh Chandra Committee

Companies (Amendment) Bill, 2003

Companies (Auditors Report) Order (CARO), 2003

Corporate Governance and Internal Auditors

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: The Rise and Fall of Arthur Andersen

Chapter 18. Monopoly, Competition and Corporate Governance

Introduction

The Concept, Logic and Benefits of Competition

Regulation of Competition

Corporate Governance Under Limited Competition

Constraints to Competition in Developing Countries

Banks’ Role in Restraining Emergence of Securities Markets

Lack of Competition Promotes Ownership Concentration

Benefits of Competition to Stakeholders

Competition in the Product Market

Competition in a Capital Market

Economic Power and Political Influence

Competition and Political Governance

Effects of Monopoly on Political Governance

Effects of Monopoly on Corporate Governance

Encouraging Good Governance

Regulating Good Governance

Enforcement of Good Governance

Challenges to Good Enforcement

Competition Agencies and Competition Policies

What Is a Good Competition Policy?

Indian Competition Act

Objectives of the Bill

The Competition Act, 2002

Competition Commission of India

The Three Focus Areas of Competition Act

The MRTP Act and the Competition Act

Restrictions on the Applicability of the Act

Change in the Mindset Needed

Competition Boosts Corporate Governance

Summary

Key Words

Discussion Questions

Notes

Further Readings

Chapter 19. Role of the Government in Ensuring Corporate Governance

Introduction

Government Interference in Market Economies

Different Roles of Government in the Economy

Regulatory Role

Promotional Role

Entrepreneurial Role

State Intervention in a Developing Economy

Public Governance and Corporate Governance

Political Governance Requires Restraints of Power

Forms of Government Regulation

Role of Governments in Limiting Corporate Power

The Limits of Corporate Power

Demand for Corporate Constitutionalism Is a Knee-jerk Reaction

Corporations Are Voluntary Associations

Corporate Governance Requires the Freedom to Create and to Execute

Corporations Do Not Possess the Power of Coercion

Public Versus Corporate Governance—A Study of Comparison

Corporate Governance Can Be an End by Itself

Better Public Governance Can Accelerate Corporate Governance

Role of Globalization and Information Technology

Role of the Judiciary

Governance Is a Matter of Continuous Learning

Of Governance and Government

The Scope of Government’s Relations with Business

Governments Have to Be Proactive in the Following Areas

Enactment of Laws

As a Role Model

Areas That Need Special Attention

Summary

Key Words

Discussion Questions

Notes

Chapter 20. Corporate Governance in Developing and Transition Economies

Introduction

Problems Faced by Developing and Transition Economies

The Why and Wherefore of Corporate Governance

Defining Corporate Governance

Corporate Governance Models

Insider System

Outsider System

Developing a Corporate Governance Framework

The Institutional Framework for Effective Corporate Governance

Sound Stakeholder Relationships are Good for Business

Corporate Governance Challenges in Developing, Emerging and Transition Economies

Corporate Governance Is Not Only a Private Sector Affair

Successful Strategies—One Size Does Not Fit All

Current Corporate Governance Settings in Transition Economies

Indian Companies Committed to Best Global Practices

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Problems and Issues of Corporate Governance in Emerging Economies: Russian Example

Chapter 21. Corporate Governance: The Indian Scenario

Introduction

Why Is Corporate Governance Important?

The Need for Corporate Governance in India

Ethics and Values in Corporate Governance

The Companies Act, the Harbinger of Corporate Governance

The Emergence of Corporate Governance Issues in India

Efforts to Initiate Corporate Governance in the Country

Naresh Chandra Committee, 2002

Narayana Murthy Committee, 2003

Legislative Changes

Introduction of Regulations

Implementation of the Recommendations of Birla Committee Report

Provisions and Requirements of Clause

Differences in the Key Provisions of the Original Clause and the New Clause

CEOS Accountable for Companies’ Risk Systems

Rules of the Game

Reserve Bank’s and Other Regulations

Self Regulation

Pioneers in Good Governance Practices

Corporate Initiatives

Individual Initiatives

Banks and Corporate Governance

Transparency in the Private Sector

Initiatives of the Department of Company Affairs

Setting up of Centre for Corporate Excellence

National Award for Excellence in Corporate Governance Excellence

Corporate Restructuring

Best Practices

Establishment of the Serious Fraud Office

Establishment of the National Foundation of Corporate Governance

Need for Accounting Standards

Corporate Governance Rating

ICRA’s Rating Methodology

Corporate Governance in India—A Performance Appraisal

A Report Card That Does Not Impress

The Future of Corporate Governance in India

Impetus for the Growth of Corporate Governance in India

Summary

Key Words

Discussion Questions

Notes

Further Readings

Chapter 22. SEBI: The Indian Capital Market Regulator

Introduction

Capital Market

Phenomenal Growth of the Indian Capital Market

Nature of the Indian Capital Market

Development of the Indian Capital Market

Deficiencies in the Indian Capital Market

Impact of Globalization

Role of Securities Market in Economic Growth

Abolition of Controller of Capital Issues and Emergence of SEBI

The Securities and Exchange Board of India

Objectives of the Board

Functions of the Board

Powers of the Board

Matters to Be Disclosed by the Companies to the Board (Section 11A)

Power to Issue Directions

Registration of Intermediaries

Establishment of Securities Appellate Tribunals

Civil Court Not to Have Jurisdiction

Strengthening of SEBI

SEBI (Amendment) Bill, 2002

SEBI’s Role in Promoting Corporate Governance

Disclosure Standards

Efficient and Effective Market System

Reliable and Effective Enforcement

Highest Standards of Governance

SEBI’s Record of Performance

SEBI’s Role in the New Era

Primary Market Reforms

Secondary Market Reforms

SEBI’s Shortcomings

Dhanuka Committee

Suggestions for SEBI’s Improvement

Summary

Key Words

Discussion Questions

Notes

Further Readings

Case Study: Ketan Played Around with Others’ Money

Glossary

Useful Web Sites on Corporate Governance and CSR

Official Reports

Prominent Guidelines on Corporate Governance

Links on Corporate Governance