1. business ethics 4.2.12
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The word ethics is derived from thGreek word ethos meaning characte
and latin word mores meaning customs
ETHICS AND LAW Law is a consistent set of universal rule
that are widely published, generallaccepted and usually enforced. Thesrules describe the ways in which peoplare required to act in society.
Ethics defines what is good for th
individual and for society and establishethe nature of duties that people owe toneself and others in society
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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.
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Reflection in a companys operations of thevalues and moral principles used in the
communities in which they operate Successful markets and corporate performance
are founded on a commitment to basic ethicaprinciples aligned as much as possible to theinterests of individuals, corporations and society.
Ethical standards may be expressed in acompanys formal conduct requirements, ocontained in generally stated principles thaguide a companys preferred conduct or behavior
Most companies have put in place a code oethics for its employees to conduct themselves ina particular manner while doing business.
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Ethics are the guiding principles. Where the proposed business activity/
operation of the company borders on thunknown, the company needs to apply th
ethics principle to decide the course of action Ethics help make relationships mutuall
pleasant and productive- imbibes a sense ocommunity among members- a sense o
belongingness to society.
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To define acceptable behavior To promote high standards of practice
To provide a benchmark for self-evaluation
To establish a framework for professional behavior and responsibilities
As a vehicle for occupational identity
As a mark of occupational maturity.
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OriginalCompliance
Enforcement
Punishment
Directive
Secretive
Integrity
Inspiration
Motivation
Educational
Open
Revised
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Written code of ethics
Employee commitment
Employee training
Discipline process
Full disclosure
Building expectations
Resolution process conflict management
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A formal code of business conduct and ethics.
To be signed and adhered to by employees.
Action against any employee for violation thereof.
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General standards of conduct Management of conflicts of interest
Prohibition of exploitation of corporate opportunities
Protection ofcompanys confidential information
Obligations under securities laws
Use of assets
An entire section on responsibilities to customers and stakeholders.
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Corporate Governance is concerned with holdingthe balance between economic and social goalsand between individual and communal goals.
The corporate governance framework is there toencourage the efficient use of resources and
equally to require accountability for thestewardship of those resources.
The aim is to align as nearly as possible theinterests of individuals, corporations and society
- Sir Adrian Cadbury
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The primary purpose of corporate leadership is tocreate wealth legally and ethically.
This translates to bringing a high level of satisfactionto five constituencies --customers, employees,investors, vendors and the society-at-large.
The raison d'tre of every corporate body is to ensurepredictability, sustainability and profitability ofrevenues year after year.
- N R Narayana Murthy
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Unlike South-East and East Asia, the corporate governanceinitiative in India was not triggered by any seriousnationwide financial, banking and economic collapse
Also, unlike most OECD (Organisation for Economic Co-operation and Development ) countries, the initiative inIndia was initially driven by an industry association, theConfederation of Indian Industry In December 1995, CII set up a task force to design a voluntary code
of corporate governance The final draft of this code was widely circulated in 1997 In April 1998, the code was released. It was called Desirable
Corporate Governance: A Code Between 1998 and 2000, over 25 leading companies voluntarily
followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddys
Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI andmany others
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Following CIIs initiative, the Securities
and Exchange Board of India (SEBI) setup a committee under Kumar MangalamBirla to design a mandatory-cum-recommendatory code for listed
companies The Birla Committee Report was
approved by SEBI in December 2000
Became mandatory for listed companies
through the listing agreement, andimplemented according to a rollout plan
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Following CII and SEBI, the Department of CompanyAffairs (DCA) modified the Companies Act, 1956 to
incorporate specific corporate governance provisionsregarding independent directors and auditcommittees
In 2001-02, certain accounting standards weremodified 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 placesystems that can further strengthen auditorsindependence
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Enhancement of ShareholderValue, keeping in view theInterests of other Stakeholders
CG a Way of Life rather than aCode
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The Board of Directors Pivotal role
Accountable to stakeholders
Directs management
The Shareholders & StakeholdersTo participate in appointment of directors
To hold the BoD accountable for governance through
proper disclosures
The Management To act on the direction of the BoD
To provide requisite information to the BoD fordecision making
To implement and monitor control systems
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An effective disclosure based regulation(DBR) implies greater responsibilities on
the company directors, its management
and advisers
An effective DBR promotes investoractivism
Markets believe that perceived benefits
outweigh perceived costs
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Disclosures Disclosures
by whom for whom
Public Listed Cos. ShareholdersIntermediaries Investors
Stock Exchanges MARKET Intermediaries
Mutual Funds Regulator
Analysts & advisors Government
Other stake -
holders
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Components & types of disclosures
Initial Disclosures Disclosures for raisingcapital by companies, mutual funds in offerdocuments
- Public Offers
- Private Placement
Continuous disclosures financial / non-financial
Frequency of disclosure
Dissemination process electronic, physical,centralised, dispersed
Accessibility of information
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Initial Disclosures Continuous disclosures
Corporate Governance
Financial disclosures Risk based disclosures for intermediaries
Disclosures for stock exchanges
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Board of Directors: information that must besupplied
Annual, quarter, half year operating plans, budgets andupdates
Quarterly results of company and its business segments
Minutes of the audit committee and other board committees
Recruitment and remuneration of senior officers
Materially important legal notices and claims, as well as any
accidents, hazards, pollution issues and labor problems Any actual or expected default in financial obligations
Details of joint ventures and collaborations
Transactions involving payment towards goodwill, brandequity and intellectual property
Any materially significant sale of business and investments
Foreign currency and other risks and risk management
Any regulatory non-compliance
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Disclosures to shareholders in addition tobalance sheet, P&L and cash flow statement
Board composition (executive, non-exec, independent) Qualifications and experience of directors Number of outside directorships held by each director
(capped at director not being a member of more than 10board-level committees, and Chairman of not more than5)
Attendance record of directors Remuneration of directors Relationship (familial or pecuniary) with other directors Warning against insider trading, with procedures to
prevent such acts Details of grievances of shareholders, and how quickly
these were addressed Date, time and venue of annual general meeting of
shareholders
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Disclosures to shareholders in addition to balance
sheet, P&L and cash flow statement
Dates of book closure and dividend payment
Details of shareholding pattern
Name, address and contact details of registrars
and/or share transfer agents
Details about the share transfer system
Stock price data over the reporting year, and how thecompanys stock measured up to the index
Financial effects of stock options
Financial effects of any share buyback
Financial effects of any warrants that are to be
exercised Chapter reporting corporate governance practices
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Disclosures to shareholders in addition to
balance sheet, P&L and cash flow statement
Detailed chapter on Management Discussion
and Analysis focusing on markets, operations,
finances, accounts, risks, opportunities and
threats, internal control systems
Consolidated financial statement, incorporating
accounts of all subsidiaries (over 50% shares
held by reporting company)
Details of all significant related party
transactions
Detailed segment reporting (revenues, costs,
operating profits and capital employed)
Deferred tax liabilities and assets and
debit/credit in the P&L for the reporting year
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(A) Basis of related party transactions
I. A statement in summary form of
transactions with related parties in theordinary course of business shall be placed
periodically before the audit committee.
II. Details of material individual transactions
with related parties which are not in the
normal course of business shall be placed
before the audit committee.
III. Details of material individual transactions
with related parties or others, which are not
on an arms length basis should be placedbefore the audit committee, together with
Managements justification for the same
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(B) Disclosure of Accounting Treatment
To disclose in the financial statements, ifan accounting treatment other than
prescribed in Accounting Standard has
been followed alongwith explanation.
(C) Board Disclosures Risk management
Internal and external business risks
Procedures to inform Board members about
the risk assessment and minimization.
Periodically reviewed
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(D) Proceeds from public issues, rights issues,preferential issues etc.
To disclose to the Audit Committee, onuse/application of funds as and when any issueis made
(E) Additional disclosures:
In the Annual Report the criteria of makingpayments to NEDs to be disclosed or a reference
to be made that the same is available on thecompanys website
number of shares and convertible instrumentsheld by NEDs.
NEDs shall disclose their shareholding (both ownor held by / for other persons on a beneficialbasis) in the company in which they areproposed to be appointed as directors, prior totheir appointment.
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F) ManagementA Management Discussion and Analysireport to form part of the Annual Report.
G) Shareholders
Disclosures to shareholders in case oappointment /reappointment of directorsquarterly results and presentations madeshareholders grievance committee anshare transfer committee, shareholdin
pattern-change
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The CEO, i.e. Managing Director and the CFO i.e.whole-time Finance Director or head of the financefunction to certify to the Board that:
(a) They have reviewed financial statements and thecash flow statement for the year and thesestatements:
(i) do not contain any materially untrue statement or omit
any material fact or contain statements that might bemisleading;
(ii) together present a true and fair view of the companysaffairs and are in compliance with existing accountingstandards, applicable laws and regulations.
(b) no transactions entered into by the companyduring the year which are fraudulent, illegal orviolative of the companys code of conduct.
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(c)They accept responsibility for establishing andmaintaining internal controls and that they have
evaluated the effectiveness of the internal controlsystems of the company and they have disclosed tothe auditors and the Audit Committee, deficienciesin the design or operation of internal controls, ifany, of which they are aware and the steps theyhave taken or propose to take to rectify thesedeficiencies.
(d)They have indicated to the auditors and the Auditcommittee(i) Significant changes in internal control during the
year;(ii) Significant changes in accounting policies during the
year and that the same have been disclosed in thenotes to the financial statements; and
(iii)Instances of significant fraud of which they havebecome aware and the involvement therein, if any, ofthe management or an employee having a significantrole in the companys internal control system
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