Corporate Governance
& Social Responsibility
Not everything that counts can be counted;
and not everything that can be counted
counts..
Albert Einstein
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Internal mechanism for operating and
controlling business organizations;
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Who
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Whom
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How
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Two sides of the coin :
- the Government
shaping the legal, institutional and
regulatory climate within which the CG
systems are developed
- the Corporations
themselves ensuring that there is good
governance as they operate
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Simply put, CG is the Way a company is run.
It has become a major concern following the
disasters such as Enron, BCCI and many more.
The concern is that of
Checks and Balances
so that the wholesale fraud or abuse of office will
not recur.
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the way are the
Rules, Regulations and Practices
about responsibilities and duties of directors
and the relationship between
Board, Shareholders and other stakeholders
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Compliance
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Transparency
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Accountability
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Board Size – Min 5, Max 20
(1/10th of the Board, not less than 1 must be independent
member)
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Chairman and CEO, preferably different individuals
Provision for
 CFO
 Head of Internal Audit
 Company Secretary
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CFO to attend all Board Meetings
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Formation of Board Audit Committee
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Statement of Compliance in Directors’ Report
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Proper Books of Accounts are kept
International Accounting Standards are
followed
Internal Controls are adequate
Explanations given for significant deviations
from the previous year’s operating results
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Summary of key operating and financial data for
at least last 3 years
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Reasons for non-declaration of dividend for the
year
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Record kept of the Board Meetings held and
attended by each Director
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Pattern of aggregate shareholdings by category
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Formed by the Board as a Sub-Committee.
Comprises of at least 3 Directors, one of
whom is an independent Director, who are
financially literate.
Various Formats of reporting.
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Honesty
Trust and Integrity
Transparency
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Performance Orientation,
Responsibility and Accountability,
Mutual respect
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Commitment to the organization
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ensure
the accountability of certain individuals
in the organization
through instruments that
try to reduce or eliminate
the principal-agent (shareholders–managers)
problem
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Since the late 1970’s, corporate governance
has been the subject of much debate in the
U.S. and other countries.
Efforts to reform corporate governance have
been driven, in the main,
by the needs and desires of shareowners to
exercise their rights of corporate ownership &
to increase the value of their shares and,
therefore, wealth.
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In the first half of the 1990s, the issue of
corporate governance in the U.S. received
considerable press attention due to the wave of
CEO dismissals (e.g.: IBM, Kodak, Honeywell) by
their boards.
A wave of institutional shareholder activism to
ensure that corporate value would not be
destroyed by the traditionally cozy relationships
between the CEO and the board of directors (e.g.,
by the unrestrained issuance of stock options, not
infrequently back dated).
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In 1997, the East Asian Financial Crisis saw
the economies of Thailand, Indonesia, South
Korea Malaysia and the Philippines severely
affected by the exit of foreign capital after
property assets collapsed.
The lack of corporate governance
mechanisms in these countries highlighted
the weaknesses of the institutions in their
economies.
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In the early 2000s, the massive bankruptcies
(and criminal malfeasance) of Enron and
WorldCom, as well as lesser corporate
debacles, such as Arthur Andersen, and Tyco
increased shareholder and governmental
interest in corporate governance.
This culminated in the passage of the
Sarbanes-Oxley Act of 2002.
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The world has not yet got over the state of
shock from the financial meltdown that was
preceded by a decade of irrational
exuberance (Alan Greenspan).
Among the many reasons leading to the
meltdown was the withdrawal of GlassSteigall Act 1933, that separated commercial
banking activity from investment banking.
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The withdrawal of the act in 1999 led to the
“commercial banks becoming investment
banks and investment banks becoming hedge
funds”.
Subprime lending was a natural extension.
Subsequent financial meltdown put the very
existence of financial institutions into
question.
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Capital market is a relatively new
phenomenon in Bangladesh.
Within a short time since independence it has
grown to a respectable size of almost $20b
from less than a billion in the 90s.
The 1996 crash of the capital market is the
most significant factor leading to the
resurgence of CG in Bangladesh. Much has
happened since then.
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There are various guidelines on CG that
include the SEC guideline 2006 and
Bangladesh Bank circular of various dates.
Other regulatory frameworks of importance
are;
- Companies Act 1994
- Banking Companies Act 1991
- SEC Act 1993
- Depository Act 1999
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How may outside Directors do you have in the
board?
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Do your directors routinely speak to senior
managers who are not represented on the board?
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Does your audit committee routinely review the
“high exposure” areas?
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Do outside directors annually review succession
plans for senior management
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Do outside directors formally evaluate your
CEO’s strengths, weaknesses, objectives,
personal plans and performance every year?
Is there a way for outside directors to alter
the meeting agenda set by the CEO?
Is there sufficient meeting time for thoughtful
discussion in addition to management
monologue?
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Do the outside director’s meet without
management on a regular basis?
Is there a way for outside directors to alter
the meeting agenda set by the CEO?
Note : This is by no means an exhaustive list. You may want to add
some as per your knowledge or experience.
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Moral Obligations :
- Being Good Citizen
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Sustainability
:
- Meeting present needs without compromising future
ability.
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License to Operate :
- Explicit or Tacit permission to operate from government,
society, stakeholders.
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Reputation
:
- Company image, branding, enliven morale , stock prices.
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Being responsible for the impact of activities
on
- customers
- suppliers
- employees
- shareholders
- communities
- other stakeholders
- the environment
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extends beyond the statutory obligation to
comply with legislation
sees organizations voluntarily taking further
steps to improve the quality of life for
employees and their families as well as for the
local community and society at large.
The practice of CSR is subject to much debate
and criticism.
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Proponents argue that there is a
strong business case for CSR, in that
corporations benefit in multiple ways
by operating with a perspective
broader and longer than their own
immediate, short-term profits.
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Critics argue that CSR distracts business
from the fundamental economic role
Others argue that it is nothing more than
superficial window-dressing.
Still others argue that it is an attempt to preempt the role of governments as a watchdog
over powerful multinational corporations.
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Sustainability may be defined as the integration of
economic, social and environmental aspects to
meet the needs of the present without
compromising the ability of future generations to
meet their own needs .
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Credible business practices such as exploitation
of labour or the prevention of fraudulent
activities such as accounting manipulation are
integral part of sustainable business.
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The challenge is how to put the principles into
practice and to implement SR effectively and
efficiently.
Both Dow Jones and FTSE have special indices
for companies as per attention paid to the
sustainability requirement.
There are two types of sustainability codes of
implementation as follows;
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Performance Oriented
- minimum standard of what constitutes
social responsibility SA8000
Process Oriented
- procedures a company should follow
AA1000
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has undertaken the development of the future
ISO 26000 standard for providing voluntary
guidance on Social Responsibility (SR).
ISO 26000 will contain guidelines, not
requirements, and therefore will not be for
use as a certification standard like ISO
9001:2000 and ISO 14001:2004.
It will be ready in late 2010.
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54 countries and 33 organizations are
participating in the working group for SR under
the joint leadership of the ISO members for Brazil
and Sweden.
The stakeholder groups in the main are;
- industry, government, labour, consumers
- nongovernmental organizations, service,
support,
- research and others with
- a geographical and gender-based balance of
participants.
is the international specification for an
environmental management system (EMS).
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It specifies requirements for establishing an
environmental policy, determining environmental
aspects and impacts of
products/activities/services, planning
environmental objectives and measurable
targets, implementation and operation of
programs to meet objectives and targets,
checking and corrective action, and management
review.
is similar to ISO 9000 quality management in that both
pertain to the process (the comprehensive outcome of
how a product is produced) rather than to the product
itself.
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The overall idea is to establish an organized approach
to systematically reduce the impact of the
environmental aspects which an organization can
control.
As with ISO 9000, certification is performed by thirdparty organizations rather than being awarded by ISO
directly.
expands the traditional reporting framework to
include ecological and social performance in
addition to financial performance.
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It is an expanded spectrum of values and criteria
for measuring organizational success –
economic, environmental and social.
Adopted in 2007 through the initiatives of the
UN.
pertains to fair and beneficial business
practices toward
- the labour
- the community
- the region
in which a corporation conducts its business.
refers to sustainable environmental practices.
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Life cycle (Cradle to Grave) assessment of
products to determine what the true
environmental cost is from
the growth and harvesting of raw material
to manufacture
to distribution
to eventual disposal by the end user.
is the bottom line shared by all
commerce, ethical or otherwise.
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CSR is still regarded as charity in most
organizations, or at best as an image building
exercise.
Consequently CSR is delinked from the
mainstream activities of the organization.
When the time is good CSR activities abound,
and in bad times these are pushed aside.
This need not be so if CSR is linked with the
company strategy.
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Of the 4 broad perspectives of CSR the
company can choose the activities that fit the
company strategy such as
- Toyota Prius stressing environmental sustainability
- CISCO linking with human resources through CISCO
Networking Academy.
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Two ways of looking at the CSR are
- Inside-Out View ( Value Chain)
- Outside-in Views (Macro Environment)
and then decide on the activities as relevant.
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CG and SR are two sides of the same coin.
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One is meaningless without the other.