CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY: PROBLEMS AND ISSUES

Transcription

1 CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY: PROBLEMS AND ISSUES A Summary of the Thesis Submitted to Maharshi Dayanand University, Rohtak for the award of the degree of DOCTOR OF PHILOSOPHY IN LAW Under the Supervision of: Dr. Naresh Kumar Professor, Law Department M.D. University, Rohtak Submitted by: Deepak Miglani LL.M. DEPARTMENT OF LAW MAHARSHI DAYANAND UNIVERSITY ROHTAK (HARYANA) 2012

2 1 CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY: PROBLEMS AND ISSUES (SUMMARY) A Introduction The growing role of market in the world, i.e. market oriented economy in the later part of the 20 th century has led to the spread of capitalism, globalization, liberalization, privatization, demanding efficiency, corporate culture, model code of conduct and business ethics for the very survival of the corporate world. The concept of corporate governance emerged in the late 1980 s when several companies collapsed in U.K. because of inadequacy of operating control. This led to the setting up of Cadbury Committee on corporate governance in 1991 by the London Stock Exchange. Further a numbers of scams and frauds that have surfaced during the last three decades have also shocked the confidence of the investors. In this research, an attempt has also been made to discuss the famous scams in addition to corporate governance. India is a traditional country having historical background going way back to many centuries. It has its own culture and value system. It has its own legends and similarly own management practices. Indian economy is very old and its crafts and artistic products were well known world over. It is a fact that before the British ruled in India, India was well known exporter of many goods to other countries and always had a favourable balance of payment. The present day corporate sector in India is governed by the Companies Act and many other regulations passed from time to time. But, the Indian Management practices and corporate governance is a blend of provisions provided by various laws, government directives and Indian social and marketing traditions. Most of the books and thesis directly deals with the concept of corporate governance without thinking that to understand the provisions of Companies Act related with corporate governance and corporate social responsibility, one needs to analyse first the provisions of Companies Act related with corporate governance and corporate social responsibility.

3 2 Most of the Indian companies have the family members on the board of directors. Although the companies use public money in the form of share capital but most of directors belong to the same family. They control all the decision making processes and the small investors have no role to play in decision making and control. This is because the majority of the investors in India are small-scale investors. However, the amendments in the Companies Act, 2000 has tried to plug the lacuna by inserting a provision for appointment of a representative director for small scale investors. Through this thesis, the researcher has tried to interpret technical provisions into simple language which can be understood even by laymen. Corporate governance is considered as a system by which companies are directed and controlled. It is a set of standards which aims to improve the company s image, efficiency, effectiveness and social responsibility. Sustainability ensures the long-term financial and economic viability of corporate investments and of requiring compliance with minimum environment viability and social standards. In this study, the researcher has critically analysed the concept of corporate governance and corporate social responsibility and the relationship between them. The issue of corporate social responsibility is an integral part of corporate strategy, planning and operational performance. Profitability should not be the sole criteria of vision and vital factor in judging the company s performance but corporates should also focus on their responsibility towards society at large. Corporate social responsibility is the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life. It covers a variety of sensitive issues such as human rights, worker s rights, supplier s relations and involvement. In the fast changing business environment when companies are driven by market forces and competitive pressures, they are judged by markets primarily by the financial indicators, namely, profits, earnings per share, etc. Board members receive incentives based on these performance indicators. If, socially responsible behaviour does not reflect into a company share price or its profits, companies would not have the inclination and incentive to pursue socially responsible polices.

4 3 The purpose of the present study is to cover the complete scenario of corporate governance and corporate social responsibility and make an insight in to the people who are responsible for good governance of company. This research work will also analyse a comprehensive view of the governmental approach towards corporate governance and corporate social responsibility issues in India. B Objectives of the Study It is said that a problem is what gives us power and energy to solve them as every problem has in it seeds of its own solution. This statement signifies the need of defining the objective of research. An attempt has been made in this research work to study and understand the important facets of the corporate governance and corporate social responsibility in comprehensive way and to achieve new insights into it. The main objectives of the present study are as under: 1. To understand the basic concept of corporate governance and corporate social responsibility. 2. To trace the origin and development of the corporate governance. 3. To indentify the major problems in the field of corporate governance. 4. To critically examine the position of directors in corporate governance. 5. To analyze the role of auditors in corporate governance. 6. To discuss comprehensively the relationship of corporate governance and corporate social responsibility. 7. To decipher as to how the issue of corporate governance has been dealt with in the Indian Scenario. 8. To find out the international initiatives on corporate governance. 9. To point out the possible defects and loopholes in the existing laws relating to corporate governance. 10. To suggest the reforms and remedial measures for the prevention and control of corporate scams.

5 4 C Research Methodology The methodology of research differs according to subject. This study is doctrinal in nature. An Attempt has been made to make a comparative analysis of laws relating to Corporate Governance and Corporate Social Responsibility. This monograph is an attempt in direction of getting a world view of corporate governance. The material from decided cases of Courts of United Kingdom and India have been used wherever required. The basic data has been drawn from the decided cases of the High Courts and Supreme Court of India. The cases has been mainly studied from the A.I.R. and S.C.C.,etc. As the scope of the subject is vast and still expanding with regular output of decisional material from the courts, a representative selection of cases from Supreme Court and High Court of India has been made to cover all the important aspects of the chosen problem. A list of cases has been given for ease of reference to the reader. D CHAPTER SCHEME The present research work has been divided into eight chapters. These are as under: 1. Chapter 1: Introductory articulates the problem of study in the area of corporate governance and corporate social responsibility. It covers the methodology employed and gives an overview of literature. 2. Chapter 2: Corporate Governance-An Overview analyses the concept of corporate governance; the elements of corporate governance, factors influencing the corporate governance, edifice of corporate governance, its relation with capital structure, democracy, first diversification, role of state and financial institutions. It also critically examines the relationship with strategic leadership, the relationship with shareholder value analyses and the relationship of corporate governance with corporate social responsibility etc. 3. Chapter 3: Upheavals in Corporate World examines the various corporate scams happened in corporate world. It throws light on the development of corporate governance in India. It also covers the recommendations of various committees appointed by Indian Government and Government of other countries.

6 5 4. Chapter 4: Role of Directors in Corporate Governance makes an exhaustive study about the role of directors in corporate governance. It also throws light on some general aspects like board room, board leadership, director s interest, remuneration paid to directors, restriction on the number of directorship, restriction on the appointment of directors, board report, disqualification of directors, and also the role of nominee director. It also critically examines the independent director in terms of its role, position, selection, responsibilities, remuneration, status and limitations. 5. Chapter 5: Corporate Governance and Securities Laws makes an exhaustive study about the provisions of the Securities and Exchange Board of India Act, the Securities Contract Regulation Act, Depositories Act and regulations made by Securities and Exchange Board of India relating to corporate governance. 6. Chapter 6: Corporate Governance in Companies Act with Special Reference to Auditing and Accounting examines the role of accountant and auditors in corporate governance; provisions relating to audit committee, appointment of auditor, auditor report, audit of cost accountant in certain cases, books of accounts to be kept by a company, annual accounts and balance sheet, Balance-sheet of Holding Company to include Certain Particulars as to its Subsidiaries, Financial Year of Holding Company and Subsidiary, Authentication of Balance-Sheet and Profit and Loss Account, Duty of Officer to make Disclosure of Payments, protection of interest of small depositors, inspection, political contributions, type of issue of new share capital in company law. It also throws light on corporate democracy including Passing of Resolutions by Postal Ballot,Requirement regarding Postal Ballot, Notice of Postal Ballot, Passing of a Resolution etc. 7. Chapter 7: Social Commitment and Corporate Social Responsibility examines the relationship between corporate governance and corporate social responsibility, meaning and concept of corporate social responsibility, alternative to corporate social responsibility, drivers of corporate social responsibility, relationship between stakeholder management and corporate social responsibility, corporate social performance, role of NGOs in corporate social responsibility, relationship between social responsibilities and marketing. It further examines the responsibilities of companies under the Companies

7 6 Act, various labour legislations, pollution laws, the Essential Commodities Act, the Drugs and Cosmetics Act, the Income Tax Act etc. It also enumerates the model of corporate social responsibly, Gandhiji Ideas on trusteeship and social responsibilities of companies, positive and negative aspects of social responsibilities of companies. 8. Chapter 8: Conclusion and Suggestions covers the conclusions arrived at as a result of the discussions in the various chapters. An attempt has also been made to point out the shortcomings and lacunae in the present laws and to suggest the remedial measures to ensure good corporate governance and corporate social responsibilities. The seeking is the goal and research is the answer. It is believed that the thesis may throw light on the subject of corporate governance and corporate social responsibilities in a holistic way. It is earnestly hoped that the conclusions drawn and the suggestion presented on the basis of critical study in this disclosure will be a real contribution to the field. It is said that the best way to become acquainted with a subject is to write a book on it. The present research work is only an attempt to understand the concept of corporate governance and corporate social responsibility and relationship between them and relevant laws dealing with the corporate governance and social responsibility. Based on the study following, suggestions are made: 1. Comprehensive Definition of Independent Director 2. Separate Chairman and CEO 3. Overall Development of Directors 4. Performance Evaluation System and Monitoring 5. Effective Remuneration Committee 6. Effective and Vigilant Nominations Committee 7. Mandatory Corporate Compliance Committee 8. Transparent Remuneration Policy 9. Responsibility Statement and Compliance 10. Protection to Whistle Blower

8 7 11. Change of Auditors from Time to Time 12. Standardization of Presentation in Annual Report 13. Prohibition of Solicitation in Annual Report 14. Disclosure of Conflict of Interest by Institutional Investors 15. Public and Investor Relation Cell 16. Boards should be Responsible for Sustainability 17. Establishment of Risk Management Professional Unit 18. Independent Audit Committee 19. Continuous Review of the Audit Committee 20. Legal Experts in Audit Committee 21. Recognizing Role of Various Players in Promoting CSR 22. Review of existing CSR Policy 23. Carrying of CSR Activities with Commercial Activities 24. Integration of Business Plan with CSR 25. Shifting of CSR Planning needs from Adhoc Charity to a Long Term Sustainable Approach 26. Matching of Long Term CSR Plan with Long Term Business Plan 27. Helping of CSR Activities in Building a Positive Image of Company 28. Selection of activities under CSR 29. Involvement of Suppliers in CSR

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