Corporate Governance And

Corporate Social Responsibility

Submitted by:
Richa Arora
14LLB065
Sem-8
 CORPORATE GOVERNANCE

Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled. Corporate governance essentially involves balancing the interests of a
company's many stakeholders, such as shareholders, management, customers, suppliers,
financiers, government and the community. Since corporate governance also provides the
framework for attaining a company's objectives, it encompasses practically every sphere of
management, from action plans and internal controls to performance measurement and
corporate disclosure.

Governance refers specifically to the set of rules, controls, policies and resolutions put in place
to dictate corporate behaviour. Proxy advisors and shareholders are important stakeholders who
indirectly affect governance, but these are not examples of governance itself. The Board of
directors is pivotal in governance.

Corporate Governance is the interaction between various participants (shareholders, board of

directors, and company’s management) in shaping corporation’s performance and the way it is
proceeding towards. The relationship between the owners and the managers in an organization
must be healthy and there should be no conflict between the two. The owners must see that
individual’s actual performance is according to the standard performance. These dimensions
of corporate governance should not be overlooked.

Corporate Governance deals with:

1. The manner the providers of finance guarantee themselves of getting a fair return on
their investment. Corporate Governance clearly distinguishes between the owners and
the managers. The managers are the deciding authority. In modern corporations, the
functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.
2. Determining ways to take effective strategic decisions. It gives ultimate authority and
complete responsibility to the Board of Directors. In today’s market- oriented economy,
the need for corporate governance arises. Also, efficiency as well as globalization are
significant factors urging corporate governance. Corporate Governance is essential to
develop added value to the stakeholders.
3. Ensures transparency which ensures strong and balanced economic development. This
also ensures that the interests of all shareholders (majority as well as minority
 shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights
and that the organization fully recognizes their rights.

Corporate Governance has a broad scope. It includes both social and institutional aspects.
Corporate Governance encourages a trustworthy, moral, as well as ethical environment.
 OBJECTIVES OF CORPORATE GOVERNANCE

The fundamental objective of corporate governance is to boost and maximize shareholder value
and protect the interest of other stake holders. World Bank described Corporate Governance as
blend of law, regulation and appropriate voluntary private sector practices which enables the
firm to attract financial and human capital to perform efficiently, prepare itself by generating
long term economic value for its shareholders, while respecting the interests of stakeholders
and society as a whole. Corporate governance has various objectives to strengthen investor's
confidence and intern leads to fast growth and profits of companies. These are mentioned
below:

 A properly structured Board proficient of taking independent and objective decisions is

in place at the helm of affairs.
 The Board is balanced as regards the representation of suitable number of non-
executive and independent directors who will take care of the interests and well-being
of all the stakeholders.
 The Board accepts transparent procedures and practices and arrives at decisions on the
strength of adequate information.
 The Board has an effective mechanism to understand the concerns of stakeholders.
 The Board keeps the shareholders informed of relevant developments impacting the
company.
 The Board effectively and regularly monitors the functioning of the management team.
 The Board remains in effective control of the affairs of the company at all times.
 IMPORTANCE OF CORPORATE GOVERNANCE

1. Careful Management

Corporate governance ensures the careful management of an organisation because there are
various important decisions which could benefit any shareholder, directors, social welfare etc.
basically there are two views regarding the maximisation of economic interests. One view is
directed towards the improvement of owner’s economic interest and the other view encourages
the social welfare of the society. Therefore care must be taken to protect the multiple goals
rather than protecting the self-interest of Board of Director or shareholders.

2. Stability f stock prices

Stability of stock prices is one of the important factors for investors to predict the future
performance of a company or an organization. Corporate governance has great impact on the
efficiency of stock markets. The stability is only possible with good corporate governance.
Investors are always attracted towards well governed companies because such companies adopt
transparent policies and have better financial accountability and higher profit margins.stock
price stability shows the level of risk for investment. Investors will only invest if they undertake
appropriate risk for their investment.

3. Training of Directors

It is very difficult for organizations to find right people for their jobs, and train them once they
are selected. When directors are selected they come up with different experiences, expertise
and qualifications. It is therefore important to train the directors so that they adhere to good
corporate governance practices. Directors are the major integral part of the organization. They
have major role in decision making process and thus the success or failure of an organization
is largely dependent about them. If the directors are incompetent, careless or selfish then the
chances of success are dark. On the other hand, competent, loyal, careful and honest directors
are essential for achieving the long term objectives of the organization.

4. Involvement of stakeholder

Every organization has various stakeholders such as directors, employees, shareholders,

customers, suppliers etc. These stakeholders are important for the productivity and efficiency
of the organizations. Therefore they deserve proper attention from the organizations. But there
is a lack of major stakeholders and contribution. One way to build relationship with
stakeholders of the organization is to involve them in the process of business activities. This
could be done by providing important information to stakeholders.

5. Talented workforce

Talented workforce is a human capital and is considered as competitive advantage by the

organizations. The ability of a company to attract and hold good people is imperative for its
success. It is a common misconception that more capital and improved technology leads to
successful organization but the most important factor which makes the difference is the human
capital. Corporate governance helps in attracting such talented workforce by creating god brand
image.

6. Checks and balances

Corporate governance ensures the system of checks and balances in the organization. The most
important disciplines of checks and balances are self-discipline, market discipline and
regulatory discipline. Corporate governance is an important tool to check and monitor the risk
level of the organization. If the management is involved in taking high risk projects then all
stakeholders could be informed with the help of corporate governance.

7. Goodwill and market reputation

Many organizations spend huge sum of money to build their brand image because it is
imperative for the long term success of organization. Goodwill and reputation can be improved
through various tactics such as marketing, CSR, strong relationship with stakeholders etc.
Corporate governance also develops the goodwill of company over a period of time. The
organizations who have good corporate governance enjoy good reputation.
 CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) is a concept whereby companies integrate social,

environmental and health concerns in their business strategy (policy) and operations and in
their interactions with stakeholders on a voluntary basis. The social responsibility of business
encompasses the economic, legal, ethical, and discretionary expectations that society has of
organizations at a given point in time.

European Union (EU) describes CSR as “the concept that an enterprise is accountable for its
impact on all relevant stakeholders. It is the continuing commitment by business to behave
fairly and responsibly, and contribute to economic development while improving the quality
of life of the work force and their families as well as of the local community and society at
large.”

While proposing the Corporate Social Responsibility Rules under Section 135 of the
Companies Act, 2013, the Chairman of the CSR Committee mentioned the Guiding Principle
as follows: "CSR is the process by which an organization thinks about and evolves its
relationships with stakeholders for the common good, and demonstrates its commitment in this
regard by adoption of appropriate business processes and strategies. Thus CSR is not charity
or mere donations. CSR is a way of conducting business, by which corporate entities visibly
contribute to the social good. Socially responsible companies do not limit themselves to using
resources to engage in activities that increase only their profits. They use CSR to integrate
economic, environmental and social objectives with the company's operations and growth.”
 CHALLENGES OF CSR

There are number of challenges to the implementation of CSR. They are enumerated below:

1. Lack of awareness of general public in CSR activities

There is a lack of interest of the general public in participating and contributing to CSR
activities of companies. This is because of the fact that there exists little or no knowledge about
CSR. The situation is further aggravated by a lack of communication between the companies
involved in CSR and the general public at the grassroots.

2. Need to build local capacities

There is a need for capacity building of the local nongovernmental organisations as there is
serious dearth of trained and efficient organisations that can effectively contribute to the
ongoing CSR activities initiated by companies. This seriously compromises scaling up of CSR
initiatives and subsequently limits the scope of such activities.

3. Issues of transparency

Lack of transparency is one of the key challenges for the corporate as there exists lack of
transparency on the part of the small companies as they do not make adequate efforts to disclose
information on their programmes, audit issues, impact assessment and utilisation of funds. This
negatively impacts the process of trust building among the companies which in turn is key to
the success of any CSR initiative.

4. Non-availability of well organised non-governmental organizations

There is non-availability of well organised nongovernmental organisations in remote and rural

areas that can assess and identify real needs of the community and work along with companies
to ensure successful implementation of CSR activities.

5. Visibility factor

The role of media in highlighting good cases of successful CSR initiatives is welcomed as it
spreads good stories and sensitises the population about various ongoing CSR initiatives of
companies. This apparent influence of gaining visibility and branding exercise often leads
many non-governmental organisations to involve themselves in event-based programmes; in
the process, they often miss out on meaningful grassroots interventions.
Corporate governance of Bajaj Motors Pvt Ltd.

As stipulated therein, the Company has -

a. an Audit Committee, consisting of not less than 3 members of the board;

b. a Nomination Committee to ensure `Fit & Proper’ status of proposed / existing
directors;
c. a Risk Management Committee to manage the integrated risks; and
d. a system for disclosure to the Board at regular intervals on the following: “
i. Progress in putting in place a progressive risk management system and risk
management policy and strategy followed; and
ii. Conformity with the prescribed corporate governance standards.

CSR Activities of Bajaj Motors Pvt Ltd.

The company carries out its CSR objectives of overall National and Community Development.
The Corporate Social Responsibility (CSR) activities of Bajaj Group are guided by the vision
and philosophy of its Founder, late Shri Jamnalal Bajaj, who embodied the concept of
Trusteeship in business and common good, and laid the foundation for ethical, value-based and
transparent functioning.

The company does CSR activities in the following fields:

1. Education
2. Environment and Natural resources
3. Health
4. Women empowerment and Self reliance
5. Supporting armed forces and veterans
6. Rural development