Name: Aldrich Fernandes

Roll no: 06
Subject: Business Ethics and Corporate Governance
Purpose: Assignment on Question & Answers
Q1) What is Corporate Governance?

Ans:-

The Success of Capitalism created opportunities for Business to grow larger. One driver of this growth for Investors
was to unite their Capital to Fund Extensive Projects and Massive Enterprises.

These Investors became Owners of the Business in which they invested, and have come to be known as
Shareholders.

The Larger Businesses that were created could not be governed effectively by Proprietors and Partnerships for
many reasons.

Consequently, in the Twentieth Century, the publicly owned Corporation (Limited Company) emerged as the
Dominant form for Business Enterprises.

The Corporation has Three Distinctive Features that make it an Attractive Form for defining the Legal Entity of
Business:

1) Its Unlimited Life.

2) The Limited Liability of Owners.

3) The Divisibility of Ownership that permits Transfer of Ownership without disrupting the Structure of the
Organization.

Today, the Public Corporation (Limited Company) operates itself as a form of Representative Form of Government.

The Owners (Shareholders) Elect Directors as their Representatives to Manage the Affairs of the Business.

The Directors, who, as a Group are referred to as the Board of Directors, then Delegate Responsibility to the Chief
Executive Officer (CEO), whom they hire.

The CEO is Accountable to the Board of Directors, which collectively and individually is Accountable to the
Shareholders.

In addition to its Role in Selecting the CEO, the Board also advises him on and consents to the Selection of
Businesses and Strategies of the Firm as well as Oversees Results.

In Sum, this System of Authoritative Direction or Government is known as Corporate Governance.

Ans:-

1) An Effective Board of Directors that carries out its Responsibilities with Integrity and Competence.

2) A Competent CEO is hired by the Board of Directors and is given the Authority to run the Business Profitably.

3) Selection by the C.E.O. of a “GOOD” business in which to operate with the board’s advice and consent. This
means a business in which the firm can compete effectively and profitably in an industry that is reasonably
attractive. It also implies that the company has the skills and resources necessary for competitive success.

4) A valid business concept created by the CEO and his or her management team, and again with the boards advice
and consent .a business concept encompasses the definition of the customer(s) to be served, the goods and or
services to be delivered and the means or processes by which these goods and services will be delivered. A valid
business concept is one that meets the needs of the customer in a superior and often unique way that will allow
the firm to become and/or remain profitable.

Q3) What should be the percentage of Executive and independent directors of the board of directors?

Ans:- The board of director of a company should have both executive and non-executive directors. At least 50% of
the board should have non-executive directors. If the chairman of the board is a non-executive director, then at
least one-third of the board should comprise independent directors.

If the chairman is an executive director, then independent directors should make up at least half of the board. If an
independent director resigns or is removed from the board, he/she has to be replaced by a new independent
director within 180 days from the day of such resignation or removal.
Q4) Why shareholders interest should be taken care for taking care of shareholders interest?

Ans:- The needs of the stakeholders of a corporation might be viewed as a hierarchy, as described below.

1) At the top of the hierarchy of stakeholders is the customer, whose needs must be met with goods and or
services that deliver competitive value.

Ideally business should treat their customers in a fashion such that a mutually beneficial and valued relationship is
established and maintained.

Customer satisfaction characteristically comes about because a firm’s business processes are designed to
consistently produce and deliver the goods and services desired by the customer.

These processes include the combination of equipment and systems (technology), employees, and materials that
come from suppliers.

2) Consequently, next level of hierarchy consists of the employees, who develop and operate the business
processes. Keeping the employees fully satisfied and motivated is very important, since only such fully satisfied and
motivated employees can satisfy the customers and retain them, which is the key to success of a business.

Employees need job satisfaction, in addition to good salary, perquisites and opportunities for growth.

3) The third level of stakeholders, whose needs should be considered consists of suppliers, distributors & creditors.

This group should treated appropriately if they are to be reliable and committed.

4) Furthermore, the business must meet the needs of the communities in which it operates: the next level of
stakeholders. The business should be a good citizen, honouring the laws, paying taxes, preserving environment,
doing social community welfare activities

It follows that if the business fulfills needs of all the stakeholders, the interest of shareholders will be well served.
Q5) Why Corporate governance rules have now made stricter?

Ans:-

The corporate governance practices of Indian listed companies are driven by combination of mandatory
requirements and voluntary guidelines.

Unlike other Asian countries, the initial thrust for more disclosure and better governance came in India mainly due
to the 1992 stock market scam and the onset of international competition resulting from the policy of liberalization
of the economy in 1991.

In fact, the confederation of the Indian industries (cii) was the first to appoint a committee under the chairmanship
of Mr. Rahul Bajaj in 1998 as a national level private initiative to evolve desirable rules for corporate governance.

Subsequently, the subject was hotly debated amongst industry and trade associations, govt, and academia.

This was followed by appointment of as many as four more national level committees – two appointed by SEBI,
namely kumara Mangalam Birla committee in 1999 and N.R. Narayana Murthy committee in 2003, another
committee on financial sector governance, popularly known as ganguly committee report in 2002, and the fourth
committee appointed by the govt. Of India known as report of the Naresh Chandra committee on corporate audit
and governance, in December 2002.