Introduction

A. C. Fernando

Before the readers start going through what the eminent experts said at the conference on the various facets of business ethics, corporate governance and corporate social responsibility (CSR), it would be helpful if they familiarize themselves with the concepts and nuances of the ethical trilogy.

BUSINESS ETHICS

What is Business Ethics?

Business ethics refers to the application of ethical principles to business. ‘Business ethics is a specialized study of moral right or wrong. It concentrates on moral standards as they apply to business policies, institutions and behaviour.’¹ It is also defined as ‘the art and discipline of applying ethical principles to examine and solve complex moral dilemmas’.² Management guru Peter Drucker has an interesting observation to make about the nature of business ethics. He said, ‘There is neither a separate ethics of business, nor is one needed; for men and women do not acquire exemptions from ordinary rules of personal behaviour at their work or job. Nor do they cease to be human beings when appointed vice-president, city manager or college dean.’³ However, in real life, we see a number of people who have the habit of cheating, stealing, telling lies, bribing and taking bribes in their business lives. Such problems, of course, can be addressed through adoption of moral values, moral education of individuals, of the family and of the school.

Business ethics, as the application of moral values to business behaviour, is relevant to every aspect of business conduct; from boardroom strategies and how the company treats its customers, employees and other stakeholders to accounting practices and disclosure norms. Ethics goes beyond legal requirement. It covers the conduct of individuals as well as organizations. In short, it is how a company carries out its business.

Case for Business Ethics

1. It is imperative that business firms follow some minimum ethical standards: woe to the society in which companies pursue profit motive at any cost. Unrestrained self-interest and self-dealing on their part will lead to anarchy. In a society where companies resort to lying, theft, cheating, insider trading and the like, there will be chaos, conflict and collapse of industry. Unethical companies like Enron and WorldCom caused tremendous damage to the American economy.
2. Ethics should govern and inform every aspect of human endeavour. It is imperative, therefore, that ethics should also govern business.
3. Business success can be ensured only through the cooperation of all stakeholders, managers, employees, customers, creditors, vendors and government. A business firm can secure the cooperation of all its stakeholders only if they trust it, and this trust will always be based on its ethical behaviour. If it does not abide by its contracts and agreements with others, it will lose its reputation and also business. No business, therefore, can succeed without ethical behaviour.
4. It has been proved time and again that ethical business leads to success. It is consistent with profit motive as has been proved by companies like Tata Steel, Wipro and Infosys.

Business Ethics in the Modern World

Business ethics has emerged in recent times as the buzzword in both business and academic circles. It can be defined as a set of moral values within the business perspective. It does not have fixed boundaries and the ongoing debate is whether the propensity towards an ethical conduct in business is an inherent quality of human beings or whether it can be acquired and inculcated, as being attempted by business schools like the Xavier Labour Relations Institute (XLRI), Jamshedpur and the Loyola Institute of Business Administration (LIBA), Chennai; capital market regulators such as the Securities and Exchange Board of India (SEBI) and specially created bodies for the purpose such as the National Foundation for Corporate Governance (NFCG).⁴

Ethical practices in business are bound to arise only when governed by a set of business principles and a well-defined approach towards organizational behaviour. The sudden collapse of several American megacorporations such as Enron, WorldCom, Adelphia Communications and Waste Management at the dawn of the 21st century brought to the fore one clear message to the business world and civil society: ethics does matter much to business. When business conduct has to be ethical, it has to rest on nine core values, namely, integrity, honesty, respect, fairness, purposefulness, trust, responsibility, citizenship, and caring.

The growing attention and awareness towards business ethics can be attributed to a number of factors such as the increased globalization and decentralization of business, the increasing emphasis on corporate ethics to business, and the influence of various stakeholder groups focusing attention on both ethical successes and challenges. Besides, a vast array of new economic issues such as outsourcing, shifting of production to developing economies, and how companies respond to economic and cultural differences are being cast in ethical frames.

In today's world, global business is dominated by the presence of an increasing number of multinational corporations spread far and wide across continents. Instead of creating an integrated global village, these monolithic firms are weaving webs of production, consumption, marketing and finance that bring most economic benefits only to one-fifth of the world's populace, while marginalizing the rest. Other myriad ethical issues include exploitation of the environmental and human resources mostly for the benefit of the rich nations, besides impacting societies differently and creating divergent ethical issues based on the nature of the economic systems, maturity or otherwise of the governance and policies, and the degree of awareness of the civil society.

In the world of business, ethics has sired inseparable twins who carry its mark and promote its values: corporate governance and corporate social responsibility.

Ethical Business in India

If we analyse the extent to which Indian business has imbibed ethical practices in the various aspects and facets of its dealings with all the stakeholders, we may find it difficult to come to any definite conclusion.⁵ Prior to the country's independence, there was hardly any appreciable industrial growth and the Indian government administered by the British colonial powers did not provide much room for unethical practices, at least to the extent their followers did. The period between 1947 and 1991 witnessed a lot of growth in business and industry under the watchful tutelage of a government whose bureaucrats and politicians were hungry for power and amassed to themselves the rights to license, monitor, inspect and regulate every facet of industrial and commercial activity. This control and command activity resulted in all kinds of abuses of power. Absolute power corrupted absolutely. Public sector was favoured at the cost of the private sector. Even the limited private sector activity was controlled. Taxes were abnormally high. Prices were fixed by the government for most of the essential products such as food items, medicines, coal, cement, steel and for essential services such as airfare, train tickets, postal articles, etc. When the private sector found its maneuverability in conducting business highly restricted, it started adapting itself to a situation where it could achieve growth notwithstanding the suffocating controls. Corruption, bribery, underhand dealings, benami transactions, over invoicing and under invoicing, black money and black market, money laundering and many other unethical practices that were needed to combat and bend the rules were adopted with gay abandon. Ethical business was more of an exception. It was followed more in breach than in observance. It was only after 1991 with the economy being opened up and integrated with the global economy that things began to change for the better. Indian corporations, being dwarfed by mega multinational corporations with their huge capital, cutting-edge technologies and consequent economies of scale that they enjoyed, realized the importance and necessity of attracting foreign capital to grow in size and competitive strength. They knew that otherwise they would be left by the wayside. This forced them to adopt ethical practices and good corporate governance. Though there were already a few companies like the Tata group, that did follow ethical norms of operation, the number of ‘good’ companies began to swell. Several IT and pharmaceutical companies that had cross-border business followed ethical practices. Recent Asian and international surveys have named many Indian companies like Infosys the best in the world. The Securities and Exchange Commission of US did India proud by showcasing Infosys’ annual report as an ideal one that American companies should emulate. India was singled out among developing countries in Davos and in other international forums to be honoured by proposing many Indians to preside over committees and conventions. Several Indian committees have brought out guidelines on business ethics and corporate governance which are considered to be some of the best in developing countries. All these go to prove that Indian business has been crossing milestones towards better ethical and corporate governance in recent years. Recent government initiatives such as the Right to Information Act, attempts of the Fourth Estate to cleanse the political body of unethical practices through open criticism and sting operations, and judicial activism are all salubrious attempts to create a better value-based society.

But then, there are several limitations. The number of corporations that follow the ethical practices and good corporate governance is few. Self-regulation is limited. Compliance with external regulation is selective. The regular occurrence of scams almost every year shows that the Indian corporate sector observes rules and regulations merely in letter and not in spirit. Often the market regulators, SEBI and Reserve Bank of India, give the impression that they are ineffective and lethargic. The almost annual occurrence of scams has shaken investors’ confidence badly and no effective measures have been taken to penalize the culprits, seize their assets and return the hard-earned money to the investors. Whenever the market soars, people wonder when the bubble would burst. All these developments only point to the fact that though there has been some improvement recorded in the sphere of business ethics and corporate governance in our country, there is still a lot to be done in that direction.

The importance of ethics to business cannot be overstated. In this volume, it has been adequately emphasized by several figures associated with business or its regulation. M. Damodaran, the then chairman of SEBI, who delivered the keynote address at the Conference, spoke at length about the importance of the purity of means to achieve desired goals, business or otherwise. ‘True that the ends are important, but the means are equally important. Legitimate means will take you almost certainly towards desired goals. Means that are not so legitimate might end up tripping you by the wayside’, Damodaran asserts. At the same time, he stresses the importance of self-governance and self-regulation. After all, you cannot achieve ethical conduct through legislation. To imbibe ethical conduct, he exhorts the youth to articulate the need for a cleaner moral environment and to bring positive stories centre stage. After dwelling in some length on the role of SEBI as a watchful, though not a trigger-happy market regulator, he reasons as to why SEBI insists that corporations ought to build their reputations on the basis of disclosure and transparency. Stressing the importance of ethical values in companies and in people for the country's sustained growth, Damodaran succinctly sums up his views by concluding: ‘Business cannot aid the progress of a unified India unless it seeks to do business on the basis of values, principles and ethics.’

Jamshed J. Irani, Director, Tata Sons is a seasoned captain of industry who firmly believes that ethical business will bring its rewards ultimately. To him, ethics is neither old-fashioned nor is a disadvantage, as it is believed in some quarters. As a Tata employee for well over 45 years who continues to be a director in some companies of the Group, J. J. Irani explains how ethical business is an article of faith to the Tatas. But to practice ethical business, Irani —the hardcore businessman that he is —strongly advocates that it should follow and not precede creation of wealth. He opines that, ‘We have to create wealth and with that wealth, we do the things we would like to do’ to the society. If creation of wealth is important, values are not less important. Values can serve as an anchor, give faith in time, build resilience and keep business going. Irani also illustrates how divergent values co-exist in business, and how the Tatas have in the midst of all-round corruption, maintained their values.

S. Sundara Rajan, the then executive director of Indian Bank whose piece spells on the ‘Ethical Challenges in the Financial Sector’ confesses at the outset that ethical lapses do occur in the financial sector, given the fact that it deals in business running into trillions of dollars. He reasons that greed, selfishness and the individual's ambition to amass wealth at the cost of the society trigger these ethical lapses. He deftly distinguishes moral behaviour from legal behaviour and proves how what is legal need not necessarily be moral. Conflict of interest is another problem that brings in ethical dilemma, which he illustrates with the story of Satyadas. While speaking about the importance of values, he quotes approvingly of Azim Premji of Wipro who was credited to have said this: ‘In the building of a world class institution, five factors are important. These are vision, values, innovation, leadership and social commitment.’

Arindam Banerrji, managing director and chief operating officer of Deutsche Bank Operations International, was the next speaker to bring to bear his expertise and experience on his talk on ‘Ethical Challenges in the Financial Sector’. As an environmentally conscious banker, Banerrji argues eloquently that good business practices are like good ecological practices. He feels that the success of financial institutions depends very much on ethical business practices and avoiding conflicts of interest. As a banker with a global reach, he explains how complex banking business has become in a global economy, such as the one we are moving to. Illustrating how poor governance and greedy senior managements led to the collapse of the megacorporation, WorldCom, emphasizes the role of auditors, regulatory risks and the high cost of non-compliance and goes on to discuss at length information arbitrage and issues relating to handling of ever-exploding information. Speaking from his personal experience, he brings forth several issues that have emerged in the globalized banking business such as e-mail retention policies, avoiding spread of insider information and the like. As a seasoned banker, Banerrji feels that handling customers is the most important part of his business, but it is a ticklish job as well.

He concludes that whatever business one is in, it is essential that one should build a reputation for ethical business. On a sober note, he says, ‘It is quite important that we all have a role to play in maintaining the reputation through our conduct’.

Marketing is an area where one encounters quite a number of ethical challenges. D. P. Padmanabhan, the managing director of Eurocon Tiles takes up the cudgels to meet and ethically overcome those challenges. Linking ethics to dharma, Padmanabhan stresses that, ‘It is vital, necessary and imperative that organizations have a strong ethics policy which permeates all its activities’. He goes on to give several examples of unethical practices in which companies often, for example, in their anxiety to sell, cut corners and compromise on ethics, make exaggerated claims of performance or fail to record the limitations of the product, and so on. Then there is the unethical and notorious practice of copying a product violating Intellectual Property Rights (IPR), for which India is well known. Padmanabhan strongly feels that ‘the spirit of innovation would suffer a serious setback if strong IPR rules, especially in the fields of trademark, copyright and patent are not in place and implemented fairly and quickly’. He adds poignantly that ‘otherwise, this land of ours will be filled with copycats and duplicates’. Padmanabhan also lists the unethical practices in distribution and marketing where producers usually make the distributors do all the hard work, but after the product is launched and sales pick up, they are shown the door. Sales promotion and advertising is another area where the speaker points out to several grey areas leading to unethical practices. ‘Ethically driven genuine sales promotion activities are necessary to support the sale of a product. But when the Laxman Rekha is crossed, one is on a long slippery slope’, rues Padmanabhan. While stressing the need for ethics in advertising, he calls for changes in mindsets and practices. He advocates simple, reasonable and easily compliable laws, focused and proactive customers and producers who should be fair and equitable to all stakeholders. He concludes by exhorting people ‘to go back to our roots’ that had truths transcending time and making for extremely good business.

Sridhar Ramanujan, chief executive officer of Brand-Comm was the next one to speak on ‘Ethical Challenges in Marketing’. Wondering whether ethics and marketing go together at all, he points out that if there is no competition, producers are easily tempted to become unethical. There is another factor that may lead to such practices, which is the tendency to take things for granted. Decrying the ‘celebrity mania’ in product endorsement, which seems to be the order of the day, Ramanujan feels advertising should not promise what cannot be delivered. He also insists the need for value-led marketing and to treat customers with care and concern. He feels that marketers should treat the consumers like their children so that due concern is shown to them.

Krishna Mohan, President, Ogilvy and Mather, takes up ‘Ethical Challenges in Advertising’. To him, ethics is what we believe in and how we behave. It is about our values and the way we look at life. Elucidating some ethical issues in advertising such as puffery, stereotyping, deception, surrogate advertising, trademark and copyright infringement, look-alikes, using sex to sell, invasion of privacy and telemarketing, Krishna Mohan suggests remedies to get these issues solved. Advertising for a social cause is something that is very dear to his heart. Assuring that ethics is value driven, he says that it is really a question of one's own values. In conclusion, Krishna Mohan says that most of the values are learnt rather early in life and interestingly quotes from Robert Fulghum's book certain practices that he learnt in kindergarten.

Luc Van Liedekerke, president of European Business Ethics Network (EBEN) and professor of economics and ethics, University of Antwerp, Belgium talks on ‘Morality, Trust and Integrity: Foundations of Business Ethics’. Liedekerke talks about ethics and morality to start with, and goes on to say that trust is the central value for a market economy without which it will make business not only costly but almost impossible to carry on. Another value which is of paramount importance in a market economy is integrity. Instead of providing solutions to many problems that arise in ethical dilemma, Liedekerke raises a few tentative questions relating to a moral dilemma, which may be difficult to answer but help us create a culture of integrity and trust in business.

CORPORATE SOCIAL RESPONSIBILITY: A COMPETITIVE TOOL FOR CORPORATE EXCELLENCE

Increased attention and enhanced involvement of corporations in CSR activities have not been purely voluntary. In many instances, they were forced to adopt it under public pressure, media exposure or governments’ prodding. Extensive consumer boycott of its products forced Nike to cause changes in the alleged abusive labour practices at some of its suppliers’ production units in Indonesia in the early 1990s. Fast-food and packaged-food companies like McDonald are getting involved in CSR and environment-friendly activities after being held responsible for obesity and low nutrition of children and adults.

In the current global scenario, competition is now more intense than it has ever been. There is a need for corporations to pause and ponder upon the impact of their business on the global community in general and their key stakeholders in particular. In a world where corporate image means everything, business houses should do everything to project a positive image and benefit from it. As a result, corporations increasingly seek to project themselves and want to be looked upon as socially responsible citizens and spend a good deal of time and resources for the promotion of social welfare. What social responsibility exactly means varies across industries and companies but whether it is reforestation or cutting down on pollution or promoting increasing diversity in the workforce, social responsibility is the term used to capture those activities of corporations that are beneficial to society and by implication make up for some unethical or anti-social activities with which they have been charged. Corporations can no longer consider themselves as entities organized to promote the overall interests of their stockholders alone. Neither are they meant to follow the single-minded pursuit of profit for their own benefit. The inimitable American economist John Kenneth Galbraith argued that a corporation has no natural right to be left alone, implying thereby that it has a moral and social responsibility to perform.⁶ Earlier, Peter Drucker had pointed out that corporate managements have a leadership role to play in industrial society and therefore have great responsibilities to their own profession, to the enterprise, to the workers they manage, to their economy and to the larger society.⁷ This view is the central tenet of the CSR discussions in the 1970s and thereafter.

To the World Business Council of Sustainable Development, ‘Corporate Social Responsibility (CSR) is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.’⁸ CSR, therefore, refers to the duty of every commercial enterprise to extend care to all its stakeholders in all aspects and to account for and measure the actual and potential impact of their business on all fronts— economic, social, and environmental.

Why at all CSR?

CSR activists use four distinct arguments to advance their case: (1) The moral appeal argument that justifies CSR as a company's duty to be a good corporate citizen obliged to ‘do the right thing’ (2) Sustainable Development argument, which in the words of World Business Council for Sustainable Development implies ‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’ (3) The License-to-operate argument that stresses the fact that every organization requires tacit or explicit license from governments, communities or civil society and other stakeholders to be in business and as such it should earn their goodwill through its CSR engagement; and (4) Reputation argument that says that companies establish their reputation through CSR whereby they improve their image, strengthen their brand and enhance the value of their stocks, all of which earn for them the goodwill of the society.⁹

Thankfully, corporate philanthropy is on the rise globally. Firms today even go to the extent of channelling their R&D capabilities in the direction of making products and services that would be socially relevant and helpful. Examples of this would be Deutsche Bank offering innovative microfinance schemes or socially responsible investment products, the Toyota Motor Corporation producing a hybrid car, or Unilever empowering women to become entrepreneurs in rural India.

Why Should Businesses Consider CSR?

1. Companies, which draw innumerable resources from society such as land, manpower, law and order, health and hygiene, have a responsibility to pay back to society.
2. A corporation is an integral part of social system and as such has to cater to its varied needs to the extent possible.
3. CSR would foster a healthy and harmonious relationship between firms and the society, which will be mutually beneficial.
4. CSR activities such as waste management and recycling of water will lead to better management of society's scarce resources.
5. CSR activities will discourage unnecessary government interference in business and save companies from much of irksome and annoying government intervention.
6. CSR involvement may create a better public image for companies, and thereby help them in attracting good investors, employees and customers. This will promote industrial peace and harmony.

It has been asserted that CSR is measured not only on the basis of the report of company's financial results ‘but also on what it is doing and what it is not doing in meeting stakeholder expectations of its environmental and social responsibilities’.¹⁰ Only a few firms have adopted this practice in India, whereas in France virtually every firm uses this standard of accounting.

What are the Benefits of CSR?

CSR is not a one-way street. It confers several advantages on the practioners. CSR not only enables corporations to fulfil their duty towards society, but can also bring them competitive advantage. Companies, through an effective CSR programme, increase sales through enhanced brand image of their products, improve their access to capital, attract, retain, motivate and develop employees, and earn their respect, besides earning the esteem of peer companies, sharpening and improving decision-making processes, and reducing costs.¹¹

Scope of CSR

What is the scope of CSR? CSR will cover the economic, legal, ethical, and philanthropic and environmental expectations society has placed on organizations at a given point of time.¹² Moreover, it is now being increasingly realized in business circles that a strong CSR policy is a significant competitive advantage. When a company takes actions that exceed mere compliance with minimum legal requirements, it demonstrates that it has a strong societal interest that overshadows the need for profit maximization. CSR, therefore, is not philanthropy in its truest sense; it is more about furthering the type of corporate behaviour that helps stabilize and establish company policy. Today, there is a heightened interest in the role of business enterprises and their influence on society at large. Environmental damage, ill-treatment of workers, faulty production and customer inconvenience can damage a society's perception of an enterprise.¹³

CSR is qualitatively different from the traditional concept of corporate philanthropy. CSR should focus on the social, environmental, and financial success of a company—known as the triple bottom line. This means that businesses must not only focus on their economic dimension of making profits, but also on social and environmental aspects. More importantly, it must work towards specific objectives in each of these areas.

Key CSR issues include business ethics and corporate governance, responsible sourcing, eco-efficiency, environmental management, stakeholder engagement, sustainable development, workplace issues, labour standards, employee relations, community development, social equity, livelihood issues, and human rights. It should be stressed here that in the new global economy, companies that are responsive to the demands of all of their stakeholders are arguably better positioned to achieve long-term financial success.

India and CSR

There is an irrefutable belief among social activists that CSR had its origin in India. When industrialists in the West were amassing wealth in their booming economies, emerging entrepreneurs in India fired by a newly found sense of nationalism in the British-ruled colony (India) thought of the abysmal poverty of their compatriots and wanted to do their mite. It was exactly a hundred years ago that Tata Steel was established and its patriotic founder, Jamsetji Nusser-wanji Tata, dedicated his steel factory to the nation. He is believed to have said, in as early as 1903, ‘We generate wealth for the nation. What comes from the people must, to the extent possible, get back to the people.’ Tata Steel continued the worthy legacy of its illustrious founder under the guidance of J. R. D. Tata and Ratan Tata. The edifying example of the House of Tatas has been emulated by numerous captains of Indian industry. Infosys, Wipro, Dr Reddy's Lab, TVS Motors, Titan Watches and Orchid Chemicals in the private sector, and NTPC Ltd, ONGC and Indian Oil in the public sector are a few examples that come immediately to one's mind as organizations that are as much committed to CSR as they are to the making of profits for their investors.

Though India has come a long way in this domain, we have a far greater distance to traverse. Presently, the cent per cent tax exemption granted to companies on money spent on CSR activities does help many companies go into CSR programmes, in addition to other benefits mentioned earlier. However, the absence of a clear connection between CSR and financial success is a major dampener. Moreover, lack of an appropriate ‘mechanism to measure, monitor, evaluate and report the CSR initiatives is also seen as a major barrier’.

A report of the CSR survey conducted under the aegis of the United Nations Industrial Development Organization (UNIDO), British Council, CII and PricewaterhouseCoopers in 2002, recommended that, ‘In light of the evolving agenda of CSR, mainstreaming of CSR in business schools will ensure that managers of the future are imparted the appropriate skills and sensitivities.’ In that ennobling spirit, B-schools like XLRI Jamshedpur, LIBA Chennai and some Indian Institutes of Management (IIMs) offer courses in business ethics, corporate governance and CSR for their students. Besides, with a view to applauding and showcasing to other corporations and management students a role model, LIBA has been conferring The Mother Teresa Award for Corporate Citizen since 1998 on selected companies for their deep involvement in and promotion of CSR-related welfare programmes to benefit the poor and marginalized sections of society.

In India, it appears that generally companies that are performing well financially engage themselves in CSR activities. Not many companies take active interest in CSR as their priority is still to run their business successfully. In big corporations, CSR has become part of their planning, strategy and budgeting. In smaller companies, CSR functions are guided by the top echelons of the management depending on their commitment to and involvement in the spirit of charity, philanthropy or any ‘do good’ activity. As in every other function, it is the top management that sets the tone in CSR too.

A large number of Indian companies discharge their social responsibilities quite satisfactorily. There are many companies that have excelled in such activities, but when seen in the light of the country's vast needs, these achievements fall far short of requirements. The money spent for social causes by companies is generally an insignificant proportion of their turnover.

Here are a few illustrations of the different social responsibility functions that some prominent Indian companies typically perform:

• AMM Foundation of Murugappa group provides assistance to communities in education, medicare and research in rural development.
• Asian Paints funds a large-scale community development project to enable farmers to use local resources effectively.
• AV Birla Group is involved in social and economic development of communities.
• BHEL has contributed to the development of quality of life in rural areas, health care and family welfare, adult education, etc.
• Britannia Industries promotes sports, especially tennis.
• Brooke Bond has been interested in animal welfare, providing veterinary services and improvements in animal breeding.
• Colgate-Palmolive does pioneering work in the promotion of sports, dental health, and small-industry development.
• Dr Reddy's Lab promotes education, livelihood and community development.
• Escorts Ltd has worked for farm mechanization, agricultural development, health care.
• Ford India Ltd runs education and training programmes in local schools near their factory; has set up research chairs in two IITs in safety and environment; has introduced measures to eliminate, recycle or treat waste products; and has started several community welfare programmes.
• Gas Authority Of India Ltd provides through its CSR initiatives environment protection and horticulture care, infrastructure development to villages, drinking water and sanitation, health care and medical facilities, educational aids and literacy enhancement.
• Godrej Group focuses on environment and conservation.
• Gujarat Ambuja Cement has been helping communities around its facilities.
• Hindustan Lever focuses on health, empowerment of women, and education of special children.
• ICICI Bank's focus areas are elementary education and universal access to financial services.
• Infosys, through its Infosys Foundation, provides assistance to social development, art and culture, schools, and libraries, for higher education and research.
• ITC Ltd is socially active in rural development especially in the areas of agriculture, culture, sports and pollution control.
• MRF Tyre Industries promotes sports activities, especially cricket.
• NTPC Ltd is actively involved in community development of villages, resettlement and rehabilitation, and enrichment of human rights and environment.
• Orchid Chemicals and Pharmaceuticals through its trust promotes job-based education in villages, self-employment amongst women, health services to the needy, organizes capacity-building programmes and undertakes infrastructure development programmes in adopted villages.
• Pricol Industries is environmentally active, promotes afforestation, water harvesting and preservation of water bodies.
• Raymond's focus area is combating malnutrition and rehabilitation of school children.
• SAIL contributes to the sectors of agriculture, industry, education, health care, dairy, poultry, fisheries, and drinking water supply.
• Tata Steel has been a pioneer in discharging social responsibility and has made several contributions in areas such as community development, social welfare, tribal area development, agriculture and related activities, and rural industrialization.
• The Times of India group has set up a relief fund to organize relief and rehabilitation measures in times of calamities (floods, cyclones, fires, earthquakes, droughts, famines,) to alleviate human sufferings and distress, and losses in any part of India.
• Thermaux has been focusing on education.
• Titan Industries has been training women and handicapped people on how to make ornaments. Several other Tata companies are training local communities in water harvesting, storage and recycling.
• TVS group companies through their Srinivasan Services Trust is passionately involved in rural/tribal development, primary and technical education.
• Wipro Technologies is passionately involved in spreading quality primary education through its Azim Premji Foundation.

Criticisms Against CSR

Criticisms are often levied at the use of CSR as a proactive strategy, questioning the actual motives of a company and claiming that the entire process is a public relations exercise meant to enhance the goodwill of the company. Their perception of a company striving merely towards maximizing its own interests regardless of the price paid or morals abdicated is due to the system that judges and rewards performance strictly based on bottom-line returns. A change in such a mindset is required that takes a holistic approach to business processes and regards an organization as being a partner in the promotion of welfare in communities around it along with governments and civil society and being aware of the impact of their existence rather than being merely profit-making enterprise.

The debate, of course, still rages on as to whether CSR will ever be altruistic or is just business as usual with it being employed as the perfect strategic tool to enhance the company's brand image and its relevance to corporate social responsibility, corporate excellence was the theme on which several speakers spoke at the Conference. In his key note address, Damodaran insists that corporations have a responsibility to pay back to society for the benefits they have enjoyed. He argues, ‘It is a legitimate sharing of profits with society that is called, in my view, CSR. It is not handouts, it is not charity, it is not something that you do in order to square your account books before you render your accounts to God on the day of final rendering of accounts. That is not CSR. It must come from the heart, not from the accountants. It should not be a tax benefit that you seek while providing a few fringe benefits in the area that you stay in and produce.’

J. J. Irani, the second speaker, talks in some length of how in his organization, Tata Sons, CSR is taken very seriously. Raising a question as to how much corporations should spend on CSR, he says that it is never a fixed amount in Tata Sons. Though the prime minister Narasimha Rao called all the top corporations in India to spend at least 1 per cent of their profits on those areas to raise the standard of the communities in which they live, the Tatas have been spending much more than that, whether they made profits or not. He says, ‘In years when we have made bad profits or lower profits, we did not say we would cut down on expenditure on CSR or went on a splurge in the year we thought we made more. So it was a constant endeavour at Tata Steel and the figure varied from between 5 per cent and 20 per cent, when the prime minister wanted us to spend mere 1 per cent. So this is what good CSR is.’

James J. Spillane, S. J., professor of economics in the Sanata Dharma University in Yogakarta, Indonesia in his speech ‘Corporate Social Responsibility in the Southeast Asian Context’ with special reference to Indonesia explain the necessity of CSR, especially in a developing country like Indonesia. He feels that the macropolitical balance or harmony between business, state and public dimensions constitutes an ideal and is embodied in the phenomenon and concept called CSR. To Spillane, CSR is understood to be a public relations tool but it must reflect corporate accountability. CSR also is part of business strategy. He goes on to explain how multinational corporations use CSR as part of their business strategy and how CSR activities have helped building public goodwill for companies. He is also of the opinion that if handled properly, CSR can plug a hole that has long existed in the current struggle to build a strong civil society in Indonesia and elsewhere. Spillane goes on to give examples of various CSR activities by companies in Indonesia and concludes by offering suggestions for implementing CSR in the country which should include (1) standard reporting mechanism; (2) government regulation; (3) whistle blower law; and (4) training in CSR.

To David T. Hopper, consulate general of the US in South India, ‘CSR is not a fad. There are several reasons why CSR is happening and is happening so widely. I find it encouraging to think that CSR is sustainable because not only it is good for the well-being of the people and societies around the world but it also makes good business sense.’ He illustrates his point with suitable examples from his country.

Venkat Changavalli, CEO of Emergency Management and Research Institute (EMRI), speaks on ‘Corporate Social Responsibility: A Competitive Tool for Corporate Excellence’. EMRI was set up uner the Satyam leadership basically to transform emergency management in the country. Today, EMRI covers around 30 million people with 102 ambulances mainly in Andhra Pradesh. EMRI, apart from serving people in need of emergency medical needs, is also involved in research and training. State governments are coming forward to aid them for the emergency management, if EMRI is willing to operate their services in their respective states. Venkat Changavalli speaks eloquently about why they chose 108 for emergency contacts and how they selected the ideal ambulance for their services.

J. Mohapatra, Executive Director, NTPC Ltd, talks about corporate social responsibility as a competitive tool for corporate excellence by refering to the NTPC model. NTPC strongly believes that CSR is neither philanthropy nor charity but it's an investment in our collective future. CSR is an integral part in NTPC activities. From remedial plans at rehabilitation, NTPC has moved forward with a focused approach towards community empowerment. The public sector power giant's approach towards CSR is to contribute to sustainable power development by discharging social responsibility. In doing so, NTPC has involved its employees in community development and other CSR activities. The beneficiaries of NTPC's CSR activities are the underprivileged sections of society including SCs, STs, women, children and the disabled.

CORPORATE GOVERNANCE: PRECEPTS AND PRACTICES

Ethics is the Foundation of Corporate Governance

In the wake of innumerable corporate failures here and abroad due to their unethical practices and mismanagement, there has been a gathering momentum among academia, civil society and industry to bring into the corporate fold, internationally acceptable corporate governance practices. Let us see what they are.

A corporation, as we have seen is a congregation of various stakeholders— customers, employees, investors, vendors, partners, government and the society. A corporation should be fair and transparent to its stakeholders in all its transactions. This has become imperative in today's globalized business world where corporations need to access global pool of capital, need to attract and retain the best human capital from various parts of the world, need to partner with vendors on mega collaborations and need to live in harmony with the community. Unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed.

Today, increasing revelations of deterioration in quality and transparency of corporate management have called for the adoption of internationally accepted ‘Best Practices. This acceptance of the concept gave rise to ‘corporate governance’. Corporate governance encompasses commitment to values and to ethical business conduct to maximize shareholder value on a sustainable basis while ensuring fairness to all stakeholders including customers, employees, investors, vendors, the government and the society at large.

Corporate governance is about ethical conduct in business. It is the ethical framework under which corporate decisions are taken. Ethics is concerned with the code of values and principles that enables a person to choose between right and wrong, and therefore, select the right from alternative courses of action. Managers generally make decisions based on a set of principles influenced by the values and culture of the organization.

Though the subject of corporate governance is very much in the air, few people seem to understand the concept and nuances of it. Corporate governance is typically perceived in academic literature as dealing with ‘problems that result from the separation of ownership and control’. From this perspective, corporate governance should focus on an internal structure and the role of the board of directors; the creation of independent audit committees; rules for disclosure of information to shareholders and creditors, and control of management. In a narrow sense, corporate governance refers to the formal system of accountability of senior management to the shareholders. In a broader sense, it could mean the entire network of formal and informal relationships that exist in the corporate sector and their consequence for society in general.

Corporate governance structures depend on a set of institutions and systems with laws, regulations, contracts, norms that create self-governing firms as a central element of the competitive economy. These institutions ensure that the internal corporate governance procedures adopted by firms are enforced and that management is responsible to the shareholders and other stakeholders. Corporate governance generally encompasses the set of statutes, processes and procedures a corporation should adhere to and covers a complex set of relationships between the company's management, its board, its shareholders and other stakeholders such as the employees, consumers, government and the general public. It has become necessary for companies to ensure that the rights of shareholders such as secured ownership, knowledge about the entire management, voting rights and new share issues are upheld. They should ensure an objective, unbiased behaviour towards the minority and foreign shareholders and most importantly see to it that acceptable accounting practices and proper disclosures are followed so as to assure prosperity among the stakeholders.

Transcending all these, corporations should address vital issues such as separating the roles of board and management, composition of the board with an independent mind, the role of the CEO, director's remuneration, disclosure and audit practices, and environmental issues related to corporate practices. By and large, corporate governance implies such impeccable practices that culminate in creating and enhancing the corporation's competitive advantage and enable the corporation to perform efficiently, enhancing the valuation of the enterprise while providing protection to its stockholders.

The concept of corporate governance has emerged as a direct response to several corporate failures and widespread dissatisfaction with the manner in which companies are managed. The need to focus on good corporate governance arose mainly because of the problems and issues connected with the dichotomy between ownership and control in joint stock companies, ownership taking the form of disbursed shareholding and salaried managers taking the place of owners in running a company; in such a context, there has to be a system of control over the managers to ensure that the company is run in the best and long-term interests of its stockholders and society. Such a system of corporate management, called corporate governance, has to reassure the suppliers of capital that their investments in the firms are safe and will not be misused or stolen. Companies that turn to outside sources of capital have to demonstrate sound governance to investors and lenders.

It is often reiterated both by writers and practitioners of corporate governance that it promotes a firm's operational efficiency, professional management, delineates clear lines of authority and helps in good risk management, all of which are the desiderata for business success and improved profitability. Hence, the basic objective of corporate governance is to bring about the necessary conditions by which a firm's directors and managers act in the best interests of the firm and its stockholders, and to ensure the building up of mechanisms through which they are held accountable to investors while using their assets.¹⁴

Though all stakeholders realized the importance and significance of corporate governance to ensure long-term shareholder value, especially after America's Hall of Shame of 2002 that was littered with the collapse of mega-corporations such as WorldCom, Enron, Dynegy, Waste Management and Adelphia Communications, there is certain amount of haziness in understanding, appreciating and ensuring corporate governance in many societies of the world.

Pillars of Corporate Governance

The fundamental pillars of corporate governance are accountability, fairness, responsibility and transparency, which together lead to a firm's integrity and competence. Healthier companies provide more value addition to their shareholders, employees and communities whereas poorly governed ones may cause losses of investor's funds, jobs and pensions and undermine the confidence of the investing public in securities’ markets. Thus, better corporate governance will ensure companies to be better contributors to the national economy and society.

Prerequisites for Corporate Governance

There are some prerequisites for good corporate governance: (1) there should be a proper system consisting of clearly defined structure of roles, authority and responsibility; (2) well laid out norms and guidelines for performance of corporations based on their vision and principles of ethical governance; (3) the appropriate machinery for guiding, monitoring, reporting and control; and (4) existence of a regulatory mechanism that enforces compliance through a system of rewards and penalties.

Corporate Governance in Developing and Transitional Economies

Adopting better corporate governance practices in developing countries like India, and transition economies like Russia, face different set of problems compared to developed economies such as the US and UK. Prominent among these include lack of developed capital markets, lack of corporate culture, concentration of ownership, lack of well-developed banking sector, absence of exit systems, bankruptcy laws and foreclosure norms, lack of proper property rights and contract laws, abuse of internal information, lack of legal protection to investors and poor legal and regulatory mechanism. As John D. Sullivan, one of the earliest writers on the subject, asserted, ‘In developing economies, one must look to supporting institutions as for example, shoring up weak judicial and legal systems in order to enforce contracts and protect property rights in a better way.’¹⁵

Issues and Challenges of Corporate Governance in India

There are several problems and issues that confront India Inc. to put in place an effective corporate governance system. Of these, the most important are the constitution of an effective board of directors (including induction of independent directors), the role of auditors in ensuring corporate accountability, challenges faced by the market regulators to ensure better governance and many more. For instance, there are many provisions in the statute book to penalize individuals and companies who violate the norms of corporate governance, but these are hardly acted upon, either because of lack of political will or administrative competence or both or due to political interference. India has witnessed, with an unfailing regularity, corporate scams in which millions of investors have lost their hard-earned money. There are instances of vanishing companies promoted by fly-by-night operators who have duped unwary investors of their precious investments, yet market regulators have hardly penalized them either because they don't have the manpower or resources to investigate and go to time-consuming courts of law with a view to indicting them.

It is well over a decade that the concept of corporate governance has become a passion with industry analysts in India. It has long passed the stage of being a fashion statement that it was in the early 1990s. In the aftermath of economic liberalization in the country on one hand, and the impact of the then newly published Cadbury Report on the other, its ideals were propagated as the be-all and end-all of all corporate endeavour. All these got irretrievably intermixed to give the concept of corporate governance an aura and a halo. Now, after more than a decade and a half down the line, and with a lot of studies and in-depth research having been done by several committees and guidelines proposed by them, a reality check and analysis throw up a lot of somewhat unpalatable home truths. Indian industry has come a long way since 1991, the watershed year in the chequered economic history of India and its development. There has been a phenomenal growth both in the quality and number of corporations in the country. Some of them are implanting their footprints abroad and some worldwide objective research has shown that our corporations, albeit small in number, are second to none in terms of corporate governance standards. Though the implementing of corporate governance in the Indian scenario is not as easy as it sounds, it is necessary to recognize that corporate India has gone a long way and taken significant steps especially in the last one decade. Moreover, prior experience on governance issues in the country has shown that none of the corporate governance principles can be cast in stone and laid to rest. Like economic principles, they actually reflect the conditions of the times in which they are enunciated. Constant review and course corrections would go a long way in ensuring corporate excellence in the country. By a judicious mix of legislation, regulation and suasion, it should be possible to gradually reduce legislative interventions and increase regulatory compliance with a self-induced adherence to the best practices in this field. Till then, however, legislation and regulations to ensure at least certain minimum standards is inevitable. To facilitate such a graduation into better governance practices, globalization has opened up an array of opportunities to corporate India to emerge successful in its new tryst with destiny.

There are no soft options available and the Indian corporate sector must necessarily turn to good governance in its pursuit of competitive excellence in a challenging business environment. There are already some corporations in our country that have taken up the cudgels and have been facing challenges in their stride in implementing corporate governance in their organizations. If the ennobling and worthy examples exhibited by these companies can be emulated and excelled by others in industry, it will take corporate India to still greater heights!

In today's globalized business world, ethical business and corporate citizenship reflecting adherence to internationally accepted corporate governance practices and social investing are the needs of the hour. If Indian companies desire to match the growth of multinational corporations, they need to access large amount of capital from pension and mutual funds abroad. This will call for their adopting internationally accepted governance standards, accounting and disclosure norms. Such practices and transparent corporate behaviour alone will bring them benefits in terms of reputation, enhanced brand value, the gaining of stakeholder trust and positive communication potential. This, in turn, will attract both quality investors and work force. Moreover, governments across geographies encourage business houses to shoulder increased responsibility for the environment as well as the society around their offices and facilities, while the rest of the world too watch them as to how they acquit themselves in these spheres. Therefore, when companies comply with multiple demands made on them, the ensuring goodwill it generates among all their stakeholders can really make a difference for their prosperity and continued existence.

The first speaker to talk on about the precepts and practices of corporate governance was M. A. Alagappan, Executive Chairman, Murugappa Group of companies, and a director on the boards of several companies, both within the Group and outside: well-equipped and well-versed to speak on the subject. After defining corporate governance in the words of OECD, he quotes Narayana Murthy of Infosys on its importance to businessmen and indeed to all stakeholders. Arguing that corporate governance cannot be legislated but should be inexorably linked to the mindsets and ethical standards of managements, Alagappan goes on to commend the principles of good corporate governance enunciated in 2003 by the Australian Stock Exchange's Corporate Governance Council. These principles are: 1) to lay solid foundations for management and oversight; 2) to structure the board with a view to adding value; 3) to promote ethical and responsible decision-making; 4) to safeguard integrity in financial reporting; 5) to make timely and balanced disclosures; 6) to respect the rights of shareholders; 7) to recognize and manage risk; 8) to encourage enhanced performance; 9) to remunerate fairly and responsibly; and 10) to recognize the legitimate interests of stakeholders. Alagappan then proceeds to analyse corporate governance practices in India which are ‘still at a fairly nascent stage when compared to companies in the West’. He provides the gist of recommendations of two famous Indian committees on corporate governance, one headed by Kumar Mangalam Birla and the other by Narayana Murthy, respectively. The Murugappa Group of companies is well known in this part of the country for pioneering internationally accepted best corporate governance practices. Being a doyen of the group he lists some of those best practices such as the composition of the board as envisaged by the company's proactive compliance of law and putting in place a well-formulated whistle blower policy. Alagappan ends his piece by quoting from a White Paper issued by the Economists Intelligence Unit titled ‘Corporate Governance: The New Strategic Imperative’ which concluded that: 1) regulations are only one part of the answer to improve governance; 2) designing and putting in place corporate governance's structure of importance, but imbibing the right culture is more important; 3) there is an inherent tension between governance and growth in as much as ‘state-of-the-art corporate governance can bring benefits to the company and also introduces impediments to growth’.

S. B. Mathur, Chairman, National Stock Exchange (NSE) and independent director in some companies, was the second speaker on the theme corporate governance: precepts and practices. Mathur swears by two committees that laid the foundation of corporate governance—Cadbury and the Blue Ribbon in the US that led to the Sarbanes-Oxley Act (SOA). Mathur stresses the role of the board including that of independent directors to ensure corporate governance. He strongly advocates the creation of subcommittees to advice the board on matters the entire board may not be able to deal with such as finance, audit, remuneration, etc. The board should be of appropriate size and competent. It is ideal not to club the chairman's and the CEO's post in one person for obvious reasons. Mathur then proceeds to analyse in great detail the latest guidelines of SEBI on issues relating to Clause 49 and concludes by commenting on the rather high cost of compliance.

Madhav Mehra, President, World Council for Corporate Governance, London, deals with challenges and opportunities for corporate governance in India. He asserts that the youth of the country that live at a defining moment of history has a high stake in ensuring better corporate governance. Mehra argues that, globally, risks of corporate wrongdoing are escalating. With the changed perception of society on the role of business, stakeholders have come to the centre stage. Equity and shared prosperity have become important ingredients of corporate governance. He warns that widening disparities are a big threat to India and only a miniscule minority shares the Indian dream. This has to be reversed through better governance. The reason why we want corporate governance is that it leads to transparency and accountability. We need to strike a balance between under-regulation and over-regulation. We need directors with independent mind to encourage diversity, do business ethically with a clean conscience and turn one's business into a cause and the company into a brand. Mehra exhorts Indian companies to create their brand through honesty, integrity and transparency.

N. Ram, Editor-in-Chief of the Hindu Group of Publications, a highly rated and recognized journalist, delivered the valedictory address at the conference. He spoke on business ethics and the media. Commending the House of Tatas for their exemplary involvement in CSR activities, he says that IT companies today continue the legacy. He is of firm opinion that industry should serve the social purpose and discusses briefly the special economic zone (SEZ) issue and roles the governments and trade bodies, such as FICCI, play in deciding issues such as acquisition of land, fair compensation to land owners, employment to the sons of the soil, etc. Presently, he feels that there is a conspiracy of silence on these issues in these quarters that are concerned with them. Taking up the theme of journalistic ethics, he avers that while the media is under pressure in the West due to shrinking audience, it is in a growth mode in countries like India. When you grow fast, you encounter problems, especially when you are in touch with millions of readers, he says. He talks about the Readers’ Editor in The Hindu, ‘ This kind of citizen journalism, though much desired, has its own problems, apart from the job being very stressful. Ram makes a point for the need for professional code in the media with its multifarious roles and functions, which are, inter alia, the following: (i) credibility of published information, (ii) being a watchdog, (iii) being an educator, and (iv) being an agenda builder. Ram builds up strong arguments as to why independence of the Media is vital for its growth and the need for journalism in India. He also enunciates the principles that should inform and govern responsible Media in a developing country like India. These principles are: (i) The Principle of Justice; (ii) The Principle of Humaneness; and (iii) The Principle of Contributing to the Social Good. Ram concludes that with the media becoming increasingly cor-poratized, they face much the same challenge as the rest of the corporate sector and is subject to the same public expectations with regard to business ethics and CSR as the corporate sector.

CONCLUSION

Once you are familiar with the concepts and nuances of business ethics, corporate governance and CSR, having gone through what have been explained above, you are welcome to pursue what the authorities have to say on these very important subjects.