ETHICS, GOVERNANCE AND SUSTAINABILITY

1 ISTUDY MATERIALPROFESSIONAL PROGRAMMEETHICS, GOVERNANCEANDSUSTAINABILITYMODULE IIPAPER 6 ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003tel 011-4534 1000, 4150 4444fax +91-11-2462 6727email THE INSTITUTE OF COMPANY SECRETARIES OF INDIATIMING OF HEADQUARTERSM onday to FridayOffice Timings to Dealing TimingsWithout financial transactions to financial transactions to , Typesetting by AArushi Graphics, Prashant Vihar, New Delhi, andPrinted at Tan Prints/PRN-2509/July 2014iiiiiPROFESSIONAL PROGRAMMEETHICS, GOVERNANCE AND SUSTAINABILITYC orporate GOVERNANCE has emerged as an important academic discipline in its own right, bringing togethercontributions from accounting, finance, law and management. Corporate GOVERNANCE now offers a comprehensive,interdisciplinary approach to the management and control of companies. Corporate professionals of today andtomorrow must imbibe in themselves the evolving principles of good corporate GOVERNANCE across the globe ona continual basis.

2 Excellence can be bettered only through continuous study, research and academic andprofessional interaction of the highest quality in the theory and practice of good corporate GOVERNANCE . Thecorporate world looks upon especially Company Secretaries to provide the impetus, guidance and direction forachieving world-class corporate Secretaries are the primary source of advice on the conduct of business. This can take into its foldeverything from legal advice on conflicts of interest, through accounting advice, to the development of strategy/corporate compliance and advice on SUSTAINABILITY paper on Ethics, GOVERNANCE and SUSTAINABILITY has been introduced to provide knowledge on globaldevelopment on GOVERNANCE , ethics and SUSTAINABILITY aspects and best GOVERNANCE practices followed paper would help in understanding of national and international GOVERNANCE norms, ethical business practices,corporate SUSTAINABILITY , CSR and SUSTAINABILITY reporting, role of various GOVERNANCE forums study material is based on those sections of the Companies Act, 2013 and the rules made there underwhich have been notified by the Government of India and came into force April 01, 2014 (includingAmendments/Clarifications/Circ ulars issued there under upto June, 2014).

3 In respect of sections of the CompaniesAct, 2013 which have not been notified, applicable sections of Companies Act, 1956 have been dealt with in thestudy. Further students are advised to keep themselves abreast of latest developments on GOVERNANCE andsustainability issues by regularly reading economic dailies and visiting the websites of regulatory bodies, nationaland international corporate GOVERNANCE forums. Students are also advised to read regularly the Student CompanySecretary / Chartered Secretary wherein all important regulatory amendments are reported the event of any doubt, students may write to Directorate of Academics in the Institute for clarification due care has been taken in publishing this study material, yet the possibility oferrors, omissions and/or discrepancies cannot be ruled out. This publication is released with an understandingthat the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken inthat there be any discrepancy, error or omission in the study material, the Institute shall be obliged if thesame is brought to its notice for issue of corrigendum in the e-bulletin Student Company 2 PAPER 6: ETHICS, GOVERNANCE AND SUSTAINABILITY (100 Marks)Level of Knowledge:Advance KnowledgeObjective:To acquire knowledge of ethics, emerging trends in good GOVERNANCE practices and :Part A: Ethics and GOVERNANCE (70 Marks)1.

4 Introduction Ethics, Business Ethics, Corporate GOVERNANCE , GOVERNANCE through Inner Consciousness andSustainability Failure of GOVERNANCE and its Consequences2. Ethical Principles in Business Role of Board of Directors Organization Climate and Structure and Ethics Addressing Ethical Dilemmas Code of Ethics; Ethics Committee; Ethics Training; Integrity Pact Case Studies and Contemporary Developments3. Conceptual Framework of Corporate GOVERNANCE Introduction, Need and Scope Evolution of Corporate GOVERNANCE Developments in India Developments in Corporate GOVERNANCE A Global Perspective Elements of Good Corporate Governance4. Board Effectiveness - Issues and Challenges Board Composition; Diversity in Board Room; Types of Directors; Board s Role and Responsibilities Chairman, CEO, Separation of Roles Relationship between Directors and Executives Visionary Leadership Board Charter, Meetings and Processes Directors Training and Development Performance Evaluation of Board and Directorsv5.

5 Board Committees Introduction Various Board Committees, their Composition, Role and Responsibilities, Contribution to BoardGovernance Audit Committee Shareholders Grievance Committee Remuneration Committee Nomination Committee Corporate GOVERNANCE Committee Corporate Compliance Committee Other Committees6. Legislative Framework of Corporate GOVERNANCE in India Under Listing Agreement, SEBI Guidelines, Companies Act Corporate GOVERNANCE in PSUs Banks Insurance Companies7. Legislative Framework of Corporate GOVERNANCE An International Perspective Australia Singapore South Africa United Kingdom Contemporary Developments in the Global Arena8. Risk Management and Internal Control Risk and its Classification Risk Management and Oversight Enterprise Risk Management Internal Control Roles and Responsibilities of Internal Control Disclosure about Risk, Risk Management and Internal Control9.

6 Corporate GOVERNANCE and Shareholder Rights Rights of Shareholders Challenges in Exercising Shareholders Rightsvi Corporate GOVERNANCE issues with regard to Related Party Transactions Role of Investor Associations in Securing Shareholders Rights Role of Institutional Investors in Corporate Governance10. Corporate GOVERNANCE and Other Stakeholders Employees Customers Lenders Vendors Government Society11. Corporate GOVERNANCE Forums The Institute of Company Secretaries of India National Foundation for Corporate GOVERNANCE Organisation for Economic Co-operation and Development Global Corporate GOVERNANCE Forum Institute of Directors Commonwealth Association of Corporate GOVERNANCE International Corporate GOVERNANCE Network The European Corporate GOVERNANCE Institute Conference Board The Asian Corporate GOVERNANCE Association Corporate Secretaries International AssociationPart B: SUSTAINABILITY (30 Marks)12.

7 SUSTAINABILITY Meaning and Scope Corporate Social Responsibility and Corporate SUSTAINABILITY SUSTAINABILITY Terminologies and Meanings Why is SUSTAINABILITY an Imperative SUSTAINABILITY Case Studies Triple Bottom Line (TBL)13. Corporate SUSTAINABILITY Reporting Frameworks Global Reporting Initiative Guidelinesvii National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business International Standards SUSTAINABILITY Indices Principles of Responsible Investment Challenges in Mainstreaming SUSTAINABILITY Reporting SUSTAINABILITY Reporting Case Studies14. Legal Framework, Conventions, Treaties on Environmental and Social Aspects15. Principle of Absolute Liability Case Studies16. Contemporary Developments Integrated ReportingviiiLIST OF RECOMMENDED BOOKSMODULE 2 : PAPER 6 : ETHICS, GOVERNANCE AND SUSTAINABILITYR ecommended Readings and Dube:Corporate GOVERNANCE ; LexisNexis Butterworths Wadhwa Agarwal:Corporate GOVERNANCE : Concept & Dimensions; Snow white PublicationsP.

8 R Sampath:Law of Corporate GOVERNANCE : Principles and Perspective; Snow whitePublications P. BalasubramanianCorporate GOVERNANCE and Stewardship; Tata C Mruthyunjaya:Business Ethics and Value System, C Fernando:Business Ethics An Indian Taxmann:Corporate GOVERNANCE Beyond (a) ICSI Chartered Secretary(b) ICSI Student Company Note on Corporate GOVERNANCE Act, on Companies Act, Agreement by SEBIixARRANGEMENT OF STUDY LESSONSPART A: ETHICS AND GOVERNANCE (70 MARKS) : Ethics and Principles in Framework of Corporate Framework of Corporate GOVERNANCE in Effectiveness-Issues and GOVERNANCE and Shareholder GOVERNANCE and Other Management and Internal GOVERNANCE in Banks, Insurance and Public Sector GOVERNANCE Framework of Corporate GOVERNANCE An International PerspectivePART B: SUSTAINABILITY (30 MARKS) Social SUSTAINABILITY Reporting Framework, Conventions, Treaties on Environmental and Social of Absolute LiabilityTEST PAPERSxCONTENTS LESSON 1 INTRODUCTION.

9 ETHICS AND GOVERNANCEPageIntroduction2 GOVERNANCE through Inner Conscience2 Ethics in Business3 The Concept of Business Ethics3 Corporate GOVERNANCE Ethics4 Theories of Ethics5 Ethical Theories5 Deontological Theories Kantian Ethics5 Teleological Theories6 Utilitarian Approach6 Virtue Theory6 Justice Theory7 Theory of Egoism7 Theory of Relativism8 Scope of Business Ethics8 Advantages of Business Ethics10 CONCLUSION11 LESSON ROUND-UP11 SELF-TEST QUESTIONS12 LESSON 2 ETHICAL PRINCIPLES IN BUSINESSI ntroduction14 Organization Structure and Ethics14 Role of Board of Directors15 Ethics Programme15 Best Practices in Ethics Programme16xiPageFeatures of Good Ethics Programme16 Code of Ethics17 Code of Conduct18 Preamble19 General Moral Imperatives19 Specific Professional Responsibilities20 Specific Additional Provisions for Board Members and Management Committee Members22 Compliance with the Code22 Credo23 Ethics Training and Communication25 Ethics Committee26 Integrity Pact27 Concept of whistle-blower28 Social and Ethical Accounting30 Ethics Audit30 Ethical Dilemma31 CONCLUSION33 LESSON ROUND-UP34 SELF-TEST QUESTIONS35 LESSON 3 CONCEPTUAL FRAMEWORK OF CORPORATE GOVERNANCEI ntroduction38 Definitions of Corporate Governance38 ICSI Principles of Corporate Governance39 Need for Corporate Governance40 Evidence of Corporate GOVERNANCE from the Arthashastra41 Corporate GOVERNANCE Theories42 Evolution of Corporate Governance44 Corporate GOVERNANCE Developments in USA44 Corporate GOVERNANCE Developments in UK44 Developments in India48 Confederation of Indian Industry (CII) - Desirable Corporate GOVERNANCE : A Code48xiiPageGist of Coverage of CII Desirable Corporate GOVERNANCE .

10 A Code51 Kumar Mangalam Birla Committee (2000)52 Task Force on Corporate Excellence Through Governance55 Naresh Chandra Committee (2002) Narayana Murthy Committee (2003)61Dr. J J Irani Expert Committee on Company LAW (2005)64 Corporate GOVERNANCE Voluntary Guidelines 200965 Some of the Provisions Relating to Corporate GOVERNANCE under Companies Act, 201366 Corporate GOVERNANCE through Listing Agreement66 Elements of Good Corporate Governance68 LESSON ROUND UP70 SELF TEST QUESTIONS71 Lesson 4 Legislative Framework of Corporate GOVERNANCE In IndiaIntroduction74 Board Structure74 Separation of Roles of Chairman and Chief Executive76 Meetings of the Board76 Powers of the Board77 Board Committees78 Audit Committees78 Nomination and Remuneration Committees78 Stakeholders Relationship Committee78 Corporate Social Responsibility Committee79 Disclosure and Transparency791. In Terms of Companies Act, 2013792. In Terms of Various Rules Made Under Companies Act, 2013813.