cg and other stake holders

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OBJECTIVES


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It is fallacious to argue anymore that theimmediate concern of a Company is to beexclusively directed towards the shareholders,while other stakeholders are only of aperipheral importance to it.


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(1) CORPORATE GOVERNANCED

EMLPOYEES

Employees are also one of the stakeholders of

the organisation; by increasing theirparticipation in the organisation, one couldensure corporate governance.


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Today, the growing recognition that human capital isa source of competitive advantage has led to the

understanding that labour is more important thancapital, if not, is at least as important as capital.Corporate leaders in developed countriesincreasingly understand that people and the

knowledge they create are often the most valuableassets in a corporation.


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The of employees can beprotected through

Trade Unions Co-determination: employee representation on

boards of directors Profit-sharing Equity-sharing

"Team production" solution


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Trade Unions could represent the collectiveinterests of the employees and fight for what is

rightly due to them from the organization.


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It is a situation where there is employeerepresentation on the board of directors of the

organization.


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Profit sharing could be done in many ways

such as


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The objective of such profit sharing is toencourage employee involvement in theorganization and improve their motivation and

distribution of wealth among all the factors ofproduction.


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Equity-sharing

Under equity-sharing, the employee isgiven an option to buy the shares,identify themselves with, and thus

become the owners of the organization.


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There are various ways in which equitysharing could be done:(i) Employeeshare ownership plans (ii) Stock bonus

plans (iii) Stock option plans (iv)Employee buyout, and (v) Workercooperatives.


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Team production solution is a situation where theboards of directors must balance competinginterests of the various stakeholders and then

arrive at decisions that are in the best interest ofthe organization.

There are some guidelines that could be used herewhile deciding on employee representation in theorganization.


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There should be voluntary participation on the

part of the employees and they should not beforced to do anything out of compulsion.

The benefits should be extended to allemployees, factory workers, clerical staff and theexecutives of the organization indiscriminately.


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The process by which the allocation of shares is

done should be clear and transparent, and nottoo complicated.

There should be a predetermined formula towork out the number of shares that could beoffered, and it should not be left to the

discretion of any party.


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There should be some regularity when such offersare made, they cannot be made as and when theorganisation feels like making such offers.

The organisation should take into considerationthe interests of the employees when they makeany decisions, and they should see to it that there

is no undue risk taken.


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There should be a clear distinction between the

participation schemes that are offered to theemployees and the regular wages and the benefitsthat are offered by the organisation.

The participation schemes offered should becompatible with the worker mobility. The worker

should not be penalised by accepting the schemesoffered to him.


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North American Advocacy Group, The StakeholderAlliance, is attempting to promote "more responsiblecapitalism by pressing corporations to become fullyaccountable to their stakeholders." The Alliance has comeout with what it calls the Sunshine Standards to providedirection for corporates reporting to stakeholders - theemployees, customers, communities, suppliers, as wellas financial investors who contribute significantly tothe success of corporations or are affected significantlyby their actions. According to the Alliance, these

standards are intended to supersede the GenerallyAccepted Accounting Principles (GAAP) issued by theFinancial Accounting Standards Board (FASB) and itspredecessors that currently govern corporate reportingto stockholders.


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Customers Information Needs

The Advocacy Group, dealing with customerinformation needs, stresses the need forcorporates to disclose actions brought by

customers and regulatory authorities regardingproducts, services and market practices.


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The information needs ofcustomers include:

Risks of injury from normal usage; Noise, odours and other nuisances or problems

associated with use;

Design for recycling; Biodegradability of products and packaging; Unusual life cycle costs, including repairs, energy

consumption and disposal that will be borne by partiesother than the producer or seller;

Warnings, with appropriate detail, regarding unusualcontamination and adulteration exposure and risks

during production, shipping, marketing and storage;


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The information needs of customersinclude:

Content, additives and treatments of food andmedicines, sufficient to allow reasonably-informedconsumers to make rational market decisions and toprotect themselves and their families - appropriatedescriptions may include pesticides used in fruits andvegetables, hormones and chemicals used in growingand processing meat, and substances in cosmetics andpersonal grooming products to which some consumers

may be allergic; and "Well hidden characteristics" or those product qualities

which, regardless of expense or purchase frequency,remain hidden even after use -- such as the amount oftoxic chemicals and nicotine in cigarettes.


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A customer who is also a stakeholder of acompany contributes towards the success ofthe enterprise as much as he is affected by

the actions of the company.


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Financial results and solvency Financial statements and annual reports Investor communications Composition and quality of the Board Corporate governance practices Corporate image Share price


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McKinsey rated the performance on corporategovernance of each company based on the

following components :

Transparent ownership, Board size,Board accountability, Ownership neutrality.

and Transparency: Broad, Timely andAccurate Disclosure, International AccountingStandards.

Dispersed Ownership, IndependentAudits and Oversight, Independent Directors

One share, one vote.


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Without dependable debt collection, no amount ofsupervision or competition can make banks runefficiently.

External financing for private firms comes essentiallyfrom two sources: debt and equity. While control by

equity holders is appropriate in profitable times (whenentrepreneurial risk taking is needed), creditormonitoring and control become binding in times offinancial distress, particularly when tight controls on

spending and investment are needed.

C dit M it i d


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Creditor Monitoring andControl

Adequate InformationThe first requirement is information.

Lenders need information on the

creditworthiness of potential borrowers,and depositors and bank supervisorsneed information on bank portfolios.


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Creditor Incentives

The existence of appropriate market-basedincentives for creditors, in the form of highermargin of profit, high interest charges from

customers and sometimes even reduction inthe quantum of Non-Performing Assets(NPAs).


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The third requirement for creditor monitoring andcontrol in a market economy is an appropriate legalframework and effective procedures for debtcollection.

Around the world, legal protection of diffuse debtholders seems insufficient to protect the rights of

investors and limit managerial discretion.


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That is the role of governance. Corporategovernance is the mechanism by which the values,principles, management policies and procedures of a

corporation are made manifest in the real world.

The fundamental basis of corporate governance and

responsibility is the value system of the corporation:


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Its human resource principles - respect and dignity for all

Its dedication to accurate and transparent accounting andfinancial standards

Its concern for the environment, for good business ethics andconduct, for social advancement

Its over-riding passion to serve customers

Its insistence on fair treatment of suppliers - and competitors

Its uncompromising standard to comply with government lawsand regulations in all countries in which it operates

Its desire to work with others to lead society to a better

economic standard and quality of life.

Practical Steps to Corporate


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Practical Steps to CorporateSocial Responsibility


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5. Establish implementation proceduresand management systems

6. Benchmark against selected externalcodes and standards

7. Set up internal monitoring

8. Use language that everyone canunderstand

9. Set pragmatic and realistic objectives.


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Corporations exist because they, in a sustainable

fashion, enable people to constructively practicetheir craft and create jobs, economic value, andwealth for the society and the enterprise

especially free societies.


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Political economy forces that produce the laws,enforcement mechanisms, bankruptcy

processes, and the ability of powerfulmanagers to influence legislation willprofoundly shape corporate governance.


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Some argue that governments will tend to useregulations instead of the threat of legalsanctions when the legal system does noteffectively dissuade managers from taking

socially costly actions.


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Thus the government in every country exercisesa certain amount of control over operations ofthe organisation and the government could usethis to steer the organisation towards the pathof good corporate governance.

cg and other stake holders

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