Module-3: Codes and Guidelines for Corporate Governance

Meaning & Definition

 “A code is a set of rules ,which are accepted as general principles, or a set of written rules ,which states how the people of a particular organization or country should behave” Thus it is a set of standards agreed by a group of people who do a particular job. A regulation is an official rules that lays down how things should be done. Both codes and regulation are “set of rules” or “principles” or “standards” that and are intended to control, guide or manage behavior or the conduct of individuals working in an organizations, the basic difference being that codes are “self imposed” or “self-regulated” sets of rules, while regulations and “official” i.e imposed by the State (government)

Benefits of self-regulatory Codes

International Capital Markets Group (1992) listed the following benefits of self regulation.

1.In “self regulation” it is possible to impose ethical standards, which goes beyond those, which can be imposed by statutory legislation.

 2.”Self-regulators are directly accountable to the members of their group". Self-regulatory systems have built-in motivation to regulate for effectiveness and least interference.

3. Self-regulation operates in an environment where there is a willingness to accept regulations formulated from with in the common good of the group.

4.The regulated have an opportunity to participate at all levels of the self-regulatory process. This make it easier for them to appreciate and accept new regulation.

5.Self-regulators has a build-in system of checks and balances as the regulated see it as their duty to expose non-compliance.

6.Self-regulators can identify complex regulatory problems at an early stage and develop suitable solution before these problems reach a stage that can disrupt group operations

 7.Self-regulations are more comprehensive than official regulations and are easier to operate and implement.

Corporate Governance Codes in Companies

 Using best practices as its foundation, the Corporate Governance Code outlines the standards for the expectations for corporate boards in protecting shareholder investments. The code refers to standards for good practices relating to:

•      Board composition

•      Board development

•      Remuneration

•      Accountability

•      Audit

•      Shareholder relations

 

Corporate Governance codes are issued by international agencies, national govts or regulatory bodies as the case may be. Companies create their code of conduct accordingly and publish it often on their websites and include a section of reporting in the annual report of the company. Codes and guidelines by regulatory bodies like stock exchanges and Govt agencies have enforceability due to attraction of penalty for non-compliance. But  the voluntary codes issues by professional bodies depend on the acceptance level of the member .

Internationally accepted code of Corporate Governance

•      G20/OECD Principles of Corporate Governance

OECD Watch is a global network of civil society organisations with more than 130 members in over 50 countries. OECD Watch’s key aim is to inform and advise the global NGO community on how to use the OECD Guidelines for Multinational Enterprises (OECD Guidelines) and its associated grievance mechanism to achieve corporate accountability and access to remedy for individuals harmed by corporate misconduct.

•  Transparency International      

Transparency International e.V (TI) is a global agency for creating awareness about corruption globally having 90 locally established national chapters and chapters-in-formation. 

This international non -governmental organisation is founded in 1993 based in Berlin, Germany. It is a  non profit organization  to take action to combat global Corruption with civil societal anti-corruption measures and to prevent criminal activities arising from corruption.

These bodies fight corruption in the national arena in a number of ways. They bring together relevant players from government, civil society, business and the media to promote transparency in elections, in public administration, in procurement and in business. TI’s global network of chapters and contacts also use advocacy campaigns to lobby governments to implement anti-corruption reforms. TI has the skills, tools, experience, expertise and broad participation to fight corruption on the ground, as well as through global and regional initiatives. Politically non-partisan, TI does not undertake investigations of alleged corruption or expose individual cases, but at times will work in coalition with organisations that do. 

 PRIORITIES

TI has defined five global priorities in the fight against corruption: -

Corruption in politics

Corruption in public contracting

Corruption in the private sector

International anti-corruption conventions

Poverty and development

TI also continues to focus its attention on the following thematic issues: 

Access to information

Global Crisis Advocacy and Legal Advice Centres (ALAC)

Health

Climate governance

Humanitarian assistance

Corruption in the water sector

Judiciary

Defense and security

Protection of whistleblowers

Education

Its most notable publications include the Global Corruption Barometer and the Corruption Perception Index.

Read more from  Introduction to Ethics- Transparency International

 Regulatory body's code of Corporate Governance for market players

•      SEBI

 

SEBI prescribes that there should be a conduct for board of directors. While drafting the code of conduct for corporate governance for the entire corporate sector following aspects can be kept in view:

•      Prescribing of ethical values which are universally acceptable.

•      Ensuring transparency in functioning.

•      Encouraging discipline.

•      Avoiding conflict of interest.

•      Respecting one another.

•      Loyalty to the organization.

•      Providing motivation.

•      Providing of requisite incentives for efficient and effective functioning.

 

Association's Code of Corporate Governance

CII – CG guidelines

Self-regulation is a key factor in greater Responsibility, Integrity and Accountability for rebuilding and sustaining trust, for companies.

The CII guidelines are an attempt toserve as the base for corporates (large and small; listed and unlisted) to redesign their governance strategies in the face of ever-changing business and regulatory environment. The guidelines enumerate 15 recommendations on topical issues covering integrity, ethics and governance; responsible governance and citizenship; role of high-performing board; balancing interest of stakeholders; independent directors and women directors; safe harbours for independent directors; easier settlement norms and amnesty provisions; risk management; succession planning; role of the audit committee; improving audit quality, and enhancing accountability of other third parties who play a fiduciary role; disclosure and transparency related issues; vigil mechanism; stakeholder, vendor and customer governance; investor activism and startups and MSMEs.

 

Individual Firm's Code of Corporate Governance

 

When a firm introduces itsown code, the main objective of such a code is ‘to establish, and to communicate to investors and other stakeholders, the governance principles adopted by the firm’. In this case, a code applies only to that company. Transnational institutions such as the World Bank, the Organization for Economic Cooperation and Development (OECD) and the International Corporate Governance Network (ICGN) have also created governance codes. The introduction of such codes highlights their importance for prosperity of national economies and specific geographic regions.