Corporate governance and social responsibility: for RAS/RTS Mains Examination-based on latest rpsc RAS/RTS mains syllabus

Corporate governance is defined as a set of rules that define the relationship between stakeholders, management, and board of directors of a company and influence how that company is operating. At its most basic level, corporate governance deals with issues that result from the separation of ownership and control. But corporate governance goes beyond simply establishing a clear relationship between shareholders and managers.

Organisation for Economic Co-operation and Development defines Corporate governance as a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

Corporate governance provides following benefits to an organization:-
• It improves strategic thinking at the top by inducting independent directors who bring a wealth of experience, and a host of new ideas
• It rationalizes the management and monitoring of risk that a firm faces globally
• It limits the liability of top management and directors, by carefully articulating the decision making process
• It assures the integrity of financial reports
• It has long term reputation effects among key stakeholders, both internally and externally

Corporate Governance works with and objective to serve its various claimants. Corporate Governance has several claimants – shareholders, suppliers, customers, creditors, the bankers, employees of company and society. The committee for SEBI keeping view has prepared primarily the interests of a particular class of stakeholders namely the shareholders this report on corporate governance. It means enhancement of shareholder value keeping in view the interests of the other stack holders. Committee has recommended C.G. as company’s principles rather than just act. The company should treat corporate governance as way of life rather than code.

Corporate Social Responsibility(CSR) is increasingly an essential issue for companies. It is a complex and multi- dimensional organisational phenomenon that is understood as the scope for which, and the ways in which, an organisation is consciously responsible for its actions and non-actions and their impact on its stakeholders. It represents not just a change to the commercial setting in which individual companies operates, but also a pragmatic response of a company to its consumers and society. It is increasingly being understood as a means by which companies may endeavour to achieve a balance between their efforts to generate pro?ts and the societies that they impact in these efforts. This chapter discusses these issues. First, it describes CSR and its core principles. Second, it describes CG and narrates CG’s convergence with CSR. Third, it highlights how different economies are incorporating CSR notions in their corporate regulation.

The convergence of Corporate Social Responsibility(CSR) and Corporate governance(CG) has helped to develop the standardisation regime. Most global companies have acknowledged this development. They exclusively consider certain of these initiatives to measure their suppliers’ performance. Some of them weed out suppliers from their chains on the results of performance tests based on these initiatives. Using these initiatives they select strategic suppliers to
(a) reduce their transaction costs;
(b) increase their pro?tability; (
c) reduce costs as a result of a reduced need to switch suppliers; and
(d) increase their competitiveness in the marketplace through improved relationships with consumers.

GOI issued the Companies (Corporate Social Responsibility Policy) Rules, 2014 (CRS Rules) which has come into effect from 1 April 2014. Under Section 135 of the Companies Act ,it provides the threshold limit for applicability of the CSR to a Company i.e.

(a) net worth of the company to be Rs 500 crore or more;

(b) turnover of the company to be Rs 1000 crore or more;

(c) net profit of the company to be Rs 5 crore or more. Further as per the CSR Rules, the provisions of CSR are not only applicable to Indian companies, but also applicable to branch and project offices of a foreign company in India.

Under the rules,  Every qualifying company requires spending of at least 2% of its average net profit for the immediately preceding 3 financial years on CSR activities. Further, the qualifying company will be required to constitute a committee (CSR Committee) of the Board of Directors (Board) consisting of 3 or more directors. The CSR Committee shall formulate and recommend to the Board, a policy which shall indicate the activities to be undertaken (CSR Policy); recommend the amount of expenditure to be incurred on the activities referred and monitor the CSR Policy of the company. The Board shall take into account the recommendations made by the CSR Committee and approve the CSR Policy of the company.

The activities that can be done by the company to achieve its CSR obligations include eradicating extreme hunger and poverty, promotion of education, promoting gender equality and empowering women, reducing child mortality and improving maternal health, combating human immunodeficiency virus, acquired, immune deficiency syndrome, malaria and other diseases, ensuring environmental sustainability, employment enhancing vocational skills, social business projects, contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women and such other matters as may be prescribed.


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