Corporate Governance and other Stakeholders – Governance, Risk Management, Compliances and Ethics Important Questions

Question 1.
Elaborate the concept of stakeholders.
OR
What do you understand by the ‘stakeholders’ concept? Whether this concept has been recognized in law?
Answer:
In a business context, customers, investors and shareholders, employees, suppliers, government agencies, communities and many others who have a “stake” or claim in some aspect of a company’s products, operations, markets, industry and outcomes are known as “stakeholders.”

Stakeholders provide resources that are more or less critical to a firm’s long-term success. These resources may be both tangible and intangible Shareholders, for example, supply capital; suppliers offer material resources or intangible knowledge; employees and managers grant expertise leadership and commitment; customers generate revenue and provide infrastructure and the media transmits positive corporate images.

Recognition of Stakeholder Concept in Law:
The stakeholders concept has been reflected in the laws governing the corporate for a long period. The labour laws seeks to ensure fair and equitable treatment to employees, the environment protection laws seeks to ensure adoption of measures which will minimize the negative impact on environment. Tax laws give incentives in the form of tax holidays for development of backward areas. Tax benefits in the form of exemptions for donations made to recognized funds and organizations etc.

Question 2.
Write notes on the following; Stakeholder orientation.
Answer:
The degree to which a firm understands and addresses stakeholders demands can be referred to as a “stakeholder orientation”.

The orientation comprises three sets of activities:

  • The organization wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups.
  • The distribution of this information throughout the firm.
  • The organization’s responsiveness as a whole to this intelligence.

A stakeholder orientation is not complete unless it includes activities that actually address stakeholder issues. The responsiveness of the organization as a whole to stakeholder information consists of the initiatives the firm adopts to ensure that it abides by or exceeds stakeholder expectations and has a positive impact on stakeholder issues.

Question 3.
Discuss the stakeholders’ concept stating the principles enunciated by Evans and Freeman.
Answer:
Freeman defined stakeholders as any group or individual who can affect or is affected by the achievement of the organization’s objectives. This concept was elaborated by Evan & Freeman as the following two principles:

Principles of corporate legitimacy:
The corporation should be managed for the benefit of its stakeholders: its customers, suppliers owners, employees and local communities. The rights of these groups must participate, in some sense in decisions that substantially, affect their welfare.

The stakeholder fiduciary principle:
Management bears a fiduciary relationship to-stakeholders and to the corporation as an abstract entity. It must act in the interest of the stakeholders as their agent and it must act in the interests of the – corporation to ensure the survival of the firm, safe guarding the long term stakes of each group.

Subsequently Freeman redefined stakeholder as “These groups who are vital to the survival and success of the corporation” and the principles were altered renamed:

The stakeholder enabling principle: Corporation shall be managed in the interest of stakeholders.

The principle of Director Responsibility: Directors of corporation shall have a duty of care to use reasonable judgment to define and direct the affairs of the corporation in accordance with the stakeholder enabling principle.

Question 4.
Discuss briefly the following; Stakeholder engagement.
OR
”Stakeholders engagement is an alliance building tool”. Comment
OR
How does better stakeholder engagement enables good governance. Discuss.
Answer:
Following are the key points on Stakeholder engagement :

  • Stakeholder engagement is an alliance-building tool.
  • Corporations practice stakeholder engagement in an effort to under-stand the needs of their stakeholders, create partnerships and promote dialogue.
  • Stakeholder engagement identifies stakeholders, assesses stakeholder needs, develops stakeholder relations plans and forms alliances with stakeholders.
  • Stakeholder engagement provides opportunities to further align business practices with societal needs and expeditions, helping to drive long-term sustainability and shareholder value.
  • Stakeholder engagement helps the organization, to compete in an increasingly complex and ever-changing business environment, while at the same time bringing about systemic change towards sustainable development.
  • Stakeholder engagement leads to increased transparency, responsiveness, compliance, organizational learning, quality management, accountability and sustainability.
  • Stakeholder engagement is a central feature of sustainability performance. In nutshell, the stakeholder’s engagement ensures good governance.

Question 5.
“Stakeholder engagement provides opportunities to further align business practices with societal needs and expectations, helping to drive long-term sustainability and shareholder value”.
In the context of this, discuss key principles of stakeholder engagement.
OR
Explain the key principles of stakeholder engagement.
Answer:
Stakeholder engagement is the process by which an organisation involves people who may be affected by the decisions it makes or can influence the implementation of its decisions.

The key principles of Stakeholders’ engagement are:

  • Communicate : Interactions from the various stakeholders should be promoted. The communication may be made through the print media elaborating about the progress of the company, which is also a part of the transparency and disclosure. Ensure intended message is understood and the desired response achieved.
  • Consult, early and often : Always ask the right questions to get the useful information and ideas. To engage their support ask them for advice and listen how they feel.
  • Remember, they are human : Operate with an awareness of human feelings.
  • Plan it : Time investment and careful planning against it, has a significant payoff.
  • Relationship : Try to develop trust with stakeholders.
  • Simple but not easy : Be empathetic. Listen to the stakeholders.
  • Managing risk : Stakeholders can be treated as risk and opportunities that have probabilities and impact.
  • Compromise : Across a set of stakeholder’s diverse priorities.
  • Understanding what is success : Explore the value of project to the stakeholder.
  • Take responsibilities : Project governance is the key of project success. It’s always the responsibilities of everyone to maintain an ongoing dialogue with stakeholders.

Question 6.
Answer the following in brief; How a better stakeholder engagement ensures good governance?
Answer:
Stakeholder engagement provides opportunities to further align business practices with societal needs and expectations, helping to drive long-term sustainability and shareholder value. Stakeholders engagement helps the organization, to compete in an increasingly complex and ever-changing business environment, while at the same time bringing about systemic change towards sustainable development.

Stakeholder engagement leads to increased transparency, responsiveness, compliance, organizational learning, quality management, accountability and sustainability. Stakeholder engagement is a central feature of sustain ability performance. In nutshell, the stakeholder’s engagement ensures good governance.

Question 7.
“Stakeholder analysis is the identification of a project’s/activity’s key stakeholders, an assessment of their interests and the ways in which these interests affect project’s riskiness and viability”. Elaborate this statement.
OR
What do you understand by stakeholder analysis?
Answer:
Stakeholder analysis is the identification of a project or activity’s key stakeholders, an assessment of their interests, and the ways in which these interests affect project’s riskiness and viability. It is linked to both institutional appraisal and social analysis: drawing on the information deriving from these approaches, but also contributing to the combining of such data in a single framework. Stakeholder analysis contributes to project design/ activity design through the logical framework, and by helping to identify appropriate forms of stakeholder participation.

Doing a stakeholder analysis can:

  • Draw out the interests of stakeholders in relation to the problems which the project is seeking to address (at the identification stage) or the purpose of the project (once it has started)
  • Identify conflicts of interests between stakeholders.
  • Help to identify relations between stakeholders which can be built upon, and may enable establish synergies.
  • Help to assess the appropriate type of participation by different stake-holders. The underlining factor in the stakeholder concept is that every activity of an organization should be based taking into account the interests of all the stakeholders. A holistic approach ensuring fairness to all the stakeholders is completely necessary for the sustainability of an enterprise.

Question 8.
“Better Stakeholder engagement ensures Good Governance”. In light of this sentence, elaborate the role of stakeholders in governance.
Answer:
Stakeholders are characterized by their relationship to the company and their needs, interests and concerns, which will be foremost in their minds at the start of an engagement process. However, as the process unfolds they soon take a particular role with related tasks and responsibilities.

The following are just some of the different roles that stakeholders can play:

  • Experts, such as academicians, who have been invited to contribute knowledge and strategic advice to the company’s board.
  • Technical advisors with expertise on the social and environmental risks associated with particular technological and scientific developments invited to sit on scientific and ethical panels in science-based industries.
  • Representatives of special interests, such as employees, local communities or the environment commonly invited to participate in stakeholder panels to review company performance and/or reporting practices.
  • Co – implementers, such as NGOs, who have partnered with the company to implement a joint solution or program to address a shared challenge.

Stakeholders can only be well informed and knowledgeable if companies are transparent and report on issues that impact stakeholders. Both parties have an obligation to communicate sincerely and attempt to understand, not just be understood.

Question 9.
Answer the following; “Stakeholder is any group of individuals which – can effect or is affected by the organization.” What are the types of stake-holders?
OR
What is understood by the term stakeholder-Enumerate the different stakeholder of any corporate entity.
Answer:
In a business context, customers, investors and shareholders, employees, suppliers, government agencies, communities and many others who have a ‘stake’ or claim in some aspect of company’s product operations, markets, industry and outcomes are known as stakeholder. These group are influenced by business, but they also have the ability to affect businesses. The stakeholders may be classified into:

Primary stakeholders – Primary stakeholders are those whose continued association is absolutely necessary for a firm’s survival; these include employees, customers, investors, and shareholders, as well as the governments and communities that provide necessary infrastructure.

Secondary stakeholders – Secondary stakeholders do not typically engage in transactions with a company and thus are not essential for its survival; these include the media, trade associations, and special interest groups.

Question 10.
Explain briefly the following: Thesis of stakeholder theory.
Answer:
Thesis in stakeholder theory is as follows:
1. Descriptive : The theory is used to describe specific corporate characteristics such as nature of the firm, the way managers think about managing, how corporations are managed or how the board members think about the interests of constituencies.

2. Instrumental : Instrumental stakeholders are defined by the need to the management to take them into account when trying to achieve their goals.

3. Normative : This approach is categorical in effect it says – ‘Do (don’t do) this because it is the right (wrong) thing to do’.

4. Broadly managerial : It recommends attitudes, structures and practices that taken together constitute stakeholder management.

Question 11.
Write a brief note on Caux Round Table (CRT).
OR
Write a note on the following; The Caux Round Table.
Answer:
The Caux Round Table (CRT) is an international network of business leaders working to promote a morally and sustainable way of doing business. The Caux Round Table was founded in 1986 by Frits Philips Sr. former President of Philips Electronics, and Olivier Giscard d’Estaing, former Vice-Chairman of
INSEAD, as a means of reducing escalating international trade tensions between Europe, Japan and the USA.

In 1994 Caux Round Table Principles for Business around three ethical foundations were formed namely:

  • Responsible stewardship.
  • The Japanese concept of Kyosei – living and working for mutual advantage.
  • Respecting and protecting human dignity.

These principles recognize that while laws and market forces are necessary, they are insufficient guides for responsible business conduct. The Caux Round Table believes that the world business community should play an important role in improving economic and social conditions.

Through an extensive and collaborative process in 1994, business leaders developed the CRT Principles for Business to embody the aspiration of principled business leadership. The CRT believes that its Principles for Responsible Business provide necessary foundations for a fair, free and transparent global society.

Question 12.
What are CRT Principles of responsible business? Discuss
OR
Discuss briefly the Caux Round Table (CRT) and its principles of business.
OR
“The Caux Round Table (CRT) is based on the belief that the world business community should pay an important role in improving economic and social conditions”.
In the light of this statement, enumerate the CRT general principles for business.
Answer:
The CRT Principles for Business are a worldwide vision for ethical and responsible corporate behaviour and serve as a foundation for action for business leaders worldwide.

Aim of CRT Principles:
As a statement of aspirations, the CRT Principles aim to express a world standard against which business behaviour can be measured. The Caux Round Table has sought to begin a process that identifies shared values, reconciles differing values, and thereby develops a shared perspective on business behaviour acceptable to and honoured by all.

CRT Principles for Responsible Business set forth ethical norms for acceptable businesses behaviour. The principles also have a risk management foundation because good ethics is good risk management. They balance the interests of business with the aspir ations of society to ensure sustainable and mutual prosperity for all.

Following are these principles:

  • Principle 1 – Respect stakeholders beyond shareholders
  • Principle 2 – Contribute to economic, social and environmental development
  • Principle 3 – Build trust by going beyond the letter of the law
  • Principle 4 – Respect rules and conventions
  • Principle 5 – Support responsible globalisation
  • Principle 6 – Respect the environment
  • Principle 7 – Avoid illicit activities

Question 13.
Explain the following statement; KYOSEI philosophy reflects a confluence of social environmental technological and political solution.
OR
The Japanese concept of KYOSEI reflects spirit of co-operation. Formulate a note on how to implement KYOSEI in an organization.
OR
What are different stages of KYOSEI?
Answer:
KYOSEI is a Japanese technique meaning “a spirit of co-operation”. In simple words, it means ‘the living and working together for the common good’. However, in broad sense it may be defined as “All people, regardless of race, religion or culture, harmoniously living and working together into the future.”

Stages of KYOSEI (Five stages)
First stage : In the first stage of KYOSEI, a company must work to secure a predictable stream of profits and to establish strong market positions. At this stage a corporate is at the stage of evolution and it is concerned with profit making and its economic survival. Stakeholder’s benefits are not a major concern area.

Second stage : From this foundation, it moves on to the second stage, in which managers and workers resolve to cooperate with one another, recognizing that both groups are vital to the company’s success. Managers and workers unite in working for the prosperity of the corporation and both have a share in the profits.

Third stage : In the third stage, this sense of cooperation is extended beyond the company to encompass customers, suppliers, community groups, and even competitors. At this stage company assumes local social responsibilities. Companies respect the interests of their own stakeholders, customers, staff, shareholders, suppliers, competitors and the local community.

Fourth stage : At the fourth stage, a company takes the cooperative spirit beyond national boundaries and addresses some of the global imbalances. At this stage company assumes global social responsibilities. It begins to take care of all its direct stakeholders, including its local community and beyond. Thus it strives to fulfil its corporate obligations on a global scale.

Fifth stage : In the fifth stage, which companies rarely achieve, a company urges its national government to work towards rectifying global imbalances. At the global level KYOSEI will address Trade imbalances, Income imbalances and Environmental imbalances by advocating political, economic and educational reform.

Question 14.
Discuss Clarkson principles of stakeholder management.
Answer:
The Clarkson Principles, which emerged from a project undertaken by the Centre for Corporate Social Performance and Ethics, are as follows:
Principle 1 : Managers should acknowledge and actively monitor the concerns of all legitimate stakeholders, and should take their interests appropriately into account in decision-making and operations.

Principle 2 : Managers should listen to and openly communicate with stakeholders about their respective concerns and contributions, and about the risks that they assume because of their involvement with the corporation.

Principle 3 : Managers should adopt processes and modes of behaviour that are sensitive to the concerns and capabilities of each stakeholder constituency.

Principle 4 : Managers should recognize the interdependence of efforts and rewards among stakeholders, and should attempt to achieve a fair distribution of the benefits and burdens of corporate activity among them, taking into account their respective risks and vulnerabilities.

Principle 5 : Manages should work cooperatively with other entities, both public and private, to insure that risks and harms arising from corporate activities are minimized and, where they cannot be avoided, appropriately compensated.

Principle 6 : Managers should avoid altogether activities that might jeopardize inalienable human rights (example the right to life) or give rise to risks which, if clearly understood, would be patently unacceptable to relevant stakeholders.

Principle 7 : Managers should acknowledge the potential conflicts between their own role as corporate stakeholders and their legal and moral responsibilities for the interests of stakeholders, and should address such conflicts through open communication, appropriate reporting and incentive systems, and, where necessary, third party review.

Question 15.
“Better stakeholders’ engagement ensures good governance.” Analyse this statement in the context of employees as stakeholders.
Answer:
“Better stakeholders’ engagement ensures good governance”. Employees are one of the important and primary stakeholders of the companies. Employees have a stake in the long-term success of the corporation. Employees possess skills and knowledge which are specific to their particular corporation. Moreover, employees care about a wide range of decisions within corporations. Stakeholder engagement leads to increased transparency, responsiveness, compliance, organizational learning, quality management, accountability and sustainability. Stakeholder engagement is a central feature of sustainability performance.

Question 16.
“Employees participation in corporate governance system can be found in many countries and corporations throughout the world”. In the light of this statement, discuss some of the important examples for ensuring good governance by employee.
Answer:
Employee participation in corporate governance systems can be found in many countries and corporations throughout the world.

Following are the some important example for ensuring good governance by employees:

Right to consultation – where employees must be consulted on certain management decisions. This right increases transparency of management decisions and allows employee opinion to ameliorate the asymmetry of information between management and the market.

Right to nominate/vote for supervisory board members – In many cases employee participation on the board is mandated. This right creates a check and balance system between management and the supervisory board, which in turn creates the perception of greater fairness.

Compensation/privatization programs that make employees holders of shares, thereby empowering employees to elect the board members, which, in turn holds management responsible.

Participation in the capital: Employees may be partner in the capital contribution. They may be given the shares under the ESOP scheme. This will create the belongingness of the ownership concept among the employees meaning there by owner as well as employee. This will lead to the Improved employee commitment and buy-in to management’s goals side by side the alignment of interest between employees and shareholders. It may support the emergence of more transparent and effective corporate governance.

Question 17.
“Organization that builds mutually strong relationship with its vendors improves its overall performance in the market price”. Discuss.
Answer:
Vendors play a key role in the success of an organisation. The organisation which builds a mutually strong relationship with its vendors improves its overall performance in the marketplace. The time, money and energy used to nurture a positive vendor relationship cannot be measured directly against the company’s bottom line. However, a well managed vendor relationship will result in increased customer satisfaction, reduced costs’ better quality, and better service from the vendor. It ultimately contributes toward the good governance of an organisation. A proper systematic approach of vendor management will benefits all the employees, organisation, customer and vendors.

Question 18.
Name any five principles laid down under German Corporate Governance Code, 2019.
Answer:
Following are the first five principles under the German Corporate Governance Code, 2019
Principle 1 : The Management Board is responsible for managing the enterprise in its own best interests. Its members are jointly accountable for managing the enterprise. The Chair or Spokesperson of the Management Board coordinates the work of the Management Board members.

Principle 2 : The Management Board develops the enterprise strategy, co-ordinates it with the Supervisory Board and ensures its implementation.

Principle 3 : The Management Board stipulates target values for the share of women in the two management levels below the Board.

Principle 4 : A responsible management of risks arising from business activities requires an appropriate and effective internal control and risk management system.

Principle 5 : The Management Board ensures that all provisions of law and internal policies are complied with, and endeavours to achieve their compliance by the enterprise.

Governance Risk Management Compliances and Ethics Notes