Corporate Governance

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 Introductory Note
This document contains the following 2 Parts –
Part I – We have discussed the Objective Questions asked in
previous years.
Part II – We have discussed the Descriptive Questions asked
in previous years.

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 Part I

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Guidelines for Part I

Under this part, you will find the exact previous year’s questions (Objective part) that were asked in RBI, SEBI,
and PFRDA. It includes 3 sections:

Section A – Under this section, you will find the exact previous year’s questions that were asked in RBI, SEBI,
and PFRDA. This section will enable you to test your knowledge based on different concepts and for your
comfort, we have segregated the questions according to the different examinations. The questions have been
arranged in the following manner:

1. RBI Grade B - Here, you will find all the previous year’s questions, which were asked in phase 2 of the RBI
Grade B exam, starting from 2016 onwards.
2. SEBI Grade A - Here, you will find all the previous year’s questions, which were asked in phase 2 of the RBI
Grade B exam, starting from 2018 onwards.
3. PFRDA Grade A - Here, you will find all the previous year’s questions, which were asked in phase 2 of the
RBI Grade B exam, starting from 2021 onwards.

If there is no question in this document on any exam for a particular year or years, it means no question was
asked for that exam in that year(s) or the exam itself was not conducted in that year.

Section B - In this section, you will find the answer key for all the questions, and it will enable you to check your
marks and understand your performance accordingly.

Section C – This section contains a detailed explanation of every question, and herein you will be able to
understand the concept in the best holistic manner possible.

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 Part I
Section A
Questions asked in Phase 2 of the RBI Grade B exam, from 2016 onwards

Read the following paragraph and answer the following questions

Corporate Governance is key to every organization and role of independent directors is of utmost importance.
But there is big question mark over the independence of the independent directors

The Securities and Exchange Board of India (Sebi) has recently set up a committee to advise it on issues relating
to corporate governance in Indian firms. The committee will advise the markets regulator on areas such as
ensuring the active participation of independent directors in the functioning of companies; issues in accounting
and auditing practices by listed firms; improving effectiveness of board evaluation practices; addressing issues
faced by investors on voting and participation in general meetings; disclosure and transparency related issues

Question 1 - Under whose chairmanship the above-mentioned committee will work? RBI Grade B – Phase 2 -
2017

A. Kumar Mangalam Birla

B. N.K. Singh
C. Nandan Nilekani
D. Uday Kotak
E. Narayan Murthy

Read the following paragraph and answer the following questions

Corporate Governance is key to every organization and role of independent directors is of utmost importance.
But there is big question mark over the independence of the independent directors

The Securities and Exchange Board of India (Sebi) has recently set up a committee to advise it on issues relating
to corporate governance in Indian firms. The committee will advise the markets regulator on areas such as
ensuring the active participation of independent directors in the functioning of companies; issues in accounting
and auditing practices by listed firms; improving effectiveness of board evaluation practices; addressing issues
faced by investors on voting and participation in general meetings; disclosure and transparency related issues

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Question 2 – What exactly is the purpose of the above-mentioned committee, apart from the areas already
mentioned in the passage? RBI Grade B – Phase 2 - 2017

A. Improving Disclosures of the Related Party Transactions

B. To find ways for board members to disclose their shareholding.
C. To ensure a proper way of resolving owner management conflicts
D. To improve the nominations of independent directors in the board
E. None of the above

Question 3 – Identify the Person who is working in the organization and he or she is working to inform the
outsiders about the unethical practices which are happening inside the company. RBI Grade B – Phase 2 - 2018

A. Sleeper Employee
B. Social Activist
C. Whistle Blower
D. Policy Crusader
E. None of the above

Read the following Paragraph and answer the questions which follows

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society,
including economic, social, and environmental.

Engaging in CSR means that, in the ordinary course of business, a company is operating in ways that enhance
society and the environment instead of contributing negatively to them.

According to SEBI, Companies eligible for CSR shall constitute a Corporate Social Responsibility Committee of
the Board consisting of _____” A”_______ or more directors, out of which at least ______”B”_______ shall be
an independent director.

Question 4 - As per section 135 of the Companies Act, every company having net worth of rupees
______________________ crore or more will be eligible for CSR activities? RBI Grade B – Phase 2 - 2022

A. 50 Crore
B. 500 Crore
C. 10 Crore
D. 100 Crore
E. None of the above

Read the following Paragraph and answer the questions which follows
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Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society,
including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance
society and the environment instead of contributing negatively to them.

According to SEBI, Companies eligible for CSR shall constitute a Corporate Social Responsibility Committee of
the Board consisting of _____”A”_______ or more directors, out of which at least ______”B”_______ shall be
an independent director.

Question 5 - As per section 135 of the companies Act, every company having net profit of rupees
______________________ crore or more will be eligible for CSR ? RBI Grade B – Phase 2 - 2022

A. 5 Crore
B. 10 Crore
C. 15 Crore
D. 20 Crore
E. None of the above

Read the following Paragraph and answer the questions which follow

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society,
including economic, social, and environmental.

Engaging in CSR means that, in the ordinary course of business, a company is operating in ways that enhance
society and the environment instead of contributing negatively to them.

According to SEBI, Companies eligible for CSR shall constitute a Corporate Social Responsibility Committee of
the Board consisting of _____” A”_______ or more directors, out of which at least ______”B”_______ shall be
an independent director.

Question 6 - Identify “A” from the following given options. RBI Grade B – Phase 2 - 2022

A. 1
B. 2
C. 3
D. 4

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E. None of the above

Read the following Paragraph and answer the questions which follows

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society,
including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance
society and the environment instead of contributing negatively to them.

According to SEBI, Companies eligible for CSR shall constitute a Corporate Social Responsibility Committee of
the Board consisting of _____”A”_______ or more directors, out of which at least ______”B”_______ shall be
an independent director.

Question 7 - Identify “B” from the following given options. RBI Grade B – Phase 2 - 2022

A. 1
B. 2
C. 3
D. 4
E. None of the above

Question 8 - Identify the theory of corporate governance, which is based on the perception that a corporation
for its effective function has to forge a number of relations with different people/institutions including suppliers,
consumers, employees, government. RBI Grade B – Phase 2 - 2023

A. Steward Ship Theory

B. Stakeholder Theory
C. Agency Theory
D. Feedback Theory
E. None of the above

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 Questions asked in Phase 1 and Phase 2 of the SEBI Grade A exam, starting from 2018
onwards.

Note – No questions were asked in SEBI Grade A exam from this topic.

Questions asked in Phase 1 and Phase 2 of the PFRDA Grade A exam, starting from 2021
onwards.

Note – No questions were asked in PFRDA Grade A exam from this topic

Section B
Answer Key

RBI Grade B questions

Question Number Answer

Question 1 Option D
Question 2 Option A
Question 3 Option C
Question 4 Option B
Question 5 Option A
Question 6 Option C
Question 7 Option A
Question 8 Option B

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 Section C

Explanation
RBI Grade B questions
Read the following paragraph and answer the following questions

Corporate Governance is key to every organization and role of independent directors is of utmost importance.
But there is big question mark over the independence of the independent directors

The Securities and Exchange Board of India (Sebi) has recently set up a committee to advise it on issues relating
to corporate governance in Indian firms. The committee will advise the markets regulator on areas such as
ensuring the active participation of independent directors in the functioning of companies; issues in accounting
and auditing practices by listed firms; improving effectiveness of board evaluation practices; addressing issues
faced by investors on voting and participation in general meetings; disclosure and transparency related issues

Question 1 - Under whose chairmanship the above-mentioned committee will work? RBI Grade B – Phase 2 -
2017

A. Kumar Mangalam Birla

B. N.K. Singh
C. Nandan Nilekani
D. Uday Kotak
E. Narayan Murthy

Answer – Option D (Current affairs-related question)

Explanation –
The Securities and Exchange Board of India (Sebi) had set up a committee in June 2017 under the chairmanship
of Uday Kotak, executive vice chairman and managing director of Kotak Mahindra Bank Ltd, to advise it on issues
relating to corporate governance in Indian firms. The committee was a 21-member panel that includes
representatives from other companies, stock exchanges, professional bodies, investor groups, law firms,
academicians, research professionals and Sebi officials.

The committee advised the markets regulator on areas such a

I. Related Party Transactions - A listed entity has to submit within 30 days of publication of its standalone
and consolidated financial results for the half year, disclosures of RPTs on a consolidated basis, in the

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 format prescribed in the relevant accounting standards for annual results, to the stock exchanges and to
publish the same on its website.
II. Separation of the office of the chairperson (i.e., the leader of the board) and CEO/MD (i.e. the leader of
the management) - The top 500 listed entities (by market capitalization) having a public shareholding
of 40 per cent or more, have to separate the office of CEO/MD and Chairperson with effect from April
1, 2020.
III. Capping max number of Directorship - No person will be allowed to hold the office of director in more
than eight listed entities at the same time (of which independent directorships are capped at seven) with
effect from April 1, 2019. Further, with effect from April 1, 2020, such number will be capped at seven.
IV. Independent Directors - No person who is a part of the promoter group can be appointed as an
Independent Director. Further, to avoid the problem of ‘board interlocks’, a person who is a non-
independent director of another company on the board of which any non-independent director of the
listed entity is an independent director, will not be eligible to be an independent director in the listed
entity.

Read the following paragraph and answer the following questions

Corporate Governance is key to every organization and role of independent directors is of utmost importance.
But there is big question mark over the independence of the independent directors

The Securities and Exchange Board of India (Sebi) has recently set up a committee to advise it on issues relating
to corporate governance in Indian firms. The committee will advise the markets regulator on areas such as
ensuring the active participation of independent directors in the functioning of companies; issues in accounting
and auditing practices by listed firms; improving the effectiveness of board evaluation practices; addressing
issues faced by investors on voting and participation in general meetings; disclosure and transparency related
issues

Question 2 – What exactly is the purpose of the above-mentioned committee, apart from the areas already
mentioned in the passage? RBI Grade B – Phase 2 - 2017

A. Improving Disclosures of the Related Party Transactions

B. To find ways for board members to disclose their shareholding
C. To ensure a proper way of resolving owner management conflicts
D. To improve the nominations of independent directors in the board
E. None of the above

Answer – Option A

Explanation –
The Securities and Exchange Board of India (Sebi) had set up a committee in June 2017 under the chairmanship

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of Uday Kotak, executive vice chairman and managing director of Kotak Mahindra Bank Ltd, to advise it on issues
relating to corporate governance in Indian firms. The committee was a 21-member panel includes
representatives from other companies, stock exchanges, professional bodies, investor groups, law firms,
academicians, research professionals and Sebi officials.

The committee advised the markets regulator on areas such a

I. Related Party Transactions - A listed entity has to submit within 30 days of publication of its standalone
and consolidated financial results for the half year, disclosures of RPTs on a consolidated basis, in the
format prescribed in the relevant accounting standards for annual results, to the stock exchanges and to
publish the same on its website.
II. Separation of the office of the chairperson (i.e., the leader of the board) and CEO/MD (i.e. the leader of
the management) - The top 500 listed entities (by market capitalization) having a public shareholding
of 40 per cent or more, have to separate the office of CEO/MD and Chairperson with effect from April
1, 2020.
III. Capping max number of Directorship - No person will be allowed to hold the office of director in more
than eight listed entities at the same time (of which independent directorships are capped at seven) with
effect from April 1, 2019. Further, with effect from April 1, 2020, such number will be capped at seven.
IV. Independent Directors - No person who is a part of the promoter group can be appointed as an
Independent Director. Further, to avoid the problem of ‘board interlocks’, a person who is a non-
independent director of another company on the board of which any non-independent director of the
listed entity is an independent director, will not be eligible to be an independent director in the listed
entity.

Question 3 – Identify the Person who is working in the organization and he or she is working to inform the
outsiders about the unethical practices which are happening inside the company. RBI Grade B – Phase 2 - 2018

A. Sleeper Employee
B. Social Activist
C. Whistle Blower
D. Policy Crusader
E. None of the above

Answer – Option C

Explanation
A whistleblower is an employee who notices and reports wrongdoing within his company or organization,
which could negatively affect the public as a whole. Whistleblowers are protected under the law. This means
that whistleblowers should not have to fear retribution, such as the loss of their jobs, simply because they “blew
the whistle,” speaking up against unlawful acts. In India, Whistle Blower Protection Act was passed in the year
2014, which provides a mechanism to investigate alleged corruption and misuse of power by public servants
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and also protect anyone who exposes alleged wrongdoing in government bodies, projects and offices. It only
applies to Public Sector Enterprises

Read the following Paragraph and answer the questions which follows

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society,
including economic, social, and environmental.

Engaging in CSR means that, in the ordinary course of business, a company is operating in ways that enhance
society and the environment instead of contributing negatively to them.

According to SEBI, Companies eligible for CSR shall constitute a Corporate Social Responsibility Committee of
the Board consisting of _____”A”_______ or more directors, out of which at least ______”B”_______ shall be
an independent director.

Question 4 - As per section 135 of the companies Act, every company having net worth of rupees
______________________ crore or more will be eligible for CSR activities? RBI Grade B – Phase 2 - 2022

A. 50 Crore
B. 500 Crore
C. 10 Crore
D. 100 Crore
E. None of the above

Answer – Option B

Explanation
This is fact-based question and as per section 135 of the companies Act, every company having net worth of
rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees
five crore or more during the immediately preceding financial year.

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Read the following Paragraph and answer the questions which follow

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society,
including economic, social, and environmental.

Engaging in CSR means that, in the ordinary course of business, a company is operating in ways that enhance
society and the environment instead of contributing negatively to them.

According to SEBI, Companies eligible for CSR shall constitute a Corporate Social Responsibility Committee of
the Board consisting of _____” A” _______ or more directors, out of which at least ______” B”_______ shall be
an independent director.

Question 5 - As per section 135 of the Companies Act, every company having net profit of rupees
______________________ crore or more will be eligible for CSR. RBI Grade B – Phase 2 - 2022

A. 5 Crore
B. 10 Crore
C. 15 Crore
D. 20 Crore
E. None of the above

Answer – Option A

Explanation
This is fact based question and as per section 135 of the companies Act, every company having net worth of
rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees
five crore or more during the immediately preceding financial year.

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Read the following Paragraph and answer the questions which follows

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society,
including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance
society and the environment instead of contributing negatively to them.

According to SEBI, Companies eligible for CSR shall constitute a Corporate Social Responsibility Committee of
the Board consisting of _____”A”_______ or more directors, out of which at least ______”B”_______ shall be
an independent director.

Question 6 - Identify “A” from the following given options. RBI Grade B – Phase 2 - 2022

A. 1
B. 2
C. 3
D. 4
E. None of the above

Answer – Option C

Explanation
This is fact based question and as per section 135 of the companies Act, every company having net worth of
rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees
five crore or more during the immediately preceding financial year shall constitute a Corporate Social

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Responsibility Committee of the Board consisting of three or more directors, out of which at least one director
shall be an independent director

Read the following Paragraph and answer the questions which follows

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called
corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society,
including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance
society and the environment instead of contributing negatively to them.

According to SEBI, Companies eligible for CSR shall constitute a Corporate Social Responsibility Committee of
the Board consisting of _____”A”_______ or more directors, out of which at least ______”B”_______ shall be
an independent director.

Question 7 - Identify “B” from the following given options. RBI Grade B – Phase 2 - 2022

A. 1
B. 2
C. 3
D. 4
E. None of the above

Answer – Option A

Explanation –
This is fact-based question and as per section 135 of the companies Act, every company having net worth of
rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees
five crore or more during the immediately preceding financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directors, out of which at least one director
shall be an independent director.

Question 8 - Identify the theory of corporate governance, which is based on the perception that a corporation
for its effective function has to forge a number of relations with different people/institutions including suppliers,
consumers, employees, government. RBI Grade B – Phase 2 - 2023

A. Steward Ship Theory

B. Stakeholder Theory
C. Agency Theory

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D. Feedback Theory
E. None of the above
Answer – Option B

Explanation

By seeing the language of the question, one might get confused with stewardship theory and stakeholder
theory, but here the correct answer will be stakeholder theory of corporate governance.

It’s because, the stakeholder theory of corporate governance, explains that corporate organization is to create
wealth not only for the owners but also for the stakeholders. This theory focuses on managerial decision-making
for the benefit of all the parties concerned.

The answer is not stewardship theory because, in stewardship theory, the key theme revolves around the duty
of a steward (managers) is to protect and maximize the stock of wealth of the shareholders, and by doing so
they get their own rewards

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 Part II

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Guidelines for Part II

Under this part, you will find the exact previous year’s questions (Descriptive part) that were asked in RBI.

RBI started including a Descriptive component in 2021 after a gap of 6 years (after 2014). Between 2007-2014,
the RBI exam had a descriptive portion but from 2014 to 2020, there was no descriptive component in RBI.
Hence,

1. We shall cover all previous year questions asked in RBI Grade B Exam from 2021 and between 2007-2014
2. For questions asked in RBI Grade B Exam between 2007-2014, the following points must be noted -
I. Some questions from previous years might not be covered in any of the chapters since they might
not belong to the current syllabus. The syllabus earlier was different from the current syllabus.
II. Some questions from previous years might not be covered as they are related to current affairs of
that year, which is not relevant now.
III. Moreover, some chapters have a lot of previous year questions, in those chapters, we have given
complete answers to some questions and for the rest of the questions, the answer outline is given.

If there is no question in this document on any exam for a particular year or years, it means no question was
asked for that exam in that year(s) or the exam itself was not conducted in that year.

Other Points to be Noted.

1. The answers given here are not to be crammed. They are not given from the perspective of being perfect
answers. No answer is a perfect answer. If we ask 500 people to write answers to these questions, then we
will get 500 different answers and we cannot decide which one is the perfect answer. The answers given
here are to help you guide towards the approach to answering.
2. The answers written here may exceed the word limit in some cases. But that is done intentionally so that
you understand it better and, in the exam, you can further summarize that information to achieve the
desired word limit.
3. In certain answers, the content/points written may not be covered in the notes/videos. But that is also
done to make you realize that we cannot simply be bookish in writing answers, rather some content/points
need to be written from our understanding of things. This is called the application part.

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 Questions asked in Phase 2 of the RBI Grade B since 2021 and between 2007-2014

Q.1) Discuss the salient features of corporate governance in India? (RBI Gr B 2007-14 - 10 marks, 400 words)

Answer

"Corporate Governance is about promoting corporate fairness, transparency and accountability" - J

Wolfensohn

Corporate governance broadly refers to the mechanisms, processes and relations by which corporations
are controlled and directed. Corporate governance includes the processes through which corporations'
objectives are set and pursued in the context of the social, regulatory and market environment. Example:
Infosys topped a poll on best practices in corporate governance conducted by Asia money. Infosys ranked
1, across categories of ‘disclosure and transparency, responsibilities of management and the board of
directors, and shareholders' rights and equitable treatment' for the FY 2020.

Features of corporate governance

1. Transparency: This means that the Board of Directors must release all relevant information to the
stakeholders. They must show all the necessary financial and operational data to the stakeholders.
They must not hide any important information or maintain any secrecy. Example: The high-profile
corporate governance failure scams like the stock market scam, the UTI scam, Ketan Parikh scam,
Satyam scam, which were severely criticized by the shareholders, called for a need to make
corporate governance in India transparent.
2. Protection of Shareholders' Rights: The Board of Directors must protect the rights of the
stakeholders. They must protect all the stakeholders, especially the minority stakeholders. Example:
Some companies have made Corporate Social Responsibility as part of their Corporate Governance.
So, they are thinking in interest of local communities and protection of stakeholder, especially the
minority stakeholders.
3. More Powers to CEO: The CEO must be given more powers so that he can approve the company’s
plans and strategies independently.
4. Accountability: The CEO and the Board of Directors must be made accountable for their actions to
the stakeholders and to the entire society. Example: Someone who epitomizes Accountability
principle is American businessman, successful investor and dedicated philanthropist, Warren Buffet.
Since his childhood, Buffet has held himself accountable for not only his successes and failures, but
for everything in between.
5. Based on Ethics: Corporate governance is based on ethics, moral principles and values. So, the Board
of directors must avoid unfair practices, cheating, exploitation, etc. Example: A recent study by
Harvard law, indicates that the issue of potential sexual misconduct at the companies has been rising
significantly. To resolve this issue, many companies have implemented policies on sexual
harassment as part of corporate governance.

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 6. Universal Application: Corporate governance has universal application. That is, it is used by
companies all over the world. It is given a legal recognition in many countries. All companies must
use corporate governance voluntarily.
7. Systematic: Corporate governance is very systematic. It is based on laws, procedures, practices,
rules, etc. All these laws are made to increase the wealth of the shareholders and to protect the
rights of all the stakeholders of the company.

Corporate governance encompasses systems and procedures designed to structure authority, balance
responsibility and provide accountability to stakeholders at all levels. Fundamentally, corporate governance
is about harmonizing success with sustainability. Management literature have shown that corporate
Governance is a set of ideas, innovation, creativity, thinking having certain ethics, values, principles which
gives direction and shape to its people, personnel and possessors of companies and help them to succeed
in global market.

Q.2) “Corporate Governance and Corporate Social Responsibility are the twins to shine a corporate entity” —
Discuss. (RBI Gr B 2007-14 - 15 marks, 600 words)

Answer

Business has a responsibility beyond its basic responsibility to its shareholders, a responsibility to a broader
constituency that includes its key stakeholders: customers, employee, NGOs, government - the people of
the communities in which it operates.

Corporate Governance is a widest control mechanism within which a company takes it management
decisions whereas CSR is the ethical behavior of a company towards society and thus both are important
for a company in their own way.

Good corporate governance is vital for the prosperity of an economy. Some of the key aspects of its
importance are as following,

1. To enhance corporate sustainability: Good corporate governance will ensure that the board of
directors meet regularly, retain control over the business and are clear in the division of their
responsibilities. The board members act in the best interest of the shareholders. It helps build trust
in the organization and enhances its sustainability in the long run. Moreover, good corporate
governance helps in reducing frauds and scandals which leads to public confidence and national
prestige. Example: Tata Group of companies continues to be one of the biggest conglomerates even
after 150 years of its existence.
2. Shareholders activism is valued and encouraged: Shareholders enjoy the right to participate in the
governance and receive fair treatment from the management and board. Stakeholder’s rights are
delineated and communicated. Shareholders are regularly apprised and sensitized about the
company affairs. Example: Recently, Reliance’s Industries virtually conducted its 43rd Annual
General Board meeting and important decision regarding the company’s future growth aspect were
shared with Shareholders.

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 3. Continuous flow of information and feedback: Good Governance not only improves information
flow between management and boards for an efficient functioning but also enable a channel for
feedback from customers, clients and Shareholders which help a company to matchup with the
market requirements. Example: Hindustan Unilever Co., the most valuable FMCG in India has kept
pace with changing times and consumer preferences cause of its efficient sharing of information and
incorporation of continuous feedback not only from shareholder and employees but also the
consumers and clients.
4. Improve gender equity and diversity: Good corporate governance is also required for regular and
proper gender sensitization of the employee so as to develop a healthy and participatory work
culture. It helps break glass ceiling and diversifies board membership. Example: L’Oreal is known for
its best corporate governance practices and is also a Pioneer in term of gender equality. L’Oréal is
regularly audited to obtain the GEEIS (Gender Equality European and International Standard) in 23
countries and EDGE (Economic Dividends for Gender Equality) certifications in 7 countries.
5. Enhances goodwill of the company: Adhering to disclosure norms, regular updating of records,
regulatory requirements like taking care of minority, good governance enhances goodwill of the
company. Example: Infosys has maintained the value of 'Walk the Talk' and gained the respect of its
stakeholders.

Importance of Corporate social responsibility in an organization

Being a good corporate citizen means that companies not only be internally well governed and but also
being part of society and using resources from society, companies need to be externally responsible as well.

Thus, Corporate Social Responsibility is also important for and organization and can enhance its image in
the following ways.

1. Improved public image: This is crucial, as consumers assess your public image when deciding
whether to buy from you. Something simple, like staff members volunteering an hour a week at a
charity, shows that you’re a brand committed to helping others. As a result, you’ll appear much more
favorable to consumers. Example: About 66% of Tata Group revenue goes to philanthropic activities
which have hugely enhanced the public image of the group.
2. Increased brand awareness and recognition.: If you’re committed to ethical practices, this news will
spread. More people will therefore hear about your brand, which creates an increased brand
awareness. Example: Ultra tech cements is making a name for itself through its CSR initiative of
building model Villages.
3. An advantage over competitors: By embracing CSR, you stand out from competitors in your
industry. You establish yourself as a company committed to going one step further by considering
social and environmental factors. Example: Patanjali has become a renowned name in FMCG and is
using its profits towards charity and social welfare which provides it an advantage from its
competitors.
4. Increased customer engagement: If you’re using sustainable systems, you should shout it from the
rooftops. Post it on your social media channels and create a story out of your efforts. Furthermore,
you should show your efforts to local media outlets in the hope they’ll give it some coverage.

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 Customers will follow this and engage with your brand and operations. Example: Most modern day
FMCG use CSR as promotional activity to engage with customers. A lot of promotional ads are being
done “Like Dabur Vatika Salutes Female Cancer Survivors #BraveandBeautiful.”

According to experts, socially responsible companies demonstrate greater stability in their benefits in times
of economic crisis than those funds whose sole aim is profit. It seems that the moral and economic values
linked to CSR provide balance and robustness to the system, as well as temper the incentive to maximize
profits as the sole objective. Hence, Corporate Governance and Corporate Social Responsibility are the
twins to shine a corporate entity.

Q.1) What is Corporate Governance? Define its need and Principles. RBI Grade B (Phase 2) - 2021 - (400 words,
10 marks)

Answer

Corporate governance broadly refers to the mechanisms, processes and relations by which corporations
are controlled and directed. Corporate governance includes the processes through which corporations'
objectives are set and pursued in the context of the social, regulatory and market environment. Example:
Infosys topped a poll on best practices in corporate governance conducted by Asia money. Infosys ranked
1, across categories of ‘disclosure and transparency, responsibilities of management and the board of
directors, and shareholders' rights and equitable treatment' for the FY 2020.

Corporate governance is needed for the following reasons,

1. Separation of Ownership from Management: A company is run by its managers. Corporate governance
ensures that managers work in the best interests of corporate owners (shareholders).

2. Global Capital: In today’s global world, global capital flows in markets which are well regulated and have
high standards of efficiency and transparency. Good corporate governance gains credibility and trust of
global market players.

3. Investor Protection: Investors are educated and enlightened of their rights. They want their rights to be
protected by companies in which they have invested money. Corporate governance is an important tool
that protects investors’ interests by improving efficiency of corporate enterprises.

4. Foreign Investments: Significant foreign institutional investment is taking place in India. These investors
expect companies to adopt globally acceptable practices of corporate governance and well-developed
capital markets. Demanding International Standards of corporate governance and greater professionalism
in management of Indian corporates substantiates the need for good corporate governance.

5. Financial Reporting and Accountability: Good corporate governance ensures sound, transparent and
credible financial reporting and accountability to investors and lenders so that funds can be raised from
capital markets.

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6. Banks and Financial Institutions: Banks and financial institutions give financial assistance to companies.
They are interested in financial soundness of companies financed by them. This can be done through good
corporate governance.

7. Globalization of Economy: The economy today is globalized. Integration of India with the world economy
demands that Indian industries should conform to the standards of international rules. Corporate
governance helps in doing this.

Principles of Corporate Governance

1. Rights and equitable treatment of shareholders: Organizations should respect the rights of
shareholders and help shareholders to exercise those rights. They can help shareholders exercise
their rights by openly and effectively communicating information and by encouraging shareholders
to participate in general meetings. Example: Normally 51% (majority shareholders) of the
shareholders need to vote in favor for any decision to be taken. But recently there has been a voice
which says that sometimes the rest of the 49% (minority shareholders) which may be small investors
are badly affected by the decision. Hence people have started demanding even among the minority
shareholders the voting should be done separately and 51% of the remaining 49% should vote in favor
for decision to be taken.
2. Interests of other stakeholders: Organizations should recognize that they have legal, contractual,
social, and market driven obligations to non-shareholder stakeholders, including employees,
investors, creditors, suppliers, local communities, customers, and policy makers. Example: Some
companies have made Corporate Social Responsibility as part of their Corporate Governance. So, they
are thinking in interest of local communities.

3. Role and responsibilities of the board: The board needs sufficient relevant skills and understanding
to review and challenge management performance. It also needs adequate size and appropriate
levels of independence

4. Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate
officers and board members. Organizations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making. Example: Many companies have
implemented policies on sexual harassment as part of corporate governance.

5. Disclosure and transparency: Organizations should clarify and make publicly known the roles and
responsibilities of board and management to provide stakeholders with a level of accountability. They
should also implement procedures to independently verify and safeguard the integrity of the
company's financial reporting. Disclosure of material matters concerning the organization should be
timely and balanced to ensure that all investors have access to clear, factual information.

6. Environment-Friendly Policies: An organization should not aim growth at the cost of the environment
and human health. It is especially important that policies of the company are environment friendly.

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Good Corporate Governance standards are essential to ensure significant value enhancement to all the
stakeholders of a company, including the minority shareholders, the government and the economy. India
has always stood at the top in protecting the interests of minority shareholders and this has been attributed
to positive corporate governance norms that have been put in place by the government and SEBI.

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