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Corporate Governance System Standard Version 2006.01 Life Development Foundation E-31, Hauz Khas Market, New Delhi-110016 Phone : 011-42654711-12 Email: [email protected] Web:www.lifedf.org
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Transcript of Corporate Governance System Standard - LIFE Grouplifeforeveryone.com/content/CGSS2006_01.pdf · 4...
Corporate Governance System StandardVersion 2006.01
Life Development FoundationE-31, Hauz Khas Market, New Delhi-110016 Phone : 011-42654711-12
Email: [email protected] Web:www.lifedf.org
2 Version 2006.01 Corporate Governance System Standard
Corporate Governance System Standard Version 2006.01
© Life Development Foundation E-31 Hauz Khas New Delhi 110016Email: [email protected]: www.lifedf.org
Price : INR 250/- (USD 10/- for International Buyers)
Important Notice
No part of this publication can be reproduced or copied in any form or aby any means graphic, electronic, mechanical, including photocopying, recording, taping, information retrieval systems or reproduced on any disc, tape, perforated media or other information devise, etc. without the written permission of the authors. Breach of this condition is liable for appropriate legal action.
Every effort has been made to avoid errors and omissions in this publication. In spite of this, errors may creep in. Any mistake, error or discrepancy may be brought to our notice which shall be corrected by us in next version. It is notified that neither the publisher nor the author or seller will be responsible for any damage o rloss of action to any one, of any kind, in any manner, therefrom.
For binding mistakes, misprints or for missing pages, the publishers liability is limited o replacement within one month of purchase of similar edition or the next edition if published and available. All expenses to this connection are to be borne by the purchaser.
All issues are subject to Delhi jurisdiction.
Corporate Governance System Standard Version 2006.01 3
Preface
Corporate Governance has become the most debated topic in last 15 years. A lot has been said and a lot has been heard, but a lot need to be done. There have been major policy initiatives and also debate across the world on good corporate governance focussing mainly on investor protection, board of directors and their functioning and related party transactions.
Later risk management became part of corporate governance and then legal compliance. People are still debating whether organisations exist only for profit or for service to people. Ethics, corporate social responsibility, innovation or performance, people are still discovering what makes good corporate governance. Governments, regulatory bodies, industry associations, academic institutions and experts are experimenting with new theories, just to ascertain what makes sustainable organisations. There are different perceptions and beliefs around the world about corporate governance and in all this corporate governance has become a matter of debates amongst corporate circles but something concrete is yet to happen.
Worldover too much focus is on investor protection and other stakeholders who are at greater risk are largely ignored. Lenders contribute two-third of investment (2:1 Debt Equity Ratio), suppliers contribute one-half of Working Capital (2:1 Current Ratio), employees generate hundred percent value, hundred percent earnings come from customers, government provides basic infrastructure and legislation for dispute resolution and society gives investors, lenders, suppliers, employees, customers and government.
Industrial life is not good for people in underdeveloped and developing countries. There was a time when needy people could get some time for part time jobs. Now they can't even part their time for family life. People cannot buy products without money for which they need gainful employment. Sustainability of society is critical for making successful business. Similarly sustainability of business performance is important for sustainability of society through 3As Acceptability, Availability and Affordability of products and services responding to their basic needs.
It is also true that only earning people and performing organisations pay taxes which is used for creating economic infrastructure and development of money and capital markets. Successful organisations are able to create a strong supply chain and develop efficient markets that give sustainable employment.
Industry needs natural raw material to which they add use value, time value, place value and aesthetic value and shares that value with all stakeholders who contribute in value creation process. The organisation is expected to use the natural resources judiciously so as to maintain ecological balance and sustainable development. Sustainability of business also depends on sustainability of scarce natural resources and environment conditions.
Thus focus of good corporate governance system should be on making performing organisations where sustainability of society, economy and environment is ensured. The purpose and focus of corporate governance need to make a better 21st Century where businesses grow at rapid pace, serving people across the world. The economic boundaries are vanishing and technology is bringing people closer and also empowering them with increased access to information.
The power of information is now in hands of PEOPLE. Corporates disclose or not, soon everything will be open to public through series of e-governance initiatives of national governments and also increased selling of business news and corporate data. Its 24X7. Law enforcement agencies have more teeth and penalties have increased manifold. Non-compliance of law has become the most significant risk factor, not only in India but throughout the world.
Power of information has also increased competition, which is now not restricted to attracting customers, but it is more intense in attracting talent and financiers, without which companies can't stand at all. Now corporate strategies and management practices are taken as given, and business ethics has become a competitive success factor. Good people associate with the companies which have a well defined PURPOSE in the form of vision and stakeholder policies and sincere efforts to fulfil those commitments in long run.
With information technology people can evaluate corporate PERFORMANCE on hundreds of parameters. They know very well which companies are performing and which are not. One year or short term performance is not enough to increase people loyalty. People can now chart out corporate performance over the years with use of statistical and data mining tools. Therefore it is critical that companies must have well defined PROCESS to consistently achieve predicted results year after year.
A Computer Mouse has become mightier than the 'sword' and also much talked about 'pen'. On click of a mouse people can change their investment portfolio. On click of a mouse people change their jobs and people buy the best product available anywhere in the world, again on click of a mouse. So, if companies don't start performing, not on paper but in reality, they might soon run out of business.
4 Version 2006.01 Corporate Governance System Standard
In changing paradigm, 4Ps (People, Purpose, Process and Performance), being integral to corporate governance, have become critical for corporate sustainability. Accordingly, Life Development Foundation defines Corporate Governance as an “Integrated framework whereby people formally organise themselves for a defined purpose, and apply critical processes consistently to achieve predicted performance for sustainable development”.
People: All stakeholders are human beings and their association with the organisation can only be ensured by practising equity, ethics and relationships. Sustainability of organisation requires active participation of all stakeholders and not investors alone.
Purpose: A ship without a destination can land up at any port. Similarly an organisation without a purpose keeps on changing its product portfolio and also its people, infrastructure and processes. Due to lack of consistency in objectives it is never able to make it a big sustainable organisation. Having a long term purpose enables organisation to define a clear roadmap, predict performance, performance metrics and bring consistency in business processes to achieve the predicted performance leading to development of people. The organisation will remain there till its purpose is achieved, no matter how tough the life is for people.
Process: All organisations, small or big, for profit or not for profit, national or internationals, are built upon dreams, hopes and determination of entrepreneurs who put everything they have. Majority of them fail in just one year. They have right purpose and right motivation, but they fail to establish, implement and control management, innovation and compliance processes. Those who are able to do so, they take years through a trial and error approach, which they call experience. They don't use available knowledge effectively. Consistency in application of business processes makes life easy for people in whole supply chain, thus avoiding surprise results. Innovation is the key to success. Luck is the first, and innovation is the second thing that can make fortunes.
Law acts as a balancing agent in situation of conflict of interest and ensures socio-economic balance. There are number of laws applicable to an organisation and any non-compliance may result into closure of the unit itself. Legal non-compliance thus becomes a risk factor. However with a well defined legal compliance process, things can be easier.
Performance: There are large number of non-performing companies, partnership firms, sole proprietorships, societies, trust and other forms of organisations, that are just wasting national resources. Performance in term of improved efficiency and growth in income, size, product range and geography enables an organisation serve maximum number of people, enhance its competitiveness and ensure sustainability.
When an organisation performs everyone associated with the organisation grows. Investors get good dividends and capital appreciation, employees get salary hikes, lenders and suppliers get timely payment, customers get good products at lower prices, society gets improved quality of life and government gets increased taxes which in turn are invested into socio-economic development and security. Hence, as long as an organisation is performing, it will sustain.
Four Ps People, Purpose, Process and Performance thus become integral to Corporate Governance System to ensure organisational sustainability.
Life Development Foundation (LifeDF) recognises the importance of good corporate governance for purposeful and successful entrepreneurship and thus LifeDF has developed a set of code, based on the 4Ps of Corporate Governance, in the form of Corporate Governance System Standard after an extensive research on world greatest organisations, large Indian corporates, statutory bodies, public sector undertakings, trusts, societies, partnership firms, sole proprietorships and associations.
This standard is not restricted to publicly traded companies but can be easily implemented in all forms of organisations regardless of type, size and legal status. It covers each and every aspect of an organisation and it acts as a guide to make sustainable organisations. It is the most comprehensive standard in the world containing equity, ethics, relationships, vision, mission and policies, strategy, management processes, compliance process, innovation, efficiency resource use and processes and growth in economic, social and environment performance.
By implementing this standard organisations can ensure multifold growth and sustainability and happiness and prosperity of all people associated with it, thus contributing to making LIFE for Everyone.
Bhuvnesh ChaturvediChairman and Trustee
Life Development FoundationthDate : 28 January 2006
Place : New Delhi
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Corporate Governance System Standard Version 2006.01 5
6 Version 2006.01 Corporate Governance System Standard
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Corporate Governance System StandardThis standard has been developed for organisations that want to grow on sustainable basis. This standard provides an easy to implement holistic approach to implement good corporate governance practices.
1 PURPOSE, SCOPE AND APPLICATION
1.1 Purpose
This standard specifies basic requirements for a corporate governance system whereby people formally organise themselves for a defined purpose, and they apply critical processes consistently to achieve predicted performance for sustainable development.
1.2 Application
Unless the context otherwise requires, the requirements provided in this standard are applicable to all forms of organisations regardless of type, size and legal status, including but not limited to:
· Companies/ Corporations
· Statutory Bodies
· Partnership Firms
· Trusts
· Societies
· Cooperative Societies
1.3 Fundamental Principles
While applying this standard, following fundamental principles must be followed:
· People focus
· Formally organised
· Common purpose
· Consistent process
· Predictable performance
· Performance orientation
· Integrated development
2 TERMS AND DEFINITIONS
In this standard, unless the context otherwise requires, -
i. Accountability means duty to account for one's own actions.
ii. Audit means a methodical examination or review of a condition or situation.
iii. Authority means the power or right to give orders or make decisions.
iv. Benchmark means a standard by which something can be measured or judged.
v. Bribery means the practice of offering something (usually money) in order to gain an illicit advantage.
vi. Capacity means ability to perform or produce.
vii. Checklist means a list of items (names or tasks etc.) to be checked or consulted.
viii. Code of conduct means a set of conventional principles and expectations that are considered binding on any person who is a member of a particular group.
ix. Compliance means acting according to certain accepted standards.
x. Development means a state in which things are improving.
Corporate Governance System Standard Version 2006.01 7
xi. Dispute means a disagreement or argument about something important or coming into conflict with something.
xii. Effective means capable to influence or create an impact.
xiii. Efficiency means rate of output derived from input applied.
xiv. Employment means the occupation for which a person is paid.
xv. Environment means the totality of surrounding conditions.
xvi. Equity means ability to make judgments free from discrimination or dishonesty.
xvii. Facility means a building or place that provides a particular service or is used for a particular industry, a service that an organization or a piece of equipment offers.
xviii. Independence means freedom from control or influence of another or others.
xix. Information means a collection of facts from which conclusions may be drawn.
xx. Integrity means moral soundness, where judgment is required and unreduced or unbroken completeness or totality with reference to a system.
xxi. Intellectual property means intangible property that is the result of creativity (such as patents, designs, trademarks or copyrights)
xxii. Management means art of decision making and problem solving with resource optimization.
xxiii. Money laundering means concealing the source of illegally gotten money.
xxiv. Optimize means to achieve maximum efficiency.
xxv. Organisation means a group of people that implements this standard, who work together with a purpose with clearly defined responsibility, authority and accountability requirements.
xxvi. Organisation mission means a set of activities an organisation wish to pursue for realization of its long-term objectives.
xxvii. Organisation vision means mental image of something that is currently not present to the senses but can be crystalised into reality in given time frame through deployment of necessary people, infrastructure and processes.
xxviii. Performance means the act doing something successfully.
xxix. Policy means a plan of action adopted by an individual or social group with commitment to achieve it.
xxx. Predictable means possible to foretell or forecast.
xxxi. Procedure means a particular course of action intended to achieve a result.
xxxii. Process means a set of interrelated or interacting activities, which transforms inputs into outputs.
xxxiii. Propriety means correct or appropriate behaviour.
xxxiv. Relationship means a state involving mutual communication and dealings between people or entities.
xxxv. Responsibility means obligation to perform or not to perform certain activity.
xxxvi. Risk means possibility of suffering loss.
xxxvii. Stakeholder means any person who is associated with or affected by the organisation in any manner and include its
· investors,
· lenders,
· employees,
· suppliers,
· customers,
· government, and
· community/society in which such organisation exists.
8 Version 2006.01 Corporate Governance System Standard
xxxviii. Supply chain means link of all value adding activities carried on to deliver products and services from original supplier to end consumer.
xxxix. Sustainability means maintenance of a state at length without interruption or weakening.
xl. System means a group of independent but interrelated elements comprising a unified whole with an objective and control mechanism.
xli. Value means benefits derived from a product or service.
3 CORPORATE GOVERNANCE SYSTEM
3.1 General
3.1.1 Corporate governance means an integrated framework whereby people formally organise themselves for a defined purpose, and they apply critical processes consistently to achieve predicted performance for sustainable development.
3.1.2 This standard lists requirements for a good corporate governance system that lead to sustainability of the organisation.
3.2 Documentation requirement
The organisation shall maintain adequate documents and records for effective implementation of its corporate governance system and to demonstrate its compliance. The documentations may include:
· Value Statements Vision, Mission and Policy Statements;
· Business Plans - Vision document, Strategic Action Plan and Operational Plans;
· Organizational Code of Conduct; and
· Documents required for effective planning, operation and control of management, innovation and compliance processes.
3.3 Implementation and monitoring
As this is a voluntary standard for building sustainability, the organisation may decide its own procedure to implement and monitor requirements. However, it is advisable that:
· The organisation shall nominate and authorize a cross-functional team for implementation of requirements of this standard and its monitoring.
· The implementation team shall use project management tools to implement each requirement of this standard.
4 PEOPLE FOCUS
4.1 General
4.1.1 The organisation shall recognize that, directly or indirectly, each stakeholder is human being having certain needs, whether stated or not.
4.1.2 The organisation shall identify its stakeholders and duly recognize their contribution, in any form, following fundamental principles of equity, ethics and relationship.
4.1.3 The organisation shall adopt and effectively enforce a documented policy to promote and demonstrate equity, ethics and relationship.
Corporate Governance System Standard Version 2006.01 9
4.2 Equity
4.2.1 Equitable Treatment of Stakeholders
4.2.1.1 The organisation shall ensure fair and equitable treatment to all stakeholders without regard to gender, race, colour, national origin, culture, tradition, marital status, pregnancy, age, disability, religious belief, family responsibilities, ethical belief, employment status and any other factors that are not related to individual ability, performance and potential.
4.2.1.2 The organisations shall ensure equitable distribution of its profits and gains amongst all categories of stakeholders so as to maintain socio-economic balance.
4.2.2 National Interest
4.2.2.1 The organisation shall be committed in all its actions to benefit the economic development of the countries in which it operates. It shall not engage in any activity that adversely affects such an objective. It shall not undertake any project or activity to the detriment of the nation's interests, or those that will have any adverse impact on the social and cultural life patterns of its citizens.
4.2.2.2 The organisation shall conduct its business affairs in accordance with the economic, development and foreign policies, objectives and priorities of the nation's government, and shall strive to make a positive contribution to the achievement of such goals at the international, national and regional level, as appropriate.
4.2.2.3 The organisation shall encourage local capacity building through close co-operation with the local community, including business interests, as well as developing the organisation's activities in domestic and foreign markets, consistent with the need for sound commercial practice.
4.2.2.4 The organisation shall respect the human rights of those affected by their activities consistent with the host government's international obligations and commitments.
4.3 Ethics
4.3.1 Integrity, Propriety and Independence
Any person having decision making authority or any control over assets of the organisation shall act with utmost integrity, propriety and independence. The assets of an organisation shall not be misused but shall be employed for the purpose of conducting the business for which they are duly authorised. These include tangible assets such as equipment and machinery, systems, facilities, materials and resources as well as intangible assets such as proprietary information, relationships with customers and suppliers, etc.
4.3.2 Disclosure and Transparency
4.3.2.1 The organisation shall ensure that timely, regular, reliable and relevant information is disclosed regarding its activities, structure, financial situation and performance, on periodic basis. This information should be disclosed for the organisation as a whole and, where appropriate, along business lines or geographic areas. Disclosure policies of organisation should be tailored in terms of its nature, size and location of the organisation, with due regard to costs, business confidentiality and other competitive concerns.
4.3.2.2 Organisations are encouraged to communicate additional information that could include:
· Value statements or statements of business conduct intended for public disclosure including information on the social, ethical and environmental policies of the organisation and other codes of conduct to which the company subscribes.
· In addition, the date of adoption, the countries and entities to which such statements apply and its performance in relation to these statements may be communicated.
10 Version 2006.01 Corporate Governance System Standard
· Information on systems for managing risks and complying with laws, and on statements or codes of business conduct.
· Information on relationships with employees and other stakeholders.
4.3.3 Fair Trade Practices
4.3.3.1 The organisation, when dealing with consumers, organisation shall act in accordance with fair business, marketing and advertising practices and should take all reasonable steps to ensure the safety and quality of the goods or services they provide.
4.3.3.2 The organisation shall not make representations or omissions, nor engage in any other practices, that are deceptive, misleading, fraudulent, or unfair.
4.3.3.3 The organisation shall ensure that the goods or services they provide meet all agreed or legally required standards for consumer health and safety, including health warnings and product safety and information labels. It shall as appropriate to the goods or services, provide accurate and clear information regarding their content, safe use, maintenance, storage, and disposal sufficient to enable consumers to make informed decisions.
4.3.4 Respect for Competition
4.3.4.1 The organisation shall, within the framework of applicable laws and regulations, conduct their activities in a competitive manner.
4.3.4.2 The organisation shall refrain from entering into or carrying out anti-competitive agreements among competitors:
· to fix prices.
· to make rigged bids (collusive tenders).
· to establish output restrictions or quotas; or
· to share or divide markets by allocating customers, suppliers, territories or lines of commerce.
4.3.4.3 The organisation shall refrain from anti-competitive practices, including but not limited to following:
· Misuse of dominant power in any manner
· Poaching of employees of competitors
· Advertising comparison of its products with that of competitor without adequate information
4.3.5 Anti-corruption Practices
4.3.5.1 The organisation shall prohibit bribery in any form whether direct or indirect. Any person associated with the organisation shall not, directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business or other improper advantage.
4.3.5.2 The organisation shall aim to create and maintain a trust-based and inclusive internal culture in which bribery is not tolerated.
4.3.5.3 The organisation shall implement a programme reflecting its size, business sector, potential risks and locations of operation, which should, clearly and in reasonable detail, articulate values, policies and procedures to be used to prevent bribery from occurring in all activities under its effective control.
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4.3.5.4 The organisation shall foster openness and dialogue with the public so as to promote its awareness of and co-operation with the fight against bribery and extortion.
4.3.5.5 The organisation shall not make illegal contributions to candidates for public office or to political parties or to other political organisations. Contributions should fully comply with public disclosure requirements and should be reported to senior management.
4.3.5.6 The organisation shall promote employee awareness of and compliance with company policies against bribery and extortion through appropriate dissemination of these policies and through training programmes and disciplinary procedures.
4.3.6 Curbing Money Laundering
The organisation shall not engage in any form money laundering activities. It shall develop and implement effective anti-money laundering programs to comply with applicable law and to protect organisation from being used for money laundering.
4.3.7 Intellectual Property
The organisation shall not use intellectual property i.e. copyright, trademark, industrial designs, patents, or similar property not owned by it for any purpose whatsoever without obtaining consent from the owner thereto.
4.3.8 Counterfeiting
The organisation shall not manufacture or sell any product that is likely to create an impression that it is exactly the same product which is manufactured or sold by any other organisation.
4.3.9 Closure Notice
4.3.9.1 The organisation, in considering changes in its operations which would have major effects upon the livelihood of their employees and other stakeholders, in particular in the case of the closure of an entity involving collective lay-offs or dismissals, provide reasonable notice of such changes to representatives of their employees, and, where appropriate, to the relevant governmental authorities.
4.3.9.2 The organisation shall co-operate with the employee representatives and appropriate governmental authorities so as to mitigate to the maximum extent practicable adverse effects. In light of the specific circumstances of each case, it would be appropriate if management were able to give such notice prior to the final decision being taken. Other means may also be employed to provide meaningful co-operation to mitigate the effects of such decisions.
4.4 Relationships
4.4.1 Stakeholder Engagement
4.4.1.1 The organisation must recognize the importance of good relationship between all stakeholders for co-creation of value and sustainability of organisation.
4.4.1.2 The organisation shall develop and apply effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust between all stakeholders.
4.4.1.3 The organisation shall make its best endeavours to involve stakeholders in decision making process.
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4.4.2 Cultural Respect
The organisation shall respect the diversity of people and their cultural practices at the place where the organisation is operating.
4.4.3 Conflict of InterestThe organisation shall place adequate safeguards in dealing with the situations where any conflict of interest may arise.
4.4.4 Dispute Resolution
The organisation shall have well defined procedure of dispute resolution between organisation and various stakeholders and also amongst various stakeholders.
4.4.5 Preventing Harassment
4.4.5.1 The organisation shall place adequate control mechanism to protect all stakeholders from harassment, physical or otherwise.
4.4.5.2 The organisation shall refrain from discriminatory or disciplinary action against employees who make bona fide reports to management or, as appropriate, to the competent public authorities, on practices that contravene the applicable law or the organisation's policies.
4.4.6 Confidentiality
The organisation shall place adequate safeguards to ensure confidentiality of personal information of stakeholders unless the information is made public by the person himself or is required to be made public under any law for the time being in force.
5 PURPOSE OF ORGANISATION
5.1 Vision, mission and policies
5.1.1 The organisation must establish a documented statement of long-term objectives and purpose of organisation in the form of vision and mission statements, which is specific, measurable, actionable, time bound and communicated to all stakeholders.
5.1.2 The organisation shall establish and communicate policies with regards to benefits, opportunities, responsibilities and service commitments relating to all categories of stakeholders and as far as possible these policies shall be established through consensus.
5.1.3 A well designed programme/campaign shall be implemented to align personal goals of employees with the organisation vision.
5.2 Strategy
5.2.1 Strategic Management Team
The organisation shall establish a dedicated group of committed people with requisite authority for establishing, communicating, implementing and monitoring strategic action plans.
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5.2.2 Strategic Action Plan
5.2.2.1 The organisation must have a documented strategic action plan detailing long-term objectives and actions to be taken to achieve these objectives.
5.2.2.2 The organisation shall set metrics against which actual performance can be compared so as to enable management to take corrective actions promptly.
5.2.3 Capacity Building Plan
The organisation shall establish and document a capacity building plan commiserating with long-term objectives comprising of people, infrastructure and processes.
6 PROCESS MANAGEMENT, COMPLIANCE AND INNOVATION
6.1 General
The organisation shall establish and continually improve its critical management, compliance and innovation processes in order to achieve consistency, predictability and efficiency in its operations.
6.2 Management Processes
6.2.1 Organisation management
6.2.1.1 Decision making process
The organisation shall have a well defined decision making process at all levels of management in order to ensure quick, effective and accountable decision making.
6.2.1.2 Responsibility, authority and accountability
6.2.1.2.1 The responsibility of each person in the organisation shall be clearly defined and documented as per planned objectives and his education, training, experience, skill and abilities.
6.2.1.2.2 Appropriate authority shall be delegated to each person commiserating with the responsibility assigned to him and accountability requirement.
6.2.1.2.3 The organisation shall place a system requiring every person to, effectively and timely, account for his decisions, acts and omissions, his responsiveness and compliance to organizational policies.
6.2.1.3 Communication and coordination
The organisation shall ensure timely lateral and vertical communication of business and operational information across the organizational levels and the same with our all stakeholders with efficient and available communication media.
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6.2.2 Resource management
6.2.2.1 General
6.2.2.1.1 The organisation shall ensure availability of required resources (human resources, infrastructure, work environment, and financial resources) at the time and place of use for effective discharge of responsibility of each person.
6.2.2.1.2 The organisation shall take appropriate measures to reduce wastage of resources and it shall have a defined procedure for treatment of wastage in most useful manner.
6.2.2.2 Human resources management
6.2.2.2.1 Workforce Planning and Staffing
The organisation shall establish a formal process by which a prior workforce planning is done, appropriate talent is recruited, selected, carefully placed in the assigned responsibilities, and retained to get synergistic advantage through mutual developmental processes.
6.2.2.2.2 Participatory Culture
The organisation shall maintain the participatory culture where mutuality, trust and interdependencies prevail at each level in the organization, and individuals develop confidence in raising concerns in issues in the organization.
6.2.2.2.3 Performance Management
The organisation shall establish a performance management system by which individual and unit performance is planned by setting strategic and near-term measurable performance objectives through ongoing communication between appraiser and appraisee in line with organizational core competencies, overall business objectives and stated organizational values.
6.2.2.2.4 Training and Development
The organisation shall identify and provide each individual and unit in the organisation with the critical skills required to perform assigned or anticipated task and relevant development opportunities in a timely manner by respective experts or trainers, internal or external, by considering the organizational and unit business objectives and stated values.
6.2.2.2.5 Compensation Management
The organisation shall establish and maintain a compensation system which provides remuneration and benefits to the workforce on their contribution and value added to the organisation by considering fairness and equity across the organizational levels.
6.2.2.2.6 Workforce competency management
The organisation shall enhance and improve the organisational capability through quantifying and managing the workforce capabilities and the critical competency-based processes; as well as developing mechanisms for organization-wide wealth creation capabilities.
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6.2.2.3 Infrastructure management
6.2.2.3.1 General
6.2.2.3.2 The organisation shall provide and maintain desired infrastructure including plant & machinery, computers & office equipment, transport vehicles, measuring devices, tools, etc. at the time and place of use.
6.2.2.3.3 The organisation shall control the movement of assets so that it is made available promptly at the time and place of use.
6.2.2.3.4 Preventive and Corrective Maintenance
6.2.2.3.5 The organisation shall carry out preventive maintenance to ensure that assets are available when required and avoid premature discontinuance.
6.2.2.3.6 The organisation shall maintain maintenance history, for preventive and corrective maintenance, and analyse the data for avoidance of similar breakdowns, faults and damages in future.
6.2.2.3.7 Damage, impairment and discontinuance
6.2.2.3.8 The organisation shall place adequate safeguards to protect assets from damage and impairment.
6.2.2.3.9 The organisation shall discontinue the use of assets that are likely to result in accidents or safety hazards to operators or that may cause major breakdowns in production system in near future.
6.2.2.4 Work environment, occupational health and safety
6.2.2.4.1 The organisation shall ensure good environment, health & safety of all people at the workplace.
6.2.2.4.2 The organisation shall provide and maintain good physical and psychological working conditions and resources at work-place; identifying and reducing the unnecessary distractions and interruptions that enable individuals and units to perform their respective jobs with higher efficiency and optimal time utilization by reasonable consideration of cultural and contemporary issues.
6.2.2.4.3 The organisation shall make adequate arrangements, including preventive measures, for health and safety of employees and other people at workplace.
6.2.2.5 Financial management
6.2.2.5.1 General
The organisation shall recognize that any shortfall in financial resources can trigger a series of negative effect on its operations and hence it shall plan, raise and use financial resources optimally.
6.2.2.5.2 Financial Planning
The organisation shall make and review financial budgets using appropriate forecasting techniques so that necessary funds can be arranged in time.
6.2.2.5.3 Working Capital Management
The organisation shall effectively manage its cash, short-term investments, receivables and payables in order to maintain short-term solvency.
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6.2.2.5.4 Investment Analysis
The organisation shall analyse risk and returns of every investment activities before any financial commitment is made.
6.2.2.5.5 Capital Structure
The organisation shall structure is capital in such a way that it minimizes its cost of capital and also enable it to raise finance as and when required.
6.2.2.5.6 Safeguards against fraud
The organisation shall place adequate security and control measures to curb financial frauds, embezzlement
6.2.3 Supply chain management
6.2.3.1 General
6.2.3.1.1 The organisation shall plan, integrate and optimize its primary processes of procurement of inputs, conversion, storage and distribution of output and provision of services.
6.2.3.1.2 The organisation shall take appropriate preventive and corrective measures to reduce disruptions and delays in its supply chain.
6.2.3.2 Product or service requirement analysis
6.2.3.2.1 The organisation shall clearly determine product or service requirements from customer order and communication or through market survey in case company is developing general products. Such product/service information shall include the following:
· specification of material or service to be procured, · order quantity and pricing,· delivery schedule, · quality considerations and · other terms and conditions.
6.2.3.2.2 The organisation shall plan its production process according to requirement of final product or service.
6.2.3.3 Production and service provision
6.2.3.3.1 The organisation shall plan its production process and production schedule shall be communicated to concerned personnel considering the following:
· Market demand and selling arrangements · Production and storage capacity· Supplier capacity to provide inputs· Engineering design capabilities· Availability of Resources - Human resources and financial resources· After sales support capability
6.2.3.3.2 The organisation shall ensure that appropriate work instructions are issued and necessary resources are available at time and place of use.
6.2.3.3.3 The organisation shall place appropriate control mechanism to ensure that production process is carried on uninterrupted and production schedule is adhered to.
6.2.3.3.4 The organisation shall ensure that the output meets the requirements before it is delivered to next stage.
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6.2.3.3.5 The organisation shall make adequate arrangements for after sales service and warranties.
6.2.3.4 Procurement of inputs
6.2.3.4.1 The organisation shall plan input requirement as per product schedule and clearly determine input requirement, like:
· specification of material or service to be procured, · order quantity and pricing,· delivery schedule, · quality considerations and · other terms and conditions.
6.2.3.4.2 The organisation shall evaluate suppliers for their ability to supply the inputs before issuing purchase order considering:
· Similar assignments handled· Leadership and human resource· Availability of infrastructure and resource · Quality management system· Such other factor critical for supply of inputs
6.2.3.4.3 The organisation shall inspect the inputs before acceptance.
6.2.3.5 Material handling and storage
6.2.3.5.1 The organisation shall ensure safe and speedy handling of materials during the production process.
6.2.3.5.2 The organisation shall ensure adequate and safe storage facilities considering nature, value and quantity of materials.
6.2.3.5.3 The organisation shall maintain adequate records of material received, issued and stored so that the materials can be made available at time and place of use.
6.2.3.5.4 The organisation shall control the access to storage facilities to avoid damages, spoilage and pilferage.
6.2.3.6 Distribution
6.2.3.6.1 The organisation shall plan and develop appropriate distribution channel so that its products and services considering convenience, economy and timely delivery to target consumer.
6.2.3.6.2 The organisation shall plan and adopt appropriate transport medium considering the nature, quantity and delivery schedule.
6.2.4 Marketing and brand promotion
6.2.4.1 The organisation shall periodically conduct marketing research so that that appropriate market information is available on time in order to reduce business risks, identify current and upcoming problems in the market, identify sales opportunities and develop appropriate plans of action. The market research may include the following:
· Competitive Research
· Consumer Research
· Demographic Research
· Distribution Research
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· Economic Research
· Industry/ Market Analysis
· Pricing Research
· Product Research
· Promotion Research
· Business Strategy Research
6.2.4.2 The organisation shall develop, execute and review short-term and long-term marketing strategies relating to following:
· Product/ Concept Planning
· Value Engineering
· Penetration in Market
· Pricing of Products and Services
· Promotion and Brand Management
· Test Marketing
· Brand Re-launch
· Brand Valuation
· Distribution Channel Management
6.2.4.3 The organisation shall plan and take appropriate steps to communicate necessary information (like price, features, uses, availability, etc.) about its products and services to target customers through most suitable media.
6.2.5 Outsourced process management
The organisation shall consider following factors while outsourcing its process:
· Criticality of process outsourced
· Cost effectiveness
· Technology
· Quality control
· Timely delivery
· Progress reporting
· Confidentiality
6.2.6 Environment & energy management
6.2.6.1 Environment protection
6.2.6.1.1 The organisation shall take appropriate measures including installation and maintenance of pollution control equipments, training of employees, warnings signs, etc., to keep pollution under the limits prescribed under any law for the time being in force at the place where the facility is located.
6.2.6.1.2 The organisation shall gather appropriate data relating to pollution and take corrective actions if required.
6.2.6.1.3 The organisation shall conduct life cycle analysis and encourage use of biologically degradable materials.
6.2.6.2 Handling of hazardous substancesThe organisation shall establish a procedure for safe treatment/handling of industrial waste and hazardous substances.
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6.2.6.3 Conservation of energy and natural resources
6.2.6.3.1 The organisation shall take appropriate measures to conserve energy (electricity and fuel) and encourage use of energy saving equipments and renewal energy in all its facilities.
6.2.6.3.2 The organisation shall take appropriate measures to conserve natural resources like minerals, ores, and water. In case wastage is unavoidable, then alternate use of wastage shall be explored.
6.2.7 Relationship management
6.2.7.1 The organisation shall periodically scan its environment for potential relationships and also assess existing relationships, perception of stakeholders towards the organisation, likelihood of their separation and reason for their separation from the organisation.
6.2.7.2 The organisation shall periodically implement confidence building measures to strengthen stakeholders' relationships.
6.2.7.3 The organisation shall implement a time bound dispute redressal mechanism. 6.2.8 Information system management
6.2.8.1 The organisation shall deploy an appropriate information system for measurement and gathering data, validation and processing of data, analysis of data, comparison of results and reporting as per management needs.
6.2.8.2 The organisation shall integrate all departments and functions across the organisation onto a single computer system that can serve all those different departments' particular needs. Such a system shall provide a common and consistent mechanism to capture and store organization-wide data, with minimum redundancy.
6.2.8.3 The organisation shall ensure security of information system from unauthorized access, intrusion, physical damage and other factors that may affect its integrity, reliability and availability.
6.2.9 Risk & disaster management
6.2.9.1 Risk Management
6.2.9.1.1 The organisation shall establish a process for prompt identification, classification, analysis and reporting of all possible risk factors that may adversely affect its operations in future. The organisation must also recognize that non-compliance of anything contained in standard may result into losses or loss of opportunities to organisation. Generally organisations are prone to following categories of risk;
· Political, social and economic instability· Terrorism and sabotage· Regulatory non-compliance risk· Competition and market risk· Brand and reputation protection· Product liability· Human resource risk· Innovation and technology risk· Health and safety risks· Natural calamities · Asset vulnerability due to greater emphasis on intangibles· Vulnerability of infrastructure· IT and communication risks· Information security risks
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6.2.9.1.2 The organisation shall take appropriate preventive and corrective measures to deal with the risk or minimize the loss that may result due to crystallization of risk factors.
6.2.9.2 Disaster Management
6.2.9.2.1 The organisation shall constitute a disaster management team comprising of multidisciplinary experts to act promptly in cases of disasters, crisis, calamities and major breakdowns.
6.2.9.2.2 The organisation shall implement and maintain early warning systems (like fire detection system) so that corrective actions can be taken promptly.
6.2.9.2.3 The organisation shall periodically organise training programmes on disaster management for its employees.
6.3 Compliance Process
6.3.1 General
The organisation shall ensure compliance of ensure compliance to all applicable laws and regulations and internal policies and codes.
6.3.2 Preventive mechanism
6.3.2.1 The organisation shall maintain and circulate standards, compliance calendars and checklists for making compliance process simpler.
6.3.2.2 The organisation shall arrange training of employees on compliances at planned intervals.
6.3.2.3 The organisation shall implement awareness campaigns through internal publications, notices, circulars, bulletin boards, intranet, meetings, etc.
6.3.2.4 The organisation shall install adequate mechanism for early alert, whistle blowing & prevention of any non-compliance of applicable laws and regulations and internal policies and codes.
6.3.3 Assurance and comfort to stakeholders
6.3.3.1 The organisation shall periodically get itself audited by a competent person to determine whether it complies with applicable laws and regulations and internal policies and codes.
6.3.3.2 The report of such compliance audit and action taken thereon shall be placed before the governing board of the organisation.
6.4 Innovation
6.4.1 Research and Development Team
The organisation shall constitute a cross-functional research and development team to plan, implement and control innovation process.
6.4.2 Knowledge Management
6.4.2.1 The organisation shall implemented a formalized system to capture and retain the innovative ideas, knowledge, experiences and artifacts about processes and technologies across the organization levels by organization-wide participation, their feasibilities are evaluated and the most feasible idea is implemented in the respective workforce areas in order to enhance our core competence and performance.
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6.4.2.2 In order to nurture an innovation-enabled organizational culture, the organisation shall commit to follow a systematic process through which it prompt employees to generate expressive ideas, recognize, capture, retain and execute them; thereby ensuring no loss of ideas and knowledge.
6.4.3 Benchmarking
The organisation shall continuously benchmark and identify opportunities for improvement of its people, products, infrastructure and processes taking into consideration the investment capacity, workforce skills and other organisational constraints.
6.4.4 Review and Audit
6.4.5 The organisation shall conduct periodic reviews and audits to find short-coming and opportunities for improvements in its management, compliance and innovation processes.
6.4.6 The report of such audit and action taken thereon shall be placed before the governing board of the organisation.
7 PERFORMANCE ORIENTATION
7.1 General
The organisation must recongise that actual results in terms of increased efficiency and growth are critical for sustainability of the organisation.
7.2 Efficiency Resource use and processes
The organisation shall demonstrate increased efficiency in use of resources and management, compliance and innovation processes, covering inter-alia the following:
· Decision making and communication
· Organisation resources - financial resources, human resources, infrastructure and materials
· Supply chain process customer information, procurement, production and service provision, storage and distribution
· Environment efficiency and conservation of energy and natural resources
· Stakeholder compliant handling and dispute resolution
· Compliances and reporting
· Other management process
7.3 Growth in economic, social and environment performance
7.3.1 Growth in economic performance
7.3.2 The organisation shall demonstrate consistent growth in income of organisation and all categories of stakeholder without any discrimination of any class of stakeholder, like:
· Increase in earning per share, dividend payout, bonus and market price of shares.
· Increase in rate of interest, timely repayment and increased security to lenders and bondholders.
· Increase in advance amount and timely payment to suppliers and sub-contractors.
· Increase in payment to employees in the form of performance bonus, incentives, training and development, finance facility and employee welfare.
· Increase in incentives to customers in form of price reduction, festival discounts and extending finance facility and better after sales support.
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7.3.3 The organisation shall roll out new products and services at planned intervals with changing environment, cultural preferences and technological breakthroughs so that its income grows consistently.
7.3.4 The organisation shall demonstrate increase its net-worth and market capitalisation (in case of publicly traded companies) over a period of time so that it is able to raise adequate financial resources to meet its growth targets.
7.3.5 The organisation shall increase its installed capacity on planned intervals in order to realise economies of scale and remain competitive over a period of time.
7.3.6 The organisation shall diversify into related products and services on planned intervals in order to strengthen its supply chain through mergers, takeovers, joint-ventures and collaborations.
7.3.7 The organisation shall increase its geographical area of operations so that benefit of its products and services reaches maximum number of people.
7.3.8 Growth in social performance
7.3.8.1 The organisation shall pay taxes in time to government and partner in development of people of country in which it is operating.
7.3.8.2 The organisation shall increase its contribution for development of people and community in which the organisation is operating, including but not limited to following:
· Education and skill development
· Healthcare and safety
· Hygiene and waste treatment
· Local capacity building
· Entrepreneurship development
· Sports and fitness
· Public infrastructure development road, lighting, communication, etc.
· Rehabilitation and contribution in national calamities
7.3.8.3 The organisation shall demonstrate increase in employment and growth opportunities for people in whole supply chain.
7.3.9 Growth in environment performance
7.3.9.1 The organisation shall increase investment in deploying environment friendly technology and production process.
7.3.9.2 The organisation shall demonstrate increase in use of renewable sources of energy, biologically degradable materials, and conservation of water and natural resources.
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