Andy's Fundae

To SHYAM MUNDHADA for sharing his Insurance Project with me.
CCPA (No not CGPA, it means Cut Copy and Paste Away.)
INSURANCE INDUSTRY IN INDIA

Life Insurance In India: A brief history
Life Insurance in its existing form came to India from the United Kingdom with the establishment of a British firm Oriental Life Insurance Company in Calcutta in 1818 followed by Bombay Life Assurance Company in 1823.
The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life insurance business. Later in 1928 the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life insurance business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938 with a view to protecting the interest of insuring public earlier legislation was consolidated and amended by the Insurance Act 1938 with comprehensive provisions detailed and effective control over the activities of insurers.
The Act was amended in 1950 resulting in far reaching changes in the insurance sector. These included a statutory requirement of equity capital for companies carrying on life insurance business, ceiling on share holdings in such companies, stricter control on investments, submission of periodical returns relating to investments and such other information to the controller. The controller could also call for appointment of administrators and put a ceiling on expenses of management and agency commission for mismanaged companies.

By 1956, 154 Indian insurers, 16 foreign insurers and 75 provident societies were carrying on life insurance business in India. Life insurance business was concentrated in urban areas and confined to the higher strata of the society. On January 19, 1956, the management of life insurance business of 245 Indian and foreign insurers and provident societies then operating in India was taken over by the Central Government. Life Insurance Corporation was formed in September 1956 by an Act of Parliament, viz. LIC Act 1956 with a capital contribution of Rs.50 mn.
The following is a snapshot of the Insurance industry in general. These statistics would give important insights of where the respective markets are headed for.
· The global life insurance market stands at $1,521.2 billion while the non-life insurance market is placed at $922.4 billion.
· India takes the 23rd position with US $9.933 billion annual premium collections and a meagre 0.41% share.
· Out of one billion people in India, only 35 million people are covered by insurance.
· Indian insurance market is set to touch $25 billion by 2010, on the assumption of a 7 per cent real annual growth in GDP.

Life Insurance Statistics
Indian population 1 bn
GDP as on 2000 (Rs bn) 20000 bn
Gross domestic savings as a % of GDP 23%
NCAER estimate of insurable population 240 mn
Estimated market by 2005 650 mn

The data below indicates the rapid rate with which life insurance has grown in India over the past three decades.
Growth in India's Life Funds

Year Figures, in Rs. crore
69-70 1611.0
74-75 3033.8
79-80 5818.0
89-90 23471.8
95-96 72780.0
96-97 87760
97-98 105832.9

India has an enormous middle-class that can afford to buy life, health, and disability and pension plan products. The low level of penetration of life insurance in India compared to other developed nations can be judged by a comparison of per capita life premium.

Potential for Life Insurance in India:
Country Life Premium Per Capita US $ in 1994
Japan 3,817
UK 1,280
USA 964
India 4

The table below is the list of the likely players in the Indian insurance sector. As one will notice apart from Reliance, who has applied for both Life and Non-life insurance licence, all have gone in with a foreign partner. The idea is that the foreign partner will bring in expertise of global nature with products that are India specific. And the Indian partner will bring in the distribution network and more significantly the required 74% of the equity. Reliance is the only player who decided to take the sector all by itself banking on the shoulders of the consultants and global insurance advisors.

The Major private players in life Insurance In India currently are
Reliance Life Insurance HDFC-Standard
Kotak Mahindra-Old Mutual Prudential-ICICI
Max India-New York Life Aditya Birla-Sun Life Insurance
SBI Life Insurance Hindustan Times-Commercial Union
Centurion Bank-Canada Life Vysya Bank-ING
Life Insurance Corporation of India. Max India-New York Life




HDFC STANDARD LIFE

The Partnership:
HDFC and Standard Life first came together for a possible joint venture, to enter the Life Insurance market, in January 1995. At the outset it was clear that both companies shared similar values and beliefs and a strong relationship quickly formed. In October 1995 the companies signed a 3 year joint venture agreement.
Around this time Standard Life purchased a 5% stake in HDFC, further strengthening the relationship. The next three years were filled with uncertainty, due to changes in government and ongoing delays in getting the IRDA (Insurance Regulatory and Development authority) Act passed in parliament. Despite this both companies remained firmly committed to the venture.
In October 1998, the joint venture agreement was renewed and additional resource made available. Around this time Standard Life purchased 2% of Infrastructure Development Finance Company Ltd. (IDFC). Standard Life also started to use the services of the HDFC Treasury department to advise them upon their investments in India.
Towards the end of 1999, the opening of the market looked very promising and both companies agreed the time was right to move the operation to the next level. Therefore, in January 2000 an expert team from the UK joined a hand picked team from HDFC to form the core project team, based in Mumbai.
Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in HDFC Bank. In a further development Standard Life agreed to participate in the Asset Management Company promoted by HDFC to enter the mutual fund market. The Mutual Fund was launched on 20th July 2000.

The company was incorporated on 14th August 2000 under the name: HDFC Standard Life Insurance Company Limited.

Their ambition from as far back as October 1995 was to be the first private company to re-enter the life insurance market in India. On the 23rd of October 2000, this ambition was realised when HDFC Standard Life was the only life company to be granted a certificate of registration.
HDFC are the main shareholders in HDFC Standard Life, with 81.4%, while Standard Life owns 18.6%. HDFC and Standard Life have a long and close relationship built upon shared values and trust. The ambition of HDFC Standard Life is to mirror the success of the parent companies and be the yardstick by which all other insurance companies in India are measured. HDFC Standard Life Insurance Company has been signed on by Blue Star to provide insurance cover to its 1,805 employees across India and overseas.
HDFC Standard Life Insurance is one of the leading players in the group insurance segment of the life insurance business. Its group business has grown significantly since inception and now covers over 25,000 lives, across the entire industry spectrum including software, FMCG, pharmaceuticals, banking, consultancy, BPOs, retailing, and consumer electronics.

Mission:
To be the top new Life Insurance company in the market.his does not just mean being the largest or the most productive company in the market, rather it is a combination of several things like-
· Customer service of the highest order
· Value for money for customers
· Professionalism in carrying out business
· Innovative products to cater to different needs of different customers
· Use of technology to improve service standards
· Increasing market share

Values:
§ Security: ‘Providing long term financial security to our policyholders will be our constant endeavor. We will be do this by offering life insurance and pension products’.
· Trust: We appreciate the trust placed by our policyholders in us. Hence, we will aim to manage their investments very carefully and live up to this trust.
· Innovation: Recognizing the different needs of our customers, we will be offering a range of innovative products to meet these needs. Our mission is to be the best new life insurance Company in India and these are the values that will guide us in this.
Business Snapshot
Operational Highlights:
Particular F. Y. ended March 31,2003 F. Y. ended March 31, 2002
Premium 13,218.70 3,604.54
Income from Investments 522.51 110.04
Claims during Year 55.30 3.57
Source: Annual report 2002-03
· Total premium from investments increased by almost 267%.
· Total income from investments increased by about 375%.
· Quantum leap in the volume of claims received in the year, by almost 18 times, demonstrating the fact that as the insurance business gets older the amount of claims on its portfolio also start to increase.
Products:
HDFC Standard Life basically offers two kinds of Life Insurance schemes;
· Single Premium
· Regular Premium
HDFC Standard offers the following types of products under regular premium:
· Endowment Assurance Plan
It is a participating (with profits) insurance plan that offers the following features:
- Provides financial support to the family by way of lumpsum payment in case of death.
- Provides a lumpsum payment to the life assured on survival to maturity.

Eligibility-
This plan can be taken on a single life basis or a joint life (first claim) basis. The eligibility ages are as follows:
Basic policy
Min. Age at entry 12
Max. Age at Entry 60
Max. Age at Expiry 75

With Profits Money Back:
This policy provides a combination of savings, regular cash payments and life insurance. Over the course of the contract, a proportion of the sum assured will be paid at regular intervals. The sum assured plus any bonuses will be payable on death before the end of the contract. On survival to maturity, you will get the sum assured plus any bonuses less the regular payments already made. Your commitment is to pay a level premium regularly throughout the life of the policy
Basic policy
Min. Age at entry 12
Max. Age at Entry 60
Max. Age at Expiry 75

Under Regular premium insurance they offer:
· Term Assurance Plan
Under this plan, a sum assured is payable in case of death of the life assured during the term of the contract. One can choose the lumpsum that would replace the income lost to one's family in the unfortunate event of one's death. Since this non-participating (without profits) plan is a pure risk cover plan, no benefits are payable on survival to the end of the term of the policy
Basic policy
Min. Age at entry 18
Max. Age at Entry 60
Max. Age at Expiry 65

§ Loan Cover Term Assurance
This plan provides a lumpsum on the unfortunate death of the life assured during the term of the plan. The lumpsum will be a decreasing percentage of the initial sum assured. As the outstanding loan decreases as per the loan schedule, the cover under the policy decreases as per the policy schedule. Since this is a non-participating (without profits) pure risk cover plan, no benefits are payable on survival to the end of the term of the policy.
Basic policy
Min. Age at entry 18
Max. Age at Entry 55
Max. Age at Expiry 65

· Personal Pension Plan
The policy is basically a savings contract, which is designed to provide an income for life from retirement, with an option to take the lump sum elsewhere to buy the annuity, provided it is permitted by the prevailing regulations.
The customer agree to pay a single premium or level premiums with installments due every quarter, half-year or year throughout the deferment period of the policy, after which you will start receiving your pension.

· Children’s Plan
This plan was launched in February 2003.Childrenís Plan is designed to provide a lumpsum to the child at maturity. It also provides financial security to the child in the future, even in case of the insured parent’s unfortunate death during the policy term. Children’s Plan receives simple reversionary bonuses, which are usually added annually. This is a flexible plan with three options for you to choose from, depending on your requirements. The details of these options are explained in the next section
Basic policy
Min. Age at entry 18
Max. Age at Entry 60
Max. Age at Expiry 75

Minimum Term: 10 years Maximum Term: 25 years

HDFC’s group term insurance plan with the following structure
· One year renewable term insurance plan
· One master policy issued covering all members of the group
· Sum assured is payable on death (either due to natural causes or accidents)
This plan can be taken to:
· Provide life insurance cover as a part of employee benefits
· Cover the housing or vehicle loan given by employer to employee (Conditions apply)
· As a substitute for the statutory EDLI (subject to approval by RPFC).

Key features of the plan
This product has been designed to offer innovative features and a high degree of customization. These are:
· Convenient medical procedures:
The members do not need to undergo any medical examination up to the "Free Cover Limit". This limit is dependent upon the sum assured and the size of the group.
· Flexibility for members to join or leave:
Flexibility for new members of the group to join or outgoing members of the group to leave the scheme during the policy term.
· Premium options:
Premium can be borne by employer or employee or both in some agreed proportion.
· Size of group:
Minimum size is 25 members. There is no upper limit.
· Flexible cover:
The amount of cover can be constant for all members or vary on the basis of their grade or salary.
· Amount of sum assured:
The minimum sum assured is Rs.20,000 per person and there is no pre-defined cap on the maximum cover extended for each member.
· Limited exclusion:
Only exclusion is suicide in the first year.
· Globally valid:
Resident Indians are covered for the risk whilst travelling anywhere in the world.



Work Flow Hierarchy at HDFC Standard Life



Above, is mentioned the general organisational structure existing at HDFC Standard Life Insurance Co. Ltd. How the work flow actually works in the organisation. We further analyse the role and responsibility existing in each of the departments.



DISTRIBUTION AND SALES AT HDFC STANDARD LIFE

Distribution:
In addition to the corporate office at Mumbai, the company now has 49 locations in the country and has network of financial Consultants servicing in more than 100 cities and towns.

GM Distribution- roles and responsibilities:
The GM distribution is incharge of three sections-
1. Retail sales
2. Group sales
3. Operations

Retail sales:
Retail sales are sales of life insurance to individuals through their various distribution channels. The various distribution channels for retail sales are-
· Financial consultants(agents)
· Corporate agents
· Bank assurance mode
· Direct sales associate
· Brokers

Considering the different distribution channels let us analyse each of the above in detail:
1. Financial consultants (agents):
These are individuals who propagate and sell insurance policies through one to one contacts with people.
2. Corporate agents:
Corporate agents are people belonging to different corporate houses who are trained by HDFC standard life to sell their policies. The corporates involved in this medium of sales are generally financial institutions, as these firms already have a ready database of clients who are involved in financial markets and hence, a wide clientele can be obtained.

3. Bank Assurance Model:
Bancassurance in its simplest form is the distribution of insurance products through its distribution channels. In concrete terms bancassurance, which is also known as Allfinanz- describes a package of financial services that can fulfill both banking and insurance needs at the same time. There are several reasons why banks should seriously consider bancassurance; the most important of which is increased return on assets. Banks that effectively cross-sell financial products can leverage their distribution and processing capabilities for profitable operating expense ratios.

4. Direct Sales Associates:
This mode of sales is doing well these days. It involves people who are a part of HDFC Standard Life who operate from banks. Initially, the sales work was done by the bank employees themselves but due to the rigorous training involved; the banks considered the presence of HDFC employees for the job as a better option.

5. Brokers:
Brokers are persons who possess a ‘broker license’ that authorizes them to sell the policies of any firm. They control 95% of the business in HDFC. Generally, brokers are persons with experience in industry and they have a wide client database. At present there are about 150 authorized brokers in India of which 45-50 are in Mumbai itself.

Distribution Network:

Retail Sales










Group Sales:
The Group Sales Head reports directly to the GM Distribution. There are ‘Relationship Managers’ who are incharge of group sales. There are certain companies (especially manufacturing firms) where the probability of the occurrence of occupational hazards is high. Such companies insure their workers and avail of a limited number of claims at the time of accidents. The clients themselves decide the number of claims they would want to propose. The volumes involved in this type of distribution have lead to the growth of group sales. A ‘Master Policy’ is given to the companies, which contain the details of the claim. This department works in close association with the actuary department. ‘Relationship Managers’ are persons who deal with one particular organization at a time. They shoulder the complete responsibility of interacting with the respective organizations handed to them, right from the issuing of the policies to the final claim.

Operations:
1. Risk Manager Claims Adjuster
Adjusters negotiate insurance claims with people have experienced a loss. The adjuster is responsible for reaching a claim settlement that is fair to all parties. Doing well in this job requires a person who is resourceful, tactful and good with people. Some adjusters work in the field, while others work out of an office.

2. Loss Control Specialist
As a loss control specialist your job is to help keep accident and losses to a minimum. You will visit factories, shop floors and businesses to identify potential hazards and help to eliminate them. A combination of a technical major and a business major would be outstanding preparation
A risk manager is employed by an organization to help identify the risks that it faces and to make recommendations for dealing with these risks. The recommendations may include the purchase of insurance, adoption of precautionary measures and presentations to upper management. Risk managers are involved in the management of employee benefit plans. Valuable skills include knowledge of the insurance industry and of business practice as well as skill in making presentations to upper management.
MARKETING:

Indian Insurance is on the threshold of deep and fundamental changes. Opening up of his sector to private and foreign players is sure to affect the existing players who had till date pushed their products into the market giving minimum attention to the customers needs. But with the arrival of competitors in the industry all players will be required to strategically carve out a marketing strategy in order to sustain in the market. While the established companies have a strong presence, wide networks, strong sales force and goodwill, they are required to develop new customer oriented products, provide better services and leverage on information technology to tap the sectors profitably as these features form the key strength of new comers.

The marketing approach thus entails that companies have a thorough understanding of the market, develop a need-based product, formulate a suitable product, make pricing decisions, design promotional strategies, and manage distribution channels. Environmental factors such as macro-economic parameters, regulatory norms and themes, technology, infrastructure, legal set-up, competition by way of new entry and the degree of globalization also need to be considered in framing the strategy. For instance, whether a company should adopt a strategy for market penetration, market development or product development or should it go for diversification could be determined by analyzing all the relevant data in terms of products- market scope.

Formulation of an integrated marketing strategy thus involves-
· Identification of target market.(Market Segmentation)
· Selection of risks (Product planning)
· Policy writing (Customer service)
· Rating or Actuarial (Pricing)
· Agency management (Distribution channels)



Market Segmentation
The market for insurance companies can be broadly segmented into four sectors-
· The Household sector
· The Industrial sector
· The Trading sector
· The Institutional sector

The Corporate/Trading sector is the high profits-low potential sector, while the household sector offers the maximum potential with moderate returns. Although all companies are trying to tap the middle-class, the less developed and the most promising segment for the insurance. It is also necessary to focus on the institutional sector that includes Universities, Colleges, Schools, Hospitals and the other institutes.

Pricing
In the insurance business, the pricing decisions are concerned with the premium charged for defaulting payment of premium and credit facilities, commission charged for Underwriting and consultancy services, etc. The formulation of pricing strategy becomes significant from the viewpoint of influencing the target market or prospects. Particularly in developing countries like India, where the disposable income is low, the pricing decision also govern the transformation of potential policyholders into actual policy holders

Distribution Channels
The intermediaries and distribution channels form a valuable part of the key strengths of an insurance company and are seen as perhaps the strongest drivers of the growth. They play a crucial role in providing a distribution outlet for insurance products and services in a professional and objective manner. Nationalized players have a large reach and presence owing to their strong sales force, which becomes difficult for the new players to duplicate. Therefore private players need to explore new and effective channels to increase the penetration of their products and keep pace with changes occurring in the market. The distribution channel is already explained above.
Promotional Strategies
The promotional strategies adopted by insurance companies gained momentum as private players entered the market and competition to sell increased. This made it essential for IRDA to regulate the advertisements so that conflicts can be avoided in future; for instance every Advertisement by an insurance agent must be approved by the insurer in writing.
The effectiveness of a promotional campaign basically rests on the level to which it is successful to pursue potential customers to buy purchase a policy. There has been a paradigm shift in the nature of the advertisements from fear evoking advertisements of the earlier days, the emphasis is now to promote future benefits and security associated with the policy.
The increase in competition have made the new entrants adopt innovative promotional strategies, this is evident from the advertisement expenditure (As a % of premium) which is up to 11% for HDFC Standard Life, 12.8% for Birla Sunlife, 11.4% for Max New York Life, whereas just 0.2 % in case of LIC. This clearly states the strategy adopted by all the new players to overcome the disadvantage of late entry in the market.
This has to be backed by aggressive pricing and very convenient schemes by the insurance company. This will give customer a perceived value for the product, which is very necessary for the new players to survive in the competing market.

Why HDFC Standard Life?
There are many reasons why one may choose HDFC Standard Life Insurance Company Ltd. as your partner in meeting your insurance needs:
a) Innovative products to meet your needs.
b) Efficient customer service team.
c) Good financial track record of both parents – HDFC and Standard Life.
d) Certified Financial Consultants to advise you.
e) Professional approach in managing your investments.
f) Income Tax benefits for our insurance products.

The above mentioned are essentially the tools used by Marketers to sell the products. In this competitive scenario existing in the Service Industry, the key difference will be the customer experience that each life insurance player can offer in terms of quality of advice on product choice, along with policy servicing, and settlement of claims. Service should focus on enhancing the customer experience and maximizing customer convenience. Long-term growth in the business will depend greatly on the distribution network, where the emphasis must evolve from merely selling insurance to acting as financial advisors, helping customers plan their finances depending on life stage and personal requirements. This calls for a strong focus on training of the distribution force to act as financial consultants and build a long lasting relationship with customer. This would help create sustainable competitive advantage not easily matched

Agents:
Insurance agency is a very challenging but rewarding profession. While the IRDA prescribes the minimum education qualification to be 10+2, HDFC Standard Life Insurance insists on college degree and relevant work experience. A detailed screening process at the end of which, if selected, necessary training of nearly 100 hours to make the trainees as successful agent. The commission levels vary depending on the products you sell and the performance levels you achieve. Therefore an Insurance agent is just like a business person. The earning opportunity is as much as 40% of the first years premium collection and then 7.5% or 5% year after year on renewal of policies and its premium collection.
Mr. Mishra said, “We are one of the first companies to make it a mandatory requirement for all sales persons to generate a customized sales illustration showing the guaranteed and non-guaranteed returns separately and under different assumptions. No insurance policy would be sold unless the customer has been given a copy of this illustration and he signs it after going through its content.

The relevance of this kind of agent continues even today as agents are sought or contacted by families by word of mouth. In this context HDFC Standard Life looks to recruit some older people (who have taken VRS from banks and other financial institutions) to sell some lines of products like pension plans, annuities etc. The company has also followed the policy of appointing professionals like Chartered Accountants, etc to act as agent. Gender of agents is another relevant feature.
Brokers:
HDFC Standard Life actively supports broking channels, as they are one of the few companies that strongly believe in multi-distribution strategy to give choice and convenience to the customers to opt for the channel that best meet up with their requirements. HDFC Standard Life is in the process of tying up with various brokers and has already tied up with prominent brokers like HSBC Insurance Brokers Private Limited. As of now the organization is primarily focusing on Mumbai, Delhi and other metros. These brokers are in turn taken care of by Broker Relationship Manager. Brokers have a distinct advantage. Their advantage lies in their set up infrastructure and market experience in the said field. Thereby an important relationship has to exist.

The positives are that brokers in the urban arena can attract the elite and the upper middle class customer. Brokers represent the customer and will sell the products of more than one company. They seek to determine the best fit for the client and can effectively address the mind block faced by the public about the various companies. This is applicable in the case of life insurance for the high-end and corporate / group segment. If NGOs based in rural areas can be attracted into the rural sector cooperative arena, they stand a good chance of succeeding and can help the new players get a foothold in the rural market. These are the players with the potential to make the difference, as they have the trust of the people.
HDFC Standard Life Insurance have already partnered with NGOs to sell some low cost insurance in rural areas

Bancassurance:
Bancassurance is today considered to be an important tool and a mode of effectively and efficiently creating a network that helps organisations at both ends. Bancassurance literally means Insurance companies tying up with their Banking counterparts with an aim to use the network, connectivity of the banks, clients and thereby tap the market. Bancassurance are the Corporate Agents licensed by IRDA.
HDFC Life Insurance has set up financial targets for itself and with such motto the company signed up a joint venture agreement with Cardiff. With the coming up of the bancassurance model HDFC is trying the agency route and thereby reframe the strategies.
As far as the infrastructure facility is concerned, the business model adopted is much of bancassurance. With the legal framework (to allow corporate agents to sell life insurance) in place the company is trying to sell the insurance products through various branches of the State Banks as well as other banks with a focused on targeting banks, which are strong in niche areas. To name a few: Union Bank, Indian Bank and HDFC Bank and they further have appointed their own independent Corporate Agency Manager.

In a typical bancassurance model, the bank sells its own product in combination with insurance products. So they (the bank counter staff) won’t say they are selling an HDFC Life product; instead they will say their own products can come with an add-on insurance cover. For example, when they sell a housing loan, or an auto loan, they can add an insurance cover from SBI Life.

Let’s see how the Bancassurance model works and how different is it from the normal insurance selling model. What are its advantages?
The very conceptualisation of the business model is different in the case of bancassurance. This includes product design, selection of target customers and pricing. The commission structure and, of course, the organisational structure in all these respects is different for the bancassurance model compared to the agency-driven model

The advantages from the Bancassurance model stems from the fact and scope for enormous penetration, given the diversity of a bank’s customers. A bank can deliver a number of niche products to target customers. Secondly, they can sell plain vanilla protection products at a low premium. Some typical protection products give you a monthly premium of Rs 40-50. Now no individual agent is going to go and peddle a product with a premium worth Rs 40.

With regard to the assessment of risk the onus lies on HDFC Life Insurance itself. The product design, the analysis of the risk profile of target clients, the fine-tuning of premium to the target population, the modalities of accounting for the premium, and claim settlements - all these things are HDFC Standard Life’s responsibility.

Investment Houses:

Investment Houses also Corporate Agents play a very important role. These houses attract customers to make Investments and generally cater to the upper section of the society. For e. g. A fully-owned subsidiary of JRG Associates Pvt. Ltd, JRG Financial an active member of NSE and NSDL, will now be marketing the life insurance and pension products of HDFC Standard Life.
HDFC Standard Life is also talking to potential institutional partners in a bid to strengthen its presence in rural and semi-urban areas.

Marketing Strategies at HDFC Standard Life Insurance

The company likes to put up Advertisement campaign judiciously. It plans no excessive splash and carpet advertisement and publicity. The principles of the company are to provide their customers with value for money products with each transaction being simple to handle and easy to deal. The company has a foresight for innovative and world-class products and distribution network, A channel to route its products.

With regard to marketing its products in this service industry communicating with customers alternatively, by means of road shows and exhibitions, mailers, telecalling, participating in seminars, through the company’s sales force. This is the manner in which the company is trying to show its visibility.

At HDFC it’s firmly believed that insurance is considered to be need based. It’s believed that each person’s need is different and considering each person’ need the products are sold.






FINANCE DEPARTMENT AT HDFC STANDARD LIFE

The finance department of HDFC Standard Life Insurance is headed by the General Manager (Finance), currently Mr. Nick Taket who reports to the MD and CEO, Mr. Deepak Satwalekar. There are four other departments under the Finance Departments. These are:
1. Accounts Department
2. Actuary Department
3. Investment Department
4. Underwriting Department

The Accounts Department:
The Accounts Department functions like any other Accounts department. It is concerned with the disbursement of salaries, reimbursements, incentives, commissions to agents. It also handles the payments due to other agencies with which the Company interacts, viz. event management companies etc. The work of an Accounts department assumes much importance in an insurance company because it has to be able to pay the claims arising time to time. In HSL the liabilities are large as can be seen in the following chart:
Source: Kotak Institutional Equity


The Actuary Department
The Actuary Department is the “Pricing Department” of an insurance company like HSL. It must be understood that the basic premise on which the insurance companies work is “use the corpus of policy holders for disbursement for any claim”. Based on this principle. This department decides the amount of premium to be charged from a client for a particular policy. This is normally done with the help of Mortality Tables, which can either be prepared by the company itself, or the company can use the existing tables available for its use. The IRDA (Insurance Regulation Development Authority) has prescribed the use of the mortality tables used by LIC for all other companies. HSL also follows the same tables.
The Actuary Department is also responsible for Asset-Liability Management of the insurance company. It must ensure that the Solvency margin (Assets-Liabilities) must be at least Rs 50 crores, as prescribed by IRDA. 95% of the surplus above this has to be distributed to the investors a bonus. HDFC Standard Life has till now declared three bonuses to its policyholders. A one-time founders’ bonus, a reversionary bonus (8 per cent per year for single premium policies and 4.25 per cent for regular premium policies.) to its policyholders and recently another bonus (with value comparatively less due to fall in long-term interest rates). The expenses in the initial periods are large (up to 90%). The chart below shows the comparative expenses incurred by the insurance companies in India.
Operating Expenses as % of Amortized Premium

ICICI HSL Birla SBI Max New Allianz LIC
Prudential Sunlife York Life Bajaj Life

Operating Expenses 61.5 69.7 71.2 98.6 129.3 116.1 8.6
Salaries and Employees Costs 20.3 20.8 21.5 22 49 47.3 6.3
Advertising and publicity 11.5 15.2 14.7 33.2 12.8 12.1 0.2
Agents training Costs 6.8 4.8 3 4.7 11.1 7.7 0
Rents,Rates And Taxes 4.5 3.7 4.5 11.2 10.5 5.8 0.2
Other Costs 18.4 25.1 27.4 27.5 45.9 43.3 1.9
Incr operating cost to incr premium 41 37.6 38.6 55.4 53.6 82 3.7
Operating Expenses + Commission 74.3 89.3 94.7 106.5 150.7 137.8 17.6
Incr operating cost + incr Comm.
to Incr.premium 51 54.8 62.3 63.2 66.8 101.8 12.7


Source: Kotak Institutional Equity
Recently the company brought in an additional Rs 50 crore to increase the share capital of the company from Rs 168 crore to Rs 218 crore.

The Investment Department:
The Investment Department is responsible for the investment of the money of the investors. Since the basic reason for the investors investing their money in Life Insurance is security, IRDA has put certain regulations on such companies for investments so that the money of investors is safe. These guidelines are:
1. not less than 50% of the corpus will be invested in Government Securities (G-Sec)
2. Up to15% of the corpus will be invested in infrastructure, social and rural sectors.
3. Not less than 20% can be invested in government and other equities, which have AAA ratings as per CRISIL or ICRA.
4. Remaining 15% can be invested in “unapproved” equities.
Till recent time, HDFC has not been investing in equities. But now it has decided to follow the footsteps of its Joint-Venture partner Standard Life, which invests around 75% of its corpus in equiies. The Investment Department is also responsible for calculating the returns of the investment to the investors. Here also the insurance companies are bound by regulations and guidelines. According to IRDA, the returns have to be in the range of 6 % (pessimistic view) to 9 % (optimistic view).


Source: Kotak Institutional Equities

The Underwriting Department
This department is responsible for taking the decision on whether to insure a person or not. For this it must take into account the risk premium associated, the reinsurance opportunities etc. normally, there are charts available with the people of this department on the basis of which they can come to a viable decision.
Underwriting is done on the basis of two grounds:

· Financial Grounds: here the underwriters decide on the worth of the person by taking into account his tax returns of the last three years. On this basis they are able to assess the premium paying ability of that person and accordingly take a decision.

· Medical Grounds: each new customer is required to undergo a comprehensive medical test, which determines the person’s general health. On the basis of this report, the underwriters decide upon the premium to be charged from the customer.

As said earlier, the concept of re-insurance is very important .HSL has been more prudent, re-insuring a higher portion of its business. On the flip side, it also hampers the profitability ratios since a portion of the profit is also passed on along with the risk. The chart below shows the reinsurance pattern of the major players in the insurance sector.



TRAINING AT HDFC STANDARD LIFE: Human Resources

Leadership and communication are the buzzwords in organisations today. In the insurance sector, meagre technical capabilities cannot enable a company to grow. In order to win customers companies need to inculcate soft skills in their people. This is exactly why HDFC Standard Life conducts training programs for it’s employees. Being in the service industry, one of the best investments it can make is to help it’s employees develop skills.
Areas in which HDFC Standard Life provides training-

· Product base: with rapidly increasing insurance needs, the product base is also spreading proportionately. The candidate who comes in interface with the customer is well - trained regarding the various policies available so that he / she is just in the right position to suggest a policy, which fits into the requirements of the policy seeker.
· Emergence of distribution channels: the distribution channels that exist at HDFC are agents, brokers, bancassurance, etc./ proper training gives the insurance personnel a thorough idea about the mechanism of each of these channels.
· Claims management: along with conceptual knowledge, the claims assessor must have a human touch in his/her dealings. The one who manages claims settlement must possess the knack to deal with the insurer. There are certain basic skills required for this, which require proper training.

IRDA has made it mandatory for all agents to have compulsory classroom training before giving the exam to apply for agent’s license. Besides, the company to develop their workforce- has implemented the following strategies
· Enable building relationships between agents during the training programs,
· Hold sales contests every fourth quarter to motivate agents.
· A scheme with continuing education credits for young agents to keep them loyal to the company.
· Recognition in various forms to agents with higher sales.

IT Department

The IT department at HDFC like all other companies is committed to delivering quick and accurate support both internally and externally. A MIS package known as WONDERS has been implemented in the system for internal data management. A package imported from UK it enables a smooth flow of data across the company.


INVESTMENT OF THE CORPUS OF INSURANCE COMPANIES

We tried extracting information from HDFC Standard Life Insurance but since this is something very confidential they just gave us a brief outline of how the corpus is invested. These guidelines are basic to all life insurance companies. The necessary schedules have also been attached.
The principal objective of any life company is to meet its commitments to the policyholders, which makes at the time of selling an insurance product. The commitments may be primarily to make payments if and when the contingent event happens.

Generally life insurance contracts are long term where in premiums are received regularly either till the end of the term or till the contingent event happens, which is when the claim payment is made. But some contracts may be single premium contracts or may have restricted premium term much shorter than the policy term.
In normal circumstances, where a life company is growing and carrying on new business, the inflow of funds is much higher than the outflows arising due to expenses and claim payments, leaving surplus funds with the company. The surplus funds thus arising need to be invested so as to earn a positive return. In fact, while designing an insurance product, the premiums are arrived at by assuming certain investment returns on the premiums received.
The investment returns earned are generally combined with other surpluses to meet the expectations of policyholders and shareholders. The excess inflows and the need to accumulate funds make it vital for a life insurance company to have an investment policy for its long-term survival. The broad objectives of any investment policy are:
· To match the currency of assets and liabilities
· To invest generally in long term instruments to match the term of the liabilities
· To ensure that the investments are adequately diversified in order to reduce the risks of excessive investments in a particular instrument or class of instruments
· Maximization of yield subject to safety of investments
· Ensuring that sufficient liquidity is available with the insurer
It has to be ensured that the insurers at all times maintain a prescribed minimum level of solvency as protections of the policyholders’ legitimate interests. Thus, unlike in the case of mutual funds where maximization of returns is the only objective, the investment management of life funds has twin objectives of meeting the liabilities as they fall due and of maximizing returns. The former has precedence over the latter.

Factors in influencing investment policy:

· Nature of liabilities
A life company generally markets different products to meet the various needs of the insuring public ranging from pure term insurance to endowment type with high saving element, unit linked insurance, life annuity and pension. The nature of liabilities differs from each type of contract sold. The term of the liabilities would be generally long to very long term and the currency will predominantly be the local currency, and in case of overseas subsidiaries it will be in the relevant currencies.

· The level of free assets
The level of excess of assets over the liabilities including statutory solvency requirements will determine the investment policy as the free assets will enable the insurer to mismatch the liabilities in pursuance of the objective of maximization of returns.
· Economic and political environment
The economic and political environment of a country in which the insurer is conducting his business will be one of the most important factors in managing the investments. India, for several years had a mixed economy with administrative controls over all facets of financial and business sectors. After liberalization and financial sector reforms, today the market to a large extent determines the interest rates with the RBI and the government setting and monitoring the monetary/fiscal policies respectively. As a result of liberalization, the contours of investment management have changed with investment returns now being a function of having superior skills in identifying the opportunities, analyzing the risk profile and mitigating the various risks with least cost.
· Regulation
Typically the world over, the insurance industry is regulated and regulations in three areas, viz. solvency norms, admissibility of assets. Prudential and exposure norms influence investment management.
The Insurance Regulatory and Development Authority (IRDA) has given detailed guidelines regarding investment patter, exposure and prudential norms besides prescribing the basis of evaluation of each of the assets.

Policyholders’ reasonable expectations
Investment management shall also take into consideration the policyholders’ reasonable expectations. The expectations will be based generally:
· To meet the guaranteed payments as they fall due.
· To achieve a real return and a return in excess of that guaranteed on without profit policies.
· The past returns should be in line with past returns achieved by the company.
· The returns should be at least as much as provided by the competitors.
· The Bonus policy
The method of bonus distribution followed by the company has a significant impact on the investment policy and management. The Reversionary and Terminal Bonus method gives maximum flexibility in pursuing the investment management. This method is predominantly followed in the UK and in India by the existing players and likely by the new ones. This method helps to smoothen the returns over a long period.
· Competitors
How competing companies are performing will be a valuable input into the decision making process. Moreover the regulators use the industry aggregate solvency ratio as a benchmark.
· Liquidity requirements
Generally life insurers generally do not face much of liquidity problems as the investment income and the premiums received may be more than sufficient to meet the cash outflows in terms of claim payments and expenses.
· Taxation of asset proceeds
Another aspect that holds importance is the tax efficiency of the returns on assets as the objective is to maximize post-tax returns. Currently insurance companies in India pay tax at the rate of 12.5 per cent of the valuation surplus. Thus the tax treatment of investment returns by way of either income or capital gains on various assets may not be significant at present.
It is predominantly the policyholders’ reasonable expectations, nature of liabilities, the level of free assets available and the regulatory norms, which are the drivers for any company’s investment policy. The supervisory norms about the requirement of capital for writing various types of business and the supervisory reserves, which need to be maintained in respect of these businesses, will determine the availability of free assets, and investment freedom is a function of these free assets.

Having regard to the factors which drive the investment policy, a company sets out its investment objectives, the decision making process involves delineating the investment strategy. Based on the investment strategy and careful analysis of the various asset categories, the historical returns given by each of them, the expected returns given the current and future economic scenario, asset allocation takes place.
HDFC A COMPARITIVE STUDY
Major Players

Some of the major players competing with HDFC in this sector are presented below:

ICICI Prudential

ICICI, holds 74% and prudential from UK holds 26% stake in the insurance company. The company is the largest private player in the pension products market with a 23% market share. On an outstanding basis, 40% of ICICI’s policies are unit linked, 20% guaranteed products and the balance is term policies. The company expects to break even over a period of seven years compared with the earlier estimate of five years. This reflects its aggressive volume growth strategy and lower up front charge to customers for unit linked products.
The ratio of operating expenses to the premium is constantly declining (from 584.7% in 2001 to 61.5% in 2003).

Birla Sun Life

Birla Sun Life a joint venture between Indian Rayon and Sun Life, Canada has emerged as the second largest player with a 1.5% share in the insurance market overtaking Max Life and HDFC over the last one year. Sun Life owns 26% share in this venture. The company is capitalized at Rs. 1.8 bn and enjoys a high capital efficiency ratio. Unlike ICICI Pru and HSL nearly 94% of Birla Sun Life products are linked products. It has high cost ratio compared with ICICI Pru. and HSL. TO this extent it is disadvantaged compared with other two players. It reinsures a high portion of its business. This could however impact profitability ratios. The operating expenses as a percentage of premium have declined from 230% in 2002 to 74% in 2003.

SBI Life:
SBI Life has just completed one full year of operations achieving 0.3% market share Cardiff, The French insurance company owns 26% share in the company while the balance is held by SBI. The company has been focussing on single premium investments type products and term policies issued along with housing finance loans taken by SBI’s clients. It plans to follow the bancassurance model as a primary route to distribute policies. In FY2003 it insured nearly 225,000 lives through tie ups with regional rural banks which is clear evidence of the fact that the company is focussing on mass and rural markets. The operating expenses as a % of premium have declined from 585.6% to 91% in the year 2003.

LIC

LIC was monopoly from 1956 until 2000. However, currently apart from LIC there are 13 players offering various products. The company has been losing market share to private players. However, it is likely to retain a majority market share at least for some time due to following reasons.
It has a wide reach (as many as 9,60,000 agents in financial year 2003). Secondly, it enjoys implicit guarantee of the government in the vent of failure to meet its obligation, which is not available to any of the private players. Finally, Its policy sizes cater to a wider range of customers compared with private players that have minimum policy requirements.










A COMPARITIVE PARADIGM

We have tried to compare the company HDFC Standard life in the following areas with its main competitors:
· Market Share
· Distribution Channels
· Spread and Employee Strength.
· Costs of Operations
· Risk Hedging -Reinsurance
· Returns to the shareholder.
· Products
· Overall Strategies and Risks

Market Share

The table below shows the relative market share of the major players in the Insurance sector in India on the basis total business. As is clearly evident LIC is the top player by a huge margin. However, its share has been declining and has been eaten into by the private players like ICICI Pru and HDFC Standard Life. The other players comprise a good almost 2 percent of the market and can be a force to reckon with for companies like HDFC Standard and Birla Sun Life.
For the period FY2003



DISTRIBUTION CHANNELS

The following table gives a comparison across various companies indicating the preference for different distribution channels. As is evident from the table the preference across the board is for agents. This is the most popular for all the companies. LIC leads the pack with 9,60,000 agents however the others are way behind in the numbers. ICICI PRU boasts of the largest network of agents, 18,344 followed by Bajaj Allianz with 14,224 agents (Table 2).
However, players like HDFC and SBI are shifting focus to corporate agents / brokers and banks. This is perhaps due to the fact that the arrangement with the banks provide insurance companies access to a large number of customers while the banks get an opportunity to cross sell products and earn fee income- a win-win situation for both.
We feel that this kind of bancassurance has a significant potential over the next three to four years. The success of selling insurance products through the bancassurance route will however depend on product simplicity and degree of integration of systems and processes.
Table 1. DISTRIBUTION CHANNELS USED BY KEY PLAYERS

Agents Banks Brokers / CorporateAgencies Own field force Others Key Banks tied up with


ICICI Prudential 72% 18% 10% ICICI Bank, Federal Bank, South Indian Bank
Bank of India, Lord Krishna Bank
HDFC Standard life 86% 14%* HDFC Bank, Union Bank of India, HDFC Ltd., Indian Bank
Birla Sun Life 50% 24%* 26% Citibank, Deutsche Bank, IDBI Bank, BNP Paribas, Catholic Syrian Bank ,Bank Muscat, Bank of Rajasthan

SBI 17% State Bank of India, Associate Banks of SBI,
20 Regional Rural banks
Max New York Life 94% 6%
Allianz Bajaj Life 80% 20% Standard Chartered Bank, Syndicate Bank
LIC Corporation Bank, Central Bank of India
* combined share of banks and Brokers/corporate agents

SPREAD AND EMPLOYEE STRENGTH

For a private player to compete against the market leader LIC and make a mark it is imperative to have wide reach and coverage to sell its products covering the length and breadth of the country. Also the employee strength is an important parameter for a service industry. However, an optimum number is desirable.
The table below shows the spread and employee strength of key insurance players in India. As is observable HDFC standard life leads the pack amongst private players in reach in terms of cities and number of offices. However, it has long way to go to catch up with LIC’s strong reach of 2048 offices.
As is evident from the table number of employees per office in HDFC Standard Life, 13.4, is considerably less than its other counterparts (namely ICICI Pru-66.6, Birla Sun Life-36.4). So it may lead to greater profit per employee figures which may affect the remuneration, bonuses etc. of the employees. Less number of employees may also be indicative of greater use of technology.

Spread and Employee Strength of Key Insurance Players
Company Offices Cities Employees Employee Per Office
ICICI Prudential 29 29 1932 66.6
HDFC Standard Life 50 49 670 13.4
Birla Sun Life 22 40 800 36.4
SBI Life - 30 258 NA
Max New York Life 19 14 700 36.8
Allianz Bajaj Life 31 18 1414 45.6
LIC 2048 - -






COSTS OF OPERATIONS

Since the private players have been around for only a couple of years the initial costs tend to be fixed. Insurance business initially requires deep pockets. Therefore a tap on operational costs is imperative. These costs include start up costs, salaries, advertising and publicity, agent training cots, rent and taxes. As is expected none of the new players have broken even yet. However, companies like ICICI PRU have a target of seven years HDFC aims at breaking even two years before that. The below table indicates the average operating expenses as a percentage amortized premium for FY2003. This highlights how much the companies actually get to retain from the income through premiums. For example, companies like SBI Life have as much as 98.6 % of its premiums that are sucked up by the operational expenses. Where as Max New York Life and Bajaj Allianz Life have figures as high as 129.3 % and 116.2 % respectively.
HDFC on the other hand has been successful in streamlining its costs to great extent. Its operating expenses are only 69.6 % of its premium, which is considerably well off considering its contemporaries. ICICI PRU leads the pack here with operating expenses at 61.5 % of its premiums. The BIG player here, LIC has only 8.6 % of its premiums funding its operating expenses.

Operating Expenses as % of Amortized Premium
ICICI HDFC Birla SBI Max New Allianz LIC
Prudential Sun Life York Life Bajaj Life
OPERATING EXPENSES
Salaries and Employees Costs 20.3 20.8 21.5 22 49 47.3 6.3
Advertising and publicity 11.5 15.2 14.7 33.2 12.8 12.1 0.2
Agents training Costs 6.8 4.8 3 4.7 11.1 7.7 0
Rents, Rates And Taxes 4.5 3.7 4.5 11.2 10.5 5.8 0.2
Other Costs 18.4 25.1 27.4 27.5 45.9 43.3 1.9
Total 61.5 69.6 71.1 98.6 129.3 116.2 8.6

Though these figures may seem abnormally high, these have been considerably reduced from financial year 2002. Highlighting a very important feature of the Insurance industry that operating expenses as a percentage of premium income comes down with each year of operation. As the table in the next page indicates the relevant percentage figures for all the players has consistently come down. For example, the most significant fall has been for SBI Life from 585.6 % in FY2002 to 98.6 % in FY2003. For HDFC the operating expenses have fallen from 172 % to 69.7 % during the same period.


NUMBER OF AGENTS
COMPANY NUMBER OF AGENTS
ICICI PRU 18344
HDFC STANDARD LIFE 10645
BIRLA SUN LIFE 5000
SBI LIFE 2377
MAX NEW YORK LIFE 3381
BAJAJ ALLIANZ LIFE 14224
LIC 960000
Risk Hedging-Reinsurance:
Reinsurance ratio indicates that percentage of the sum at risk, which is passed on to the Reinsurance Company. ICICI PRU has a significantly lower reinsurance ratio at 5 % versus the high 65.7 % for HDFC and Birla Sun Life. ICICI PRU follows a high risk- high return philosophy. HDFC Standard Life on the other hand wants to play safe and hence reinsures much of its exposure. We believe that this ratio will change overtime as companies gain more experience and begin to retain some of this risk.

COMPANY REINSURANCE RATIOS
ICICI PRU 5.0
HDFC STANDARD LIFE 65.7
BIRLA SUN LIFE 56.3
SBI LIFE NA
MAX NEW YORK LIFE 20.4
BAJAJ ALLIANZ LIFE 49.7
LIC NA















RETURNS TO THE SHAREHOLDER/CAPTIAL EFFICIENCY:

Capital efficiency measures the extent to which the capital in the company is translated into the premiums or income. This percentage figure indicates the effectiveness of using capital into the business, in other words the way in which capital is used to earn income. The table below shows the capital efficiency of the leading insurance players in the country.
As is clearly evident that the efficiency of capital has considerably improved from FY2002 to FY. FY2003. ICICI PRU has a capital efficiency of 127.1% which means that every Rs.100 invested by the shareholders translates to Rs.127.1 as gross premium. Bajaj Allianz has the lowest capital efficiency of 51.2 % and HDFC has a decent figure 84.1 % compared to 20.1 % FY2002. It can also be seen from the graph that all the companies have consistently improved their capital efficiency.













KEY STRATEGIES AND RISKS OF INSURANCE PLAYERS
Company Strategies/focus Key risks
ICICI Prudential life Insurance company ltd. Incremental focus manly on unit linked products.Market leadership Policy of charging low upfront costs in unit linked products may postpone likely breakeven. Despite move to ULP market leadership strategy may require significant capital infusion over next few years. Poor investment performance may lead to higher than anticipated lapse ratios in Units linked policies.
HDFC Standard Life Insurance Company Ltd. Steady growth strategy –remain in top three not necessarily number one. Focus mainly on endowment and pension products Likely to introduce units linked products in the next six months Current low base of operating cost can rise rapidly in case of significant expansion to grow business Ability to ramp up retail, in view of rising competition in-group business.
Birla Sun Life Insurance Grow business mainly through unit linked products, which requires less capital Follow multi distribution strategy Focus on large cities/metros to grow business. Poor investment performance may lead to higher than anticipated lapse ratios in unit linked policies. Higher upfront charges compared to competitors may result in losing market share
SBI Life Insurance Single premium- investment type products, term polices against housing loans, credit cards and deposit Distribution through banking channel mainly SBI, Associate and RRB’s Change in tax regulation may impact sale of single premium product. High initial benefit cost is of concern and raises concern of quality of assessment. Chances of frauds exist in case of sale through RRB’s.
Max New York Life Focus on whole life type of product Best quality training to agents to improve agent productivity and reduce agent turnover Cost of operation is very high Partners’ willingness to put in capital if company continues to show losses and if foreign holding limit is not modified
Allianz Bajaj Life Insurance Focus on smaller towns and spread reach across India High cost due to large base of agents and agency margins may impact profitability if the company does not ramp up the volumes soon
Life Insurance Corporation of India Agency strength and government guarantee Earlier guaranteed products may have significant costs in the future Ability to market unit linked product is yet untested.

CONCLUSIONS

Having studied HDFC Standard Life from the inside and then compared with its competitors we have the following important observations and suggestions.
· Another strength of HDFC Standard Life also happens to be its very well managing of costs. As can be seen in the graph below both the rate of growth of costs from FY2002 to FY 2003 for HDFC has been lower than its two closest competitors ICICI PRU and Birla Sun Life and the absolute quantum of costs is also low. This is very promising for a company that has the highest number of branches in the country and a fairly high number of agents as well. This is the area where HDFC can score over its competitors.
· Between the top three private players in the insurance sector HDFC has the maximum percentage of network through agents while ICICI and Birla have a much lesser dependence on the same. Also the number of banks it is tying up with is also lesser as compared to ICICI and Birla Sun life. So they could focus on a higher percentage of business through bancassurance through a larger number of banks. HDFC however has also introduced for the first time in the business a system where its own employee sits in a bank and sells its products directly to the customers of that bank. For this scheme they have tied up with Saraswat Co-op bank ltd.
· It has become evident from the research that the strength of HDFC lies in its wide coverage (50 offices in 49 cities) and a very optimum number of employees. It can therefore focus on technology solutions better and maintain the lowest employee per office strength in the industry.

· As far as cost of operations is concerned it will take some time for the figures to come down to LIC levels but it can still make efforts at streamlining its operations and control costs.

· HDFC standard life also has the highest reinsurance ratio in the industry (65.4%). Since ICICI PRU also belongs in the similar category of having a backing from a big parent company HDFC can consider reducing the same. This is necessary since reinsurance obviously comes at a cost and the profitability takes a hit. This can be achieved by renegotiating with its parent company a more realistic figure of exposure.


















Key Data ICICI Prudential HDFCStandard Life Birla sun Life SBI Life Max New York Life AllianzBajaj Life LIC

No. of agents 18344 10645 5000 2377 3381 14224 960000
No. of Branches 29 50 22 NA 19 68 2048
No. of Employees 1932 670 800 258 700 1414 NA
Gross Premium (Rs mn) 4176 1488 1439 734 966 692 498219

Key Ratios
Market share of new 3 1.4 1.2 0.4 0.7 0.8 90.1
business (Apr-Jul 2003 %)

Reinsurance ratios for 5 65.7 56.2 0 20.4 49.7 NA
total business

Cumulative Gross Premium
to shareholders capital (%) 127.1 84.1 95.8 69.7 53.3 51.2 -

% Gross premium
Investment income 5.3 3.5 2.1 6.9 4.2 2.2 47.9
Other income 0.7 0.1 0.1 - 0.1 1.2 0.2
Commission 8.7 13.3 20.5 2.6 19.1 18 9.1
Operating expenses 41.9 47.1 61.9 32.2 115.9 96.4 8.6
Benefits Paid 0.8 0.4 0.7 3.8 2.6 0.5 35.5
Change in valuation of
liabilities in force 92.4 77.8 63.3 97.1 46.8 39.7 68.3

Share of single premium in Gross Premium (Rs Mn)
Company Name GrossPremium Single Premium % of SinglePremium Gross premium adj.for Single premium Decline in premium Due to Amortization
ICICI Prudential 4176.2 1542 36.9 2788 33.2
HDFC Standard Life 1488.3 548 36.8 995 33.1
Birla Sun Life 1439.3 219 15.2 1242 13.7
SBI Life 723.9 557 77 222 69.3
Max New York Life 965.9 98 10.1 878 9.1
Allianz Bajaj Life 691.8 131 18.9 574 17
LIC 498219 90960 18.3 416355 16.4

References

§ Insurance Chronicle.
§ Insurance Times.
§ www.google.com
§ Report on institutional Equity (OM Kotak Mahindra) presentation.
§ www.hdfcinsurance.com

Special thanks to Mr. Pankaj Seth (Marketing Head) HDFC Standard Life Insurance Company Ltd.

HI, my paper on "Venture Capital Financing in India: One size does not fit all" presented to IIT Delhi.Written by Abhinav Manu, Kanwardeep Singh Arora and myself i.e. Anand Krishnan
Venture Capital Financing in India: One size does not fit all
THE PENCIL IS MIGHTIER THAN THE PEN
Americans were scratching their heads, spending millions of dollars at the height of cold war and the accompanying space war. The problem was to invent a writing instrument, which will work in spaceship, because the conventional pen was not useful due to lack of gravitational force. Finally, they managed to make pen which worked in space. When the Americans asked their space war rivals Russia, what did they do for writing in space, the Russian’s replied- we use a pencil.
This might be an anecdote, but it offers a valuable lesson to the syndrome of spending a great deal of time, money and effort in developing a high-tech solution to a seemingly complex problem, when the solution is very simple and innovative.
The VC industry has often behaved the American way, funding high-tech and trendy solutions for all kinds of problem, whereas the solution may be rather mundane but equally effective.
INTRODUCTION
Venture capital (VC) financing is defined as the funding of ideas or concepts by organizations or individuals. Though these ideas are normally perceived to be technology related, we do not believe so. According to us it should be used to support non-technology ideas also. It must also be recognized that a viable VC industry depends upon a continuing flow of investment opportunities capable of growing sufficiently rapidly to the point at which they can be sold yielding a significant annual return on investment. If such opportunities do not exist, and if such companies are not created in sufficient numbers to exploit such opportunities, emergence of a VC industry is unlikely. VC is largely seen as the reason for the success of the US West Coast, namely the Silicon Valley and other countries like Taiwan and Korea.
THE AMERICAN MODEL
The American model involves setting up of a fund, where investors put their money, and which is managed by a venture capitalist. To quote an analogy the American VC model is akin to the mutual fund structure prevalent in most nations. However the structure is flawed as individuals who are most likely to mange these funds are fund managers and/or investment bankers who appear to have the obvious competencies to deal with and manage the fund. These managers are sometimes not in sync with the world of financing innovation and R&D, which is a quite different from the world of mutual funds. It requires a lot of appetite for risk, a risk which is different from the risk of stock markets.
Despite this the American VC industry is most developed. The reason is not difficult to understand. Most of the success stories of VC funded companies were provided capital by few focused funds, which were managed by expert technocrats.
INDIA’S FORAY IN VC FUNDING
In India the condition is different with the venture capitalists making a bee way to the country in the late nineties. The late nineties saw a deluge of investments in several startups. The tech boom and the consequent tech bust burnt several VC fingers. Since then VC’s in India have adopted a very cautious approach. The VC’s are now largely investing in established Indian companies, which we feel is not keeping in line with the initial aims of a VC to provide seed and first stage funding for ideas and develop startups. In India, the VC industry has been a disappointment as far as the delivery of results is concerned with many expectations belied.
We believe that the borrowed VC model from USA, currently followed in India, is not appropriate for Indian conditions.
The following are the reasons why we believe that India cannot mimic the American model.1. For a country to have a mature VC market, it must have a well developed source for technological ideas. India does not have such a source of abundant ideas.
2. Secondly, the abundance of role models in the USA provides a pathway for potential entrepreneurs to follow. India again, has a seeming lack of such role models. For VC market to bloom in any country, the value added by such role models/ venture capitalist in management must be greater than the cost of such activity when professionals of a similar company provide the service. This ensures growth for the company at lower costs. In absence of such people, the company has no comparative advantage vis-à-vis vanilla finance company. Most Indian VC firms are headed by investment bankers from the boom time in the late nineties who lack requisite expertise in the field of high tech finance.
3. The markets for IPO’s are not very well developed. In the US, the NASDAQ provided a ready market for the issue of small companies. The start of the Nouveau Marche stock market in Paris and the Nueur Markt in Frankfurt both modeled on the lines of the NASDAQ did wonders for those countries’ VC industry. In India, the ‘Over the Counter Exchange of India’, was established for precisely the same purpose, but the low levels of transactions and volume seen on the exchange signaled a lack of interest in the small companies market. Although disclosure requirements should remain rigorous, it is absolutely essential to adapt listing criteria to favor entrepreneurial companies.
4. In India, like in many countries of the world, banks remain a major source of financing for most companies. However banks lack the expertise to develop a nascent VC or even fund and help manage a startup. This is because of the disharmonies in the priorities and the differences in the environment of the startup and the bank. The startup looks to survive in a very high risk and competitive market while the bank aims to secure its investment and interests of its customers. The failure of any single startup results in a snowballing effect and loss of credibility of other such ventures.
5. Most venture capitalists or so called venture capitalists have chased hyped businesses; invest in Information Technology when IT is “HOT”, BPO when BPO is hip and biotech when biotech is happening. A VC market matures when there is a collective commitment by all the parties concerned to develop ideas and not simply to chase the latest or the trendiest thing in town.
6. On the social front, failure at entrepreneurship or failure in any endeavor is reviewed poorly. For entrepreneurship to provide the economy with the required fillip this social malady needs to be addressed.

ON THE REGULATION FRONT, SEVERAL ISSUES REMAIN TO BE ADDRESSED:
1. Foreign investors prefer the Mauritius/FIPB route for tax reasons, without having to worry about restrictions on sectoral limits.
2. Sec 11(a) states “the VC fund shall not expose more than 25% of its equity to any single group of companies”
But we believe that such clauses should not be applied for venture fund industry. This would ensure funding for good ideas and enable small venture funds to finance projects.
3. The SEBI guidelines states that a VCF/FVCI is required to invest at least 75 per cent of the investible funds in unlisted equity shares or equity linked instruments. Upto 25 per cent of the funds can be invested in shares at the time of IPO or in debt or of the funded company. The Ashok Lahiri Committee on VC in India recommends that these conditions be removed as this would dissuade VC firms from investing in listed companies. We feel that this recommendation of the committee is unwarranted as VC firms should invest in startups and 2nd or 3rd stage companies prior to the IPO. Once a company reaches critical mass the banking sector can fund the companies’ expansion plans.
Also Indian savings trends are not favorable for the VC financing. 42% of total domestic savings are held as government securities, insurance and pension funds; another 50% is as bank deposits which leaves a paltry 8% (maximum) for VC funds.
The main destination for most funds is the ITES or the IT sector and now the biotech industry. The R&D in conventional/traditional industries is seldom funded. The early stage and the SME sector also do not get any financing. There is an acute shortage of angel investors and incubators too.

A SUGGESTED FRAMEWORK / MODEL FOR INDIA
"An invasion of armies can be resisted, but not an idea whose time has come"-Victor Hugo
We have attempted to find an alternative solution for Indian situation. A solution, where the American “laissez affair” model is replaced by a public-private syndication where the government and the private sector work together to develop entrepreneurship.
1. In India, disinvestments and VRS are forcing technocrats from the erstwhile public sector behemoths to enter the list of unemployed. The lack of alternative job creating mechanisms is leading to frustration among these technocrats.
2. If India wants to become a developed nation it is imperative that it has an innovation system in place. The general perception of the characteristic of innovation is that it improves productivity; generate new jobs and better material welfare to serve the needs of specific communities. However, it can have a positive impact to specific societies, while having a negative impact to the others, depending on how it has been adopted and used.
3. For tackling the fundamental problem of the lack of entrepreneurial ideas a National Innovation System (NIS) is a must. A good business idea may change the mindset of a conventional VC from investing in “flavor of the month” companies to investing in what is sound business.
NIS is the interactive system of existing institutions, private and public firms (either large or small), universities and government agencies, aiming at the production of Science and Technology within national borders. Interaction among these units may be technical, commercial, legal, social and financial as much as the goal of the interaction may be development, protection, financing or regulation of new Science and Technology. An NIS system on the lines of the erstwhile Sankhya Vahini plan, to link up the various libraries of the country, would increase manifold the levels of interaction and exchange of ideas in the country.
The government needs to initially develop plans like the Sankhya Vahini project either in conjunction with the private sector or solo. But the development of this project is absolutely essential for the emergence of new ideas. The government must relook at the Technical Development Fund or a “Technopreneur” fund to help build startups. The government’s current scheme provides entrepreneurs with a seed capital of Rs three lakhs which is woefully inadequate. We believe that the government is better placed to do this than a mutual fund manager or investment banker because the government has better resources to do this from the significant pool of technical engineers and managers, who are accepting VRS, to choose from. The government and/or educational institutes like the National Institutes of Technology could also fund ideas from students on the lines of the business plan competitions held at IIM Calcutta (I2I), at the CIIE center at IIM Ahmedabad, at the KRESIT incubator at IIT Bombay or at the TBIU center at IIT Delhi.
4. The government with the aid of the private sector or the non-governmental organizations must also encourage the use of Self Help Groups (SHG’s) to fund entrepreneurs in local and rural areas. This scheme of providing micro-finance to SHG’s has had significant success with the Grameen Bank in Bangladesh and with the Self Employed Women’s Association in India. This scheme can be used to develop innovations in rural areas which have hitherto been walled away from the VC industry. It must be ensured that VC funds in the true sense of the term should be available to all innovators who can spin a lucrative business plan around their innovation to ensure speedy economic growth.
5. The government can also set up a venture fund like Temasek Holdings set up by the Government of Singapore or the BI investment group of the Sultanante of Brunei Darussalam whose sole purpose is to invest in companies working on new technologies. If these investments work out as potential drivers of positive change they would bring these technologies to their home nations.
6. Another area that the government can concentrate on within the framework of the larger plan is the idea of a corporate spin in, where companies can invest in startups from which they can profit. This would also help companies cope with disruptive technologies which may pose a potential threat to their business in the future. They could then merge this company with themselves at the opportune moment like Charles Schwab did with it online brokerage business.
It is essential to point out that the American model i.e. the mutual fund method can work in parallel with the above mentioned model but cannot work single-handedly. Alongside the initial work mentioned above to be put into place, the government should also work on suitable exits for venture funds through the development of exchanges like the ‘Over the Counter Exchange of India’.
THE ISRAEL SUCCESS STORY
To bring out the efficiency of a model like the one described above we have taken the case of Israel where a similar model exists. Every Israeli has to spend a certain period after reaching the age of franchise fro enlistment. The military in Israel serves as an NIS where ideas are exchanged freely and VC’s often fund some of the ideas of individuals out of the army. Some pioneering work is in the field of encryption and video & audio compression. The military plays a key role in directing high-ability youths into computing and engineering. Several important units and programs take the truly brightest high school graduates, train them in intensive science and engineering programs and disperse them in key military areas. The implication is that Israel has more engineers, and more able engineers, than otherwise might be the case. The result - Israel has been christened as “Start-up Nation”.
We are not suggesting that India make enlistment compulsory. But simply trying to bring out how effective a certain institution like the military or some other organization like the National Centre for Software Technology [NCST] or the CDAC or a concerted effort by a consortium of institutes can perform the role of an enabler in the NIS of India.
Israel’s link with the USA [Jewish-American community] also helps to promote its VC industry through the entry of US VC funds in the country and listing of Israel based companies on the US stock exchanges. India too can do a lot more to than what it does to leverage its US [NRI] link.

CONCLUSION:
Through our analysis of the Indian VC industry, we believe that the American Model will not work in India for various reasons like the absence of a mature market for startup companies and lack of experienced individuals. The new model described above for the Indian situation is more relevant and applicable keeping in line with India’s cultural, political and business environment.

hi, this is my Organisational Behaviour 2 project on Corporate Governance. Worked with Varun Behl, Abhisek Bishayee, Shishir Saxena, Amit "Panditji,Pandu" Pandit and Kanwardeep Singh Arora.
Executive Summary
Corporate governance has gained prominence over the last few years however most of the discussion surrounding corporate governance has been concerned with getting the corporate governance structures in place rather than realizing that corporate governance in spirit can only be implemented when all the people involved feel passionately about it. Therefore in this project looking at the stakeholder model of corporate governance i.e. A organization’s responsibility towards its employees, shareholders and society in general we have looked at different issues such as making a board more effective by incorporating independent director , women directors, policies discouraging sexual harassment , policies encouraging whistle blowers and a corporate having a conscience and above all it is our conclusion that all these things are possible by incorporating a ethical culture in the organisation. We have tried to bring in a unique HR perspective to all the above issues involved so as to make the corporate governance practices of a corporate more efficient
What is corporate governance ?



Corporate Governance has succeeded in attracting a good deal of public interest because of its importance for the economic health of corporations and the welfare of society, in general. However, the concept of corporate governance is defined in several ways because it potentially covers the entire gamut of activities having direct or indirect influence on the financial health of the corporate entities. As a result, different people have come up with different definitions, which basically reflect their special interests in the field. So, the best way to define the concept is perhaps to list a few of the different definitions rather than mentioning just one or two.

Before attempting to do this, it would be useful to recall the earliest definition of Corporate Governance by the Economist and Noble laureate Milton Friedman. According to him, Corporate Governance is to conduct the business in accordance with owner or shareholders’ desires, which generally will be to make as much money as possible, while conforming to the basic rules of the society embodied in law and local customs. This definition is based on the economic concept of market value maximization that underpins shareholder capitalism. Apparently, in the present day context, Friedman’s definition is narrower in scope. Over a period of time the definition of Corporate Governance has been widened. It now encompasses the interests of not only the shareholders but also many stakeholders.

Let us take a look at the other definitions in the context of the present day situation.

Some other definitions:

1. According to some experts "Corporate Governance means doing everything better, to improve relations between companies and their shareholders; to improve the quality of outside Directors; to encourage people to think long-term; to ensure that information needs of all stakeholders are met and to ensure that executive management is monitored properly in the interest of shareholders."

2. Experts of the OECD have defined Corporate governance as the system by which business corporations are directed and controlled. According to them the corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the Board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it provides the structure through which the company objectives are set, and also provides the means of attaining those objectives and monitoring performance. OECD's definition is consistent with the one presented by Cadbury Committee.

3. An article published in the June 21, 1999 issue of the Financial Times quoted J. Wolfensohn, President, World Bank as saying that "Corporate Governance is about promoting corporate fairness, transparency and accountability"

4. According to some economists, Corporate Governance is a field in economics that investigates how corporations can be made more efficient by the use of institutional structures such as contracts, organizational designs and legislation. This is often limited to the question of shareholder value i.e. how the corporate owners can motivate and/or secure that the corporate managers will deliver a competitive rate of return.

These are just a few definitions of Corporate Governance. However it may be of interest to know the genesis of the subject (Corporate Governance) and in this context a historical perspective is also needed to be shared.

Historical perspective of Corporate Governance

The seeds of modern Corporate Governance were probably sown by the Watergate scandal in the United States. As a result of subsequent investigations, US regulatory and legislative bodies were able to highlight control failures that had allowed several major corporations to make illegal political contributions and to bribe government officials. This led to the development of the Foreign and Corrupt Practices Act of 1977 in USA that contained specific provisions regarding the establishment, maintenance and review of systems of internal control.

This was followed in 1979 by the Securities and Exchange Commission of USA’s proposals for mandatory reporting on internal financial controls. In 1985, following a series of high profile business failures in the USA, the most notable one of which being the Savings and Loan collapse, the Treadway Commission was formed. Its primary role was to identify the main causes of misrepresentation in financial reports and to recommend ways of reducing incidence thereof. The Treadway report published in 1987 highlighted the need for a proper control environment, independent audit committees and an objective Internal Audit function. It called for published reports on the effectiveness of internal control. It also requested the sponsoring organizations to develop an integrated set of internal control criteria to enable companies to improve their controls.

Accordingly COSO (Committee of Sponsoring Organisations) was born. The report produced by it in 1992 stipulated a control framework, which has been endorsed and refined in the four subsequent UK reports: Cadbury, Rutteman, Hampel and Turnbull. While developments in the United States stimulated debate in the UK, a spate of scandals and collapses in that country in the late 1980s and early 1990's led shareholders and banks to worry about their investments. These also led the Government in UK to recognize that the then existing legislation and self-regulation were not working.

Companies such as Polly Peck, British & Commonwealth, BCCI, and Robert Maxwell’s Mirror Group News International in UK were all victims of the boom-to-bust decade of the 1980s. Several companies, which saw explosive growth in earnings, ended the decade in a memorably disastrous manner. Such spectacular corporate failures arose primarily out of poorly managed business practices.

It was in an attempt to prevent the recurrence of such business failures that the Cadbury Committee, under the chairmanship of Sir Adrian Cadbury, was set up by the London Stock Exchange in May 1991. The committee, consisting of representatives drawn from the top levels of British industry, was given the task of drafting a code of practices to assist corporations in U.K. in defining and applying internal controls to limit their exposure to financial loss, from whatever cause.

Cadbury Committee on Corporate Governance

The stated objective of the Cadbury Committee was "to help raise the standards of corporate governance and the level of confidence in financial reporting and auditing by setting out clearly what it sees as the respective responsibilities of those involved and what it believes is expected of them".

The Committee investigated accountability of the Board of Directors to shareholders and to the society. It submitted its report and associated "Code of Best Practices" in Dec 1992 wherein it spelt out the methods of governance needed to achieve a balance between the essential powers of the Board of Directors and their proper accountability.
The resulting report, and associated "Code of Best Practices," published in December 1992, was generally well received. Whilst the recommendations themselves were not mandatory, the companies listed on the London Stock Exchange were required to clearly state in their accounts whether or not the code had been followed. The companies who did not comply were required to explain the reasons for that.

Corporate Governance….Cadbury Committee and After

It would be interesting to note how the corporate world reacted to the Cadbury Report. The report in fact shocked many by its boldness, particularly by the Code of Practices recommended by it. The most controversial and revolutionary requirement and the one that had the potential of significantly impacting the internal auditing, was the requirement that ' the Directors should report on the effectiveness of a company's system of internal control.' It was the extension of control beyond the financial matters that caused the controversy.
Paul Ruthman Committee constituted later to deal with this controversy watered down the proposal on the grounds of practicality. It restricted the reporting requirement to internal financial controls only as against the ‘the effectiveness of the company’s system of internal control’ as stipulated by the Code of Practices contained in the Cadbury Report.

It took another 5 years to get the original Cadbury recommendations on internal control reporting re-instated. Public confidence in U.K. continued to be shaken by further scandals and Ron Hampel was given the task of chairing the 'Committee on Corporate Governance' with a brief to keep up the momentum by assessing the impact of Cadbury and developing further guidance.

The Final Report submitted by the Committee chaired by Ron Hampel had some important and progressive elements, notably the extension of Directors’ responsibilities to 'all relevant control objectives including business risk assessment and minimising the risk of fraud…'

The Combined Code was subsequently derived from Ron Hampel Committee’s Final Report and from the Cadbury Report and the Greenbury Report. (Greenbury Report, which was submitted in 1995, addressed the issue of Directors’ remuneration). The Combined Code is appended to the listing rules of the London Stock Exchange. As such, compliance is mandatory for all listed companies in the U.K.

The stipulations contained in the Combined Code require, among other things, that the Boards should maintain a sound system of internal control to safeguard shareholders' investment and the company's assets and that the Directors should, at least annually, conduct a review of the effectiveness of the Group's system of internal control and should report to shareholders that they have done so and that the review should cover all controls, including financial, operational and compliance controls and risk management.

Subsequent developments with regard to Corporate Governance in U.K. led to the publication of Turnbull Guidance in September 1999, which required the Board of Directors to confirm that there was an on-going process for identifying, evaluating and managing the key business risks. Shareholders, after all, are entitled to ask if all the significant risks had been reviewed (and presumably appropriate actions taken to mitigate them) and why was a wealth-destroying event not anticipated and acted upon?
In this context, it was observed that the one common denominator behind the past failures in the corporate world was the lack of effective Risk Management. As a result, Risk Management subsequently grew in importance and is now seen as highly crucial to the achievement of business objectives by the corporates.

It was clear, therefore, that Boards of Directors were not only responsible but also needed guidance not just reviewing the effectiveness of internal controls but also for providing assurance that all the significant risks had been reviewed. Furthermore, assurance was also required that the risks had been managed and an embedded risk management process was in place. In many companies this challenge was being passed on to the Internal Audit function.

The corporate world in India could not remain indifferent to the developments that were taking place in the U.K. In fact, the developments in U.K had tremendous influence on our country too. They triggered the thinking process in our country, which finally led us to laying down our own ground rules on Corporate Governance.

In the US, the Enron scam symbolised the crisis in American capitalism and the post-Enron fire and brimstone have brought in several far-reaching changes which extend beyond conventional corporate governance. The nexus between corporates, auditors and the capital market revealed in the Enron, World.com and Anderson scandals has added a new dimension to corporate governance issues. The recent Sarbanes-Oxley Act fixes new reporting standards for US auditors and top managements and prescribes stiff penalties if they fail to meet them.

Indian policy-makers of the liberalisation era are by now well-known as great imitators of the Western models, irrespective of their relevance to Indian-specific socio-economic milieu. This is particularly true of financial sector reforms. No wonder if this flurry of activity in the area of corporate governance has influenced Indian policy-makers and now we have our own quota of reports. The Kumar-Mangalam Birla Committee, set up by the Securities and Exchange Board of India (SEBI), submitted its Report in 1999.
The Naresh Chandra Committee Report (2003) carried forward the recommendations of the Birla Committee. Again, the committee on corporate governance was constituted by SEBI, under the chairmanship of Mr N. R. Narayana Murthy to evaluate the adequacy of the existing corporate governance practices and to suggest how best to further improve them.

The corporate world in India could not remain indifferent to the developments that were taking place in the U.K. In fact, the developments in U.K had tremendous influence on our country too. They triggered the thinking process in our country, which finally led us to laying down our own ground rules on Corporate Governance. Kumar Mangalam Birla Committee set up by security and exchange board of india(SEBI) submitted its report in 1999. Naresh Chandra Committee report 2003 carried forward the recommendations of Birla committee.

Again, the committee on corporate governance was constituted by SEBI, under the chairmanship of Mr N. R. Narayana Murthy to evaluate the adequacy of the existing corporate governance practices and to suggest how best to further improve them




PREMIUM FOR GOOD GOVERNANCE


Many factors contribute to good governance out of which ten widely recognized principles are summarized :

1) ACCOUNTABILITY

a) Transparent ownership:- Identify major share holders, directors and management share holdings and cross holdings.
b) Board size:- Establish an appropriate number of board seats with optimal number being between 5 to 9.
c) Board accountability:- Define board’s role and responsibilities in published guideline and make them basis for board compensation.
d) Ownership neutrality:- Eschew anti-takeover that shield management from accountability. Notify shareholders at least 28 days before share holder meetings and allow them to participate online.

2) DISCLOSURE AND TRANSPARENCY

a) Broad, timely and accurate disclosure:- Fully disclose information on financial and operating performance, competitive position and relevant details. Offer multiple channels of access to information and full access to shareholders.
b) Accounting Standards:- Use internationally recognized accounting standards for both annual and quarterly reporting

3) INDEPENDENCE

a) Dispersed ownership:- Deny any single shareholders or group privileged access to or excessive influence over decision making.
b) Independent audits and oversight:- Perform annual audit using independent and reputable auditor. Insist that independent committees oversee auditing ,internal controls and top management compensation.
c) Independent Directors:- Allow no more than half of directors to be executives of company; at least half of non executive directors should have no other ties to the company.

4) SHARE HOLDER EQUALITY

a) One share , one vote:- Assign all shares equal voting rights to distributed profit

Board of Directors:

Good corporate governance can only be achieved by focussing on the corporate management structure – the line of authority and responsibilities that direct a corporation and its employees to achieve their objectives. In such a management structure, it is the board of directors who play a pivotal role in the corporation. They provide leadership and strategic guidance to the corporation. They are also responsible in providing objective judgement independent of management to the company. Thus, they exercise control over the company, while remaining at all times accountable to the shareholders.

However, a board can be successful only when all the members work under the chairman, and with their collective ability, are able to provide a system of checks and balances for the corporation’s management.

The primary role of the board is to provide strategic guidance to the corporation, and take decisions on major transactions. This will be possible only if and when the board is supplied with enough timely and factual information by the management.

Thus, in order for the board to be effective, the management itself must be willing to share information, and they must be open to suggestion of new ideas and criticism of their old ones.

The board, in return, must comprise members, who are analytical, perceptive, capable to making decisions, and most importantly – integral and committed. They must be able to grill the management on contemporary issues and make them explain their plan-of-action. They board must also have the courage to be able to go against the management, and contradict them and give opposing views. The measure of the board is not simply whether it fulfils its legal requirements but more importantly, the board’s attitude and the manner it translates its awareness and understanding of its responsibilities.

Only when a board is allowed to perform these functions will the corporate governance system in the corporation be truly effective.





Composition of the Board:
The board should have a balance of executive and non-executive directors, to be able to prevent any individual or small group from dominating and influencing the board’s decision. In India, it becomes even more important to have outsiders on the board, since in most corporations, the promoters of the corporation hold substantial amount of shares, and their interests may not always match those of the ordinary investor.

According to the CII recommendation, if the Chairman is also an ‘outsider’, at least 30% of the Board should consist of ‘outsiders’, and if the Chairman is an ‘insider’, then 50% of the board must be ‘outsiders’ (i.e. independent).

Chairman:

The role of the chairman is crucial to good corporate governance. It is his primary responsibility to see to the smooth working of the board. He must ensure that the relevant issues are on the agenda and these issues are thoroughly discussed with each board member making an effective contribution. It is also the role of the chairman to ensure that the non-executive directors receive timely and relevant data about the corporation well in advance of the board meeting, so that each is properly briefed on the contemporary issues of the corporation.

The Kumaramanagalam Birla report on Corporate Governance has also noted that ‘the Chairman’s role should in principle be different from that of the chief executive, though the same individual may perform both roles.’

Executive Directors:

Executive Directors are mainly responsible for the shareholders of the corporation. They approve and make decisions on major transactions of the corporation and also approve the top-level budgets. They also monitor the implementation of these decisions and are also responsible for the monitoring of the financial and overall performance of the corporation.

Non-Executive Directors:

Non-Executive Directors have a special responsibility in adding to and maintaining the standard of corporate governance in an organisation. These directors are independent of management and thus are responsible for bringing an independent judgement on day-to-day issues of the corporation. Their nomination and appointment process should be formal and transparent.

However, if such a director stays with the corporation too long, he may lose his advantage of being independent. Thus, such non-executive directors must appointed only for specified terms and their reappointment must not be automatic.


INDEPENDENT DIRECTORS

Corporate managements the world over are under a scanner particularly ,after the Enron scandal .In India ,barring notable exceptions ,the corporate sector as such has not filled itself with glory. Unscrupulous promoters coupled with lax regulators have taken ordinary investors for a ride over the last several years. The government has been forced to think of some remedial measures to stem the tide of corporate larceny. One of the ways has been to continuously strive to raise the standard of corporate governance by strengthening the role of board of directors.

While it is recognized that corporate governance cannot really be enforced by law, at the same time continuous efforts are being made to effect changes at the applicable law so as to improve the standards of corporate governance. Listing Agreement was the first document to undergo a change. Later some changes were also effected in the companies Act 1956.

It seems that one of the important requisites for enhancing the standard of corporate governance is the role of ‘Independent Directors’. For the first time the term independent director became a part of corporate lexicon as a result of the Kumarmangalam Birla Committee Report. Thereafter, SEBI effected changes in the listing agreement by incorporating clause 49 exclusively devoted to the corporate governance. As a result ,all the listed companies were required to have a board of directors comprising of independent Directors. In addition clause 49 also prescribes that Audit Committee should comprise of majority independent Directors.

Interestingly , though the concept of independent Directors was brought in to force so far as the listing companies was concerned as such no definition of “independent directors” was provided in the act. The Birla committee Report did mention that independent directors are those who apart from receiving directors remuneration do not have any material pecuniary relationship or transaction with the company ,its promoters ,its management or its subsidiaries which in the judgement of the Board may affect their independence of judgement. In other words , the Birla committee report put the onus on the management to decide as to whether a particular director was independent or not.

Definition of Independent Directors
(as per Naresh Chandra committee report)


An independent director of a company is a non-executive director who:

1. Apart from receiving director's remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associated companies;

2. Is not related to promoters or management at the board level, or one level below the board (spouse and dependent, parents, children or siblings);

3. Has not been an executive of the company in the last three years;

4. Is not a partner or an executive of the statutory auditing firm, the internal audit firm that are associated with the company, and has not been a partner or an executive of any such firm for the last three years. This will also apply to legal firm(s) and consulting firm(s) that have a material association with the entity.

5. Is not a significant supplier, vendor or customer of the company;

6. Is not a substantial shareholder of the company, i.e. owning 2 per cent or more of the block of voting shares;

7. Has not been a director, independent or otherwise, of the company for more than three terms of three years each (not exceeding nine years in any case);



An employee, executive director or nominee of any bank, financial institution, corporations or trustees of debenture and bond holders, who is normally called a 'nominee director' will be excluded from the pool of directors in the determination of the number of independent directors. In other words, such a director will not feature either in the numerator or the denominator. · Moreover, if an executive in, say, Company X becomes an non-executive director in another Company Y, while another executive of Company Y becomes a non-executive director in Company X, then neither will be treated as an independent director.

Recommendation has also been made that the majority of the directors on the board of directors on the board be independent directors.

Changes being brought by pro –active independent directors

Indian board of directors always used to be considered a clubby cozy place where domineering promoter shareholders and executive directors get other directors to rubber stamp management decisions with little debate or thought but now a few CEO’s are working hard to shed the old style passive and conformist boardroom culture and are taking the first few tentative steps towards creating assertive empowered boards. A diverse sprinkling of about 15 companies are beginning to make a dramatic at times painful transition in to new board driven management style.

Assertive independent boards can stimulate challenge validate and in some cases even rubbish management thinking .Running a company today is like flying a airplane through a storm. The CEO like the pilot is very much the man in charge. And when the pilot can depend on the men in the control tower to guide him so can the CEO on the dispassionate advice and perspective of his independent directors. In this knowledge economy where innovation is vital , a conformist board can actually be a liability. It is only a clash of ideas and disruptive thoughts and arguments that can spawn powerful new strategies.

The new breed of independent directors are infusing new rigor and purpose in to board room deliberations . Inducting them is easy living with them is not. This is not to say that the role of managements has reduced you take away the management and even a great board will be ineffective. It is the independent directors and the board who hold a mirror to the CEO and ask the hard questions.

The second role of the independent directors on the board is to bring in the outside in perspective that the CEO lacks. This external voice helps CEO’s identify opportunities that he may not have noticed.

The role of the independent directors on the board is also to mentor the CEO’s as well as the senior managers for eg G.V.Prasad managing director of the Rs 1652 crore Dr Reddy labs says he has benefited enormously by working with independent directors like former McKinsey India Chairman Anupam Puri and Ross Graham Walker professor of Business Administration at the Harvard Business School Krishna Palepu.
He is also of the opinion that contribution of the board to the business has increased manifold after the induction of independent directors.

The new boardroom religion still ahs only a few followers and as with most new religions the early converts Infosys ,ICICI Bank ,Dr Reddy’s , Hughes ,Asian Paints are being driven more by faith than reason. Faith not in pleased investors higher market capitalisation or better financials but faith that a strong board is the foundation on which to build a lasting foundation.

DIFFICULTIES IN FINDING SUITABLE INDEPENDENT DIRECTORS



Combination of Independence and knowledge –It is very difficult to find the appropriate mix of independence and knowledge amongst the existing talent

As most of the directors are directors for many companies it becomes very difficult for them to do justice to each and every directorship.

The first and perhaps only talent pool from which most companies seek independent directors is other CEO’s and industrialists. While this pool is knowledgeable it is sometimes unable to bring in a independent perspective.

For all the enthusiasm shown by the new breed of independent directors they do take home am pitifully inadequate compensation. According to Indian law independent directors can be paid a sitting fee of Rs.5000 per board meeting which is an inadequate amount for attracting top talent.




HOW TO BUILD A GREAT BOARD



The immediate even if simplistic response is to bring in great independent directors, not just marquee names but people who will roll up their sleeves and get to work in right earnest. However, before the board can begin the evolution from great directors to a great board it has to first build three other board room pillars namely structure ,culture and processes.

When Marico Industries’ managing director Harsh Mariwala reconstituted his board , he put structure ahead of directors. Marico identified four critical areas where independent directors could contribute FMCG strategy , enterpreneurial wisdom, technology and finance. It was only later that Marico went around looking for independent directors who could fill those slots. This approach is a welcome departure from the practice of finding directors first (mostly trophy names) and then trying to figure out a use for them. Marico has since identified Pepsico India chief Rajeev Bakshi to fill the first requirement. Atul Choksey Asian paints promoter for the second. And Nikhil Khatau for the third.
Boards also have to be structured in such away that makes them independent from the management. The board of Hughes Software is an example .Out of the 11 directors The management has a representation of only 1. Hughes has drawn a clear line demarcating the management from the board .Such a divide has rarely existed in corporate India. Four directors are independent and there are 6 other non executive directors. So 10 of Hughes’ 11 directors are detached from the day to day operation of the company and thereby able to exercise independent judgement.

Companies often assume that creating a balanced board structure is a one time phenomenon and the reconstituted boards will last forever however this may not be true the companies need to regularly review ,align and if necessary add and remove talent from the board. Putting together such a review process might be a first step in revitalizing a board.

The directors need to be provided with the adequate amount of information not to little not too, much so as to enable them to make informed decisions. Management has to encourage the middle level managers to interact with independent directors this brings in a fresh perspective.

The last but the most important thing is the evolution of a board culture which in the end depends on the attitude of the management, the independence and autonomy of the board sounds fine in theory but it is up to the CEO to ensure that it works on the ground . The CEO must be open to criticism and respect the board’s judgement over his own. In fact it is up to the CEO to identify induct and encourage independent directors to speak up.











NEW BREED OF INDEPENDENT DIRECTORS
(A Few Profiles)



Marti Subramanayam – Uncomfortable questions is his forte .Nobody minds since they open up new possibilities.

Boards ICICI, Infoys, Murugappa Group

For example, Subramanayam threw a disruptive thought in to the Infosys Boardroom . Based on his global perspective Subramanyam had reportedly argued that Infosys must get into Business Process Outsourcing. At the time the management argued that that BPO would dilute Infosys’s Brand Equity. The management prevailed but three years hence, Infosys is betting big on Progeon ,its BPO subsidiary.

Bala Balachandra - Rather than drawing strategies his forte is in telling you whether you are implementing them right.

Boards – Godrej Consumer Products.

For Example After the de-merger of Godrej Soaps in to two companies , godrej Consumer Products and Godrej Industries, the management was satisfied with the company’s progress. The Toilet Soaps business was growing at a healthy 8 %.The hair colour business was growing at a faster rate of 17.5%.

After having taking a stock of the situation the group of independent directors including Bala Balachandra felt that the hair colour business (it was growing twice as fast soaps) was being under leveraged they argued as Godrej was organised on functional lines (the same marketing team was handling the both soaps and hair colour )

They recommended that Godrej should be reorganised along product lines .This would increase focus on hair colour and let it grow at full potential. Godrej agreed and is now implementing the change without this bit of independent perspective the hair colour would have suffered unnoticed.


Anupam Puri – The former Mckinsey India Chairman is expert at delevering killer strategies

Boards- Dr Reddy’s ICICI Bank

Omkar Goswami- He is a corporate governance activist who is great at building effective board processes.

Boards- Dr Reddy’s Laboratories.

Amal Ganguly- He is the one adept at asking the tough questions in the boardroom.He is the version of a headmaster in the Board meeting.

Boards- Hughes Software System.

Rama Bijapurkar- The sorting out of the problems with a brand whether a product or firm is her forte.

Boards- Godrej Consumer Products,Infosys.

Y.R.K.Reddy- He is a person who thrives on challenges therefore he has set out to change the unchangeable PSU Boards.

Boards- SAIL

Women Directors

Women have only recently entered the boardroom. The popular perception is that large numbers have been appointed on corporate boards and that they are now a significant presence on the boards of most major corporations. Buty that perception does not reflect reality.
The pressure to recruit women directors is nevertheless real and recognized. It comes primarily from stockholders, from employees ( in particular from women employees , especially those at high levels and from consumers. This pressure reflects a growing widespread concern with equal employment oppurtunity , A tendency to broaden definitions of corporate responsibility and a demand for greater accountability on the part of both director and company.
On the other hand , the incentives to appoint women on boards have not yet been clearly perceived . The contribution expected from women directors and their characteristics , perspective and expertise required to make contribution have not yet been adequately analysed . The fascinating thing is that the contribution expected from women directors has not yet been defined either by corporate chairmen and their nominating committees or by the women directors for these positions.

If the board room expectations for women to fulfill could be defined , and if they are expectations for which women have the needed characteristics , perspective and expertise and both the pursuer and pursued could agree, the incentives to enlist women could be clear and very likely compelling . The process of recruitment and assimiliation of women directors could then proceed forthwithwithout conflict , ambivalence or compromise.




The company’s preferences

Specifications for directorships have traditionally been loosely drawn . One thing has that has been fixed , however, is that the Chief Executive Officer has always been the most desirable candidate . Every CEO would like atleast a half dozen chief executives on his board.

When the chairman of a large organisation began to be interested in recruiting women for their boards they sought women in their own image chief executive officers . Such women however are rare today.

The second preference of chairmen who become interested in recruiting women is often a woman who had the equivalent of or nearly the equivalent of CEO experience

But few women approximate the CEO by virtue of level of employment combined with experience as directors of large organizations. it is only in the last decade after all that large numbers of women have begun to rise in management . The upper half of the business pyramid is almost entirely male.

Thus it will very likely take two decades for the number of women in upper management to assume significant proportions and another five to ten years after that for those women to acquire experience and move up the officer level, where they can obtain the broad perspective that is so desirable for the corporate board’s planning function.

The chairman’s third preference then became women of high achievement outside the business world and preferably but not necessarily from an area that would yield insight, perspective and experience obviously relevant to the concerns of the corporation. Such women tend to be highly visible and accessible with many of them coming from government , education and th3e non profit sector.

The chairman’s top three choices women chief executives, women with CEO related experience and women of high achievement outside business virtually exhausted the supply of visible women.

The problem is that a great many other women of high achievement and unusual ability are not visible to the corporate powers that be . When the chairmen or nominating committees hear of such women , in particular women with relevant expertise or board service , they are usually excited by the contribution these women can make . They are interested in pursuing these talented women for their boards , but neither they nor their colleagues know them .

The requirement that the women be known is a legitmate one , especially in view of the fact that the boards are small their meetings frequent and the environment contained and intimate . But the resultant tendency to date has been to turn to women who are members of the nominating members know socially as in the case of the women who are married to the prominent men or are members of prominent families

The corporate problem is that the pool of qualified women candidates as currently perceived , is inadequate .Thus two things must happen the visible pool of candidates must be enlarged , and expectations of them, must be clarified





Making A Contract

The area of board responsibility has benn widely expanded . Agreater range of experience and an infinitely braoder perspective are needed today than in the past . The sine qua non fo directorships can no longer be chief execuive experience or the equivalent . It must now be the highest level of intelligence and motivation. There is no shortage of either among women . However the chairman’s expectations of the new direcor must be realistic , clearly analysed and defined andf well communicated to the women director. She in turn must agree to accept the responsibility to fulfill these expectations .

In effect a contract , based on the board’s need for a particular perspective and a woan’s ability to perform must be made between the board and the new director . Rwealistic ground rules would thereby be established so that the women could make the needed contribution to the work of the board and derive both professional satisfaction and the respect of her peers for the contributions she makes

Contribution of women directors

A major contribution that many women directors can make is to enhance the morale and the productivity of women in their companies not only by their presence on the board as role boards but by actively communicating with them and thus addressing the needs and problems they face
Such communication sessions can be done at arranged luncheon sessions , receptions or meetings .The most beneficial aspects of these sessions can be that the women get to know other women in management in their company and what jobs they hold . Such meetings also serve to assure them that someone on the board is concerned with the role of the women within the company and is willing to express that concern in appropriate ways in the board deliberations .
However these meetings should always be held with management’s knowledge ansd encouragement so that they understand that women directors are interested as a concerned board member and they are not interfering in management'’ operational responsibilities

Women with experience of dealing with the government agencies can bring to the corporate boards an insight in to dealing with government agencies and the wonderful people who occupy the management positions in government as they are also consumers for a business.

On the horizon is an enoromous role that women can perform on boards by helping to anlyse and seek solutions to the problems of the two -career family


One positive aspect of the women’s presence in the boardroom is that tier desire to learn and their position as representatives of a new phenomeneon have allowed them to ask questions more freely than men, whose history history of paticipatiopnhas led to the assumption that they are more knowledgeable abot matters discussed and issues raised than they necessarily are

Sensitising the board to gender issues like sexual harassment, sexism etc. can be achieved by the presence of women. The recent Phaneesh Murthy case in Infosys, an organisation known for its stress on ethics and values, highlights the need for strong internal policies in companies. Another factor, which reinforces the role of women in the boardroom, is the emergence and rise of the Indian working woman, which has left her with an increased disposable income and the ability to influence the buying decisions of the households of the country in a major way. In such an emerging situation, it pays to have a woman’s seed of thought in framing the policies of the company to better integrate the enterprise with its environment.

For both men and women , the move from a functional position to the position of director entails a shift from a primary concern with policy . Many outside male directors also face a transition in perspective

On the way up the corporate ladder when the needed expertise and perspective are both in place , the signals are clear . No conflict about the nature of the function on e is paid to perform occurs . But when the transition is made from staff to board , the woman needs guidance and encouragement from the chairman.

Although it is nobody’s argument that less should be expected from women or that they should seek special concessions as women. Howeverb if the contribution of some woman director is what has been traditionally viewed as a “female” contribution (eg in aareas of corporate social responsibilty) the chairman should applaud her for it and encourage her to applaud herself for that contribution . The corporation is so integrally a part of the fabric of the society , and the responses it must make to society’s needs and the penalties it suffers by overlooking or misinterpreting needs thiose needs are so great ,that it is eminently worthwhile to have aboard room specialist in this area.

If however the contribution of some women is what has been traditionally viewed as a male contribution , they should be equally applauded . In short, the challenge of the chairman is to ignore gender and encourage all the strengths women have to emerge and express themselves in the boardroom.

Selecting Women Candidates

Identifying and choosing women directors is difficult.Although there is a substantial number of candidates whose achievement or level of employment might qualify them for considerations as directors the vast majority are unknown to most corporate leaders .In addition the network through which they might be reached the new women’s equivalent to the old boy’s network has not yet been established.
A effort could be made by organisations like CII, FICCI to organise just such an network along rational objective lines. They could identify a comprehensive national collection of accomplished women who are potential candidates for corporate boards

To build the crucial personal dimension in to the program systematic efforts could be made to foster personal links between corporations and potential women candidates by seeking to povide not only hard information but also the oppurtunity for qualified women to meet and come to know corporate leaders in their respective fields .
A typical search for a woman director would include a preliminary discussion between the chairman and this body’s people to determine the composition of the board and the characteristics he is seeking . The body’s staff would then selecta number of appropriate dossiers, and then the chairman would be able to select a number of possible candidates .
Thus by obtaining sources for peer recommendations from this body’s staff and by subsequent meetings with the candidates he would be aided in reaching a final decision with the assurance that the new director will work well with the other members of the board

It has become difficult to think of a board without women . Two factors will further expedite the process of assimilation
1. The disappearance of the novelty of having a woman on the board
2.The recognition of the contribution women can make , with the clarification and realisation of the incentives to enlist women

Indian Examples of Women Directors

The current gender ratio in Indian boardrooms is skewed towards men. Most of the few women in Indian boardrooms have achieved their positions by the workings of the family business system. While some are there to merely add to promoter strength on the board. There is, however, a glaring minority, which is in the thick of the management environments of companies.

There is Naina Lal Kidwai, Managing Director, HSBC Capital Markets India who has established herself as one of the best bankers in India and recently figured in the list of Time’s 2002 Global Influentials. She made a name for herself in Morgan Stanley bank, when she engineered a joint venture with investment bank JM Financials making the resulting body one of the largest in its industry. She functions at the cutting edge of reform in the country and ascribes the chance to shape and influence as the reason why she has stayed in the country.

Ms.Rama Bijapurkar is a thought leader in strategic marketing and consumer related issues in the India. Currently she is on the boards of Infosys and Tata Consumer Products. An IIM-A product, she has had diverse experiences in organisations such as McKinsey & Co., MARG and Hindustan Lever Limited.

Thermax Group of Industries Chairperson Anu Aga, who will be retiring in 2004 in favour of her daughter Meher Pudumjee, is noted for her open and sharp criticism of the Modi government’s handling of the situation during the Godhra riots (when most of corporate India was silent on the issue) besides her measures for introducing professionalism in her board. She was also known for her tough decision of exiting non-core businesses during the economic slowdown right after she took over as Chairperson, after the death of her husband in 1996.










Sexual harassment
Sexual harassment is offensive, degrading, inappropriate, threatening, and illegal. It is a violation of the Human Rights, Citizenship and Multiculturalism Act.

Supreme Court’s Directive on Sexual Harassment :
The Supreme Court defines sexual harassment in the workplace as “unwelcome conduct of a sexual nature that detrimentally affects the work environment or leads to adverse job-related consequences for the victims of the harassment”.

In accordance with the National Policy for Empowerment of Women, a special
clause 5(35) relating to sexual harassment of women has been incorporated in our
Conduct, Discipline & Appeal Rules of the Company, on 27th January 1998. To examine complaints, various complaint committees have been constituted at different levels.
13.2 Effective implementation of legislation would be promoted by involving civil society and community. Appropriate changes in legislation will be undertaken, if necessary.
13.3 In addition, following other specific measures will be taken to implement the legislation effectively.
(a) Strict enforcement of all relevant legal provisions and speedy redressal of grievances will be ensured, with a special focus on violence and gender related atrocities.
(b) Measures to prevent and punish sexual harassment at the place of work, protection for women workers in the organized/ unorganized sector and strict enforcement of relevant laws such as Equal Remuneration Act and Minimum Wages Act will be undertaken.

Key Characteristics of Sexual Harassment. :
Unwelcome conduct. The behavior is one-sided and not wanted by the victim. The victim may be male or female. The harasser may be male or female. The harasser ought reasonably to have known that the behavior would be unwelcome. The behavior may occur in any situation involving the employment relationship, whether at or away from the worksheet.

Sexual nature. Sexual harassment can take many forms, from the subtle to the overt. It may occur once or many times. Examples include:
· Suggestive remarks or gestures;
· Compromising invitations or requests;
· Verbal abuse; etc.

Detrimental effects. Sexual harassment may include threats of firing, loss of promotion or loss of pay raise. The harasser may make these threats specifically or may imply them. The harasser may not actually threaten or have any physical contact, but may create an intimidating, hostile or offensive work setting for the victim.

Victims. Sexual harassment usually involves one person who tries to exercise perceived power over others. The harasser may be a superior or a co-worker. The victim may be an employee or a client.

Sexual Harassment on Males :
Cases of sexual harassment in which the complainant is a man are rare but especially painful. The typical offender is also male and a male target often feels alone because he is too embarrassed to discuss his problems. As with most female victims, the principle problems for men may be to overcome bewilderment and the immobilizing effect of violent fantasies. They too, need to muster courage and take action.

HOW ARE HARASSMENT COMPLAINTS INVESTIGATED?
Steps involved in an investigation :
The rules of natural justice apply to any case of alleged harassment brought to investigator. When one investigates a complaint (s)he should :
· Ask the parties involved whether they would like the complaint resolved less formally through a third party;
· If this is not an option, advise both parties that investigator himself will conduct an investigation;
· Explain the investigation process. Outline the possible outcomes for both the alleged harasser and the complainant;
· Allow each party representation by the union or some other trusted person;
· Give each party the opportunity to provide evidence;
· Let each party know the initial facts or allegations against them;
· Allow each party to respond to the initial allegations verbally or in writing;
· Inform the alleged harasser of any further facts or allegations against them that have come up in the investigation. He should be sure that each party has had a chance to respond to any facts that investigator intend to rely on. Allow the person to respond to the complainant, verbally or in writing, directly or through the investigator;
· Provide the investigation report to the Deputy Minister or his/her representative. They will then make the decision and provide each party with a written explanation of it. This explanation should include the facts on which the decision is based, the reasons for it, and any action that will follow.

The Consequences of Sexual Harassment at Workplace :
· Harassment is a serious matter. The consequences will depend on the circumstances in each case. The harasser may face a reprimand, a suspension with or without pay, or dismissal in some cases.
· It is also a serious matter to knowingly make a false accusation of harassment. The consequences can similarly range from a reprimand, to suspension without pay, to dismissal.

HR Perspective :
Human Resource professionals recognize the seriousness of this subject. They are often frustrated by the naiveté of the organization regarding the issue. It is a leadership issue for each and every HR professional. This is a time bomb issue that mandates proactive commitment to avoid unnecessary vulnerability to charges; the sooner you take action, the less exposure you will have.
Having a policy in place does not ensure that a charge will never occur. It means that if a charge is brought, one will be prepared and avoid being blind-sided. In fact, in the discrimination arena, sexual harassment is the number one issue. Recent Supreme Court cases have given further guidance in developing appropriate policies and procedures regarding sexual harassment.
How an employee charge is handled is critical not only from a legal exposure perspective but also from employee relations standpoint. The creditability of the process is pivotal to effective employee relationships. Knowing when to involve legal counsel is a function of experience and the expertise of the responsible professional. A rule of thumb is if there is any issue open to question, one should make the call to attorney as soon as possible.
The sexual harassment policy should be set forth in the employee handbook and communicated to all current and new employees to the extent that every employee understands the seriousness of the policy and the consequences of policy misconduct. The HR department should also publish guidelines regarding expected employee behavior. There are sample guidelines given below.
An effective process for implementation is to rent or purchase an instructional video to present to managers and employees explaining the proper conduct and guidelines for sexual harassment policy. Along with this presentation should be a brief explanation of the law from HR perspective and a discussion of the company policy. It is preferable to have small group meetings in order to have meaningful group discussion.
It is important to address the issue of confidentiality. This should not be underrated because often an expedient investigation can resolve a communication problem that wasn’t sexual harassment in the first place. On the other hand, the charge can be very serious and potentially very disruptive to the organization; in that case one would want to discuss the matter with attorney before anything is communicated. The charge could be false and if it is prematurely communicated, an additional liability for the organization could be created. The charge and all facets of it should be kept confidential until directed by legal counsel to do otherwise. Protection of all parties to the charge is imperative.
Another area to look out for is the situation when an employee complains to his or her supervisor and nothing is done. It is either ignored or swept under the rug. This is potentially dangerous because the situation may fester and erupt into a major blowup when it should have been properly handled in the first place. The recommended and prudent way to handle complaints is to have all complaints, regardless of level of seriousness, reported to HR.
The use of appropriate language in the workplace is an another important issue because some or even one employee may be offended by off-color language. There are some work environments where such language is commonplace and the reality that it could be offensive is only made apparent with the issuance of a complaint. This is a leadership issue for management who should be expected to model appropriate language and behavior in the workplace. The overall conduct expectation is to perform all business activities with employees and customers in the most professional manner possible at all times.
Sexual harassment is a basic straightforward compliance issue and the most effective implementation would be top down so all employees know that it is supported at the top. It is also important that employees recognize the seriousness of sexual harassment issues because of the costly and disruptive consequences of such charges.
If one is a small business owner, he should make it perfectly clear to the employees that sexual harassment of any sort will not be tolerated because charges can be filed in almost any business situation. Legal counsel should be sought upon the receipt of a charge to ensure proper handling.
All employees are entitled to work in environment that is free of sexual harassment. Respecting the dignity of the fellow employees is a fundamental principle of successful organizations - large and small.



















No discussion on corporate governance can be complete without addressing the issue of ‘whistle blowing'. With colossal scams like Enron and FBI rocking the western world, today a new breed of employees is being spawned. These are people who often risk their all, by exposing the ‘rich and powerful’ before the public. Such people, if provided with adequate encouragement and support by HR, can become the new salvation ‘mantra’ for the companies of today

What is Whistle-blowing?
This is an act by which an employee in an organisation makes public announcements of incidents of malpractices within the organisation or otherwise perpetrated by the organisation. This usually happens when the person `blowing the whistle' does not get response from within the organisation to check or stop the practices in question. However, in doing so, the whistleblower is at great personal risk of losing his/her job or being punished otherwise by the affected persons in authority.

In the US, the regulators have recognised the great role of whistleblowers in tracking high-profile scandals in large organisations, which would have otherwise not come out. In fact, women employees (Cynthia Cooper – WorldCom, Colin Rowley – FBI, Sherron Watkins – Enron) not highly placed in the organisations stood out in their extraordinary efforts. Naturally, the question of protection of whistleblowers came up at the highest levels among regulators and commensurate provisions have been incorporated in the SOX Act, 2002. However, such laws will be rendered useless if they are followed only in ‘letter’, but not in ‘spirit’.

This is a major issue being debated today - whether the culture of intimidation which has perpetrated the organisations can just be removed by due litigation, or is there a need of something that is more internal to the company.

Whistle Blowing and HR:
Today, there are very few employees who actually come forward to report something amiss. Most would probably look the other way on coming across any malfeasance in the company, while many others – who may be truly concerned and bothered, may turn away fearing ostracization. This is where an HR department of a company can play an invaluable role.

The HR department of a company must take a leadership role in creating an atmosphere that won’t tolerate concealment and distortion of information. It also becomes of primary importance for the department to see to it that any discourtesy to or harassment of whistleblowers is dealt with severely.
This can only be done by establishing a culture where it is possible for employees to complain and protest and be heard. Such complainants must be treated with respect – even gratitude.

For HR, setting up such channels that promote healthy and open communication will involve sorting through a great deal of information. It may mean training managers throughout the organisation to fully understand and encourage candid employee comments. It may also require the department to implement more effective feedback receiving mechanisms – such as conducting anonymous employee surveys and settimg up confidential phone lines.

Such internal surveys may also help HR to find out which managers have a ‘Kill-the-Messenger-Employees’ attitude. It may also enable HR to identify and help some managers to overcome the fear and apprehension of ever being corrected by a junior employee. However, the job of HR is to help make all employees comfortable, and if there are some employees who are unable to conform to the norm, then such people should be removed

What Works, What Doesn’t:

The first task in building an ethics program that helps create a safe environment for whistle blowers is to conduct an organisational assessment to look at existing standards. The areas that should be examined include the level of commitment from a firm’s senior managers, nature of training programs, communication tools such as help lines and the magnitude of company risks in matters ranging from internal harassment to product safety. The aim of the HR department should be to integrate standards and ethical values into everything – hiring, training, firing, compensation, etc.

This task is extremely laborious and HR should see to it that there is constant role modelling by company leaders. Such behaviour can also be transferred into the HR performance process.

However, even though it may be laborious, it does not require the HR department to make it painstaking and boring. If this happens, it will also defeat the entire purpose of the exercise since our aim should be to bring people together.
Renowned international companies such as Sears have already incorporated such programs into their work culture. They have developed programs such as “Who Wants to be an Ethics Leader?”, something on the lines of the hit TV series “Who wants to be a Millionaire?”.
In this way, they are able to disseminate ethics information to their staff members and still have fun in the process.

Whistleblowing in India:
Many Indian companies have installed hotlines, toll-free numbers and other systems in place to facilitate whistleblowing. Not many companies talk about it, but Heinz India, Johnson & Johnson, Xerox, Bayer India and GE have all put in place systems and processes to facilitate whistleblowing. Which means employees can report irregularities using a toll-free number or hotline from any part of the organisation, which will help the board or the HR department take up the matter.

Heinz India has a designated toll-free number for employees to report anything negative or positive that’s going on in the company.

Top executives at Johnson & Johnson were recently charge-sheeted by the CBI for allegedly evading central excise and cheating the public. After that incident J&J has set up a hotline with an external agency to which any employee can call and report any accounting irregularities. All reported cases are evaluated by the Board of Management and appropriate action is taken.

In Bayer India, detection of some severe misuse of control systems has led to an overhaul of systems in India. New CFO Johannes Frick was brought in last November to set up the Bayer Business Services - a portfolio of financial, accounting, audit, IT, human resources, procurement, legal and secretarial services. He has been hired to ensure that in all group companies in India, synergies are leveraged. All accounting is now compiled by Frick to ensure consistency. He’s introduced a monthly disclosure system, increased the capacity of internal auditors and will be present on the board of each of the 12 companies very soon.
Employees uncertain about accounting procedures are encouraged to report the same to the Bayer Businesses group that Frick handles.

In GE, all complaints and concerns are received and processed by the GE Corporate HR Office. Complaints relating to GE’s accounting, internal accounting controls or auditing matters are referred to members of the audit committee while other concerns are referred to the presiding director of the GE board.


Issues:
Many MNCs have been working on putting in preventive systems, controls and checks for a long time. Companies like HLL, Hughes Software and Whirlpool have had elaborate codes of conducts and ethics management policies in place for years. But for the concept to be effective in India, MNCs have to ensure an employee’s self-respect and privacy are protected at all costs.
For example, two years ago, Philips India discontinued a helpline number when CEO K. Ramachandran discovered that the number was never used.

Preserving the identuity of an potential whistle-blower (e.g. a helpline user) can be an uphill task if the HR managers are not trained enough in this area. An employee can be expected to freely express himself only if he does not fear the consequences, and this will be possible only when he is assured that the matter will be dealt with extremely judiciously.
Some suggestions that may help to achieve this is by allowing users of services such as phonelines to call anonymously. This should then be backed up by discreet investigation in such a manner that only those who need to know will learn about what’s going on. Even the employee’s manager would not necessarily need to know about the problem.
As a result of this discreet investigation, there would be no retaliation and both parties – the accused and the victim – would be protected.
s
Another suggestion to handle such people problems could be to employ external agencies to conduct such complaint channels.
For example, Pricewaterhouse Coopers is offering a hotline service that it runs as a third party. Companies can subscribe to this service and offer employees an avenue to vent their complaints. PwC already has 20 clients for this service — a majority of which signed up this year itself.

Thus, the main issue for the company employing such measures is to employ a highly responsible HR department because extreme care is required when dealing with people’s careers and reputations.


Corporation, Consciousness and Conscience
Corporate literally means to form into a body; it is an association of people endowed with laws of rights and duties; hence, a moral person in a society and is held responsible for all its acts. We also speak of the will of the people in the society or in associations which is personified into a universally accepted principle: Vox populi, vox Dei – Voice or will of the people tantamounts to the will of God, implying in our context the collective will of the people is identical to the edict of the collective conscience.
Just as a person perceives with all his senses and is able to make healthy judgments, so too a corporate is conscious about its surroundings and acts accordingly. It is aware of the employees, their competencies, the quality of its products, the modes of marketing and sales. The people outside the corporation see it as an entity that behaves in a particular manner and the people make their own judgments about its character. Thus for instance, ‘Enron is crooked’ – it dupes people, ‘Infosys is a good company’ – one may invest in it safely, ‘Tatas are reliable’ – the products are unfailing, ‘Maruti is value for money’ – people can afford to buy their goods. Such value judgments can be made only of the conscious entities.
The Real World

The Financial Times of April 20, 2002 had this title for its editorial: "Corporate Social Responsibility - CII and FICCI1 must speak out on Gujarat". This alleged silence corroborated the general belief that corporations care more about profits than people. The editorial noted that although on personal score the tycoons of the industry were perturbed, yet they did not want to make their feelings public. Obviously they did not want to displease their political bosses with whom they dine and wine, and do business. The paper was concerned: "After all, business has been hurt badly in Gujarat. Not only has it been directly hurt by the targeted destruction of shops, factories and work premises, but also by the reckless looting of shops and the prolonged imposition of curfew thereafter in many parts. Political parties have protested, the media has made its mind known; non-governmental organizations have been pro-active. Surely it is time for the corporate sector to do its bit too." And finally, when fingers were pointed at the industry, and thousands of crores of business was lost, they took a swipe at Narendra Modi, only to rush by the next plane to Gandhinagar and bend backwards to please a man who, the world accused, let loose the pogrom. The Gujarat carnage and the dereliction of the corporate social responsibility by the industry amply exhibited the Indian Corporates lacked a conscience.
In the history of corporate negligence and loss of conscience there was another instance of unparalleled proportions, the Union Carbide that caused the Bhopal gas tragedy termed as ‘The Chemical Hiroshima’ that killed over 10,000 people overnight, which is still festering and even after nearly two decades tens of thousands of people are suffering to the extent that even the mothers’ breast milk contains toxins. The Bhopal gas tragedy is a monument of discredit to a corporate with decrepit and deplorable conscience.
The Gujarat carnage and Bhopal gas tragedy with all their ignominies show us the loss of simple values in life irrespective of creed and race, such as respect for the living, dignity of humans, care of property, truthfulness and generosity. It is not just this noticeable satanic picture of Gujarat that is frightening, but the reality that there are such little Gujarats sticking out from a large number of people, associations, workplaces, industry and even educational institutions.
It is a shame when each and every corporate house in India wastes reams of paper and thousands of web pages on mission statements and adherence to high values, gender equality, empowerment, dignity of labour, high standards of quality but cannot listen to its own inner voice to raise the voice against injustice done to the people, the very same people who are the stakeholders whether as employees, investors or customers at large. It is a shame, a great shame, that our executives who are being churned out from the reputed Business Schools lose the voice of their conscience as money starts to jingle in their pockets and they are in competition to climb the corporate ladder in quick time.
Corporate Governance with Conscience
One of the concrete consequences of governing with conscience is to possess corporate social responsibility (CSR). In a recession-ridden economy, globalization, competition, challenging corporate governance reforms, pressures of performance et al, CSR is the last thing on the board of directors' agenda. But Rajat Gupta the Managing Director of MacKinsey & Company and Paul Coombes the Director of Corporate Governance Practice at the same agency, think otherwise. In their combined research work, "Accentuating the Positive"5 they call for a change in corporate priorities: "Corporate social responsibility should not be simply a reactive affair. Companies should become more proactive engaging NGOs and other organizations in full debate and promote the positive aspects of their agendas." In their research they account for five major developments in favor of CSR:
1. Globalization whose consequences in view of the estimated power and reach of the MNCs are immense.
2. Failures of the governments to respond to the challenges of their models, supervise the growing corporate power and check environmental issues.
3. End of the non-market economies and generation of "failed states".
4. The growth of the power of NGOs and pressure groups.
5. The power of communication and provision of instant information through Internet.
What these researchers try to establish here is that the classical corporate responsibility fulfilled through philanthropy on the lines of the Cadburys, Fords, Rockefellers, Tatas and Wipros and Infosys is not enough. Dolling out largesse is no more impressive; the priorities in the global atmosphere have changed to human rights, labor practices, and environment. MNCs that thrived on brandishing their brands have to think twice since the global activists have started anti-branding campaigns and have made the global corporations extremely vulnerable. In fact philanthropy performed with best of intentions can be misunderstood as brand campaigning.
The Seven Levels of Corporate Consciousness
Corporate cultures grow and develop in the same way as individual personalities – by successfully mastering the beliefs associated with each of the seven levels of corporate consciousness. The most successful organizations are those that develop full-spectrum consciousness. They are able to respond appropriately to all of the corporation’s challenges. The seven stages in the development of corporate consciousness are shown below.

Corporations learn to master stage 1 by developing skills and abilities to ensure the maintenance of profitability and shareholder value. They also need to develop the skills necessary to ensure employee health and safety.
Corporations learn to master stage 2 by developing skills and abilities to create harmonious internal relationships that give employees a sense of belonging and strong relationships between employees and customers.
Corporations learn to master stage 3 by developing the structures, systems and processes that bring order and efficiency to the organization.
Corporations learn to master stage 4 by balancing the external needs of the corporation with the needs of employees.
Corporations learn to master stage 5 by aligning the individual motivations of all employees with the overall vision of the corporation. The result is internal cohesion.
Corporations learn to master stage 6 by a) supporting and deepening the internal connectedness of employees so they can find fulfillment in their work, and b) building the external connectedness of the corporation through strategic alliances or coalitions with other like-minded corporations to actualize their shared visions.
Corporations learn to master stage 7 by a) continuing to deepen the internal connectedness of their employees through ethics and codes of conduct, and b) by expanding the sense of external connectedness of the corporation to include all humanity and the planet. The focus of the seventh stage is social responsibility and service to the world.
The levels of consciousness that a corporation operates from, are a direct reflection of the levels of consciousness of the leader and the decision-making authority of the corporation and the legacy of past leaders and decision-making authorities.
When the motivations of the leader or decision-making authority conflict with the needs of group members, the decision-making authority of the group must decide which takes precedence. The process of learning how to balance the self-interest of the organization as defined by the leader or decision-making authority with the collective interest of employees is called cultural transformation.
Cultural transformation is never a singular event. It is an ongoing series of encounters between balancing the needs of the corporation and the needs of employees. When the consciousness of the corporation (decision-making authority) is out of alignment with the consciousness of employees, corporations find it difficult to attract and retain talented employees.
Corporations work best when all employees share a common vision of the future and operate on the basis of a shared set of beliefs and values. In other words, corporate cultures are more cohesive when there is match between the personal values of employees and the values of the corporation.
In general corporations are relatively good at developing the level 1, 2 and 3 skills. For longevity they need to develop their level 4 skills. To become a market leader they need to develop their level 5 skills. To maintain their position as a market leader and protect themselves from potential shocks they need to develop their level 6 skills. To guarantee their future relevance in the eyes of society they need to develop their level 7 skills.

The HR perspective – Volunteer Programs:

The values that corporations stand for are increasingly affecting their ability to hire the best people, and sell their products. There is an awakening awareness that there is a causal link between the rapidly escalating environmental and social issues and the philosophy of business. Governments and communities are recognizing that the pursuit of self-interest is not only destroying the planet's life support systems, but also the social fabric of society. The era of corporate autocracy is coming to an end. There is too much at stake for it to be otherwise.
Successful business leaders in the 21st century will need to find a dynamic balance between the interests of the corporation, the interest of the workers, and the interests of society as a whole. To achieve this goal they will need to take account of the shift in values that is taking place in society, and the growing demand for people to find meaning and purpose in their work.
Once the corporate becomes more conscious of its responsibilities it will involve its employees more and more in handling these responsibilities. When employees are involved in something more than earning a high net profit, it adds value to the work they do. This would obviously lead to higher satisfaction & motivational levels.

A lot of companies are now looking to involve their employees in volunteer programs as part of their corporate social responsibility. This gives the employees the opportunity to do community service in the form they want to as long as its feasible for the corporate and it is in line with the corporates aims.

Volunteer programs can fulfil HR goals of recruitment, retention, team building and leadership growth. What’s more, such programs thrive even in a down economy. In todays tough economic times and the recent past, companies with corporate volunteerism programs have not only retained soft HR programs, believing them to have strategic HR benefits, they have actually enhanced these programs.

Any kind of community service can be done as part of volunteer programs. From tree plantation to building playgrounds, raising funds to tutoring students to helping out at a nursing home

Sure, its good for those on the receiving end, but its also good for the company – certainly in terms of image and reputation – and it’s a benefit that will be offered regardless of the financial position of the company and the country’s economy. Corporate volunteerism programs are usually more a matter of philosophy than money. Its not so much whether the company is good or bad, its that some people believe in the value of such programs and some don’t – and the direction a company takes in terms of volunteerism will follow the beliefs of the owners.

Its not just for humanitarian reasons that companies enter into these programs, the service program also fulfils strategic HR goals: Recruitment, retention, team building and leadership growth. It is one in a series of HR strategies that results in having more people apply and also resulting in lower turnover rate and a more productive workforce.

Volunteerism programs are a win-win situation. Employees are happy because they are given the opportunity to make a contribution to the community and thus, they become more productive because they feel good about themselves. At the same time the company becomes more successful because it reaps the rewards of both more productive employees and the goodwill created in the community.

Companies need to approach such endeavours as business decisions, however, not as charity. In other words there should be a rationale for what types of volunteerism the company will support – something related either to the work the company does or the interests and skills of the employee base, rather than reacting to the first opportunity that comes along. Companies should survey their employees about their current activities and interests – and structure a volunteerism program around those rather than dictating a corporate chosen charity. Companies can also consider inviting retirees to get involved.

Many companies jump into a corporate volunteerism program in a reactive instead of proactive way. It’s important to designate a program manager who is responsible for receiving information from outside non-profit agencies; co-ordinating employee communication and recording volunteer time – even if the company only offers flex time, as opposed to paid time off, for such activities.





































Thinking ethically
Moral issues have always put us in a state of dilemma. Dealing with moral decisions can sometimes create controversies, if facts are not cross-checked.
. This part of the project report deals with the most basic factor underlying a concept like corporate governance and that concept is the issue of ethics. Almost all corporate governance boils down to ethics.
Moral issues bombard us everyday from newspapers to corporate memos to cricket and so on and so forth. We question the morality of our foreign policy, the morality of technological issues, the morality of medical testing, and the rights of the homeless.
Dealing with moral issues raises two rather deceptively simplistic questions.
1. What questions should we ask?
2. What factors should we consider?

The first step in moral decision making is to get the facts right, which is more often than not easier, said than done. Facts however tell us only what is and not what ought to be. In addition to getting the facts right resolving an ethical issue requires an appeal to values. Philosophers have recommended five different approaches to values to deal with moral issues.
The utilitarian approach
Utilitarianism was conceived in the 19th century by Jeremy Bentham and John Stuart Mill, to help legislators determine which laws are morally best. Both Bentham and Mill suggested that ethical actions are those that provide the balance of good over evil. To analyze an issue using the utilitarian approach, we first identify the various courses of action available to us. Second we ask who will be affected by each action and what benefits or harms will come to each of them. And third we chose the action that will produce the greatest benefit for them and of course the least harm. The ethical action is the one that provides the greatest good to the greatest number.

THE RIGHTS APPROACH.
The second approach to ethics has its roots in the philosophy of the 18th century thinker Immanuel Kant and others like him who focused on the individuals right to choose for himself. According to them what makes human philosophers different from mere things is that people have dignity based on their ability to chose freely what they will do with their lives and they have a fundamental moral right to have these choices respected. People are not objects to be manipulated it is a violation of human dignity to use people in ways they do not freely choose.
Of course many different but related rights exist besides this basic one. The other important rights are
1. The right to the truth
2. The right of privacy
3. The right not to be injured
4. The right to what is agreed.
In deciding whether this issue is moral or immoral we must ask ourselves “ does this action respect the moral rights of each and every one concerned. Actions are wrong to the extent that the disrespect any of the fundamental rights of individuals the more serious the violation the more wrongful the action.

The justice appraoach
The fairness or justice approach to ethics has its roots in the teachings of Aristotle who said that equals should be treated equally and unequals should be treated unequally. The basic question in this appraoch is “How fair is the action?”, Does it treat everyone the same way or does it show favoritism and discrimination?”
Favortism gives benefits to some people without a justifiable reason to single them out, discrimination imposes burdens on people who are no different fromthose on whom on burdens are not imposed. Both favoritism and discrimination are unjust and wrong.

The common good approach
This approach to ethics whose own good is inextricably linked to the good of the community who are bound by common goals and values. The commmon good is anotion that originated 200 years ago in the works of Plato and Aristotle. It can be defines as certain general conditions that can work equally to everyone’s advantage. In this approach we focus on ensuring that the social policies social systems institutions and environments are beneficial to all. Appeals to the common good and urges us to view ourselves as members of the same community reflecting on broad questions concerning the kind of society we are a part of.

The Virtue Approach.
The virtue approach assumes that there are certain values to which everyone of us subscribes to and strives to achieve and which will result in full development of humanity. These ideals are discovered through thoughtful reflection. Virtues are attitudes or character traits that enable us to be and act in ways that develop our highest potential. They enable us to pursue the idelas we have developed.

Ethical Problem Solving.
The following questions need to be answered.
1. What benefit ands harm will each course of action produce?
2. What moral rights do the affected parties have?
3. Which course of action treats everyone the same except where there is a morally justifiable reason not to?
4. Which course of action leads to the common good?
5. Which course of action develops moral virtues?