Concepts Of Effective Communication Management Essay

Concepts Of Effective Communication Management Essay Chapter 2 LITERATURE REVIEW In the literature review section, the opening part will be about the concepts of communication and effective communication in an organisation along with a brief overview about the principles of effective communication. Next are the models of communication which will be elaborated with the help of various authors and from academic journals. Following that, the main theories of the types of communication, communication channels and communications systems will be discussed and compared with reference to the local authority. Furthermore, the purpose of communication in an organisation will be disseminated. In addition, the benefits of effective communication will be discussed along with the different costs encountered in communicating through the different levels. The literature review will help to formulate the research questions as well as to establish a relevant methodology to carry out the research. 2.1 Definition of Communication Work needs communication. Communication in every organisation is the way people get their work done and get recognised for their contributions. As such, people at BRDC will communicate to plan services, coordinate manufacturing and delivery, hire, train, motivate employees and so on. According to Tyson and Jackson (1997), The problem is in the definition of the word communication. It covers a great deal and includes not only the actual words used, but, also, the tone of voice, pitch situation in which it takes place and so on. Despites these difficulties, some ideas that convey a fairly good picture of what communication is all about are proposed by different authors. Communication is a process in which people who occupy differing environments exchange messages in a specific context via one or more channels and often respond to each others messages through verbal and nonverbal feedback. (Alder, R.B., Elmhorst, J.M., 1996) Similarly, Baskin and Aronoff (1980) have defined communication as the exchange of messages between people to achieve shared meanings. According to Carell et al, (1995), Communication is the glue that binds various elements, coordinates activities, allows people to work together and produces results. Cole (1993), on the other hand, defines communication as the process of creating, transmitting and interpreting ideas, facts, opinions and feelings. It is a process that is essentially a sharing one an interchange between two or more persons. As defined by the authors, by using different means of communication, information and meaning can be transferred between senders and receivers. Communication in organisation is therefore a study of the exchange of words and meanings as the people within and outside these establishments work towards achieving organisational objectives. 2.2 Effective Communication According to Roberts, J. (2009), effective communication is the passing of the right message or information to the right person, in the right way, at the right time, and with the right effect, impact and outcome. Effective communication is a two-way process sending the right message, which is also being correctly received and understood by the other person/s. Effective communication is the key factor to successful management. The principles of effective communication can be reviewed using two approaches namely, the ABC approach and the Seven Cs. 2.2.1 The ABC approach Accuracy This implies that the information conveyed must be as accurate as possible since people can interpret it in different ways. It is important to set communication in some form to allow for variations of information. However, being accurate is not always easy and recipient needs to be aware of its limitations. Brevity This means being concise and therefore the message can be identified and understood. This helps the recipient as arguments do not get lost in a clutter of unnecessary words. However, one must stick to the point as wander off in other areas may cause confusion. Clarity This is achieved through the use of the right language. The audience needs to be considered carefully. Locker, O.K and Kaczmarek, S.K (2007), believes that audiences pay attention to messages only if they seem important, relevant and interesting. However, this includes what language, explanations and examples will make sense to the audience. 2.2.2 The Seven Cs Clear Meaningful language is needed to avoid ambiguity and the messages must be communicated in a way which can be easily understood by the audience. Therefore, words and phrases need to be chosen with care. Concise Brevity, compatible with the complexity of the information to be conveyed and the necessary style and tone, is of the essence. Messages should be free from all elaboration and superfluous detail. Correct The information has to be correct. However, staff at BRDC should check for errors, especially in figures, names and addresses. Courteous In any form of communication, it pays to consider it as a personal address to the recipients. Employees should be polite and use friendly language rather than formal officialese which is a barrier to communication. Complete The communication should fully convey the message, leaving as far as possible nothing out. Audience will be aware that they have everything they need. Consistent The flow of language is considerably helped by consistency of use, such as standardising the person and tense, and sticking to a particular style and tone throughout. Convincing Employees should show confidence and commitment in what they communicate, even though there may be times when they do not actually feel them in what they do at work. The Seven Cs considers a wider range of points and is more developed than the ABC approach. 2.3 Communication Theory Framework 1 Mechanistic communication is simply the transmission of information from the first party to the second party. The first party being the sender and the second party being the receiver. Psychological communication is actually the thoughts, feelings of the sender which he tries to share with the recepients. It also includes the reactions, feelings of the receiver after he decodes the information. Social communication is considered as a result of interaction between the sender and the receiver. Communication is directly dependent on the content of the speech. Systemic Communication is actually a new and a different message which is created when various individuals interpret it in their own way and then reinterpret it and draw their own conclusion. Critical Communication is simply a way with the help of which an individual expresses his power and authority among other individuals. To sum up the communication theory suggests that to survive, every living entity, needs to communicate with others and also among themselves. 1 http://www.managementstudyguide.com/communication-theory.htm 2.4 Communication Models There are five most recognised and accepted models of communication. 2.4.1 Aristoles Model of communication Aristotle was the first to take an initiative and design the communication model. Figure 1 Source: Scribd.com models-of-communication According to this model, the speaker plays a key role in communication. The sender first prepares content where he put his thoughts in words with a view to influence the recipients, who would then respond in the senders desired way. The model demonstrates that the speaker communicates in such a way that the listeners get influenced and respond accordingly. 2.4.2 Shannon-Weaver Mathematical Model Shannon designed the most popular of all early communication models. He wanted to guide the efforts of engineers in finding an economical way of transmitting electrical signals between locations. http://www.shkaminski.com/Classes/images/Shannon-Weaver%20Model.gif Figure 2 Source: The Mathematical Theory of Communication (Shannon, C. and Weaver, W., 1949) Compared to the Aristotles model, the Shannon-Weaver model is a common communication model used. It is seen as a resemblance of the human communication process. However, it is not analogous to human communication. Mortensen, C.D (1972), believes that the model is only formal, that is, does not account for content. Moreover, he is of the opinion that the Shannon-Weaver communications system is static and also linear. It conceives of a linear and literal transmission of information between locations. 2.4.3 Berlos Model of communication While the Aristotle model of communication puts the speaker in the central position, the Berlos model of communication takes into consideration the emotional aspect of the message. It is an adaptation of the Shannon-Weaver model. Berlos model of communication operates on the SMCR model. In the SMCR model S Source M Message C Channel R Receiver Berlos model of communication Figure 3 Source: The Process of Communication (Berlo, D.K, 1960) This model shows that source is flexible as it includes oral, written, electronic and any other forms of communication. Message was made the central element. Furthermore, it stress that receivers are the targets. The encoding and decoding notion translate thoughts into words and decrypt words of others into terms one can understand. However, it implies that human communication and machine communication are similar and there is manipulation of the message. People misunderstand each other even with the right symbols. With reference to the berlos model of communication, the speaker and the listener must be on a common ground for smooth conversion but this is sometimes not practical in the reality. 2.4.4 Schramms Interactive Model Wilbur Schramm (1954) was the first to modify the mathematical model of Shannon and Weaver. He emphasises that communication is incomplete until the sender receives a feedback from the recipient. Schramm believed that communication is actually a two way process between the first party and the second party. mhtml:file://F:VANDANAHcommunicationsCommunication%20Models.mht!http://www.shkaminski.com/Classes/images/Schramms%20Model%202.gif Figure 4 Source: The Process and Effects of Communication (Schramm, W., 1954) Schramm provided additional notion of a field of experience. It includes feedback, context, culture and so on. However, this model accounts for only mutal communication between two parties. This model does not account for multiple levels of communication between several sources. According to Schramm model of communication when a sender passes on the information to the receiver, the latter must interpret it in the desired form and give him the feedback or respond accordingly. The communication is not complete and thus ineffective if the sender does not get the feedback. 2.4.5 Dances Helical Spiral Another important model of communication is the Helical Model of communication which was proposed by Frank Dance in 1967 to throw some more light on communication process. This model understands communication in a birds eye perspective and considers almost all the activities of an individual. mhtml:file://F:VANDANAHcommunicationsCommunication%20Models.mht!http://www.shkaminski.com/Classes/images/Helical%20Model.gif Figure 5 Source: www.shkaminski.com- communication model Mortensen: As a heuristic device, the helix is interesting not so much for what it says as for what it permits to be said. Chapanis (1961), on the other hand, called sophisticated play: The helix signals that communication is continuous unrepeatable, additive, and accumulative. In short, the helix emphasises the integrated aspects of human communication as an evolving process. However, helical model of communication may not be a model at all as there are too few variables. The model leaves unanswered questions. 2.4.6 Westley and MacLeans Conceptual Model Unlike Frank Dance, Westley and MacLean believed that communication does not start from day one but begins when the speaker receives signals from his external surroundings. This model pertains to a strong relation between the signals from the surroundings and the communication process. The process of communication begins with receiving messages rather than sending messages. Events may sometimes unintentionally occur and signals is received accidentally. (Receives message)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Environment-Sender-then sends message (Communication starts)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Figure 6 Source: www.managementstudyguide.com/westley-maclean-model-of-communication The model accounts for feedback, a sensory field, non-binary interactions and different modes. Westley and MacLeans model describes more variables in the communication interaction. However, it is still two-dimensional. It can therefore be concluded that the six models of communication are all initiatives by great scholars to simplify and help in better understanding of the communication process. 2.5 Types of Communications No one would talk much in society if they knew how often they misunderstood others. Johann Wolfgang Von Goethe. Organisations have recourse to two types of communication namely, Verbal Non-verbal communication. 2.5.1 Verbal Communication Anderson, H. et al (2004) states verbal communication implies that information has been transmitted through speech. In verbal communication words are involved. According to Boolaky, M. and Gokhool, D., (2006) verbal communication is further divided into: Oral Communication Written Communication Oral Communication In the communication process, oral communication refers to spoken words. It can either be a conversation over the phone or face-to-face communication or on the voice chat on the Internet. At the BRDC, oral communication is vital as it is easier to get feedback by observing facial expressions and asking questions and provides more opportunity to get attention and keeping interest. However, Desmonds W. Evans (1990) argued that Oral communication is volatile, that is, major decisions cannot be recorded and thus cannot be saved for future reference. Written Communication In contrary, written communication can be either via emails, letters, faxes, reports, memos and so on. The advantages are that highly technical topics can be presented using words and diagrams and provides a permanent record that can be referred to from time to time or passed on to others. However, Kushal, S.J and Ahuja, S., (2010) argues that written communication is unfit for uneducated person, it is a wastage of time, delays feedback and no clue about real intentions and emotions. They further discuss that to ensure effectiveness of written communication, it should be short and simple, complete, avoid jargons and so on. 2.5.2 Non Verbal Communication Actions speak louder than words. Kaye, M. (1994) Fromkin and Rodman (1983) suggest that up to 90 per cent of the communication process takes place non-verbally. Courtland, L.B, et al (2010) defined non-verbal communication as the interpersonal process of sending and receiving information, both intentionally and unintentionally, without using written or verbal message. He further stress that non-verbal communication is vital as it helps to strengthen a verbal message. In contrast to verbal communication, non- verbal communication includes overall body language of the person who is speaking, which will include the body posture, the hand gestures, and overall body movements. It can also be in the form of pictorial representations, signboards, or even photographs, sketches and paintings. Kushal, S.J and Ahuja, S., (2010) states that non-verbal communication are reliable, efficient, helps establish credibility and leadership potential, accurate understanding of attitudes. However, they argues that there is lack of secrecy, useful for small pieces of information, gestures can be misunderstood, it is necessary for both parties to face each other, lack of written proof, more difficult to study and fails to discuss past events and ideas. Verbal and Non- verbal communication are important in an organization. BRDC must ensure the effectiveness of the types of communication as there are both advantages and drawbacks. 2.6 Communication Channels Communication is now done through variety of channels ranging from nonverbal signals to very sophisticated communication media and technology. The communication that takes place in the organisation can be categorised as formal and informal. Formal communication can take place in two ways: Vertical Horizontal 2.6.1 Vertical Communication It moves between individuals at different levels in an organisation (Taylor, 2005). Vertical communication in classical management hierarchy can be: Upward Downward Upward Communication It refers to information flow from the lower levels of a hierarchy to the upper levels. Employees use this channel to communicate suggestions, grievances and progress of work (Boolaky and Gokhool, 2006). In addition, Courtland, L.B, et al (2010) pointed that executives can solve problems and make intelligent decisions. It is good to taking feedback on policies and takes corrective action. However, it does not transfer realistic message. Downward Communication Information flows from a higher level to a lower level in a hierarchy. Management uses this channel to inform employees about policies, plans, job instructions and feedback (Boolaky Gokhool, 2006). The advantages of downward communication are that it is appropriate for giving instructions and ensures that everyone is working towards goals and objectives. On the other side of the coin, information can be distorted as it goes down and there is lack of openness between managers and employees 2.6.2 Horizontal Communication Horizontal communication is both task related and informal and occurs between people on equal footing in the hierarchy (Postmes, 2003). Further, Taylor, S. (2005) stress the need of employees to corporate and share. It can take various forms like meetings, face to face exchange, group discussions and telephone conversations. Its objectives are coordination, cooperation and integration. Informal communication as defined by Courtland, L.B, et al (2010) is referred to as the grapevine that encompasses all communication that takes place outside the formal network. Similarly, in the words of Thill and Bovee, The informal communication network carries information along the organisations unofficial lines of activity and power. Kushal, S.J and Ahuja, S., (2010) proposes some advantages of formal communication such as it is dynamic, speedy communication as no formal line of communication exist, multi-dimension as topic of communication varies and it is supplementary to formal channels. The authors however debated that informal communication results in distortion of communication as it carries half-truths and rumours. There is also the existence of erratic message. It can be deduced that the channels of communication in an organization will depends on the structure of the organization. 2.7 Communication Systems Communication systems can be divided into those using an intranet, those using the written word such as newsletters, circulars, and notice-boards, memo, fax, and those using oral methods such as meetings, briefing groups and, telephone amongst others. (Armstrong, 2006) Communications through an intranet system Organisations are increasingly relying on an internal e-mail system (the intranet) to communicate information, especially in workplaces where all or most of the employees have direct or indirect access to a computer. The advantage of intranet communications is that they can be transmitted swiftly to a wide audience and thus saves a lot of time. Fax messages Similarly to the intranet system, a fax machine is relatively inexpensive. Fax transmits and receives any kind of message- handwritten, printed, diagrams, photographs. It takes only seconds to transmit a fax message, depending on the length of the document. Due to its versatility and speed, it is often used between divisions or branches of the same company instead of telephone or memos. Circular letters A Circular letter is one that is sent out to many people at the same time. The letter may be prepared once and then duplicated. It is sent for the following reasons: Inform staff of new policy matters Announce opening of a new office/branch Notice-boards Notice-boards are used to bring special items to the attention of all staff. It is an obvious but frequently misused medium for communications. The biggest danger is allowing boards to be cluttered up with uninteresting or out-of-date material. Its advantage is that a written record of the message is kept. Memos It is a written communication from one person to another or a group of people within the same organization. Its purpose is to remind someone of action required, request decisions actions and provide information of any kind. Telephone Telephones are a point-to-point communication system whose most basic function is to allow two people separated by large distances to talk to one another. In any organisation the person on the phone represents the company and gives an impression of the company to the outside world. Meetings Meetings enable face to face contact of a number of people at the same time. They provide a useful opportunity for sharing information, making suggestions and proposals, taking decision and obtaining instant feedback. 2.8 Purposes of Communication The main purposes of communication in organisation are as follows: Organisational Communication Express feelings and emotions Achieve coordinated action Share information Organisation goals Task directive Results of efforts Decision making Source: adapted from Moorhead and Griffin (1992) 2.9 Benefits of Effective Communication Taylor (2005) argues that if organisations want to be successful in todays world, good communication at all levels is essential. The benefits that can be achieved are: Stronger decision-making and problem solving Upturn in productivity Convincing and compelling corporate materials Clearer, more streamlined workflow Enhanced professional image Sound business relationships Successful response ensured In addition, Courtland, L.B, et al (2010) found that effective communication strengthens the connection between a company and all those groups affected in some way by the companys actions. 2.10 Barriers to effective communication Maini Morrel-Samuels (2006, p.38) establish that most large organizations are plagued by serious communication problem, the difficulties are especially prominent in large organisations where precise collaboration is critical. Robbins (1998) identifies the following barriers to effective communication: Filtering, selective perception, defensiveness and language. Filtering Filtering refers to sender manipulating information so that the receiver will see it more favourably. Filtering also takes place between the supervisor and the manager, and in fact, from one level to the next. Selective perception Selective perception takes place when the receivers in the communication process selectively see and hear based on their needs, motivation, experience, background, and other personal characteristics. Receivers of information also associate their interests and expectations into communication as they decode them. Defensiveness Defensiveness occurs when people try to defend their position because of certain threats. They have a tendency to engage in such behaviours as verbally attacking others, making sarcastic remarks, being overly judgmental, and questioning others motives. Therefore, when individuals interpret anothers message as threatening they often respond in ways that blur effective communication. Language Words and term means different thing to different people. Age, education and cultural background are three of the more obvious variables that influence the language a person uses and the definition he or she gives to words. In an organisation, employees usually come from different backgrounds and therefore have different patterns of speech. In addition to Robbins, Taylor (2005) suggests the following barriers to communication: Emotional responses Communication cannot succeed if a person is highly emotional about the topic concerned. Problems may arise from insecurity, fear, anger. If emotions are high on the part of the sender or recipient, then it would be better to wait for a while before trying to put the message. Systems In any organizations there should be prescribed procedures for getting messages to the people who need them. Without such systems there can be no effective communication. Courtland, L.B, et al (2010), on the other hand, point out the following: Competing messages One must compete with other messages that are trying to reach the audience at the same time. It is essential to come up with messages that the audience will care about as any messages that are more compelling can pull the audiences attention away. 2.11 Trends in communication Todays world has developed rapidly from an industrial age to an information age. Owing to technological advancement, methods of working and composition of groups are affected. In the words of Courtland, L.B, et al (2010), todays business rely heavily on technology to facilitate the communication process. However, they argued that the benefits of technology are not automatic. Inappropriate used technology can hinder communication. Traditionally, communications in business were hierarchical with messages being passed up and down the chain, often with secretaries acting as a filter between managers and staff (Taylor, 2005). Network has now replaced the hierarchical model with email, every member of staff is able to communicate directly with everyone else. Information can therefore be distributed more efficiently around the organisation. It can be deduced that changes in organisational forms have made communication increasingly important to overall functioning of the organisation. However, technology is not a replacement but only a tool to help communication to take place effectively. 2.12 Ethical Communication According to Werner David Management is in essence the act of communication, for management processes are linked to the receipt of information and its valid interpretation which results in effective decision making. A perception of ethical foundation is essential for those employed in communication. A variety of theories exist that link organisation communication with its ethical underpinning. Courtland, L.B, et al (2010) is of the opinion that to ensure ethical communication, three elements are required namely, ethical company leadership, ethical individuals and policies and structures to support employees to make ethical choices. Moreover, they pointed out that these three elements need to work in harmony. The authors further argued that unethical communication can manipulate audiences in ways such as plagiarism, omitting essential information, selective misquoting, misrepresenting numbers, distorting visuals, failing to respect privacy. Ethical communication is true in every sense. Many organisation establish ethics policy by providing a written code of ethics to help employees determine what is acceptable. For example, at BRDC, employers establish clear ethical guidelines and detailed code of conduct addressing areas like health and safety, protection of the organisations assets and information, conflicts of interest and so on. 2.13 Contemporary issue in communication 2.13.1 Cross-Cultural communication Courtland, L.B, et al (2010) defined cross-cultural communication as the process of sending and receiving messages between people whose cultural backgrounds could lead them to interpret verbal and non-verbal signs differently. Munter (1993) come forward with the difficulties in cross-cultural communication like barriers caused by semanties, connotations, tone differences, differences among perceptions. Adler (1991), on the other hand, as reported by Robbins (1998), provides the following recommendations; assume differences until similarity proven, emphasis description rather than interpretation, practice empathy and treat interpretation as a working hypothesis. In every organisation, culture influences the sending and receiving of messages. Therefore, to communicate effectively, BRDC need to grasp cultural differences and handle them to open up opportunities throughout the world. Moreover, BDRC will be able to maximize the contributions of staff in a diverse workforce.

Clause 49 – Listing Agreement

CORPORATE WORLD Clause 49 of Listing Agreement on Corporate Governance —Dilip Kumar Sen SEBI has revised Clause 49 of the Listing Agreement pertaining to corporate governance vide circular dated October 29, 2004, which supersedes all other earlier circulars issued by SEBI on this subject. The article highlights important changes in the corporate governance norms. C lause 49 of the Listing Agreement, which deals with Corporate Governance norms that a listed entity should follow, was first introduced in the financial year 2000-01 based on recommendations of Kumar Mangalam Birla committee.After these recommendations were in place for about two years, SEBI, in order to evaluate the adequacy of the existing practices and to further improve the existing practices set up a committee under the Chairmanship of Mr Narayana Murthy during 2002-03. The Murthy committee, after holding three meetings, had submitted the draft recommendations on corporate governance norms. After deliberations, SEBI accepted the recommendations in August 2003 and asked the Stock Exchanges to revise Clause 49 of the Listing recommendations and the same was put up on SEBI website on 15th December 2003 for public comments.It was only on 29th October 2004 that SEBI finally announced revised Clause 49, which will have to be implemented by the end of financial year 2004-05. These revised recommendations have also considerably diluted the original Murthy Committee recommendations. Areas where major changes were made include: ? Independence of Directors ? Whistle Blower policy ? Performance evaluation of nonexecutive directors ? Mandatory training of non-executive directors, etc. The changes in corporate governance norm as prescribed in the revised Clause 49 are as follows: A. Composition of BoardThe revised clause prescribes six tests, which a non-executive director needs to pass to qualify as an Independent Director. The existing requirement is that to qualify as an Independent Director, the di rector should not have, apart from receiving director’s remuneration, any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgment of the Board may affect independence of judgment of the director. This requirement finds place in the revised clause also Agreement based on Murthy committee recommendations.This led to widespread protests and representations from the Industry thereby forcing the Murthy committee to meet again to consider the objections. The committee, thereafter, considerably revised the earlier The author is Vice President, Tata Tea Ltd. He can be reached at dilip. [email  protected] co. in THE CHARTERED ACCOUNTANT 806 DECEMBER 2004 CORPORATE WORLD except that the relationship will now extend to its management, its holding company and its associates in addition to the existing list. Further the Board is no longer required to judge the independence status of a director as at present.Five new clauses have been added to determine independence of a director. These are: (i) He is not related to promoters or persons occupying management positions at the board level or at one level below the board; (ii) He has not been an executive of the company in the preceding three financial years; (iii) He is not a partner or an executive or was not partner or an executive during the preceding three years of (a) the statutory audit firm or the internal audit firm that is associated with the company; and (b) the legal and consulting firms that have a material association with the company. iv) He is not a material supplier, service provider or customer or a lessor or lessee of the company, and (v) He is not a substantial shareholder of the company owning two percent or more of the block of voting shares. The new tests of ‘independence’, the readers would recall, were mostly included in the Companies (Amendment) Bill, 2003. The important and practical change t hat has now been made is addition of the word ‘material’ in item (iv) above. Without use of the word ‘material’, technically even a single supply or purchase by the director to or from the company would have taken away independence status if he/she was otherwise eligible.However, the word ‘material’ has not been defined. Nominee directors of Institutions are now to be considered as ‘Independent Director’. While on the subject of Independent Director one must remember that no one is invited to join a board to act as a nonexecutive director unless he/she is well known to the Promoters or the Chairman or the Managing Director. All non-executive directors, whether or not independent, need support of Promoter Group for their reelection. If the purpose or objective of having a specified number of independent directors on the boards of listed companies is to ensure that boards are notTwothird of the members of Audit committee shall be ind ependent directors as against the present requirement of majority being independent. packed with ‘yes-men’ or to ensure constructive criticism one needs to ponder how many independent directors can freely raise questions at board meetings. Is it right that a vast majority of them invariably support every proposal of management? Only a few persons who are eminent in their own fields may ask right questions, even if they look inconvenient, at board meetings but the majority may not muster enough courage to do so.It may therefore appear that no amount of regulation can ensure how an independent director should behave at board meetings. After all independence is a matter of attitude and a director who is conscious about his responsibilities, will always raise right questions at board meetings, whether or not he holds the independent status. The original recommendation of the Murthy Committee for mandatory training and updating of knowledge of directors has now been shifted to non-mandatory requirement, most probably in the face of strong opposition from industry.This indeed is sad as a vast majority of directors are in need of training in the business model of the company and for updating of knowledge. I do THE CHARTERED ACCOUNTANT 807 DECEMBER 2004 CORPORATE WORLD believe that a beginning in this regard was immediately necessary. It may not be out of place to mention here that under the Listing requirements of UK all directors are mandatory required to regularly update and refresh their skills and knowledge. From the point of view of listed companies, a declaration should be obtained annually from all independent directors confirming compliance with all six conditions of independence.The CEO/CFO Certification is a new requirement and is based on Sarbanes Oxley Act of USA. Five new items have been added under nonmandatory requirements and the existing item on Postal ballot has been deleted. (ii) A code of Conduct for Board members and senior managemen t has to be laid down by the Board which should be posted on the website of the company. All Board members and senior management should affirm compliance with the code on annual basis and the annual report shall contain a declaration to this effect signed by the CEO. B.Non-Executive Directors’ compensation & disclosures A new requirement has been provided for obtaining prior approval of shareholders for payment of fees/compensation to non-executive directors. If there is stock option, the limit for the maximum number that can be granted to non-executive directors in any financial year and in aggregate should be disclosed. According to the Companies Act, 1956 fees paid to directors do not form part of Managerial remuneration and hence no approval of shareholders for payment of fees to directors is required.Listed companies will now need to obtain prior approval of shareholders for payment of sitting fees to directors. Unless the Government is contemplating to change the law an d bring sitting fees within the ambit of Managerial remuneration this contradiction should have been avoided. (v) Role of the Audit committee has been enlarged to include (a) matters required to be included in Directors’ Responsibility statement; (b) to review the functioning of Whistle Blower mechanism if the same is existing and (iii) review of performance of statutory and internal auditors. vi)The Audit committee will also mandatorily review (a) Management Discussion and Analysis of Financial condition and results of operations; (b) statement of significant related party transactions; (c) Management letters/letters of internal control weaknesses issued by t h e D. Audit Committee Following are the changes with regard to Audit Committee: (i) Two-third of the members of Audit committee shall be independent directors as against the present requirement of majority being independent; (ii) Earlier, only non-executive directors could be members of Audit committee. The revised cla use has omitted this requirement. iii) All members of the Audit committee shall be financially literate (as defined in the revised clause) as against the existing requirement of at least one member having financial and accounting knowledge. (iv) Minimum number of Audit committee meetings in a year increased to 4 from 3. C. Other provisions relating to Board (i) Gap between two meetings has been reduced to three months from four months ruling at present. statutory auditors; (d) Internal audit reports relating to internal control weaknesses, and (v) To review the appointment, removal and terms of remuneration of the Chief Internal Auditor.The Audit committee will no longer be required to review the company’s financial and risk management policies. Risk assessment and minimization procedures will now be reviewed by the Board. Listed companies should now THE CHARTERED ACCOUNTANT 808 DECEMBER 2004 CORPORATE WORLD ascertain from their respective Audit committees the frequency of re porting related party transactions, frequency of discussing Management letters issued by the statutory auditors etc. drawn to the following: (a) Material non-listed Indian subsidiary has been mentioned only for Board representation.In respect of review of financial statements of unlisted subsidiary by the audit committee of holding company and placing of minutes and significant transactions entered into by subsidiary, it is significant that the words ‘material’ and ‘Indian’ solidated turnover or net worth respectively of the listed company and its subsidiaries. This definition is likely to exclude most of the unlisted subsidiaries as they are not likely to meet the turnover or net worth test. (c) Significant transaction or arrangement shall mean any individual transaction that exceeds 10% of the total revenues/expenses/assets/liabilities of the subsidiary.It is difficult to understand the logic of excluding subsidiaries incorporated abroad from the purview of representation on the board by an independent director. E. Subsidiary Companies These are new requirements, which provide for the following: (i) At least one indepen- T th he o m e ri in an M gin ha g o dat ur t al r m s f or hy ec pr an now kno y tr C om op ob dat b w ain o me in po ab or een led in mm nd de s ly y g g i a ed itio in re cha e o an tte tio qu n f d e n is n th g o sa fro e ire ed dir up fo f d. m fac me as ec da r i n e n t a n t o r tdu o f , o s st st mo nry ro s . T n t hi g s F.Disclosures Following new disclosure requirements have been specified in the revised clause 49: (i) Statement on transactions with related parties in the ordinary course of business shall be placed before the Audit committee periodically; (ii) Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the Audit committee; and (iii) Details of material individual transactions with related parties or others, whic h are not on arm’s length basis should be placed before Audit committee together with management’s justification for the same.Here also, the word ‘material’ has not been defined. Listed companies should ascertain dent director on the Board of the holding company shall be a director on the board of a material non-listed Indian subsidiary company; (ii) The audit committee of the holding company shall review the financial statements, in particular, the investments made by the unlisted subsidiary company; (iii) The minutes of board meetings of the unlisted subsidiary company shall be placed at the board meeting of the holding company.The management should periodically bring to the attention of the holding company a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company. Attention of the readers is have not been used. It can therefore be interpreted that board meeting minutes, financial statements and signific ant transactions of all unlisted subsidiaries whether incorporated in India or abroad are to be placed before the board of the holding company or to be reviewed by the audit committee of the holding company.Is this the intention? (b) Material non-listed Indian subsidiary shall mean an unlisted subsidiary, incorporated in India, whose turnover or net worth exceeds 20% of the con- THE CHARTERED ACCOUNTANT 809 DECEMBER 2004 CORPORATE WORLD from their respective audit committees the frequency of reporting such transactions. (iv) Financial statements should disclose together with management’s explanation any accounting treatment different from that prescribed in Accounting Standard. v)The company will lay down procedures to inform board members about the risk assessment and minimization procedures which shall be periodically reviewed by the Board. (vi) The company shall disclose to the Audit committee on a quarterly basis the use of funds raised through public/ rights/preferential issues. Annually a statement showing use of funds for purposes other than those stated in Offer document/prospectus should be placed before the Audit committee. Such statement should be certified by the statutory auditors. vii) Under ‘Remuneration of Directors’ new disclosure requirements have been prescribed, which include criteria of making payments to nonexecutive directors, shares and convertible instruments held by non-executive directors and shareholding (both own and held on beneficial basis) of nonexecutive directors to be disclosed in the notice of general meeting called for approving appointment of such director. 2002-03. The revised Clause only requires CEO and CFO to certify to the Board the annual financial statements in the prescribed format.While this certification will certainly provide comfort to the non-executive directors and will indeed act as the basis for the Board to make Directors’ Responsibility Statement in terms of section 217(2AA) of the Companies Act, 1956, it is not clear why SEBI did not require the listed companies to include such certification in the Annual Report. While the new corporate governance norms are more stringent than the existing requirements it must be appreciated that while regulations in these areas are necessary, regulations per se cannot and will not ensure good corporate governance.H. Compliance Report The format of quarterly report to be submitted to the Stock Exchanges has been revised and the new format follows the revised requirements of Clause 49. The CEO or the Compliance officer can now sign the compliance report. The annual corporate governance report should disclose adoption or non-adoption of non-mandatory requirements. G. CEO/CFO Certification This is a new requirement and is based on the Sarbanes Oxley Act of USA. This had also been recommended by the Naresh Chandra Committee set up by the Centre in I. Non-mandatory requirementsFive new items have been added under non-mandatory require- ments and the existing item on Postal ballot has been deleted. The first new item states that Independent directors may not have tenure not exceeding in the aggregate a period of nine years on the Board of the company. The next item relates to companies moving towards a regime of unqualified audit report. The third item deals with training of board members in the business model of the company as well as risk profile of the business parameters of the company and responsibilities of directors and how best to discharge it.The fourth item deals with performance evaluation of non-executive directors by a peer group comprising the entire Board. The fifth item relates to setting up of a whistle blower policy in the company. While the new corporate governance norms are more stringent than the existing requirements it must be appreciated that while regulations in these areas are necessary, regulations per se cannot and will not ensure good corporate governance. Attention of readers is drawn towards the Report on Observance of Standards and Codes carried out under a joint programmed of World Bank and IMF.This report benchmarks the observance of corporate governance in India against the benchmark Principles of Corporate THE CHARTERED ACCOUNTANT 810 DECEMBER 2004 CORPORATE WORLD Governance laid down by the Organization for Economic Cooperation and Development (OECD). The assessment team had extensively interviewed issuers, institutional investors, financial institutions, market analysts, lawyers, accountants and auditors. The report was also discussed by Government of India and cleared by the DEA for publication in June 2004. Following are the areas identified for reform in the World Bank report: a.Sanctions and enforcements: Sanctions and enforcements should be credible deterrents to help align business practices with the legal and regulatory framework, in particular with regard to related party transactions and insider trading. b. The current framework places the oversight of listed companies partly with DCA, partly with SEBI and partly with Stock exchanges. This fragmented structure gives rise to regulatory arbitrage and weakens enforcement. c. If boards are to move away from simply ‘rubber stamping’ the decisions of management or promoters they must have a clear understanding of what is expected from them.They should know their duties of care and loyalty to the company and all shareholders. They should know their responsibilities and should be familiar with the changes in this regard arising from changes in laws and regulations. A key missing ingredient is a strong focus on professionalism of directors. Director training institutes can play a key capacity building role and expand the pool of competent candidates. d. Institutional investors acting in a fiduciary capacity should be encouraged to form a comprehensive corporate governance policy including voting and board representation.It will be observed that the World Bank report has stressed the need of training and updating of knowledge of directors. Unfortunately the recommendation of Murthy Committee in this regard has now been shifted as nonmandatory requirement. The rationale of industry’s objection to mandatory training, etc. of directors is not readily understandable. Hopefully, when the governance norms are reviewed next the training and knowledge updating would be made mandatory requirement. A new requirement has been provided for obtaining prior approval of shareholders for payment of fees/compensation to nonexecutive directors.If there is stock option, the limit for the maximum number that can be granted to nonexecutive directors in any financial year and in aggregate should be disclosed.  ¦ Leading light of CA world, SN Desai passes away ne of the highly revered Chartered Accountants and a leading light of the profession, ICAI’s former-president Shri Shantanu Nanubhai Desai passed away on 10th November 2004 in Mumbai. Born on 26th January 1925, he became a member of our Institute in 1949 and rose to become one of the pillars of the profession.Having become President of ICAI in 1961-62 at a young age of 35, he had served as a Central Council member for decades. He was actively associated with Indian Merchants Chamber as its Managing Committee member for a long period of 32 years. He became its President in 1976. He had held several distinguished positions in his illustrious professional life, including as Member of the High Powered Sachar Committee on Company Law & MRTP Reforms, as Chairman/ Director of several reputed public companies besides as a member of ASSOCHAM. Mr.Desai was also the founder member of the Bombay Chartered Accountants Society. A Rotarian of repute and a veteran of several Committees, Mr. Desai was a free, frank and modest personality— a thorough gentleman who endeared one and all with his qualities of both head and heart. Mr. Desai’s services to the cause of our pro fession and his long career of more than 50 years as one of our profession’s most distinguished ambassadors will long be remembered and will continue to inspire new generation of Chartered Accountants. O THE CHARTERED ACCOUNTANT 811 DECEMBER 2004

Of Human Bondage Essay

‘Of Human Bondage’ is a story about Philip Carey, a man with a clubfoot. He was orphaned when he was nine years old, and lived with his vicar uncle and aunt in Blackstable. His stay there was lonely and miserable. His uncle lived a religious and monotonous life, while his aunt was a typical Victorian Era wife, submissive to her husband. But while his uncle was always strict and rigid, his aunt sometimes showed him affection and love. His handicap made him feel isolated and an outcast, especially when he entered preparatory school in Tercanbury. But he was able to graduate and enter King’s school. There he met Mr. Perkins the headmaster, who was quite unpopular because he came from a family of linen drapers. Philip was encouraged to learn because Mr. Perkin commended his intelligence. He even made a friend named Rose, who was everything that he was not, popular, liked, and an unintelligent boy. But due to scarlet fever, which made him go home to Blackstable, their friendship suffered. It is at this episode that Maugham will start to clearly point out what his novel is about, classifying human experiences between bondage and freedom. The analysis of the novel will be seen through the classification of the experiences of the main character as he transferred from one place to another. Up to this point, it was all about bondage; Philip has to conform to the rigid and unaffectionate life with his uncle and aunt and to the unforgiving cruelty of young people when he was in the preparatory school and King’s school. But when he decided to transfer to Heidelberg, he started to experience freedom. In Heidelberg, Philip was influenced on how to think, and learned so many things. He lived in a boarding house by Professor Erlin, and he was able to meet new friends, with different qualities and approaches in life. When winter arrived, he decided to go back to Blackstable. He is then subjected to bondage again when he got into an affair with Emily Wilkinson, a guest in the vicarage. Being older than him, she was possessive and demanding which made Philip tire of the relationship easily. But thankfully, she left the vicarage for Germany, enabling Philip to decide about what to do with his life. His uncle then convinced him to go to London and become an accountant. Philip found London to be dreary and lonely. He did not like the silence and self-centeredness of the people. We can then deduce that Maugham intended to show London as a form of bondage for Philip; he had to conform to his uncle’s intentions for him to live a respectable but also a boring and rigid life. He broke off from this bondage and decided to transfer to Paris, with his aunt’s help. Paris was a combination of freedom and bondage for Philip, freedom because he made new friends and was able to expose himself to all kinds of ideas. However, he also experienced bondage because he discovered that he cannot become a great artist. His friend committed suicide because of the same realization. With the news that his aunt died, he immediately went back to Blackstable. His uncle was a disappointment because he did not show any sign of mourning, he even ate a big meal. But being able to see beyond his uncle’s hypocrisy, he accepted his uncle’s recommendation to enter the medical profession. He then goes back to London. After being responsible with his studies for a while, he met Mildred, the person who will be the biggest obstacle for him to succeed. He became obsessed with her, even to the point of stopping his medical study so he can give expensive gifts to her. After a series of betrayals by Mildred, he finally realized that he can let go of her. Philip then entered a financial slump; binding him with poverty. Thankfully, the Althelny’s were able to help him get a job. His uncle then died, leaving him with six hundred pounds, enough to let him continue his studies. He experiences a feeling of freedom after he finishes with his medical studies, and repaid the Athelny’s for their kindness. He decided to marry Sally, the oldest daughter and live a life happy ‘bondage’ with her in Dorcestershire. Reference http://pinkmonkey.com/booknotes/monkeynotes/pmOfHuman01.asp

Conjugating the French Verb Discuter (to Discuss)