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Management Notes

Legislative Provisions of Corporate Governance in Companies Act 1956

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Provisions of the Act

Article 3 of the act describes the definition of a company, the types of companies that can be formed e.g. public, private, holding, subsidiary, limited by shares, unlimited etc. Further on in Article 10 E it explains about the constitution of board of company, it explains the companies’ name, the jurisdictions, tribunals, memorandums and the changes that can be made. Article 26 and further on explains about the article of association of the company which a very important part when forming a company and various amendments that can be made. Article 53 to 123,it explains about the shares, the shareholders their rights, it explains about debentures, share capital, their procedure and powers within the company. Article 146 to 251 it explains about the management and administration of the company and the provisions registered office and name. Article 252 to 323 elaborates on the provisions of duties, powers responsibility and liability of the directors in the company which is a very integral part of the company when it is formed. Article 391 to 409 explains about the arbitration, the prevention and obsession of the company Article 425 to 560 it explains the procedure of winding up of a company, the preventions the rights of shareholders, creditors, methods of liquidations, compensation provided and ways of winding up the company. Article 591 and further on explains about setting up companies outside India and their fees and registration procedure and all.

An overview of Companies Act 1956

Companies Act 1956 explains about the whole procedure of the how to form a company, its fees procedure, name, constitution, its members, and the motive behind the company, its share capital, about its general board meetings, management and administration of the company including an important part which is the directors as they are the decision makers and they take all the important decisions for the company their main responsibility and liabilities about the company matter the most. The Act explains about the winding of the business as well and what happens in detail during liquidation period.

Company objective and legal procedure based on the Act

The basic objectives underlying the law are:

  • A minimum standard of good behaviour and business honesty in company promotion and management.
  • Due recognition of the legitimate interest of shareholders and creditors and of the duty of managements not to prejudice to jeopardize those interests.
  • Provision for greater and effective control over and voice in the management for shareholders.
  • A fair and true disclosure of the affairs of companies in their annual published balance sheet and profit and loss accounts.
  • Proper standard of accounting and auditing.
  • Recognition of the rights of shareholders to receive reasonable information and facilities for exercising an intelligent judgment with reference to the management.
  • A ceiling on the share of profits payable to managements as remuneration for services rendered.
  • A check on their transactions where there was a possibility of conflict of duty and interest.
  • A provision for investigation into the affairs of any company managed in a manner oppressive to minority of the shareholders or prejudicial to the interest of the company as a whole.
  • Enforcement of the performance of their duties by those engaged in the management of public companies or of private companies which are subsidiaries of public companies by providing sanctions in the case of breach and subjecting the latter also to the more restrictive provisions of law applicable to public companies.

Companies Act empowerment and mechanism

In India, the Companies Act, 1956, is the most important piece of legislation that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. The Act contains the mechanism regarding organizational, financial, and managerial, all the relevant aspects of a company. It empowers the Central Government to inspect the books of accounts of a company, to direct special audit, to order investigation into the affairs of a company and to launch prosecution for violation of the Act. These inspections are designed to find out whether the companies conduct their affairs in accordance with the provisions of the Act, whether any unfair practices prejudicial to the public interest are being resorted to by any company or a group of companies and to examine whether there is any mismanagement which may adversely affect any interest of the shareholders, creditors, employees and others. If an inspection discloses a prima facie case of fraud or cheating, action is initiated under provisions of the Companies Act or the same is referred to the Central Bureau of Investigation. The Companies Act, 1956 has been amended from time to time in response to the changing business environment.

Management Notes

Executive Management Process

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Executive Corporate Processes are generic processes aiming at safeguarding that the organization is effectively and efficiently governed and managed at all levels and are collectively executed. They are herein distinguished from ‘Management Processes/Duties’, which aim at safeguarding that ‘Line Managers’ at all levels carry out in a balanced way all their ‘Managing Duties’ and from ‘Corporate Core and Support Processes’, which aim at realizing the Corporate Mission.

Analysing Development Needs:

In the first instance, once a decision is made to launch an executive development programme, a close and critical examination of the present and future developmental needs of the organisation is made. It becomes necessary to know how many and what type of managers are required to meet the present and future needs of the organisation.

This requires organisational planning. A critical examination of the organisation structure in the light of the future plans of the organisation reveals what the organisation needs in terms of departments, functions and executive positions.

After getting the information, it will be easy to prepare the descriptions and specifications for different executive positions, which in turn gives information relating to the type of education, experience, training, special knowledge, skills and personal traits for each position.

By comparing the existing talents including those to be developed from within with those which are required to meet the projected needs enables the management to make a policy decision as to whether it wants to fill these positions from within or from outside sources.

Appraisal of Present Management Needs:

For the purpose of making above mentioned comparison, a qualitative assessment the existing executives will be made to determine the type of executive talent available within the organisation and an estimate of their potential for development is also added to that. Then comparison is made between the available executive talent and the projected required talent.

Inventory of Executive Manpower:

An inventory is prepared to have complete information about each executive. For each executive, a separate card or file is maintained to record therein such data as name, age, length of service, education, experience, health, test results, training courses completed, psychological test results, performance appraisal results etc.

An analysis of such information will reveal the strengths and weaknesses of each executive in certain functions relative to the future needs of the organisation.

Planning Individual Development Programmes:

Guided by the results of the performance appraisal which reveal the strengths and weaknesses of each executive, the management is required to prepare planning of individual development programmes for each executive. According to Dale S. Beach, “Each one of us has a unique set of physical, intellectual, emotional characteristics. Therefore, a development plan should be tailor-made for each individual”.

“It would be possible to impart knowledge and skills and mould behaviour of human beings, but it would be difficult to change the basic personality and temperament of a person once he reaches adult-hood stage”.

Establishing Training and Development Programmes:

It is the responsibility of the personnel or human resource department to prepare comprehensive and well-conceived development programmes. It is also required to identify existing levels of skills, knowledge etc. of various executives and compare them with their respective job requirements.

It is also required to identify development needs and establish specific development programmes in the fields of leadership, decision-making, human relations etc. But it may not be in a position to organise development programmes for the executives at the top level as could be organised by reputed institutes of management.

In such circumstances, the management deputes certain executives to the development programmes organised by the reputed institutes of management.

Further, the personnel or human resource department should go on recommending specific executive development programmes based on the latest changes and development in the management education.

Evaluating Development Programmes:

Since executive development programmes involve huge expenditure in terms of money, time and efforts, the top management of the organisation is naturally interested to know to what extent the programme objectives have been fulfilled. Such programme evaluation will reveal the relevance of the development programmes and the changes that have been effected by such programmes.

If the objectives of the programme have been achieved, the programme is said to be successful. But it is difficult to measure the changes or effects against the pre-determined objectives.

While the effect of certain programmes can be noticed only in the long-run in a more general way, the effect of certain other programmes may be noticed in the short-run in a specific way. Grievance reduction, cost reduction, improved productivity, improved quality etc. can be used to evaluate the effects of development programmes.

Factors Influencing the Executive Development Processes in Organizations

  1. Failure to train the managers will lead to ineffective and inefficient managers who negatively affect the organization’s performance.
  2. In the absence of training and developmental avenues, the performing managers may get de-motivated and frustrated in leading the organizations. This would lead to severe losses for the organization in financial parameters, in terms of the cost of recruiting and training the new incumbent.
  3. The organizational performance may be affected by the loss of market shares, lower sales, reduced profitability, etc.
  4. The absence/shortage of trained and skilled managers makes it important for the organizations to have appropriate retention strategies. Training and development is being used by organizations as a part of their retention strategy.
  5. The competitive pressures make it necessary for organizations to continuously roll out new products and services, and also maintain the quality of the existing ones. The training and development of managers would help them in developing the competencies in these areas.
  6. The competitive environment is making it imperative for the organizations to continuously restructure and re-engineer, and to embark upon these processes, it is essential for the organizations to train the managers for the new scenarios.

Executive Development and E-learning:

The IT environment has, in a way, created challenges and also opportunities for organizations. The challenges include the rapid pace of changes, and on the opportunities front, it has provided the following advantages-

  • Knowledge management has become easy for implementation. In the traditional environment, sharing of intellectual resources and knowledge was a herculean task. Organizations had to prepare, print, and mail the circulars across the organization for the dissemination of information, which frequently led to the obsoleteness of information by the time the employees, because of the time gap, received it.

Further, it was tough for the organiza­tions to come up with strategies to continuously collect, update, and dissem­inate the information.

  • Knowledge management has provided various forums such as Intranets, on-line discussion forums, expert panels, etc.
  • E-learning has made learning easy, irrespective of the time and distance factors, e-learning has led to the empowerment of employees, since the employers are now able to decide upon the pace and content of learning, depending on their requirements.

The above developments have affected the executive development process in a significant way and have helped in transforming the brick-and-mortar learning scenario to an e-learning scenario.

Important Methods of Executive Development: On the Job Techniques and Off the Job Techniques

The methods of executive development are broadly classified into two broad categories:

  1. On the Job Techniques.
  2. Off the Job Techniques.

  1. On the Job Techniques:

On the job development of the managerial personnel is the most common form which involves learning while performing the work. On the job techniques are most useful when the objective is to improve on the job behaviour of the executives. This type of training is inexpensive and also less time consuming. The trainee without artificial support can size up his subordinates and demonstrate his leadership qualities.

The following methods are used under on the job training:

(i) Coaching:

In this method the immediate superior guides and instructs his subordinates as a coach. It is learning through on the job experience because a manager can learn when he is put on a specific job. The immediate superior briefs the trainees what is expected from them and guides them how to effectively achieve them. The coach or immediate superior watches the performance of their trainees and directs them in correcting their mistakes.

Advantages of the Coaching Method:

(a) It is the process of learning by doing.

(b) Even if no executive development programme exists, the executives can coach their subordinates.

(c) Coaching facilitates periodic feedback and evaluation.

(d) Coaching is very useful for developing operative skill and for the orientation of the new executives.

Disadvantages of the Coaching Method:

(a) It requires that the superior should be a good teacher and the guide.

(b) Training atmosphere is not free from the problems and worries of the daily routine.

(c) Trainee may not get sufficient time for making mistakes and learn from the experience.

(ii) Under Study:

The person who is designated as the heir apparent is known as an understudy. In this method the trainee is prepared for performing the work or filling the position of his superior. Therefore a fully trained person becomes capable to replace his superior during his long absence, illness, retirement, transfer, promotion, or death.

Advantages of Under Study Method:

(a) Continuous guidance is received by the trainee from his superior and gets the opportunity to see the total job.

(b) It is a time saving and a practical process.

(c) The superior and the subordinate come close to each other.

(d) Continuity is maintained when superior leaves his position.

Disadvantages of Under Study Method:

(a) The existing managerial practices are perpetuated in this method.

(b) The motivation of the personnel is affected as one subordinate is selected for the higher position in advance.

(c) The subordinate staff may ignore the under study.

(iii) Job Rotation:

Job rotation is a method of development which involves the movement of the manager from one position to another on the planned basis. This movement from one job to another is done according to the rotation schedule. It is also called position rotation.

Advantages of Job Rotation:

(a) By providing variety in work this method helps in reducing the monotony and the boredom.

(b) Inter departmental coordination and cooperation is enhanced through this method.

(c) By developing themselves into generalists, executives get a chance to move up to higher positions.

(d) Each executive’s skills are best utilized.

Disadvantages of Job Rotation:

(a) Disturbance in established operations is caused due to the job rotation.

(b) It becomes difficult for the trainee executive to adjust himself to frequent moves.

(c) Job rotation may demotivate intelligent and aggressive trainees who seek specific responsibility in their chosen responsibility.

(iv) Special Projects Assignment:

In this method a trainee is assigned a project which is closely related to his job. Further sometimes the number of trainee executives is provided with the project assignment which is related to their functional area. This group of trainees is called the project team. The trainee studies the assigned problem and formulates the recommendations on it. These recommendations are submitted in the written form by the trainee to his superior.

Advantages of the Special Projects:

(a) The trainees learn the work procedures and techniques of budgeting.

(b) The trainees come to know the relationship between the accounts and other departments.

(c) It is a flexible training device due to temporary nature of assignments.

(v) Committee Assignment:

In this method the special committee is constituted and is assigned the problem to discuss and to provide the recommendations. This method is similar to the special project assignment. All the trainees participate in the deliberations of the committee. Trainees get acquainted with different viewpoints and alternative methods of problem solving through the deliberations and discussions in the committee. Interpersonal skills of the trainees are also developed.

(vi) Multiple Management:

This method involves the constitution of the junior board of the young executives. This junior board evaluates the major problems and makes the recommendations to the Board of Directors. The junior board learns the decision making skills and the vacancies in the Board of Directors are filled from the members of the junior board who have sufficient exposure to the problem solving.

(vii) Selective Readings:

Under this method the executives read the journal, books, article, magazines, and notes and exchange the news with others. This is done under the planned reading programmes organized by some companies. Reading of the current management literature helps to avoid obsolescence. This method keeps the manager updated with the new developments in the field.

  1. Off the Job Training Programme:

The main methods under off the job training programme are:

(i) Special Courses:

Under this method the executives attend the special courses organized by the organisation with the help of the experts from the education field. The employers also sponsor their executives to attend the courses organized by the management institutes. This method is becoming more popular these days but it is more used by the large and big corporate organisations.

(ii) Case Studies:

This method was developed by Harvard Law professor Christopher C. Langdell. In this method a problem or case is presented in writing to a group i.e. a real or hypothetical problem demanding solution is presented in writing to the trainees.

Trainees are required to analyze and study the problem, evaluate and suggest the alternative courses of action and choose the most appropriate solution. Therefore in this method the trainees are provided with the opportunity to apply their skills in the solution of the realistic problems.

(iii) Role Playing:

In role playing the conflicting situation is created and two or more trainees are assigned different roles to play on the spot. They are provided with the written or oral description of the situation and roles to play. The trainees are then provided with the sufficient time, they have to perform their assigned roles spontaneously before the class. This technique is generally used for human relations and the leadership training. This method is used as a supplement to other methods.

(iv) Lectures and Conferences:

In this method the efforts are made to expose the participants to concepts, basic principles, and theories in any particular area. Lecture method emphasizes on the one way communication and conference method emphasizes on two way communication. Through this method the trainee actively participates and his interest is maintained.

(v) Syndicate Method:

Syndicate refers to the group of trainees and involves the analysis of the problem by different groups. Thus in this method, 5 or 6 groups consisting of 10 members are formed. Each group works on the problem on the basis of the briefs and the backgrounds provided by the resource persons. Each group presents their view on the involved issues along with the other groups.

After the presentation these views are evaluated by the resource persons along with the group members. Such exercise is repeated to help the members to look into the right perspective of the problem. This method helps in the development of the analytical and the interpersonal skills of the managers.

(vi) Management Games:

A management game is a classroom exercise, in which teams of students compete against each other to achieve certain common objectives. Since, the trainees are often divided into teams as competing companies; experience is obtained in team work. In development programmes, the management games are used with varying degrees of success. These games are the representatives of the real life situations.

(vii) Brainstorming:

It is a technique to stimulate idea generation for decision making. Brainstorming is concerned with using the brain for storming the problem. It is a conference techniques by which group of people attempt to find the solution for a specific problem by amazing all the ideas spontaneously contributed by the members of the group. In this technique the group of 10 to 15 members is constituted. The members are expected to put their ideas for problem solution without taking into consideration any type of limitations.

Management Notes

Trend analysis

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Trend analysis is a technique used in technical analysis that attempts to predict future stock price movements based on recently observed trend data. Trend analysis uses historical data, such as price movements and trade volume, to forecast the long-term direction of market sentiment.

Trend analysis tries to predict a trend, such as a bull market run, and ride that trend until data suggests a trend reversal, such as a bull-to-bear market. Trend analysis is helpful because moving with trends, and not against them, will lead to profit for an investor. It is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term.

A trend is a general direction the market is taking during a specified period of time. Trends can be both upward and downward, relating to bullish and bearish markets, respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend.

Trend analysis is the process of looking at current trends in order to predict future ones and is considered a form of comparative analysis. This can include attempting to determine whether a current market trend, such as gains in a particular market sector, is likely to continue, as well as whether a trend in one market area could result in a trend in another. Though a trend analysis may involve a large amount of data, there is no guarantee that the results will be correct.

In order to begin analyzing applicable data, it is necessary to first determine which market segment will be analyzed. For instance, you could focus on a particular industry, such as the automotive or pharmaceuticals sector, as well as a particular type of investment, such as the bond market.

Once the sector has been selected, it is possible to examine its general performance. This can include how the sector was affected by internal and external forces. For example, changes in a similar industry or the creation of a new governmental regulation would qualify as forces impacting the market. Analysts then take this data and attempt to predict the direction the market will take moving forward.

Critics of trend analysis, and technical trading in general, argue that markets are efficient, and already price in all available information. That means that history does not necessarily need to repeat itself and that the past does not predict the future. Adherents of fundamental analysis, for example, analyze the financial condition of companies using financial statements and economic models to predict future prices. For these types of investors, day-to-day stock movements follow a random walk that cannot be interpreted as patterns or trends.

Types of Trend

Uptrend

An uptrend or bull market is when financial markets and assets as with the broader economy-level move upward and keep increasing prices of the stock or the assets or even the size of the economy over the period. It is a booming time where jobs get created, the economy moves into a positive market, sentiments in the markets are favorable, and the investment cycle has started.

Downtrend

Companies shut down their operation or shrank the production due to a slump in sales. A downtrend or bear market is when financial markets and asset prices as with the broader economy-level move downward, and prices of the stock or the assets or even the size of the economy keep decreasing over time. Jobs are lost, asset prices start declining, sentiment in the market is not favorable for further investment, and investors run for the haven of the investment.

Sideways / horizontal Trend

A sideways/horizontal trend means asset prices or share prices as with the broader economy level are not moving in any direction; they are moving sideways, up for some time, then down for some time. The direction of the trend cannot be decided. It is the trend where investors are worried about their investment, and the government is trying to push the economy in an uptrend. Generally, the sideways or horizontal trend is considered risky because when sentiments will be turned against cannot be predicted; hence investors try to keep away in such a situation.

Uses:

Use in Technical Analysis

An investor can create his trend line from the historical stock prices, and he can use this information to predict the future movement of the stock price. The trend can be associated with the given information. Cause and effect relationships must be studied before concluding the trend analysis.

Use in Accounting

Sales and cost information of the organization’s profit and loss statement can be arranged on a horizontal line for multiple periods and examine trends and data inconsistencies. For instance, take the example of a sudden spike in the expenses in a particular quarter followed by a sharp decline in the next period, which is an indicator of expenses booked twice in the first quarter. Thus, the trend analysis in accounting is essential for examining the financial statements for inaccuracies to see whether certain heads should be adjusted before the conclusion is drawn from the financial statements.

Importance of Trend Analysis

  • The trend is the best friend of the traders is a well-known quote in the market. Trend analysis tries to find a trend like a bull market run and profit from that trend unless and until data shows a trend reversal can happen, such as a bull to bear market. It is most helpful for the traders because moving with trends and not going against them will make a profit for an investor.
  • Trends can be both growing and decreasing, relating to bearish and bullish market
  • A trend is nothing but the general direction the market is heading during a specific period. There are no criteria to decide how much time is required to determine the trend; generally, the longer the direction, the more is reliably considered. Based on the experience and some empirical analysis, some indicators are designed, and standard time is kept for such indicators like 14 days moving average, 50 days moving average, and 200 days moving average.
  • While no specified minimum amount of time is required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend.
Bangalore University BBA Notes

Organisational Behaviour Bangalore University BBA 3rd Semester NEP Notes

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Unit 1 Introduction to Organizational Behaviour
Meaning, Definition, Importance, Nature VIEW
Scope of Organizational Behaviour VIEW
VIEW
Conceptual Models of OB VIEW
Factors affecting Organizational Behaviour VIEW
Organizational Behaviour Theories VIEW
Unit 2 Individual Behaviour
Individual Behaviour Meaning VIEW
Factors affecting individual behavior VIEW
Reasons for understanding individual behavior VIEW
Personality, Types VIEW
Determinants of Personality VIEW
Traits of Personality VIEW
Personality Theories VIEW
Learning VIEW
Types of Learners VIEW
The Learning Process VIEW
Learning Theories VIEW
Principles of Learning VIEW
Attitude VIEW
Characteristics of Attitude VIEW
Components of Attitude VIEW
Formation of Attitude VIEW
Factor affecting Attitude VIEW
Perception, Importance VIEW
Factors influencing perception VIEW
Interpersonal Perception VIEW
Impre Management VIEW
Unit 3 Group and Team Dynamics
Group Dynamics Meaning, Types of Groups VIEW
Functions of groups VIEW
Stages of Group development VIEW
Strategies for improving group dynamics VIEW
Determinants of Group Behaviour VIEW
Team Dynamics Meaning VIEW
Types of Teams VIEW
Team Building VIEW
Effective Team Management VIEW VIEW
Stages Professional Interpersonal Relations VIEW
Difference between Groups and Teams VIEW
Conflict: Meaning VIEW
Sources of Conflict VIEW VIEW
Conflict Resolving Strategies VIEW VIEW
VIEW
Unit 4 Motivation and Leadership
Motivation Nature and Importance of Motivation VIEW
Motivation Theories VIEW VIEW VIEW
Maslow’s Need Hierarchy Theory VIEW
Hertzberg’s Two Factor Theory VIEW
McGregor’s Theory X and Theory Y VIEW
Leadership Nature and Importance VIEW
Qualities of Good Leaders VIEW VIEW
Leadership Types VIEW
Theories of Leaders VIEW
Models of Leadership VIEW
Styles of Leadership VIEW
Unit 5 Dynamics of Organizational Behaviours
Organisation Culture and Climate Meaning, Importance VIEW
Factors influencing Organization climate VIEW
Organizational Change Importance VIEW VIEW
Organizational Change process VIEW
Resistance to Organizational change VIEW VIEW
Managing Change VIEW
Organizational Development Nature, Objectives, Benefit VIEW VIEW
Organizational Development Process VIEW VIEW
Management Notes

Extending Participative Decision making

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Participative decision-making (PDM) is the extent to which employers allow or encourage employees to share or participate in organizational decision-making. According to Cotton et al., the format of PDM could be formal or informal. In addition, the degree of participation could range from zero to 100% in different participative management (PM) stages.

PDM is one of many ways in which an organization can make decisions. The leader must think of the best possible way that will allow the organization to achieve the best results. According to Abraham Maslow, workers need to feel a sense of belonging to an organization (see Maslow’s hierarchy of needs).

Styles:

Democratic Leadership. This is the type of leadership style in which members are encouraged to share their ideas and then synthesizes the available information into the best possible decision. Researchers have found that this style is usually the most effective and leads to better contributions from the group, as it produces a work environment that employees can feel good about because they know their opinion counts and they can bring a real difference to the organization.

Autocratic Style. Here, the leader takes the employees’ opinions, collects them and facilitates the conversation, but takes control and responsibility of the final decision. This is most effective during crises and emergencies where decisions have to be made quickly.

Consensus. In the consensus participative decision-making style, the leader gives up complete control of the decision and leaves it to the members of the group to conclude the majority decision. Doing this requires teamwork, trust, and communication (and time, because it takes a while) but it usually brings out the best decisions since it is well thought out. Consensus style improves goal-setting, problem-solving, and team-building among groups.

Delegated by Expertise. Of course, not everyone is an expert at everything. Everyone has their area of expertise. Here, the leader delegates the responsibility to the expert of their area of concern so they can arrive at the best outcome. This style of decision-making process can help the group feel more creative and engaged in the process.

Choosing the right style for your organization shouldn’t be a one-off. As HR practitioners, we always have to be mindful of the dynamics in our organization so we can decide on the right participative decision-making style (depending on the situation) that will improve our employee engagement and ensure that everyone in the company feels valued and respected.

Advantages

PM is important where a large number of stakeholders are involved from different walks of life, coming together to make a decision which may benefit everyone. Some examples are decisions for the environment, health care, anti-animal cruelty and other similar situations. In this case, everyone can be involved, from experts, NGOs, government agencies, to volunteers and members of public.

However, organizations may benefit from the perceived motivational influences of employees. When employees participate in the decision-making process, they may improve understanding and perceptions among colleagues and superiors, and enhance personnel value in the organization.

Participatory decision-making by the top management team can ensure the completeness of decision-making and may increase team member commitment to final decisions. In a participative decision-making process each team member has an opportunity to share their perspectives, voice their ideas and tap their skills to improve team effectiveness and efficiency.

Participatory decision-making can have a wide array of organizational benefits. Researchers have found that PDM may positively impact the following:

  • Job satisfaction
  • Organizational commitment
  • Perceived organizational support
  • Organizational citizenship behavior
  • Labor-management relations
  • Job performance and organizational performance
  • Organizational profits

Outcomes

The outcomes are various in PDM. In the aspect of employees, PDM refers to job satisfaction and performance, which are usually recognized as commitment and productivity[9] In the aspect of employers, PDM is evolved into decision quality and efficiency that influenced by multiple and differential mixed layers in terms of information access, level of participation, processes and dimensions in PDM.

Research primarily focuses on the work satisfaction and performance of employees in PDM. Different measurement systems were applied to identify the two items and the relevant properties. If they are measured with different processes in PDM, the relationship is as described below:

  • Identifying problems: Do not have strong relationship with performance. Because even with full participation, participants may not explore their skills and knowledge in identifying problems, which is likely to weaken the desires and motivation then influence performance.
  • Providing solutions: Positive and “potentially strong” relations with performance. It is not only attributed to the skills and knowledge could be explored but also the innovative ways employees can provide and generate.
  • Selecting solutions: Positive to performance but not likely to enhance satisfaction. If the solutions generated are not acknowledged by the employees who are absent at the previous stage, the satisfaction could lessen.
  • Planning implementation: Positive and strong relationship with both performance and satisfaction. Participants are given the possibility to affect the achievement of a designed plan. As the “value attainment” is attached, the extent of performance and work satisfaction increase.
  • Evaluating results: Weaker relationship with performance, but positive relationship with satisfaction due to the future benefit.

There are a number of ways through which employees can participate in decision-making process of any organization.

  • Participation at the Board Level: Representation of employees at the board level is known as industrial democracy. This can play an important role in protecting the interests of employees. The representative can put all the problems and issues of the employees in front of management and guide the board members to invest in employee benefit schemes.
  • Participation through Ownership: The other way of ensuring workers’ participation in organizational decision making is making them shareholders of the company. Inducing them to buy equity shares, advancing loans, giving financial assistance to enable them to buy equity shares are some of the ways to keep them involved in decision-making.
  • Participation through Collective Bargaining: This refers to the participation of workers through collective agreements and by deciding and following certain rules and regulations. This is considered as an ideal way to ensure employee participation in managerial processes. It should be well controlled otherwise each party tries to take an advantage of the other.
  • Participation through Suggestion Schemes: Encouraging your employees to come up with unique ideas can work wonders especially on matters such as cost cutting, waste management, safety measures, reward system, etc. Developing a full-fledged procedure can add value to the organizational functions and create a healthy environment and work culture. For instance, Satyam is known to have introduced an amazing country-wide suggestion scheme, the Idea Junction. It receives over 5,000 ideas per year from its employees and company accepts almost one-fifth of them.
  • Participation through Complete Control: This is called the system of self management where workers union acts as management. Through elected boards, they acquire full control of the management. In this style, workers directly deal with all aspects of management or industrial issues through their representatives.
  • Participation through Job Enrichment: Expanding the job content and adding additional motivators and rewards to the existing job profile is a fine way to keep workers involved in managerial decision-making. Job enrichment offers freedom to employees to exploit their wisdom and use their judgment while handling day-to-day business problems.
  • Participation through Quality Circles: A quality circle is a group of five to ten people who are experts in a particular work area. They meet regularly to identify, analyze and solve the problems arising in their area of operation. Anyone, from the organization, who is an expert of that particular field, can become its member. It is an ideal way to identify the problem areas and work upon them to improve working conditions of the organization.
Management Notes

Customer Relationship Management Advantages and Disadvantages

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Advantages

Enhances Better Customer Service

CRM systems provide businesses with numerous strategic advantages. One of such is the capability to add a personal touch to existing relationships between the business and the customers. It is possible to treat each client individually rather than as a group, by maintaining a repository on each customer’s profiles. This system allows each employee to understand the specific needs of their customers as well as their transaction file.

The organization can occasionally adjust the level of service offered to reflect the importance or status of the customer. Improved responsiveness and understanding among the business employees results in better customer service. This decreases customer agitation and builds on their loyalty to the business. Moreover, the company would benefit more by getting feedback over their products from esteemed customers.

The level of customer service offered is the key difference between businesses that lead the charts and those that are surprised with their faulty steps. Customer service efficiency is measured by comparing turnaround time for service issues raised by customers as well as the number of service errors recorded due to misinformation.

A good business should always follow–up with customers on the items they buy. This strategy enables a business to rectify possible problems even before they are logged as complaints.

Facilitates discovery of new customers

CRM systems are useful in identifying potential customers. They keep track of the profiles of the existing clientele and can use them to determine the people to target for maximum clientage returns.

New customers are an indication of future growth. However, a growing business utilizing CRM software should encounter a higher number of existing customers versus new prospects each week. Growth is only essential if the existing customers are maintained appropriately even with recruitment of new prospects.

Increases customer revenues

CRM data ensures effective co-ordination of marketing campaigns. It is possible to filter the data and ensure the promotions do not target those who have already purchased particular products. Businesses can also use the data to introduce loyalty programs that facilitate a higher customer retention ratio. No business enjoys selling a similar product to a customer who has just bought it recently. A CRM system coordinates customer data and ensures such conflicts do not arise.

Helps the sales team in closing deals faster

A CRM system helps in closing faster deals by facilitating quicker and more efficient responses to customer leads and information. Customers get more convinced to turn their inquiries into purchases once they are responded to promptly. Organizations that have successfully implemented a CRM system have observed a drastic decrease in turnaround time.

Enhances effective cross and up selling of products

Cross–selling involves offering complimentary products to customers based on their previous purchases. On the other hand, up–selling involves offering premium products to customers in the same category. With a CRM system, both cross and up selling can be made possible within a few minutes of cross– checking available data.

Apart from facilitating quicker offers to customers, the two forms of selling helps staff in gaining a better understanding of their customer’s needs. With time, they can always anticipate related purchases from their customer.

Simplifies the sales and marketing processes

A CRM system facilitates development of better and effective communication channels. Technological integrations like websites and interactive voice response systems can make work easier for the sales representatives as well as the organization. Consequently, businesses with a CRM have a chance to provide their customers with various ways of communication. Such strategies ensure appropriate delivery of communication and quick response to inquiries and feedback from customers.

Makes call centers more efficient

Targeting clients with CRM software is much easier since employees have access to order histories and customer details. The software helps the organization’s workforce to know how to deal with each customer depending upon their recorded archives. Information from the software can be instantly accessed from any point within the organization.

CRM also increases the time the sales personnel spend with their existing customers each day. This benefit can be measured by determining the number of service calls made each day by the sales personnel. Alternatively, it could also be measured through the face–to–face contact made by the sales personnel with their existing customers.

Enhances Customer Loyalty

CRM software is useful in measuring customer loyalty in a less costly manner. In most cases, loyal customers become professional recommendations of the business and the services offered. Consequently, the business can promote their services to new prospects based on testimonials from loyal customers. Testimonials are often convincing more than presenting theoretical frameworks to your future prospects. With CRM, it could be difficult pulling out your loyal customers and making them feel appreciated for their esteemed support.

Builds up on effective internal communication

A CRM strategy is effective in building up effective communication within the company. Different departments can share customer data remotely, hence enhancing team work. Such a strategy is better than working individually with no links between the different business departments. It increases the business’s profitability since staff no longer have to move physically move while in search of critical customer data from other departments.

Facilitates optimized marketing

CRM enables a business understand the needs and behavior of their customers. This allows them to identify the correct time to market their products to customers. The software gives ideas about the most lucrative customer groups to sales representatives. Such information is useful in targeting certain prospects that are likely to profit the business. Optimized marketing utilizes the business resources meaningfully.

Disadvantages of Customer Relationship Management

Costly:

Implementation of CRM system requires huge cost to be spent by the business. CRM software are too costly as it came with different price packages as per the needs of organizations. It increases the overall expenses of business and may not be suitable for small businesses.

Training:

For proper functioning of CRM, trained and qualified staff is required. It takes a huge cost and time for providing training to employees regarding CRM systems. They need to learn and acquire information regarding CRM software for a proper understanding of it. All this takes large efforts both in terms of money and time on the part of the organization.

Security Issues:

Another major drawback with CRM is the insecurity of data collected and stored. All of the data collected is stored at one centralized location which has a threat of being lost or hacked by someone. Employees may add inaccurate data or manipulate figures leading to wrongful planning.

Eliminates Human Element:

CRM has eliminated the involvement of humans as it works on a fully automated system. Whole Data is collected and processed automatically through CRM software. A company relationship with its customers can be properly managed through direct interaction between peoples and its staff. Loss of human touch may cause customers to shift anywhere else thereby reducing sales and revenue.

Third Party Access:

CRM data can be obtained and misused by other parties. There have been many cases where web hosting companies take and sells CRM data to the third party. Various sensitive data about customers may get into the wrong hands and cause loss to peoples.

Management Notes

Causes for success and failure of start-ups in India

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According to the Startup India Portal, India has about 50,000 start-ups and is the 3rd largest ecosystem in the world. Start-ups are now emerging in tier-II and tier-III cities, such as Pune, Ahmedabad, and Kochi. Further, there is an increase in the investment flows from Chinese, Japanese, and Singapore based investors.

Causes for success

Reasons responsible for the growth of start-ups are:

  • Large Indian Market:

India’s diversity in culture, religion, and language has helped start-ups to create diversified products, according to the needs of a particular community. This becomes their Unique Selling Proposition, which in-turn entices investors to fund the start-up.

  • Fast-moving business environment:

In an uncertain and changing business ecosystem, the companies are under constant pressure to innovate to find a footing in the market. Sometimes, other companies invest or buy the start-ups to increase their own uniqueness.

  • Easy access to funds

The government has set up funds for easy startups in the form of venture capital.

  • Apply for tenders

New companies can apply for government tenders. They are excluded from the “related knowledge/turnover” standards appropriate for typical organizations explaining government tenders.

  • Reduction in cost

The government additionally gives arrangements of facilitators of licenses and brand names. They will give top-notch Intellectual Property Rights Services including quick assessment of licenses at lower expenses.

The government will bear all facilitator charges and the startup will bear just the legal expenses.

  • Tax holidays for three years

New companies will be excluded from income tax for a very long time, they get a certificate from the Inter-Ministerial Board (IMB).

  • R&D facilities

In the R&D area, seven new Research Parks will be set up to give offices to new businesses.

  • Tax saving for investors

Individuals putting their capital additions in the endeavor subsidizes arrangement by the government will get an exemption from capital increases. Thus, this will assist new companies to convince more investors.

  • Choose your investor

After this arrangement, the new companies will have an alternative to pick between the VCs, giving them the freedom to pick their investors.

  • Easy exit

Now, talking about the easy exit then if there should be an occurrence of exit, a startup can close its business within 90 days from the date of use of winding up.

  • No time-consuming compliances

For saving time and money numerous compliances have been facilitated for startups.

  • Meet other entrepreneurs

The government has proposed to hold 2 startup fests yearly both broadly and universally to empower the different partners of a startup to meet.

Causes for failure

Lack of focus

When Bill Gates and Warren Buffet were asked about one factor that was responsible for their success, both replied with one word: focus. To understand how focus can help, let’s look at an example.

Grubhub is a food delivery startup. From the beginning, the company decided to focus only on food delivery. There are a lot of other services that a company like that could offer- pickup of food, catering, and more, but the founders chose to focus on just delivery. The result? They could execute technically and operationally and grow the business successfully.

Lack of funds

In 2018, bike rental startup, Tazzo, shut shop. The reason, as given by one of its funding partners, was a failed product-market fit that led to drying up of funding. Even though the startup had raised a considerable amount of funds, the lack of a profitable business model led to the startup shutting down.

Lack of Product Market Fit

There is no one “Fits in all” formula. It has deeper layers to it. This is more of a framework than a goal. Many-a-times, startups fail to validate their product ideas in the existing market scenario. In today’s competitive world, it is important to bring in a product or service that is both problem-solving and fulfils the customer’s expectations in every way, be it price-related or output-related. You don’t want to be wasting your time and efforts on creating something for which there is ‘no market need’!

Lack of innovation

According to a survey, 77% of venture capitalists think that Indian startups lack innovation or unique business models. A study conducted by IBM Institute for Business Value found that 91% of startups fail within the first five years and the most common reason is – lack of innovation.

Although India is said to have the third-largest startup ecosystem, it doesn’t have meta-level startups such as some of the big names like Google, Facebook, and Twitter. Indian startups are also known for replicating global startups, rather than creating their own startup models.

Among the most innovative Indian startups would be startups like ChaiPoint, Ola, Saathi, and Swiggy, according to a list of 50 most innovative companies in the world.

Fear of Startup Failure

While this fear lives in almost every entrepreneur, some tend to simply stop taking risks. Decision-making is hindered as the key goal becomes to not make even one wrong decision at any costs, thus limiting the startup’s gamut. Such fear can not only restrain but also motivate entrepreneurs when directed in a positive way. Having a negative approach from the start can influence thoughts and behaviour badly.

Poorly Harmonised Team

Any well-to-do startup requires a wide range of expertise in its team of employees and management. It is not hard to find technically proficient people these days. However, it is very difficult to find people who know how to get along with others and can be counted on when managers are not looking over their shoulders. Skills and work approach of the founder and his/her team should complement each other efficiently. Working for a startup can create a sort of pressure for the employees too, but as a founder you need to maintain quality communication with them and exchange thoughts eagerly.

Management Notes

Key Management Personnel, Significant influence

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Key Managerial Personnel (KMP) or Key Management Personnel refers to the employees of a company who are vested with the most important roles and functionalities. They are the first point of contact between the company and its stakeholders and are responsible for the formulation of strategies and its implementation. The Companies Act mandates certain classes of companies to include such personnel in its ranks. This article looks at this designation which holds a significant place in the Companies Act of 2013.

The definition of Key Managerial Personnel has been made more elaborate in the Companies Act of 2013 as the 1956 Act restricted its scope to a Managing Director, Whole Time Director and Manager. The current definition of the term provides for the inclusion of the Chief Executive Officer (CEO), the Manager, the Managing Director, the Company Secretary, the Whole-Time Director, the Chief Financial Officer (CFO) and such other officers as may be prescribed. For the purpose of this Act, a Key Managerial Personnel (KMP) is considered as an “Officer and an “Officer who is in default”.

It may be noted that companies are prohibited from appointing or employing a Managing Director and a Manager at the same time. Also, no individuals should be appointed or reappointed as the Managing Director, Manager, Whole-Time Director or Chief Executive Officer (CEO) of a Company for a term exceeding five years at a time, and no reappointments are allowed earlier than one year before the expiry of its term (conditions are subject to additional clauses).

Key management personnel are those people having authority and responsibility for planning, directing, and controlling the activities of an entity, either directly or indirectly. This designation typically includes the following positions:

  • Board of directors
  • Chief executive officer, chief operating officer, and chief financial officer
  • Vice presidents

An entity shall disclose key management personnel compensation in total and for each of the following categories

(a) Short-term employee benefits

(b) Post-employment benefits

(c) Other long-term benefits;

(d) Termination benefits

(e) share-based payment.

Compensation includes all employee benefits as defined in Ind AS 19 Employee Benefits including share based payments to employees as per Ind AS 102.  Employee benefits are all forms of consideration paid, payable or provided by the entity, or on behalf of the entity, in exchange for services rendered to the entity. It also includes such consideration paid on behalf of a parent of the entity in respect of the entity.

If an entity obtains key management personnel services from another entity (the ‘management entity’) [See related party definition point (b) (viii)] in such case, the entity should disclose the amount of fees/compensation paid to the management entity.  Generally, the reporting entity pays agreed amount to the management entity and in return management entity pays to its employees i.e., who managed the reporting entity. The details of payment by the management entity to its employees/directors are not required to be disclosed in the reporting entity financial statements.

According to section 203(1) read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the following companies are mandated to appoint a Whole-time KMP:

  • Every Listed Company
  • Public Companies having paid-up share capital of 10 Crore rupees or more.
  • Public Companies Having paid-up share of 5 Crore rupees or more.
  • Companies having paid-up share capital of 10 Crore rupees or more are mandated to appoint a Company Secretary.

Roles and Responsibilities of Key Managerial Personnel

The Management function of implementing important decisions comes under the responsibilities of Key Managerial Personnel. Here are some of the main Roles and Responsibilities of KMP:

As per Section 170 of the Act, the details of Securities held by the Key Managerial Personnel in the company or its holding, subsidiary, a subsidiary of the company or associated companies should be disclosed and recorded in the registrar of the Books.

KMP has a right to be heard in the meetings of the Audit Committee while considering the Auditor’s Report; however they do not have the right to vote.

According to Section 189(2), Key Managerial Personnel should disclose to the company, within 30 days of appointment, relating to their concern or interest in the other associations, which are required to be included in the register.

Procedure of Appointment of KMP

  • The appointment of key managerial personnel is prescribed under Section 203 of the Act. Every member of managerial personnel is appointed through a resolution adopted by the Board with terms and conditions of appointment and remuneration.
  • A member of managerial personnel can hold the position in one company at a given time. However a member of managerial personnel of a company can be a member of managerial personnel of its subsidiary company.
  • In case of vacancy the Board has the responsibility of filling up within six months from the date of such vacancy.
  • If the company or its Board tries to violate the provision of appointment of managerial personnel, then the company has to suffer from penalty. The company shall be punishable with fine of rupees one lakh which may extend up to rupees five lakh.
  • Every Director and other key managerial personnel shall also be punishable with a fine of Rs.50, 000. If the contravention is continuing, then they would be charged with Rs. 1000 per day after the first offense.

Officer in default

According to section 2(60) of the Act, an ‘officer who is in default ‘shall be liable for any penalty or punishment by way of imprisonment or fine. The officers may include:

Key Managerial Personnel

Whole-Time director’.

Any person who is responsible for maintenance, filing or distributing records or accounts.

Any Director who is aware of the activities taking place is in contravention of the law or the provisions and yet indulges in or participates in it.

Maintenance of Register:

Every Company falling under this provision is required to maintain a register comprising particulars of its Directors and KMPs, which is to be placed at the registered office of the Company. The documents should include the details of securities held by each of them in the company or its holding, subsidiary, subsidiary of a company’s holding company or associate companies. Further requirements of its contents have been mentioned in Rule 17 of the Companies (Appointment and Qualification of Directors) Rules, 2014.

Significant influence

Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control of those policies.

IND-AS 28 defines significant influence as under:

Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.

Management Notes

Some important provisions of Banking Regulation Act of 1949

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Different types of banks, such as commercial banks, cooperative banks, rural banks, and private sector banks exist in India. The Reserve Bank of India (RBI) is the governing body for regulating and supervising the banks. Banking Regulation Act, 1949 is an Act that provides a framework for regulating the banks of India. The Act came into force on 16th March 1949. This Act gives RBI the power to control the behaviour of banks. This Act was passed as Banking Companies Act, 1949. It did not apply to Jammu and Kashmir until 1956. This Act monitors the day-to-day operations of the bank. Under this Act, the RBI can licence banks, put ​​regulation over shareholding and voting rights of shareholders, look over the appointment of the boards and management, and lay down the instructions for audits. RBI also plays a role in mergers and liquidation.

Objectives of the Banking Regulation Act, 1949

  • To meet the demand of the depositors and provide them security and guarantee.
  • To provide provisions that can regulate the business of banking.
  • To regulate the opening of branches and changing of locations of existing branches.
  • To prescribe minimum requirements for the capital of banks.
  • To balance the development of banking institutions.

Provisons

  1. Prohibition of Trading (Sec. 8):

According to Sec. 8 of the Banking Regulation Act, a banking company cannot directly or indirectly deal in buying or selling or bartering of goods. But it may, however, buy, sell or barter the transactions relating to bills of exchange received for collection or negotiation.

  1. Non-Banking Assets (Sec. 9):

According to Sec. 9 “A banking company cannot hold any immovable property, howsoever acquired, except for its own use, for any period exceeding seven years from the date of acquisition thereof. The company is permitted, within the period of seven years, to deal or trade in any such property for facilitating its disposal”. Of course, the Reserve Bank of India may, in the interest of depositors, extend the period of seven years by any period not exceeding five years.

  1. Management (Sec. 10):

Sec. 10 (a) states that not less than 51% of the total number of members of the Board of Directors of a banking company shall consist of persons who have special knowledge or practical experience in one or more of the following fields:

(a) Accountancy;

(b) Agriculture and Rural Economy;

(c) Banking;

(d) Cooperative;

(e) Economics;

(f) Finance;

(g) Law;

(h) Small Scale Industry.

The Section also states that at least not less than two directors should have special knowledge or practical experience relating to agriculture and rural economy and cooperative. Sec. 10(b) (1) further states that every banking company shall have one of its directors as Chairman of its Board of Directors.

  1. Minimum Capital and Reserves (Sec. 11):

Sec. 11 (2) of the Banking Regulation Act, 1949, provides that no banking company shall commence or carry on business in India, unless it has minimum paid-up capital and reserve of such aggregate value as is noted below:

(a) Foreign Banking Companies:

In case of banking company incorporated outside India, aggregate value of its paid-up capital and reserve shall not be less than Rs. 15 lakhs and, if it has a place of business in Mumbai or Kolkata or in both, Rs. 20 lakhs.

It must deposit and keep with the R.B.I, either in Cash or in unencumbered approved securities:

(i) The amount as required above, and

(ii) After the expiry of each calendar year, an amount equal to 20% of its profits for the year in respect of its Indian business.

(b) Indian Banking Companies:

In case of an Indian banking company, the sum of its paid-up capital and reserves shall not be less than the amount stated below:

(i) If it has places of business in more than one State, Rs. 5 lakhs, and if any such place of business is in Mumbai or Kolkata or in both, Rs. 10 lakhs.

(ii) If it has all its places of business in one State, none of which is in Mumbai or Kolkata, Rs. 1 lakh in respect of its principal place of business plus Rs. 10,000 in respect of each of its other places of business in the same district in which it has its principal place of business, plus Rs. 25,000 in respect of each place of business elsewhere in the State.

No such banking company shall be required to have paid-up capital and reserves exceeding Rs. 5 lakhs and no such banking company which has only one place of business shall be required to have paid- up capital and reserves exceeding Rs. 50,000.

In case of any such banking company which commences business for the first time after 16th September 1962, the amount of its paid-up capital shall not be less than Rs. 5 lakhs.

(iii) If it has all its places of business in one State, one or more of which are in Mumbai or Kolkata, Rs. 5 lakhs plus Rs. 25,000 in respect of each place of business outside Mumbai or Kolkata? No such banking company shall be required to have paid-up capital and reserve excluding Rs. 10 lakhs.

  1. Capital Structure (Sec. 12):

According to Sec. 12, no banking company can carry on business in India, unless it satisfies the following conditions:

(a) Its subscribed capital is not less than half of its authorized capital, and its paid-up capital is not less than half of its subscribed capital.

(b) Its capital consists of ordinary shares only or ordinary or equity shares and such preference shares as may have been issued prior to 1st April 1944. This restriction does not apply to a banking company incorporated before 15th January 1937.

(c) The voting right of any shareholder shall not exceed 5% of the total voting right of all the shareholders of the company.

  1. Payment of Commission, Brokerage etc. (Sec. 13):

According to Sec. 13, a banking company is not permitted to pay directly or indirectly by way of commission, brokerage, discount or remuneration on issues of its shares in excess of 2½% of the paid-up value of such shares.

  1. Payment of Dividend (Sec. 15):

According to Sec. 15, no banking company shall pay any dividend on its shares until all its capital expenses (including preliminary expenses, organisation expenses, share selling commission, brokerage, amount of losses incurred and other items of expenditure not represented by tangible assets) have been completely written-off.

But Banking Company need not:

(a) Write-off depreciation in the value of its investments in approved securities in any case where such depreciation has not actually been capitalized or otherwise accounted for as a loss;

(b) Write-off depreciation in the value of its investments in shares, debentures or bonds (other than approved securities) in any case where adequate provision for such depreciation has been made to the satisfaction of the auditor;

(c) Write-off bad debts in any case where adequate provision for such debts has been made to the satisfaction of the auditors of the banking company.

Floating Charges:

A floating charge on the undertaking or any property of a banking company can be created only if RBI certifies in writing that it is not detrimental to the interest of depositors Sec. 14A. Similarly, any charge created by a banking company on unpaid capital is invalid Sec. 14.

  1. Reserve Fund/Statutory Reserve (Sec. 17):

According to Sec. 17, every banking company incorporated in India shall, before declaring a dividend, transfer a sum equal to 20% of the net profits of each year (as disclosed by its Profit and Loss Account) to a Reserve Fund.

The Central Government may, however, on the recommendation of RBI, exempt it from this requirement for a specified period. The exemption is granted if its existing reserve fund together with Securities Premium Account is not less than its paid-up capital.

If it appropriates any sum from the reserve fund or the securities premium account, it shall, within 21 days from the date of such appropriation, report the fact to the Reserve Bank, explaining the circumstances relating to such appropriation. Moreover, banks are required to transfer 20% of the Net Profit to Statutory Reserve.

  1. Cash Reserve (Sec. 18):

Under Sec. 18, every banking company (not being a Scheduled Bank) shall, if Indian, maintain in India, by way of a cash reserve in Cash, with itself or in current account with the Reserve Bank or the State Bank of India or any other bank notified by the Central Government in this behalf, a sum equal to at least 3% of its time and demand liabilities in India.

The Reserve Bank has the power to regulate the percentage also between 3% and 15% (in case of Scheduled Banks). Besides the above, they are to maintain a minimum of 25% of its total time and demand liabilities in cash, gold or unencumbered approved securities. But every banking company’s asset in India should not be less than 75% of its time and demand liabilities in India at the close of last Friday of every quarter.

  1. Liquidity Norms or Statutory Liquidity Ratio (SLR) (Sec. 24):

According to Sec. 24 of the Act, in addition to maintaining CRR, banking companies must maintain sufficient liquid assets in the normal course of business. The section states that every banking company has to maintain in cash, gold or unencumbered approved securities, an amount not less than 25% of its demand and time liabilities in India.

This percentage may be changed by the RBI from time to time according to economic circumstances of the country. This is in addition to the average daily balance maintained by a bank.

Again, as per Sec. 24 of the Banking Regulation Act, 1949, every scheduled bank has to maintain 31.5% on domestic liabilities up to the level outstanding on 30.9.1994 and 25% on any increase in such liabilities over and above the said level as on the said date.

But w.e.f. 26.4.1997 fortnight the maintenance of SLR for inter-bank liabilities was exempted. It must be remembered that at the start of the preceding fortnights, SLR must be maintained for outstanding liabilities.

  1. Restrictions on Loans and Advances (Sec. 20):

After the Amendment of the Act in 1968, a bank cannot:

(i) Grant loans or advances on the security of its own shares, and

(ii) Grant or agree to grant a loan or advance to or on behalf of:

(a) Any of its directors;

(b) Any firm in which any of its directors is interested as partner, manager or guarantor;

(c) Any company of which any of its directors is a director, manager, employee or guarantor, or in which he holds substantial interest; or

(d) Any individual in respect of whom any of its directors is a partner or guarantor.

Note:

(ii) (c) Does not apply to subsidiaries of the banking company, registered under Sec. 25 of the Companies Act or a Government Company.

  1. Accounts and Audit (Sees. 29 to 34A):

The above Sections of the Banking Regulation Act deal with the accounts and audit. Every banking company, incorporated in India, at the end of a financial year expiring after a period of 12 months as the Central Government may by notification in the Official Gazette specify, must prepare a Balance Sheet and a Profit and Loss Account as on the last working day of that year, or, according to the Third Schedule, or, as circumstances permit.

At the same time, every banking company, which is incorporated outside India, is required to prepare a Balance Sheet and also a Profit and Loss Account relating to its branch in India also. We know that Form A of the Third Schedule deals with form of Balance Sheet and Form B of the Third Schedule deals with form of Profit and Loss Account.

It is interesting to note that a revised set of forms have been prescribed for Balance Sheet and Profit and Loss Account of the banking company and RBI has also issued guidelines to follow the revised forms with effect from 31st March 1992.

According to Sec. 30 of the Banking Regulation Act, the Balance Sheet and Profit and Loss Account should be prepared according to Sec. 29, and the same must be audited by a qualified person known as auditor. Every banking company must take previous permission from RBI before appointing, re­appointing or removing any auditor. RBI can also order special audit for public interest of depositors.

Moreover, every banking company must furnish their copies of accounts and Balance Sheet prepared according to Sec. 29 along with the auditor’s report to the RBI and also the Registers of companies within three months from the end of the accounting period.

Management Notes

What a Performance Management System Should Do

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Link Salary and Status Realistically to the Performance Appraisals

Most personnel departments have a very narrow outlook to appraisals. The general view is to receive the appraisal forms at a date (which usually is the deadline), issue instructions regarding increments and promotions, receive the data regarding the same and they issue letters to the concerned employee informing of their salary increase. The appraisal process gets polluted as the appraiser and appraise have at the back of their minds promotion and salary increase, rather than performance plans and participative reviews. This dilutes the objectives of appraisal to great extent. In fact, if organizations create, a culture of continuous feedback on the performance they would be making the appraisal system more relevant. Several organizations have already started delinking performance appraisal from salary increase.

Making Objectives of Performance Appraisals Clear to All Employees

If performance appraisal should not directly be linked to salary increase the question then arises, what should the objectives of performance appraisals be that could be realistically achieved?

  • To do joint goal setting, and link the goals to the organizational objectives
  • To provide role clarity by defining Key Result areas for Accounting.
  • To establish a level of performance in the current job and seek ways of improving it.
  • To identify potential for development and to support the total process of planning.
  • To increase communication between the appraiser and the appraise.
  • To identify factors that facilitate performance and other factors that hinder performance.
  • To help the employees identify and recognize their own strengths and weaknesses. To make them assess their own competencies and how the same can be multiplied and improved.
  • To generate data about the employee for various decisions like transfers, rewards, job-rotation, etc.

Focus on Developmental Appraisals

Managers should develop part ownership in the employee’s future. Any good appraisal system should focus on developmental appraisal. Developmental appraisal mean that an organization needs to develop not just isolated performance appraisal tool/system, but the total frame work for the individuals development, improvement in job and level of competence and preparing employees for future jobs. Thus, appraisal of people, which is a part of the total HRD system, lies to be linked to long-term development activity and carrier planning.

Organizations have to show vision for the future. Vision, strategies and objectives will give rise to individual objectives and performance standards. The immediate rewards and recognition do not lead to enduring performance and upgrading of competence and therefore are not real motivators. The appraisal as a tool not only gives the individual and the organization the idea of where the individual stands in terms of his skills, competencies and abilities, but also monitors the process of growth and development, together with the inputs that are required to develop a high level of competence by individuals.

Let Employees Appraise Their Own Performance

Subordinates need feedback more often on their performance. The best way to do it is to let them appraise their own performance.

Self-appraisal would;

  • Motivate the employee to take more responsibility for his/her own performance.
  • Focus on the job behavior only.
  • Reduce ambiguity in performance and focus on change in job behavior.

Create a Climate for Open Appraisals in Organizations

In most organizations, the concept of open appraisal is misunderstood. Open appraisal does nut mean that the appraisal ratings are shown by the subordinate, and his/her signature is then obtained. What it does mean that both the appraiser and the appraise share their views on performance with each other, identify the areas of improvement and work towards it. One of the objectives of open communication between the appraiser and the appraise is to bring them together to solve organizational problems and performance related problems. The quality of ratings is likely to improve if there is shared understanding between the appraiser and the appraise.

Muscle Builds the Organization

In today’s competitive world, raising performance goals is essential. This entails analyzing the company’s current situation, projecting the future, establishing higher expectations, and selling the top management on the upgrading process and developing an action plan. Muscle builds the organization by;

  • Enhancing your own performance
  • Accelerating the professional growth of the best performers
  • Not tolerating managerial performers. One cannot muscle build the organization, unless marginal performers are replaced.
  • Developing multiple skills and competencies by worshiping success and potential.
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