3. CORPORATE GOVERNANCE
WHAT IS CORPORATE GOVERNANCE –
PROCESSES AND STRUCTURE BY WHICH
BUSINESS AND AFFAIRS OF CORPORATE SECTOR
IS DIRECTED AND MANAGED
OBJECTIVE OF CORPORATE GOVERNANCE a)
TO BUILD UP AN ENVIRONMENT OF TRUST AND
CONFIDENCE AMONGST THOSE HAVING
COMPETING AND CONFLICTING INTEREST
b) TO ENHANCE SHAREHOLDERS’ VALUE AND
PROTECT THE INTEREST OF OTHER
STAKEHOLDERS BY ENHANCING THE CORPORATE
PERFORMANCE AND ACCOUNTABILITY
4. GLOBAL INITIATIVES TO IMPOSE
CORPORATE GOVERNANCE
SIR ADRIAN CADBURY COMMITTEE
– TO ADDRESS THE ISSUES RELATED TO
CORPORATE GOVERNANCE IN UNITED KINGDOM
CORPORATE GOVERNANCE REPORT OF
SINGAPORE GOVERNMENT
SARBANES-OXLEY ACT, 2002 BY THE AMERICAN
CONGRESS WHICH CAME INTO EFFECT IN JULY
2002 – TO ADDRESS ALL THE ISSUES
ASSOCIATED WITH CORPORATE FAILURES TO
ACHIEVE QUALITY GOVERNANCE AND TO
RESTORE INVESTORS’ CONFIDENCE
5. IMPLEMENTATION OF CORPORATE
GOVERNANCE IN INDIA
SHRI KUMAR MANGALAM COMMITTEE
– CONSTITUTED IN MAY 1999 TO PROMOTE AND RAISE
THE STANDARD OF CORPORATE GOVERNANCE IN INDIA
MANDATORY RECOMMENDATIONS OF BIRLA
COMMITTEE:
APPLIES TO LISTED COMPANIES WITH PAID UP CAPITAL
OF Rs.3 CRORE AND ABOVE
COMPOSITION OF BOARD OF DIRECTORS – OPTIMUM
COMBINATION OF EXECUTIVE & NON-EXECUTIVE
DIRECTORS
AUDIT COMMITTEE – WITH 3 INDEPENDENT DIRECTORS
WITH ONE HAVING FINANCIAL AND ACCOUNTING
KNOWLEDGE.
6. MANDATORY RECOMMENDATIONS
OF BIRLA COMMITTEE
REMUNERATION COMMITTEE
BOARD PROCEDURES – ATLEAST 4 MEETINGS OF THE
BOARD IN A YEAR WITH MAXIMUM GAP OF 4 MONTHS
BETWEEN 2 MEETINGS. TO REVIEW OPERATIONAL
PLANS, CAPITAL BUDGETS, QUARTERLY RESULTS,
MINUTES OF COMMITTEE’S MEETING.
DIRECTOR SHALL NOT BE A MEMBER OF MORE THAN 10
COMMITTEE AND SHALL NOT ACT AS CHAIRMAN OF
MORE THAN 5 COMMITTEES ACROSS ALL COMPANIES
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
COVERING INDUSTRY STRUCTURE, OPPORTUNITIES,
THREATS, RISKS, OUTLOOK, INTERNAL CONTROL SYSTEM
INFORMATION SHARING WITH SHAREHOLDERS
7. NON-MANDATORY RECOMMENDATIONS
OF BIRLA COMMITTEE
ROLE OF CHAIRMAN
REMUNERATION COMMITTEE OF BOARD
SHAREHOLDERS’ RIGHT FOR RECEIVING HALF YEARLY
FINANCIAL PERFORMANCE
POSTAL BALLOT COVERING CRITICAL MATTERS LIKE
ALTERATION IN MEMORANDUM ETC
SALE OF WHOLE OR SUBSTANTIAL PART OF THE
UNDERTAKING
CORPORATE RESTRUCTURING
FURTHER ISSUE OF CAPITAL
VENTURING INTO NEW BUSINESSES
8. IMPLEMENTATION OF RECOMMENDATIONS
OF BIRLA COMMITTEE
BY INTRODUCTION OF CLAUSE 49 IN THE LISTING
AGREEMENT WITH STOCK EXCHANGES
PROVISIONS OF CLAUSE 49
COMPOSITION OF BOARD - IN CASE OF FULL TIME
CHAIRMAN, 50% NON-EXECUTIVE DIRECTORS AND 50%
EXECUTIVE DIRECTORS
CONSTITUTION OF AUDIT COMMITTEE – WITH 3
INDEPENDENT DIRECTORS WITH CHAIRMAN HAVING SOUND
FINANCIAL BACKGROUND. FINANCE DIRECTOR AND
INTERNAL AUDIT HEAD TO BE SPECIAL INVITEES AND
MINIMUM 3 MEETINGS TO BE CONVENED.
RESPONSIBLE FOR REVIEW OF FINANCIAL PERFORMANCE 0N
HALF YEARLY/ANNUALLY BASIS; APPOINTMENT/
REMOVAL/REMUNERATION OF AUDITORS; REVIEW OF
INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY
9. CLAUSE 49 REQUIREMENTS
REMUNERATION OF DIRECTORS – REMUNERATION OF
NON-EXECUTIVE DIRECTORS TO BE DECIDED BY THE
BOARD. DETAILS OF REMUNERATION PACKAGE, STOCK
OPTIONS, PERFORMANCE INCENTIVES OF DIRECTORS
TO BE DISCLOSED
BOARD PROCEDURES – ATLEAST 4 MEETINGS IN A
YEAR. DIRECTOR NOT TO BE MEMBER OF MORE THAN
10 COMMITTEES AND CHAIRMAN OF MORE THAN 5
COMMITTEES ACROSS ALL COMPANIES
MANAGEMENT DISCUSSION & ANALYSIS REPORT –
SHOULD INCLUDE:
INDUSTRY STRUCTURE & DEVELOPMENTS
OPPORTUNITIES & THREATS
SEGMENT WISE OR PRODUCT WISE PERFORMANCE
10. CLAUSE 49 REQUIREMENTS
MANAGEMENT DISCUSSION & ANALYSIS REPORT – TO
INCLUDE:
OUTLOOK
RISKS & CONCERNS
INTERNAL CONTROL SYSTEMS & ITS ADEQUACY
DISCUSSION ON FINANCIAL PERFORMANCE
DISCLOSURE BY DIRECTORS ON MATERIAL FINANCIAL AND
COMMERCIAL TRANSACTIONS WITH THE COMPANY
SHAREHOLDERS INFORMATION - BRIEF RESUME OF
NEW/RE-APPOINTED DIRECTORS, QUARTERLY RESULTS TO
BE SUBMITTED TO STOCK EXCHANGES AND TO BE PLACED
ON WEB-SITE, PRESENTATION TO ANALYSTS
11. CLAUSE 49 REQUIREMENTS
SHAREHOLDERS’/INVESTORS GRIEVANCE
COMMITTEE UNDER THE CHAIRMANSHIP OF
INDEPENDENT DIRECTOR. MINIMUM 2
MEETINGS IN A YEAR
REPORT ON CORPORATE GOVERNANCE AND
CERTIFICATE FROM AUDITORS ON
COMPLIANCE OF PROVISIONS OF
CORPORATE GOVERNANCE AS PER CLAUSE
49 IN THE LISTING AGREEMENT
12. RECENT DEVELOPMENTS
COMMITTEE HEADED BY SHRI NARESH CHANDRA
CONSTITUTED IN AUGUST 2002 TO EXAMINE
CORPORATE AUDIT, ROLE OF AUDITORS,
RELATIONSHIP OF COMPANY & AUDITOR
RECOMMENDATION OF NARESH CHANDRA
COMMITTEE:
RECOMMENDED A LIST OF DISQUALIFICATIONS FOR AUDIT
ASSIGNMENTS LIKE DIRECT RELATIONSHIP WITH
COMPANY, ANY BUSINESS RELATIONSHIP WITH CLIENT,
PERSONAL RELATIONSHIP WITH DIRECTOR
AUDIT FIRMS NOT TO PROVIDE SERVICES SUCH AS
ACCOUNTING, INTERNAL AUDIT ASSIGNMENTS ETC. TO
AUDIT CLIENTS
AUDITOR TO DISCLOSE CONTINGENT LIABILITIES &
HIGHLIGHT SIGNIFICANT ACCOUNTING POLICIES
13. RECENT DEVELOPMENTS
RECOMMENDATION OF NARESH CHANDRA
COMMITTEE:
AUDIT COMMITTEE TO BE FIRST POINT OF REFERENCE
FOR APPOINTMENT OF AUDITORS
CEO & CFO OF LISTED COMPANY TO CERTIFY ON
FAIRNESS, CORRECTNESS OF ANNUAL AUDITED
ACCOUNTS
REDEFINITION OF INDEPENDENT DIRECTORS – DOES NOT
HAVE ANY MATERIAL, PECUNIARY RELATIONSHIP OR
TRANSACTION WITH THE COMPANY
COMPOSITION OF BOARD OF DIRECTORS
STATUTORY LIMIT ON THE SITTING FEE TO NON-
EXECUTIVE DIRECTORS TO BE REVIEWED
RECOMMENDATIONS HAVE FORMED PART OF COMPANIES
(AMENDMENT) BILL, 2003 (YET TO BE PASSED)
14. RECENT DEVELOPMENTS
SEBI CONSTITUTED A COMMITTEE HEADED BY SHRI
N. R. NARAYANA MURTHY TO REVIEW EXISTING CODE
OF CORPORATE GOVERNANCE
RECOMMENDATIONS:
STRENGHTENING THE RESPONSIBILITIES OF AUDIT
COMMITTEE
IMPROVING QUALITY OF FINANCIAL DISCLOSURES
UTILISATION OF PROCEEDS FROM IPO
TO ASSESS & DISCLOSE BUSINESS RISKS
FORMAL CODE OF CONDUCT FOR BOARD
WHISTLE BLOWER POLICY TO BE PALCE IN A COMPANY
PROVIDING FREEDOM TO APPROACH THE AUDIT
COMMITTEE
SUBSIDIARIES TO BE REVIEWED BY AUDIT COMMITTEE OF
HOLDING COMPANY
15. CORPORATE GOVERNANCE -
ULTIMATE OBJECTIVE
TO ATTAIN HIGHEST STANDARD OF
PROCEDURES AND PRACTICES FOLLOWED
BY THE CORPORATE WORLD SO AS TO
HAVE TRANSPARENCY IN ITS
FUNCTIONING WITH AN ULTIMATE AIM TO
MAXIMISE THE VALUE OF VARIOUS
STAKEHOLDERS.
