CORPORATE GOVERNANCE

Presented By:-Shubhamveer Singh (mb15)Saurabh Pratap Rao (mb43)Jai Prakash Kushwaha(mb57)Ankur Jaiswal (mb70)

Corporate GovernanceCorporate Governance is the application of

best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.

Conduct of business in accordance with shareholders desires (maximising wealth) while confirming to the basic rules of the society embodied in the Law and Local Customs

Corporate GovernanceRelationships among various participants

in determining the direction and performance of a corporation.

Effective management of relationships among–Shareholders–Managers–Board of directors–employees–Customers–Creditors–Suppliers– community

Why Corporate Governance?Better access to external financeLower costs of capital – interest rates on

loansImproved company performance –

sustainabilityHigher firm valuation and share

performance Reduced risk of corporate crisis and

scandals

Principles of Corporate Governance Sustainable development of all stake

holders- to ensure growth of all individuals associated with or effected by the enterprise on sustainable basis

Effective management and distribution of wealth – to ensue that enterprise creates maximum wealth and judiciously uses the wealth so created for providing maximum benefits to all stake holders and enhancing its wealth creation capabilities to maintain sustainability

Discharge of social responsibility- to ensure that enterprise is acceptable to the society in which it is functioning

Application of best management practices- to ensure excellence in functioning of enterprise and optimum creation of wealth on sustainable basis

Compliance of law in letter & spirit- to ensure value enhancement for all stakeholders guaranteed by the law for maintaining socio-economic balance

Adherence to ethical standards- to ensure integrity, transparency, independence and accountability in dealings with all stakeholders

Four Pillars of Corporate GovernanceAccountabilityFairnessTransparencyIndependence

Accountability Ensure that management is accountable to

the Board

Ensure that the Board is accountable to shareholders

FairnessProtect Shareholders rights

Treat all shareholders including minorities, equitably

Provide effective redress for violations

Transparency

Ensure timely, accurate disclosure on all material matters, including the financial situation, performance, ownership and corporate governance

IndependenceProcedures and structures are in place

so as to minimise, or avoid completely conflicts of interest

Independent Directors and Advisers i.e. free from the influence of others

Elements of Corporate GovernanceGood Board practices

Control Environment

Transparent disclosure

Well-defined shareholder rights

Board commitment

Good Board PracticesClearly defined roles and authorities

Duties and responsibilities of Directors understood

Board is well structured

Appropriate composition and mix of skills

Good Board proceduresAppropriate Board procedures

Director Remuneration in line with best practice

Board self-evaluation and training conducted

Control EnvironmentInternal control procedures

Risk management framework present

Disaster recovery systems in place

Media management techniques in use

Control EnvironmentBusiness continuity procedures in place

Independent external auditor conducts audits

Independent audit committee established

Control EnvironmentInternal Audit Function

Management Information systems established

Compliance Function established

Transparent DisclosureFinancial Information disclosed

Non-Financial Information disclosed

Financials prepared according to International Financial Reporting Standards (IFRS)

Transparent DisclosureCompanies Registry filings up to date

High-Quality annual report published

Web-based disclosure

Well-Defined Shareholder RightsMinority shareholder rights formalised

Well-organised shareholder meetings conducted

Policy on related party transactions

Well-Defined Shareholder RightsPolicy on extraordinary transactions

Clearly defined and explicit dividend policy

Board CommitmentThe Board discusses corporate

governance issues and has created a corporate governance committee

The company has a corporate governance champion

A corporate governance improvement plan has been created

Appropriate resources are committed to corporate governance initiatives

Board CommitmentPolicies and procedures have been

formalised and distributed to relevant staff

A corporate governance code has been developed

A code of ethics has been developedThe company is recognised as a

corporate governance leader

Other EntitiesCorporate Governance applies to all

types of organisations not just companies in the private sector but also in the not for profit and public sectors

Examples are NGOs, schools, hospitals, pension funds, state-owned enterprises

Corporate governance in India The Indian corporate scenario was more or less

stagnant till the early 90s.

The position and goals of the Indian corporate sector has changed a lot after the liberalisation of 90s.

India’s economic reform programme made a steady progress in 1994.

India with its 20 million shareholders, is one of the largest emerging markets in terms of the market capitalization.

Corporate governance of India has undergone a paradigm shift

In 1996, Confederation of Indian Industry (CII), took a special initiative on Corporate Governance.

The objective was to develop and promote a code for corporate governance to be adopted and followed by Indian companies, be these in the Private Sector, the Public Sector, Banks or Financial Institutions, all of which are corporate entities.

This initiative by CII flowed from public concerns regarding the protection of investor interest, especially the small investor, the promotion of transparency within business and industry

Securities and Exchange Board of India

The Government of India's securities watchdog, the Securities Board of India, announced strict corporate governance norms for publicly listed companies in India.

The Indian Economy was liberalised in 1991. In order to achieve the full potential of liberalisation and enable the Indian Stock Market to attract huge investments from foreign institutional investors (FIIs), it was necessary to introduce a series of stock market reforms.

SEBI, established in 1988 and became a fully autonomous body by the year 1992 with defined responsibilities to cover both development and regulation of the market.

SEBI On April 12, 1988, the Securities and Exchange

Board of India (SEBI)was established with a dual objective of protecting the rights of small investors and regulating and developing the stock markets in India.

In 1992, the ‘BSE’ ,the leading stock exchange in India, witnessed the first major scam masterminded by Harshad Mehta.

Analysts felt that if more powers had been given to SEBI,the scam would not have happened.

•As a result the ‘GoI’ brought in a separate legislation by the name of ‘SEBI Act 1992’and conferred statutory powers to it.

Since then, SEBI had introduced several stock market reforms. These reforms significantly transformed the face of Indian Stock Markets

SEBI and Clause 49 SEBI asked Indian firms above a certain size

to implement Clause 49, a regulation that strengthens the role of independent directors serving on corporate boards.

On August 26, 2003, SEBI announced an amended Clause 49 of the listing agreement which every public company listed on an Indian stock exchange is required to sign. The amended clauses come into immediate effect for companies seeking a new listing.

The major changes to Clause 49…Independent Directors:- 1/3 to ½depending

whether the chairman of the board is a non-executive or executive position.

Non-Executive Directors:- The total term of office of non-executive directors is now limited to three terms of three years each.

Board of Directors:- The board is required to frame a code of conduct for all board members and senior management and each of them have to annually affirm compliance with the code.

Audit Committee:- Financial statements and the draft audit report of management discussion and analysis of…

• Financial condition • Result of operations of compliance with laws• Risk management letters • Letters of weaknesses in internal controls issued by statutory • Internal auditors • Removal and terms of remuneration of the chief internal

auditor

Whistleblower Policy :- This policy has to be communicated to all employees and whistleblowers should be protected from unfair treatment and termination.

Subsidiary Companies:- 50% non-executive directors & 1/3 & ½independent directors depending on whether the chairman is non-executive or executive.

ConclusionAs Indian companies compete globally for access to

capital markets, many are finding that the ability to benchmark against world-class organizations is essential.

For a long time, India was a managed, protected economy with the corporate sector operating in an insular fashion.

But as restrictions have eased, Indian corporations are emerging on the world stage and discovering that the old ways of doing business are no longer sufficient in such a fast-paced global environment.

Thank You