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CORPORATE GOVERNANCE
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
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
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.
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
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
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
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
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
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
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
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)
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
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.