Corporate Governance, Auditors, Independent DirectorsGROUP 9

1

Corporate Governance

2

3

“Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders ..also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.”

Introduction

4What is Corporate Governance?

The manner in which corporation is run: Achieving its objectives Transparency of its operations Accountability and Reporting Good corporate Citizenship

5Principles of Corporate Governance

Shareholder recognition Stakeholder interests Board responsibilities must be clearly outlined Ethical behaviour Business transparency

6Satyam Case Importance

Satyam scam was not an easy issue. It has its own complexities as it involved 14000 Crore scam.

Taking this scam as a role model, it could be suggested that there is a time to frame up good governance rules and see to the proper implementation of it.

Satyam scam had been the example for following poor governance practices. It had failed to show good relation with the shareholders and employees.

So as to throw a light on the poor governance practice at one of the major IT giants, the need to study such case is made important.

Independent Directors

Independent Director

An Independent director (also sometimes known as an outside director) is a director (member) of a board of directors who does not have a material relationship with company or related persons, except sitting fees

Independent Directors do not own shares in the company.

Eligibility and Qualifications of Independent Directors

Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;

Who is or was not a promoter of the company, Who is not related to promoters or directors in the company Who has or had no pecuniary relationship with the company None of whose relative has or had pecuniary relationship or

transaction with the company. Who, neither himself nor any of his relative--

Importance of an Independent Director

In a board of directors, Independent Director act as a person who can evaluate the performance and well being of the company without any conflict of interest or the undue influence of interested parties

This includes: Independence from Management Compensation Conflict of Interest

Characteristics of an Independent Director:

Commitment to serve shareholders

Good judgment & common sense

Sufficient self esteem & confidence

Diversity of perspective

Expertise and objectivity

Neutral bridge – family owners & non family managers

Applicability to Companies

Following class of companies are required to appoint at least 1/3 of total number of directors on their Board of Directors as independent directors:

Listed Companies, Public Companies having paid up share capital of one hundred crore

rupees or more; or Public Companies having turnover of three hundred crore rupees or

more; Public Companies which have, in aggregate, outstanding loans or

borrowings or debentures or deposits, exceeding two hundred crore rupees.

AUDITORS

Appointment of Auditors(Sec 139)

Cases Government Company Other than Government Company

First Auditor( hold office till 1st AGM)

By CAG Within 60 days of registration else BOD in 30 days

By BOD in 30 days else in 90 days at EGM

Subsequent Auditor By CAG within 180 days of commencement of FY.

Made by members in AGM

Casual Vacancy : resignation By CAG within 30 days Within 3 months of recommendation of BOD in meeting

Casual Vacancy : other than resignation

By CAG within 30 days Within 30 days by BOD

Rights and Duties

Rights1. Right to access books of accounts2. Auditor to sign auditors report3. To attend general meeting( prior notice of 21 days)4. Right to remuneration

Duties1. Make Financial reports2. Liable to pay damages in case of misleading reporting3. Fraud reporting4. Comply with auditing standards

Tenure and Rotation

Tenure : Company can appoint an individual as an auditor for more than one term of five consecutive years and an audit firm as an auditor for more than two terms of five consecutive years

Rotation : the Act prohibits the following categories of companies from appointing / reappointing an audit firm for more than 2 terms of 5 consecutive years, i.e. 10 consecutive years, after which such company would be required to mandatorily rotate its auditors in accordance with the Act

1. Listed Companies2. Unlisted public Companies : paid up capital > Rs. 10 crores3. Private Companies : paid up capital > Rs. 20 crores

Removal of Auditors

Eligibility criteria- Chartered Accountant and has no Conflict of Interest(Holding securities, debts owed to Co., business relationship with in the company or its subsidiary)

Removal--Special Resolution with prior approval of Central Govt.-Acted in a fraudulent manner in relation to the company or its directors or officers

18

THANK YOU