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Corporate Governance, Auditors, Independent DirectorsGROUP 9
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Corporate Governance
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“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
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THANK YOU
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