2. Importance of or Need for Corporate Governance

8/22/2019 2. Importance of or Need for Corporate Governance

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Importance of / Need for CorporateGovernance

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It creates a corporate culture of transparency,

accountability and disclosure;

It enhances customer satisfaction, shareholder

value and wealth; It prevents corporate frauds, scams and

irregularities;

It helps to attract, motivate and retain talent;

It creates a secured and prosperous operatingenvironment and improves operational

performance;

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It manages and mitigates risk of the company;

It enhances the reputation of the company;

It enhances investors trust;

Easy finance from financial institutions; Better access to global market- good C/G systems

attracts investment from global investors;

It fulfills the expectations of Employees,

Customers, Vendors, Creditors/lenders,Government &Society at large.

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It helps the Board to take independent and

objective decisions;

It helps Board to sub serve the concerns of all

stakeholders efficiently; It helps Board to adopt transparent procedures

and practices;

It ensures adequate disclosures and effective

decision making;

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It promotes sustainable and inclusive growth of

the corporate sector;

It helps the Board to effectively and regularly

monitor the functioning of the management team; CG inculcates a strong culture of core values,

ethics, integrity, reliability and fair dealings

amongst corporations, etc.

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I. Role and Powers of Board: Role and powers of the board should be clearly

mentioned;

Absence of clearly designated role and powers

of board weakens accountability mechanism andhampers organizational goals;

Clear identification of powers, role,responsibilities, and accountability of the board,

CEO and the chairman of the board; Role of the board should be clearly documented

in a board charter.

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II. Legislation:

Clear unambiguous legislation and regulations are

fundamental to effective C/G.

III. Management Environment:

It includes-

Setting up of clear objectives and appropriate

ethical framework; Providing for transparency and clear enunciation

of responsibility and accountability;

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Implementing sound business planning;

Having right people with right skill for the jobs;

Establishing performance evaluation measures;

and Establishing clear boundaries for acceptable

behavior.

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IV. Board skills: Board must be able to undertake its functions

efficiently and effectively;

It must possess the necessary qualities, skills,

knowledge and experience; It should have the following skills, knowledge and

experience:

-Operational or technical expertise;

-Commitment to establish leadership;-Financial skills, legal skills and

-Knowledge of government and regulatory requirement.

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V. Board Composition:

Size of the Board:

-It should neither be too small nor too big;

-It should strike a balance between executive andnon-executive directors;

Board membership criteria:

-All directors should be individuals of integrity and

courage, with relevant skills and experience;

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Diversity in Board:

-Diversity should be there in academic

qualifications, technical expertise, relevant

industry knowledge, experience, nationality, age

and sex(i.e. gender diversity between men &

women).

VI. Board Committees:

(To improve board effectiveness andefficiency)

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Audit Committee;

Shareholders/investors Relations Committee;

Remuneration Committee;

Nomination Committee; Corporate Governance Committee;

Risk Management Committee;

CSR Committee etc.

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VII. Board Appointments-

Most competent people should be appointed in the

Board;

Appointment procedure must satisfy all statutoryand administrative requirements;

Letter of appointment, containing details of their

duties and responsibilities, should be given to all

new directors.

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VIII. Board induction and training-

-Directors must have clear understanding of the

area of operation of the companys business,

corporate strategy and challenges being faced by

the Board.

-Directors should attend continuing education

and professional development programme or any

training programme in order to be up-to-date orfamiliar with new developments.

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IX. Board independence:

Independent Board is essential for sound corporate

governance;

This goal may be achieved by associating sufficient

number of independent directors with the Board;

It will ensure that the board is effective in supervising

and where necessary, challenging the activities of

management;

The majority board members should be independent

of both the management team and any commercial

dealing with the company.

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X. Board Meetings:

-Directors should attend Board meetings

regularly and prepare thoroughly before entering

the Boardroom so that the quality of interaction is

improved in the meeting;

-The effectiveness of Board meetings depends

on carefully planned agendas and providing

relevant papers and materials to directorssufficiently prior to Board meetings.

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XI. Code of conduct:

-The company must communicate to all

stakeholders prescribed norms of ethical practices

and code of conduct and each members of the

organization must follow that;

-- A system should be there to periodically

measure, evaluate and if possible recognize the

adherence to code of conduct.

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XII. Strategy Setting:

--Objectives of the company must be clearly

documented in a long-term corporate strategy

including an annual business plan together with a

measurable performance targets.

XIII. Business and community obligations:

The company must take care of communitys

obligations besides the basic commercial activity; Both the commercial activities & communities

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Obligations should be clearly documented afterBoards approval;

Stakeholders must be informed about the

proposed and on going initiatives taken to meet

the community obligations.

XIV. Financial and operational reporting:

The board needs comprehensive, regular, reliable,

timely, correct and relevant information; The report should be available to Board members

well in advance to allow informed decision making;

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The reports and information provided by themanagement must be comprehensive but not soextensive and detailed as to hamper thecomprehension of the key issue.

XV. Monitoring the Board performance: The Board must monitor and evaluate its combined

performance and also that of individual directors atperiodic intervals, using key performance indicatorsbesides peer review;

The Board should undertake a formal and rigorousannual evaluation of its own performance and that ofits committees and individual directors.

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XVI. Lead Independent Director: If the office of chairman of the Board and Chief Executive

Officer are held by the same person, the Board shouldname a lead independent director to ensure a structure thatprovides an appropriate balance between the powers of the

CEO and those of the independent directors.

The lead Independent Director serves as an importantliaison between the Board and Independent Directors.

The independent director may chair the meetings of non-executive directors and of independent directors andpreside over Board meetings in the absence of the chair.

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XVII. Transparency & Disclosures:

Disclosure should include, but not be limited to,

material information on:

The financial and operating results of thecompany;

Company profile,

Corporate Governance Report:

-Governance structure and policies;-Ownership and shareholders rights including

changes in control;

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-Detailed information about the Board;-Risk Management Framework;

-Existence of internal code of conduct and businessethics;

-Particulars of Internal Auditors;-Commitment to external initiatives.

Sustainability Report:

i. Economic performance;

ii. Environmental performance;iii. Social performance;

iv. CSR Initiatives.

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Innovation strategy/ Research & development;

XVIII. Audit Committees:

Audit Committee is, inter alia, responsible for liaison

with the management& internal and statutory auditors,

reviewing the adequacy of internal control andcompliance with significant policies and procedures.

XIX. Risk Management:

There should be a clearly established process of

identifying, analyzing and treating risks, which could

prevent the company from effectively achieving its

objectives.

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The board has the ultimate responsibility foridentifying major risks to the organization, setting

acceptable levels of risk and ensuring that senior

management takes steps to detect, monitor and

control these risks.

The board must satisfy itself that appropriate risk

management systems and procedure are in place

to identify and manage risks.

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XX. Shareholders Rights:Good corporate governance must protect, inter alia,the following shareholders rights:

Right to register ownership of shares;

Right to transfer the ownership of shares; Right to obtain relevant and material information about

the corporation on a timely and regular basis;

Right to participate and cast vote in AGM of theshareholders;

Right to elect and remove members of the board and

Right to share in the profits of the corporation.

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XXI. Ethics and integrity:

--In good corporate governance, leadership must

be responsible which calls for integrity,

transparency and accountability.

--Leadership must define strategy, provide direction

and establish the ethics and values.

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Documents

2. Importance of or Need for Corporate Governance