Concept note on Corporate Governance

Concept Corporate Governance is about the separation of the powers and responsibilities of ownership, governance and management in Companies as:

Ownership belongs to shareholders

Governance is the responsibility of the Board of Directors; and

Management is delegated to the CEO and a team of Officers

to guarantee fairness, accountability and transparency.

LegalityCodified:

Section 303A of the NYSE’s Listed Company Manual (NYSE)

Clause 49 of the Listing agreement (India)

Luxembourg Listing guidelines are silent on this

Non codified:

Practices, procedures, morals and ethics to be followed by Directors and the employees to effectively and efficiently discharge their responsibilities individually and collectively to the stakeholders of the Company

OECD’s (Organization for Economic Cooperation & Development) principles of Corporate Governance provide an international benchmark for best practices in Corporate Governance

Executive SummaryQualified and Independent Board

Fiduciary relationship to stakeholders

Board to form and abide by code of conduct

Expert Committees:

Corporate Governance Committee

Compensation / Remuneration Committee

Audit Committee

Shareholders’ Committee

CEO/CFO verification

Corporate Governance Report

Composition of the Board

Optimum combination of Executive and Non-executive directors ( Atleast 50 % non executive directors- as per Indian listing agreement)

Majority of Independent directors (NYSE)i.e.:

No material relationship with the Company

Partners, Shareholders and Employees would not be “Independent”

Proactive and informed Board

Board to meet at regular intervals to review: Annual operating plans and budgets and any updates

Capital budgets and any updates

Quarterly results

Minutes of meetings of audit committee and other committees of the board

Information on recruitment and remuneration of senior officers just below the board level, including appointment or removal of Chief Financial Officer and the Company Secretary

Show cause, demand, prosecution notices and penalty notices which are materially important

Fatal or serious accidents

Any material default in financial obligations

Any issue, which involves possible public or product liability

Board Meeting must be held at least four times in a year , with max gap of 3 months- India

Contd

Proactive and informed Board contd…

Board to review: Joint venture or collaboration agreement

Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property

Significant development on Human Resources front

Sale of material nature, of investments, subsidiaries, assets, which is not in normal course of business

Details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement

Non-compliance of any regulatory or statutory nature or listing requirements

Corporate Governance (CG) Committee

Committee to comprise independent directors only (NYSE)

Must have a written charter that addresses:

Identification of potential Board members

Framing of Corporate Governance Guidelines of the Company

Framing of Code of Business conduct and ethics

Evaluation of the Board and the Management from CG perspective

Annual performance report of the CG committee

Corporate Governance Guidelines

Companies must adopt and disclose Corporate Governance Guidelines addressing:

Director qualification standards

Director responsibilities

Director’s access to Management

Director compensation

Director orientation and continuing education

Management succession

Annual performance evaluation of the Board

Code of Business Conduct and EthicsCompanies must adopt and disclose a code of

business conduct and ethics for directors, officers and employees, addressing:

Conflicts of interest…Private Interest Vs Corporate Interest

Corporate opportunities…Personal enhancement thru Company resources

Confidentiality

Fair dealing…Not to take Unfair Advantage

Protection and proper use of company assets

Compliance with laws, rules and regulations (including insider trading laws)

Encouraging the reporting of any illegal or unethical behavior

Contd

Code of Business Conduct and Ethics

Whistle Blower Policy Establish a mechanism for employees to report to the management concerns

about unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy

Adequate safeguards against victimization of employees who avail of the mechanism

Direct access to the Chairman of the Audit committee in exceptional cases

Compensation Committee

Committee to comprise independent directors only(NYSE, As per India non mandatory)

Must have a written charter that addresses:

Review and approval of corporate goals and objectives relevant to CEO compensation

Determining CEO’s compensation based on evaluation of goals

Recommendation to the Board on Non-CEO executive officer compensation, Incentive compensation, Equity based plans

Preparation of Annual Compensation Committee Report

Audit CommitteeCommittee to comprise independent directors

only(NYSE, In India two third should be independent)

Atleast 3 members

All members to be financially literate and atleast one member as finance expert

Each member to be on the Board of maximum 3 Audit Committees

Must have a written charter that addresses: Integrity of the financial statements

Compliance with legal and regulatory requirements

Internal auditors’ qualification and independence

Performance of the Internal Audit function and Independent Auditors

Preparation of an Internal Audit Report

Role of the Audit Committee Recommending the appointment and removal of internal and external auditors, fixation of audit fee etc.

Reviewing the annual financial statements before submission to the board, focusing primarily on :

Reviewing the adequacy of internal control systems

Reviewing the adequacy of internal audit function

Discussion with internal auditors, any significant findings and follow up there on

Discussion with external auditors before the audit commences about nature and scope of audit , as well as post-audit discussion to ascertain any area of concern

Reviewing the company’s financial and risk management policies

To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders and creditors

Report regularly to the Board of Directors on the above issues

Shareholders’ Committee

Special Committee for addressing shareholders’ grievances

Transfer and transmission of shares

Serve as SPOC for all shareholders concerns

CEO/CFO Verification

CEO / CFO to certify each year that the Company complies with the Corporate Governance Listing standards

Material non-compliance to be reported directly to the stock exchange

To summarize as per OECD

The right Corporate Governance framework should: protect shareholders’ rights ensure the equitable treatment of all shareholders recognize the rights of stake-holders as established by law encourage active co-operation between the Company and stakeholders ensure timely and accurate disclosures on all material matters including the financial situation, performance, ownership and governance of the company ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders