CORPORATE GOVERNANCE IN INDIAN PRESPECTIVE

CORPORATE GOVERNANCE IN INDIAN PRESPECTIVEPresented by George V James20-11-20131Meaning & Definition of Corporate Governance

Principles Players of Corporate Governance

Features of Good Corporate Governance

Indias Journey of Corporate Governance

Corporate Governance Committees in IndiaContents20-11-20132 Meaning of Corporate Governance can be split up as follows:-

Rights and equitable treatment of shareholders

Interests of other stakeholders

Role and responsibilities of the board

Integrity and ethical behaviour

Disclosure and transparencyMeaning20-11-20133PRINCIPLESCorporate Governance is the acceptance by management of the inalienable rights of the shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the Management of the Company. By N. R. Narayana Murthy, Committee on Corporate Governance (SEBI)Definition20-11-20134

Principles Players of Corporate Governance

Management

Banks and lenders

Board of Directors

Shareholders

Suppliers

Employees

Environment & the community at large

Regulators

Customers

20-11-20135Clear Strategy

Effective Risk Management

Discipline

FairnessAccountability

Transparency

Social Responsibility

Self-Evaluation

Features of Good Corporate Governance20-11-20136 Base of Governance- Kautilyas Arthashstra In the happiness of the subject lies the benefit of the king, and in what is beneficial to the subjects is his own benefit.

Scams- Harshad Mehta, Ketan Parekh , Ramalingam Raju

New Economic Policy of 1991 (accountability factor)Reforms in Corporate Law.Development of Codes & Best Practices.Empowering & Developing Regulatory Authority.Indias Journey of Corporate Governance

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20-11-20138CORPORATE GOVERNANCE COMMITTEES IN INDIA20-11-20139National Task Force Chaired by Rahul Bajaj.

Desirable Code of Corporate Governance

Confederation of Indian Industries Code (1997)

20-11-201310No need for German style two-tiered board.

2. In case of listed company with turnover exceeding Rs.100 crores, independent directors should consist of:- 30% if Chairman is non-executive director. 50% if Chairman & MD is the same person.

No single person should hold directorships in more than 10 listed companies.

Non-executive directors should be competent and active.

Commission not exceeding 1% (3%) of net profits for a company with (out) a MD.

Recommendations20-11-201311Attendance record of directors should be made explicit at the time of reappointment; less than 50% no re-appointment.

Key information that must be reported to and placed before the board .

Listed companies with turnover over Rs. 100 crores or paid-up capital of Rs. 20 crores should have an audit committee.

Additional Shareholders Information of Listed Companies.

Compliance certificate signed by CEO & CFO.

20-11-201312Audit committee-at least 3 members all non-executive

12Credit Rating.

Companies that default on fixed deposits should not be permitted to:-

accept further deposits and make inter-corporate loans or investments until the default is made good; anddeclare dividends until the default is made good.

13. Reduction in number of nominee directors. FIs should withdraw nominee directors from companies with individual FI shareholding below 5% or total FI holding below 10%.

20-11-201313Set up by SEBI (for investors).

Identified 3 major constituents: Shareholders, BOD & Management.

3 key aspects: accountability, transparency, and equal treatment of all stakeholders.

Introduction of Clause 49.

Kumar Mangalam Birla Committee Report (2000)

20-11-2013141. At least 50% non-executive members.

2. At least 1/2 of the board should be independent directors (executive Chairman) ,else at least 1/3.

3. Non-executive Chairman should have an office and be paid for job related expenses.

4. Maximum of 10 directorships and 5 chairmanships per person.

5. Audit Committee:Minimum 3 members, all non-executive.Chairman should attend AGM.Should meet at least thrice a year.Act as bridge between Board, Statutory Auditors & Internal AuditorsRecommendations20-11-201315Remuneration Committee (at least 3 directors, all non-executive and be chaired by an independent director).

Disclosure of remuneration information in the AR.

Board Meetings4 board meetings a year with a maximum gap of 4 months between any 2 meetings.20-11-201316High Level Committee appointed by MCA.

A pale shadow of SOX.

Also known as the Committee on Corporate Audit and Governance.

Concentrated on 3 main aspects:- 1. The auditor- company relationship. 2. Role of Statutory Auditors. 3. Independent Directors-role, remuneration & training.Naresh Chandra Committee Report (2002)

20-11-201317Disqualifications of Audit Assignments.

List of Prohibited Non-Audit Services.

Compulsory Audit Partner Rotation.

Auditors disclosure of Contingent Liabilities.

Managements certification in the event of auditors replacement.

Auditors annual certification of independence.

Recommendations20-11-201318CEO and CFO certification of annual audited accounts.

Setting up Independent Quality Review Board, QRB-(ICAI, ICSI, ICWAI)

Defining an Independent Director & their percentage.

Minimum Board Size of listed companies.

Training of independent directors.

Corporate Serious Fraud Office.

20-11-2013192nd Committee constituted by SEBI.

To review the existing corporate governance practices and codes.

Committee consisted of members from various walks of public and professional life.N R Narayana Murthy Committee Report (2003)

20-11-201320Training of board members.

There shall be no nominee directors.

Non-Executive Director compensation to be fixed by Board of Directors and approved by shareholders in the GM. Independent directors should be treated the same way as non-executive directors.

The Board should be informed every quarter of business risk and risk management strategies.

Boards of subsidiaries should follow similar composition rules as that of parent and should have at least one independent directors of the parent company.Recommendations20-11-201321Proceeds from Initial Public Offerings (IPO)

Performance evaluation of non-executive directors should be done by a peer group comprising the entire Board of Directors, excluding the director being evaluated.

Code of conduct for Board members and Senior Management.

Whistle Blower Policy.

20-11-201322SATYENDRA DUBEY

20-11-201323GUESS WHO ??...2nd National Task Force by CII.

Satyam-Maytas Infra-Maytas Properties scams.

Improving corporate governance standards and practices both in letter and spirit.Naresh Chandra Committee Report (2009)20-11-201324Nomination Committee.

Letter of Appointment to Directors.

Remuneration of NEDs & Independent Directors.

Remuneration Committee.

Audit Committee.

Separation of Offices of Chairman & Chief Executive Officer

Board Meetings through Tele-conferencingRecommendations20-11-201325Liability of Directors & Employees

Shareholder Activism

Media as a stakeholder

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ANY QUESTIONS ??......20-11-201327