Desirable Corp. Gov. - A Code

8/12/2019 Desirable Corp. Gov. - A Code.

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DESIRABLE CORPORATE

GOVERNANCEA CODE

DEFINITION OF CORPORATE

GOVERNANCE:Corporate

governance deals withlaws,procedures,practices and

implicit rules that determine a

companys ability to take informedmanagerial decisions vis--vis its

claimants-in particular,its

shareholders,creditors,customers,the

state and the employees.


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There is a global consensus

about the objective of good

corporate governancemaximising long-term

shareholders value.For a corporate governance code to

have real meaning,it must first focus on

listed companies which are financedlargely by public money and hence need

to follow codes and policies that make

them accountable and value-oriented to

their investin ublic.


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CONFEDERATION OF

INDIAN INDUSTRY

In 1996,CII took a special initiative on

corporate governance-the first

institutional initiative in Indian

industry and their objective was to

develop and promote a code for

corporate governance to be adopted

and followed by Indian companies,bethese in the private sector,the public

sector,banks or financial institutions,all

of which are corporate entities.

l k


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A National Task Force set up

with Mr.Rahul Bajaj,past

president,CII AND Chairman& Managing Director,Bajaj

Auto Limited.This Task Force presented the draft

guidelines and code for CorporateGovernance in April 1997at the National

Conference and Annual Session of CII.Thisdraft was then publicly debated and anumber of suggestions were received for theconsideration of the task force.


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Since 1974,CII has tried to

chart a new path in terms of

the role of an IndustryAssociation such as itselfThis Code of Corporate Governance

continues this process and takes it one step

further.Fortunately,there is very little

difference between the draft code released

in April 1997 and the final Code,which isnow published.


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Recommendation 1

No need of Two-Tier Board

Single board performs well it can maximise long term

shareholder value.

Should meet a minimum of six times a year, at an interval of

two months.

Agenda that requires at least half a days discussion.


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Recommendation 2

Any li sted companies with a turnover of

Rs.100crores and above should have

professional ly competent, independent, non-

executive directors

At least 30 percent of the board if the chairman of the

company is a non-executive director,

At least 50 percent of the board if the chairman and

Managing Director is the same person.


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Recommendation 3

No single person should hold directorships in

more than 10 listed companies.


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Recommendation 4

For Non-Executive directors to play a mater ial role

in corporate decision making and maximising

long term shareholders value they need..

Active participants in boards, not passive advisors. Clearly defined responsibil i tes within the board such as

the Audi t Committee.

Know how to read a balance sheet, Profi t and Loss

account, Cash floe statements and F inancial ratios. Some knowledge of Company Laws.


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Recommendation 5

To secure better efforts from Non-Executive

Directors companies should.

Pay a commission over and above the sitting fees

the use of the professional inputs.

Present commission of 1% of net profits (i f

managing director )

Or 3% (no managing director)


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Recommendation 6

Re-appointing members of the Board.

Give the attendance record of the concered dir ector in the

resolution that is put to vote.

One should not reappoint any director who has not been

present for 50 percent or more meetings


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Recommendation 7

Key information that must be reported to and placed

before the Board.

Annual operating plans and budgets with updated long termplans.

Capital Budgets, manpower and overhead budgets.

Quar ter ly results for the company as a whole and its operating

divisions or business segments. I nternal audit reports.


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Show cause, demand and prosecution notices received from revenue

authorities.

Fatal or serious accidents, dangerous occur rences, pollution

problems.

Default in payment of interest or non-payment Default in non-

payment of inter-corporate deposits.

Product l iabi l i ty claim.

Detail s of any joint venture or collaboration agreements. Substantial payment towards goodwil l , brand equity, or intel lectual

property.

Recruitment and renumeration of senior of f icers.

Labour problem. uar ter l detail s of forei n exchan e.


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Recommendation 8

Listed companies-turnover over 100crores or

paid up capital of Rs20crores should set up

audit committees within 2 years.


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Recommendation 9

Additional Shareholders Information

Monthly averages on share prices

Greater detail on Business segments

Consolidation-optional

Recommendation 10

Consolidation of Group Accounts

Voluntary Consolidation

-Definition of group

- Compliance Certificate


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Recommendation 11

Stock Exchanges and compliance certificate

Management- Fair presentation of financial statements

Accounting policies - Standard practices

Recommendation 12

For all companies with paid-up capital of Rs. 20crores or more,the quality and quantity of disclosure that accompanies a GDRissue should be the norm for any domestic issue.


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Capital Market Issues

Take-overs-The Take-over code

Mergers

Strategic acquisitions

Recommendation 13

Greater funding to corporate sector.

Creditors Rights


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Recommendation 14

FIs as pure creditors to re-write their covenants to eliminate havingnominee directors:-

- Except in the event of serious & systematic debt default

- Debtor company not providing six-monthly operational data.

Recommendation 15

More than one credit rating agency

Tabular format to company standings

Quantity & quality of disclosures.

Holders of company deposits.


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Concluding Remarks

Code of corporate governance cannot be static.

Large number of foreign portfolio investors

Entry of foreign pension funds

Private equity of leveraged buy-out funds.

No support by Indian FIs irrespective of performance.

More reliance on GDRs

Financial press getting stronger

Capital Account Convertibility.

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Desirable Corp. Gov. - A Code