Module 3 BECG

8/6/2019 Module 3 BECG

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Module-3 Role Players:

Board of Directors are the driving force of every organization. Therefore, a strong governance

framework needs to be established, and should serve the following objectives:-

1. Clarify the roles, responsibilities and accountabilities of the board members andmanagement team;

2. Enable the board to provide strategic guidance and effective oversight of themanagement; and

3. Ensure that no one single individual has too much power or influence on theorganization.

Further to the above, the boards main role is to protect the interests of the shareholders andother relevant stakeholders . At the same time, they have to ensure that the company is able to

compete in the market. The directors are also expected to be able to have a firm grip on thecompanys internal controls processes, to ensure operational and financial risks are identified,addressed and managed.

In a general context, the effectiveness of a board within an organization depends on a fewfactors, namely, size and composition, competencies, activeness and leadership qualities. Thesefactors are non-exhaustive and non-conclusive whereby every organization should includerelevant gauge wherever necessary.

Size and Composition

There is no such thing as the optimal size for the board, but the Companies Act 1965 determinesthe minimum number of directors and the Articles of Association normally specifies themaximum. However, instead of arriving at the absolute number, an organization should look intocertain factors to gauge the optimum size of the board. Some of these factors include:-

Size of the organization, scope of business and geographical diversity; There should be a balance between executive and non-executive directors as well as the

independent elements of those non-executive directors. This is mainly to achieve thecheck and balance whereby no single individual has the ultimate control over the board;

Whether the board has representation diversity in terms of professional experience, race,gender and technical know-how of the industry.

Competency

There should be a mixture of core competencies among the directors in the board to cover mostaspects of the organization. Certain directors need to have relevant industry specific knowledge
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and experience whereas others are professionals having focused expertise in areas such asfinance, accounting, risk management etc.

Activeness

The board is required to play an active role in directing the organization. Although they may not be playing an active role in the daily operational issues, the board is expected to be vigilant inensuring the management is implementing the direction of the board.

In addition to playing the strategic role within the organization, the board is also expected tomonitor the managements decisions and actions, and if there are inconsistencies found, theyshould question the management based on factual knowledge. Furthermore, the board is alsoexpected to ensure that the management conducts their tasks ethically and comply to all financialreporting and regulatory requirements.

Leadership Qualities

Being the driver of the organization, the board must should leadership qualities such as havingability to inspire talents and provide strategic direction and vision of the organization. They haveto be able to evaluate strategic decisions, conceptualizing ideas and innovation to continually

pressing for growth and address future challenges.

Whilst the board of directors plays a very big part in corporate governance, certain other factorslike risk management, internal and external audits too affect the framework of corporategovernance.

Role of Board of Directors:

A board of directors is a body of elected or appointed members who jointly oversee theactivities of a company or organization . The body sometimes has a different name, such as boardof trustees, board of governors, board of managers, or executive board. It is often simply referredto as "the board."

A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in theorganization's bylaws . The bylaws commonly also specify the number of members of the board,how they are to be chosen, and when they are to meet.

In an organization with voting members, e.g. , a professional society, the board acts on behalf of,and is subordinate to, the organization's full assembly, which usually chooses the members of the

board. In a stock corporation, the board is elected by the stockholders and is the highest authorityin the management of the corporation. In a nonstock corporation with no general votingmembership, e.g. , a university, the board is the supreme governing body of the institution. [1]

Typical duties of boards of directors include
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governing the organization by establishing broad policies and objectives; selecting, appointing, supporting and reviewing the performance of the chief executive; ensuring the availability of adequate financial resources; approving annual budgets; accounting to the stakeholders for the organization's performance.

The legal responsibilities of boards and board members vary with the nature of the organization,and with the jurisdiction within which it operates. For public corporations, these responsibilitiesare typically much more rigorous and complex than for those of other types.

Typically the board chooses one of its members to be the chairman .

AUDITING ROLE OF AUDITORS IN GOOD GOVERNANCE: Auditing is defined as obtaining andevaluating evidences regarding assertions about economic actions and events to ascertain the extent towhich they correspond with the established criteria, and to communicating the result to the interestedusers. Thus, it encompasses investigation process, attestation process, and the reporting process,pertaining to economic actions and events.

International Audit Standards maintain that an auditor's mandate may require him to take cognizance andreport matters that come to his knowledge in performing his audit duties which relate to:

>Compliance with legislative or regulatory requirements;>Adequacy of accounting and control systems;>Viability of economic activities, programmes, and projects.

Two variant situations emerge when the functions of auditors and the requirements of good governanceare placed face to face. The former is confined to 'econonuc actions and events, while the later is theoutcome of a wide range of managerial functions. The question then arises whether the auditors shouldcross their operational limits in order to bring about the desired level of improvement in the quality of governance, or, alternatively, while restricting themselves to their term of reference, they should operatemore effectively so as to help improve the quality of governance.

Lately, a view has emerged that auditors should play a more vital and direct role in establishing goodgovernance. Should this mean to expect them to cross the established borders of genuine audit functions,it would be stretching the string too far, without gaining any thing positive and substantial. The onlyalternative then is to make the auditors feel more conscientious, more dutiful, and therefore to be moreeffective, while restricting themselves to their term of reference.

International Auditing Standards (IAS) also recognize that the matters that may be relevant to thegovernance of any business entity may be broader than those that form the subject matter of IAS, whichare directly related to the audit of financial statements. IAS 260 categorically requires the auditors tocommunicate with the officials charged with the governance of an entity the matters arising from the auditof financial statements. They will not be required, the IAS continues, "to design procedure for the specificpurpose of identifying matters of governance interest".

Even the Code of Good Corporate Governance envisaged by the SECP subscribes to this phenomenon.Rather, it prohibits in explicit terms any such excesses on the part of the auditors. Paragraph xl under theheading 'External Auditors' reads:

"No listed company shall appoint its auditors to provide services in addition to audit except in accordancewith the regulations and shall require the auditors to observe applicable IFAC (International Federation of Accountants) guidelines in this regard and shall ensure that the auditors do not perform management
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functions or make management decisions, responsibility for which remains with the Board of directors andmanagement of the listed company. "

Thus, it is established that auditors are not required to traverse their area of operation. Whatever they areexpected to contribute towards good governance shall, therefore, be from within their range or sphere of activity. In other words, it is the quality of their performance that will make all the difference, which,

therefore, needs to be ameliorated to match the requisites of good governance.

Once it is settled that it is the quality of audit that is aimed at, the question arises what is the desirablequality, and how can it be measured? The question has gained great momentum in recent years whenconsiderable attention has been focused on the auditor's responsibility for negligence. This is largely theresult of wide publicity being given world over to considerable sums sought by plaintiffs in compensationfor losses they have suffered, losses which, they believe, could have been prevented had the auditorsbeen more vigilant. To quote a lively example, m/s Pricewater House, auditors of BCCI, remained in thenews for quite some time during the last decade of the preceding century for their reportedly inaptbehaviour leading to the collapse of the Bank.

An answer to this very pertinent question can be traced back in what Denning LJ observed in Candler v.Crane Christmas & Co. (1951), whose opinion was later upheld in famous Hedley Byrne case [Hedley

Byrne & Co. v. Heller and Partners Ltd. (1963)], and which reads. " Their [the auditors'] duty is not merelya duty to use care in their reports. They have also duty to use care in their work which results in their reports".

The 'care' again is a relative term. The degree of care required may also vary from situation to situation.However, the overriding requirement is to have a "true and fair view".

Interestingly enough, what is 'true and fair' is not necessarily the 'truth'. The famous Elephant Story willhelp explain this riddle. Three blind men were led to an elephant and asked to state by touching it what itwas. The first who touched the animal from the side and felt hard and broad span of the skin said it was awall. The other who groped around the tail announced that it was a rope. The third gentleman who camein contact with the trunk claimed that it was a hose-pipe. All the three, to the best of their knowledge, were'true and fair' but none of them was right. This leads to the conclusion that the perception and belief a

person may have, and the opinion that he forms, about a set of circumstances depend upon: (i) his viewpoint, and (ii) the information made available to him.

This becomes all the more important in view of the fact that the law has not defined the expression 'trueand fair'.

Moreover, the whole process of auditing requires much imagination and careful thought from beginning toend. It is highly demanding and is often described as a very onerous responsibility. No doubt the vastmajority of the profession do behave with integrity but auditors can and do some times fail to exercisetheir duty to as high a standard as is expected of them.

Birla Committee Report on Audit Committee:

Functions of the Audit Committee 9.10 As the audit committee acts as the bridge between the board, the statutory auditors and internal auditors, the Committee recommends that its role should include the following

Oversight of the companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.


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Recommending the appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services.

Reviewing with management the annual financial statements before submission to theboard, focussing primarily on:

o Any changes in accounting policies and practices. o Major accounting entries based on exercise of judgement by management. o Qualifications in draft audit report. o Significant adjustments arising out of audit. o The going concern assumption. o Compliance with accounting standards o Compliance with stock exchange and legal requirements concerning financial

statements. o Any related party transactions i.e. transactions of the company of material nature,

with promoters or the management, their subsidiaries or relatives etc. that may have potential conflict with the interests of company at large.

Reviewing with the management, external and internal auditors, the adequacy of internal control systems.

Reviewing the adequacy of internal audit function, including the structure of the internal audit

department, staffing and seniority of the official heading the department, reporting structure,coverage and frequency of internal audit. Discussion with internal auditors of any significant findings and follow-up thereon. Reviewing the findings of any internal investigations by the internal auditors into matters

where there is suspected fraud or irregularity or a failure of internal control systems of amaterial nature and reporting the matter to the board.

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

Reviewing the companys financial and risk management policies. Looking into the reasons for substantial defaults in the payments to the depositors,

debenture holders, share holders (in case of non-payment of declared dividends) and creditors.

SEBI and Governance:

Good Governance in capital market has always been high on the agenda of SEBI. Corporate Governance is looked upon as a distinctive brand andbenchmark in the profile of Corporate Excellence. This is evident from thecontinuous updation of guidelines, rules and regulations by SEBI for ensuringtransparency and accountability. In the process, SEBI had constituted aCommittee on Corporate Governance under the Chairmanship of Shri KumarMangalam Birla. The Committee in its report observed that the strongCorporate Governance is indispensable to resilient and vibrant capital

markets and is an important instrument of investor protection. It is the bloodthat fills the veins of transparent corporate disclosure and high qualityaccounting practices. It is the muscle that moves a viable and accessiblefinancial reporting structure.

Based on the recommendations of the Committee, the SEBI had specifiedprinciples of Corporate Governance and introduced a new clause 49 in theListing agreement of the Stock Exchanges in the year 2000. These principlesof Corporate Governance were made applicable in a phased manner and all


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the listed companies with the paid up capital of Rs 3 crores and above or networth of Rs 25 crores or more at any time in the history of the company,were covered as of March 31, 2003.

SEBI, as part of its endeavour to improve the standards of corporategovernance in line with the needs of a dynamic market, constituted anotherCommittee on Corporate Governance under the Chairmanship of Shri N. R.Narayana Murthy to review the performance of Corporate Governance and todetermine the role of companies in responding to rumour and other pricesensitive information circulating in the market in order to enhance thetransparency and integrity of the market. The Committee in its Reportobserved that the effectiveness of a system of Corporate Governancecannot be legislated by law, nor can any system of Corporate Governance bestatic. In a dynamic environment, system of Corporate Governance need tobe continually evolved.

With a view to promote and raise the standards of Corporate Governance,

SEBI on the basis of recommendations of the Committee and publiccomments received on the report and in exercise of powers conferred bySection 11(1) of the Securities and Exchange Board of India Act, 1992 readwith section 10 of the Securities Contracts (Regulation) Act 1956, revised theexisting clause 49 of the Listing agreement vide its circularSEBI/MRD/SE/31/2003/26/08 dated August 26, 2003. It clarified that some of the sub-clauses of the revised clause 49 shall be suitably modified or newclauses shall be added following the amendments to the Companies Act1956 by the Companies (Amendment) Bill/Act 2003, so that the relevantprovisions of the clauses on Corporate Governance in the Listing Agreementand the Companies Act remain harmonious with one another.

Schedule of Implementation The circular specifies following schedule of implementation of the revised clause 49 :

(i) All entities seeking listing for the first time, at the time of listing,

(ii) All listed entities having a paid up share capital of Rs 3 crores and above or net worthof Rs 25 crores or more at any time in the history of the company.

* Secretary, The ICSI, Views expressed are personal views of the author and do not reflect those of the Institute.

The companies are required to comply with the requirements of the clause on or beforeMarch 31, 2004. The companies which are required to comply with the requirements of therevised clause 49 have been put under an obligation to submit a quarterly compliance reportto the stock exchanges as per sub clause (IX) (ii), of the revised clause 49, within 15 daysfrom the quarter ending 31st March, 2004. The report is required to be submitted either bythe Compliance Officer or the Chief Executive Officer of the company after obtaining dueapprovals.

Application of Revised Clause 49


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The revised clause 49 is applicable to the listed companies, in accordancewith the schedule of implementation given above. However, for other listedentities, which are not companies, but body corporates (e.g. private andpublic sector banks, financial institutions, insurance companies etc.)incorporated under other statutes, the revised clause will apply to the extent

that it does not violate their respective statutes, and guidelines or directivesissued by the relevant regulatory authorities. The revised clause is notapplicable to the Mutual Fund Schemes.

Obligations on Stock Exchanges

The Stock Exchanges are put under obligation to ensure that all theprovisions of Corporate Governance have been complied with by thecompany seeking listing for the first time, before granting any new listing.For this purpose, it would be satisfactory compliance if these companies setup the Boards and constitute committees such as Audit Committee,shareholders/ investors grievances committee, etc. before seeking listing.

The stock exchanges have been empowered to grant a reasonable time tocomply with these conditions if they are satisfied that genuine legal issuesexists which will delay such compliance. In such cases while granting listing,the stock exchanges are required to obtain a suitable undertaking from thecompany. In case of the company failing to comply with this requirementwithout any genuine reason, the application money shall be kept in anescrow account till the conditions are complied with. The Stock Exchangeshave also been required to set up a separate monitoring cell with identifiedpersonnel to monitor the compliance with the provisions of the CorporateGovernance, and to obtain the quarterly compliance report from thecompanies which are required to comply with the requirements of Corporate

Governance. The stock exchanges are required to submit a consolidatedcompliance report to SEBI within 30 days of the end of each quarter.

HIGHLIGHTS OF THE NEW AMENDMENTS

1. Widening the Definition of Independent Director

Under the revised clause 49, the definition of the expressionindependent director has been expanded. The expression independentdirector mean non-executive director of the company who

(a)apart from receiving directors remuneration, does not have anymaterial pecuniary relationships or transactions with the company, itspromoters, its senior management or its holding company, itssubsidiaries and associated companies;

(b) is not related to promoters or management at the board level or at one level belowthe board;

(c) has not been an executive of the company in the immediately preceding threefinancial years;

(d) is not a partner or an executive of the statutory audit firm or the internal audit firmthat is associated with the company, and has not been a partner or an executive of


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any such firm for the last three years. This will also apply to legal firm(s) andconsulting firm(s) that have a material association with the entity.

(e) is not a supplier, service provider or customer of the company. This should includelessor-lessee type relationships also; and

(f) is not a substantial shareholder of the company, i.e. owning two percent or more of the block of voting shares.

It has been clarified that the Institutional Directors on the boards of companies are independent directors whether the institution is aninvesting institution or a lending institution.

2. Compensation to Non Executive Directors and Disclosure thereof

As per earlier clause 49, the compensation to be paid to non-executivedirectors was fixed by the Board of Directors, whereas the revised clauserequires all compensation paid to non-executive directors to be fixed bythe Board of Directors and to be approved by shareholders in generalmeeting. There is also provision for setting up of limits for the maximumnumber of stock options that can be granted to non-executive directors inany financial year and in aggregate. The stock options granted to the non-executive directors to be vested after a period of at least one year fromthe date of retirement of such non-executive directors.

Placing the independent directors and non-executive directors on equalfooting, the revised clause provides that the considerations as regardscompensation paid to an independent director shall be the same as thoseapplied to a non-executive director. The companies have been put underan obligation to publish their compensation philosophy and statement of entitled compensation in respect of non-executive directors in its annualreport. Alternatively, this may be put up on the companys website and a

reference thereto in the annual report. The company is also required todisclose on an annual basis, details of shares held by non-executivedirectors, including on an if-converted basis.

The revised clause also requires non-executive directors to disclose priorto their appointment their stock holding (both own or held by / for otherpersons on a beneficial basis) in the listed company in which they areproposed to be appointed as directors,. These details are required to beaccompanied with their notice of appointment.

3. Periodical Review by Independent Director

The revised clause 49 requires the Independent Director to periodicallyreview legal compliance reports prepared by the company and any stepstaken by the company to cure any taint. The revised clause specifiesthat no defence shall be permitted that the independent directorwas unaware of this responsibility in case of any proceedingsagainst him in connection with the affairs of the company.

4. Code of Conduct


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The revised clause 49 requires the Board of a company to lay down thecode of conduct for all Board members and senior management of acompany and the same to be posted on the website of the company.Accordingly, all Board members and senior management personnel havebeen put under an obligation to affirm compliance with the code on an

annual basis and a declaration to this effect signed by the CEO and COOis to be given in the Annual Report of the Company.

It has been clarified that the term senior management will includepersonnel of the company who are members of its management /operating council (i.e. core management team excluding Board of Directors). Normally, this would comprise all members of managementone level below the executive directors.

5. NonExecutive Directors Not to hold office for more than Nine Years

Revised clause 49 limits the term of the office of the non-executivedirector and provides that a person shall be eligible for the office of non-

executive director so long as the term of office does not exceed nineyears in three terms of three years each, running continuously.

6. Audit Committee

Two explanations have been added in the revised clause 49. The firstexplanation defines the term financially literate to mean the ability toread and understand basic financial statements i.e. balance sheet, profitand loss account, and statement of cash flows. It has also been clarifiedthat a member is considered to have accounting or related financialmanagement expertise if he or she possesses experience in finance oraccounting, or requisite professional certification in accounting, or any

other comparable experience or background which results in theindividuals financial sophistication, including being or having been a Chief Executive Officer(CEO), Chief Financial Officer(CFO), or other senior officerwith financial oversight responsibilities.

7. Review of information by Audit Committee

The Audit Committee is required to mandatorily review financialstatements and draft audit report, including quarterly / half-yearlyfinancial information, management discussion and analysis of financialcondition and results of operations, reports relating to compliance withlaws and to risk management, management letters/ letters of internalcontrol weaknesses issued by statutory / internal auditors, and records of related party transactions.

The appointment, removal and terms of remuneration of the Chief Internal Auditor shall be subject to review by the Audit Committee.

8. Disclosure of Accounting Treatment The revised clause 49 requires that in case a company has followed atreatment different from that prescribed in an Accounting Standards, themanagement of such company shall justify why they believe such


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alternative treatment is more representative of the underlined businesstransactions. Management is also required to clearly explain thealternative accounting treatment in the footnote of financial statements.

9. Whistle Blower PolicyCompanies have been required to formulate an Internal Policy on accessto Audit Committees. Personnel who observe any unethical or improperpractice (not necessarily a violation of law) can approach the AuditCommittee without necessarily informing their supervisors.Companies are also required to take measures to ensure that this right of access is communicated to all employees through means of internalcirculars, etc. The employment and other personnel policies of thecompany should also contain provisions protecting whistle blowers fromunfair termination and other unfair or prejudicial employment practices.Companies have also been required to affirm that it has not denied anypersonnel access to the Audit Committee of the company (in respect of

matters involving alleged misconduct) and that it has provided protectionto whistle blowers from unfair termination and other unfair or prejudicialemployment practices. Such affirmation should form part of the Boardsreport on Corporate Governance that is required to be prepared andsubmitted together with the annual report.

10. Subsidiary Companies The revised clause 49 provides that the provisions relating to thecomposition of the Board of Directors of the holding company are alsoapplicable to the composition of the Board of Directors of subsidiarycompanies. The clause further requires that at least one independentdirector on the Board of Directors of the holding company should be adirector on the Board of Directors of the subsidiary company.

The Audit Committee of the holding company has been empowered toreview the financial statements, in particular the investments made bythe subsidiary company and the minutes of the Board meetings of thesubsidiary company to be placed for review at the Board meeting of theholding company. It is further required that the Boards report of theholding company should state that they have reviewed the affairs of thesubsidiary company also.

11. Disclosure of contingent liabilities The revised clause 49 requires the management to provide a clear

description in plain English of each material contingent liability and itsrisks, which shall be accompanied by the auditors clearly wordedcomments on the managements view. This section is required to behighlighted in the significant accounting policies and notes on accounts,as well as, in the auditors report, where necessary.

12. Additional Disclosures


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The revised Clause 49 of the Listing Agreement requires the followingadditional disclosures:

(A) Basis of related party transactionsA statement of all transactions with related parties shall be placedbefore the Audit Committee for formal approval/ratification. If anytransaction is not on an arms length basis, management is required to

justify the same to the Audit Committee.(B) Board Disclosures Risk management

The Board members should be informed about the risk assessment andminimization procedures. These procedures shall be periodicallyreviewed to ensure that executive management controls risk throughmeans of a properly defined framework.Management shall place a quarterly report certified by the complianceofficer of the company, before the entire Board of Directorsdocumenting the business risks faced by the company, measures toaddress and minimize such risks, and any limitations to the risk takingcapacity of the corporation. This document shall be formally approvedby the Board.

(C) Proceeds from Initial Public Offerings (IPOs)When money is raised through an Initial Public Offering (IPO), it shalldisclose to the Audit Committee, the uses / applications of funds bymajor category (capital expenditure, sales and marketing, workingcapital, etc), on a quarterly basis as a part of their quarterlydeclaration of financial results. Further, on an annual basis, thecompany shall prepare a statement of funds utilized for purposes other

than those stated in the offer document/prospectus. This statementshall be certified by the independent auditors of the company. TheAudit Committee shall make appropriate recommendations to theBoard to take up steps in this matter.

13. Certification by CEO/CFOCEO (either the Executive Chairman or the Managing Director) and theCFO (Whole-Time Finance Director or other person discharging thisfunction) of the company has been put under an obligation to certify that,to the best of their knowledge and belief, they have reviewed the balancesheet and profit and loss account and all its schedules and notes onaccounts, the cash flow statements as well as the Directors Report andthese statements do not contain any materially untrue statement, omitsany material fact or do they contain statements that might be misleading.Further they are required to certify that these statements togetherpresent a true and fair view of the company, and are in compliance withthe existing accounting standards and/or applicable laws/regulations.

The revised clause requires them to be responsible for establishing andmaintaining internal controls, to evaluate the effectiveness of internal


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control systems of the company, and to disclose to the auditors and theAudit Committee, deficiencies in the design or operation of internalcontrols, if any. They are also required to disclose to the auditors as wellas the Audit Committee, instances of significant fraud, if any, thatinvolves management or employees having a significant role in the

companys internal control systems, whether or not there were significantchanges in internal control and / or of accounting policies during the year.14. Report on Corporate Governance

The companies have been required to submit a quarterly compliancereport in the prescribed format to the stock exchanges within 15 daysfrom the close of the quarter. The report has to be submitted either bythe Compliance Officer or the Chief Executive Officer of the company afterobtaining due approvals.

15. Company Secretary in Practice to Issue Certificate of ComplianceThis is a landmark amendment authorizing Company Secretaries

in Practice among other professionals to issue certificate of compliance of clause 49. The revised clause requires thecompany to obtain a certificate from either the auditors orpracticing company secretaries regarding compliance of conditions of corporate governance and annex the certificatewith the directors report, which is sent annually to all theshareholders of the company. The same certificate is alsorequired to be sent to the Stock Exchanges along with the annualreturns filed by the company.

16. Additional disclosure in the Report on Corporate Governance The following additional items are required to be disclosed in thesuggested list of Items to be included In the Report on CorporateGovernance in the Annual Report of Companies.

(i) Disclosure of accounting treatment, if different, from that prescribed inAccounting Standards with explanation.

(ii) Whistle Blower policy and affirmation that no personnel has been denied accessto the audit committee.

17. Additional Disclosures under Non-Mandatory Requirements The following additional disclosures are required to be made under the

non-mandatory requirements :

(i) Audit qualificationsCompany may move towards a regime of unqualified financial statements.(ii) Training of Board Members

Company shall train its Board members in the business model of thecompany as well as the risk profile of the business parameters of thecompany, their responsibilities as directors, and the best ways todischarge them.


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(iii) Mechanism for evaluating Non-Executive Board Members The performance evaluation of non-executive directors should be doneby a peer group comprising the entire Board of Directors, excluding thedirector being evaluated; and Peer Group evaluation should be themechanism to determine whether to extend / continue the terms of

appointment of non-executive directors.Conclusion

The recent events worldwide, particularly in the United States have renewed theemphasis on Corporate Governance the worldover. These events have highlighted the needfor ethical governance and require management to look beyond their systems andprocedures. Reacting swiftly and spontaneously, the United States enacted Sarbans OxleyAct, 2002 bringing out fundamental changes in every dimension of Corporate Governance.Back home in India, the need for strengthened norms for Corporate Governance is also felt.

The revised clause 49 of the Listing Agreement is, therefore, most timely and provides muchneeded disclosure requirements, widened definition of independent director, periodicalreview by independent director, whistle blower policy, quarterly compliance report in theprescribed format and issue of certificate of compliance. It is hoped that the revised clause49 would go a long way in providing corporates good governance framework

Documents

Module 3 BECG