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Governance
What is Corporate
Governance
Private Sector
Public Sector
Private Sector- categories
of shareholders
Promoter director – Called as a functional
director and belongs from the promoter
group.
Professional director - Category of
directors who are invited by the promoter
group on the basis of competence and
favourable personal equation.
Institutionally nominated – These positions
are fulfilled by senior activities or person
of good reputation.
Public Sector – categories
of directors
Functional directors – Full time
employees of the PSUs.
Govt. directors – They are the
bureaucrats from different controlling
administrative ministry.
Outside directors
Distinction between
management and control
Management Control
Financial scams
Legal and administrative framework
in India provides for excellent scope
for current practices.
Specific steps to improve
corporate governance
Abolition of the Sick Industries
Companies Act (SICA) and BIFR.
Banking Secrecy Act – Reveal those
who are wilful defaulters.
Benami Transactions Prohibition Act
and Prevention of Money Laundering
Act
The Power of Ethical
Management
Is the decision you are taking legal? If it is
not legal, it is not ethical.
Is the decision you are taking fair? It
should be a win-win situation for both the
parties entering into an agreement or if it
is a general policy or a multi – level
agreement, there should be equal risk and
reward to all concerned.
Eleventh Commandment test – If the
decision you are taking is such that if it is
known in the public through media, will
you feel ashamed? If you are feeling
ashamed then it is not an ethical decision.
Conclusion
Corporate governance is the net
result of the individual sense of
values, the values held in society or
part of a society like professional
bodies or business associations and
finally the system of public
governance. If those who violate the
norms are effectively punished then
there is a fear and there will be
adherence of the principles of
Kumaramangalam Birla
Committee recommendations:
Three Constituents
Shareholders
the Board of Directors
the Management
Applicability of
recommendations
Mandatory
Non mandatory
Mandatory
recommendations
absolutely essential for the
framework of corporate governance
and virtually form its core
which can be enforced through the
amendment of the listing agreement
Applicability
Applicable to the listed companies, their
directors, management, employees and
professionals associated with such companies,
The ultimate responsibility for putting the
recommendations into practice lies directly with
the board of directors and the management
of the company.
Recommendations will apply to all the listed
private and public sector companies, in
accordance with the schedule of implementation.
As for listed entities, which are not companies,
but body corporates (e.g. private and public
sector banks, financial institutions, insurance
companies etc.) incorporated under other
statutes, the recommendations will apply to the
Board Of directors
The Board of a Company provides
leadership and strategic guidance,
objective judgment independent of the
management to the Company and
exercises control over the Company.
The Board must fulfils its legal
requirements and also must be aware and
understanding of its responsibilities.
An effective corporate governance system
is one, which allows the Board to perform
these dual functions efficiently
Functions of the Board Of
directors
Directs the Company by formulating
and reviewing the Company’s
policies.
Controls the Company and its
management by laying down the
code of conduct.
Is accountable to the shareholders
for creating, protecting and
enhancing wealth and resources of
the Company.
Is not involved in day to day
Composition of the Board Of
directors
Executive directors are involved in
the day to day management of the
Companies
Non executive directors bring
external and wider perspective and
independence to the decision
making.
Non executive directors may be
independent or non-independent.
Independent directors
Receive director’s remuneration
Do not have any other material
pecuniary relationship or
transactions with the Company, its
promoters, its management etc.,
Emphasis on the calibre of the non
executive directors.
Mandatory
Recommendations
Optimum combination of executive
and non-executive directors with not
less than 50% of the board
comprising the non executive
directors.
At least one third of the board should
comprise of independent directors
Nominee Directors
Institutions should appoint nominees
on the board of Companies only on a
selective basis where such
appointment is considered necessary
to protect the interest of the
Institution
Chairman of the Board
The role of the Chairman is to ensure
that the board meetings are
conducted in an effective manner.
The Chairman’s role should in
principle be different from that of the
Chief Executive.
Non mandatory
recommendation
A non executive Chairman should be
entitled to maintain a Chairman’s
Office at the Company's expense and
also allowed reimbursement of
expenses incurred in the
performance of his duties.
Audit Committee
Oversight of the finance function and
monitoring
Relies on the senior financial
management and the outside
auditors.
Mandatory
recommendation
A qualifies and independent audit
committee should be set up by the
board of a Company. This would go a
long way in enhancing the credibility
of the financial disclosures of a
Company and promoting
transparency
Composition of the Audit
Committee
Minimum of 3 members ( non executive
directors, majority being independent and
with at least one director having financial
and accounting knowledge)
The chairman of the committee should be
an independent director.
The Chairman should be present at AGM to
answer shareholder queries.
The Company Secretary should act as the
Secretary to the Committee
( the above are mandatory
recommendations)
Frequency of meetings and
quorum of the Audit
committee
Meet at least thrice a year
One meeting before finalization and
one every 6 months
Quorum should be either 2 members
or 1/3rd of the members of the audit
committee whichever is higher and
there should be a minimum of two
independent directors.
( this is a mandatory recommendation
Powers of the Audit
Committee
To investigate any activity within its
terms of reference
To seek information from any
employee
To obtain outside legal or other
professional advice
To secure services of outsiders with
relevant expertise
( this is a mandatory recommendation)
Remuneration
The Board of Directors should decide the
remuneration of the non-executive directors
The annual report must contain :
- all elements of the remuneration
package of all the directors
- Details of fixed component and
performance linked incentives
- Service contracts, notice period,
severance fees
- Stock option details, if any