Corporate Governance (Indian Scenario, Legal frame work in India ) - PPT.ppt

Corporate Governance

1. By
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2. Key concept of Corporate Governance
is always linked with Ethics, Integrity
and Sincerityin implementation
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3. Watchthisfilmtounderstand
theconceptofimplementationof
CorporateGovernancewithout
“ETHICS”
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4. Introduction
Global Scenario
Committees recommendations on corporate governance
Indian Scenario
Legal frame work in India-Companies Act, 1956
Legal frame work in India-Clause 49 of Listing Agreement.
Reasons for failure of Corporate Governance System
Suggestions for improvement.
Conclusion
Structure
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5. Asystemconcernedwiththemorals,ethics,values,
parameters,conductandbehaviourofthecompanyand
itsmanagement.
Theprinciplesofcorporategovernanceare:
IntegrityandFairness
TransparencyandDisclosures
AccountabilityandResponsibility
Corporate Governance -
Introduction
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6. Corporate Governance
“Corporate Governance is the application of best
management practices, Compliance of law in true letter and
spirit and adherence to ethical standards for effective
management and distribution of wealthand discharge of social
responsibility for sustainable development of all stakeholders”.
-ICSI
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7. The primary purpose of corporate leadership is to create wealth legally and
ethically. This translates to bringing a high level of satisfaction to five
constituencies -customers, employees, investors, vendors and the society-at-
large. The raison d'être of every corporate body is to ensure predictability,
sustainability and profitability of revenues year after year.
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8. YearName of
Committee/Body
Areas/Aspects Covered
1992 Sir Adrian Cadbury
Committee, UK
Financial Aspects of Corporate Governance
1994 Mervyn E . King’s
Committee , South Africa
Corporate Governance
1995 Greenbury Committee , UK Directors’ Remuneration
1998 Hampel Committee, UK Combine Code of Best Practices
1999 Blue Ribbon Committee,
US
Improving the Effectiveness of Corporate Audit
Committees
1999 OECD Principles of Corporate Governance
1999 CACG Principles for Corporate Governance in
Commonwealth
2003 Derek Higgs Committee,
UK
Review of role of effectiveness of Non-executive
Directors
2003 ASX Corporate Governance
Council, Australia
Principles of Good Corporate Governance and
Best Practice Recommendations
Committees Constituted

9. Year Name of
Committee/Body
Areas/Aspects Covered
1998 Confederation of
Indian Industry (CII)
Desirable Corporate Governance –A Code
1999 Kumar Mangalam
Birla Committee
Corporate Governance
2002 Naresh Chandra
Committee
Corporate Audit & Governance
2003 N. R. Narayana
Murthy Committee
Corporate Governance
Indian Scenario

10. A basic design of existing corporate governance
systems
Shareholders
Stakeholders Creditors
Supervisory &
enforcement
authorities
Management
Board of
Directors
Executive
directors Owner
directors
Independent
Directors
A basic design of existing corporate
governance systems

11. Key objectives
Role of ownersin electing the Board
Protectionof minorities
Role of other stakeholdersin management
Board structureand objectivityof the Board
System of reportingand accountability
Auditand internal control
Effective supervisionand enforcementby
regulators
To encourage Sustainable Development of
the Company and its stakeholders

13. Board of Directors
Audit committee
Remuneration of directors
Board Procedure
Management
Shareholders
Report on Corporate Governance
Compliance
Corporate regulations that
governs:-
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15. Theglobalizationthatbeganin1990shassparked
unionofseparateinitiativesinCorporateGovernance.
sincelargepubliccompaniesoperategloballyandhave
worldwideinvestors,Corporategovernanceisamatter
ofglobalconcern.
Global Scenario

16. Governance Modules in
Different
Countries
S.noCountry Perspective
1 UK Share Holders
2 US Share Holder
3 Japan Stake Holder
4 Germany Stake Holder

17. unlisted listed
MCA
Indian
companies
act 1956
MCA + SEBI +
Stock exchange
Listing
agreement
Clause 49
Sec 292A &
SCHEDULE 13
Indian Legal System –Companies
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18. Board Composition and procedure
Audit committee & responsibilities
Report on Corporate Governance
Disclosure of material information by Management
Disclosures to Shareholders
Compliance and CEO/CFO Certification
Legal frame work in India –
Clause 49 of Listing Agreements
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19. ApplicabilitytoeveryPublicLimitedCompanyhavingapaid
upcapitalof5Croresormore
ThreedirectorsshouldbethememberofAuditCommittee
(Twoshouldbenon-executive)
ChairmancanbeanyDirector
Incaseofdefault–
imprisonmentuptooneyear,or
withfineuptofiftythousandrupees,or
withboth.
Legal frame work in
Indian Companies Act, 1956 -Section 292A
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20. New Companies bill 2011
AsperthenewCompaniesBill,2011thefollowingdisclosuresshallbementionedinthe
BoardofDirector’sreportundertheheading“CorporateGovernance”,
(i)Director’sremunerationpackagesuchassalary,benefits,bonuses,stockoptions,
pension,etc.,
ii)detailsoffixedcomponentandperformancelinkedincentivesalongwiththe
performancecriteria;
(iii)servicecontracts,noticeperiod,severancefees;
(iv)stockoptiondetails,ifany,whetherissuedatadiscountaswellastheperiodover
whichaccruedandexercisable.
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21. Corporate Governance and Capital
Markets
Investment is an act of faith
Poor governance
Undermines integrityof corporations and discourages the
use of public markets as a means to intermediate savings
areas of transparencyand disclosurehave been a
major factor behind instability in the financial markets
across the globe
Good corporate governance
integrityand credibilityof capital market players
Contributes to the development of a vibrant economy
and robust capital markets

22. Corporategovernanceistheconvergenceofeconomicsand
relationshipsthatdetermineacompany'sdirectionand
performance.Itspurposeistooptimizeresourcestopromote
accountabilityandefficiencywithinthecorporatestructure.Most
companies'corporategovernanceissetbytheirboardsof
directors,whichestablishandpromotepoliciesforthe
managementandemployeesofthecorporation.Theboardof
directorsisresponsibletoshareholdersandcustomersforthe
corporation's outcomes.
What Is the Role of Corporate Governance in
Business?

23. Corporate Governance –Intangible Assets
Corporategovernanceisameansofprovidinggreatertransparency
andaccountabilitytoallstakeholders
ReportingofIntangibleAssetsplaysapivotalroleintheSchemeof
Governancewhichencompassestheprimaryobjectiveofopenness,
integrityandaccountabilitytothevariousstakeholders
Intangibleassetshavebecomeanintegralpartofvalue-creating
processforanycompany.Thisnecessitatesitsexternalcommunication
tovariousinterestedpartieslikeshareholders,investorsetc
Anyamendmentsintheregulationsfordisclosureswillaffectthe
financialpositionofthecompany.
Changeinthevaluationmethodsinrespectofintangibleassetswill
improvethefinancialpositionofthefirm/company.
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24. Contd…
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Benchmarkofgovernanceshouldalsoincludebenchmarksof
intangiblesforbettervaluereportingoncompaniesnewvaluecreditors
Intangibleassetsareimportantasstrongbrandsinfluencecustomers’
decision-makingprocesses,aswellasensuringthatpremiumprices
canbecharged.

25. Two types of Reporting Disclosures
TangibleAssets IntangibleAssets
Land HumanPerspective
Buildings Customer Perspective
Assets-Plant & Machinery Risk management Initiatives
Pecuniary Interest of the Managing
Director/Promoter/Director/Employee
Knowledgemanagement
StrategicAlliances
Quality Initiatives
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26. Independent Directors under
Listing Agreement in India
Composition of the Board:
Not less than 50% of the board to be non-executive
directors.
Independent Directors:
If the chairman executive:
At least half of the board should comprise of
independent directors
If Chairman non-executive:
At least one-third of the board should comprise of
independent directors
Non-executive directors’ remunerationto be approvedby
shareholders.
Board meetings –to meet at least 4 times, with gap not
exceeding 3 months. Minimum information for board meetings
laid down
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27. Selection of Independent Director
It should be transparent and on certain
valued basis.
It should have an entirely independent
Nomination committee
should specifically include the
qualifications and attributes that the
company seeks of an independent director.
The independent directors must be independent in thought and action
i.e. qualitatively independent.
without regard to management's influence.
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28. Committees of Directors
Audit Committee: requirements other than those u/s
292A
shall have minimum 3 members all of them being non-
executiveand majorityof them being independent
Chairmanof the committee shall be an independent
director
To meet at least thrice a year
Company Secretary to act as secretary to the
committee
Remuneration Committee

29. Financial statement / audit report / quarterly / half-
yearly financial information.
Management Discussions and Analysis and results of
operation
Legal compliance and risk management
Observations of statutory / internal auditors.
Record of significant related party transactions
AUDIT COMMITTEE : MANDATORY
REVIEWS

30. Toinvestigateanyactivitywithinitstermsof
reference
Toseekinformationfromanyemployee
Toobtainoutsidelegalorotherprofessional
advice.
Tosecureattendanceofoutsiderswithrelevant
expertise,ifitconsidersnecessary.
POWERS OF AUDIT COMMITTEE
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CASE
STUDIES

32. Corporate Governance policies-Infosys
Corporate Governance Philosophy Is
Based On The Following Principles
Satisfy the spirit of the law and not just the letter of the law
Corporate governance standards should go beyond the law
Be transparent and maintain a high degree of disclosure levels
When in doubt, disclose
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33. Contd….
Make a clear distinction between personal conveniences and corporate resources
Communicate externally, in a truthful manner, about how the Company is run internally
Comply with the laws in all the countries in which the Company operates
Have a simple and transparent corporate structure driven solely by business needs
Management is the trustee of the shareholders' capital and not the owner
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34. Corporate Governance Policies -
Reliance
Reliance is in the forefront of implementation of Corporate Governance best
practices
Corporate Governance at Reliance is based on the following main principles:
Constitution of a Board of Directors of appropriate composition, size, varied
expertise and commitment to discharge its responsibilities and duties.
Ensuring timely flow of information to the Board and its Committees to enable
them to discharge their functions effectively.
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35. Independent verification and safeguarding integrity of the Company’s
financial reporting.
A sound system of risk management and internal control.
Timely and balanced disclosure of all material information concerning the
Company to all stakeholders.
Transparency and accountability
Compliance with all the applicable rules and regulations.
Fair and equitable treatment of all its stakeholders including employees,
customers, shareholders and investors.
Contd…..
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37. What is the Current Status on Corporate Governance Practices?
Greater emphasis on
leadership by
example
Boards are returning to basic
value systems
•Each culture should look back to
its roots for value systems
•India’s centuries old principles of
“Dharma”
Value systems are helping
build corporate governance
framework for companies
Boards are redefining value
creation
•Not merely increase in stock
prices
Strengthening
the moral fiber
of the
corporation

38. Challenges Ahead
3 essential ingredients for the system to work in the
long run:
1.Better investor rightsin corporate laws, strong
regulation on disclosure and accounting
standards.
2.Regulations and laws that facilitate shareholder
actions and private enforcement.
3. A well functioning judicial system
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39. MakingtheManagementaccountableforthedisclosureof
financialinformation.
Havingmorehierarchytoavoidcentralisationofpower.
CreatinganindependentInternalAuditdepartmentthat
reportsonlyanddirectlytotheAuditCommittee.
Auditorindependence
Empanelment bytheCentralGovt.(or)professionalbodies
andrecruitmentshouldbemadeonlybysuchpanel.
Counterauditsorpeerreviewofaudits.
ParticipationofofficialsofMCA,SEBI,Stockexchangesat
theGeneralMeetingandBoardMeetings
Suggestions for Improvement

40. Nationalwhistle-blowerprogramtoreportinstancesof
possiblecorporatefraud.
Stringentpenaltiesforcommittingcorporatefraud.
AppointmentproceduresofIndependentDirectorstobe
defined.
LucrativeCompensationorlegalimmunitytoindependent
directors.
MandatoryTrainingsessionsforIndependentDirectors
beforetheirappointment.
Noncomplyingdirectorsshallbedebarredandlistofsuch
directorsshallbemaintained.Suchlistshallbemadeeasily
accessibletothepublic.

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42. Importantlessonshavebeenlearnedfromtheseriesof
corporatecollapsesthatoccurredindifferentpartsof
theworld.
Accordingly,severalcodes,guidelinesandprinciples
havebeenmadeandimplemented.
Theywereintroducedtorestoreinvestors'confidence
andtoenhance corporatetransparency and
accountability.
Lessons learnt

43. “Lawwithoutloyaltyandethicscannot
strengthentheBondsofEmpire”
Whatdirectors,managersandothersneedtorememberis
thatethicsmatterandmustbedemonstratedfromthetop.
Tonurtureandstrengthenthisloyalty,ourcompaniesneed
togiveclear-cutsignalthatthewords“yourcompany”have
realmeaning.
Conclusion
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44. THANK YOU
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