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Corporate Governance

Corporate Governance

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Published by Bhuvnesh Prakash

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Published by: Bhuvnesh Prakash on Nov 15, 2012
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12/04/2012

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Corporate governance
In order for a company to exist, it has to be set up and registered with the appropriate company authority.
Once registered, the company is regarded as a legal person, with legal rights and obligations. A company’s
existence and organization are continuously scrutinized through a well-established set of rules, laws, andpolicies that govern the way in which the company is run and controlled. This is known as 
Corporate governanceexists to protect the shareholders of a company. It also aims to preserve the reputationof a company and its business against any fraudulent acts committed by its directors and officers. The
directors of a company must always make decisions objectively, in the best interests of the company’s
business and its shareholders. They have the responsibility to run the company successfully and bring inprofits for the shareholders.
 
Executive director
is a term sometimes applied to thechief executive officer(CEO)ormanaging directorof anorganization,company,orcorporation.The role of the Executive Director is to design, develop and implement strategic plans for their organization in a cost-effective and time-efficientmanner. The Executive Director is also responsible for the day-to-day operation of the organization, includingmanaging committees and staff and developing business plans in collaboration with the board for the futureof the organization.
 
Non-executive director
 
of a firm who is not an executive director and, therefore, does notparticipate in the day-to-day management of the firm. He or she is usually involved in planning and policymaking, and is sometimes included to lend prestige to the firm due to his or her standing in the community.Non-executive directors are expected to monitor and challenge the performance of the executive directorsand the management, and to take a determined stand in the interests of the firm and its stakeholders. Theyare generally held equally liable as the executive directors under certain statutory requirements such as taxlaws. Also called external director, independent director, or outside director..A non-
executive’s role is less
hands-on. A non-executive director may have less experience and less knowledge than an executive. However,the benefit here is that a non-executive can bring objectivity and an external awareness to the board. Non-executive directors are not usually involved with day-to-day management, however, the smaller the company,the more likely it is that there will be some hands-on work. The non-
executive’s role is an over
-viewer andwhistle blower, ensuring adherence to good practice, respect for the interests of other stakeholders andadherence to the process of boardroom discipline. Non-
executives are often thought of as “advisers” although
this is not the case. The role is larger than this
 –
the non-exec is a director and shares the legal duties andresponsibilities of the executive directors. As far as corporate governance is concerned, non-executives areusually associated with Independence and may be self-employed
 
 Independent Director
means non-executive Director who, apart from receiving directorsremuneration, does not have any material/ pecuniary relationship or transaction with the company, itspromoters, its directors, its senior management or its holding company, its subsidiaries and associates, whichin judgment of the Board may affect independence of judgment of the Director.The Companies Act, 1956 do not specifically give the definition of the Independent Director. However clause49 of the Listing Agreement gives the definition.
As per revised clause 49 of the Listing Agreement the definition of the term ‘independent directors’ would
mean a non-executive director who:1. Does not have a pecuniary relationship with the company, its promoters, senior management or affiliatecompanies.2. Is not related to promoters or the senior management.3. Has not been an executive with the company in the immediately three preceding financial years.4. Is not a partner or executive of the auditors/lawyers/consultants of the company for the last three years.5. Is not a supplier, service provider or customer of the company.6. Does not hold 2 per cent or more of the shares of the company.
‘Senior management’ means personnel of the company who are members of its core management team
excluding the Board of Directors, and would comprise of all members of management one level below theexecutive directors, including all functional heads.From a legal point of view, there is no difference between the executive andnonexecutive directorsin termsof their responsibilities towards the company and its stockholders. It is recognized, however, thatexecutivedirectorshave an active role in directing
the company’s affairs for the benefit of, and in the best interests of,
the stockholders. Theexecutive directors
and especially themanaging director
have overall responsibility
for the performance of the company’s business. The
non executive directorshave a supervisory and balancingrole, controlling the activities of theexecutive directorsand the board in general.
 
The directors are responsible for the company’s books and accounts and are responsible to stockholders andinvestors for the company’s activities and results. They must act in good faith, in the best inter
ests of the
company’s business and stockholders. Any
with the company’s business must be declared
and approved by the board and, in certain circumstances, by the stockholders at a general meeting.Directors must always act with due skill and care and must keep up to date with the needs of the company
and its business. They must also consider the needs of the company’s employe
es.
Directors have a responsibility to establish the company’s objectives and policies and, once these have beenestablished, to monitor their development and progress. They also appoint the company’s
seniormanagement. Directors have an active duty to comply withmoney-launderingregulations, which are now establishedinternationally. In certain circumstances (when, for example,nonexecutive directorssupply their services tothe company via another business), they will have to register with certain government departments for thepurposes of themoney-launderingregulations.
Duties & Responsibilities of an Independent Director 
The duties and responsibilities of independent Directors are normally as they are of director of the Company:1. He should furnish information in the prescribed form to the company about disclosure of General Notice of directorship, membership of body corporate and other entities.2. He should also inform the Company about any change in the details submitted subsequently.3. He should provide a list of his relatives as defined in the Companies Act and their directorship and interestin other concerns.4. The Director shall have fiduciary duty to act in good faith and in the interest of the company.5. It is the duty of the Independent Director to acquire proper understanding of the business of the Company.6. He should act only within the powers laid down by the Memorandum of Association and Articles of Association and by applicable law and regulations.7. He should not be a Director of more than fifteen Companies.Such an Independent Director could be working as member of Audit Committee prescribed under Section292A of the Companies Act. In such situation he has to look into the obligations of Audit Committee andperform the duty.

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