Professional Documents
Culture Documents
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 wealth and discharge of social responsibility for sustainable development of all stakeholders. -The Institute of Company Secretaries of India
In December 1995, CII set up a task force to design a voluntary code of corporate governance. The final draft of this code was widely circulated in 1997.
In April 1998, the code was released. It was called Desirable Corporate Governance: A Code. Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddys Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI, etc.
Good corporate governance involves a commitment of a company to run its businesses in a legal, ethical and transparent manner a dedication that must come from the very top and permeate throughout the organization.
Auditors
Appointment of auditors Audit Committee of the Board should be the first point of reference regarding the appointment of auditors. Audit Committee should consider the profile of the audit firm, qualifications and experience of audit partners, strengths and weaknesses, if any, of the audit firm and other related aspects. Audit Committee should discuss the audit plan to be undertaken by the auditor, with the auditor; examine and review the certificate of proof of independence of the audit firm, and recommend to the Board, with reasons, either the appointment/re-appointment or removal of the statutory auditor, along with annual audit remuneration. Certificate of Independence Every company should obtain a certificate from the auditor certifying his/its independence and arms length relationship with the client company.
Auditors
Rotation of Audit partners and firms To maintain independence of auditors, the company must adopt a policy of rotation of auditors in the following manner: audit partner to be rotated once every three years Audit firm to be rotated once every five years A cooling period between two audit assignment. Need for clarity on information to be sought by auditor and/or provided by the company to him/it Appointment of internal auditor Board may appoint an internal auditor and such auditor, where appointed, should not be an employee of the company.
Secretarial Audit
To ensure that the Board processes and compliance mechanisms of the company are robust, the companies may get the Secretarial Audit conducted by a competent professional. Board should give its comments on the Secretarial Audit in its report to the shareholders.
Companies should ensure the institution of mechanism for employees to report concerns about unethical behavior, actual or suspected fraud, or violation of the companys code of conduct or ethics policy. Companies should also provide for adequate safeguards against victimization of employees who avail of the mechanism
Annual, quarter, half year operating plans, budgets and updates. Quarterly results of company and its business segments. Minutes of the audit committee and other board committees. Recruitment and remuneration of senior officers. Materially important legal notices and claims, as well as any accidents, hazards, pollution issues and labor problems. Any actual or expected default in financial obligations. Details of joint ventures and collaborations. Transactions involving payment towards goodwill, brand equity and intellectual property. Any materially significant sale of business and investments. Foreign currency and other risks and risk management. Any regulatory non-compliance.
Audit Committee is mandatory. Must have minimum of three members, all non-executive directors, the majority of whom are independent.
Chairman must be an independent director, and must be present at the annual shareholders meeting to answer audit or finance related questions. At least one member must be an expert in finance/accounts. Must have at least three meetings per year, including one before finalisation of annual accounts. Must meet with statutory auditors and internal auditors; have the powers to seek any financial, legal or operational information from the management; obtain outside legal or professional advice.
Summary
Indian corporate governance system has both supported and held back Indias ascent to the top ranks of the worlds economies. While on paper the countrys legal system provides some of the best investor protection in the world, enforcement is a major problem with slow, over-burdened courts and significant corruption. Ownership remains concentrated and family business groups continue to be the dominant business model.
Securities and Exchanges Board of India has a rigorous regulatory regime to ensure fairness, transparency and good practice.