ROLE OF SEBI IN

CORPORATE
GOVERNANCE
 AGENDA
 EVOLUTION : CORPORATE GOVERNANCE
INTRODUCTION
 GLOBAL INITIATIVES
 INDIAN INITIATIVES
 KUMAR MANGALAM BIRLA COMMITTEE
 MANDATORY RECOMMENDATION
 NON-MANDATORY RECOMMENDATIONS
 CASE STUDY: SATYAM LTD
EVOLUTION: CORPORATE

GOVERNANCE
 EVOLUTION : CORPORATE GOVERNANCE
History records Pataliputra, the capital of the Mauryan Empire, as a city “astonishingly well
organised and administered according to the best principles of governance”.
Writing about the ideal conduct of the King Kautilya,an official says an ideal king is one for
whom-
“In the happiness & well being of the subjects, is the well being of the king,
In the Welfare of the subjects, lies the welfare of the King,
What is desirable and beneficial to the subjects and not his personal desires and
ambitions is desirable and beneficial to the King”
Kautilya further elaborates on the fourfold duty of a King as:
 Raksha or Protection
 Vruddhi or Enhancement
 Palana or Maintaineance
 Yogakshema or Safeguard
The substitution of the state with the company, the King with the CEO oe the Board of the
Company & the subjects with the Shareholders, brings out the spirit of the Corporate
Governance
So, the fourfold duties of the King/CEO/Board of a Company can be
interpreted to imply-
 Raksha or Protection - Shareholders Wealth
 Vruddhi or Enhancement - Wealth through proper utilisation of assets
 Palana or Maintaineance - Of that Wealth
 Yogakshema or Safeguard - Interest of the Shareholders
INTRODUCTION
 What is Corporate Governance
It means Governing a Company in a Valued based manner
Objective:
Enhancement of shareholders value keeping in view the interests of other
stakeholders
Key Constituents
 Shareholders
 Board of Directors
 Management

Corporate Governance involves Promoting-

 Transparency – Everything that happens in the company, if it is not shy to

share it publicly, it is transparent.

 Accountability – The management is accountable for its decisions
 Equanimity – (Equitable Treatment) Rights of all shareholders are equal,

of minor or major shareholding.

It involves letting Investors know how the company in which they have invested
is utilizing their money.
Benefits of Corporate Governance:

 Good Corporate Governance practices, Companies can reduce

vulnerability to Financial Crisis.
 Studies world over have shown
- Markets & Investors – take notice of well managed companies
- Respond and rely on them
- Reward such companies with higher valuation
 Some Perturbing Facts
 The Directors Remuneration was Rs. 1.85 lakhs a year & the method of
Remuneration was also questionable.
 The Company has paid Rs. 200 lakhs as Cash Bonus in the year though the
net income was only Rs. 360 lakhs.
 Rs. 10 lakhs of the company money has been used to find a lavish birthday
party of one of the Director’s Wife.
 The Percent holding of the three Directors was unclear.
 Loans given to Directors were written off.
GLOBAL INITIATIVES
 GLOBAL INITIATIVES TO IMPOSE CORPORATE
GOVERNANCE
A number of committees were set up to look into various aspects of Corporate
Governance these includes:
 Sir Adrian Cadbury Committee on Financial Aspects of Corporate
Governance(1992)
 Mervyn E King’s Committee on Corporate Governance(1994)
 Jenkins Report, US (Sept, 1994).
 Toronto Stock Exchange Report, Canada (Dec.1994)
 Greenbury Committee on Directors Remuneration(1995)
 Hampel Report,UK (Dec,1997)
 Business Round Table(BRT) Statement on Corporate Governance(1997)
 Hampel Committee on Corporate Governance(1998)
 Blue Ribbon Committee on improving the Effectiveness of Audit
Committee(1999)
 CACG Principles for Corporate Governance in Commonwealth(1999)
 Blue Ribbon Commisson Report, US,2000
INDIAN INITIATIVES
 INDIAN INITIATIVES TO IMPOSE CORPORATE
GOVERNANCE
Following committees were set up to look into various aspects of Corporate
Governance these includes:
 Kumar Mangalam Birla Committee(1999)
 The Naresh Chandra Committee(2002)
 The Narayan Murthy Committee(2003)
Clause 49 of the Listing Agreement, which deals with Corporate Governance that a
listed entity should follow was 1st introduced in the F.Y.2000-01 based on the
recommendations of Birla Committee.
After these recommendations were in place for about 2yrs, SEBI in order to evaluate
the adequacy of the existing pratices set up Narayana Murthy Committee, which
after holding 3 meetings submitted a Draft recommendations on Corporate
Governance norms accordingly Clause 49 of Listing Agreement was revised but
industry had some objections which forced the Murthy Committee to revise Clause
49 again.
This revised recommendations have considerably diluted the Original Murthy
Committee recommendations.
Areas where major changes were made include:
 Subsidiary Companies
It highlights Board Composition & other requirements
 CEO/CFO Certification:
This is a new requirement & is based on the Sarbanes Oxley Act of USA.The revised Clause
requires a CEO & CFO to certify to the Board,the Annual Financial Statements in the prescribed
format.
Few new items have been added under non-mandatory requirements which are as follows:
 Audit Qualifications
Company may move towards a regime of unqualified financial statements
 Training of Board Members
 Mechanism for evaluating non-executive Board members
Performance evaluation of non-executive directors by a peer group comprising the entire board..
 Whistle Blower Policy
It plays a very important role in providing information about corruption and mal-
administration. A whistleblower is an employee or ex-employee who provides information about
ones company which one believes provides evidence of –
A violation of a law or regulation by the company
Financial malpractices
A danger to public health & safety.
KUMAR MANGALAM
BIRLA COMMITTEE
 Kumar Mangalam Committee’s
Recommendations
Kumar
Kumar Mangalam
Mangalam Committee’s
Committee’s
Recommendations
Recommendations

Mandatory Recommendations Non-Mandatory Recommendations

• Board Composition • Remuneration Committee

• Audit Committee Composition
• Board Role
• Audit Committee
• Critical Information
• Shareholders Communication
• Financial Performance
Declaration
• Non-Executive Chairperson
 B O A R D C O M P O S I T I O N

 Board of Directors should comprise

Executive Directors Non-Executive Directors

Minimum 50% of such directors if Chairman is
Executive
Minimum 1/3rd of such directors if Chairman is
Non-Executive
Among such directors the independent
directors should not have any material or
peculiarly relationship or transaction with the
company, its Promoters, Management or
 Recommendations

Mandatory Recommendations Non-Mandatory Recommendations

Board Composition
AUDIT COMMITTEE COMPOSITION

 Company Board should setup a qualified and independent audit

committee comprising minimum 3 members

All being non-executive directors and majority being Independent

Atleast 1 director should have financial & accounting knowledge.

 Audit Committee Chairman should be

Independent Director
Present at the Company AGM
Company Secretary should act as the Secretary to the Audit
Committee
 Recommendations

Mandatory Recommendations Non-Mandatory Recommendations

Board Composition
Audit Committee Composition
BOARD ROLE

 Board Meeting should be held atleast 4 times a year i.e., once every
Quarter
 Board of Directors should decide the remuneration of non-executive
director.
 Full Disclosure should be made regarding the remuneration packages of
all directors.
 Director
Can be member in maximum 10 committees
OR
Act as Chairman in maximum 5 committees across all Company in
which he is a Director.
Board Composition
Audit Committee Composition
Board Role
AUDIT COMMITTEE ROLE

 Meet atleast thrice a year.

 Have Power to investigate any Activity within its terrms of reference.
 Review
Any change in Accounting Policies & Practices.
Compliance with Accounting Standards
Stock Exchange & Legal Requirements
Adequacy of Internal Control Systems
Company’s Financial & Risk Management Policies
Board Composition
Audit Committee Composition
Board Role
Audit Committee Role
CRITICAL INF ORMATIO N

 Directors would need to disclose their membership with other committees of

the board
 Management must disclose to the Board all information pertaining to
Material Transaction
Financial Transaction
Commercial Transaction
 Incase of Appointment & Re-Appointment of Director, the shareholder must
be provided with a brief resume of the Director covering
His Expertise
The names of the companies in which he holds directorship.
Board Composition
Audit Committee Composition
Board Role
Audit Committee Role
Critical Information
SH AREH OLDER COM M UNICATIO N

 A board Committee should be formed to redress Shareholders Complaints

regarding
Transfer of Shares
Non Receipt of Balance sheet, Dividend & so on
 There should be a separate section on Corporate Governance in the Annual
Report Compliance Report.
R E M U N E R AT I O N
COMMITTEE

 Board should setup such a

committee to determine the
Company’s Policy on Remuneration
Packages for Executive Director.
Remuneration Committee
FINANCIAL
PERFORMANCE
D E C L AR AT I O N

 Shareholders should be sent

declarations of Financial
Performance half yearly including
the summary of the significant
Events in the Last six months.
Remuneration Committee
Financial Performance Declaration
NON-EXECUTIVE
CHAIRPERSON

 A Non-Executive Chairperson
should be entitled to maintain an
office at the Company’s Expense.
STATISTICS
TOP 5 COMPANY’S : CORPORATE GOVERNANCE

COMPANY’S (2006) COMPANY’S (2005) COMPANY’S (2004)

●
● Abhishek Industries
●
●Abhishek ●
●Abhishek
ltd. Industries ltd. Industries ltd.
●Bajaj Auto Ltd. ●Adnani Exports
●
● Bajaj Auto Ltd. ● ●

●
● Bharat Forge Ltd. ●Bharat Tele-
●
Ltd.
●
● Chennai Petroleum Ventures Ltd. ●Bajaj Auto Ltd.
●

Corp. Ltd ●Canara Bank

● ●Bharat Petroleum
●

●
● Clariant Chemicals ●Clariant (India)
●
Corp. Ltd
(India) Ltd. Ltd. ●Canara Bank
●

SOURCE : www.icsi.edu