CORPORATE

Excellence
Through

Presented By:

Anushree Chandekar Saumitra Marathe
M.M.S. (2 Yrs.)

I Sem.

I. I. P. S.
D.A.V.V.
CONTENTS
INDORE 1. Corporate Governance: AN INTRODUCTION

Management 6. Blue Ribbon committee (USA) 3.1. Corporate Governance: ANALYSIS OF CLAUSE 49 OF LISTING AGREEMENT: 1. CII Recommendations 4. Board composition 2. 2. Board procedure 5. Audit committee 3. Shareholders 7. 4. Remuneration of Director 4. Report on Corporate Governance & compliance certificate . Kumar Mangalam Birla committee report 3. GENESIS OF Corporate Governance CODE IN INDIA: 1. Cadbury committee (UK) 2. Concept of Corporate Governance Definition of Corporate Governance Objective of Corporate Governance Constituents of Corporate Governance 2. 3.

ethics & values.4. trust. integrity. CONCLUSION PURPOSE We believe that any business conduct can be ethical only when it rests on the 9 core values of honesty. respect. citizenship & caring. Entire Corporate Governance philosophy is based on these 9 core values. Corporate Governance code applicable to listed companies is a beginning . STATUS REPORT ON Corporate Governance: 1. purposefulness. fairness. Indian capital market & for that matter Indian corporate sector though works on technical management principles but ultimately company’s philosophy rests on a single pillar i. responsibility.e. Our two-fold motive is to choose the topic like Corporate Governance is that is at first we felt that somewhere these 9 values are loosing their sight. Case studies 5.

“The best way to make your dreams come true is to wake up. so is the law. accountability. measured in monetary terms people tend to manipulate things as per their convenience for serving their own ends. Even though Corporate Governance has provided a code of conduct for effective governing of company. So. We tend to present this topic before general public because we being the investor or might be the future investors spending our hard earned money should be aware of manipulations & along with it have the courage & awareness to protect one’s right. Secondly we find that in today’s competitive era where everything is materialistic.” CORPORATE GOVERNANCE An Introduction . it is rightly said. full disclosure. but people tend to search for loopholes & to face this situation investors’ awareness is extremely important. a glimpse of transparency.whereby it aims to provide fair representation. faith & justice. responsibility. integrity.

administration. “Corporate” & “Governance”.Global opinion is now converging very much in favour of ethics in all aspects of society-politics. the term corporate governance is made of two words viz. economic & legal institution. The concept of corporate governance is rounding around these two words in their true sense. As the corporate governance deals with this ethical aspect of corporate form of business enterprise. It is defined as “an intricate. The word company in technical sense can be defined as a legal entity formed & registered under the Companies Act. The expression governance used to denote the mechanism employed . Corporate governance is the term that is in use in abundance in corporate circles & seminar halls. The concept of corporate governance stipulates parameters of accountability. It is therefore. business as well as family & personal life. As referred by corporate pundits it means the establishment of structural framework or reforming the existing framework to ensure the governing of the company to best serve the interest of all the stakeholders. so the issues involving corporate governance are taking high profile globally & have come to the force recently in India. centralized. economic administrative structure run by professional managers who hire capital from the investors”. It is rather a legal device for attainment of any social or economic end. control & reporting function of Board of Directors & encompasses the relationship among various shareholders & other stakeholders. social. a combined political. The Concept As the name itself suggests. In fact the Corporate/ Company is not merely a legal institution. and judiciary.

Corporate governance is concerned with the establishment of a system where by the directors are entrusted with responsibilities & duties in relation to the direction of corporate affairs. one can conclude that corporate governance referred to as system of regulating. principally because in corporate entity. controlling & directing the affairs of corporate form of business enterprise in such a way so as to best serve the interest of all the stakeholders. The concept of governance has assumed importance in the corporate entity of business. ethics. The concept of corporate governance has two hinges(1) Protection & enhancement of corporate wealth. integrity & accountability of the management. Those who provide the funds & those who manage the fund in a corporate entity are not necessarily the same people. It is concerned with morals.to direct & control the affairs of any system. organization or institution. with an increasingly greater focus on investor protection & . values & parameters of conduct & behavior of the company & its management. Definition There is no universally agreed definition of corporate governance. All these views are valid. Some people think of it as a concept. The fund providers always want to be assured that the funds provided by them are safe & growing & that they are capable of taking informed decisions. Other thinks of it in terms of contributions it makes to the efficiency & growth of business enterprise & countries economy. This assurance is provided through the mechanism of corporate governance embodied in functioning of corporate form of business enterprise. (2) Complete transparency. which aims to assure shareholder that their money is in safe hands. Thus. Different people have different definition of corporate governance. there is a divorce between capital & management.

grow. Corporate governance refers to an economic. legal & institutional environment that allows companies to diversify. creditors. This brings into focus the need for a company to strike a balance . according to Kumar Mangle Brita Committee report is “The enhancement of long-term shareholders value at the same time protecting the interest of other stakeholders”. It is a system of making management accountable to the shareholders for the effective management of the company. According to CII Code – Corporate governance deals with laws. the term corporate governance is much wider than the term corporate management or administration. Objectives The basic objective of corporate governance. According to Cadbury Committee . providing the leadership to put them into effect. supervising the management of the business & reporting to the shareholders on their stewardship. strategic action plan & monitoring their implementation.Corporate governance is the system by which companies are directed & controlled. It implies authority of setting the objectives & goals. The shareholders role in governance is to appoint the directors & the auditors & to project on appropriate governance structure is in place.public interest. Board of Directors is responsible for the governance of their companies. procedures. in the interest of the company & also with adequate concern for ethics & values. In fact. practices & implicit rules that determine company’s ability to take managerial decisions vis-à-vis its elements particularly its shareholders. The responsibility of Board include setting the companies strategic aims. formulating policies. restructure & exit & do everything necessary to maximize long-term shareholders value. state & employees.

ü Continuous disclosure of materials financial & non. Good corporate governance is a must. the government & the society at large. ü Protection of investors’ interest. Constituents Board of Directors Management Shareholders . consolidation & growth. responsibilities & accountability of all stakeholders especially management & the Board of Directors. ü Accountability of management. viz. ü Bring about high level of public confidence in business. customers. employees of the company. not only in order to gain credibility & trust. ü High quality of accounting practices. creditors.between the goal of enhancing shareholders wealth without harming the interest of other stakeholders in the company. bankers. roles. Corporate governance has following objectives: ü Enhancement of long terms shareholders value. but also as a part of strategic management for survival. industry & the capital market. ü Define clearly the rights.financial information & transparency. suppliers.

♦ Achieving the objectives set by the ♦ Monitoring the Board of Directors. ♦ Earning reasonable rate of returns. ♦ Creating & enhancing ♦ Transforming the objectives into end wealth & resources.K. results. action plans.S. ♦ Responsible & accountable to shareholders. also Blue Ribbon Committee has been constituted to suggest the ways & means to improve the effectiveness of Audit Committee. While corporate governance is fairly recent issue. The modern avatar of Corporate Governance concept started with the appointment of Cadbury Committee in the U. The discussion on Corporate Governance in India has gained momentum during the later part of 90’s in the light of the liberalisation & globalisation in the Indian market. the concept itself is quite old. ♦ Implementation of ♦ Formulating policies & policies. The code was developed following the collapse of some prominent companies. integrity & accountability. The Confederation of Indian Industries (CII) headed by Shri Rahul Bajaj prepared a report titled ”Desirable Corporate Governance – A code”. in 1992. This is the first Indian paper of its kind on . performance.♦ Setting objectives. This committee recommended a code of best practices based on principle of transparency. ♦ To see necessary disclosures having been made. Genesis Of Corporate Governance Code in India ♦ Appointment of Directors & Auditors. ♦ Obtain necessary information ♦ Need for appropriate governing structure. In U.

In the above-mentioned context. Corporate Governance: Analysis of Clause 49 of Listing Agreement I. Birla committee was considered & adopted by the SEBI board in its meeting held on Jan 25. in order to discharge this function properly following provisions are inserted by way of part 1 of Clause 49 of Listing Agreement. remuneration of directors. the SEBI setup a committee under the chairmanship of Shri K. Constitution & functioning of Audit committee. without which investors are not likely to repose confidence in companies. As the Corporate Governance is Internationally considered as a major instrument for investors’ protection. Many companies have voluntarily established high standards of Corporate Governance results of which are self-evident.the subject of Corporate Governance. M. Board of directors: The board of directors is accountable to the shareholders for creation & protection of shareholders’ value & responsible to them for adequate. The code has recommended transparent corporate disclosure norms for all companies beyond a specified ceiling of the paid up share capital. The report of the K. timely & transparent reporting. 2000. 1999. disclosure requirements. The code also recommended that the development of capital market is dependent on good Corporate Governance. Therefore. The major areas of recommendations of KMB Committee are composition of board of directors.M. Companies following this code are more likely to attract investors. Birla on May 7. • Board of Directors the company shall have an optimum combination of executive & . need was felt for a comprehensive approach to accelerate the adoption of globally accepted practices of Corporate Governance.

The committee observed that presently the boards in India comprise the following group of directors namely – • Promoter Directors • Executive Directors • Non-executive Directors • Independent Directors among non-executive directors The term independent director has been specifically explained in Clause 49 as a director who does not have any pecuniary relationship with the company. In a case of non-executive chairman. As the non-executive directors. • The number of independent Directors would depend whether the chairman is executive or non-executive. at least half of the board should comprise of independent Directors. Audit Committee: One of the primary objectives of ushering of good Corporate Governance is ensuring proper . the independence of Directors is a must.non-executive directors with not less than 50% of Board of Directors comprising of nonexecutive directors. II. In order to ensure that board fulfills its oversight role objective & holds the management accountable. especially independent Directors have wider perspective & independence to decision-making thus bring an independent judgment to bear on the board’s deliberations. its constituents & its subsidiaries. KMB committee has observed that there is a practice in most of the Indian companies to fill their board with the representatives & relatives of promoters & there is a very little scope for outside directors unless the promoters handpick them. at least one-third of board should comprise of independent Directors & in case of an executive chairman.

head of internal Audit & when required. Frequency of the meetings of the committee: • The Audit committee shall meet at least thrice a year.The board. C. Powers of the Audit committee: . B. as it considers appropriate to be present at the meetings of the committee. A. The finance Director. a representative of the external Auditor shall be present as invitees for the meetings of audit committee. the management & the Auditors. • The chairman of the committee shall be an independent Director. • The chairman shall be present at AGM to answer shareholders’ queries. but on occasions it may also meet without the presence of any executive of the company. the part-2 of Clause 49 contains comprehensive provisions regarding constitution and composition of Audit committee. In order to properly assess the board in discharge of its functions of accountability & transparency. its powers & its role. with majority of them being independent. frequency of its meetings & quorum. One meeting shall be held before finalization of accounts & one at every six months. • The Audit Committee should invite such of the executives. The KMB committee has rightly observed that: A system of good Corporate Governance promotes relationship of accountability between the principal actors of sound financial reporting.accountability to the stakeholders & in present scenario to the shareholders & investors. Composition of Audit committee: • A qualified & independent committee shall be setup & that committee shall have minimum three members. & with al least one Director having financial and accounting knowledge. all being non-executive Directors.

if it considers necessary. . the Audit committee has been charged with the responsibilities of monitoring the financial reporting & disclosure. § Recommending the appointment & removal of external auditor. focusing primarily ono Any changes in accounting policies and practices. Role of Audit committee: • The Audit committees role is to act as catalyst for effective financial reporting. D. § Reviewing the companies financial & risk management policy. sufficient & credible. Part-D of Part-II of Clause 49 specifically list out certain areas. To secure attendance of outsiders with the relevant expertise. where committee has to play its role. § Reviewing with the management the annual financial statements before submission to the board. the statutory auditors & internal auditors. o Compliance with accounting standards. o Compliance with Stock Exchange & legal requirements concerning financial statements. o Significant adjustments arising out of audit. fixation of audit fees & also approval for payment for any other services. § Oversight of the company’s financial reporting process & the disclosure of its financial information to ensure that the financial statement is correct. As the committee acts as a bridge between the board.• § § § § Clause 49 specifically vested this committee with the following specific powers: To investigate any activity within its terms of reference To seek information from any employee To obtain outside legal or other professional advice.

notice period & severance fees. § Capital budgets & any updates. § Service contract. benefit. § Stock options details if any. § The details of joint ventures or collaboration agreement. § Minutes of meetings of audit committee & other committees of the board. IV. • Every Director shall annually inform the company about the committee position he occupies . stock options. § Details of fixed components & performance linked incentives. § Transactions involving substantial payments towards intangible assets. • Details of the minimum information to be placed before the Board of Directors: § Annual operating plans & budgets & any updates. • There shall be separate section on the Corporate Governance in the annual report which contain the following disclosures on the remuneration of the Directors: § All elements of remuneration package of all Directors ie. Salary. Board procedure: • The board meeting shall be held at least four times a year with maximum time gap of four months. pensions etc. bonuses. • A Director shall not be a member of more than 10 committees or act as a chairman of more than 5 committees across all the companies in which he is a Director.III. § Quarterly results for the company & operating divisions or business segments. Remuneration of Directors: • The Board of Directors shall decide the remuneration of the non-executive Director.

V. Shareholders: The shareholder is the most important constituent of Corporate Governance. it is expected that the shareholders exercise all the care & efficiency in selecting the Directors & the auditors & take informed decisions. managing day-to-day affairs of the company.: § Industry structure & developments § Opportunities & threats § Segment-wise or Product-wise performance § Internal control system & their adequacy • Disclosures relating to all material financial & commercial transactions. the function of implementing the policies. ensuring compliance with all regulations & laws. Therefore. Further. facilitating the working of the board & its committees & providing timely & accurate information rests with the management. they are the beneficiaries of all the disclosures. Management: The management is one of the important constituents of Corporate Governance. It is the shareholders prerogative to appoint the directors & the auditors & therefore. . While the onus of laying down the policies is with the Board of Directors.in other companies & notify changes as & when they take place. VI. where management has personal interest. Part V of Clause 49 prescribes that: • As a part of Directors’ report a ‘Management Discussion & Analysis Report’ should form the part of annual report including the following matters viz. they should demand complete information from the board.

Report on Corporate Governance & Compliance Certificate: • To make informed the shareholders of the status of Corporate Governance practices followed by the company it is necessary that a part of annual report contain a separate section on Corporate Governance. part VI of Clause 49 requires: • In case of appointment of a new director or re-appointment of a director the shareholders must be provided with the following information: § A brief resume of the director § Nature of his expertise in specific functional areas. • Part VIII requires that: § Company shall obtain a certificate from the auditors regarding compliance of Clause 49. presentation made by companies to analysts shall be put on company’s web sites. VII. non-receipt of balance sheet. or shall be sent to the stock exchanges on which the company is listed. Information to the stock exchanges shall be sent in such form so as to enable them to put it on their web site. nonreceipt of declared dividend etc. • Company shall form Board Committee to be designated as ‘Shareholders/Investors Grievances Committee’ under the chairmanship of a non-executive Directors for grievance redressing of shareholders/investors like transfer of shares.In order to enable the shareholders to exercise this function. • Certain information like quarterly results. § Names of companies in which the person also holds the directorship. . & VIII. which is sent annually to all shareholders of the company. § The aforesaid certificate shall be annexed with the Directors’ report.

. & at present.§ The same certificate should also be sent to the stock exchanges. which is being discussed in various conferences & seminars across the country. it is rather impossible to answer. it is a buzzword. whether it will live up to the expectations of its makers is very difficult to judge. At present. A concept. sub-standard position to global competitiveness. we had a deep insight into various provisions of the code in context to the Indian economy. it has filled the air with Adrenaline & the code is being viewed as an important step to pull the Indian corporate sector from dusk to dawn. While going through the survey & analysis. was introduced by Cadbury committee showed its streak to Indian corporate sector. But. which started working on it & ultimately the recommendations of KMB committee were accepted & made mandatory for each listed company. investors’ behaviour & the famous Indian bureaucracy. it is found that the rosy picture that the law present is entirely different from the bitter reality. from management autocracy to corporate democracy. but with a new face. from grave depths to great heights. Status Report on Corporate Governance: A Critical Analysis The advent of Corporate Governance code has introduced a breeze of fresh air in the corporate world. though quite old. So far. Now each eye is focused on it. Indian corporate philosophies. the question is.

Thus he is not at all interested in attending meetings of the company. There the prime investment by general public is in capital market rather than banks. Debt-Equity ratio etc.. while the situation is totally opposite in India. receiving timely information about company affairs & to have a probe into the causes of its non-performance. in spite of the fact that equity shares are globally known as the most productive investment in the long run. A typical Indian investor does not even know the correct names of the companies in which he has invested his money. KMB committee made its recommendations on the basis of Cadbury committee report without testing under Indian corporate environment.F. Due to this unsecured feeling the investor tries to seclude himself & restricts himself from raising questions on authenticity & credibility of the decisions taken. Saving Schemes etc. P. In contrast. He is so dormant that he doesn’t even wake up when company continuously runs into losses & doesn’t pay dividend. as the company remains secured with its intact capital.• The foremost observation about the code is that it is not a ball game made to be played on the Indian turf. the scene in developed capital market is totally different. It adopted the Cadbury committee recommendations without much modification. if a listed company does not follow the clauses of listing agreement. Another major factor of such behaviour is the unsecured feeling among the investors about the ability to provide justice as & when required. The obvious consequence is that the ultimate burden will fall on the investor. the worst thing that can happen is that the trading of its shares will be suspended or the company can be de-listed.. For instance. leave the case of knowing its EPS. Here the investor is not a long-term investor but he is a speculator. Market Cap. which help them to judge the authenticity & credibility of the . which is a very strange mistake. Reasons being: There is a big difference between developed capital markets like in US & UK & than that of India. There the investors are well aware of their rights & duties. Hence he is interested in earning big returns in short run and ultimately resorts to speculations.

000-12. The dormant behaviour of investors gives companies a liberty to make use of this opportunity for doing scams & frauds.divisions taken at the right time. starting from little neglects like non-dispatch of notices of meetings.85. annual reports.000 non-listed companies & 248 PSUs. then taking a step further by appointing their favorite persons at important places & ultimately deploying the company’s funds for their own use. which gave them 16% rise in dividend rate. Investors View on Good Corporate Governance This survey shows that out of 100 major investors nearly two-third of the investors voted in favour of well-governed companies.. & institutional investors Inc. • Another important fact about Indian corporate sector is that it comprises of 11. While the code under . nearly 5. This thought has been strengthened further by the survey conducted by McKinsey & co.000 listed companies. balance sheets etc.

the Indian code introduced the same concept. the companies are required to get approval of central Govt. In fact. Further. its practical application may be beset with inability to accommodate certain family aspirations & also likely paucity of competent non-executive Directors qualifying to be independent. for converting themselves from loss making corporations to Govt. the criteria of independence need further discussion. cash cows. Especially PSUs & Govt. o Audit has been empowered to recommend to the board regarding appointment of external auditors. As per Sec. Some of its clauses are in repugnancy with above mentioned laws & legislations. & also the approval of shareholders by way of a resolution passed in general meeting for paying remuneration other than by way of commission to such Directors.discussion is applicable on listed companies. it is very much clear that the code under discussion is not made in consonance with its parent act that is Companies Act 1956. fixation of audit fees & approval for payment of other services. o Part III of Clause 49 requires the companies to undertake that the board shall decide the remuneration to non-executive Directors. The code is needed to these corporations in comparison to only listed companies. If we step-wise analyse the Clause 49 of listing agreement. this requirement seems to be superfluous as there is already a more stringent provision exists u/s 309 of the Companies Act 1956. which should be the first target on the hit list. While this may be germane to measure objectivity in board’s decision. But it is pertinent to note that the ultimate authority to appoint auditors & to fix his audit fees rests with shareholders. SEBI & RBI Rules & Regulations etc. deptt need Corporate Governance code or any other code as near to as circumstances admit. • After much analysis. . 309. non-listed companies & PSUs cover the major sector. we will find the following areas of debate: o With the growing trend towards non-executive & independent Directors’ on board.

The companies who comply with this ethical code of conduct also follow the principle of fair representation & full disclosure in all of its dealings & communication.o The irony of the situation lies in the certification of Corporate Governance report. So it is recommended to authorize company secretary to certify the report. but experts feel that the authority who has extension knowledge on corporate laws & legislation & its procedural aspects is company secretary. Hence. it is highly questionable that the authorities reside with other person. CASE STUDY The basic motive of Corporate Governance code is maintaining high standards of transparency & disclosure norms so as to gain trust & confidence of investors. At present it is the chartered accountant who is authorized to certify the report. CASE STUDY 1: .

This case study reveals the disclosure made in annual report of the company regarding the composition & category of Directors as of Mar 31st 2000 & attendance of each Director at the board meetings & the last AGM. Of Board meetings No. Feb. Marti G. No. Data 9 5 Y Deepak M. Composition & Category of Directors as of Mar 31st 2000 Category No.INFOSYS TECHNOLOGIES LTD. Satwalekar 9 3 Y 9 3 Y Prof. 9 5 Y Subrahmanyam Philip Yeo (Ret.A.2000) Directors . Of board meetings Last AGM attendance held attended (Yes/No) Susim M. independent 5 50 Directors TOTAL 10 100 Attendance of each Director at the board meetings & the last AGM. In 9 N. Of Directors % Founder Directors 5 50 Non-executive.

99) GopalKrishnan S.R. Narayanmurthi Nandam M. K.D.29.S. CASE STUDY 2: . assets profile etc. The following data & figures demonstrate some of the disclosures made under the Corporate Governance report for the better understanding of the investor regarding income inflow & outflow. 9 9 9 9 9 9 8 9 9 9 9 8 Y Y Y Y Y Y HDFC Ltd. Nilekani N. Raghavan (joined on Oct. Dinesh Shibulal S.N.

ASSETS PROFILE .

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the shoe .” “A little neglect may breed great mischief …for want of a nail. the rider was lost A& for want of rider the war was lost. for want of shoe the horse was lost & for the want of horse.CONCLUSION was lost.

integrity. Its high time for Indian investors to get themselves involve in real flow. make them accountable for frailties & flaws & in the long run enhance shareholders value while at the same time protection of interest of other stakeholders for survival & growth. its objects. protection rest on a single milestone i. rules.e. The investor is the key factor around which the whole cycle of Corporate Governance revolves.-Benjamin Franklin Little neglects add up to mischiefs & mischiefs ultimately lead to bigger frauds & scams & corporate enterprise are no exception. The basic rationale for high standards of Corporate Governance stems from the inherent characteristics of the investors along with the form of organization. Investor. rules. The Indian investor is like a sleeping volcano residing in very inner core of the earth crust. regulations. its provisions. . and laws. responsibility. accountability. The complete basket of laws. It’s the prerogative of investors to demand & force the board of directors & management to follow norms. the Corporate Governance code. aims of transparency.

REFERENCES: 1. 3. D. Mr. Abhishek Singhai (CS. 4. Sunil JAIN (ACS. 2.com http://www. Kavita Sethi (CS.sebi. 2. 3.gov. K. Dinesh Kumar Sharma (ACS) .com http://www.P. ICSA London) Mr.in http://www. 63rd Secretarial modular training programme (New Delhi) http://www.bseindia.nseindia. JAIN (FCS.com EXPERTS VIEW: 1. BCC finance LTD) Mr. M.business-today. Glychem) Mr. 5. AICWA) Ms. 4. 5.

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