Professional Documents
Culture Documents
Unit 1: Why Corporate Governance?
Unit 1: Why Corporate Governance?
CORPORATE GOVERNANCE
• Corporate governance is the system of rules, practices and processes by which
a firm is directed and controlled. Corporate governance essentially involves
balancing the interests of a company's many stakeholders, such as
shareholders, management, customers, suppliers, financiers, government and
the community. Since corporate governance also provides the framework for
attaining a company's objectives.
• Corporate governance is the set of processes, customs, policies, laws, and
institutions affecting the way a corporation (or company) is directed,
administered or controlled.
• Corporate governance also includes the relationships among the many
stakeholders involved and the goals for which the corporation is governed.
➢ Accountability
• Ensure that management is accountable to the Board
• Ensure that the Board is accountable to shareholders
➢ Fairness
• Protect Shareholders rights
• Treat all shareholders including minorities, equitably
• Provide effective redress for violations
➢ Transparency
• Ensure timely, accurate disclosure on all material matters, including the
financial situation, performance, ownership and corporate governance
➢ Independence
• Procedures and structures are in place so as to minimise, or avoid
completely conflicts of interest
• Independent Directors and Advisers i.e. free from the influence of
others
Agency theory is one of the most widely used theories in management. Broadly,
agency theory is about the relationship between two parties, the principal (owner)
and the agent. More specifically, it examines this relationship from a behavioral and
a structural perspective. Theory suggests that given the chance, agents will behave
in a self-interested manner, behavior that may conflict with the principal’s interest.
As such, principals will enact structural mechanisms that monitor the agent in order
to curb the opportunistic behavior and better align the parties’ interests.
• Adam smith who identified an agency problem(managerial negligence and
profusion).
• Shareholders (owners)- principals-they define objective of the company.
• Agents-management who pursue such objectives.
• Chief executive desire and shareholders long term investment.
• Mismatch objective leads to agency problem.
• Cost inflicted by such dissonance is the agency cost.
Two broad mechanism that reduce agency cost and improve performance are:
• Fair and accurate financial disclosures
• Efficient and independent board of directors
2- STEWARDSHIP THEORY
• Left alone management will act in best interest of firms and shareholders
• Don’t believe in the pessimistic view of human nature (e.g. self-interest), they hold
that this view re-enforces and influences such negative behavior.
• No principal- agent problem exists.
• Agents are stewards for the company’s assets and not agents of owners. They are
a necessary component of this relationship.
• Managers are trustworthy and attach significant value to their personal reputation
• Managers are steward whose motives are aligned with the objectives of principles.
• Steward behavior will not depart from the interests of his/her organization.
• Control can be counterproductive, because it undermines the pro-organisational
behavior of the steward by lowering his/her motivation.
Agency costs are a type of internal cost that arises from, or must be paid to, an agent
acting on behalf of a principal. These costs arise because of core problems, such
as conflicts of interest, between shareholders and management. Shareholders wish
for management to run the company in a way that increases shareholder value, while
management may wish to grow the company in ways that maximize their personal
power and wealth that may not be in the best interests of shareholders.
3- STAKEHOLDER THEORY
• Firms should recognize the interests of stakeholders that have a vested interest in
the corporation.
• Research indicate that the country environment or political-economic climate
affect corporate performance
• Interest of all groups- employees, customers, dealers, government and society.
• Ethics of cares
• Ethics of fiduciary relationship
• Theory of property rights
• Criticised mainly because not applicable in practice by corporations
4- SOCIOLOGICAL THEORY
• Focus on board composition
• Implication of power and wealth distribution
• Financial reporting
• Problems of interlocking dictatorship and concentration in privilege class to equity
and social progress
• Socio-economic objective of corporations
▪ This is also called as 2 tier board model as there are 2 boards viz.
-The supervisory board
-The management board.
▪ It is used in countries like Germany, Holland, France, etc.
▪ Usually a large majority of shareholders are banks and financial institutions.
▪ The shareholder can appoint only 50% of members to constitute the
supervisory board. The rest is appointed by employees and labour unions.
▪ Works on Co-determination principle.
3- JAPANESE MODEL (BUSINESS NETWORK/ INSIDER MODEL)
CORPORATE EXCELLENCE
The term Excellence literally means the quality of being outstanding or extremely
good. The achievement of corporate excellence is the most important objective of
every organization. Corporate governance is the one and only route to achieve
corporate excellence. Corporate excellence refers to a transformation from the status
of a good company to the status of a great company. The essence of corporate
excellence is to have a competitive advantage over other firms in the industry.
Corporate excellence is about developing and strengthening the management system
and process of a company to improve performance and create value for stakeholders.
9. Satisfied Customers
Customer satisfaction is one of the most important aspects of organizational
performance. Through good governance, companies can gain valuable insights into
the priorities and understanding of customer needs and respond with modified
product offering. The satisfied customer helps companies in achieving its excellence
in all areas.
10.Corporate Reputation
Corporate reputation plays most prominent role in corporate excellence. Good
governance system boosts the reputation of the company by adhering to the principle
of reliability, credibility, responsibility, accountability and trustworthiness. It is the
overall estimation in which an organization is held by internal and external
stakeholders based on its past action and probability of its future behaviour.
Corporate governance framework is the best to achieve corporate reputation..
11.Risk Management
Risk is an important element of corporate governance. There should be clearly
established process of identifying, analyzing and treating risk, the absence of which
could prevent the company from effectively achieving its objectives. An efficient
risk management system will increase confidence, growth, goodwill etc to the
investors, creditors and other stakeholders.
UNIT 2
CADBURY COMMITTEE
• The Cadbury Committee was set-up in May 1991 by the Financial Reporting
Council of the London Stock Exchange.
• The committee published its report in December 1992.
• Adrian Cadbury the chairman of the Cadbury committee.
The code of best practices has been divided into four sections. They are:
• Role of Board of Directors, duties of the board and its compositions.
• Role of Non-Executive Directors.
• Dealing with their Remunerations.
• Addressing questions of financial reporting and financial controls.
➢ Remuneration committee.
• set remuneration committee of non-executive director.
• Articles of Association should be amended.
• Non-Executive Directors with no personal financial interest.
• Board is determine remuneration of non executive director.
• R.C chairman should meet AGM.
➢ Remuneration policy
• Remuneration committees must provide the packages
• Remuneration committees should be sensitive
• Eligible for annual bonuses
• Executive share options should never be issued at a discount
HAMPEL COMMITTEE
The Hampel Report is a UK Corporate Governance Report. The Hampel
Committee was set up in November 1995 to review the implementation of the
Cadbury and Greenbury recommendations. While the Cadbury Report was the
first report to look into issues of corporate governance in the UK, the Greenbury
Report focused specifically on the issue of executive remuneration. The Hampel
Committee reported in January 1998. It was chaired by Sir Ronald Hampel, the
then chairman of ICI (Imperial Chemical Industries) PLC.
Hampel committee report
• Corporate governance and its principle
• Role of Directors
• Director’s remuneration
• The role of shareholder
• Accountability and audit
➢ Role of director
• Executive director
▪ To act in good faith in the interest of the company and for a proper
purpose
▪ To exercise utmost care, due diligence and skill in their duties
▪ Leadership and control of company
• Non-executive director
▪ have both a strategic and monitoring function
▪ may contribute valuable expertise not otherwise available to
management
▪ act as mentor to relatively inexperienced executive
➢ Director’s remuneration
Director remuneration is of legitimate concern to the shareholder
➢ Role of shareholder
1- Directors
2- Remuneration
3- Accountability and audit
4- Relations with shareholders
1- Directors
➢ The Board
Every company should be headed by an effective board, which is collectively
responsible for the success of the company.
Role of the board: -
▪ Provide entrepreneurial leadership.
▪ Enable risks to be assessed and managed
▪ Establish prudent and effective ICS
▪ Set the Co’s strategic aims
▪ Review performance of mgmt.
▪ Set Co’s values and standards
▪ Ensure proper financial and human resource in place
▪ Ensure Co meet obligations to shareholders & stakeholders.
➢ Chairman and Chief executive
▪ Division of responsibility at the head of the Co, between the running of
the board and the executive responsibility of running the operations.
▪ Separation of the role of Chairman and CEO should be in writing and
agreed by the board
Chairman
▪ responsible for leadership of the board.
▪ Ensure effective communications with shareholders
▪ Ensure directors receive timely, accurate & clear info.
▪ Ensure constructive relations between ED and NED.
▪ Chairman should be independent
➢ Board balance and independence
▪ Balance of ED and NED on the B.O.D, mainly NED
▪ Avoid the hijacking of the Board by a small group of persons. No power
and info concentrated in few hands.
▪ Balance of skills & expertise needed
▪ Board members should be independent in charater and judgement.
▪ At least 50 % of board should be NED, excl Chairman
➢ Appointments to the board
▪ Appointment should be formal , rigorous, transparent.
▪ Should be based on meritocracy and objective criteria.
▪ Board should ensure there are plans for succession to the BOD and
senior mgmt.
▪ A nomination committee will lead the appointment process
▪ For FTSE CO , board wont approve NED being on several BODs
▪ section of the annual report should be dedicated to the nomination
committee and their work in the appointment process
➢ Information and professional development
➢ Performance evaluation
▪ Annually Board will evaluate the performance of
▪ The board itself
▪ All committees
▪ All directors- to see if they contribute effectively and show
commitment.
Board will state , in the annual report, how performance evaluation has been
conducted.
➢ Re-election
2- Remuneration
➢ Level and make up of remuneration
▪ Remuneration should be sufficient – to attract, retain, motivate quality
directors to run the company
▪ Remuneration of ED , should be structured and link rewards to
performance
▪ BOD should regularly benchmark with industry’s average
remuneration
▪ Performance related remuneration will help to align directors interests
with those of s/h
▪ The code provide guidelines for designing schemes of performance
related remuneration
▪ Ned’s remuneration should reflect time commitment and
responsibilities attached to the role.
▪ NEDs shouldn’t receive share options , unless approved by s/h.
▪ Remuneration comm to determine termination benefits of directors.
➢ Procedure
▪ Board should have a formal procedure to determine policy on executive
remuneration and to fix remuneration package of individual directors.
▪ No director should be involved in fixing their own remuneration.
▪ Remuneration committee decides of remuneration of Chairman and ED
▪ The board or the s/h will determine the remuneration of NED.
Financial reporting
▪ The board should present a comprehensive and balanced assessment of
the Co’s position and prospects.
▪ In the annual report, the directors explain their responsibility for
preparing the accounts.
▪ The directors report that the business is a going concern, and if needed
qualifications should be included.
Internal control
▪ The board should maintain a sound system of internal control to
safeguard shareholders’ investment and the company’s assets.
Audit committee and auditors
▪ The board should establish formal and transparent mechanisms to
convey financial reporting and internal control principles.
▪ Also maintaining an appropriate relationship with the company’s
auditors.
▪ An audit committee should be set up comprised mainly of NEDs, with
recent financial experience
Roles and responsibilities of the Audit comm:
▪ Monitor integrity of FS, review ICS, monitor effectiveness of Internal
audit function, recommend about appointment/remuneration/removal
of ext auditors, to review and monitor the external auditor’s
independence, monitor non-audit services offered by external auditor
in line with ethical guidelines.
Recommendations:
1) Mandate annual public disclosure of audit committee activities-
The audit committee for each reporting company to disclose in a proxy
statement whether the audit committee has adopted a formal written charter
and, if so, whether the audit committee satisfied its responsibilities under he
charter.
The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matters regarding the corporation, including the
financial situation, performance, ownership, and governance of the company.
In addition to the activities for promoting corporate governance, the CACG also
issues Guidelines. The development of the CACG Guidelines, “Principles of
Corporate Governance in the Commonwealth”, and its adoption2 in 1999 constitute
an important aspect of the Commonwealth corporate governance initiatives. These
Guidelines are intended to facilitate best business practice and behaviour, whether
in the private or the public sector. They are neither mandatory nor prescriptive, and
have been designed to be evolutionary in concept in order to be able to respond to
further developments in corporate governance in the global arena.
➢ The audit committee shall have powers, which should include the following
to:
Remuneration of Directors
• The remuneration of non-executive directors shall be decided by the board of
directors.
• The following disclosures on the remuneration of directors shall be made in
the section on the corporate governance of the annual report.
• All elements of remuneration package of all the directors i.e. salary, benefits,
bonuses, stock options, pension etc.
• Details of fixed component and performance linked incentives, along with the
performance criteria.
• Service contracts, notice period, severance fees.
• Stock option details, if any – and whether issued at a discount as well as the
period over which accrued and over which exercisable.
• Board Procedure
• The board meeting shall be held at least four times a year, with a maximum
time gap of four months between any two meetings.
• The director shall not be a member in more than 10 committees or act as
Chairman of more than five committees across all companies in which he is a
director. Furthermore it should be a mandatory annual requirement for every
director to inform the company about the committee positions he occupies in
other companies and notify changes as and when they take place.
Management
• As part of the directors' report or as an addition there to, a Management
Discussion and Analysis report should form part of the annual report to the
shareholders. This Management Discussion & Analysis should include
discussion on the following matters within the limits set by the company's
competitive position:
1. Industry structure and developments.
2. Opportunities and Threats.
3. Segment–wise or product-wise performance.
4. Outlook
5. Risks and concerns.
6. Internal control systems and their adequacy.
7. Discussion on financial performance with respect to operational
performance.
8. Material developments in Human Resources / Industrial Relations front,
including number of people employed.
Shareholders
• In case of the appointment of a new director or re-appointment of a director
the shareholders must be provided with the following information:
1. A brief resume of the director;
2. Nature of his expertise in specific functional areas; and
3. Names of companies in which the person also holds the directorship and
the membership of Committees of the board.
B. Non-Mandatory Recommendations:
• Role Of Chairman
• Remuneration Committee Of Board
• Shareholders' Right For Receiving Half Yearly Financial Performance Postal
Ballot Covering Critical Matters Like Alteration In Memorandum Etc.
• Sale Of Whole Or Substantial Part Of The Undertaking
• Corporate Restructuring
• Further Issue Of Capital
• Venturing Into New Businesses
NARESH CHANDRA COMMITTEE REPORT ON CORPORATE AUDIT
AND GOVERNANCE (2002)
The Ministry of Corporate Affairs had appointed a high level committee in August
2002 to examine various corporate governance issues. The committee had been
entrusted to analyse and recommend changes, if necessary, in diverse areas such as:
The statutory auditor-company relationship so as to further strengthen the
professional nature of this interface;
The need, if any, for rotation of statutory audit firms or partners;
The procedure for appointment of auditors and determination of audit fees;
Restrictions, if necessary, on non-audit fees;
Independence of auditing functions;
Measures required to ensure that the management and companies actually present
'true and fair' statement of the financial affairs of companies;
The need to consider measures such as certification of accounts and financial
statements by the management and directors;
The necessity of having a transparent system of random scrutiny of audited
accounts;
Adequacy of regulation of chartered accountants, company secretaries and other
similar statutory oversight functionaries;
Advantages, if any, of setting up an independent regulator similar to the Public
Company Accounting Oversight Board in the Sarbanes Oaxley Act (SOX Act), and
if so, its constitution; and
Role of independent directors, and how their independence and effectiveness can
be ensured.
The Committee's recommendations relate to:
Disqualifications for audit assignments;
List of prohibited non-audit services;
Independence Standards for Consulting, Other Entities that are Affiliated to Audit
Firms;
Compulsory Audit Partner Rotation;
Auditor's disclosure of contingent liabilities;
Auditor's disclosure of qualifications and consequent action;
Management's certification in the event of auditor's replacement;
Auditor's annual certification of independence;
Appointment of auditors;
Setting up of Independent Quality Review Board;
Proposed disciplinary mechanism for auditors;
Defining an independent director;
Percentage of independent directors;
Minimum board size of listed companies;
Disclosure on duration of board meetings/committee meetings;
Additional disclosure to directors;
Independent directors on Audit Committees of listed companies;
Audit Committee charter;
Remuneration of non-executive directors;
Exempting non-executive directors from certain liabilities;
Training of independent directors;
SEBI and Subordinate Legislation;
Corporate Serious Fraud Office; etc.
WHISTLE BLOWING
▪ Whistle blowing in its most general form involves calling(public)attention to
wrong doing, typically in order to avert harm.
▪ Whistle blowing is an attempt by a member or former member of an
organization to disclose wrong doing in or by the organization.
▪ Whistle Blowing is something that can be done only by a member or former
member of an organisation. It must be an Information that is not available for
public. It should be an evidence of some significant kind of misconduct on the
part of an organisation. Information must be outside normal channel of
communication. Release of Information must be something that is done
voluntarily as opposed to being legally required. Whistle Blowing must be
undertaken as moral protest. The motive must be correct some wrong not to
seek vigilance or personal advancement.
Kinds of Whistle blowing:
▪ Internal Whistle blowing is made to someone within the organization.
▪ Personal Whistle blowing is blowing the whistle on the offender, here the
charge is not against the organization or system but against one individual.
▪ The impersonal, External Whistle Blowing.
Rarely whistleblower are honored as heroes by their fellow workers, for the
following reasons:
• Those did not blow the whistle guilty of immorality.
• They doubt the loyalty of the whistle blower to the employer.
• The whistleblower is perceived as a traitor, as someone who has damage the
firm - the working family to which he/she belongs.
CRITERIA FOR JUSTIFIABLE WHISTLEBLOWING:
▪ According to Richard T De George there are three conditions that must hold
for whistleblowing to be morally permissible, and two additional conditions
that must hold for it to be morally obligatory. The three conditions that must
hold for it to be morally permissible are:
1. The firm through its product or policy will do serious and considerable harm to
the public, whether in the person of the user of its product, an innocent bystander, or
the general public.
2. Once an employee identifies a serious threat to the user of a product or to the
general public, he or she should report it to his or her immediate superior and make
his or her moral concern known. Unless he or she does so, the act of Whistle blowing
is not justifiable.
3. If one's immediate superior does nothing effective about the concern or complaint,
the employee should exhaust the internal procedures and possibilities within the
firm. This usually will involve taking the matter up the managerial ladder, and if
necessary and possible to the board of directors.
The two additional conditions for Whistle blowing to be morally obligatory:
4. Whistleblower must have accessible documented evidence that would convince a
reasonable, impartial observer that one's view of the situation is correct, and that the
company's product or practice posses a serious and likely danger to the public or to
the user of the product.
5. The employee must have good reason to believe that by going public the necessary
changes will be brought about. The chance of being successful must be worth the
risk one takes and danger to which one is exposed.
➢ Executive Director
An executive director is involved in the daily running of the organisation. He or she
is involved in making decisions that affect daily operations.
➢ Non-Executive Director
A non-executive director is not involved in the daily running of the firm. The director
is tasked with bringing an independent third-party perspective in the decision-
making process. Usually, the non-executive directors are experts in the industry.
They offer advice on various aspects of the business.
➢ Alternative Director
A temporary substitute
Alternate director refers to a personnel appointed by the Board, to fill in for a director
who might be absent from the country, for more than 3 months.
➢ Shadow Director
A person who is not validly appointed as a director but the directors of the company
are accustomed to act in accordance with the person’s instructions or directions.
A shadow director is similar to a de facto director in that he or she does not have an
official title. However, he or she has some influence on the decisions of the board of
directors.
A person can be a shadow director quite openly.
➢ De Facto Director
Section 4:
• is appointed to the position of a director but is not described as a director; and
• acts in the position of a director but who is not validly appointed as a director.
A de facto director has not been formally appointed as a director but acts in place of
a director. He or she has similar responsibilities and liabilities as an official director.
➢ Nominee Director
Nominee directors could be appointed by a specific class of shareholders, banks or
lending financial institutions, third parties through contracts, or by Union
Government in case of oppression or mismanagement.
ND represents the interest of employees, a particular group of shareholders or a
creditor.
Must avoid conflicts of interest (Scottish cooperative wholesale society v Meyer.
The interest of the company prevail over interest of the nominator)
Where nominee director has allowed his duty to conflict, he breached his fiduciary
duty to the company
Duties of Director
Based on the principle that the directors must act with honesty, diligence, and
prudence, these duties include duty of
(1) Avoidance of conflict of interest: directors must declare their interest in any
transaction in which the firm is involved, and follow the instructions of the board of
directors in this regard.
(2) Care and skill: directors must exercise caution and competence in all situations
as reasonable persons would under the circumstances.
(3) Confidentiality: directors must not make improper use of the privileged
information obtained as a board member.
(4) Fairness: directors must deal with other directors and stakeholders without bias
or favor.
(5) Honor: directors must not engage in any conduct that may bring disrepute to the
firm and/or other directors.
(6) Independence: directors must not compromise on the right to exercise an
independent judgment but, at the same time, must restrict their independence in good
faith to favor a collective decision that will benefit the firm.
(7) Loyalty: directors must act in good faith in the best interest of the firm and whole
heartedly assist the chief executive in achieving the firm's success.
5. Maintaining adequate checks and controls – In the final analysis, the board of
directors is held responsible for the result of the company.
9. Delegate to management
• Delegate authority to management, and monitor and evaluate the
implementation of policies, strategies and business plans.
• Determine monitoring criteria to be used by the board.
• Ensure that internal controls are effective.
• Communicate with senior management
11.Other roles
• Selecting, compensating, monitoring and, when necessary, replacing key
executives and overseeing succession planning.
• Aligning key executive and board remuneration with the longer term
interests of the company and its shareholders.
• Ensuring a formal and transparent board nomination and election process.
• Monitoring and managing potential conflicts of interest of management,
board Members and shareholders, including misuse of corporate assets and
abuse in related party transactions.
• Overseeing the process of disclosure and communications.
• Monitoring the effectiveness of the company’s governance practices and
making changes as needed.
ROLE OF CEO
Leader
Decision Maker
Board Developer
There is no standardized list of the major functions and responsibilities carried out
by position of chief executive officer. The following list is one perspective and
includes the major functions of chief executive officers.
Assures the organization and its mission, programs, products and services are
consistently presented in strong, positive image to relevant stakeholders
6. Fundraising (nonprofit-specific)
COMMITTEES OF BOARD
Committees appointed by the Board focus on specific areas and take informed
decisions within the framework of delegated authority, and make specific
recommendations to the Board on matters in their areas or purview. All decisions
and recommendations of the committees are placed before the Board for information
or for approval.
1- AUDIT COMMITTEE
The Audit Committee shall assist the Board of Directors in the oversight of
The Committee shall be appointed by the Board and consist of at least three
Directors, each of whom are independent of management and the Company as
defined by the Bylaws of the Company, the SEC and the New York Stock Exchange
as well as Clause 49 of the Listing Agreement. Two thirds of the members shall be
independent directors.
The audit committee shall meet at least thrice a year. One meeting shall be held
before finalization of annual accounts and one every six months. The quorum shall
be either two members or one third of the members of the audit committee,
whichever is higher and minimum of two independent directors
Powers of Audit Committee:
The audit committee shall have powers which should include the following:
2- REMUNERATION COMMITTEE
• To decide and approve the terms and conditions for appointment of executive
directors and/ or whole time Directors and Remuneration payable to other
Directors and matters related thereto.
• To recommend to the Board, the remuneration packages of the Company’s
Managing/Joint Managing/ Deputy Managing/Whole time / Executive
Directors, including all elements of remuneration package (i.e. salary,
benefits, bonuses, perquisites, commission, incentives, stock options, pension,
retirement benefits, details of fixed component and performance linked
incentives along with the performance criteria, service contracts, notice
period, severance fees etc.);
• To be authorized at its duly constituted meeting to determine on behalf of the
Board of Directors and on behalf of the shareholders with agreed terms of
reference, the Company’s policy on specific remuneration packages for
Company’s Managing/Joint Managing/ Deputy Managing/ Whole-time/
Executive Directors, including pension rights and any compensation payment;
• To implement, supervise and administer any share or stock option scheme of
the Company.
• to review the overall compensation policy, service agreements and other
employment conditions to Executive Directors and senior executives just
below the Board of Directors and make appropriate recommendations to the
Board of Directors;
• to review the overall compensation policy for Non-Executive Directors and
Independent Directors and make appropriate recommendations to the Board
of Directors;
• to make recommendations to the Board of Directors on the increments in the
remuneration of the Directors;
• to assist the Board in developing and evaluating potential candidates for senior
executive positions and to oversee the development of executive succession
plans;
• to review and approve on annual basis the corporate goals and objectives with
respect to compensation for the senior executives and make appropriate
recommendations to the Board of Directors;
• to review and make appropriate recommendations to the Board of Directors
on an annual basis the evaluation process and compensation structure for our
Company’s officers just below the level of the Board of Directors;
• to provide oversight of the management’s decisions concerning the
performance and compensation of other officers of our Company.
3- NOMINATION COMMITTEE
The primary role of the Nomination Committee of the board is to assist the board by
identifying prospective directors and make recommendations on appointments to the
board and the senior most level of executive management below the board. The
committee also clears succession plans for these levels. The Nomination Committee
is responsible for making recommendations on board appointments and on
maintaining a balance of skills and experience on the board and its committees.
Succession planning for the board is a matter which is devolved primarily to the
Nomination Committee, although the committee’s deliberations are reported to and
debated by the full board. The board itself also regularly reviews more general
succession planning for the senior management of the group.
“To allot the Equity Shares of the Company, and to supervise and ensure:
In carrying out their responsibilities, Committee members are entitled to rely on the
accuracy and completeness of information provided by employees and consultants
and on their expertise, where applicable, absent their actual knowledge to the
contrary.
The Committee will have the appropriate resources and authority to discharge its
responsibilities, including the authority to retain and terminate the engagement of
such consultants and counsel to advise it as the Committee may deem necessary or
helpful in carrying out its responsibilities and to establish the fees and other terms
for the retention of such consultants and counsel, such fees to be borne by the
Corporation.
The Committee will consist of three or more Directors, each of whom shall have
been determined to be independent in accordance with the Corporation's Corporate
Governance Guidelines. Committee members and the Committee Chairman will be
appointed annually by the Board on the recommendation of the Corporate
Governance and Nominating Committee and serve at the pleasure of the Board.
The Committee may form subcommittees for any purpose and may delegate to such
subcommittees or to members of the Corporation's management such powers and
authority as it deems appropriate.
The Committee shall meet as frequently as necessary to fulfill its duties and
responsibilities, but not less than three times per year. A meeting of the Committee
may be called by its Chairman or any two members. Minutes of its meetings will be
approved by the Committee and maintained by the Corporation on behalf of the
Committee. The Committee will report its activities to the Board.
The Committee shall provide oversight of the Corporation's operations and programs
regarding:
Motivating the employees for better and greater performance, facilitating group
performance, controlling their activities, taking corrective measures, wiping out
misunderstanding, maintaining peace, establishing discipline, and, above all,
ensuring the quality of work within the organisation is possible through effective
communication.
Establishing link with the outside world—with the customers, vendors, investors,
bankers, similar business organisations within and outside the country, various
departments of the government, etc. also depends on communication. Corporate
business houses are, in most cases, engaged in international business. Excellence in
communication in such cases is a basic need.
They are required to make corporate presentation of their goods and services, inform
and report, explain change, interact with the colleagues, motivate and support the
staff, supervise, organise and co-ordinate a course of action, build and maintain
relationship with overseas clients, participate in meeting, introduce themselves as
business houses, promote a sales drive, make market research, cope with mixed
language problem interacting with the foreign colleagues and so on. All these
activities require communication skill.
Phone, e-mail, fax, office memos, verbal communication, etc. are the internal means
of corporate communication. External communication depends on phones, letters,
fax, website, internet, video conferencing, etc.
1. Internal Co-ordination:
To fulfill the objectives of the organisation, co-ordination among the employees is
necessary and to co-ordinate various activities communication is essential.
Corporate organisation being large in size, division of work and specialisation in
activities are the characteristics of such organisation. Communication helps to co-
ordinate such activities and to develop co-operation.
3. Motivation:
Communication helps to motivate the employees to obey the orders and directives
of the management authority. The feedback of the employees also enlightens the
managers. The interaction between the managers and the employees improves the
relation between them and encourages all to devote themselves fully to achieve the
objectives of the organisation.
4. Efficient Management:
George Terry’s remark that communication works as a lubricant to increase the
efficiency of management is applicable to corporate organisations more
appropriately. Communication supplies the managers and employees with the
information, co-ordinates and motivates the employees.
6. Leadership:
The manager communicates orders and instructions to the subordinates, who, in turn,
carry out the instructions and sometimes send feedback in the form of suggestions,
grievances and complaints. The manager tries to remove the inconvenience as far as
possible. The entire process establishes the basis of leadership.
7. Corrective Measures:
In a corporate organisation the number of employees is large. Everybody’s
performance may not achieve required standard and some corrective measures may
become necessary. Such measures against the employees not performing their duties
properly can also be taken through communication. Communication thus protects
the interest of the organisation.
8. Speed:
Speed is the key word of today’s corporate world. Modern technologies have made
communication faster. Now, no one has to wait for weeks or months for a reply
letter. E-mail, fax, internet, etc. have made communication almost instant.
Immediate flow of information helps in taking correct decision in time and
anticipates solution to a probable problem.
10. Training:
Communication is necessary in imparting training to the managers, supervisors,
executives and general employees to upgrade their knowledge and skill of
performance in order to meet the needs of the changing corporate world.
5. The communication should give correct information in proper time and in right
manner.
9. Repetition of the key message is necessary in some cases. To become sure about
the success, the communicator sometimes repeats the key message.
11. Proper planning before communication is necessary. The success of the entire
communication process depends largely on planning in advance.
12. Last but not the least, effective channels should be chosen and established to
make the corporate communication successful.
FINANCIAL REPORTING
The term “financial reporting” incorporates not only financial statements, but also
includes other means of communicating financial and non-financial information, e.g.
management forecast, stock exchange documents, etc.
financial reporting constitutes an important element of the corporate governance
system. In fact, some failures of corporate governance may be reduced by an
adequate financial reporting system. On the other hand, some problems of the
financial reporting system find their origin in deficiencies of the system of corporate
governance
Component of Financial reporting
• Financial statement- B/S, P&L a/c, cash flow statement and statement of
change in stock holder equity.
• The note of financial statement
• Quarterly and annual report (listed company)
• Prospectus (company for IPO)
Objective
• Providing information to the management of an organization
• Providing information to the investor, promoters and debt provider
• Providing information to share and stake holders
• Providing information about economic resources of organization
• Enhancing social welfare by looking into the interest of employee, trade union
and government
ACCOUNTING STANDARD
Accounting Standard may be defined as the accounting principles and rules which
are to be followed for various accounting treatments while preparing financial
statements on uniform basis and which will reveal the same meaning to all the
interested groups who will use the same. Thus, the Standards are considered as a
guide for maintaining and preparing accounts.
NEED FOR AS
Practically speaking, in order to avoid the variance which may arise between the
accounting principles and accounting practice and also to find a uniformity among
diversity among the various underlying principles of accounting. We emphasise the
Accounting Standards framed by the IASC or IAS (Indian Accounting Standard,
based on IASC) for maintaining accounting practice in our country.
(b) The firms are not allowed to maintain and present their accounts according to
their own will or choice or cannot prepare report of financial statements for various
interested groups. The same is possible only when there is some fixed standard for
setting practice.
(c) The Accounting Standards recognise the principle of equity applicable for
different users of accounting information, viz. creditors, investors, shareholders etc.
Thus the purpose of setting Accounting Standards is nothing but to find a uniformity
in accounting practice while formulating financial reports and make consistency and
proper comparison of data which are contained in financial statements for the users
of accounting information.
Ans: One of the major disadvantages of accounting standards is that they can be
restrictive and inflexible. Each company faces unique situations and financial
transactions. But the company must make these situations fit the guidelines of the
accounting standards even if they are not the best way to represent the financial event
in question.
CORPORATE RATING AGENCY
Importance
• They provide a yardstick against which to measure the risk inherent in any
instrument.
• An investor uses the rating to asses the risk level and compares the offered
rate of return with his expected rate of return.
Benefits
Benefits to company:
a) Improved corporate image
b) Good for non popular companies
c) Act as a marketing tool
d) Reduced costs of borrowings
e) Easy to raise resource
f) Helps in growth and expansion
Benefits to investors:
a) Helps in investment decision
b) Choice of instruments
c) Easy understandability of investment proposal
d) Dependable credibility of issuer
e) Advantages of continuous monitoring
Objective
Provide superior and low cost information to investors for taking decision
regarding risk return trade off.
Encourages greater information disclosure, better accounting standards and
improved financial information.
May reduce interest costs for highly rated companies.
Act as a marketing tool.
Helps merchant bankers, brokers,etc. in discharging their functions related to debt
issues.
Need
Maintenance of investor’s confidence, since default shatter the confidence of
investors in corporate instruments.
Protect the interest of investors who can not investigate much into the merits of
the debt instruments of a company.
Motivate savers to invest in industry and trade
Credit rating agencies assign ratings to an organization or an entity. The entities that
are rated by credit rating agencies comprise companies, state governments, non-
profit organisations, countries, securities, special purpose entities, and local
governmental bodies. Credit rating agencies take into consideration several factors
like the financial statements, level and type of debt, lending and borrowing history,
ability to repay the debt, and the past debts of the entity before rating their credit.
Once a credit rating agency rates the entities, it provides additional inputs to the
investor following which the investor analyses and takes a sound investment
decision. Poor credit rating indicates that the entity is at a high risk of defaulting.
The credit ratings that are given to the entities serve as a benchmark for financial
market regulations. Credit ratings are published by agencies like Moody’s Investors
Service and Standard and Poor’s (S&P) based on detailed analysis.
The rating process typically takes six to eight weeks, and the steps involved are:
(by Fitch Ratings (In India))
Repeat Step 2 to Step 10 (as required) before giving the final ratings
ETHICS IN ADVERTISING
Ethics
➢ The term is derived from the Greek word ethos which can mean custom, habit,
character or disposition.
➢ Ethics covers the following dilemmas:
▪ how to live a good life
▪ our rights and responsibilities
▪ the language of right and wrong
▪ moral decisions - what is good and bad?
Advertising
Advertising is the paid, impersonal, one-way marketing of persuasive information
from an identified sponsor disseminated through channels of mass communication
to promote the adoption of goods, services or ideas.
In the advertising communication process there are five key players:
The Advertisers
The Advertising Agencies
The Support Organizations
The Media
The Consumers
Generic Ethical Principles in Advertising
• Principles of the moral order must be applied to the domain of media
• Human freedom has a purpose: making an authentic moral response. All attempts
to inform and persuade must respect the purposes of human freedom if they are to
be moral
• Morally good advertising therefore is that advertising that seeks to move people to
choose and act rationally in morally good ways; morally evil advertising seeks to
move people to do evil deeds that are self-destructive and destructive of authentic
community
• Means and techniques of advertising must also be considered: manipulative,
exploitative, corrupt and corrupting methods of persuasion and motivation
DEFINITION
Corporate social responsibility is a gesture of showing the company’s concern &
commitment towards society’s sustainability & development.
CSR is the ethical behaviour of a company towards society.
“The continuing commitment by business to behave ethically and contribute to
sustainable economic development while improving the quality of life of the
workforce and their families as well as of the local community and society.”
WBCSD (World Business Council for Sustainable Development)
Carroll Model(1991)
▪ Economic responsibility: Maximize the shareholders value by paying good
return.
▪ Legal responsibility: Abiding the laws of the land.
▪ Ethical responsibility: Follow moral & ethical values to deal with all the
stakeholders.
▪ Philanthropic requirements: Donation, gifts, helping the poor. It ensure
goodwill & social welfare.
Environmental Integrity & Community Health Model.
▪ This model developed by Redman.
▪ Many corporate in US adopted this model.
▪ Corporate contribution towards environmental integrity & human health,
there will be greater expansion opportunities.
▪ Healthy people can work more & earn more.
▪ CSR is beneficial for the corporate sector.
▪ CSR in a particular form is welcome.
INDIAN PERSPECTIVE.
▪ The Sachar committee was appointed in 1978 to look into corporate social
responsibility issues concerning Indian companies.
▪ The company must behave & function as a responsible member of society.
▪ Committee suggests openness in corporate affairs & behaviour.
▪ Some business houses have established social institutions like Schools,
colleges, charitable hospitals etc.
▪ Corporate sectors have not made significant contributions. (Polluting
Environment).
CSR EXAMPLES
▪ IBM UK - Reinventing Education Partnership programme Interactions and
sharing of knowledge through a web-based technology - the “Learning
Village” software. Culture of openness and sharing of good practice
▪ AVON - a partnership with Breakthrough Breast Cancer, and its Breast
Cancer Crusade has raised over 10 million pounds since its launch 12 years
ago.
▪ TOI’s Lead India campaign, campaign for contribution towards educating the
poor.