E2-E3

Finance

Corporate Governance

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 WELCOME

This is a presentation for the E2-E3(Finance)

Module for the Topic: Corporate Governance .
Eligibility: Those who have got the Up gradation
to from E2 to E3.
This presentation is last updated on 21-3-2011.
You can also visit the Digital library of BSNL to
see this topic.

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 AGENDA

Meaning of Corporate Governance

Factors influencing Corporate Governance
Corporate Governance in Public sector Units &
Indian companies
Report on Corporate Governance
Benefits of Corporate Governance

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MEANING OF CORPORATE GOVERNANCE

A corporation is directed and laws and

customs affecting that directions
Laws governing the form of firms, the
bylaws established by the firm itself, and
the structure of the firm
Comprises the systems and processes
which ensure the efficient functioning of
the firm in a transparent manner for the
benefit of stakeholders

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MEANING OF CORPORATE GOVERNANCE

“Corporate Governance is holding the

balance between the economic and social
goals and between individual and
community goals”

Sir Adrain Cadbury

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PROJECTED BENEFITS OF CORPORATE GOVERNANCE

Good governance leads to congruence of

interests of board, management including owner
managers and shareholders
Good governance provides stability and growth
to the company
Good governance system builds confidence
among investors
Good governance reduces perceived risks,
consequently reducing cost of capital

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PROJECTED BENEFITS OF CORPORATE
GOVERNANCE

Well governed companies enthuse employees to

acquire and develop company specific skills

To leverage a competitive advantage in the

financial market

Promotes stability and long-term sustenance of

stakeholders’ relationship

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PROJECTED BENEFITS OF CORPORATE GOVERNANCE

Good corporate citizen becomes an ethical icon

and enjoys a position of pride in corporate
culture

Potential stakeholders aspire to enter into

relationships with enterprises whose governance
credentials are exemplary

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FACTORS INFLUENCING CORPORATE GOVERNANCE

Integrity of Management
Ability of the Board
Adequacy of the process
Commitment level of individual board members
Quality of corporate reporting
Participation of stakeholders in the management

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CADBURY COMMITTEE RECOMMENDATIONS

Relating to the Board of directors:

Board should meet regularly

There should be a clearly accepted division of

responsibilities at the head of a company

The board should include non-executive

Directors of sufficient calibre and number

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CADBURY COMMITTEE RECOMMENDATIONS

Relating to the Board of directors:

The board should have a formal schedule of

matters specifically reserved to it for decision
There should be an agreed procedure for
directors in the furtherance of their duties
All directors should have access to the advice
and services of the company Secretary

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 CADBURY COMMITTEE RECOMMENDATIONS

Relating to the Non-Executive Directors:

Non-Executive Directors should bring an

independent judgement to bear on issues of
strategy, performance, resources, including key
appointments and standards of conduct

Majority should be independent of the

management and free from any business or other
relationship

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CADBURY COMMITTEE RECOMMENDATIONS

Relating to the Non-Executive Directors:

All directors should have access to the advice

and services of the company Secretary
Non-Executive Directors should be appointed
for specified terms and reappointment should
not be automatic
Non-Executive Directors should be selected
through a process

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 CADBURY COMMITTEE RECOMMENDATIONS

Relating to Executive Directors:

Director’s service contracts should not exceed
three years without shareholders’ approval
There should be full and clear disclosure of their
total emoluments
Executive Directors pay should be subject to the
recommendations of Remuneration committee
made up wholly or mainly or Non-Executive
Directors

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CADBURY COMMITTEE RECOMMENDATIONS

Reporting and Control – Best Practices:

It is the Board’s duty to present a balanced and
understandable assessment of the company’s
position
The board should ensure that an objective and
professional relationship is maintained with the
Auditors
The Board should establish an Audit Committee
of at least with 3 Non-Executive Directors

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CADBURY COMMITTEE RECOMMENDATIONS

Reporting and Control – Best Practices:

The Directors should explain their responsibility

for preparing the accounts
The Directors should report on the effectiveness
of the company’s system of internal control
The Directors should report that the business is a
going concern, with supporting assumptions or
disqualifications as necessary

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CADBURY COMMITTEE RECOMMENDATIONS

Governance principles are common for both

Govt. Corporation and Public Limited Companies
Governance principles are embedded in
constitution for administration of Govt. bodies
The executive, legislature and judiciary are
responsible for check & balances of Public Sector
undertakings
Public sector corporations are subjected to all
rules & regulations laid down in various acts to
regulate management or corporations

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CADBURY COMMITTEE RECOMMENDATIONS

Measures for strengthening the process of information

flow:

Companies are required under listing agreement

to make disclosures on a continuing basis
The decision on dividend, bonus & right
announcements are required to be disclosed
within 15 minutes of conclusion of board
meetings

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CORPORATE GOVERNANCE IN INDIAN COMPANIES

Measures for strengthening the process of

information flow:
The accounting practices were streamlined with
norms introduced for segment reporting, related
party transactions & consolidated balance sheet
Insider trading is a criminal offense
The takeover process has been made
transparent to protect the interest of minority
shareholders

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CORPORATE GOVERNANCE IN INDIAN COMPANIES

Independent Director
(Naresh Chandra Committee Report):
Not receiving remuneration
Not related to promoters or management
Not an executive or the company in the last 3 years
Not a partner or executive in the auditing firm
Not a significant supplier or vendor or customer
Not a shareholder owing 2% or more
Not been a Director for more than 3 terms of 3 years
each

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CORPORATE GOVERNANCE IN INDIAN COMPANIES

Board’s Report- items to be disclosed in Directors’

Report:
1. Under sec 217(1) of Companies Act
State of company’s affairs
The amount to carry reserves in the balance
sheet
The amount by way of dividend

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CORPORATE GOVERNANCE IN INDIAN COMPANIES

The material changes and commitments

affecting the financial position of the company
Efforts taken for conservation energy,
technology absorption and details of foreign
exchange earnings

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CORPORATE GOVERNANCE IN INDIAN COMPANIES

Board’s Report- items to be disclosed in

Directors’ Report:
2. Under sec 217(2) of Companies Act
Change in the nature of company’s business
Change in company’s subsidiaries or in the
nature of business carried on
General change in the clauses of business in
which the company has an interest

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CORPORATE GOVERNANCE IN INDIAN COMPANIES

Board’s Report- items to be disclosed in Directors’

Report:
3. Under sec 217(2A) of Companies Act
The Director report should also contain a statement
showing the particulars of about certain employees
whose remuneration is not less than Rs.24 lakhs for
the financial year and if employed for a part of the
financial year at Rs.2 lakhs or more per month

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CORPORATE GOVERNANCE IN INDIAN COMPANIES

Board’s Report- items to be disclosed in Directors’

Report:
4. Under sec 217(3) of Companies Act
The Board of Directors are bound to give fullest
information and explanation on every reservation,
qualification and adverse remarks contained in the
Auditors report

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CORPORATE GOVERNANCE IN INDIAN COMPANIES

Board’s Report- items to be disclosed in Directors’ Report:

5.Responsibilities of Board of Directors under Sec
217(2AA):
In the preparation of annual accounts the applicable account
standards have been followed
That the Directors have selected such accounting policies and
applied them consistently
That the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records
That the Directors had prepared the annual accounts on a going
concern basis

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 REPORT ON CORPORTATE GOVERNANCE

Company’s philosophy on the code of

governance
Directors composition, number of meetings,
attendance of each director
Audit committee- composition, terms of
reference, meetings and attendance
Remuneration committee-composition, terms of
reference, meetings and attendance
Shareholders committee-names of non-executive
directors heading the committee

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 REPORT ON CORPORTATE GOVERNANCE

General Body meetings, location and time where last

3 AGMs held etc.
Other disclosures like significant related party
transactions, penalty and strictures imposed on the
company by stock exchange or SEBI
Means of communication
General shareholder information-date, time and
venue of AGM, financial calendar, date of book
closure, dividend payment date, stock code, market
price data, registrar and transfer agent details,
distribution of shareholding etc.

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 ROLE OF AUDIT COMMITTEE

Plays an important role in the wider governance

process
Audit committee should be independent director
which would render the role of audit committee
effective and serve useful purpose

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 ROLE OF AUDIT COMMITTEE

The audit committee has to ensure active and

independent oversight of financial reporting
Ensure appropriateness of company’s
accounting policies and the internal controls
including management controls
The audit committee has to meet once every
quarter and interact with internal and external
auditors

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