Q.1.

CII’s desirable corporate governance code: The first initiative in India on

corporate governance code was voluntary which was taken by Confederation
of Indian Industry in 1996 by constituting a National Task.
Force to develop and promote a code for corporate governance to be
adopted and followed by Indian companies. This initiative of CII flowed from
public concerns regarding the protection of small investor’s interest,
promotion of transparency and need to improve confidence in business and
industry. The committee was formulated to examine issues relating to corporate
governance so as to recommend a code of best practices for Indian companies.
The main recommendations of the code were:
1. The meetings of the board should be held 6 times in a year with a gap of at
least two months.
2. Active participation by the non-executive directors should secure and the
companies should pay commission along with sitting fees for the use of
professional inputs.
3. For reappointment it has to be ensured by the company, that non
executive director has attended at least fifty percent of the meetings held by the
company.
4. Proper regulations, limits on directorships must be followed.

Q.2. REPORT OF KUMARA MANGALAM BIRLA COMMITTEE

The Kumar Mangalam Birla Committee was set up in 1999 by SEBI after one of its
membersShri Kumar Mangalam Birla. The main objective of this committee was to
view corporate governance from the perspective of the investors and
shareholders and to prepare a code of conduct that is suitable for corporate
environment in India. The recommendations were broadly divided into two
categories namely mandatory and non-mandatory recommendations.
MANDATORY RECOMMENDATIONS
:The recommendations that are absolutely necessary for the corporate
governance of an organization and those that can be defined precisely and
enforced through amendment of the listing agreement are referred to as
mandatory recommendations.
Recommendations:-
1.This recommendation is applicable to those companies that are listed
and has a paid-up share capital worth . 3crores and above.
2.The board of directors should be an optimum mix of both executive
and non-executive directors.
3.The audit committee should have minimum 3 independent directors
out of which at least one should have financial and accounting knowledge.
4.At least 4 meetings should be conducted in a year with a maximum gap
of 4 months between 2 consecutive meetings.
5.The information must be shared to the shareholders with respect to
their investments.
6. A s e pa rate co m m i tte e fo r re m une rat i o n m ust b e s e t up.
7.Management discussion and other analysis report like industry
structure, opportunities, threats, risks, outlook, and internal control systems
must be presented for external review

NON-MANDATORY RECOMMENDATIONS:
Those recommendations which are either desirable or which many require certain
changes are referred to as non-mandatory recommendations.
Recommendations:-
1.Role of chairman
2. Re m une rat i o n co m m i tte e o f bo a rd
3.Shareholders’ right for receiving half yearly financial performance.
4.Sale of whole or a substantial part of the undertaking.
5.Co rporate restructuring
6.Further issue of capital
7.Ve n t ur i ng i nto ne w bus i ne s s .

Q. 3. Na re s h C h a n d ra C om m i tte e Re p o r t o n C or po rate Audi t

a nd G ov e r na nc e ( 2002) T he M i ni st r y o f Co r po rate Af fa irs
ha d a ppo i nte d a hi gh l e v e l co m m itte e i n August 200 2 to
exa m i ne va r i o us cor po rate gov er na nc e i s s ue s . T he com m i tte e
ha d be e n e nt r uste d to a na l ys e a nd re co m m e nd c ha nge s , i f
ne c e s s a r y, i n di v e rse a rea s s uc h a s :
1 . T he stat uto r y a udi to r- co m pa ny re l at io ns hi p s o a s to
f ur t he r st re ngt he n t he profe s s io na l nat ure o f t hi s i nte r fac e ;
2 . T he ne e d, i f a ny, fo r ro tat i o n o f stat uto r y a udi t f i r m s o r
pa r t ne rs ;
3 . T he pro c e dure fo r a ppo i nt m e nt of a udi to rs a nd de te r m i nat io n
o f a udi t fe e s ;
4 . Re st r i c t i o ns , i f ne c e s s a r y, o n no n- a udi t fe e s ;
5 . I nde pe n de nc e o f a udi t i ng f unc t i o ns ;
6 . M e a s ure s re qui re d to e ns ure that t he m a na ge m e nt a nd
co m pa ni e s a ct ua l l y pre s e nt ‘ tr ue a nd fa i r ’ state m e nt o f t he
f i na nc i a l af fa i rs o f co m pa ni e s ;
7 . T he ne e d to co ns i de r m e a s ure s suc h a s c er t i f i cat i o n o f
a c co unt s a nd f i na nc i a l state m e nt s by t he m a na ge m e nt a nd
di re c to rs ,
8 . T he ne c e s s i t y o f hav i ng a t ra ns pa re nt syste m o f ra ndo m
s c r ut i ny o f a udi te d a c co unt s ;
9 . Ade qua c y o f re gul at i o n o f c ha rte re d a c co unta nt s , co m pa ny
s e c re tar i e s a nd o t he r s i m il a r stat uto r y ov e rs i ght f unc t i o na r i e s ;
1 0 . Ad va nta ge s , i f a ny, o f se tt i ng up a n i nde pe n de nt re gul ato r
s i m i l a r to t he P ubl i c C om pa ny Ac co unt i ng O v e rs i ght Bo a rd i n
t he S ar ba ne s O ax l e y Ac t ( S OX Ac t ) , a nd i f s o, i t s
co nst i t ut i o n; a nd
1 1 . Ro l e o f i nde pe nde nt di re c tors , a nd how t he i r
i nde pe n de nc e a nd ef fe c t iv e ne s s ca n be e ns ure d
T h e C o mm i tte e ’s re co m m e n d ati o n s re l ate to :

1 . Di s qua l i f i cat i o ns fo r a udi t as s i gnm e nt s ;

2 . L i st o f pro hi bi te d no n - a udi t s e r v i c e s ;
3 . I nde pe nde nc e S ta nda rds fo r Co ns ul t i ng , O t he r Ent i ti e s t hat
a re Af f i l i ate d to Audi t F ir m s ;
4 . C o m pul s o r y Audi t Pa rt ne r Ro tat io n;
5 . Audi to r ’s di s c l o s ure o f co nti nge nt li a bi l i t i e s ;
6 . Audi to r ’s di s c l o s ure o f qua l i f i cat i o ns a nd co ns e que nt a c t io n;
7 . M a na ge m e nt ’s c er t i f i cat io n i n t he ev e nt o f a udi to r ’s
re pl a c e m e nt ;
8 . Audi to r ’s a nnua l c e r t i f i cat i o n o f i nde pe nde nc e ;
9 . Appo i nt m e nt o f a udi to rs ;
1 0 . S e tt i ng u p o f I nde pe nde nt Q ua l i t y Re v i e w Bo a rd;
1 1 . P ro po s e d di s c i pl i na r y me c ha ni s m for a udi to rs ;
1 2 . Def i ni n g a n i nde pe nde nt di re c to r ;
1 3 . Pe rc e nta ge o f i nde pe nde nt di re c to rs ;
1 4 . M i ni m um bo a rd s i ze o f l i ste d co m pa ni e s

Q.4 : narayan mutthi committe e rep ort 200 3

N a ray a na M ur t hy C om m i tte e Re por t ( 2003) W i t h t he be l i ef t hat

t he ef for t s to i m prov e cor po rate gov e r na nc e sta nda rds i n
I ndi a m ust co nt i nue be ca us e t he se sta nda rds t he m s e l ve s
w e re e vo l v i ng i n ke e pi ng w i t h t he m ar ke t dyna m i c s , t he
S e c ur i t i es a nd E xc ha nge Bo a rd o f Indi a ( S EBI ) ha d co nst i t ute d
a C om m i tte e o n Co r po rate Gov e r na nc e i n 2002 , i n orde r to
e va l uate t he a de qua c y o f ex i st i ng co r po rate gov e r na nc e
pra c t i c e s a nd f ur t he r i m prov e t he se pra c t i c e s . I t wa s se t up to
re v i e w C la us e 4 9 , a nd s ug ge st m e a sure s to i m prov e cor po rate
gov e r na nc e sta nda rds .

T he S E BI C o mm i tte e wa s co nst i tute d unde r t he

C ha i r m a ns hi p o f S hr i N . R . N a raya na M ur t hy, C ha i r ma n a nd
C hi ef M e nto r o f I nfo sy s Te c hno logi e s L im i te d. T he
C o m m i tte e co m pri s e d m em be rs f ro m var i o us wa l ks o f publ i c
a nd pro fe s s io na l li fe . T hi s i nc l ude d ca pta i ns o f i ndust r y,
a ca de m i c i a ns , publ i c a c co unta nt s a nd pe o pl e f ro m f i na nc i a l
pre s s a nd i ndust r i a l fo r um .

T h e te r m s of re fe re n ce o f th e co m m i tte e we re to :

Re v i e w t he pe r fo r m a nce o f co r porate gov e r na nc e ; a nd

De te r m i ne t he ro l e o f co m pa ni es i n re s po ndi ng to r umo ur
a nd o t he r pr ic e s e ns i t i v e i nfor m ati o n c irc ul at i ng i n t he
m a r ke t , i n o rde r to e nha nc e t he t ra ns pa re nc y a nd i nte gr i t y
o f t he m ar ke t .

T he i s s ue s di s c us s e d b y t he comm i tte e pr i ma r i l y re l ate d to

a udi t co m m i tte es , a udi t re po r ts , inde pe n de nt di re c to rs ,
re l ate d pa r t i e s , ri s k m a na gem e nt , di re c tors hi ps a nd di rec to r
co m pe ns at i o n, co de s o f co nduc t a nd f i na nc i a l di s c l o s ure s . T he
co m m i tte e’s re co m m e ndat i o ns i n the f i na l re por t w ere
s e l e c te d ba s e d o n pa ra m e ters i nc l udi ng t he i r re l ati v e
i m po r ta nc e , fa i r ne s s , a c co unta bi l i ty a nd t ra ns pa re nc y, e a s e o f
i m pl e m e ntat i o n, v e ri f i a bi l i t y a nd e nfo rc ea bi l i t y.

T h e ke y m a n d ato r y re co mm e n d ati o n s fo cu se d o n :

1 . S t re ngt he ni ng t he re s po ns i bi l i t i es o f a udi t com m i tte e s ;

2 . I m prov i ng t he qua l i t y o f f i na nc i a l di sc l o s ure s , i nc l udi ng
t ho s e re l ate d to re l ate d pa r t y t rans a c t i o ns a nd pro ce e ds f ro m
i ni t i a l publ i c of fe ri ngs ;

3 . Re qui r i ng co r po rate exe c ut i v e bo a rds to a s s e ss a nd di s cl o s e

bus i ne s s r i s ks i n t he a nnua l re port s o f co m pa ni e s ;

4 . I nt ro duc i ng re s po ns i bi l i t i e s o n bo a rds to a do pt fo r ma l
co de s o f co nduc t ; t he po s it i o n o f no m i ne e di re c tors ; a nd

5 . S to c k ho l der a pprova l a nd i m prov e d di s c lo s ure s re l at i ng

to co m pe ns at i o n pa i d to no n - exe cut i v e di re c tors .

6 . N o n - m a ndato r y re co m m e ndat i o ns i nc l ude d:

7 . M ov i ng to a re gi m e w he re co r po rate f i na nc i a l state m e nt s a re
no t qua l i f i e d;

8 . I nst i t ut i ng a sy ste m o f t ra i ni ng o f bo a rd me m be rs ; a nd

9 . Eva l uat i o n o f pe r for m a nc e o f boa rd m e m be rs .

As pe r t he com m i tte e , t he s e re co mm e ndat i o ns co di f y c e r ta i n

sta nda rds o f ‘go o d gov er na nc e ’ i nto s pe c i f i c re qui re m e nt s , s i nc e
c e r ta i n cor po rate re s po ns i bi l i t i e s are to o i m por ta nt to be l ef t to
l o o s e co nc e pt s o f f i duc i a r y re s po ns i bi l i t y. T he i r im pl e m e ntat io n
t hro ugh S E BI ’s re gul ato r y f ra m e w ork w i l l st re ngt he n ex i st i ng
gov e r na nc e pra c t i ce s a nd a l so prov i de a st ro ng i nc e nt i v e to
av o i d cor po rate fa i l ure s . T he C om mi tte e no te d t hat t he
re co m m e ndat i o ns co ntai ne d i n t he i r re por t ca n be
i m pl e m e nte d b y me a ns o f a n a me ndm e nt to t he L i st i ng
Agre e m e nt , w it h c ha nge s m a de to t he ex i st i ng c l a us e 49 .