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Suggestions of the Adrian Cadbury report, the Kumarmangalam report and their ethical ramifications.
Introduction
Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since 1990:
The Cadbury Report (UK, 1991) The Principles of Corporate Governance (OECD, 1998 and 2004) The Sarbanes-Oxley Act of 2002 (US, 2002).
Even as the committee was getting down to business, 2 further scandals shook the financial world. Bank of credit and Commerce international
The board should establish an Audit Committee of atleast 3 non-exec. Directors with written terms of reference which deal clearly with its authority and duties. The director should explain their responsibility for preparing the accounts next to a statement by the auditors about their reporting responsibilities. The Directors should report on the effectiveness of the companys system of internal control. The directors should report that the business is a going concern, with supporting assumption or qualifications as necessary
Reactions to Report
Another important aspect of corporate governance relates to issue of insider trading. It is important that insiders, which include corporate insiders also, do not use their position of knowledge and access to inside information, to take unfair advantage over the uniformed stockholders and other investors transacting in the stock of the company. To achieve this, the corporate are expected to disseminate the material price sensitive information in a timely and proper manner and also ensure that till such information is made public, insiders abstain from transacting in the securities of the company.
The committees recommendations look at corporate governance from the point of view of the stake holders and in particular that of the shareholders, because they are the raison for the corporate governance and also the prime constituency of SEBI. The control and reporting functions of boards, the role of various committees of the board, the role of the management, all assume special significance when viewed from this perspective. The other way of looking at corporate governance to the efficiency of a business enterprise, to the creation of the wealth and to the countrys economy.
At the heart of the committee's report is the set of recommendations & they are as follows Distinguishes responsibilities & obligation of the Boards & Management Disclosure of financial report within the specified date Separate disclosure of annual report & report on corporate governance
To treat the important not as the mere structure but as the way of life
Recommendation
a proposal that an appropriate course of action
Relating to director the recommendation are The board should meet regularly & retain full and effective control over the company and monitor the executive management. The board should include non executive director of sufficient caliber and number for their view to carry significant weight in the board decision. The firm should have formal schedule of matter especially reserve to it for decision to ensure that the direction and control of the company in its hand. All director should have access to advice an services of the company secretary who is responsible for the board to ensure that board procedure are followed and applicable rules and regulation are complied with. Any question of removal of company secretary should be matter of board as a whole.
The board of company should have optimum combination of executive and non executive director with not less than 50% of the board comprising the non executive director The board of company should set up the qualified and independent audit committee.
The audit committee have minimum three member, all being non executive director and at lest one having financial & accounting knowledge.
Half yearly declaration of financial performance including summery of the significant event in the last six month should be sent for every shareholder.
Non executive chairman should be entitle to maintain chairman office at the companies expenses. This will be enable him to discharged the responsibilities effectively.
Implementation of recommendations
Provision of clause 49 Requirement of clause 49
Provision of clause 49
Composition of board :in case of full tome chairman 50% non 50% executive director executive director and
Constitution of audit committee:With 3 independent director with chairman having a financial background. Finance director and internal audit head to be special invitee and minimum 3 special meeting to be convened.
Requirement of clause 49
Remuneration of director:- remuneration of non executive
director to be decide by the board. Detail of remuneration package, stock option performance incentive of director to be disclose. Board procedure :- at lest 4 meeting in year. Director not be member of 10 committee and chairman of 5 across the all companies .