Importance of / Need for Corporate Governance


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It creates a corporate culture of transparency, accountability and disclosure; It enhances customer satisfaction, shareholder value and wealth; It prevents corporate frauds, scams and irregularities; It helps to attract, motivate and retain talent; It creates a secured and prosperous operating environment and improves operational performance;

Customers. 3 . It enhances investors trust. Creditors/lenders. It enhances the reputation of the company. It fulfills the expectations of Employees. Vendors.      It manages and mitigates risk of the company. Easy finance from financial institutions.good C/G systems attracts investment from global investors. Government &Society at large. Better access to global market.

It ensures adequate disclosures and effective decision making. It helps Board to adopt transparent procedures and practices. 4 . It helps Board to sub serve the concerns of all stakeholders efficiently.    It helps the Board to take independent and objective decisions.

   It promotes sustainable and inclusive growth of the corporate sector. 5 . It helps the Board to effectively and regularly monitor the functioning of the management team. integrity. reliability and fair dealings amongst corporations. ethics. etc. CG inculcates a strong culture of core values.

Role of the board should be clearly documented in a board charter. and accountability of the board.     Role and Powers of Board: Role and powers of the board should be clearly mentioned. Clear identification of powers. 6 . Absence of clearly designated role and powers of board weakens accountability mechanism and hampers organizational goals. responsibilities. role. CEO and the chairman of the board.I.

 Providing for transparency and clear enunciation of responsibility and accountability. 7 .II. Management Environment: It includes Setting up of clear objectives and appropriate ethical framework. III. Legislation:  Clear unambiguous legislation and regulations are fundamental to effective C/G.

    Implementing sound business planning. Having right people with right skill for the jobs. Establishing performance evaluation measures. 8 . and Establishing clear boundaries for acceptable behavior.

Board skills:  Board must be able to undertake its functions efficiently and effectively. -Commitment to establish leadership. 9 . legal skills and -Knowledge of government and regulatory requirement.IV. knowledge and experience.  It should have the following skills. skills. knowledge and experience: -Operational or technical expertise. -Financial skills.  It must possess the necessary qualities.

with relevant skills and experience.  Board membership criteria: -All directors should be individuals of integrity and courage. 10 .V. Board Composition:  Size of the Board: -It should neither be too small nor too big. -It should strike a balance between executive and non-executive directors.

gender diversity between men & women). age and sex(i.e. experience.Diversity in Board: -Diversity should be there in academic qualifications. nationality. Board Committees: (To improve board effectiveness and efficiency)  11 . technical expertise. VI. relevant industry knowledge.

       Audit Committee. Shareholders/investors Relations Committee. Nomination Committee. 12 . Risk Management Committee. Corporate Governance Committee. Remuneration Committee. CSR Committee etc.

should be given to all new directors. containing details of their duties and responsibilities.  Appointment procedure must satisfy all statutory and administrative requirements.VII.  Letter of appointment. 13 . Board Appointments Most competent people should be appointed in the Board.

Board induction and training-Directors must have clear understanding of the area of operation of the company’s business. 14 . corporate strategy and challenges being faced by the Board.VIII. -Directors should attend continuing education and professional development programme or any training programme in order to be up-to-date or familiar with new developments.

15 .  The majority board members should be independent of both the management team and any commercial dealing with the company.  It will ensure that the board is effective in supervising and where necessary. challenging the activities of management.  This goal may be achieved by associating sufficient number of independent directors with the Board. Board independence:  Independent Board is essential for sound corporate governance.IX.

Board Meetings: -Directors should attend Board meetings regularly and prepare thoroughly before entering the Boardroom so that the quality of interaction is improved in the meeting.X. 16 . -The effectiveness of Board meetings depends on carefully planned agendas and providing relevant papers and materials to directors sufficiently prior to Board meetings.

Code of conduct: -The company must communicate to all stakeholders prescribed norms of ethical practices and code of conduct and each members of the organization must follow that. 17 . evaluate and if possible recognize the adherence to code of conduct. -.A system should be there to periodically measure.XI.

 Both the commercial activities & communities 18 .XII. Business and community obligations:  The company must take care of community’s obligations besides the basic commercial activity. XIII. Strategy Setting: --Objectives of the company must be clearly documented in a long-term corporate strategy including an annual business plan together with a measurable performance targets.

correct and relevant information. regular.  Stakeholders must be informed about the proposed and on going initiatives taken to meet the community obligations.Obligations should be clearly documented after Boards approval. 19 . Financial and operational reporting:  The board needs comprehensive. timely.  The report should be available to Board members well in advance to allow informed decision making. XIV. reliable.

using key performance indicators besides peer review.The reports and information provided by the management must be comprehensive but not so extensive and detailed as to hamper the comprehension of the key issue. XV. Monitoring the Board performance:  The Board must monitor and evaluate its combined performance and also that of individual directors at periodic intervals.  20 .  The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.

Lead Independent Director:  If the office of chairman of the Board and Chief Executive Officer are held by the same person.  The independent director may chair the meetings of nonexecutive directors and of independent directors and preside over Board meetings in the absence of the chair. the Board should name a lead independent director to ensure a structure that provides an appropriate balance between the powers of the CEO and those of the independent directors. 21 .  The lead Independent Director serves as an important liaison between the Board and Independent Directors.XVI.

material information on:  The financial and operating results of the company.  Company profile.XVII. 22 . -Ownership and shareholder’s rights including changes in control. Transparency & Disclosures: Disclosure should include.  Corporate Governance Report: -Governance structure and policies. but not be limited to.

CSR Initiatives. -Existence of internal code of conduct and business ethics. 23 . Economic performance.  Sustainability Report: i. ii. -Particulars of Internal Auditors. iv. -Commitment to external initiatives. Social performance. -Risk Management Framework. Environmental performance. iii.-Detailed information about the Board.

responsible for liaison with the management& internal and statutory auditors. analyzing and treating risks. which could prevent the company from effectively achieving its objectives.Innovation strategy/ Research & development. XVIII. inter alia. reviewing the adequacy of internal control and compliance with significant policies and procedures. Audit Committees: Audit Committee is.  24 . Risk Management:  There should be a clearly established process of identifying. XIX.

monitor and control these risks.  The board has the ultimate responsibility for identifying major risks to the organization. 25 . The board must satisfy itself that appropriate risk management systems and procedure are in place to identify and manage risks. setting acceptable levels of risk and ensuring that senior management takes steps to detect.

the following shareholders rights:  Right to register ownership of shares.  Right to transfer the ownership of shares. inter alia.XX. 26 .  Right to participate and cast vote in AGM of the shareholders.  Right to elect and remove members of the board and  Right to share in the profits of the corporation. Shareholders Rights: Good corporate governance must protect.  Right to obtain relevant and material information about the corporation on a timely and regular basis.

27 . leadership must be responsible which calls for integrity. transparency and accountability. Ethics and integrity: --In good corporate governance.XXI. provide direction and establish the ethics and values. --Leadership must define strategy.

28 .

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