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CORPORATE GOVERNANCE AND THE COMPANIES ACT, 2013

Reflections on Companies Act, 2013- Conference – O.P. Jindal University 24th October, 2013

Arjya B. Majumdar
Assistant Professor, Assistant Director, Centre for Global Corporate and Financial Law and Policy, Jindal Global Law School

OUR STORY BEGINS~ WHAT IS CORPORATE GOVERNANCE? • A set of rules which govern the relationships between the company. directors and other stakeholders • Shareholders as true owners of corporations Shareholders Directors Company • Directors play a role as trustees on behalf of shareholders Consumers Vendors . its shareholders.

ORIGINS • Revived interest in Corporate Governance in 2000-01 • Accounting frauds involving Enron and WorldCom • Sarbanes Oxeley Act. 2002 • Disclosure Controls • Conduct of Audits and Auditor Independence • Corporate Responsibility • Conflicts of Interest for securities analysts • Accountability for corporate fraud .

PRE 2013 • Naresh Chandra Report on Corporate Audit and Governance • Narayan Murthy Committee on Corporate Governance • Clause 49 of the Listing Agreement • Independent Directors • Annual and Quarterly Disclosures • Committees of the Board of Directors • Audit • Remuneration • Shareholders Grievances .CORP GOVERNANCE IN INDIA.

UNDER THE COMPANIES ACT 2013 • Companies Act • Serious Fraud Investigation • Class Action • Directors • Independent Directors • Code of Conduct • Liabilities • Board Committees • Audit Committee • Nomination and Remuneration Committee • Shareholders Relationship Committee • Internal Audit .

skill and diligence • Not get involved in situations of conflict of interest • Not to achieve any undue gain or influence .DIRECTORS • Atleast one director who is resident in India • Atleast one woman director for a prescribed class of companies • Certain public companies to have one director elected by small shareholders • Fiduciary capacity of Directors• Act in accordance with the Articles • Act in good faith to promote the objects of the company • Exercise due and reasonable care.

INDEPENDENT DIRECTORS • Similar concept to that in the Listing Agreement • One third of the board should comprise of Independent Directors if the Chairman is a non-executive director • Half of the board should comprise of Independent Directors if the Chairman is an executive director • Person of integrity. should possess relevant skill and experience • No material pecuniary relationship or transactions with the company or related parties .

2013 provides for a code for independent directors • Act objectively and constructively • Exercise responsibilities in a bonafide manner • Not allow extraneous considerations to vitiate objectivity and independent judgment • Bring an objective view in the evaluation of board and management • Safeguard the interests of all stakeholders.) • Schedule IV of the Companies Act. . particularly the minority shareholders • Ensure that related party transactions are deliberated upon • Report concerns about unethical behavior.INDEPENDENT DIRECTORS (CONTD. actual or suspected fraud or violation of the company’s code of conduct or ethics policy.

2013 • Certain listed companies my have to revisit the appointment of their independent directors • Code of conduct is qualitative in nature.demonstrating compliance may be difficult • Independent director immunity .INDEPENDENT DIRECTORS (CONTD.) • SEBI consultation paper to review corporate governance norms in India • Listing agreement would have to be brought in line with the Companies Act.

AUDIT • Audit Committee to comprise of atleast three directors of whom only onethird should be managing or whole time directors • Majority of members should be financially literate • Duties of the Audit Committee not defined.provide direct access to the Audit Committee chairperson in exceptional and appropriate cases of victimization (not mandatory under the Listing Agreement) .BOARD COMMITTEES .Board to determine the terms of reference • Establishment of vigilance mechanism.

BOARD COMMITTEESNOMINATION AND REMUNERATION • Comprised of three or more non-executive directors. managerial remuneration requires approval of the Nomination and Remuneration Committee . of which atleast half must be independent directors • Duties include identification and recommendation of appropriate senior management and directors to the board • Must formulate a policy to provide for appointment and remuneration of directors. key managerial personnel and other employees • In the event that a company does not have profits. or where profits are inadequate.

BOARD COMMITTEESSTAKEHOLDERS RELATIONSHIPS • A company having more than 1000 shareholders. the chairman must be a nonexecutive director • Similar duties to that of the existing ‘shareholders grievances’ committee • Expansion of scope from ‘shareholders grievances’ under the Listing Agreement to ‘Stakeholders Relationships’ under the Companies Act. deposit holders and other security holders must constitute a Stakeholders Relationships Committee • Minimum strength not provided for.however. 2013 . debenture holders.

INTERNAL AUDIT • Certain companies (as may be prescribed) must appoint an internal auditor to evaluate the functions and activities of the company • Separate from statutory auditors • Such internal auditor may be a chartered or a cost accountant or other professional appointed by the board.may also engage an external agency • Rules for the conduct and report of internal audits yet to be prescribed .

THANK YOU .