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Corporate Governance Committees

(Lesson-10: BECG)

Prof. C. Anand Facu t! " #B$% &!dera'ad

This deals with:1. Introduction to Corporate Committees 2. Indian Committees 3. Foreign Committees Governance

1. Introduction to Corporate Governance Committees (CGCs

Codes: Codes are a set o! written rules" which are accepted as general principles which state how people in a particular organi#ation or a countr$ should %ehave. &egulations: ' regulation is an o!!icial rule that la$ down how things should %e done. CGCs have developed several CG codes and regulations which are intended to control" guide or manage the %ehavior or conduct o! individual(s wor)ing in corporates*organi#ations.

Important &eports on CG pu%lished %$ CG Committees:

Indian Committees: 1. +umara ,angalam -irla Committee 2. Gangul$ Committee 3. .aresh Chandra Committee /. CII Committee -. Foreign Committees: 1. 01C2 Committee 2. Cad%ur$ Committee C. Companies 'ct (3egal Framewor) !or CG

1. +umara ,angalam -irla Committee &eport (+,-C&

+,- Committee was instituted %$ 41-I in 1555 to suggest measures to promote and raise the standards o! CG in India. 0%6ectives: 1. To suggest amendments to listing agreements %$ cos. with 41s and other measures and improving CG in listed cos. regarding disclosures and responsi%ilities o! independent*outside directors. 2. 2ra!t a code o! %est practices. 3. To suggest sa!eguards within cos. to deal with insider in!ormation and insider trading.

&ecommendations o! +,-C &eport +,-C identi!ied the shareholders" -oard 7 ,gmt. as the constituents that have a )e$ role to pla$ in CG and tried to identi!$ their roles 7 responsi%ilities in ensuring e!!ective CG. Its important recommendations are as !ollows:1. -oard should have an optimum com%ination o! %oth 18ecutive and .on-18ecutive 2irectors and at least 9:; o! -oard should comprise .on-12s and one-third o! -oard should comprise o! independent directors where Chairman is none8ecutive and at least hal! o! the -oard should %e independent in case o! 18ecutive Chairman.

&ecommendations o! +,-C &eport (Contd.

2. ' <uali!ied 7 independent 'udit Committee should %e appointed to enhance !inancial disclosures and transparenc$. 3. ' &emuneration Committee !or deciding remuneration and compensation pac)age including pension rights to 12s. /. ' -oard Committee to loo) into shareholder issues" share trans!ers 7 redressal o! complaints. 9. CG section o! 'nnual &eport ('& to deal with remuneration paid to directors and on level o! compliance %$ the co.. =. -oard ,eetings should %e held at least / times in a $ear with a ma8imum time gap o! / months %etween 2 meetings.

&ecommendations o! +,-C &eport (Contd.

>. 'll co. related in!ormation li)e <l$ results" etc. ma$ %e put on co(s we%site. ?. .o director should %e a mem%er in more than 1: committees or act as Chairman o! more than 9 committees across all cos. in which he is a director. 5. 2isclosures to %e made to the -oard %$ the management relating to all material" !inancial 7 commercial transactions" where the$ have personal interest. 1:. @al!-$earl$ declaration o! !inancial per!ormance should %e sent to each household o! shareholders.

&ecommendations o! +,-C &eport (Contd.

11. FIs can have nominees on the %oards o! %orrower cos." to protect their interests as creditors. The .ominee 2irectors should ta)e an active interest in the activities o! the -oard and assume e<ual responsi%ilities" as an$ other director on the -oard. 12.' separate section on compliance with mandator$ recommendations should !orm part o! the report and details o! non-compliance should %e highlighted. 13. ' certi!icate !rom the auditors on compliance should !orm part o! the '& and copies o! '&s should %e sent to the 41s.

Cad%ur$ Committee &eport (CC&

Ander the Chairmanship o! 'drian Cad%ur$ (,a$ 1551 " a committee was set up %$ Financial &eporting Council" 3ondon 4toc) 18change to loo) into the !inancial aspects o! Corporate Governance. It su%mitted its report on ,a$ 2>" 1552" whose recommendations are as !ollows:There should %e separation o! roles o! Chairman and C1. .on-e8ecutive directors should act independentl$ while giving 6udgments on issues o! strateg$" per!ormance" allocation ! resources and designing codes o! conduct. ,a6orit$ o! directors should %e independent none8ecutive directors and should not have an$ !inancial interests in the compan$.

1. 2.


Cad%ur$ Committee &eport (contd.

/. The director(s term should not e8ceed 3 $ears" which can %e e8tended with shareholders( approval. 9. There should %e !ull transparenc$ relating to directors emoluments. There should %e a 6udicious mi8 o! salar$ and per!ormance related pa$. =. ' &emuneration Committee made o! !ull$ or largel$ o! non-e8ecutive directors" should decide on the pa$ o! the e8ecutive directors. >. The interim compan$ report should give the %alance sheet in!ormation and %e reviewed %$ the auditor. ?. There should %e a pro!essional and o%6ective relationship %etween the %oard and e8ecutives.

Cad%ur$ Committee &eport (contd.

1:. In!ormation regarding the audit !ee should %e made pu%lic and there should %e regular rotation o! auditors. The recommendations o! CC& were widel$ accepted %$ the corporates in A+ and the$ %ecame a re!erence point !or man$ other committees" which were set up %$ various governments all over the world.


01C2 &eport &ecommendations (0&&

(EC) is an internationa or*ani+ation for economic co-operation and deve opment. #n ,une% 1--.% t/e (EC) constituted an Ad-/oc 0as1 Force on CG% 2it/ 1e! representatives from a mem'er countries% and ot/er internationa or*ani+ations inc udin* 3or d Ban1% and provided recommendations (princip es) primari ! aimed at *overnments% 'ut a so provided *uidance to $Es% investors% private corporations% nationa commissions on corporate *overnance as t/e! dea 2it/ 'est practices% istin* re4uirements and codes of conduct. 0/e princip es '! (EC) fa into 5 'road areas.


01C2 &eport &ecommendations (Contd.

1. 6.

Ensurin* t/e 'asis for an effective CG 0/e ri*/ts of s/are/o ders and 1e!
o2ners/ip functions

7. 8. 9. 5.

0/e e4uita' e treatment of s/are/o ders 0/e ro e of sta1e/o ders )isc osure and transparenc! 0/e responsi'i it! of t/e 'oard

01C2 &eport &ecommendations (Contd.

Ensurin* t/e 'asis for an effective CG: (For promotin* transparent and efficient mar1ets% 'e consistent 2it/ ru e of a2% and for articu atin* t/e division of responsi'i it! amon* different supervisor!% re*u ator! and enforcement aut/orit!) 2. 0/e ri*/ts of s/are/o ders and 1e! o2ners/ip functions:

(CG s/a protect and faci itate t/e e:ercise of s/are/o ders; ri*/ts) 7. 0/e e4uita' e treatment of s/are/o ders: ( CG s/a ensure e4uita' e treatment of a s/are/o ders inc udin* minorit!% forei*n s/are/o ders inc udin* redressa for vio ation of t/eir ri*/ts)

01C2 &eport &ecommendations (Contd.

8. 0/e ro e of sta1e/o ders: (CG s/a reco*ni+e ri*/ts of sta1e/o ders" cooperation 'et2een sta1e/o ders and corporation) 9. )isc osure and transparenc!: (0ime ! and accurate disc osures as to a materia matters fina situation% performance% o2ners/ip and *overnance) 5. <esponsi'i it! of t/e Board: (1. $trate*ic *uidance of t/e compan!= 6. Effective monitorin* of mana*ement= and 7. Board;s accounta'i it! to s/are/o ders)

01C2 &eport &ecommendations (Contd.

0/us t/e a'ove 5 princip es advocate for t/e fo o2in* t/ree:(1) For sound financia s!stem (ii) Basis for cooperation 'et2een (EC) and >on(EC) countries (iii) 0o underpin t/e CG component of 3or d Ban1% and #?F reports on t/e o'servance on $tandards and Codes (<($E).