Corporate Governance

Sarbesh Mishra,
Research Scholar.

Necessity
1. 2.

3.

4.

5.

Too much of power with few individual Large scale diversion of funds to associated companies & risky ventures Unfocussed business decisions leading to losses Preferential allotment of sweat equity at low prices Spinning off profitable business operations to subsidiary companies
Dr Sarbesh Mishra

Recent Happenings
World Com ± Improper accounting of $3.9bn in expenses leading to bankruptcy  Enron ± Off balance sheet deals used to hide the debt  AOL Warner ± AOL division accused of improperly accounted for some advertising revenues  XEROX ± Financial Fraud  UTI ± Indiscriminate investment by UTI 

Dr Sarbesh Mishra

Origin
The Sarbanes ± Oxley Act, 2002, a recent enactment in USA which deals with the Corporate Governance & Corporate Social Responsibilities has emphasized audit functions & financial disclosures.

Dr Sarbesh Mishra

Indian Context
Kumara Mangalam Birla Committee on Corporate Governance (2000) (SEBI Sponsored)  Naresh Chandra Committee on Corporate Governance (2002)  Narayana Murthy Committee on Corporate Governance 

Dr Sarbesh Mishra

Clause 49 ± Corporate Governance 

SEBI has advised all stock exchanges to amend their listing agreements by inserting new clause 49 which deals with good corporate governance practices to be adopted by all listed private & public sector banks.

Dr Sarbesh Mishra

Contd«.   

1.

Corporate governance implies that the company would manage its affairs with diligence, transparency, responsibility and accountability, and would maximise shareholder wealth. Companies are needed to at least have policies and practices in conformity with the requirements stipulated under Clause 49 of the Listing Agreement. Board of Directors The Board of Directors should be composed of Executive and Non-Executive Directors meeting the requirement of the Code of Corporate Governance.
Dr Sarbesh Mishra

Contd«. 

1.

Audit Committee The appointment of the Audit Committee is mandatory, and it¶s a very powerful instrument of ensuring good governance in the financial matters (The new section 292A incorporated in the Companies Act, 1956
made it obligatory for a company having paid up capital of rupees 5 crore or more to have an µaudit committee¶ comprising at least three directors & two third of the total members shall be nonexecutive directors)
Dr Sarbesh Mishra

Contd«.
Shareholders¶/Investors¶ Grievance Committee 1. As a part of corporate governance, companies should form a Shareholders¶/Investors¶ Grievance Committee under the Chairmanship of a non-executive independent director. 

Dr Sarbesh Mishra

Contd«. 
1. 

1.

Remuneration Committee The company may appoint a Remuneration Committee to decide the remuneration and other perks etc. of the CEO and other senior management officials as the Companies Act and other relevant provisions. Management Analysis Management is required to make full disclosure of all material information to investors.
Dr Sarbesh Mishra

Contd«. 
1. 

1.

Communication The quarterly, half-yearly and annual financial results of the Company must be sent to the Stock Exchanges immediately after they have been taken on record by the Board. Auditors¶ Certificate on Corporate Governance The external auditors are required to give a certificate on the compliance of corporate governance requirements.
Dr Sarbesh Mishra

Master your semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master your semester with Scribd & The New York Times

Cancel anytime.