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Governance
What is Corporate
Governance
Private Sector
Public Sector
Private Sector- categories
of shareholders
Promoter director – Called as a functional
director and belongs from the promoter
group.
Professional director - Category of
directors who are invited by the promoter
group on the basis of competence and
favourable personal equation.
Institutionally nominated – These positions
are fulfilled by senior activities or person of
good reputation.
Public Sector – categories
of directors
Functional directors – Full time
employees of the PSUs.
Govt. directors – They are the
bureaucrats from different controlling
administrative ministry.
Outside directors
Distinction between
management and control
Management Control
Financial scams
Legal and administrative framework
in India provides for excellent scope
for current practices.
Specific steps to improve
corporate governance
Abolition of the Sick Industries
Companies Act (SICA) and BIFR.
Banking Secrecy Act – Reveal those who
are wilful defaulters.
Benami Transactions Prohibition Act and
Prevention of Money Laundering Act
The Power of Ethical
Management
Is the decision you are taking legal? If it is
not legal, it is not ethical.
Is the decision you ar taking fair? It should
be a win-win situation for both the parties
entering into an agreement or if it is a
general policy or a multi – level agreement,
there should be equal risk and reward to all
concerned.
Eleventh Commandment test – If the
decision you are taking is such that if it is
known in the public through media, will you
feel ashamed? If you are feeling ashamed
then it is not an ethical decision.
Conclusion
Corporate governance is the net result of the
individual sense of values, the values held in
society or part of a society like professional
bodies or business associations and finally
the system of public governance. If those who
violate the norms are effectively punished
then there is a fear and there will be
adherence of the principles of corporate
governance.
Kumaramangalam Birla
Committee recommendations:
Three Constituents
Shareholders
the Board of Directors
the Management
Applicability of
recommendations
Mandatory
Non mandatory
Mandatory
recommendations
absolutely essential for the
framework of corporate governance
and virtually form its core
which can be enforced through the
amendment of the listing agreement
Applicability
applicable to the listed companies, their directors, management,
employees and professionals associated with such companies,
The ultimate responsibility for putting the recommendations into
practice lies directly with the board of directors and the
management of the company.
recommendations will apply to all the listed private and public sector
companies, in accordance with the schedule of implementation. As
for listed entities, which are not companies, but body corporates (e.g.
private and public sector banks, financial institutions, insurance
companies etc.) incorporated under other statutes, the
recommendations will apply to the extent that they do not violate
their respective statutes, and guidelines or directives issued by the
relevant regulatory authorities.
Board Of directors
The Board of a Company provides leadership and
strategic guidance, objective judgement
independent of the management to the Company
and exercises control over the Company.
The Board must fulfils its legal requirements and
also must be aware and understanding of its
responsibilities.
An effective corporate governance system is one,
which allows the Board to perform these dual
functions efficiently
Functions of the Board Of
directors
Directs the Company by formulating and
reviewing the Company’s policies.
Controls the Company and its management
by laying down the code of conduct.
Is accountable to the shareholders for
creating, protecting and enhancing wealth
and resources of the Company.
Is not involved in day to day management of
the Company.
Composition of the Board Of
directors
Executive directors are involved in the day
to day management of the Companies
Non executive directors bring external and
wider perspective and independence to the
decision making.
Non executive directors may be
independent or non-independent.
Independent directors
Receive director’s remuneration
Do not have any other material
pecuniary relationship or
transactions with the Company, its
promoters, its management etc.,
Emphasis on the calibre of the non
executive directors.
Mandatory
Recommendations
Optimum combination of executive
and non-executive directors with not
less than 50% of the board
comprising the non executive
directors.
At least one third of the board should
comprise of independent directors
Nominee Directors
Institutions should appoint nominees
on the board of Companies only on a
selective basis where such
appointment is considered necessary
to protect the interest of the
Institution
Chairman of the Board
The role of the Chairman is to ensure
that the board meetings are
conducted in an effective manner.
The Chairman’s role should in
principle be different from that of the
Chief Executive.
Non mandatory
recommendation
A non executive Chairman should be
entitled to maintain a Chairman’s
Office at the Company's expense and
also allowed reimbursement of
expenses incurred in the
performance of his duties.
Audit Committee
Oversight of the finance function and
monitoring
Relies on the senior financial
management and the outside
auditors.
Mandatory
recommendation
A qualifies and independent audit
committee should be set up by the
board of a Company. This would go a
long way in enhancing the credibility
of the financial disclosures of a
Company and promoting
transparency
Composition of the Audit
Committee
Minimum of 3 members ( non executive directors,
majority being independent and with at least one
director having financial and accounting knowledge)
The chairman of the committee should be an
independent director.
The Chairman should be present at AGM to answer
shareholder queries.
The Company Secretary should act as the Secretary
to the Committee
( the above are mandatory recommendations)
Frequency of meetings and
quorum of the Audit
committee
Meet at least thrice a year
One meeting before finalization and
one every 6 months
Quorum should be either 2 members or
1/3rd of the members of the audit
committee whichever is higher and
there should be a minimum of two
independent directors.
( this is a mandatory recommendation
Powers of the Audit
Committee
To investigate any activity within its
terms of reference
To seek information from any employee