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saying on
a wise
father
someone who hugs his
child with one hand, while
pushing him away with the
other hand
ideal relationship between
family and business
apt way to describe
Family Support
is indispensable
Financial
entanglement
harms both
family and
business
DISADVANTAGES
Personal assets at risk
Company is perceived as unprofessional by
employees and others. Difficulty in attracting
employees or partners
Financials are not trusted leading to lower valuation
and more difficulty in funding
Difficulties in scaling
Personal guarantee
Personal assets deployed in business
Family members in important positions who do not contribute
Same bank accounts or credit cards used for personal and official expenses
Personal expenses charged to business
Disentanglement has long term advantages and may require some sacrifices
A "balanced" relationship between family and business can get you the best of both worlds
Scalability - Help to survive in an increasingly competitive environment through
expansion, mergers, acquisitions, partnerships etc
Trust - Good business governance provides all stakeholders with greater confidence
in dealing with you and you will get better terms from them
Transparency Good business governance ensures that stakeholders are sufficiently
informed on decisions concerning fundamental issues
Reduces conflicts of interest Good business governance ensures a smooth inter-
generational transfer of wealth and divestment of family assets, as well as reducing the
chance for conflicts of interest to arise
Better margins - Good business governance practices leads to a better system of
internal control, thus leading to greater accountability and better profit margins.
Attracts Investment - Good business governance practices can pave the way for
possible future growth, diversification, or a sale, including the ability to attract equity
investors nationally and from abroad as well as reduce the cost of loans/credit for
corporations
Ethical Practices
Genuinely believe that
family and business
must be separated
Practice this belief and
be seen to be so
practicing - walk the talk
Not a short term process
Holistic process
Start by disentangling the finances
Keep true and transparent accounts -
engage a professional for this - not a family
retainer
The standards of expense claim must be
the same for the owners as for the
employees
No siphoning of funds
Avoid employing relatives or appointing
them to Board positions
Based on the above, build confidence with
bank wherein your personal guarantee is
withdrawn. Offer to the bank that they can
nominate an independent director to the
board
Build confidence with the tax department
too that no personal expenses are charged
to business
Use of home as office
Use of real estate as office or factory
Use of other assets for business
Personal and family funds loaned to
business
To disentangle
Some practical steps that can be taken
Pitfalls to avoid
Legitimate use of personal assets and
precautions to be taken
Breaching deposit regulations and
Company Law
Deemed dividend under Income Tax
law
Family
run
business
Disentangle
Build
ethical
practices
Some
sacrifices/
Sufferings
Good
business
governance
Corporate governance
introduced by SEBI vide
special provision Clause 49
of the listing agreement
Applicable to all listed
companies
Core concepts of corporate
governanceequity,
transparency, faith, and
accountability
Oriented to
shareholders
To ensure that a
company adopts ethical,
fair and transparent
practices across its
entire value chain and in
all its dealings with
stakeholders and
outsiders
Introduction and
meaning
Objective Current industry
perception
Corporate governance
equated with control and
compliance;
At best with reporting,
transparency and ethics.
Not as a core
management process
benefiting all stakeholders
Mandatory for
all listed
companies
Composition of
board of directors
Board procedure,
Code of conduct,
Audit committee,
Meeting of audit
committee,
The powers of
audit committee,
Role and review
of audit
committee, and
Disclosure
requirements
BOD should
have optimum
combination of
executive and
non-executive
directors
with not less
than fifty
percent of the
board of
directors
comprising of
non-executive
directors.
Mandatory
Minimum 3
directors, 2/3rds
of whom shall be
independent
directors
meeting should
be held 4 times a
year
ensure
compliance of
internal control
system
review the
financial
statements
To audit
committee -
Basis of related
party transaction
Board disclosure
on risk
management
Proceeds from
IPO
Remuneration of
Directors
1)M D &A, in the Annual Report
should include
Industry structure &
developments. Opportunities
and Threats.
Segmentwise or product-
wise performance.
Outlook.
Risks and concerns.
Internal control systems and
their adequacy.
Discussion on financial
performance with respect to
operational performance.
Material developments in
Human Resources / Industrial
Relations front, including
number of people employed
2)Report on Corporate
governance by the BOD in
the annual report
Clause 49 of the listing agreement
Applicability
Scope
B O D
Audit
Committee
Disclosure
Reporting
Requirements
Filing
To stock
exchange
File Quarterly
audited/unaudit
ed results
Violation Penalties / legal consequences
Listing agreement non-compliance
Companies cannot list their securities on BSE/NSE
Delisted for non compliance with Listing agreement
Imprisonment for a term which may extend to ten years or with fine,
which may extend to 25 crore rupees, or with both(section 23 of
SCRA)
Audit committee non-compliance
Fine of Rs.50,000 / imprisonment for 1 year/both
(section 292A of the Companies Act)
Non- Disclosure of interest of director
Fine of Rs.50,000 for each director
(section 299 of the Companies Act)
Board report non-compliance
Punishable with a fine of Rs. 20,000 or imprisonment for 6 months or
both
(section 217 of the Companies Act)
Moving beyond
investor
protection
Creating stakeholder
value through
transparent, efficient and
effective practices
Preventing
negative
behavior
Reinforcing
positive
behavior
Board and corporate level
Conflict of interest
False reporting
Misuse of authority
- Such as throttling competition
Destructive behaviour for short
term benefit
- Such as borrowing when there is
no potential to repay
Other unethical practices
- Such as bribing officials
Employee level
Conflict of interest
False reporting
Misuse of authority
- Such as sexual harassment
Other unethical practices
- Such as accepting bribes
Examples of negative behavior
Examples of positive behavior
Stated adherence to ethical practices
Employee appraisal and reward programmes which are fair and well
understood
Prompt payment to vendors with clear and measurable
communications on deficiency
Priority to addressing customer complaints
High sensitivity to all stake holders
Ethical practices are an essential condition for
good governance
Applies to both business and government
No misuse of authority
Maintaining clean set of books
Ethical practices -Business
No bribery, nepotism etc
Honesty in reporting of government finances
Ethical practices -Government
No favoritism
Decision by
Supreme Court
in Vodafone
case
Will encourage
unethical
practices by tax
payers
Unethical
Retrospective
legislation by
Government
No misuse of authority
Governance Management
Governance Management
When it moves
From
To
QUESTIONS