The Corporate Governance Framework

CII Corporate Governance Summit

18 September 2012

Corporate Governance Framework

Listed Corporations
(Board & Management)

Good corporate governance is a culture and a climate of

Consistency, Responsibility, Accountability, Fairness,
Transparency and Effectiveness that is Deployed throughout the
organisation (the CRAFTED principles of governance)

Key Influencers

Shareholders

Other
Stakeholders
(NGO,
employees, etc)

Stock
Exchanges/Listing
Agreements

Lenders
(Bank/Depositors)

Regulators
(SEBI/RBI)

Institutional
Investors

Press / Media

Common Grounds: Transparency, Accountability,

Fairness and Responsibility

The Corporate Governance Lessons from the

Financial Crisis
Widespread
failure of risk
management

Boards that are

capable of
objective and
INDEPENDENT
judgement

The financial crisis can to

an important extent be
attributed to failures and
weaknesses in corporate
governance
arrangements.

Exercise of
Shareholder
Rights
Based on OECD research on corporate governance weaknesses during
Financial Crisis 2009
The review of risk management, board practices and the exercise of
shareholder rights provide for a good basis but the challenge is to
encourage and support effective implementation of these standards.

The Role of Board in sustainable, effective

Corporate Governance
Not only
compliance
focused but also
evaluate output
measures.

Separation of
management &
governance
rights

Board - Basic
responsibility to
provide strategic
guidance &
oversight regarding
management
decisions, and
selecting &
changing the
management
whenever
necessary.

Composition, its
agenda,
decision-making
and ability to
continuously
improve
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Shareholder activism
A share in a company is not only a share in profits but also a
share in ownership.
Shareholders must realize that their active participation in the
companys operations ensures better management, less frauds and
better governance.
Various rights under the Companies Act, 1956 including Legal
Protection such as:

Right to participate in,

and to be sufficiently
informed on, decisions
concerning fundamental
corporate changes

Opportunity to participate
effectively and vote in
general shareholder
meetings

Exercise of ownership
rights by all shareholders,
including institutional
investors, should be
facilitated.

The role of Shareholders in Corporate Governance

Increasing general
Establishing dialogue
Using corporate
awareness on social &
with the management democracy provided by
human rights issues
on issues that concern
law & influencing the
concerning the
them
corporate culture
organization
A management that knows that it will be
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questioned and held responsible for its actions, is

Institutional shareholder activism in India a wake

up call
The Childrens
Investment Fund (TCI)

With a stake of only 1.01% in CIL, for the first

time in Indian corporate history an institutional
investor threatened to sue individual Board
members of a listed entity for proposing to sell
coal to power companies at subsidised prices.

In 2010, SEBI came out

with guidelines that
mandated Indian mutual
funds to report their
voting at shareholder
meetings.

Foreign institutional investors own ~18%

and domestic institutional investors own
~11% of the top 500 companies.

Growing institutional
shareholders
activism

Akzo Nobel India: Though eventually passed, the

post-vote analysis shows if those institutions
who Abstained had cast their vote Against, it
would have defeated the resolution for
amalgamation of 3 unlisted entities with the
listed entity and set a precedent.
Vedanta Restructuring: Many institutional
shareholders are reported to have protested
against the restructuring exercise that saw the
merger of Sesa Goa and Sterlite Industries.
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