Role Of Ministry Of Corporate Affairs In Enforcing Corporate Governance In India

-Presented By Group 3

Roll No.

Members

Topics covered
Definition of corporate governance History/Emergence of corporate governance Need for corporate governance

07

Aniruddha Rane

02

Aishwarya Shetty

Objectives of corporate governance Corporate governance promotes Constituents of corporate governance Importance of corporate governance
Mechanism and controls of corporate governance Legal frame work and organization of corporate governance Kumar Mangalam Birla report (Mandatory and Non-mandatory) Success & Failure of corporate governance Future perspective of corporate governance

46

Savita Shetty

23

Mitesh Uchil

28

Nimit Soni

Corporate Governance (CG)

The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with its all stakeholders (financiers, customers, management, employees, government, and the community)

Corporate governance is a term that refers broadly to the rules, processes, or laws
by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations.

History of CG
The initiative in India was initially driven by an industry association, the Confederation of Indian Industry In December 1995, CII set up a task force to design a voluntary code of corporate governance The final draft of this code was widely circulated in 1997 In April 1998, the code was released. It was called Desirable Corporate Governance: A Code Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddys Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others

Following CIIs initiative, the Securities and Exchange Board of India (SEBI) set up a committee under Kumar Mangalam Birla to design a mandatory-cumrecommendatory code for listed companies The Birla Committee Report was approved by SEBI in December 2000 Became mandatory for listed companies through the listing agreement, and implemented according to a rollout plan This report were also inspired by the UKs Cadbury Committee Report(1992), the Report of the Greenbury Committee, The Blue Ribbon Committee on Corporate Governance in the US(2000) and etc.

Need for CG
Increasing concern about standards of financial reporting and accountability Unscrupulous management of the companies Dilution of wealth of minority shareholders

Delay in transfer of shares, Delay in dispatch of share certificates and dividend warrants and non-receipt of dividend warrants
Insufficient attention to timely dissemination of information to investors Important instrument of investor protection

Objectives of CG
Enhancement of shareholder value, keeping in view the interests of other stakeholders. The committee is in firm view that the best results would be achieved when companies begin to treat the code not as a mere structure but as a way of life. The extent of discipline, transparency, willingness and

fairness are considered important to achieve goals.

CG Promotes
1. Transparency- Everything that happens in the company, if it is not shy to share it publicly, it is transparent. 2. Accountability- The management is accountable for its decision. 3. Equanimity- (Equitable Treatment) Rights of all shareholders are equal, regardless of minor or major shareholding.

Constituents of CG
The Board of Directors
Pivotal role Accountable to stakeholders Directs management

The Shareholders & Stakeholders

To participate in appointment of directors To hold the BOD accountable for governance through proper disclosures

The Management
To act on the direction of the BOD To provide requisite information to the BOD for decision making To implement and monitor control systems

Importance of CG
Shape the growth and future of any capital market and economy, Instrument of investor protection, Relates to the issue of insider trading. The issue of CG involves besides share holders, all other stake holders At the heart of committees report is the set of recommendations

Kumar Mangalam Committees Recommendations

Mandatory Board Composition Audit Committee Composition Board Role Audit Committee Role Critical Information Shareholders Communication Non-Mandatory Remuneration Committee Financial Performance Declaration Non-Executive Chairperson

Board Composition
Board of directors should comprise 1. Executive directors 2. Non-Executive directors Minimum 50 % of such directors if chairman is Executive Minimum one-third of such directors if Chairman is NonExecutive. Among such directors the independent Directors should not have any material or pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries

Audit Committee Composition

A qualified and an independent Audit Committee. Minimum three members. All being non-executive Directors, & majority of whom are independent One Director having financial and accounting

knowledge.

 Audit Committee Chairman Should be Independent Director. Present at the Companys AGM.

Board Role
Board meeting should be held at least 4 times a year. Remuneration of Non-Executive Director. Full Disclosure should be made regarding the Remuneration Packages of all Directors Director Can be member in maximum 10 committees OR Act as Chairman in Maximum 5 committee across all Companys in which he is a Director

Audit Committee Role

Meet at least thrice a Year. The quorum should be either two members or onethird of the members of the Audit Committee. The Audit Committee should have powers to investigate any activity within its terms of reference, to seek information from any employee; to obtain outside legal or professional advice, and to secure attendance of outsiders if necessary.

 a. b. c.

Powers of the Audit committee To seek information from any employee To obtain outsider lega or professional advice To secure attendance of outsiders, if necessary Review Any changes in Accounting Policies & Standards Stock Exchange & Legal Requirements concerning financial statements. Companys financial & risk management policies.

Critical Information
Directors would need to Disclose their membership with other committees

of the Board

In case of Appointment & Re-appointment of Director, the Shareholder must be provided with a brief resumes of the Director covering His Experiences The names of the companys in which he holds Directorship.

Shareholder Communication
A board of committee should be formed to redress Shareholders Complaints regarding Transfer of Shares Dividends

There should be a separate section on corporate governance in

the Annual Report with detailed Compliance Report.

Non-Mandatory Recommendations
REMUNERATION COMMITTEE Board should setup such a committee to determine the companys Policy on Remuneration Packages for Executive

Director.
NON-EXECUTIVE CHAIRPERSON

A Non-Executive Chairperson should be entitled to maintain an office at the companys Expenses

Financial Performance Declaration

Shareholders should be sent declaration of Financial Performance half yearly including the summery of the

significant Events in the last Six months

 Remuneration committee of the Board should consist of three directors Institutional shareholders take active interest in the composition of the Board & be vigilent.