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National Conference on
Strategic Corporate Oversight Governance
Conference Theme: Leveraging Oversight Governance
Organized by
Summary of Conference Proceedings
Theme of the Workshop:
Entities continuously search for improvements. Investment in sustained improvements in oversight
policies pays dividend in the long run. There is need for focus on improving internal controls in view of
changes in Companies Act that requires improved corporate governance, accountability to the stake-
holders, transparency and preventive vigilance. In practical terms, these are translated into
administrative measures for improving governance processes, such as
Fine tuning the code of conduct,
Enabling environment for successful whistle blowing practice and encouraging reports of
wrongdoings,
Personnel policies to promote integrity at all levels,
Fraud awareness programme,
Improving charter of audit committee, ethics committee, compliance committee, Human
Resources committee, procurement committee, disciplinary committee and host of other
mechanisms
Investments are essential for oversight structures and policies, beyond formal compliance with
regulatory requirements. Leveraging the investment in improving oversight is a strategic management
decision. It recognizes that value addition can be derived from improving oversight policies, processes
and structures. It also means management action to deal with the inherent gaps in the policy
formulations, fractures in the design of governance structures or simply the ineffective implementation
issues.
At the end of the conference, the delegates were expected to learn to:
Identify the obvious gaps in their oversight governance regime.
Strategize on next steps to deal with the oversight governance issues
Implement best practices in the oversight governance in their respective domains
Following is the summary of proceedings for those who attended the conference and those who could
not for various reasons.
Key Note Address and the Chief Guest
Mr. V K Shunglu, former Comptroller & Auditor General of India presided over as the Chief Guest on the
occasion and also delivered a key note address. The topic for him was Role of the State as the enabler


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of Oversight Governance. If you wish to listen to him, please click here to go to the video available at
www.ethicscall.net. The summary is given below.
Mr. Shunglu started the session with an in-depth explanation of the different types of governance
structures that are available to the State and how best could they utilize their functioning to better
implement the oversight governance policies and mechanisms.
Mr. Shunglu, while elaborating on the topic, sought to answer questions on (a) Is the State discharging
its role (b) what are the instruments available to the state and (c) to what extent these tools are used to
promote corporate governance. He focused on the role of the State as envisaged in the duties and
responsibilities of the Ministry of Corporate Affairs and the Ministry of Finance through which it enables
oversight governance.
Ministry of Corporate Affairs:
Separation of the Chairman of the Board and the Chief Executive Officer (CEO):
While there are internationally well-recognized best practices that require that the two positions,
namely CEO and the Chairman of the Board of Directors, should not be combined, it remains only
recommendatory practice in India and hence generally not implemented. According to Mr. Shunglu,
there are at least two clear advantages in separating the two posts. (1) Separation provides a buffer
between the political masters and the CEO in the case of public sector enterprises (2) Separation
also precludes one from sitting in judgment on his own cause in the Board meetings. A classic
example of widely held and respected GE was mentioned where the office of the Chairman and the
CEO having been combined for more than 20 years led to steady decline of the company. In short,
the CEO could be excluded from the Board meeting where tough and needed decisions have to be
taken. Obviously, one can very well understand how a chairman cum CEO of the company would
like to maintain his position and traditions and stop others in many ways from expressing their
views. The present system, in Mr. Shunglus views, is reminiscent of the erstwhile Managing agency
system. He felt that there are no strong arguments for combining the posts irrespective of the
individuality of the person.
Independence of independent Director:
The basic tenet of constituting the Board with independent directors is to provide for a structure
that is not biased. However, it is difficult to get and keep the directors independent. Given the
incredible amount of dependence of these directors on the management, it is almost impossible to
have independent directors. And if the directors are not independent of the management of a
particular company, it is hard for them to act rationally for any decision making. Referring to the
Satyam scandal, Mr. Shunglu elaborated on the eminence of several directors on the Board which
may be construed as most independent. Yet, when the statutory auditors made a presentation to
the audit committee, 6-7 months prior to the CEOs confessions about the fraud, that showed 40-50
examples of lack of basic control mechanisms, the Board was not able to voice its concerns. The
audit committee is a statutory committee under the Companies Act and could have taken timely
action in Satyam case. However, it also pointed to the fact that independent directors by
themselves may not have much to say or give opinions on unless the management or statutory
auditors bring up the matters to their attention.
Appointment and removal of statutory auditors:
Whereas the Statutory auditors are supposed to be independent of the management as they are
appointed by the General body of the company under the Indian Companies Act; the practice is


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different. It is the power to remove the statutory auditors that effectively determines the
independence. Although Section 224(7) of the Companies Act gives power to the General Body to
remove the auditors, it is the management that effectively acts on behalf of the general body. The
companies Act also lays down that the consent of the Ministry of Corporate affairs (MOCA) must be
obtained to remove the statutory auditors. How well does this responsibility discharged by the
MOCA? Currently, this responsibility is delegated to the Regional directors of the MOCA.
In practice, it is not difficult for the management to organize a general body meeting to pass the
resolution and take the regional directors on their side. The result is that the management of the
company assumes, through misinterpretation of section 224(7), the power on behalf of the general
body to remove the statutory auditors. If one looks at the reality, then the security of the tenure of
the statutory auditors is a myth. There is of course an anomaly in the companies act (section 224(7))
whereby this power is not available to the corporations established under the act of Parliament.
So, most PSUs do not enjoy the implicit power to remove the statutory auditors.
Interface between Statutory auditors and internal auditors:
Referring to the work of the statutory auditors in a company that has vast operations, Mr. Shunglu
pointed out that it is not uncommon for the statutory auditors to largely rely upon the work of the
internal auditors of the organization. The extent of reliance on the internal auditors is in turn
affected by the independence of the internal auditors who are in fact appointed by the
management itself. This situation in his opinion is not encouraging to the finding and reporting of
serious frauds in the companies.
Existence of Serious Fraud Office
He referred to the UKs Serious Fraud Office upon which model Indias Serious Fraud Office has
been set up. However, unlike UK, Indias Serious Fraud Office (SFO) can only investigate
transgressions under the Companies Act and have no other powers. The SFO, which was set up
some 4 years back, has not yet published a single report on its activities. In his opinion, if the public
monies have been spent on SFO, it is expected that its reports are made available on the public
domain and not kept secret. The SFO as of today is more of form than substance working under the
supervision of Ministry of Corporate Affairs.
Ministry of Finance:
Referring to the corporate governance as practiced by the Ministry of Finance; Mr. Shunglu
emphasized the role of the Securities & Exchange Board of India (SEBI) which is concerned broadly
with regulating the finances generated from the public at large by the listed companies.
SEBI independence:
Questioning if the SEBI enjoyed effective regulatory powers, Mr. Shunglu felt that the central
government under section 4 of the SEBI Act has not allowed it. SEBI that was borne out of the
erstwhile function of the Joint Secretary (Controller of Capital Issues) has remained under the
Ministry of Finance. For example, the services of the SEBI chairman can be dispensed with 3 months
notice and that SEBI decisions can be superseded (under Section 7) by the Ministry of Finance and
appointment of arbitrator can be ordered. If SEBI, which is expected to be the cornerstone of
regulatory practices, is not independent; how the Supreme Court test of applying the doctrine of
institutional integrity could be ensured, he asked.
SEBI and quasi judicial functions:


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SEBI functions are quasi judicial in nature that are expected to be performed in a judicial manner.
However, there are no effective powers given to the SEBI officers. All items are required to be put
up as agenda items before the Board that includes two representatives of the government. It is not
uncommon for the government nominees, Mr. Shunglu informed, to seek directions from the
Minister on issues that may have relevance to say, the Public sector company under the Minisrty
control. This situation effectively reduces the role of the regulator to that of endorsing the decisions
already taken ahead of the Board meeting. When appellate authorities discharging the quasi judicial
functions can be independent, why SEBI cannot be, Mr. Shunglu asked. Under the circumstance,
SEBI neither enjoys the regulatory autonomy nor quasi judicial objectivity. He felt that proper
governance structures to implement the governance policies are important issues to be deliberated
on.
Whistle Blower arrangements
Mr. Shunglu mentioned that the Central Vigilance Commission (CVC) had published a policy on
whistle blowing in 2004, but there was no review of its functioning. It was in 2010 that a group of
concerned citizens reviewed about 7-10 cases of whistle blowers. He referred to cases involving a
Port Trust, telecom company, etc to highlight that in all cases, whistle blowers were either
suspended, denied promotions or punished over a period of time. When the public sector
companies that have governance mechanisms do not ensure protection of whistle blowers, how the
whistle blowers in private limited companies may demand accountability for executive actions and
wrong doings, he wondered.
One might ask, how the public is being affected- and the answer to this is very simple. Everyone is
affected by these cases. Its not just the big corporations or certain individuals. Members of public
invest their savings with these companies and it is not fair to the common investor to lose those
hard earned monies because of lack of transparency in both the private and the public sector.
Ownership role and regulatory function:
India, by virtue of its history, adopted the Westminster model of ownership of public sector
companies. However, when one looks at the practice, the line ministries in India hold the shares in
the companies under their jurisdiction. These ministries also exercise the regulatory functions over
these companies. Unlike Westminster model where the shareholding remains with the Chancellor,
Ministries in India have the control that is akin to what may be called the zamindari system (note:
word zamindari used for lack of better synonym). The result is that the ministry acts both as the
owner and the regulator at the same time. This is not the best practice and is not a good adaptation
of the Westminster model of governance.
Conclusion:
Summing up the key note address, it may be stated that neither the Ministry of Corporate Affairs
nor the Ministry of Finance have enabled effective corporate oversight governance within the
country.