KUMAR MANGALAM BIRLA

COMMITTEE REPORT (2000)

ON
CORPORATE GOVERNANCE
Appointed by the SEBI

Shri Kumar Mangalam Birla

INTRODUCTION
• Following CII’s initiative, SEBI set up a committee under Kumar
Mangalam Birla to design a mandatory cum-recommendatory code
for listed companies, on May 7, 1999.
The Birla Committee Report was approved by SEBI in December 2000.
• 25 recommendations out of which 19 were mandatory other were
non-mandatory.
 OBJECTIVES
• To suggest suitable amendments to the listing agreement executed
by the stock exchanges with the companies
• Measures to improve the standards of corporate governance in the
listed companies, in areas such as continuous disclosure of material
information, both financial and non-financial, manner and frequency
of such disclosures, responsibilities of independent and outside
directors;
• To view corporate governance from the perspective of the investors
and shareholders and to prepare a ‘Code' to suit the Indian
corporate environment.
OBJECTIVE
• The Report had been prepared by the committee, keeping in view
primarily the interests of a particular class of stakeholders, namely,
the shareholders, who together with the investors form the principal
constituency of SEBI while not ignoring the needs of other
stakeholders
Mandatory and non-mandatory
recommendations
• The committee divided the recommendations into two categories,
namely, mandatory and non- mandatory.
• The recommendations which are absolutely essential for corporate
governance can be defined with precision and which can be enforced
through the amendment of the listing agreement could be classified
as mandatory.
• Others, which are either desirable or which may require change of
laws, may, for the time being, be classified as non-mandatory.
 Mandatory
Recommendations:
• APPLICABILITY: Applies To Listed Companies With Paid Up Capital Of Rs.3
Crore And Above
• BOD:
-Composition Of Board Of Directors – Optimum Combination Of
Executive & Non-Executive Directors
- Independent directors
• AUDIT COMMITTEE :
• Composition (3 non executive directors )
• Meetings(3 times gap not more than 6 months, finalization of annual accounts)
• Powers of audit committee
• Functions ( bridge between board statutory auditors and internal auditors)
 Mandatory
Recommendations:
• BOARD PROCEDURES:
• At least 4 Meetings Of The Board In A Year With Maximum Gap Of 4 Months
Between 2 Meetings.
• Director Shall Not Be A Member Of More Than 10 Committee And Shall Not Act
As Chairman Of More Than 5 Committees Across All Companies
• SHAREHOLDERS:
• Quaterly results, redressing complaints of declaring dividend, appointment of new
directors
• FUNCTIONS OF MANAGEMENT
• Management Discussion And Analysis Report Covering Industry Structure,
Opportunities, Threats, Risks, Internal Control System
• To Review Operational Plans, Capital Budgets, Quarterly Results, Minutes Of
Committee's Meeting.
Mandatory recommendations
• Remuneration
• BOD decide for non executive directors
• Salary, bonuses, stock options, performance linked incentives
• Manner of implementation
• Separate section of CG in annual reports, BOD, AC,SHC,RC
• Non compliance with reasons
 Non-Mandatory
Recommendations:
• Role Of Chairman (different from CEO, should be non executive
chairman at company's expense)
• Remuneration committee ( should be credible and transparent)
• Shareholders' Right For Receiving Half Yearly Financial Performance
covering Critical Matters Like Alteration In Memorandum Etc
• Postal ballots on key issues
• Sale Of Whole Or Substantial Part Of The Undertaking
• Corporate Restructuring
• Venturing Into New Businesses
• As per the committee, the recommendations should be made
applicable to the listed companies(private and public), 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.
• The Committee recognizes that compliance with the
recommendations would involve restructuring the existing boards of
companies. It also recognizes that some companies, especially the
smaller ones, may have difficulty in immediately complying with
these conditions.
• The recommendations were implemented through Clause 49 of the
Listing Agreements, in a phased manner by SEBI.
 RECOMMENDATIONS
1. The board should have an optimum combination of Executive and Non-
Executive directors
2. A qualified ‘Audit Committee’ should be set up by the board or company
3. The board should set up a ‘Remuneration Committee’
4. The board should set up a committee under the chairmanship of non-
executive director to look into shareholders issues.
5. The CG section of Annual Report should make disclosures on issues related
to stakeholders.
 Cont…
6. As part of disclosure, apart from Directors’ report, management discussion
and analysis report should be part of annual report issued to the shareholders.
7. All company related information like quarterly reports should be made
available in website for analysis
8. There should be separate section of CG in the Annual report, with details on
level of by the compliance by the Company. Reason for non-compliance if any
must be mentioned
9. No Director should be a member more than 10 committee or act as Chairman of
more than 5 Companies. It is mandatory to inform the position he / she occupies.
 Cont…
10. The company should provide brief resume, expertise in specific functional
areas and names of the companies in which the person holds Directorship.
11. The half yearly disclosure of financial performance including summary of the
significant events in last six months should be sent to each shareholders.
12. The financial institutions should under normal circumstances have no direct roles
in the decision making in the company. They should not nominate anyone in the board.
13. A separate section on compliance with mandatory recommendation of clause 49
should form part of the report and details of non-compliance should be highlighted.
14. A certificate from the auditors on compliance should form part of the Annual Report
and Annual Return and a copy has to be sent to the Stock Exchange.