Corporate Governance and Corporate Social Responsibility

Corporate Governance

Definition
The system by which companies are directed and controlled It involves regulatory and market mechanisms, and the

roles and relationships between a companys management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed.

Benefits of Corporate Governance

Ensures corporate success and economic growth. Maintains investors confidence, as a result of which,

company can raise capital efficiently and effectively.

There is a positive impact on the share price.
It provides proper inducement to the owners as well

as managers to achieve objectives that are in interests of the shareholders and the organization.

Benefits of Corporate Governance

It helps in brand formation and development. It ensures organization in managed in a manner that fits

the best interests of all.

Good corporate governance also minimizes wastages,

corruption, risks and mismanagement.

Principles of corporate governance

Rights and equitable treatment of shareholders : Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings. Interests of other stakeholders: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.

 Role and responsibilities of the board :The board needs sufficient

relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment
Integrity and ethical behaviour: Integrity should be a fundamental

requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.
Disclosure and transparency: Organizations should clarify and

make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability.

Corporate Governance Models around the World

Continental Europe: Require a two-tiered Board of Directors as a means of improving corporate governance. In the two-tiered board, the Executive Board, made up of company executives, generally runs day-to-day operations while the supervisory board, made up entirely of non-executive directors who represent shareholders and employees, hires and fires the members of the executive board, determines their compensation, and reviews major business decisions
India : It is about commitment to values, about ethical business

conduct and about making a distinction between personal & corporate funds in the management of a company

contd
United States, United Kingdom
The so-called "Anglo-American model" of corporate governance emphasizes the interests of shareholders. It relies on a single-tiered Board of Directors that is normally dominated by non-executive directors elected by shareholders. Within this system, many boards include some executives from the company (who are ex officio members of the board). Non-executive directors are expected to outnumber executive directors and hold key posts, including audit and compensation committees.

Role of Board and Board Committees

Board of Directors Primary purpose is set the corporate direction, culture and to provide effective governance over the banks affairs for the benefit of all its shareholders, and to balance the interests of its diverse stakeholders, including its customers, employees, suppliers and local communities.
Executive Chairman

-As guided by the boards strategic objectives, the role of the Executive Chairman is to articulate the corporate direction set by the Board. -The Executive Chairmans role is to provide guidance on the strategic action plans for business development while at the same time ensuring effective risk management is in place and properly managed. -The Executive Chairman takes the leadership role and is responsible to ensure good corporate governance, transparency and proper delegation of duties acting as chairman of all board committees. - He often fulfils the motivational role and leads the bank in developing and maintaining the bank corporate values.

 Management Committee

-Executes boards and Executive Chairmans decisions by designing and developing the strategic action plans. -It is principal body upon which the managing director reports to and seeks approval for matters regarding the banks operations of management and supervision of the banks business. -The committee is also active in providing recommendations to the board.
Managing Director

-The Managing Director is responsible for implementing and monitoring the strategic action plans in a cost-effective and time-efficient manner. -He has day-to-day responsibilities and is informed of everything that goes on in the bank and is directly responsible to raise the profitability and profile of the bank and to ensure effective risk management is in place.

Audit, Risk & Compliance Committee

Audit

To receive and consider reports and recommendations from management and to make recommendations to the board in respect of the financial reporting, accounting policies, systems for internal control and both internal and external audit processes.
Risk

To assist the board in fulfilling its oversight responsibilities on risk management policies approved by the board in respect of the risks inherent in the businesses of the bank and the control processes with respect to such risks; the risk profile of the Bank and the risk management, compliance and control activities of the Bank.
Compliance

To monitor the compliance systems in place by which management discharges its regulatory and legal obligations in respect of the bank's business and to review compliance systems and procedures within the bank to monitor that there is appropriate disclosure to the board of areas of operating and nonfinancial risk.

The Sarbanes-Oxley Act-2002

Also known as the Public Company Accounting reform and

Investor Protection Act, SOX or Sarbox.

Provisions:- Creation of the Public Company Accounting Oversight Board(PCAOB) - Disclosure - Certification of Financial Reports by CEO and CFO. - Auditor Independence - Accelerated reporting of Insider Trading - Enhanced penalties for violations of securities law - Protection for Whistle Blowers

Explanation of Provisions
Public Company Accounting Oversight Board (PCAOB)Title I consists of nine sections and establishes the Public Company Accounting Oversight Board, to provide independent oversight of public accounting firms providing audit services ("auditors"). It also creates a central oversight board tasked with registering auditors, defining the specific processes and procedures for compliance audits, inspecting and policing conduct and quality control, and enforcing compliance with the specific mandates of SOX.

.contd
Auditor Independence Title II consists of nine

sections and establishes standards for external auditor independence, to limit conflicts of interest. It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting requirements. It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.

contd
Corporate Responsibility Title III consists of eight
sections and mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. For example, Section 302 requires that the company's "principal officers certify and approve the integrity of their company financial reports quarterly

contd
Enhanced Financial Disclosures Title IV consists of nine sections. It describes enhanced reporting requirements for financial transactions, including offbalance-sheet transactions, pro-forma figures and stock transactions of corporate officers. It requires internal controls for assuring the accuracy of financial reports and disclosures, and mandates both audits and reports on those controls. It also requires timely reporting of material changes in financial condition and specific enhanced reviews by the SEC or its agents of corporate reports.

contd
Analyst Conflicts of Interest Title V consists of only one

section, which includes measures designed to help restore investor confidence in the reporting of securities analysts. It defines the codes of conduct for securities analysts and requires disclosure of knowable conflicts of interest. Commission Resources and Authority Title VI consists of four sections and defines practices to restore investor confidence in securities analysts. It also defines the SEC's authority to censure or bar securities professionals from practice and defines conditions under which a person can be barred from practicing as a broker, advisor, or dealer.

contd
Studies and Reports: perform various studies and

report their findings. Corporate and Criminal Fraud Accountability Corporate Tax Returns Corporate Fraud Accountability

Section 302 of SOX

Periodic statutory financial reports to include certifications that:- The signing officers have reviewed the report - The reports does not contain any materially untrue statements or material omission - The financial statements and related information are fairly present - The signing officers are responsible for internal controls and have evaluated these internal controls

Section 401-Disclosures in Periodic Reports

Accurate Financial Statements Should include all material off balance sheet liabilities,

obligations and transactions.

Produce and Internal Control Report as a part of each

Annual Exchange Act Report

Must Contain an assessment of the fiscal year of the

company.

Information Technology and SOX

IT Controls, IT Audit and SOX
- Risk Assessment

- Control Environment
- Control Activities - Monitoring - Information and Communication

Criminal Penalties for altering documents

Penalties of fines and/or upto 20yrs imprisonment for

altering, destroying, mutilating, concealing, falsifying documents or tangible objects with the intention to obstruct, impede or influence a legal investigation.
Fines and/or imprisonment upto 10yrs on any accountant

who knowingly and wilfully violates the requirements of maintenance of all audit or review papers

Narayan Murthy Report

Constitution of the Committee Terms of Reference Approach

Key Issues Discussed and Recommendations

AUDIT COMMITTEES:- Review of information by Audit Committees

- Mandatory Recommendations
- Financial Literacy of Members of the Audit Committee - Non Mandatory Recommendations - Disclosure of Accounting Treatment

Key Issues Discussed and Recommendations

RISK MANAGEMENT
- Board Disclosures - Mandatory Recommendations

- Non Mandatory Recommendations

PROCEEDS FROM IPOs CODE OF CONDUCT - Written Code for Executive Management - Mandatory recommendations

Key Issues Discussed and Recommendations

NOMINEE DIRECTORS WHISTLE BLOWER POLICY SUBSIDIARY COMPANIES

Kumar Mangalam Birla Report

The Committee's terms of the reference were to:
- Suggest suitable amendments to the listing agreement executed by the

stock exchanges with the companies and any other 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;

- Draft a code of corporate best practices; and

- Suggest safeguards to be instituted within the companies to deal with insider information and insider trading.

Mandatory Recommendations
Applies To Listed Companies With Paid Up Capital Of Rs. 3

Crore And Above

Composition Of Board Of Directors Optimum Combination Of Executive & Non-Executive Directors Audit Committee With 3 Independent Directors With

One Having Financial And Accounting Knowledge.

Remuneration Committee

Mandatory Recommendations
Board Procedures Atleast 4 Meetings Of The Board In A Year With

Maximum Gap Of 4 Months Between 2 Meetings. To Review Operational Plans, Capital Budgets, Quarterly Results, Minutes Of Committee's Meeting.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
Management Discussion And Analysis Report Covering Industry

Structure, Opportunities, Threats, Risks, Outlook, Internal Control System

Information Sharing With Shareholders

Non-Mandatory Recommendations
Role Of Chairman Remuneration Committee Of Board Shareholders' Right For Receiving Half Yearly Financial

Performance Postal Ballot Covering Critical Matters Like Alteration In Memorandum Etc Sale Of Whole Or Substantial Part Of The Undertaking Corporate Restructuring Further Issue Of Capital Venturing Into New Businesses

Corporate Social Responsibility