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Importance of / Need for Corporate Governance

It creates a corporate culture of transparency, accountability and disclosure; It enhances customer satisfaction, shareholder value and wealth; It prevents corporate frauds, scams and irregularities; It helps to attract, motivate and retain talent; It creates a secured and prosperous operating environment and improves operational performance;

It manages and mitigates risk of the company; It enhances the reputation of the company; It enhances investors trust; Easy finance from financial institutions; Better access to global market- good C/G systems attracts investment from global investors; It fulfills the expectations of Employees, Customers, Vendors, Creditors/lenders, Government &Society at large.

It helps the Board to take independent and objective decisions; It helps Board to sub serve the concerns of all stakeholders efficiently; It helps Board to adopt transparent procedures and practices; It ensures adequate disclosures and effective decision making;

It promotes sustainable and inclusive growth of the corporate sector; It helps the Board to effectively and regularly monitor the functioning of the management team; CG inculcates a strong culture of core values, ethics, integrity, reliability and fair dealings amongst corporations, etc.


Role and Powers of Board: Role and powers of the board should be clearly mentioned; Absence of clearly designated role and powers of board weakens accountability mechanism and hampers organizational goals; Clear identification of powers, role, responsibilities, and accountability of the board, CEO and the chairman of the board; Role of the board should be clearly documented in a board charter.

II. Legislation: Clear unambiguous legislation and regulations are fundamental to effective C/G. III. Management Environment: It includes Setting up of clear objectives and appropriate ethical framework; Providing for transparency and clear enunciation of responsibility and accountability;

Implementing sound business planning; Having right people with right skill for the jobs; Establishing performance evaluation measures; and Establishing clear boundaries for acceptable behavior.

IV. Board skills: Board must be able to undertake its functions efficiently and effectively; It must possess the necessary qualities, skills, knowledge and experience; It should have the following skills, knowledge and experience: -Operational or technical expertise; -Commitment to establish leadership; -Financial skills, legal skills and -Knowledge of government and regulatory requirement.

V. Board Composition: Size of the Board: -It should neither be too small nor too big; -It should strike a balance between executive and non-executive directors; Board membership criteria: -All directors should be individuals of integrity and courage, with relevant skills and experience;


Diversity in Board: -Diversity should be there in academic qualifications, technical expertise, relevant industry knowledge, experience, nationality, age and sex(i.e. gender diversity between men & women). VI. Board Committees: (To improve board effectiveness and efficiency)


Audit Committee; Shareholders/investors Relations Committee; Remuneration Committee; Nomination Committee; Corporate Governance Committee; Risk Management Committee; CSR Committee etc.


VII. Board Appointments Most competent people should be appointed in the Board; Appointment procedure must satisfy all statutory and administrative requirements; Letter of appointment, containing details of their duties and responsibilities, should be given to all new directors.


VIII. Board induction and training-Directors must have clear understanding of the area of operation of the companys business, corporate strategy and challenges being faced by the Board. -Directors should attend continuing education and professional development programme or any training programme in order to be up-to-date or familiar with new developments.


IX. Board independence: Independent Board is essential for sound corporate governance; This goal may be achieved by associating sufficient number of independent directors with the Board; It will ensure that the board is effective in supervising and where necessary, challenging the activities of management; The majority board members should be independent of both the management team and any commercial dealing with the company.

X. Board Meetings: -Directors should attend Board meetings regularly and prepare thoroughly before entering the Boardroom so that the quality of interaction is improved in the meeting; -The effectiveness of Board meetings depends on carefully planned agendas and providing relevant papers and materials to directors sufficiently prior to Board meetings.


XI. Code of conduct: -The company must communicate to all stakeholders prescribed norms of ethical practices and code of conduct and each members of the organization must follow that; -- A system should be there to periodically measure, evaluate and if possible recognize the adherence to code of conduct.


XII. Strategy Setting: --Objectives of the company must be clearly documented in a long-term corporate strategy including an annual business plan together with a measurable performance targets. XIII. Business and community obligations: The company must take care of communitys obligations besides the basic commercial activity; Both the commercial activities & communities


Obligations should be clearly documented after Boards approval; Stakeholders must be informed about the proposed and on going initiatives taken to meet the community obligations. XIV. Financial and operational reporting: The board needs comprehensive, regular, reliable, timely, correct and relevant information; The report should be available to Board members well in advance to allow informed decision making;

The reports and information provided by the management must be comprehensive but not so extensive and detailed as to hamper the comprehension of the key issue. XV. Monitoring the Board performance: The Board must monitor and evaluate its combined performance and also that of individual directors at periodic intervals, using key performance indicators besides peer review; The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.


XVI. Lead Independent Director: If the office of chairman of the Board and Chief Executive Officer are held by the same person, the Board should name a lead independent director to ensure a structure that provides an appropriate balance between the powers of the CEO and those of the independent directors.

The lead Independent Director serves as an important liaison between the Board and Independent Directors.

The independent director may chair the meetings of nonexecutive directors and of independent directors and preside over Board meetings in the absence of the chair.

XVII. Transparency & Disclosures: Disclosure should include, but not be limited to, material information on: The financial and operating results of the company; Company profile, Corporate Governance Report: -Governance structure and policies; -Ownership and shareholders rights including changes in control;

-Detailed information about the Board; -Risk Management Framework; -Existence of internal code of conduct and business ethics; -Particulars of Internal Auditors; -Commitment to external initiatives. Sustainability Report: i. Economic performance; ii. Environmental performance; iii. Social performance; iv. CSR Initiatives.


Innovation strategy/ Research & development; XVIII. Audit Committees: Audit Committee is, inter alia, responsible for liaison with the management& internal and statutory auditors, reviewing the adequacy of internal control and compliance with significant policies and procedures. XIX. Risk Management: There should be a clearly established process of identifying, analyzing and treating risks, which could prevent the company from effectively achieving its objectives.


The board has the ultimate responsibility for identifying major risks to the organization, setting acceptable levels of risk and ensuring that senior management takes steps to detect, monitor and control these risks. The board must satisfy itself that appropriate risk management systems and procedure are in place to identify and manage risks.


XX. Shareholders Rights: Good corporate governance must protect, inter alia, the following shareholders rights: Right to register ownership of shares; Right to transfer the ownership of shares; Right to obtain relevant and material information about the corporation on a timely and regular basis; Right to participate and cast vote in AGM of the shareholders; Right to elect and remove members of the board and Right to share in the profits of the corporation.


XXI. Ethics and integrity: --In good corporate governance, leadership must be responsible which calls for integrity, transparency and accountability. --Leadership must define strategy, provide direction and establish the ethics and values.