CORPORATE

GOVERNANCE
 CORPORATE GOVERNANCE

 WHAT IS CORPORATE GOVERNANCE –

PROCESSES AND STRUCTURE BY WHICH BUSINESS AND
AFFAIRS OF CORPORATE SECTOR IS DIRECTED AND
MANAGED
 OBJECTIVE OF CORPORATE GOVERNANCE a) TO
BUILD UP AN ENVIRONMENT OF TRUST AND CONFIDENCE
AMONGST THOSE HAVING COMPETING AND CONFLICTING
INTEREST
b) TO ENHANCE SHAREHOLDERS’ VALUE AND PROTECT
THE INTEREST OF OTHER STAKEHOLDERS BY ENHANCING
THE CORPORATE PERFORMANCE AND ACCOUNTABILITY
 GLOBAL INITIATIVES TO IMPOSE
CORPORATE GOVERNANCE
 SIR ADRIAN CADBURY COMMITTEE – TO
ADDRESS THE ISSUES RELATED TO CORPORATE
GOVERNANCE IN UNITED KINGDOM
 CORPORATE GOVERNANCE REPORT OF SINGAPORE
GOVERNMENT
 SARBANES-OXLEY ACT, 2002 BY THE AMERICAN
CONGRESS WHICH CAME INTO EFFECT IN JULY 2002 – TO
ADDRESS ALL THE ISSUES ASSOCIATED WITH CORPORATE
FAILURES TO ACHIEVE QUALITY GOVERNANCE AND TO
RESTORE INVESTORS’ CONFIDENCE
 IMPLEMENTATION OF CORPORATE
GOVERNANCE IN INDIA
 SHRI KUMAR MANGALAM COMMITTEE –
CONSTITUTED IN MAY 1999 TO PROMOTE AND RAISE THE
STANDARD OF CORPORATE GOVERNANCE IN INDIA

MANDATORY RECOMMENDATIONS OF BIRLA

COMMITTEE:
 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.
 MANDATORY RECOMMENDATIONS
OF BIRLA COMMITTEE
 REMUNERATION COMMITTEE
 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
OF BIRLA COMMITTEE
 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
IMPLEMENTATION OF RECOMMENDATIONS

OF BIRLA COMMITTEE
 BY INTRODUCTION OF CLAUSE 49 IN THE LISTING AGREEMENT WITH
STOCK EXCHANGES
PROVISIONS OF CLAUSE 49
 COMPOSITION OF BOARD - IN CASE OF FULL TIME CHAIRMAN, 50%
NON-EXECUTIVE DIRECTORS AND 50% EXECUTIVE DIRECTORS
 CONSTITUTION OF AUDIT COMMITTEE – WITH 3 INDEPENDENT
DIRECTORS WITH CHAIRMAN HAVING SOUND FINANCIAL BACKGROUND.
FINANCE DIRECTOR AND INTERNAL AUDIT HEAD TO BE SPECIAL INVITEES
AND MINIMUM 3 MEETINGS TO BE CONVENED.
RESPONSIBLE FOR REVIEW OF FINANCIAL PERFORMANCE 0N HALF
YEARLY/ANNUALLY BASIS; APPOINTMENT/ REMOVAL/REMUNERATION OF
AUDITORS; REVIEW OF INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY
 CLAUSE 49 REQUIREMENTS

 REMUNERATION OF DIRECTORS – REMUNERATION OF NON-

EXECUTIVE DIRECTORS TO BE DECIDED BY THE BOARD. DETAILS
OF REMUNERATION PACKAGE, STOCK OPTIONS, PERFORMANCE
INCENTIVES OF DIRECTORS TO BE DISCLOSED
 BOARD PROCEDURES – ATLEAST 4 MEETINGS IN A YEAR. DIRECTOR
NOT TO BE MEMBER OF MORE THAN 10 COMMITTEES AND
CHAIRMAN OF MORE THAN 5 COMMITTEES ACROSS ALL COMPANIES
 MANAGEMENT DISCUSSION & ANALYSIS REPORT – SHOULD
INCLUDE:
 INDUSTRY STRUCTURE & DEVELOPMENTS
 OPPORTUNITIES & THREATS
 SEGMENT WISE OR PRODUCT WISE PERFORMANCE
 CLAUSE 49 REQUIREMENTS

 MANAGEMENT DISCUSSION & ANALYSIS REPORT – TO

INCLUDE:
 OUTLOOK
 RISKS & CONCERNS
 INTERNAL CONTROL SYSTEMS & ITS ADEQUACY
 DISCUSSION ON FINANCIAL PERFORMANCE
 DISCLOSURE BY DIRECTORS ON MATERIAL FINANCIAL AND
COMMERCIAL TRANSACTIONS WITH THE COMPANY
 SHAREHOLDERS INFORMATION - BRIEF RESUME OF NEW/RE-
APPOINTED DIRECTORS, QUARTERLY RESULTS TO BE SUBMITTED
TO STOCK EXCHANGES AND TO BE PLACED ON WEB-SITE,
PRESENTATION TO ANALYSTS
 CLAUSE 49 REQUIREMENTS

 SHAREHOLDERS’/INVESTORS GRIEVANCE
COMMITTEE UNDER THE CHAIRMANSHIP OF
INDEPENDENT DIRECTOR. MINIMUM 2
MEETINGS IN A YEAR
 REPORT ON CORPORATE GOVERNANCE AND
CERTIFICATE FROM AUDITORS ON
COMPLIANCE OF PROVISIONS OF
CORPORATE GOVERNANCE AS PER CLAUSE
49 IN THE LISTING AGREEMENT
 RECENT DEVELOPMENTS

 COMMITTEE HEADED BY SHRI NARESH CHANDRA CONSTITUTED

IN AUGUST 2002 TO EXAMINE CORPORATE AUDIT, ROLE OF
AUDITORS, RELATIONSHIP OF COMPANY & AUDITOR
 RECOMMENDATION OF NARESH CHANDRA COMMITTEE:
 RECOMMENDED A LIST OF DISQUALIFICATIONS FOR AUDIT
ASSIGNMENTS LIKE DIRECT RELATIONSHIP WITH COMPANY, ANY
BUSINESS RELATIONSHIP WITH CLIENT, PERSONAL RELATIONSHIP
WITH DIRECTOR
 AUDIT FIRMS NOT TO PROVIDE SERVICES SUCH AS ACCOUNTING,
INTERNAL AUDIT ASSIGNMENTS ETC. TO AUDIT CLIENTS
 AUDITOR TO DISCLOSE CONTINGENT LIABILITIES & HIGHLIGHT
SIGNIFICANT ACCOUNTING POLICIES
 RECENT DEVELOPMENTS

 RECOMMENDATION OF NARESH CHANDRA COMMITTEE:

 AUDIT COMMITTEE TO BE FIRST POINT OF REFERENCE FOR
APPOINTMENT OF AUDITORS\
 CEO & CFO OF LISTED COMPANY TO CERTIFY ON FAIRNESS,
CORRECTNESS OF ANNUAL AUDITED ACCOUNTS
 REDEFINITION OF INDEPENDENT DIRECTORS – DOES NOT HAVE ANY
MATERIAL, PECUNIARY RELATIONSHIP OR TRANSACTION WITH THE
COMPANY
 COMPOSITION OF BOARD OF DIRECTORS
 STATUTORY LIMIT ON THE SITTING FEE TO NON-EXECUTIVE
DIRECTORS TO BE REVIEWED
 RECOMMENDATIONS HAVE FORMED PART OF COMPANIES
(AMENDMENT) BILL, 2003 (YET TO BE PASSED)
 RECENT DEVELOPMENTS

 SEBI CONSTITUTED A COMMITTEE HEADED BY SHRI N. R.

NARAYANA MURTHY TO REVIEW EXISTING CODE OF CORPORATE
GOVERNANCE
 RECOMMENDATIONS:
 STRENGHTENING THE RESPONSIBILITIES OF AUDIT COMMITTEE
 IMPROVING QUALITY OF FINANCIAL DISCLOSURES
 UTILISATION OF PROCEEDS FROM IPO
 TO ASSESS & DISCLOSE BUSINESS RISKS
 FORMAL CODE OF CONDUCT FOR BOARD
 WHISTLE BLOWER POLICY TO BE PALCE IN A COMPANY PROVIDING
FREEDOM TO APPROACH THE AUDIT COMMITTEE
 SUBSIDIARIES TO BE REVIEWED BY AUDIT COMMITTEE OF HOLDING
COMPANY
 CORPORATE GOVERNANCE -
ULTIMATE OBJECTIVE

TO ATTAIN HIGHEST STANDARD OF

PROCEDURES AND PRACTICES FOLLOWED
BY THE CORPORATE WORLD SO AS TO
HAVE TRANSPARENCY IN ITS
FUNCTIONING WITH AN ULTIMATE AIM TO
MAXIMISE THE VALUE OF VARIOUS
STAKEHOLDERS.