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CORPORATE GOVERNANCE IN

INDIAN PERSPECTIVE

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Meaning
Meaning of Corporate Governance can be split up as
follows:-

 Rights and equitable treatment of shareholders

 Interests of other stakeholders

 Role and responsibilities of the board PRINCIPLES

 Integrity and ethicalbehaviour

 Disclosure and transparency


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Definition

“Corporate Governance is the acceptance by management of


the inalienable rights of the shareholders as the true owners
of the corporation and of their own role as trustees on
behalf of the shareholders. It is about commitment to
values, about ethical business conduct and about making a
distinction between personal and corporate funds in the
Management of theCompany.”

By N. R. Narayana Murthy, Committee on


Corporate Governance(SEBI)

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Principles Players of Corporate
Governance
Board of Directors
Management
Banks and lenders

Customers

Shareholders
Employees Environment &
the community at large
Regulators
Suppliers

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Features of GoodCorporate
Governance

1. Clear Strategy 5. Accountability

2. Effective Risk 6. Transparency


Management

3. Discipline 7. Social Responsibility

4. Fairness 8. Self-Evaluation

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India’s Journey of Corporate
Governance
 Base of Governance- Kautilya’s Arthashstra
“In the happiness of the subject lies the benefit of the king, and
in what is beneficial to the subjects is his own benefit”.

 Scams-Harshad Mehta, Ketan Parekh , RamalingamRaju

 New Economic Policy of 1991(accountability factor)


Reforms in CorporateLaw.
Development of Codes & Best Practices.
Empowering &Developing Regulatory Authority.

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CORPORATE GOVERNANCE
COMMITTEES IN INDIA

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Confederation of IndianIndustries
Code (1997)

 National Task Force Chaired by RahulBajaj.

 Desirable Code of Corporate Governance

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Recommendations
1.No need for German style two-tiered board.

2.In case of listed company with turnover exceeding Rs.100 crores,


independent directorsshould consist of:-
30%if Chairman is non-executivedirector.
50%if Chairman & MD is thesame person.

3. No single person should hold directorships in more than 10 listed


companies.

4.Non-executive directors should be competent and active.

5.Commission not exceeding 1%(3%) of net profits for a company with (out) a
MD. 11
6. Attendance record of directors should be made explicit at the time of
reappointment; less than 50%no re-appointment.

7. Key information that must be reported to and placed before the board .

8. Listed companies with turnover over Rs. 100 crores or paid-up capital of Rs.
20 crores should have an auditcommittee.

9. Additional Shareholders’ Information of Listed Companies.

10. Compliance certificate signed by CEO& CFO.


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11. Credit Rating.

12. Companies that default on fixed deposits should not be permitted to:-

 accept further deposits and make inter-corporate loans or investmentsuntil


the default is made good;and
 declare dividends until the default is madegood.

13. Reduction in number of nominee directors. FIs should withdraw nominee


directors from companies with individual FI shareholding below 5%or total FI
holding below 10%.
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Kumar Mangalam Birla Committee
Report (2000)
 Set up by SEBI (for investors).

 Identified 3 major constituents: Shareholders,BOD &


Management.

3 key aspects: accountability,


transparency, and
equal treatment ofall stakeholders.

 Introduction of Clause 49.


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Recommendations

1.At least 50%non-executivemembers.

2.At least 1/2 of the board should be independent directors (executive


Chairman) ,else at least1/3.

3.Non-executive Chairman should have an office and be paid for job related
expenses.

4. Maximum of 10 directorships and 5 chairmanships per person.

5. Audit Committee:
Minimum 3 members, all non-executive.
Chairman should attend AGM.
Should meet at least thrice a year.
Act as bridge between Board, Sta15tutoryAuditors & Internal Auditors
6. Remuneration Committee (at least 3 directors, all
non-executive and be chaired by an independent director).

7. Disclosure of remuneration information in the AR.

8. Board Meetings
 4 board meetings a year with a maximum gap of 4 months
between any 2meetings.

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Naresh Chandra Committee Report
(2002)

High Level Committee appointed by MCA.

A pale shadow of SOX.

Also known as the “Committee on Corporate Audit and


Governance”.

Concentrated on 3 mainaspects:-
1.The auditor- company relationship.
2. Role of StatutoryAuditors.
3. Independent Directors-role, remuneration & training.
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Recommendations

1. Disqualifications of AuditAssignments.

2. List of Prohibited Non-Audit Services.

3. Compulsory Audit Partner Rotation.

4. Auditor’s disclosure ofContingent Liabilities.

5. Management’s certification in the event of auditor’s replacement.

6. Auditor’s annual certification ofindependence.


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7. CEOand CFOcertification of annual audited accounts.

8. Setting upIndependent Quality Review Board, QRB-(ICAI, ICSI, ICWAI)

9. Defining an Independent Director & their percentage.

10. Minimum Board Size of listed companies.

11. Training of independentdirectors.

12. Corporate Serious Fraud Office.


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N R Narayana MurthyCommittee
Report (2003)

2nd Committee constituted by SEBI.

To review theexisting corporate governance


practices and codes.

Committee consisted of members from various walks


of public and professional life.

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Recommendations
1. Training of boardmembers.

2. There shall be no nomineedirectors.

3. Non-Executive Director compensation to be fixed by Board of


Directors and approved by shareholders in the GM. Independent
directors should be treated the same way as non-executive directors.

4. The Board should be informed every quarter of business risk and risk
management strategies.

5. Boards of subsidiaries should follow similar composition rules as that


of parent and should have at least one independent directors of the
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parent company.
6. Proceeds from Initial Public Offerings (“IPO”)

7. Performance evaluation of non-executive directors should be done by a


peer group comprising the entire Board of Directors, excluding the
director being evaluated.

8. Code of conduct for Board members and Senior Management.

9. Whistle Blower Policy.

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GUESSWHO??...

SATYENDRADUBEY
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Naresh Chandra Committee Report
(2009)

 2nd National Task Force byCII.

 Satyam-Maytas Infra-Maytas Properties scams.

 Improvingcorporate governance standards and practices


both in letter and spirit.

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Recommendations

1. Nomination Committee.

2. Letter of Appointment to Directors.

3. Remuneration ofNEDs & Independent Directors.

4. Remuneration Committee.

5. Audit Committee.

6. Separation of Offices of Chairman & Chief Executive Officer

7. Board Meetings throughTele-conferencing


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8. Liability of Directors & Employees

9. Shareholder Activism

10. Media as a stakeholder

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