Corporate Governance - PDF

CORPORATE GOVERNANCE - An Introduction 1  WHAT IS CORPORATE GOVERNANCE To understand that, we need to know what is “Governance” 2  GOVERNANCE = ETHICS Ethics as per Oxford Dictionary is...

CORPORATE GOVERNANCE - An Introduction 1  WHAT IS CORPORATE GOVERNANCE To understand that, we need to know what is “Governance” 2  GOVERNANCE = ETHICS Ethics as per Oxford Dictionary is “moral principles that govern a person’s behavior or the conducting of an activity” 3  WHY “CORPORATE GOVERNANCE”? To improve minority shareholder rights protection as well as firm’s transparency To ensure the management of the company runs the company in the best interest of all stakeholders especially shareholders 4  WHO ARE THESE “ETHICS” APPLICABLE TO? Listed Companies Why only listed companies? Why not other companies? 5  WHY WAS “CORPORATE GOVERNANCE” MANDATED SCAMS in Secondary market Pre Y2K scams: 1. Harshad Mehta scam – year 1992 2. NBFC Companies Scam- year 1995-1998 3. CRB Finance and Mutual Funds Scam of Year 1995-1997 4. Plantation’s Company scam- year 1997-1999 5. Vanishing Company’s Scam year 1995-1999 6. Name Changing Scam year 1999-2000 7. Dot Com. Company Scam year 1999 2000 8. US-64 Disaster “Gadbud” of year 1997-1998 9. Ketan parekh Scam year 1999 2001 10. UTI Fiasco “Gadbad” year 1994 2000 6 7  WHY WAS “CORPORATE GOVERNANCE” MANDATED Effects of CG: Transparency in working of the company Faith of Stake holders and share holders restored. 8  MANDATORY DISCLOSURE I. Board of Directors II. Audit Committee III. Subsidiary Companies IV. Disclosures V. CEO/CFO Certification VI. Report of Corporate Governance VII. Compliance 9  I. BOARD OF DIRECTORS Board of Directors Executive Non Executive Independent Non Independent 10  NON EXECUTIVE DIRECTOR Criteria to be an Independent Director No pecuniary material relationship with Company, Promoters, Directors, Senior Management, Holding, subsidiary or associate Company Is not a relative of any of the Directors Is/was not an employee of the company or was partner of audit firm or legal firm which has pecuniary interest in the past 3 years Is not a substantial shareholder, i.e. not more than 2% shareholding Is not less than 21 years old 11  BOARD OF DIRECTORS Strength of Board If Chairman is Non - Executive Director, then 1/3 of Directors should be Independent Directors. If Chairman is Executive Director, then ½ the Directors should be Independent Directors. If Chairman is Non - Executive promoter Director, then also ½ the Directors of the Board should be Independent Directors. 12  BOARD OF DIRECTORS Board Meeting Frequency: Four times a year Maximum gap of Four Months only No. of Directorships/Chairmanships: Member of not more than 10 Committees and cannot be Chairman of more than 5 committees Code of Conduct: Board shall draft a Code of Conduct and shall be applicable to all Board Members and Senior Management. It shall be posted on the Website of the Company. Information to be made available to the Board As per Annexure I A given to you. 13  II. AUDIT COMMITTEE A Sub Committee of the Board Members should be Financially Literate Chairman of Audit Committee to be Independent Company Secretary to be the Secretary to the Committee Audit Committee Meeting Frequency: Four times a year, with maximum gap of Four Months 14  POWERS AND ROLE OF AUDIT COMMITTEE Overview Financials Statements – Quarterly and Annual. Review performance of the company Appoint & re-appoint Statutory and Internal Auditors Approval of appointment of CFO 15  III. SUBSIDIARY COMPANIES “Material Non-Listed Indian Subsidiary” Atleast one independent director of Holding company to be in subsidiary company. Audit Committee of Holding company to review financials of Subsidiary company. Minutes of Subsidiary to be placed before Board of Holding Listed company. 16  IV. DISCLOSURES A. Basis of Related Party Transactions B. Disclosure of Accounting Treatment C. Board Disclosure – Risk Management D. Proceeds from Public, Rights, Preferential Issues E. Remuneration of Directors F. Management G. Shareholder 17  V. CEO/CFO CERTIFIC ATION CEO- Managing Director and CFO – Director/Head Finance shall submit a certificate to the Board on following: Reviewed financials statement and it contains no untrue or misleading statements. Financial Statements present true and fair view. They accept responsibility for establishing and maintaining Internal control for financial report and rectifying deficiencies, if any. 18  VI. REPORT ON CORPORATE GOVERNANCE Annual Report should contain a separate section on Corporate Governance with detailed compliance report. Quarterly Compliance certificate should be submitted to Stock Exchange. 19  VII. COMPLIANCE A Certificate from either the Auditor or a Practicing Company Secretary on compliance of conditions of corporate Governance should form part of Directors Report. 20  NON MANDATORY COMPLIANCE There are certain Non-mandatory provisions in this clause, which can be implemented at the discretion of the Company. 21