Unit 3 - Regulatory Framework of Corporate Governance PDF

MBM21C08: Corporate Governance and Ethics CENTRE FOR DISTANCE & ONLINE EDUCATION Study Material for MBM21C08: Corporate Governance and Ethics (Core Course) for the First Semester...

MBM21C08: Corporate Governance and Ethics CENTRE FOR DISTANCE & ONLINE EDUCATION Study Material for MBM21C08: Corporate Governance and Ethics (Core Course) for the First Semester Online MBA Programme Mahatma Gandhi University, Kerala January 2024 1 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics Unit 03- Regulatory Framework of Corporate Governance Course Outcomes: To gain knowledge about the various legal frameworks that govern corporate entities. To comprehend the significance of corporate laws, regulations, and compliance requirements. To understand the historical background and development of Clause 49. To learn the purpose and objectives of Clause 49 in promoting good corporate governance. To learn about the audit committee's responsibilities in overseeing financial reporting, internal controls, and risk management. To understand the principles and significance of standardizing corporate governance practices across different jurisdictions. To analyze the benefits and challenges associated with the harmonization of corporate governance standards. To learn the fundamental purpose of Corporate Governance Committees and their importance in promoting good governance practices. To gain a comprehensive understanding of the OECD Principles of Corporate Governance, including their history, evolution, and global significance. Unit Contents: 3.1 Legal aspects of CG – SEBI Act – Companies Act – Clause 49 of Listing Agreement. 3.2 Standardization of CG. 3.3 Corporate Governance Committees 3.4 OECD Principles 2 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 3.1. LEGAL ASPECTS OF CORPORATE GOVERNANCE Corporate governance involves managing and controlling business corporations. It encompasses procedures, customs, policies, laws, and institutions governing corporations. It aims to ensure optimal socio-economic existence within the macroeconomic environment. Legal aspects include ensuring the corporation's judicial personality and managing corporate conflicts. Corporate governance involves various stakeholders' interactions and the creation of models for stakeholder interaction. Entities responsible for corporate governance decisions ensure the corporation's legal personality. The general meeting serves as a governing body, representing collective interests. Executive bodies, like the board of directors, handle day-to-day management. Specialized committees address specific issues, ensuring accountability and transparency. Coordination among these bodies is crucial for effective corporate governance. Corporate governance unites key participants of legal relations and exercises corporate rulemaking. 3.1.1 SEBI ACT SEBI The Securities and Exchange Board of India (SEBI) Act, 1992, plays a crucial role in regulating corporate governance in India. While the Act primarily focuses on regulating securities markets, it also includes provisions related to corporate governance to ensure transparency, accountability, and fairness in the functioning of listed companies. 3.1.1.1 Legal Aspects of Corporate Governance covered under SEBI Act Here are some of the legal aspects of corporate governance covered under the SEBI Act: 1. Disclosure and Transparency: SEBI mandates listed companies to disclose accurate and timely information about their financial performance, ownership structure, corporate governance practices, related party transactions, and other material information to ensure transparency. These disclosures are usually made through periodic filings, such as quarterly and annual reports. 2. Board of Directors: SEBI imposes guidelines on the composition and functioning of the board of directors of listed companies. This includes stipulations regarding the independence of directors, board diversity, role clarity, and responsibilities of the board in decision-making and oversight. 3. Audit Committee: The SEBI Act requires listed companies to establish an audit committee comprising independent directors to oversee financial reporting, internal controls, audit processes, and compliance with regulatory requirements. 4. Code of Conduct: SEBI mandates listed companies to develop and enforce a code of conduct for directors, senior management personnel, and employees to promote ethical behavior, integrity, and professionalism in business operations. 3 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 5. Related Party Transactions (RPTs): SEBI regulates RPTs to prevent conflicts of interest and ensure fairness to minority shareholders. Listed companies are required to disclose all material RPTs and seek approval from shareholders or the board, as per SEBI regulations. 6. Corporate Social Responsibility (CSR): While not directly under the SEBI Act, SEBI has introduced regulations requiring listed companies to disclose their CSR policies and initiatives in their annual reports, promoting corporate responsibility towards society and the environment. 7. Whistleblower Mechanism: SEBI mandates listed companies to establish mechanisms for employees and stakeholders to report concerns about unethical behavior, fraud, or violations of laws and regulations without fear of retaliation. This encourages a culture of accountability and integrity within organizations. 8. Enforcement and Penalties: The SEBI Act empowers SEBI to investigate and take enforcement actions against violations of corporate governance norms. SEBI has the authority to impose fines, penalties, and other regulatory measures on companies and individuals found guilty of non-compliance. These legal aspects of corporate governance under the SEBI Act aim to enhance investor confidence, protect shareholder interests, and promote the long-term sustainability and growth of listed companies in India's securities markets. 3.1.2 Companies Act The Companies Act typically encompasses legal frameworks that regulate various aspects of corporate governance, ensuring transparency, accountability, and fairness within companies. 3.1.2.1 Legal Aspects of Corporate Governance Covered under Companies Act Here's a detailed breakdown: 1. Board Structure and Composition: The Companies Act often outlines requirements for the structure and composition of the board of directors. This includes specifications on the number of directors, their qualifications, independence criteria, and diversity considerations. 2. Director Duties and Responsibilities: The Act defines the duties and responsibilities of directors towards the company, shareholders, and other stakeholders. This includes fiduciary duties, duty of care, duty of loyalty, and duty to act in the best interests of the company. 4 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 3. Shareholder Rights and Protection: The Act provides mechanisms to protect the rights of shareholders, such as voting rights, right to information, and the right to participate in important corporate decisions. It also mandates disclosure requirements to ensure transparency. 4. Financial Reporting and Disclosure: Corporate governance regulations under the Act often require companies to prepare and disclose financial statements according to established accounting standards. This ensures transparency and enables stakeholders to assess the financial health of the company. 5. Ethical Standards and Conduct: Companies are typically required to adhere to ethical standards and conduct business in a responsible manner. This may include provisions related to conflicts of interest, bribery, corruption, and compliance with applicable laws and regulations. 6. Internal Controls and Risk Management: The Act may require companies to establish robust internal control systems and risk management processes to safeguard company assets, prevent fraud, and mitigate operational and financial risks. 7. Board Committees: Companies may be required to establish various board committees, such as audit committees, compensation committees, and nominating committees, to oversee specific aspects of corporate governance and enhance board effectiveness. 8. Enforcement and Penalties: The Companies Act typically includes provisions for enforcement mechanisms and penalties for non-compliance with corporate governance regulations. This may involve fines, sanctions, or legal action against companies or individuals who violate the law. 3.1.2.2 Benefits to the Company Compliance with these provisions regarding corporate governance provides several benefits to the company, which includes the following; Investors’ preference: Studies reveal that markets and investors prefer well managed companies to others, and respond positively to them Attracts talents: In today’s globalized world, corporations need to attract global pools of capital as well as attract and retain the best human capital from various parts of the world. Attracts long term capital: The credibility offered by good corporate governance procedures also helps to maintain the confidence of investors. 5 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics Co-operation of stakeholders: This is best assured if the corporation maintains fair and transparent procedures in all its transactions. Builds confidence among stakeholders.  Reduces risk 3.1.3 CLAUSE 49 OF LISTING AGREEMENTS As Clause 49 VII (1) of the Listing Agreement, a company is required to obtain a certificate either from the auditors of the company or practicing company secretaries as regards compliance of requirements of Corporate Governance. This certificate is required to be annexed with the Directors' Report, which is sent annually to all the shareholders of the company. Further, the same certificate is also required to be sent to the stock exchange (s) along with the Annual Report filed by the company. The requirements of revised Clause 49 (hereinafter referred as Clause 49) for Corporate Governance are divided into mandatory and non-mandatory requirements. Clause 49 is Guidance Note and this note is intended to provide guidance to auditors in certification of the compliance of requirements of Corporate Governance as stipulated in Clause 49 of the Listing Agreement between the Stock Exchange and the auditee company (hereinafter referred to as "Listing Agreement"): The SEBI Circular dated 29th October, 2004 is the Master Circular and has replaced all the earlier 3.1.3.1 CLAUSE 49 ON SHAREHOLDER RIGHTS Clause 49 gives shareholders right to: ❖ Participate in and be sufficiently informed on decisions concerning fundamental corporate changes. ❖ Vote in shareholder meetings. ❖ Ask questions to the Board and propose resolutions. ❖ Participate in nomination and election of Board members. ❖ Exercise their ownership rights. ❖ Put forward their grievances to the Company. ❖ Be protected from abusive actions in the interest of controlling shareholders. 6 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 3.1.3.2 CLAUSE 49 ON DISCLOSURE AND TRANSPARENCY ❖ The Company should ensure timely and accurate disclosure of information to its shareholders. ❖ The information should be prepared and disclosed in accordance with the prescribed standards and rules. ❖ Channels for dissemination of information should provide for equal, timely and cost- efficient access to relevant information by users. ❖ The company should maintain minutes of the meeting explicitly recording dissenting opinions. 3.1.3.3 CLAUSE 49 ON BOARD COMPOSITION The Board should have an optimum combination of Executive Directors (ED) and Non- Executive Directors (NED), satisfying the following criteria: ❖ If Chairman is an ED, at-least half of the Board should be Independent Directors (ID). ❖ If Chairman is a Promoter or related to a Promoter, at-least half of the Board should be IDs. ❖ If Chairman is related to anyone occupying management position at the Board level or one level below the Board, at-least half of the Board should be IDs. ❖ If the Chairman is an ID, at-least one-third of the Board should be IDs. ❖ If the Board doesn't half a regular non-executive Chairman, at-least half of the Board should be IDs. The board should have at-least one women director 7 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 3.1.3.4 CLAUSE 49 ON INDEPENDENT DIRECTORS Clause 49 defines an Independent Director as a Non-Executive Director who: ❖ Is NOT a Nominee Director ❖ Is/Was NOT a promoter/relative of the promoter of the Company or its holding, subsidiary, or associate company. ❖ Has/had NO pecuniary relationship (apart from directorial remuneration) with the Company, its holding, subsidiary, associate company or the promoters or directors during two immediately preceding financial years. ❖ Whose relatives DO NOT have/had any pecuniary relationship with the Company its holding, subsidiary, associate company or the promoters or directors, amounting to 2% or more of its total income or Rs. 50 lakhs during the two immediately preceding financial years. ❖ Who is/was NOT an employee of the Company its holding, subsidiary, associate company in the any of the three immediately preceding financial years. ❖ Is/has NOT been an employee/proprietor/partner of an audit /legal/consulting/any other firm which has transaction with the Company its holding, subsidiary, associate company, amounting to 10% or more of gross turnover of that firm, in any of three preceding financial years. ❖ Is NOT a CEO/Director of a non-profit firm that receives 25% or more of its receipts from the Company its holding, subsidiary, associate company, promoters or its directors, or holds 2% or more voting power of the Company. ❖ is NOT a material supplier, service provider or customer or a lessor or lessee of the company. ❖ Is NOT less than 21 years of age. 3.1.3.5 CLAUSE 49 ON OTHER BOARD PROVISIONS 8 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics ❖ Board meeting to be held at-least four times a year with a maximum gap of 120 days between two meetings. ❖ A director can't be a member in more than 10 committees (Audit and Stakeholders' Relationship) and Chairman of more than 5 committees across all the Boards of Indian listed companies. ❖ IDs who resign or are removed, are to be replaced with new IDs within 3 months or immediate next Board meeting, whichever is earlier, in case the requirement of IDs is not met. ❖ Board members have to affirm compliance with a 'Code of Conduct' on an annual basis. ❖ IDs to be held liable in acts of omission or commission, which occurs in their knowledge. ❖ Company has to mandatorily establish a whistle blower mechanism. 3.1.3.6 CLAUSE 49 ON BOARD COMMITTEES A. Clause 49 has the following provisions regarding Audit Committee: ❖ Members: At-least three members, two-thirds of which shall be IDs ❖ Chairman: Chairman to be an ID ❖ Attendance: Chairman of the Committee to be present in AGM ❖ Meeting: At-least four times a year and not more than four months gaps between meetings ❖ Quorum: Two or one-third of the members, whichever is greater, but minimum two IDs should be present ❖ Role: Role of the committee also includes reviewing and monitoring auditor independence, approval of related party transactions, inter-corporate loans, valuations, etc. B. Clause 49 has the following provisions regarding Nomination and Remuneration Committee: 9 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics ❖ Members: At-least three members, all non-executive directors and at-least half to be IDs ❖ Chairman: Chairman to be an ID C. Clause 49 has the following provisions regarding Risk Management ❖ The Company should form a Risk Management Committee ❖ The Board should be responsible for framing, implementing and monitoring the risk management plan. ❖ The company should lay down procedures to inform Board members about the risk assessment and minimization procedures. 3.1.3.7 CLAUSE 49 ON SUBSIDIARIES Clause 49 has the following provisions regarding subsidiary companies: ❖ At-least one ID of the company should be a director on the Board of a material non-listed Indian subsidiary. ❖ The audit committee should review financial statements of and investments made by the unlisted subsidiary. ❖ No company can dispose of shares in the material subsidiary, reducing its shareholding below 50%, without passing a special resolution in its general meeting. ❖ Selling, disposing or leasing of more than 20% of assets of the material subsidiary will require approval of shareholders by way of special resolution. 3.1.3.8 CLAUSE 49 ON RELATED PARTY TRANSACTIONS Clause 49 has tightened the provisions and disclosures requirements for related party transactions (RPT). Some of the requirements are: ❖ RPTs to require prior approval of the audit committee. ❖ Material RPTs to require shareholder approval though special resolution and concerned related parties to abstain from voting on such resolutions. ❖ Disclosure of all material RPTs on a quarterly basis with compliance report on corporate governance. ❖ Disclosure of policies on dealing with RPTs, in website and Annual Report. 10 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 3.1.3.9 CLAUSE 49 ON DIRECTORIAL REMUNERATION ❖ Disclosure of all pecuniary relationships of non-executive directors with the company. ❖ Disclosure of detailed information on remuneration to directors. ❖ Disclosure of criteria of making payments to non-executive directors. ❖ Disclosure of shares/other instruments held by non-executive directors. 3.1.3.10 CLAUSE 49 ON OTHER DISCLOSURES Clause 49 stipulates mandatory disclosure of many corporate actions. Some of these are: ❖ Directorial Resignation: Disclosure of letter of resignation of directors along with reasons, on the company website and stock exchange, within one working day of receipt of the letter. ❖ Letter of Appointment: Disclosure of letter of appointment of an ID along with detailed profile, on the company website and stock exchange, within one working day of date of appointment. ❖ Disclosure of training imparted to IDs, in the Annual Report. ❖ Disclosure of details of establishment of vigil mechanism, in company website and board’s report. ❖ Disclosure of the remuneration policy and the evaluation criteria in the Annual Report. NON-MANDATORY REQUIREMENTS OF CLAUSE 49 Most of the provisions in the new Clause 49 are mandatory in nature. However, there are some, which are non-mandatory and are left in the discretion of the companies to adhere. The non-mandatory requirements in the new Clause 49 are: ❖ ❖ The Board may appoint a non-executive Chairman who should be entitled to maintain a chairman’s office at the company's expense and also allowed reimbursement of expenses incurred in performance of his duties. 11 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics ❖ Disclosure of half-yearly financial performance including summary of the significant events. ❖ Moving towards a regime of unqualified financial statements. ❖ Appointment of separate individuals to the posts of Chairman and MD/CEO. ❖ Reporting of the internal auditor directly to the audit committee. 3.2 STANDARDIZATION OF CORPORATE GOVERNANCE The standardization of corporate governance refers to the process of establishing consistent principles, policies, and practices that guide the management and control of corporations. It involves creating a set of rules and guidelines that companies adhere to in order to ensure transparency, accountability, and integrity in their operations. Standardization in corporate governance is aimed at promoting best practices, reducing risks, and enhancing trust among stakeholders, including shareholders, employees, customers, and the public. 3.2.1 Key Components of Standardization in Corporate Governance Here are some key aspects of standardization in corporate governance: 1. Legal Frameworks: Governments and regulatory bodies often establish legal frameworks and regulations that set minimum standards for corporate governance. These laws may vary by country but often include requirements for board structure, shareholder rights, disclosure practices, and the responsibilities of directors and executives. 2. Codes of Best Practice: Many countries and regions have developed codes of best practice for corporate governance, often issued by industry associations, regulatory bodies, or stock exchanges. These codes offer guidance on governance practices that exceed legal requirements and are aimed at enhancing corporate performance and accountability. 3. International Standards: Organizations such as the International Organization for Standardization (ISO) and the Organisation for Economic Co-operation and Development (OECD) have developed international standards and guidelines for corporate governance. These standards provide a benchmark for companies operating globally and promote consistency in governance practices across borders. 4. Corporate Governance Principles: Various organizations, including shareholder advocacy groups, corporate governance experts, and consulting firms, have developed principles and guidelines for effective corporate governance. These principles cover areas such as board composition, executive compensation, risk management, and stakeholder engagement. 12 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 5. Reporting and Disclosure Requirements: Standardized reporting and disclosure requirements ensure that companies provide stakeholders with relevant information about their governance practices, financial performance, and risk management strategies. This transparency enables investors and other stakeholders to make informed decisions and hold companies accountable for their actions. 6. Board Independence and Oversight: Standardization often emphasizes the importance of board independence and oversight to prevent conflicts of interest and ensure that boards act in the best interests of shareholders. This may include requirements for the majority of board members to be independent and the establishment of board committees responsible for specific oversight functions. 7. Stakeholder Engagement: Effective corporate governance involves engaging with a wide range of stakeholders, including shareholders, employees, customers, suppliers, and the community. Standardization efforts often promote stakeholder engagement practices that enable companies to understand and address the interests and concerns of all relevant parties. 8. Ethical Conduct and Integrity: Standardization efforts often emphasize the importance of ethical conduct and integrity at all levels of an organization. This includes promoting a culture of honesty, fairness, and accountability, as well as establishing codes of conduct and ethics that guide employee behavior. Ethical considerations are integrated into governance frameworks to ensure that companies operate in a responsible and sustainable manner. 9. Risk Management: Standardized corporate governance practices incorporate robust risk management processes to identify, assess, and mitigate risks that could impact the achievement of corporate objectives. This involves establishing risk oversight mechanisms, implementing internal controls, and regularly monitoring and evaluating risks across the organization. Effective risk management helps companies navigate uncertainties and safeguard shareholder value. 10. Board Effectiveness: Standardization efforts focus on enhancing the effectiveness of corporate boards in fulfilling their oversight responsibilities. This may involve criteria for board composition, including diversity of skills, experience, and backgrounds, as well as guidelines for board evaluation and performance assessment. Standardized practices aim to ensure that boards operate efficiently, make informed decisions, and provide strategic guidance to management. 11. Executive Compensation: Standardized principles and guidelines address executive compensation practices to align them with company performance and shareholder interests. This includes establishing transparent and fair compensation structures, linking executive pay to key performance metrics, and disclosing compensation policies and practices to shareholders. Standardization helps mitigate concerns about excessive pay and ensures that executive remuneration is justified and in line with company performance. 13 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 12. Compliance and Accountability: Standardization efforts emphasize the importance of compliance with laws, regulations, and internal policies, as well as accountability for adherence to governance standards. This involves implementing mechanisms for internal controls, audits, and reporting to ensure compliance with legal and regulatory requirements. Companies are accountable to shareholders and other stakeholders for their governance practices and are expected to address deficiencies and improve performance over time. 13. Continuous Improvement: Standardization is not static but evolves over time to reflect changes in the business environment, regulatory landscape, and best practices in governance. Companies are encouraged to adopt a culture of continuous improvement, regularly reviewing and updating their governance frameworks to address emerging risks and opportunities. This includes staying abreast of developments in governance standards and guidelines and benchmarking against industry peers to identify areas for enhancement. 3.3 CORPORATE GOVERNANCE COMMITTEES Corporate governance committees are essential bodies within a company tasked with overseeing and guiding its governance practices. These committees typically consist of members of the company's board of directors and sometimes include external experts. Their primary objective is to ensure that the company operates in a transparent, ethical, and responsible manner while effectively managing risks and maximizing shareholder value. Here are some common committees found in corporate governance structures: 1. Audit Committee: This committee is responsible for overseeing financial reporting, internal controls, and risk management processes. It ensures the accuracy and integrity of financial statements and oversees the external audit process. 2. Nominating and Governance Committee: Also known as the nominating or corporate governance committee, this group is responsible for board composition, director nominations, and governance policies. It identifies and recommends candidates for board membership and ensures that the board operates effectively. 3. Compensation Committee: Also referred to as the remuneration committee, this committee designs executive compensation packages, including salaries, bonuses, and equity-based incentives. It ensures that executive pay is aligned with company performance and shareholder interests. 4. Risk Management Committee: This committee assesses and manages various risks faced by the company, including financial, operational, legal, and reputational risks. It develops risk management strategies and monitors risk mitigation efforts. 14 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 5. Corporate Social Responsibility (CSR) Committee: Responsible for overseeing the company's CSR policies and practices, this committee focuses on environmental sustainability, social impact, and ethical business practices. It ensures that the company operates responsibly and contributes positively to society. 6. Finance Committee: This committee provides oversight of financial matters beyond the scope of the audit committee. It may review capital allocation decisions, financial policies, investment strategies, and major financial transactions. 7. Strategy Committee: Also known as the strategic planning committee, this group assists the board in developing and reviewing the company's long-term strategic plans and major business decisions. It evaluates market trends, competitive dynamics, and growth opportunities. 8. Technology Committee: In companies heavily reliant on technology, this committee oversees technology-related strategies, investments, and risks. It ensures that the company leverages technology effectively to drive innovation and achieve its business objectives. Important Committees on Corporate Governance Here are some important corporate governance committees: ❖ Cadbury Committee ❖ King Committee ❖ Hampel Committee ❖ Turnbull Committee ❖ The Committee of Indian Institute of Corporate Governance (IICG) ❖ Kumar Mangalam Birla Committee ❖ Narayana Murthy Committee ❖ Sarbanes-Oxley Act (SOX) Committee These committees have played influential roles in shaping corporate governance practices in their respective regions, contributing to greater accountability, transparency, and investor confidence in the corporate sector. 3.3.1 CADBURY COMMITTEE Formed in the UK in 1991, the Cadbury Committee was established in response to corporate scandals that highlighted deficiencies in corporate governance practices. Its primary focus was on 15 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics improving corporate governance standards, transparency, and accountability in UK companies. The committee's landmark report, known as the Cadbury Report, issued in 1992, introduced a set of recommendations that became widely adopted and formed the basis for modern corporate governance codes in the UK. Key recommendations included the establishment of independent audit committees, the separation of the roles of chairman and CEO, and enhanced financial reporting and disclosure requirements. 3.3.2 KING COMMITTEE The King Committee on Corporate Governance was established in South Africa in 1992, inspired in part by the Cadbury Committee's work in the UK. It aimed to develop corporate governance principles and guidelines tailored to the South African context, particularly in the aftermath of apartheid. The King Committee produced several reports over the years, with its most influential work being the King Reports on Corporate Governance, which have gone through several iterations (King I, II, III, and IV). These reports introduced principles and recommendations for good corporate governance in South Africa, emphasizing ethical leadership, stakeholder inclusivity, and sustainability. 3.3.3 HAMPEL COMMITTEE Following the Cadbury Committee, the Hampel Committee was formed in the UK in 1995 to review and build upon the Cadbury recommendations. The committee's report, known as the Hampel Report, focused on refining corporate governance principles and practices, with an emphasis on the role of non-executive directors and internal controls. 3.3.4 TURNBULL COMMITTEE Established in the UK in 1998, the Turnbull Committee was tasked with developing guidance on internal controls and risk management. The committee's report, known as the Turnbull Report, provided guidance for directors on implementing effective internal control systems to manage risks and safeguard company assets. 3.3.5 THE COMMITTEE OF INDIAN INSTITUTE OF CORPORATE GOVERNANCE (IICG) Promotes and enhances corporate governance practices in India. Develops guidelines and best practices for companies. Conducts research and studies on governance issues. Provides training and education programs. Engages with policymakers and regulators for reforms. Collaborates with international organizations and experts. Reviews and enhances corporate governance codes and 16 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics regulations. Plays a pivotal role in fostering integrity, transparency, and accountability in Indian businesses. 3.3.6 KUMAR MANGALAM BIRLA COMMITTEE Formed by SEBI in 1999 to address corporate governance concerns in Indian companies. Chaired by Kumar Mangalam Birla, chairman of the Aditya Birla Group. Objective: Review existing corporate governance practices and recommend reforms. Recommendations included strengthening independent directors and audit committees, enhancing financial disclosures, and improving board effectiveness. Impact: Significant influence on corporate governance norms, incorporated into SEBI regulations. Legacy: Milestone in the evolution of corporate governance in India, laid the foundation for subsequent reforms. 3.3.7 NARAYANA MURTHY COMMITTEE Formation: Established by SEBI in 2002. Chairman: N. R. Narayana Murthy, co-founder of Infosys. Objective: Enhance corporate governance standards in Indian companies. -Recommendations: - Strengthen role of independent directors. - Enhance audit committee's oversight. - Improve disclosure standards. - Enhance board accountability and effectiveness. - Introduce measures against insider trading and for minority shareholder protection. - Impact: Recommendations led to significant reforms in corporate governance regulations. - Legacy: Contributed to greater transparency, accountability, and investor protection in Indian companies. 3.3.8 SARBANES-OXLEY ACT (SOX) COMMITTEE Enacted in the United States in 2002 in response to corporate accounting scandals such as Enron and WorldCom, the Sarbanes-Oxley Act introduced sweeping reforms to improve corporate governance, financial reporting, and audit practices. Key provisions of SOX include requirements for CEO and CFO certification of financial statements, the establishment of independent audit committees, and enhanced disclosure and internal control requirements. 3.4 OECD PRINCIPLES 17 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics The OECD (Organization for Economic Cooperation and Development) has established principles of corporate governance to provide guidance and standards for corporations and policymakers worldwide. The OECD Principles of Corporate Governance are a set of internationally recognized standards and guidelines that provide recommendations for the governance of corporations. These principles are designed to assist governments, regulators, and market participants in enhancing corporate governance practices in their respective jurisdictions. They serve as a reference point for policymakers, investors, companies, and other stakeholders, aiming to promote transparency, accountability, and fairness in corporate behavior. let's delve a bit deeper into each of the OECD Principles of Corporate Governance: 1. Ensuring the Basis for an Effective Corporate Governance Framework: This principle focuses on the importance of establishing a legal and regulatory framework that supports effective corporate governance practices. It highlights the need for clear laws and regulations, as well as enforcement mechanisms, to ensure that companies operate with integrity and accountability. 2. The Rights of Shareholders: Shareholders are fundamental to corporate governance as they provide capital and bear risks. This principle emphasizes protecting their rights, including the right to participate in key decisions, such as electing directors and approving significant transactions. It also promotes equitable treatment for all shareholders, regardless of their size or type of shareholding. 3. The Equitable Treatment of Shareholders: This principle underscores the importance of treating all shareholders fairly and equally. It discourages actions that unfairly favor certain shareholders over others, such as discriminatory voting rights or special privileges for certain classes of shares. 4. The Role of Stakeholders in Corporate Governance: While shareholders are vital, this principle recognizes that corporations have responsibilities to a broader set of stakeholders, including employees, creditors, customers, and communities. It advocates for engaging with these stakeholders and considering their interests in corporate decision-making. 5. Disclosure and Transparency: Transparency is essential for building trust and confidence among stakeholders. This principle emphasizes the timely and accurate disclosure of information regarding the company's financial performance, ownership structure, governance arrangements, and other relevant matters. It helps stakeholders make informed decisions and hold the company accountable. 6. The Responsibilities of the Board: The board of directors plays a crucial role in overseeing the company and protecting the interests of shareholders and stakeholders. This principle outlines the board's responsibilities, including setting the company's strategic direction, appointing and monitoring senior management, and ensuring effective risk management and internal controls. 7. Integrity and Ethical Behavior: Corporate integrity and ethical behavior are foundational to sustainable business success. This principle emphasizes the importance of promoting integrity and 18 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics ethical conduct throughout the organization, including compliance with laws and regulations, as well as adherence to ethical standards and values. 8. Responsibilities of Institutional Investors and Asset Managers: Institutional investors and asset managers have significant influence as shareholders. This principle encourages them to fulfill their fiduciary duties responsibly by actively engaging with the companies in which they invest, exercising their voting rights, and promoting good corporate governance practices. 9. The Role of Markets in Corporate Governance: Well-functioning capital markets are essential for promoting good corporate governance. This principle highlights the importance of transparent and efficient markets in providing accurate pricing information, facilitating capital allocation, and holding companies accountable for their performance and behavior. 10. Ensuring the Adequacy of Corporate Governance Structures and Practices: Corporate governance is not static; it requires ongoing evaluation and improvement. This principle emphasizes the need for companies to regularly assess their governance structures and practices to ensure they are effective in promoting long-term value creation and mitigating risks. These principles collectively provide a comprehensive framework for corporate governance, guiding companies, regulators, investors, and other stakeholders in promoting transparency, accountability, and integrity in corporate behavior. 3.5 SUMMARY & CONCLUSIONS  Legal aspects include ensuring the corporation's judicial personality and managing corporate conflicts. Corporate governance involves various stakeholders' interactions and creation of models for stakeholder interaction. Entities responsible for corporate governance decisions ensure the corporation's legal personality.  SEBI The Securities and Exchange Board of India (SEBI) Act, 1992, plays a crucial role in regulating corporate governance in India. While the Act primarily focuses on regulating securities markets, it also includes provisions related to corporate governance to ensure transparency, accountability, and fairness in the functioning of listed companies.  The Companies Act typically encompasses legal frameworks that regulate various aspects of corporate governance, ensuring transparency, accountability, and fairness within companies.  Clause 49 is Guidance Note and this note is intended to provide guidance to auditors in certification of the compliance of requirements of Corporate Governance as stipulated in Clause 49 of the Listing Agreement between the Stock Exchange and the auditee company (hereinafter referred to as "Listing Agreement"):  Standardization in corporate governance is aimed at promoting best practices, reducing risks, and enhancing trust among stakeholders, including shareholders, employees, customers, and the public.  Corporate governance committee’s primary objective is to ensure that the company operates in a transparent, ethical, and responsible manner while effectively managing risks 19 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics and maximizing shareholder value. These committees have played influential roles in shaping corporate governance practices in their respective regions, contributing to greater accountability, transparency, and investor confidence in the corporate sector.  OECD principles are designed to assist governments, regulators, and market participants in enhancing corporate governance practices in their respective jurisdictions. 3.5 MULTIPLE CHOICE QUESTIONS 1. The legal concept that prohibits insiders from profiting from material, non-public information is known as: a) Insider trading b) Market manipulation c) Fiduciary duty d) Corporate governance 2. In the context of corporate governance, what does "SOX" refer to? a) Securities Oversight Exchange b) Sarbanes-Oxley Act c) Securities Operations Exchange d) Securities Options Exchange 3. Which of the following is not typically considered a best practice for corporate governance? a) Separation of CEO and Chairman roles b) Regular financial audits by external auditors c) Dual-class share structures d) Independent board of directors 4. Which legal document outlines the rights and responsibilities of shareholders and the governance structure of a corporation? a) Articles of Incorporation b) Bylaws c) Shareholder agreement d) Proxy statement 5. Which legal principle holds that shareholders have the right to inspect certain corporate records and documents? a) Business judgment rule b) Duty of loyalty c) Duty of care d) Right of inspection 6. What is the primary purpose of the "audit committee" in corporate governance? a) Overseeing day-to-day operations of the company b) Reviewing and approving financial statements c) Setting executive compensation d) Managing shareholder relations 20 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 7. SEBI was established in: a) 1950 b) 1988 c) 1992 d) 2000 8. The primary objective of SEBI is to: a) Regulate the banking sector b) Ensure fair trading practices in securities markets c) Monitor foreign exchange rates d) Oversee agricultural commodities trading 9. Which of the following is NOT a function of SEBI in the context of corporate governance? a) Protecting the interests of investors in securities b) Regulating the issuance and trading of securities c) Enforcing accounting standards for companies d) Promoting the development of securities markets 10. SEBI has the authority to: a) Impose fines on companies for violating corporate social responsibility norms b) Investigate and take enforcement action against market manipulation and insider trading c) Set interest rates for corporate loans d) Approve mergers and acquisitions between companies 11. Which Act empowers SEBI to regulate and oversee the securities markets in India? a) Companies Act, 2013 b) Reserve Bank of India Act, 1934 c) SEBI Act, 1992 d) Income Tax Act, 1961 12. The latest Companies Act in India, which replaced the Companies Act of 1956, came into effect in which year? a) 2002 b) 2013 c) 2016 d) 2019 13. Which of the following is NOT a key feature of the Companies Act in India? a) Incorporation and regulation of companies b) Protection of minority shareholders' rights c) Regulation of corporate social responsibility (CSR) d) Regulation of foreign exchange markets 14. The Companies Act mandates that certain companies appoint independent directors. What is the minimum number of independent directors required for a listed public company? a) One-third of the total number of directors b) One-fifth of the total number of directors 21 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics c) At least two independent directors d) At least three independent directors 15. Under the Companies Act, which entity is responsible for maintaining a register of significant beneficial owners (SBOs) of a company? a) Registrar of Companies (ROC) b) Securities and Exchange Board of India (SEBI) c) Ministry of Corporate Affairs (MCA) d) Institute of Company Secretaries of India (ICSI) 16. What is the maximum penalty for non-compliance with the provisions of the Companies Act, as per the latest amendment? a) ₹1,00,000 b) ₹10,00,000 c) ₹25,00,000 d) ₹50,00,000 17. Which organization is responsible for developing and promoting international corporate governance standards? a) International Monetary Fund (IMF) b) World Bank c) Organisation for Economic Co-operation and Development (OECD) d) United Nations Development Programme (UNDP) 18. Which of the following is NOT a commonly recognized corporate governance code? a) Sarbanes-Oxley Act (SOX) b) UK Corporate Governance Code (UKCGC) c) King IV Report on Corporate Governance (King IV) d) Principles of Corporate Governance by the International Finance Corporation (IFC) 19. The principles of corporate governance typically address issues related to: a) Financial reporting and disclosure b) Shareholder rights and equitable treatment c) Board structure and responsibilities d) All of the above 20. Corporate governance codes often recommend the establishment of which board committee to oversee financial reporting and internal controls? a) Compensation Committee b) Nominating and Governance Committee c) Audit Committee d) Risk Management Committee 21. The adoption of standardized corporate governance practices aims to: a) Increase transparency and accountability b) Reduce regulatory compliance costs c) Enhance investor confidence d) All of the above 22 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 22. Which of the following is NOT a typical function of a corporate governance committee? a) Overseeing compliance with legal and regulatory requirements b) Setting executive compensation c) Evaluating the performance of the board of directors d) Reviewing financial statements 23. The primary responsibility of a nominating and governance committee is to: a) Develop strategies for business growth b) Assess the performance of individual board members c) Identify and nominate candidates for the board of directors d) Determine executive compensation packages 24. Which committee is responsible for reviewing and recommending changes to the company's corporate governance policies and practices? a) Audit committee b) Compensation committee c) Nominating and governance committee d) Risk management committee 25. The term "audit committee" primarily refers to a committee responsible for: a) Overseeing the internal audit function b) Conducting financial audits of the company's records c) Evaluating the performance of the CEO d) Ensuring compliance with environmental regulations 26. The primary function of a compensation committee is to: a) Monitor the company's financial performance b) Set the salaries and bonuses of top executives c) Review the company's marketing strategies d) Evaluate the effectiveness of the company's IT systems 27. Which of the following is typically NOT a requirement for serving on a corporate governance committee? a) Being a member of the board of directors b) Having expertise in corporate law or governance c) Being a shareholder in the company d) Demonstrating a commitment to ethical behavior 28. The primary purpose of an ethics and compliance committee is to: a) Ensure the company's compliance with labor laws b) Review and enforce the company's code of conduct c) Set guidelines for product development d) Assess the company's marketing strategies 29. Which committee is responsible for overseeing and managing risks associated with the company's operations? a) Audit committee 23 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics b) Risk management committee c) Compensation committee d) Nominating and governance committee 30. The term "board diversity committee" primarily refers to a committee focused on: a) Ensuring diversity and inclusion within the company's workforce b) Reviewing the financial statements of the company c) Assessing the environmental impact of the company's operations d) Evaluating the performance of the board of directors 31. The primary role of a corporate governance committee is to: a) Ensure compliance with labor laws b) Oversee the company's day-to-day operations c) Enhance transparency and accountability in corporate decision-making d) Set marketing strategies for the company's products 32. What does Clause 49 of the listing agreement primarily focus on? a) Financial reporting standards b) Corporate social responsibility initiatives c) Corporate governance practices d) Marketing strategies 33. Which of the following is a key requirement of Clause 49 regarding the composition of the board of directors? a) All directors must be from the same industry background b) At least half of the board must consist of independent directors c) The CEO must also serve as the Chairman of the board d) There are no specific requirements for board composition 34. According to Clause 49, how often should the board of directors meet? a) Quarterly b) Annually c) At least once every six months d) There are no specific meeting requirements 35. What is the primary purpose of Clause 49's requirement for the establishment of an audit committee? a) To oversee the company's marketing strategies b) To monitor compliance with labor laws c) To review and oversee financial reporting processes d) To set executive compensation packages 36. Which of the following statements regarding Clause 49 is true? a) It only applies to privately held companies b) It is optional for companies listed on stock exchanges c) It aims to enhance transparency and accountability in corporate governance d) It primarily focuses on environmental sustainability practices 24 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 37. What does OECD stand for in the context of corporate governance? a) Organization for Economic Cooperation and Development b) Open Economy Development Committee c) Operational Efficiency and Development Council d) Organization for Ethical Conduct and Development 38. When were the OECD Principles of Corporate Governance first published? a) 1999 b) 2003 c) 2008 d) 2015 39. What is the primary objective of the OECD Principles of Corporate Governance? a) To promote corporate tax evasion b) To enhance corporate transparency and accountability c) To encourage monopolistic practices d) To limit shareholder rights 40. How many principles are outlined in the OECD Principles of Corporate Governance? a) 7 b) 10 c) 15 d) 20 41. According to the OECD Principles, what is the role of the board of directors? a) To maximize shareholder profits at any cost b) To minimize employee benefits c) To provide strategic guidance and oversight d) To ignore environmental concerns 42. Which principle of the OECD focuses on the equitable treatment of shareholders? a) Principle IV b) Principle VI c) Principle VIII d) Principle X 43. According to the OECD Principles, what is the responsibility of institutional investors? a) To engage in insider trading b) To avoid voting on corporate matters c) To promote good corporate governance practices d) To manipulate stock prices 44. What is the significance of Principle VII of the OECD Principles? a) It emphasizes the importance of corporate philanthropy b) It stresses the need for effective risk management c) It highlights the role of the audit committee d) It focuses on the disclosure and transparency of related-party transactions 25 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 45. According to the OECD Principles, what should be the role of stakeholders in corporate governance? a) They should have no involvement in corporate decision-making b) They should hold absolute power over corporate boards c) They should be consulted and their rights respected d) They should be excluded from annual general meetings 46. According to the OECD Principles, what should be the role of stakeholders in corporate governance? a) They should have no involvement in corporate decision-making b) They should hold absolute power over corporate boards c) They should be consulted and their rights respected d) They should be excluded from annual general meetings 47. The Kumar Mangalam Birla Committee was primarily established to address which of the following aspects in the corporate sector? A) Financial Auditing B) Corporate Governance C) Market Regulation D) Tax Reforms 48. One of the key recommendations of the Kumar Mangalam Birla Committee was related to the composition of the board of directors. According to the committee, what proportion of the board should consist of independent directors for companies with an executive chairman? A) One-fourth B) One-third C) Half D) Two-thirds 49. The Turnbull Committee, established in the late 1990s, focused primarily on which area of corporate practice? A) Financial Reporting B) Risk Management and Internal Control C) Corporate Governance Ethics D) Shareholder Rights 50. According to the Turnbull Report, which of the following is a key principle for effective internal control systems within an organization? A) Strict adherence to all financial regulations B) Segregation of duties among different departments C) Regular review and monitoring of control systems D) Implementation of a centralized decision-making process ANSWERS: 1. a) Insider trading 2. b) Sarbanes-Oxley Act 26 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 3. c) Dual-class share structures 4. a) Articles of Incorporation 5. d) Right of inspection 6. b) Reviewing and approving financial statements 7. c) 1992 8. b) Ensure fair trading practices in securities markets 9. c) Enforcing accounting standards for companies 10.b) Investigate and take enforcement action against market manipulation and insider trading 11. c) SEBI Act, 1992 12. b) 2013 13. d) Regulation of foreign exchange markets 14. d) At least three independent directors 15. c) Ministry of Corporate Affairs (MCA) 16. c) ₹25,00,000 17. c) Organisation for Economic Co-operation and Development (OECD) 18. a) Sarbanes-Oxley Act (SOX) 19. d) All of the above 20. c) Audit Committee 21. d) All of the above 22. b) Setting executive compensation 23. c) Identify and nominate candidates for the board of directors 24. c) Nominating and governance committee 25. a) Overseeing the internal audit function 26. b) Set the salaries and bonuses of top executives 27. c) Being a shareholder in the company 28. b) Review and enforce the company's code of conduct 29. b) Risk management committee 30. a) Ensuring diversity and inclusion within the company's workforce 31. c) Enhance transparency and accountability in corporate decision-making 32. c) Corporate governance practices 33. b) At least half of the board must consist of independent directors 34. c) At least once every six months 27 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 35. c) To review and oversee financial reporting processes 36. c) It aims to enhance transparency and accountability in corporate governance 37. a) Organization for Economic Cooperation and Development 38. a) 1999 39. b) To enhance corporate transparency and accountability 40. b) 10 41. c) To provide strategic guidance and oversight 42. a) Principle IV 43. c) To promote good corporate governance practices 44. d) It focuses on the disclosure and transparency of related-party transactions 45. c) They should be consulted and their rights respected 46. d) Maximization of short-term profits 47. b) Corporate Governance 48. c) Half 49. b) Risk Management and Internal Control 50. C) Regular review and monitoring of control systems 3.6 THOUGHT PROVOKING QUESTIONS 1. What are the key legal frameworks and regulations governing corporate regulations in your country? 4 How do the legal responsibilities of a company’s board of directors influence corporate governance practices 5 Can you provide an example of a legal case where corporate governance failures led to significant penalties or legal action? What lessons can be learned from this case? 6 Analyse the impact of the Sarbanes-Oxley Act on corporate governance practices in publicly traded companies. What are the strength and weaknesses of this legislation? 7 How could emerging technologies like blockchain or artificial intelligence, be integrated into the legal framework of corporate governance to enhance transparency and accountability? 8 Assess the effectiveness of current corporate governance regulations. Do they sufficiently prevent corporate misconduct, or are there areas where the legal framework could be improved? 9 What are the main differences between corporate governance laws in two different jurisdictions (e.g., United States vs. European Union)? How might these differences influence corporate behaviour? 10 Propose a new legal framework or regulation that could enhance corporate governance practices. How would your proposed changes address current shortcomings in the legal aspects of corporate governance? 28 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 11 How do standardized corporate governance frameworks help in harmonizing governance practices across different countries and industries? 12 Can you provide an example of a multinational corporation that successfully implements standardized corporate governance practices? What strategies did they use to adapt these standards across various regions? 13 What are the challenges and benefits of adopting a standardized approach to corporate governance in multinational corporations? How do these challenges differ between developed and developing countries? 14 Critically evaluate the effectiveness of a specific standardized corporate governance framework, such as the OECD Principles of Corporate Governance. How well does it address the unique governance needs of diverse corporate environments? 15 Design a new initiative or set of guidelines that could improve the standardization of corporate governance practices globally. How would your initiative address current gaps and enhance the effectiveness of corporate governance? 16 What are the primary types of corporate governance committees typically found in large corporations? 17 How do the roles and responsibilities of different corporate governance committees (e.g., audit committee, remuneration committee) contribute to overall corporate governance? 18 How would you implement an effective audit committee in a corporation that currently lacks one? What steps would you take to ensure its success? 19 Compare and contrast the functions and importance of the audit committee and the remuneration committee. How do their activities intersect and impact corporate governance? 20 Evaluate the effectiveness of a specific corporate governance committee within a well-known corporation. What metrics or criteria would you use to assess its performance? 21 Design a new type of governance committee that addresses an emerging issue in corporate governance (e.g., digital transformation, sustainability). What would be its mandate, and how would it fit into the existing corporate governance structure? 22 How did the recommendations of the Cadbury Committee and the King Committee influence corporate governance practices in their respective regions, and what are the key similarities and differences between their guidelines? 23 Assess the long-term impact of the Cadbury Report and King Reports on global corporate governance standards. To what extent have these reports shaped the development of subsequent governance frameworks and policies worldwide? 24 How do the OECD Principles of Corporate Governance provide a framework for evaluating corporate governance practices across different countries, and what are the core components of these principles? 25 Critically evaluate the effectiveness of the OECD Principles of Corporate Governance in promoting transparency and accountability in both developed and developing economies. What are the strengths and potential weaknesses of these principles in addressing global governance challenges? 26 How does the SEBI Act regulate corporate governance practices in India, and what are the primary objectives and provisions of this act? 29 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics 27 Evaluate the impact of the SEBI Act on improving corporate governance standards in India. How effective has the act been in ensuring transparency, accountability, and protection of shareholder interests? 28 How does the Companies Act provide a framework for corporate governance in your country, and what are the key provisions that influence the roles and responsibilities of directors and officers? 29 Assess the effectiveness of the Companies Act in enhancing corporate governance standards. What are its major strengths and weaknesses in promoting ethical business practices and protecting stakeholder interests? 30 What are the responsibilities of board according to the OECD Principles? 31 Some boards include corporate risk assessment in the mandate of the board audit committee. Why might this have limitations? 32 How does a related-party transaction affect a director? 3.8 CASE STUDY/CASELETS/APPLICATION QUESTIONS 1. ABC Corporation, a multinational company, has recently faced several governance- related challenges, including financial discrepancies, lack of transparency in executive remuneration, and stakeholder dissatisfaction. The board of directors has decided to overhaul its corporate governance structure and establish new governance committees to address these issues. a) As a newly appointed governance consultant, how would you design and implement three key corporate governance committees (Audit Committee, Remuneration Committee, and Nomination Committee) to enhance ABC Corporation's governance practices? b) Describe the specific roles, responsibilities, and best practices for each committee. c) Explain how these committees can work together to ensure effective oversight and accountability within the organization. 2. XYZ Corporation, a publicly traded company, is facing allegations of significant legal violations including insider trading, fraudulent financial reporting, and failure to adhere to mandatory disclosure requirements. The Securities and Exchange Commission (SEC) has launched an investigation, and the company's reputation is at stake. Several board members and top executives are implicated in the scandal. a) What specific legal provisions and regulations under corporate governance law might XYZ Corporation have violated? Provide a detailed analysis of the potential legal breaches involved in this scenario. 30 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics b) Discuss the legal responsibilities of the board of directors in preventing such violations. What steps should the board have taken to ensure compliance with legal standards and avoid conflicts of interest? c) As the new Chief Compliance Officer, outline a comprehensive plan to address the legal violations and restore the company's compliance with corporate governance laws. Include steps for conducting internal investigations, revising policies, and enhancing transparency. d) How should XYZ Corporation communicate with its stakeholders, including shareholders, employees, and regulatory bodies, about the ongoing investigation and steps being taken to rectify the situation? Provide a communication strategy that emphasizes legal and ethical considerations. e) Propose long-term governance reforms to prevent future legal violations and strengthen XYZ Corporation's corporate governance framework. What legal and structural changes would you recommend to ensure robust oversight and accountability? 3. Global Tech Inc., a multinational technology company, is expanding its operations into several emerging markets. The company's board of directors recognizes the need to align their corporate governance practices with international standards to attract global investors and ensure sustainable growth. They decide to adopt the OECD Principles of Corporate Governance as a framework for enhancing their governance practices. a) Evaluate Global Tech Inc.'s existing corporate governance practices. Identify key areas where the company's current governance framework aligns with or diverges from the OECD Principles. b) Develop a detailed plan for integrating the OECD Principles into GlobalTech Inc.'s governance structure. c) How should Global Tech Inc. restructure its board to meet the OECD Principles? Discuss the importance of board diversity, independence, and the roles of key committees (audit, remuneration, nomination) in this context. d) According to the OECD Principles, effective stakeholder engagement is crucial. Propose strategies for Global Tech Inc. to enhance communication and transparency with its shareholders, employees, customers, and other stakeholders. e) Design a system for monitoring and evaluating the effectiveness of the new corporate governance practices. What metrics and processes should be in place to ensure continuous improvement and compliance with the OECD Principles? f) Identify potential challenges GlobalTech Inc. might face in implementing the OECD Principles, particularly in the context of emerging markets. Suggest practical solutions to address these challenges while maintaining high standards of corporate governance. 3.9 References 31 | Page Online MBA,Mahatma Gandhi University, Kerala MBM21C08: Corporate Governance and Ethics  Tricker , B (2015)., Corporate Governance: Principles, policies and practices (3 rd international ed.). Oxford University Press.  Abdullah, H., & Valentine, B (2009). Fundamental and ethics theories of corporate governance, Middle Eastern Finance and Economics  SK Bhatia, Business Ethics and Corporate Governance, Deep and Deep  SK Mandal, Ethics in Business Corporate Governance, Tata Mc Graw Hill  CVS Murthy, Business Ethics and Corporate Governance, Himalaya  Khanka SS, Business Ethics and Corporate Governance, S chand  Mrabure, K.O., & Abhulimhen-Iyoha, A. (2020), Corporate Governance and Protection of stakeholders’ rights and interests, Beijing Law Review  Jalwani, D.R., Bhura, P.K., & Jha, A.K. (2022), Corporate Governance Framework in India: An overview, Asian journal of management and commerce, 3(2), 102-10  https://www.gktoday.in/corporate-governance-clause-49-and-companies-act-2013- provisions/  https://hal.science/hal-02615039  https://advokat-prnjavorac.com/legislation/Standards-of-Corporate-Governance.pdf  https://www.oecd.org/corporate/principles-corporate- governance/https://www.drishtiias.com/to-the-points/paper4/corporate-governance-1  https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams- study-resources/f1/technical-articles/corpgovernance.html 32 | Page Online MBA,Mahatma Gandhi University, Kerala