SARBANES-OXLEY ACT

The Sarbanes–Oxley Act of 2000 also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley (R-OH).

The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation's securities markets.

The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the law. The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.

Sarbanes–Oxley contains 11 titles that describe specific mandates and requirements for financial reporting. Each title consists of several sections, summarized below.

1. Public Company Accounting Oversight Board (PCAOB)

2. Auditor Independence

3. Corporate Responsibility

4. Enhanced Financial Disclosures

5. Analyst Conflicts of Interest

6. Commission Resources and Authority

7. Studies and Reports

8. Corporate and Criminal Fraud Accountability

9. White Collar Crime Penalty Enhancement

10.Corporate Tax Returns

11.Corporate Fraud Accountability

Long-Term Benefits

Sarbanes Oxley Act provides a number of long term benefits. Investors' confidence is increased as SOX ensures reliable financial reporting. SOX has had a significant impact on corporate

governance, as companies are no longer able to manipulate inventories or stocks of products or sales as there is a real time reporting system in place. SOX requires a standard data entry system. SOX nurtures an ethical culture as it forces top management be transparent and employees to be responsible for their acts and also protects whistle blowers.

KUMAR MANGALAM BIRLA COMMITTEE

In early 1999, Securities and Exchange Board of India (SEBI) had set up a committee under Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the standards of good corporate governance. The report submitted by the committee is the first formal and comprehensive attempt to evolve a ‘Code of Corporate Governance', in the context of prevailing conditions of governance in Indian companies, as well as the state of capital markets.

The Committee's terms of the reference were to:

suggest suitable amendments to the listing agreement executed by the stock exchanges with the companies and any other measures to improve the standards of corporate governance in the listed companies, in areas such as continuous disclosure of material information, both financial and non-financial, manner and frequency of such disclosures, responsibilities of independent and outside directors;

draft a code of corporate best practices; and suggest safeguards to be instituted within the companies to deal with insider information

and insider trading.

The primary objective of the committee was to view corporate governance from the perspective of the investors and shareholders and to prepare a ‘Code' to suit the Indian corporate environment.

The committee had identified  the Shareholders, the Board of Directors  and  the Management  as the three key constituents of corporate governance and attempted to identify in respect of each of these constituents, their roles and responsibilities as also their rights in the context of good corporate governance.

Corporate governance has several claimants –shareholders and other stakeholders - which include suppliers, customers, creditors, and the bankers, the employees of the company, the government and the society at large. The Report had been prepared by the committee, keeping in view primarily the interests of a particular class of stakeholders, namely, the shareholders, who together with the investors form the principal constituency of SEBI while not ignoring the needs of other stakeholders.

NARAYAN MURTHY COMMITTEE REPORT

With the belief that the efforts to improve corporate governance standards in India must continue because these standards themselves were evolving in keeping with the market dynamics, the Securities and Exchange Board of India (SEBI) had constituted a Committee on Corporate Governance in 2002 , in order to evaluate the adequacy of existing corporate governance practices and further improve these practices. It was set up to review Clause 49, and suggest measures to improve corporate governance standards.

The SEBI Committee was constituted under the Chairmanship of Shri N. R. Narayana Murthy, Chairman and Chief Mentor of Infosys Technologies Limited. The Committee comprised members from various walks of public and professional life. This included captains of industry, academicians, public accountants and people from financial press and industry forums.

The terms of reference of the committee were to:

review the performance of corporate governance; and determine the role of companies in responding to rumour and other price sensitive

information circulating in the market, in order to enhance the transparency and integrity of the market.

The issues discussed by the committee primarily related to audit committees, audit reports, independent directors, related parties, risk management, directorships and director compensation, codes of conduct and financial disclosures.

The committee's recommendations in the final report were selected based on parameters including their relative importance, fairness, accountability, transparency, ease of implementation, verifiability and enforceability.

The key mandatory recommendations focused on:

strengthening the responsibilities of audit committees; improving the quality of financial disclosures, including those related to related party

transactions and proceeds from initial public offerings; requiring corporate executive boards to assess and disclose business risks in the annual

reports of companies; introducing responsibilities on boards to adopt formal codes of conduct; the position of

nominee directors; and stock holder approval and improved disclosures relating to compensation paid to non-

executive directors.

Non-mandatory recommendations included:

moving to a regime where corporate financial statements are not qualified; instituting a system of training of board members; and evaluation of performance of board members.

NARESH CHANDRA COMMITTEE REPORT

The Ministry of Corporate Affairs had appointed a high level committee in August 2002 to examine various corporate governance issues. The committee had been entrusted to analyse and recommend changes, if necessary, in diverse areas such as:

the statutory auditor-company relationship so as to further strengthen the professional nature of this interface;

the need, if any, for rotation of statutory audit firms or partners; the procedure for appointment of auditors and determination of audit fees; restrictions, if necessary, on non-audit fees; independence of auditing functions; measures required to ensure that the management and companies actually present 'true

and fair' statement of the financial affairs of companies; the need to consider measures such as certification of accounts and financial statements

by the management and directors; the necessity of having a transparent system of random scrutiny of audited accounts; adequacy of regulation of chartered accountants, company secretaries and other similar

statutory oversight functionaries; advantages, if any, of setting up an independent regulator similar to the Public Company

Accounting Oversight Board in the Sarbanes Oaxley Act (SOX Act), and if so, its constitution; and

role of independent directors, and how their independence and effectiveness can be ensured.

The Committee's recommendations relate to:

Disqualifications for audit assignments; List of prohibited non-audit services; Independence Standards for Consulting and Other Entities that are Affiliated to Audit

Firms; Compulsory Audit Partner Rotation; Auditor's disclosure of contingent liabilities; Auditor's disclosure of qualifications and consequent action; Management's certification in the event of auditor's replacement; Auditor's annual certification of independence; Appointment of auditors; Setting up of Independent Quality Review Board; Proposed disciplinary mechanism for auditors; Defining an independent director; Percentage of independent directors; Minimum board size of listed companies; Disclosure on duration of board meetings/committee meetings; Additional disclosure to directors; Independent directors on Audit Committees of listed companies; Audit Committee charter;

Remuneration of non-executive directors; Exempting non-executive directors from certain liabilities; Training of independent directors; SEBI and Subordinate Legislation; Corporate Serious Fraud Office; etc.

AMENDMENTS

On March 7 2011 the Israeli parliament enacted Amendment 16 to the Companies Act. Most provisions entered into effect 60 days after publication in the Official Gazette (ie, on May 15 2011); certain other provisions will enter into effect six months from such date.

LATEST AMENDMENTS ON CORPORATE GOVERNANCE

The amendment calls for approval by a majority of disinterested shareholders (previously one-third of shareholders could approve such transactions), or alternatively that no more than 2% of the total voting rights in such a company opposes the approval (previously 1%).

To include a provision that allows companies to amend their articles of association to include recommended corporate governance principles, relating, among other things, to: the composition of the board of directors to increase the presence of independent

directors; a prohibition on office holders serving as directors; holding meetings of the board without the presence of office holders (ie, the chief

executive officer and his or her subordinates); and permitting shareholders to vote via the Internet in order to influence increased public

participation in general meetings. Increase in the powers of the audit committee and its independence. Change in the majority required for the approval of extraordinary interested parties,

transactions by a general meeting of shareholders of a public company.

ROLE OF BOARD OF GOVERNORS

directs and controls the management of a company and is accountable to the shareholders.

It directs the company, by formulating and reviewing companies policies, strategies, major plan of action, risk policy, annual budgets and business plan, acquisition and change in financial control and compliance with applicable laws, taking into account the interests of stakeholders.

It controls the company and its management by laying down the code of conduct, overseeing the process of disclosure and communications ensuring that appropriate systems for financial control and reporting and monitoring risk are in place, evaluating the performance of management, chief executive, executive directors and providing checks and balances to reduce potential conflict between the specific interests of management and the wider interests of the company and shareholders including misuse of corporate assets and abuse in related party transactions.

It is accountable to the shareholders for creating, protecting and enhancing wealth and resources for the company, and reporting to them on the performance in a timely and transparent manner.

ROLE OF INDEPENDENT DIRECTORS

Independent directors broadly fit into the overall structure of corporate governance, and are necessary to ensure effective, balanced boards

The board is the most significant instrument of corporate governance Role Of Independent Directors

The non-executive directors should:

* Contribute to and constructively challenge development of company strategy.* Scrutinize management performance.* Satisfy them that financial information is accurate and ensure that robust risk management is in place.* Meet at least once a year without the chairman or executive directors - and there should be a statement in the annual report saying whether such meetings have taken place.* Be prepared to attend AGMs and discuss issues relating to their roles (especially chairmen of committees).* Have a greater exposure to major shareholders (particularly the senior independent director).

Effectiveness of the board as the oversight body to oversee what the management does Is there a better way to do it, in view of

– Recent scandals of disclosures and audits– Size and scope of present day enterprise– Complexity of operations

ROLE OF AUDIT COMMITTEE

1. Oversight of the company’s financial reporting process 2. Recommending to the Board, the appointment, re-appointment and, if required, the

replacement or removal of the statutory auditor and the fixation of audit fees.

3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors.

4. Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to:

5. a. Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (2AA) of section 217 of the Companies Act, 1956

6. Changes, if any, in accounting policies and practices and reasons for the same7. Major accounting entries involving estimates based on the exercise of judgment by

management8. Significant adjustments made in the financial statements arising out of audit findings

9. Compliance with listing and other legal requirements relating to financial statements10. Disclosure of any related party transaction11. Qualifications in the draft audit report12. Reviewing, with the management, the quarterly financial statements before submission

to the board for approval13. Reviewing, with the management, performance of statutory and internal auditors,

adequacy of the internal control systems14. Reviewing the adequacy of internal audit function, if any, including the structure of the

internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit

15. Discussion with internal auditors any significant findings and follow up there on16. Reviewing the findings of any internal investigations by the internal auditors into

matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.

17. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.

18. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors.

19. To review the functioning of the Whistle Blower mechanism, in case the same is existing.

20. Carrying out any other function as is mentioned in the terms of reference of the audit committee.

THE ROLE OF THE REMUNERATION COMMITTEE

determining and agreeing with the Board the remuneration policy for all the executive directors, the Chairman and the members of the CEC;

within the terms of the agreed policy, determining the total individual remuneration package for each executive director;

determining the level of awards made under the Company’s share option plans and long-term incentive plans and the performance conditions which are to apply;

determining bonuses payable under the Company’s cash bonus scheme; determining the vesting of awards under the Company’s long-term incentive plans and

exercise of share options; and determining the policy for pension arrangements, service agreements and termination

payments for executive directors.