changes applied through corporate governance

8/2/2019 Changes Applied Through Corporate Governance

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Changes Made Through Corporate

Governance


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Whistle-blower Procedures

Applies to the actions of any company

member who exposes a perceived wrongdoing

that is occurring within the organization.


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Origin of the term whistleblower

From the practice of English bobbies who

would blow their whistle when they noticed

the commission of a crime.

The blowing of the whistle would alert both

law enforcement officers and the general

public of danger.

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Famous whistleblowers

Cynthia Coopers

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An internal auditor and consultant who is best

known for being the whistleblower who exposed

massive accounting fraud at WorldCom in 2002.

A native of Clinton, Mississippi, Cooper workedas the Vice President of Internal Audit at

WorldCom (telecom co.).

After conducting a thorough investigation in secret, she

informed the audit committee of WorldCom's boardthat the company had covered up $3.8 billion in lossesthrough phony (false) bookkeeping.

At the time, this was the largest incident of accounting

fraud in U.S. history.


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Satyendra Kumar Dubey

Project director at the National Highways

Authority of India (NHAI).

Accused employer in letter to the then Prime

Minister Atal Behari Vajpayee.

Was assassinated in Gaya, Bihar.

For fighting corruption in the GoldenQuadrilateral (Delhi, Mumbai, Chennai and

Kolkata highway) construction project.

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Do you believe Whistle Blowing is more

effective in U.S.A. than in India?


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Importance

Two types of impressions : brave people and

traitors to their company or colleagues.

Whistle blowers need protection.


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Example

Kopchinski blew the whistle on Pfizers

marketing activity and received $51.1 million

of the penalty that Pfizer paid for illegally

marketing some of its drugs.

Four other whistleblowers received some of

the award as well, but Kopchinski earned the

largest piece of the pie for his role.


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Prepare a role-play on Whistle Blowing in a

team.


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Protecting the Rights of Whistle-

blowers

The rights of whistle-blowers within a

company publicly traded on a U.S. market are

protected by the Sarbanes-Oxley (SOX) Act.

Provides protection by offering specific

penalties that may be implemented should

whistle-blowers suffer from retribution/

vengeance.


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Establishing Policies

SOX requires that corporations establish their

own internal policies and procedures.

Facilitate whistle-blowing activities and

prevent unfair retribution.

The inclusion of privacy provisions, processes

for reporting, strategies for investigating

reports, and, in some cases, the establishment

of a compliance officer or committee.


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Duties of the Whistle-blower

Expected to move through appropriate

channels within their company before going

public with their concerns.

Conduct themselves with a strong sense of

honesty and integrity.

Allegations should be based on evidence.


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Educating Employees

Company members must be informed and

educated about the rights and duties

of whistle-blowers.

An employee education program could

include the publishing of a formal written

code and ethics workshops that discuss

whistle-blowing.


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Code of Ethics

An ethics code is valuable because it removes

the question of whether an action is tolerable

to the corporation or not.

Reduces the ambiguity that can arise from

unclear and unwritten guidelines.


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Compensation Packages

The overpaid Chief Executive Officer

Corporations benefit from high CEO salaries

because those salaries allow them to recruit

the best prospects.


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Corporate Governance in India

Unlike South-East and East Asia, the corporategovernance initiative in India was nottriggered by any serious nationwide financial,banking and economic collapse.

The initiative in India was initially driven by anindustry association, the Confederation ofIndian Industry


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In December 1995, CII set up a task force to design avoluntary code of corporate governance

The final draft of this code was widely circulated in1997

In April 1998, the code was released. It was calledDesirable Corporate Governance: A Code

Between 1998 and 2000, over 25 leading companies

voluntarily followed the code: Bajaj Auto, Hindalco,Infosys, Dr. Reddys Laboratories, Nicholas Piramal,Bharat Forge, BSES, HDFC, ICICI and many others


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Following CIIs initiative, the Securities andExchange Board of India (SEBI) set up acommittee on May 7, 1999 under Kumar

Mangalam Birla to design a mandatory-cum-recommendatory code for listed companies

The Birla Committee Report was approved bySEBI in December 2000

Became mandatory for listed companies throughthe listing agreement, and implementedaccording to a rollout plan.


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Following CII and SEBI, the Department of

Company Affairs (DCA) modified the

Companies Act, 1956 to incorporate specific

corporate governance provisions regardingindependent directors and audit committees


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Based on the recommendations of this

Committee, a new clause 49 was incorporated

in the Stock Exchange Listing Agreements


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Recommendations of the

Kumarmangalam Birla Committee

Financial reporting

To review the continuous disclosure requirementsunder the listing agreement for listed companies.

To provide input to the Institute of CharteredAccountants of India(ICAI)

For introducing new accounting standards in India

To review existing Indian accounting standards

Harmonize these accounting standards andfinancial disclosures on par with internationalpractices.


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Compliance with the Code and SEBIs

experience

All companies are required to submit a quarterlycompliance report to the stock exchanges within15 days from the end of a financial reportingquarter.

The report has to be submitted either by theCompliance Officer or by the Chief ExecutiveOfficer of the company after obtaining dueapprovals.

SEBI has prescribed a format in which theinformation shall be obtained by the StockExchanges from the companies.


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The companies have to submit

compliance status on eight sub-clauses

Board of Directors

Audit Committee

Shareholders / Investors Grievance Committee

Remuneration of directors

Board procedures

Management

Shareholders and

Report on Corporate Governance.


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Financial literacy of members of the

audit committee

Suggestions were received that all auditcommittee members should be financially

literate and at least one member should have

accounting or related financial managementexpertise.

The term financially literate means the

ability to read and understand basic financialstatements i.e. balance sheet, profit and lossaccount, and statement of cash flows.


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Financial literacy of members of the

audit committee

A member will be considered to have

accounting or related financial management

expertise if he or she possesses experience in

finance or accounting, or requisiteprofessional certification in accounting, or any

other comparable experience or background

which results in the individuals financialsophistication.


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Non-mandatory recommendation

Companies should be encouraged to train

their Board members in the business model

of the company as well as the risk profile of

the business parameters of the company,

their responsibilities as directors, and the best

ways to discharge them.


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Code of Conduct

Written code for executive management,

For senior financial personnel

It should be obligatory for the Board of acompany to lay down the code of conduct for

all Board members and senior management of

a company.

This code of conduct shall be posted on the

website of the company.


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Whistle Blower Policy

Mandatory recommendation Personnel who observe an unethical or improper

practice (not necessarily a violation of law) should beable to approach the audit committee withoutnecessarily informing their supervisors.

Companies shall take measures to ensure that thisright of access is communicated to all employeesthrough means of internal circulars, etc. Theemployment and other personnel policies of the

company shall contain provisions protecting whistleblowers from unfair termination and other unfairprejudicial employment practices.


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changes applied through corporate governance

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