corporate governance presentation by jayanth viswanathan
DESCRIPTION
A presentation for the students community to better understand the basics of Corporate Governance.TRANSCRIPT
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CORPORATE CORPORATE GOVERNANCEGOVERNANCE
By Jayanth ViswanathanBy Jayanth Viswanathan
27.08.201327.08.2013
(total slides 29)(total slides 29)
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WHAT IS CORPORATE WHAT IS CORPORATE GOVERNANCEGOVERNANCE
To understand that, we need to know To understand that, we need to know what is “Governance”what is “Governance”
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GOVERNANCE = ETHICSGOVERNANCE = ETHICS
Ethics as per Oxford Dictionary is Ethics as per Oxford Dictionary is
“ “moral principles that govern a moral principles that govern a person’s behavior or the conducting person’s behavior or the conducting of an activityof an activity””
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Who mandates Who mandates “Corporate Governance”“Corporate Governance”
Securities Exchange Board of India, Securities Exchange Board of India, known as “SEBI” mandates known as “SEBI” mandates Corporate Governance in listing Corporate Governance in listing agreement.agreement.
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Whom are these “Ethics” applicable Whom are these “Ethics” applicable toto
Listed Companies.Listed Companies.
Why only listed companies? Why not Why only listed companies? Why not other companies?other companies?
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Why was “Corporate Why was “Corporate Governance” mandatedGovernance” mandated
SCAMS in Secondary marketSCAMS in Secondary market
Pre Y2K scams:Pre Y2K scams: 1. Harshad Mehta scam – year 1992 2. NBFC Companies Scam- year 1995-1998 3. CRB Finance and Mutual Funds Scam of Year 1995-1997 4. Plantation’s Company scam- year 1997-1999 5. Vanishing Company’s Scam year 1995-1999 6. Name Changing Scam year 1999-2000 7. Dot Com. Company Scam year 1999 2000 8. US-64 Disaster “Gadbud” of year 1997-1998 9. Ketan parekh Scam year 1999 2001 10. UTI Fiasco “Gadbad” year 1994 2000
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Why was “Corporate Why was “Corporate Governance” mandatedGovernance” mandated
After effects of such scams:After effects of such scams:Loss to the exchequerLoss to the exchequerLoss of faith by Stake holdersLoss of faith by Stake holdersLoss of faith by Share holdersLoss of faith by Share holders
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Why was “Corporate Why was “Corporate Governance” mandatedGovernance” mandated
Thus in order to mitigate further Thus in order to mitigate further losses, SEBI came up with “Corporate losses, SEBI came up with “Corporate Governance” also called “Clause 49”Governance” also called “Clause 49”
Effects of CG:Effects of CG:Transparency in working of the companyTransparency in working of the companyLoss to exchequers were “minimized”Loss to exchequers were “minimized”Faith of Stake holders and share holders Faith of Stake holders and share holders
restored.restored.
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Who drafted Corporate Who drafted Corporate GovernanceGovernance
First Corporate Governance was First Corporate Governance was drafted by Confederation of Indian drafted by Confederation of Indian Industry (CII) in the year 1998.Industry (CII) in the year 1998.
It was a voluntary code, since it was It was a voluntary code, since it was not recognized by any statutory not recognized by any statutory authority. authority.
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Who drafted Corporate Who drafted Corporate GovernanceGovernance
Subsequently the Statutory Subsequently the Statutory Authorities Authorities felt that under Indian conditions a statutory rather than a voluntary code would be more purposeful, and meaningful.
First Committee on Corporate Governance was set:Kumaramangalam Birla Committee -
1999
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KUMARAMANAGALAM BIRLA COMMITTEEKUMARAMANAGALAM BIRLA COMMITTEE
ROLE OF THE COMMITTEEROLE OF THE COMMITTEE
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;
to draft a code of corporate best practices; and to suggest safeguards to be instituted within the companies
to deal with insider information and insider trading
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Key objectives of KBCKey objectives of KBC
enhancement of shareholder value, enhancement of shareholder value, keeping in view the interests of other keeping in view the interests of other stakeholderstakeholder
Stakeholders: includes suppliers, Stakeholders: includes suppliers, customers, creditors, the bankers, customers, creditors, the bankers, the employees of the company, the the employees of the company, the government and the society at largegovernment and the society at large
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Narayana Murthy Committee 2003Narayana Murthy Committee 2003
Purpose: Review of Corporate Purpose: Review of Corporate Governance CodeGovernance Code
Reason: Improve Corporate Reason: Improve Corporate Governance standards in IndiaGovernance standards in India
Perspective: Perspective: (a) to evaluate the (a) to evaluate the adequacy of the existing practices adequacy of the existing practices
(b) to further improve the existing (b) to further improve the existing practices.practices.
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Clause 49
Listing Agreement as on date has 55 Clauses.
Clause 49 deals with Corporate Governance.
Corporate Governance
Mandatory Disclosures
Non Mandatory Disclosures
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Mandatory DisclosureMandatory Disclosure
I.I. Board of DirectorsBoard of Directors
II.II. Audit CommitteeAudit Committee
III.III. Subsidiary CompaniesSubsidiary Companies
IV.IV. DisclosuresDisclosures
V.V. CEO/CFO CertificationCEO/CFO Certification
VI.VI. Report of Corporate GovernanceReport of Corporate Governance
VII.VII. ComplianceCompliance
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I. Board of Directors
Board of Directors
Executive Non Executive
Independent Non Independent
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Non Executive Director
Criteria to be an Independent DirectorNo pecuniary material relationship with
Company, Promoters, Directors, Senior Management, Holding, subsidiary or associate Company
Is not a relative of any of the DirectorsIs/was not an employee of the company or
was partner of audit firm or legal firm which has pecuniary interest in the past 3 years
Is not a substantial shareholder, i.e. not more than 2% shareholding
Is not less than 21 years old
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Board of Directors
Strength of BoardIf Chairman is Non - Executive Director, then
1/3 of Directors should be Independent Directors.
If Chairman is Executive Director, then ½ the Directors should be Independent Directors.
If Chairman is Non - Executive promoter Director, then also ½ the Directors of the Board should be Independent Directors.
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Board of Directors Board Meeting Frequency:
Four times a yearMaximum gap of Four Months only
No. of Directorships/Chairmanships:Member of not more than 10 Committees and cannot be
Chairman of more than 5 committees
Code of Conduct:Board shall draft a Code of Conduct and shall be
applicable to all Board Members and Senior Management. It shall be posted on the Website of the Company.
Information to be made available to the BoardAs per Annexure I A given to you.
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II. Audit Committee
A Sub Committee of the BoardMembers should be Financially
LiterateChairman of Audit Committee to be
IndependentCompany Secretary to be the
Secretary to the CommitteeAudit Committee Meeting Frequency:
Four times a year, with maximum gap of Four Months
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Powers and Role of Audit Committee
Overview Financials Statements – Quarterly and Annual.
Review performance of the companyAppoint & re-appoint Statutory and
Internal AuditorsApproval of appointment of CFO
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III. Subsidiary Companies
“Material Non-Listed Indian Subsidiary”Atleast one independent director of
Holding company to be in subsidiary company.
Audit Committee of Holding company to review financials of Subsidiary company.
Minutes of Subsidiary to be placed before Board of Holding Listed company.
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IV. Disclosures
A. Basis of Related Party TransactionsB. Disclosure of Accounting TreatmentC. Board Disclosure – Risk
ManagementD. Proceeds from Public, Rights,
Preferential IssuesE. Remuneration of DirectorsF. ManagementG. Shareholder
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V. CEO/CFO Certification
CEO- Managing Director and CFO – Director/Head Finance shall submit a certificate to the Board on following:Reviewed financials statement and it
contains no untrue or misleading statements.
Financial Statements present true and fair view.
They accept responsibility for establishing and maintaining Internal control for financial report and rectifying deficiencies, if any.
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VI. Report on Corporate Governance
Annual Report should contain a separate section on Corporate Governance with detailed compliance report. Format as per Annexure I-C given to you.
Quarterly Compliance certificate should be submitted to Stock Exchange. Format as per Annexure I-B given to you.
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VII. Compliance
A Certificate from either the Auditor or a Practicing Company Secretary on compliance of conditions of corporate Governance should form part of Directors Report.
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Non Mandatory Compliance
There are certain Non- mandatory provisions in this clause, which can be implemented at the discretion of the Company.
Details of which are available in Annexure I D as given to you.
Latest updateLatest update
SEBI has vide it PR 4/2013 dated January 04, SEBI has vide it PR 4/2013 dated January 04, 2013 issued a consultative paper to review the 2013 issued a consultative paper to review the norms of Corporate Governance. norms of Corporate Governance.
Main Objective: Main Objective: To bring in line with the principles and text of To bring in line with the principles and text of
Companies Bill, 2012.Companies Bill, 2012.
Suggestions shall be made and the Committee Suggestions shall be made and the Committee set up for the purpose will review the set up for the purpose will review the suggestions and bring ammendments to Clause suggestions and bring ammendments to Clause 49.49.
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