CORPORATE GOVERNANCE

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Companies need to ensure

1. code of conduct for all managers ,

2. long – term strategic plans ,

3. CSR initiatives,

4. submission of regular and accurate financial statements,

5. providing of regular information about financial position of the company to the shareholders ,

6. evaluation by the board of its performance,

7. independent Audit Committees and

8. effective risk management plans.

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CORPORATE GOVERNANCE IN PSE’S

PSE’s today play a significant role in accelerating the economic as well as social development of the country .

This can be facilitated by following sound ,prudent and transparent business principles and practices .

They are guardian or trustees of precious public money .

They deal with tax payers money and are therefore accountable to Parliament. Under such circumstances , there is a need for a strong vigilance organization in the PSE’s with a set of rules / code of conduct to guide the actions and conduct of these Enterprises.

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And as required Corporate Governance in PSE’s is more robust than that in most private counterparts .

Apart from the Parliament ,PSEs are accountable to other authorities under several regulations like

1. the Comptroller and Auditor General of India (CAG) ,

2. Central Vigilance Commission (CVC),

3. three layers of audit control (Statutory Audit, Internal Audit and CAG) and

4. the Rights to Information Act (RtI)

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This was evidently apparent during the recent economic turmoil in private companies when investors fled to public enterprise stocks due to

1. much better confidence of stakeholders in PSE management .

2. PSEs are open and transparent ensuring fairness in their transactions within and outside the Company with investors , customers ,employees ,partners ,

competitors and society at large.

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CORPORATE GOVERNANCE IN ONGC

Mr. R.S .Sharma , CMD , ONGC says –

Corporate Governance in ONGC is led by

1. strong emphasis on human values ,

2. individual dignity and adherence to honest , ethical and professional conduct .

3. The endeavors in this regard are focused on highest level of transparency ,openness and accountability and fairness in all areas of operation ,meeting the aspirations of all its stakeholders .

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Mr. Arup Roy Choudhury ,CMD,NTPC says – As a good Corporate citizen , the company is committed to

1. sound corporate practices based on conscience , openness, fairness ,professionalism and

2. accountability in building confidence of its various stakeholders in it thereby paving the way for its long term success.

3. NTPC is always on forefront in adopting and implementing sound governance norms.

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Mr. Chandra Shekar Verma , Chairman , SAIL says –

SAIL is committed to

1. practice the highest standard of corporate governance by ensuring transparency , disclosures and reporting that conforms fully with laws ,regulations and guidelines .

2. promotes ethical conduct throughout the organization , with the primary objective of enhancing shareholders value , while being a responsible corporate citizen.

3. The Company recognizes that the Board of Directors is accountable to all shareholders and that each member of the board owes his first duty for protecting and furthering the interests of the Company.

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Mr. B. Prasada Rao, CMD , BHEL says –

BHELs Corporate Governance policy is based on the following principles:

1. Independence and versatility of the Board

2. Integrity and ethical behavior of all personnel

3. Recognition of obligations towards all stakeholders –shareholders, customers,employees,suppliers and the society at large.

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Shri N.R. Narayana Murthy, Chief Mentor, Infosys Limited.

1. Corporate governance is maximizing the shareholder value in a corporation

2. ensuring fairness to all stakeholders, customers, employees, investors, vendors, the government and the society-at-large.

3. transparency and raising the trust and confidence of stakeholders in the way the company is run.

4. owners and the managers operating as the trustees on behalf of every shareholder - large or small." -

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With the goal of promoting better corporate governance practices in India, the Ministry of Corporate Affairs, Government of India, on 1st October 2003 set up :

National Foundation for Corporate Governance (NFCG)

1. in partnership with Confederation of Indian Industry (CII),

2. Institute of Company Secretaries of India (ICSI) and

3. Institute of Chartered Accountants of India (ICAI).

4. In the year 2010, stakeholders in NFCG has been expanded with the inclusion of ICWAI and the National Stock Exchange.

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CORPORATE GOVERNANCE

CG is the system by which companies are directed and controlled by management in the best interest of shareholders and others.

The BOD are responsible for governance of their companies

A number of reports and codes of CG has been published internationally

SEBI also has recently introduced a new clause (i.e. clause 49 ) in the listing agreement entered between a stock exchange and a company who desires to list its securities on stock exchange.

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As per this clause, if a company desires to list its securities on a stock exchange, then it has to agree and implement the code of corporate governance

The company is also required to obtain a certificate from the auditor/practicing company secretary as regard compliance of the conditions of CG as given in this clause.

The various items of this clause are:

i. Composition of board

ii. Setting up of audit committee

iii. Remuneration of directors

iv. Meeting of BOD etc.

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CONTENTS OF CLAUSE 49 OF LISTING AGREEMENT (CG)

Board of

directors

BOD shall have an optimum combination of

executive and non –executive directors

with not less than 5o% of the BOD

comprising of non-executive directors.

At least half of the Board should comprise of

independent directors

It is very much clear that the overall shift is on

comprising the board with independent person,

who can take unbiased decisions for the welfare

of the stakeholders

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INDEPENDENT DIRECTOR

ID It shall mean a Non-executive director of the company

who -

Apart from receiving director’s remuneration, does not have

any material pecuniary relationship or transactions with the

company ,its promoters ,its directors , its senior management

or its holding company, its subsidiary(s) and associates which

may affect independence of the director;

Is not related to promoters or persons occupying management

positions at the board level or at one level below the board

Has not been an executive of the company in the immediately

preceding three financial year;

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Is not a partner or an executive or was not

partner or an executive during the

preceding 3 years of any of the following:

a) statutory audit firm/internal audit that is

associated with the company

b) The legal firm/consulting firms that have

a material association with the company.

Not a material supplier, service provider,

customer or lesser/lessee of company

Not a substantial shareholder-owing 2%or more

voting shares

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AUDIT COMMITTEE

AC Minimum 3 members (any director)with 2/3

independent

All members financially literate & at least one director

having an expertise in accounts/FM

Chairperson independent director

Minimum number of meetings in a year 4,one meeting

before finalization of accounts. Maximum gap between two

meetings is 4 months.

Quorum -2 members or 1/3 of members (higher) & out of

which minimum of 2 independent director

Co. Secretary shall act as a secretary of AC

AC to invite financial executive of co. In its meeting

However, they can meet without his presence too

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AC Will maintain liaison with Co. & Auditor .

Consider matters to be included in directors responsibility

statement

Review functioning of whistle blower mechanism

Review performance of statutory/internal auditors

AC Mandatorily

review

Management discussion & analysis of FS

Statement of significant related party transactions

Management letters of IC weaknesses issued by statutory

auditors

Internal audit reports relating to internal control weaknesses

Appointment/removal/terms of remuneration of chief of

internal auditor

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REMUNERATION OF DIRECTORS

Remuneration

of Directors

Remuneration of non-ED is decided by

BOD, after obtaining prior approval of

shareholders

Sitting fee as per Co. Act, paid to non ED does

not require previous approval of shareholders

If stock option to non ED , limit for maximum no.

to be granted to non –ED in one FY & in

aggregate to be disclosed along with disclosure

of elements of remuneration package , details of

increments , service contract in annual report.

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BOARD PROCEDURES

Board

Procedures

Meeting 4 times a year with maximum gap

4 months between two meetings

Code of conduct for Board/Senior management

laid by BOD.Shall be posted on the website of

the company

A director not to be a member in more than 10

committees or chairperson in more than 5

committees across all co’s in which he is a

director.

(Committee for this purpose includes audit

committee and shareholders redressing

committee)

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REGARDING SHAREHOLDER

SH In case of appointment/re-appointment of a

director ,shareholder must be provided with

its brief resume ,nature of his expertise &

names of companies in which he holds

directorship.

Information like Quarterly results to be put on

companies web site or on SE’s website

Board committee under chairmanship of non-ED to

look into redressing of shareholders & investors

complaints

To expedite the process of share transfer ,this work

to be delegated to an officer or share transfer agent

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SUBSIDIARY COMPANY

SC At least one independent director of holding

company shall be a director in material non –

listed Indian subsidiary company(whose

turnover/net worth exceeds 20% of consolidated

turnover/net worth of holding and its subsidiary

in immediately preceding Accounting Year

AC of holding shall review the financial staement

(particularly investment) by material non-listed Indian

subsidiary company

Minutes of Board meeting of material non – listed

Indian subsidiary company to be placed at board

meeting of holding company.

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CEO/CFO CERTIFICATION

CEO/CFO

certifica

tion

The CEO or the CFO or any other person

heading the finance function discharging that

function shall certify to the Board that:

They have reviewed FS and CF for the year

and that to the best of their knowledge and

belief :

A) (I ) These statements do not contain any materially

untrue statement or omit any material fact

(ii) These statements together present a true and

fair view of the company’s affairs

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B) There no transactions entered that are fraudulent,

illegal and violative of the company’s code of

conduct

C) They accept responsibility for establishing and

maintaining internal controls wrt financial reporting

D) They have indicated to the auditors and Audit Committee

-Significant changes in internal control during the year,

-Significant changes in accounting policies during the

year ,and instances of significant fraud

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Report on Corporate Governance

There shall be separate section on CG in

the Annual Reports of company with a

detailed compliance report on CG

ComplianceThe company shall obtain a certificate either

from the auditors or practicing company

secretaries regarding compliance of conditions

of CG

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THANK YOU

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