Professional Documents
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INTRODUCTION
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2. DEFINITION
Corporate governance has also been more narrowly defined as “a system of law
and sound approaches by which corporations are directed and controlled focusing
on the internal and external corporate structures with the intention of monitoring
the actions of management and directors and thereby, mitigating agency risks
which may stem from the misdeeds of corporate officers."
Corporate governance has also been defined as "Is the act of externally directing,
controlling and evaluating a corporation" and related to the definition of
Governance
“An internal system encompassing policies, processes and people, which serves
the needs of shareholders and other stakeholders, by directing and
controlling management activities, with good business savvy, objectivity,
accountability and integrity. Sound corporate governance is reliant on
external market place commitment and legislation, plus a healthy board culture
which safeguards policies and processes”
By Gabrielle O’Donovan.
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3. HISTORY OF CORPORATE GOVERNANCE IN
INDIA
The notion of corporate governance has been incepted with major objective of
significant disclosure of information to the shareholders. Since then, corporate
governance has steered the Indian companies. As the time changed, there was
also need for greater accountability of companies to their shareholders and
customers. The report of Cadbury Committee on the financial aspects of
corporate Governance in the U.K. has given rise to the discussion of Corporate
Governance in India. Corporate governance has been since olden times but it was
in different form. During Vedic times, kings used to have their ministers and used
to have ethics, values, principles and laws to run their state but today it is in the
form corporate governance having same rules, laws, ethics, values, and morals
which helps in running corporate bodies in the more effective ways so that they
in the age of globalization become global giants.
There have been numerous corporate governance initiatives launched in India
since the mid-1990s. The first was by the Confederation of Indian Industry (CII),
India's major industry and business association, which emerged with the first
voluntary code of corporate governance in 1998.
The second was by the SEBI, now enshrined as Clause 49 of the listing
agreement. SEBI in 2000 introduced unparalleled corporate governance reforms
via Clause 49 of the Listing Agreement of Stock Exchanges. Clause 49, a seminal
event in Indian corporate governance, established a number of governance
requirements for listed companies with a focus on the role and structure of
corporate boards, internal controls and disclosure to shareholders. The third was
the Naresh Chandra Committee, which submitted its report in 2002. The fourth
was again by SEBI the Narayana Murthy Committee, which also submitted its
report in 2002.
India's corporate governance reform efforts did not stop after implementation of
Clause 49. In January 2009, the Indian corporate community was astounded by
enormous accounting scandal involving Satyam Computer Services (Satyam),
one of India's largest information technology companies. As a result of the
scandal, Indian regulators and industry groups have promoted for a number of
corporate governance reforms to address some of the concerns raised by the
Satyam scandal. Some of these responses have moved forward, mainly through
introduction of voluntary guidelines by both public and private institutions
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Generally, India's corporate governance transformation efforts reflect the
following: Significant industry involvement in assisting the government with
crafting corporate governance measures.
Substantial focus to enhance the function and structure of company boards,
including (i) emphasis on the independence of the board of directors, and (ii) an
increased role for audit committees.
Note worth increase in disclosure to public shareholders.
Several Indian Companies such as PepsiCo, Infuses, Tata, Wipro, TCS, and
Reliance are some of the global giants which have their flag of success flying
high in the sky due to good corporate governance.
Principal of corporate governance:
Issues involving corporate governance principles include:
1. Oversight of preparation of the entity’s financial statements.
3. Review of the compensation arrangements for the chief executive officer and
other senior executives.
4. The way in which individuals are nominated for positions on the board.
7. Dividend policy.
1. Transparency:
Companies have to be transparent. Transparency means accurate, adequate and
timely disclosure of relevant information to the stakeholders. Transparency and
disclosure inform the stakeholders that their interests are taken care of.
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2. Accountability:
Chairman, board of directors and chief executive of the company should fulfill
their accountability to the shareholders, customers, workers, society and the
Government. Since they have considerable authority over company’s resources,
they should accept accountability for all their decisions and actions.
3. Independence:
For ethical reasons, corporate governance seems to be independent, strong and
non-participatory body where all decision-making is based on business and not
personal biases.
4. Reporting:
Good corporate governance involves adequate reporting to shareholders and other
stakeholders, for example, a company should publish quarterly, half yearly and
yearly performance and operating results in newspapers. It should also report the
functioning of various committees set by the board of directors for efficient
administration. It is important on ethical grounds of the society.
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4. THE PILLARS OF GOODS CORPORATE
GOVERNANCE
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Independent Assurance: In progressing transparency it is important for
non-direct actors to obtain confidence that that executive actors are leading
the entity towards pre-defined intent and not using it for self and obtain
expert advisory on how applied approached can be improved. Assurance
services provide independent and professional opinions that reduce the
information risk (risk that comes from incorrect information). Independent
assurance is the verification by a third party (not directly responsible for
QA and acceptance of the product/deliverable and/or the reliability of test
results obtained from quality control and acceptance testing. This
independent assurance insures that (1) the representation or acceptance test
results are accurate and provide a fair and equitable basis for construction
acceptance and (2) quality control testing is accurate and thus will properly
indicate process quality.
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5. CLAUSE 49 OF THE LISTING AGREEMENT
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CLAUSE 49-MANDATORY REQUIREMENTS:
iii. a If the promoter is a listed entity, its directors other than the
independent directors, its employees or its nominees shall be deemed to
be related to it; b. If the promoter is an unlisted entity, its directors, its
employees or its nominees shall be deemed to be related to it.
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was not partner or an executive during the preceding three years, of any
of the following: i. the statutory audit firm or the internal audit firm that
is associated with the company, and ii. the legal firm(s) and consulting
firm(s) that have a material association with the company. e. is not a
material supplier, service provider or customer or a lessor or lessee of
the company, which may affect independence of the director; f. is
not a substantial shareholder of the company i.e. owning two percent or
more of the block of voting shares. g. is not less than 21 years of age
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(D) Code of Conduct
i. The Board shall lay down a code of conduct for all Board members and
senior management of the company. The code of conduct shall be posted
on the website of the company.
ii. All Board members and senior management personnel shall affirm
compliance with the code on an annual basis. The Annual Report of the
company shall contain a declaration to this effect signed by the CEO.
ii. All members of audit committee shall be financially literate and at least
one member shall have accounting or related financial management
expertise.
iv. The Chairman of the Audit Committee shall be present at Annual General
Meeting to answer shareholder queries;
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vi. The Company Secretary shall act as the secretary to the committee.
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3. Approval of payment to statutory auditors for any other services rendered
by the statutory auditors.
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6. Reviewing, with the management, performance of statutory and internal
auditors, and adequacy of the internal control systems.
10.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.
11.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.
12.To review the functioning of the Whistle Blower mechanism, in case the
same is existing. A. Approval of appointment of CFO (i.e., the whole-time
Finance Director or any other person heading the finance function or
discharging that function) after assessing the qualifications, experience &
background, etc. of the candidate.
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13.Carrying out any other function as is mentioned in the terms of reference
of the Audit Committee.
IV. Disclosures
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Where in the preparation of financial statements, a treatment different from that
prescribed in an Accounting Standard has been followed, the fact shall be
disclosed in the financial statements, together with the management’s explanation
as to why it believes such alternative treatment is more representative of the true
and fair view of the underlying business transaction in the Corporate Governance
Report.
(D) Proceeds from public issues, rights issues, preferential issues etc.
When money is raised through an issue (public issues, rights issues, preferential
issues etc.), it shall disclose to the Audit Committee, the uses / applications of
funds by major category (capital expenditure, sales and marketing, working
capital, etc.), on a quarterly basis as a part of their quarterly declaration of
financial results. Further, on an annual basis, the company shall prepare a
statement of funds utilized for purposes other than those stated in the offer
document/prospectus/notice and place it before the audit committee. Such
disclosure shall be made only till such time that the full money raised through the
issue has been fully spent. This statement shall be certified by the statutory
auditors of the company. Furthermore, where the company has appointed a
monitoring agency to monitor the utilisation of proceeds of a public or rights
issue, it shall place before the Audit Committee the monitoring report of such
agency, upon receipt, without any delay. The audit committee shall make
appropriate recommendations to the Board to take up steps in this matter.
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ii. Further the following disclosures on the remuneration of directors shall be
made in the section on the corporate governance of the Annual Report:
iii. Stock option details, if any – and whether issued at a discount as well as
the period over which accrued and over which exercisable.
iv. The company shall publish its criteria of making payments to non-
executive directors in its annual report. Alternatively, this may be put up
on the company’s website and reference drawn thereto in the annual report.
(F) Management
i. As part of the directors’ report or as an addition thereto, a Management
Discussion and Analysis report should form part of the Annual Report to
the shareholders. This Management Discussion & Analysis should include
discussion on the following
Matters within the limits set by the company’s competitive position:
1. Industry structure and developments.
2. Opportunities and Threats.
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3. Segment–wise or product-wise performance.
4. Outlook
5. Risks and concerns.
6. Internal control systems and their adequacy.
7. Discussion on financial performance with respect to operational
performance.
8. Material developments in Human Resources / Industrial Relations
front, including number of people employed.
ii. Senior management shall make disclosures to the board relating to all
material financial and commercial transactions, where they have personal
interest, that may have a potential conflict with the interest of the company
at large (for e.g. dealing in company shares, commercial dealings with
bodies, which have shareholding of management and their relatives etc.
(G) Shareholders
In case of the appointment of a new director or re-appointment of a director the
shareholders must be provided with the following information:
a) A brief resume of the director;
b) b. Nature of his expertise in specific functional areas;
c) c. Names of companies in which the person also holds the directorship and
the membership of Committees of the Board; and
d) Shareholding of non-executive directors as stated in Clause 49 (IV) (E)
(v)above
II. Quarterly results and presentations made by the company to analysts shall
be put on company’s web-site, or shall be sent in such a form so as to enable
t stock exchange on which the company is listed to put it on its own web-
site.
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III. A board committee under the chairmanship of a non-executive director
shall be formed to specifically look into the redressed of shareholder and
investors complaints like transfer of shares, non-receipt of balance sheet,
non-receipt of declared dividends etc. This Committee shall be designated
as ‘Shareholders/Investors Grievance Committee’.
IV. To expedite the process of share transfers, the Board of the company shall
delegate the power of share transfer to an officer or a committee or to the
registrar and share transfer agents. The delegated authority shall attend to
share transfer formalities at least once in a fortnight.
V. CEO/CFO certification
The CEO, i.e. the Managing Director or Manager appointed in terms of the
Companies Act, 1956 and the CFO i.e. the whole-time Finance Director or any
other person heading the finance function discharging that function shall certify
to the Board that:
I. They have reviewed financial statements and the cash flow statement for
the year and that to the best of their knowledge and belief :
a. these statements do not contain any materially untrue statement or
omit any material
b. Fact or contain statements that might be misleading;
c. These statements together present a true and fair view of the
company’s affairs and are in compliance with existing accounting
standards, applicable laws and regulations.
II. There are, to the best of their knowledge and belief, no transactions entered
into by the company during the year which are fraudulent, illegal or violate
of the company’s code of conduct.
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controls, if any, of which they are aware and the steps they have taken or
propose to take to rectify these deficiencies.
IV. They have indicated to the auditors and the Audit committee
a. significant changes in internal control over financial reporting
during the year;
b. significant changes in accounting policies during the year and that
the same have been disclosed in the notes to the financial statements;
and
c. Instances of significant fraud of which they have become aware and
the involvement therein, if any, of the management or an employee
having a significant role in the company’s internal control system
over financial reporting.
II. The companies shall submit a quarterly compliance report to the stock
exchanges within 15 days from the close of quarter as per the format given
in The report shall be signed either by the Compliance Officer or the Chief
Executive Officer of the company
VII. Compliance
I. The company shall obtain a certificate from either the auditors or practicing
company secretaries regarding compliance of conditions of corporate
governance as stipulated in this clause and annex the certificate with the
directors’ report, which is sent annually to all the shareholders of the
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company. The same certificate shall also be sent to the Stock Exchanges
along with the annual report filed by the company.
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Rank Country Companies Average overall rating
19 France 100 4.70
20 India 56 4.54
21 Belgium 24 4.35
22 Greece 24 4.25
23 Malaysia 28 4.21
24 Thailand 15 4.20
25 Portugal 11 4.14
26 Hong Kong 72 4.06
27 Spain 43 3.97
28 South Korea 88 3.93
29 Brazil 67 3.91
30 Russia 25 3.90
31 Taiwan 78 3.84
32 Israel 17 3.79
33 Turkey 17 3.62
34 China 91 3.37
35 Japan 392 3.30
36 Indonesia 21 3.14
37 Mexico 21 2.43
38 Chile 15 2.13
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5. CORPORATE GOVERNANC IN BANKS
Corporate Governance has become very important for banks to perform and
remain competition in this era of liberalization and globalization Banks in a broad
sense are institutions who business is handling other people’s money. A Joint
stock bank also known as Commercial Bank which is nothing but a company a
whose business is banking' Protecting the interest of depositors becomes a
matter of paramount interest to banks 'In banking parlance ,the Corporate
Governance refers to conducting the affair of a banking organization such a
manner that gives a fair deal to all the stakeholders i.e. shareholders, bank
customers' regulatory authority'. Society at Large employees etc. The
significance of corporate governance in banking sector weights very much due
to very nature of banking transactions' Banking is the crucial factor effecting
economic development of an economy' It is the life blood of a country. "It is
responsible for the flow of credit and for maintaining the financial balances of the
economy. In India' since the nationalization process banks emerged as a tool of
economic development along with social of justice. As per Basel committee
Report 1999, Banks have to display the exemplary of. Corporate governance
practices in their financial performance’ transparency in the balance sheets and
compliance with other norms laid down by section. 49 of corporate governance
rules Most importantly the annual report should disclose accounting ratios,
relating to operating profit, return on assets, business pet employee, NPAs,
maturity profile of loans, advances, investments, borrowings and deposits An
effective system of corporate go governance in banks will impose appropriate
standards of conduct on managers and control and monitoring procedures on
banks in order to maximize opportunities for legitimate profit subject to the best
interests of depositors and shareholders .
Good corporate governance regulates the relationship between banks'
stakeholders, their Boards and their management. It prevents the abuse of power
and self-serving conduct, as well as imprudent and high risk behaviour by bank
managers, and resolves conflicts of interests between managers and board
members on the one hand and shareholders and depositor on the other. Indeed,
the current state of the world economy is in some measure attributed to the fact
that boards (and their risk management committees) have not properly discharged
their duties in exercising oversight on managers engaging in high risk activities.
The corporate governance of the financial sector,
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Therefore, has important implications for the stability of the whole economy.
From the perspective of banking industry corporate governance also includes in
its ambit the manner in which their Board of Directors governs the business and
affairs of individual institutions and their functional relationship with senior
management. This is determined by how banks:
Set corporate objectives (including generating economic returns to owners);
Run the day-to-day operations of the business and Consider the interests of
recognise stakeholders i.e., employees customers, suppliers, supervisors,
governments and the community and
Line up corporate activities and behaviours with the expectation that banks will
operate in a safe and sound manner, and in compliance with applicable laws and
regulations; and of course protect the interests of depositors, which is supreme.
For ensuring good corporate governance, the importance of overseeing the
various aspects of the corporate functioning needs to be properly understood,
appreciated and implemented.
There are four important forms of oversight that should be included for the
organizational structure of any bank in order to ensure the appropriate decks and
balances:
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6. NEED FOR CORPORATE GOVERNANCE IN
BANKS
1. Banks in India are facing increasing competition, within and outside India,
both in terms of markets for its products and for sources of fund. It has,
therefore become necessary for banks to constantly reengineer, to provide
the products and services to suit the ever-changing requirements.
2. To accelerate the speed with which the transactions are completed and to
constantly evaluate and provide training to the workforce update the
knowledge and impress upon them the necessity to have a professional
and competitive approach
3. Investors believe that a bank with good governance will provide them a
safe place for investment and also give better returns .Good corporate
Governance is, therefore, an important factor in a competitive
environment.
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7. RESERVE BANK OF INDIA AND CORPORATE
GOVERNANCE IN THE BANKING SECTOR IN
INDIA
The preamble of the Reserve Bank of India Act, 1934 says, “An Act to constitute
a Reserve Bank of India. Whereas it is expedient to constitute a Reserve Bank for
India to regulate the issue of Bank notes and the keeping of reserves with a view
to securing monetary stability in 2[India] and generally to operate the currency
any credit system of the country to its advantage; And whereas in the present
disorganisation of the monetary systems of the world it is not possible to
determine what will be suitable as a permanent basis for the Indian monetary
system; But whereas it is expedient to make temporary provision on the basis of
the existing monetary system, and to leave the question of the monetary standard
best suited to India to be considered when the international monetary position has
become sufficiently clear and stable to make it possible to frame permanent
measures…”
There is no one who could deny the fact banks are pivotal to the economic
stability of any economy. In case a bank crashes then it does not crash alone, it
also takes away the lifelong investment and savings of its entire account holders
too. This is not the only reason due to which corporate governance in the banking
sector is needed. Corporate Governance is also needed for the bank to keep a
check on money laundering, financing immoral and criminal acts and transaction
of money to the terrorists. The most recent act of RBI role in the Indian economy
is demonetization, through which it has (under the decision-making capacity of
Indian Parliament), strike very hard at the people hoarding black money or people
printing fake currency. However, it’s a totally different issue that this could have
been done in a more professional way, reducing the problems faced by the people.
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RBI in India plays leading role in formulating and implementing corporate
governance
2. Off-site surveillance:
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were introduced since June 1999. The Reserve Bank intends to reduce this
periodicity with effect from April 2000.
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8. CORPORATE GOVERNANCE
The issue of corporate governance in PSBs is important and also complex. From
the banking industry perspective, the attributes of corporate governance provide
guidelines to the directors and the top level managers to govern the business of
banks. These guidelines relate to how banks establish corporate aims, carry out
their daily activities, and take into account the interest of stakeholders and making
sure that the corporate activities are in tune with the public expectations that
banks will function in an ethical and legal manner thereby protecting the interest
of its depositors (Basel committee, 1999). All these broad issues relating to
governance apply to other companies also but they assume more significance for
banks because they deal with public deposits directly.
Banks 'philosophy for corporate Governance should lay emphasis on the cardinal
values of 'fairness, ‘transparency.' and' accountability', as enunciated by Word
Bank, for performance at all levels, thereby, enhancing the shareholders' value
and protecting the interest of the stakeholders. The Banks consider themselves as
trustee of its shareholders and should acknowledge its responsibility towards
them for creation and safeguarding shareholders' wealth. Banks should continue
its pursuit of achieving these objectives through the adoption and monitoring of
corporate strategies prudent business plans, monitoring of major risks of the
banks business and pursuing the policies and procedure to satisfy its legal and
ethical responsibilities. Hence, banks should aim at enhancing the long term
shareholder value while protecting the 'interest of shareholders, customers and
other in line with international best practices.
The term “public sector banks” refers to a situation where the majority equity
stake in the banks is held by the government. The Indian Government keeps
default holdings of minimum 51% shareholding, but management control is only
with the Central Government, thereby classifying them as Public Sector Banks.
Public sector banks include the State Bank of India and its Associates,
Nationalized Banks (including Industrial Development Bank of India Ltd (IDBI)
since December 2004), and Regional Rural Banks.
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Following are the Public sector Banks:
(i) State Bank of India
(ii) Bank of Baroda
(iii) Punjab national Bank
(iv) Central Bank
(v) IDBI Bank
(vi) Canara Bank
Private sector banks have entered niche areas, listed their scrip and being market
driven they have been more transparent in their functioning.
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They have also been more tech savvy, growth oriented and have less of NPAs.
Private sector banks has to conform with standard of good banking practices such
as
1. Ensuring a fair and transparent relationship between the customer and bank
They are the banks in which individuals and corporations are the majority
shareholders. In India, banks were nationalized in two phases, in 1969 and 1980.
In 1993, the Reserve Bank of India (RBI), the regulating body for all the country’s
banking organizations, allowed many new commercial banks in India to start
operations. Some of the major commercial banks in India that were given licenses
are ICICI Bank, HDFC Bank, Axis Bank, Yes Bank, and Kotak Mahindra Bank.
Private sector banks are recognized as the banks for the new generation, providing
innovative products, better IT support system and competitive pricing for their
products. As of the end of March 2017, there are 21 private sector banks in India.
Besides these, four local areas banks are also categorized as private banks.
ICICI Bank is India’s largest private sector bank. The bank, which was a wholly
owned subsidiary of ICICI Limited, is a multinational banking and financial
company based in Mumbai, Maharashtra, India with its registered office in
Vadodara, Gujarat.
ICICI Bank was the first Indian bank to list on the NYSE in 2000, along with its
5 million American Depository Shares, which was oversubscribed 13 times the
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offer size. It operates a network of 4,850 branches and 14,404 ATMs in India and
is present in 19 countries worldwide.
HDFC Bank
Axis Bank
Axis Bank is the third largest private sector bank in India after ICICI and HDFC.
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9. Corporate Governance System
Board of Directors
Softbank Group Corp. (“SBG”)'s Board of Directors consists of 12 directors,
including three external directors. The Chairman and CEO serves as the chairman
of the Board. SBG ensures adequate independence of the three external directors,
who bring a wealth of knowledge and experience to the Board related to business
management and other matters. Each of the external directors participates actively
in the discussions at the Board meetings and SBG makes management judgments
and decisions based on these discussions.
Agenda items for discussion at the Board of Directors meetings are set forth in
the Board of Directors Regulations. The Board discusses the following at regular
Board meetings and at extraordinary meetings that are convened when necessary:
(ⅲ) Certain matters related to subsidiaries (excluding listed subsidiaries and their
subsidiaries), such as investments and loans and borrowings, etc. exceeding a
certain amount
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SBG and each of its non-executive directors Yun Ma, Yasir O. Al-Rumayyan,
Tadashi Yanai, Mark Schwartz and Masami Iijima have concluded a contract to
limit liability for damage stipulated in Paragraph 1, Article 423 of the Companies
Act in accordance with Paragraph 1, Article 427 of the Companies Act. The
amount of limit of liability for damage is stipulated in the relevant contract as ¥10
million or the minimum amount of limit of liability that the relevant laws and
regulations stipulate, whichever is higher.
SBG stipulates the maximum number of directors at 15 in its Articles of
Incorporation. The Board of Directors elects director candidates who are
considered most suitable for the position, regardless of their nationality, ethnicity,
gender, or age. There are 12 directors serving, all of whom have a wealth of
knowledge and experience regarding business management and a global
perspective. Three of the 12 directors are independent external directors, and
seven are non-Japanese, thereby ensuring constructive and lively discussion at
the Board of Directors meetings from diverse perspectives.
Investment Committee
The Investment Committee is a decision-making body that has been delegated
decision-making authority by the Board of Directors. The committee has been
delegated authority on investments, financing, and related matters and is
comprised of directors elected by the Board.
The agenda items for discussion by the Investment Committee are set forth in the
Regulations of the Investment Committee. The committee makes decisions on the
following matters:
(ⅰ) Matters such as investments and loans and borrowings under a certain
amount
(ⅱ) Certain matters related to subsidiaries (excluding listed subsidiaries and their
subsidiaries), such as (a) investments and loans and borrowings etc. under a
certain amount, (b) issue and gratis issue of new stock or stock acquisition rights
etc. (except matters such as the issue of new stocks that will not alter the
shareholding ratio), (c) issue of corporate bonds, (d) overseas business expansion,
and (e) entry into new business fields
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(ⅲ) Other matters
Audit & Supervisory Board members and the Audit & Supervisory
Board
The Audit & Supervisory Board consists of four members, three of whom are
external members. Two of the members are full-time members and two are part-
time members. Among the four Audit & Supervisory Board members, one
member has extensive experience working as the manager of SBG's Legal
Department and its Chief Compliance Officer, and therefore has a deep
understanding of the Company's management and operations. SBG ensures
adequate independence of the three external Audit & Supervisory Board
members, who possess a wealth of knowledge and experience in their
professional roles as a lawyer, certified public accountants, or certified tax
accountants.
The Audit & Supervisory Board members, including the external members,
attend the Board of Directors meetings, allowing them to monitor and verify the
decision-making of the Board and fulfilment of the Board's obligation to
supervise the execution of duties by each director. Moreover, the Audit &
Supervisory Board members conduct regular hearings with directors, employees,
Audit & Supervisory Board members, and other personnel of major subsidiaries
to audit the execution of duties by the directors of SBG.
The Audit & Supervisory Board meets once a month, in principle. At the meeting,
the Audit & Supervisory Board members decide on the audit policy, plan, and
other matters, receive quarterly briefings and reports related to the earnings
results from the independent auditor, and exchange information and opinions with
the independent auditor as necessary. The Audit & Supervisory Board members
also receive briefings on individual matters from the directors as necessary.
The Audit & Supervisory Board Office is established to support the duties of all
the Audit & Supervisory Board members and the office comprises dedicated
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personnel who act under the directions of the Audit & Supervisory Board
members to gather information, investigate matters, and give other assistance.
SBG and each of its Audit & Supervisory Board members have concluded a
contract to limit liability for damage stipulated in Paragraph 1, Article 423 of the
Companies Act in accordance with Paragraph 1, Article 427 of the Companies
Act. The amount of limit of liability for damage is stipulated in the relevant
contract as ¥10 million or the minimum amount of limit of liability that the
relevant laws and regulations stipulate, whichever is higher.
Internal audits
The Internal Audit Department conducts internal audits of the Company's internal
departments and subsidiaries to check that duties are carried out legally and
correctly based on laws and regulations, the Articles of Incorporation, and
internal regulations. The results of these internal audits are reported to the CEO,
and briefings are also given to the Audit & Supervisory Board members.
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Cooperation between the Audit & Supervisory Board members,
independent auditor, and the Internal Audit Department
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Reasons for adoption of current corporate governance system
SBG adopts the company with Audit & Supervisory Board system. As explained
in “Governance system,” its corporate governance system is built around the
Board of Directors, the Audit & Supervisory Board members, and the Audit &
Supervisory Board.
The directors carry out lively discussions at each Board of Directors meetings.
Moreover, since three of the 12 directors are external directors, management
benefits from diverse perspectives, and the function for mutual monitoring
between directors are enhanced.
The Audit & Supervisory Board members conduct strict audits of directors'
execution of duties from their specialist perspectives as a certified public
accountant, a lawyer, or other professional. Moreover, since three of the four
Audit & Supervisory Board members, a majority, are external members, SBG's
audit function is enhanced by ensuring more independent perspectives.
The current system is thus selected because SBG judges that it can ensure
effective corporate governance.
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Certified public accountants: 24, Others: 35
(c) Non-audit duties provided for SBG by the auditing certified public
accountants and assistants
The non-audit duties for which SBG pays remuneration to the auditing certified
public accountants and assistants mainly consist of preparation of comfort letters
when issuing corporate bonds.
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10. Corporate Governance Mechanisms
Monitoring by the board of directors: The board of directors, with its legal
authority to hire, fire and compensate top management, safeguards invested
capital. Regular board meetings allow potential problems to be identified,
discussed and avoided. Whilst non-executive directors are thought to be more
independent, they may not always result in more effective corporate
governance and may not increase performance. Different board structures are
optimal for different firms. Moreover, the ability of the board to monitor the
firm's executives is a function of its access to information. Executive directors
possess superior knowledge of the decision-making process and therefore
evaluate top management on the basis of the quality of its decisions that lead
to financial performance outcomes, ex ante. It could be argued, therefore, that
executive directors look beyond the financial criteria.
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Internal control procedures and internal auditors: Internal control
procedures are policies implemented by an entity's board of directors, audit
committee, management, and other personnel to provide reasonable assurance
of the entity achieving its objectives related to reliable financial reporting,
operating efficiency, and compliance with laws and regulations. Internal
auditors are personnel within an organization who test the design and
implementation of the entity's internal control procedures and the reliability
of its financial reporting.
In publicly traded U.S. corporations, boards of directors are largely chosen by the
President/CEO and the President/CEO often takes the Chair of the Board position
for him/herself (which makes it much more difficult for the institutional owners
to "fire" him/her). The practice of the CEO also being the Chair of the Board is
fairly common in large American corporations.
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While this practice is common in the U.S., it is relatively rare elsewhere. In the
U.K., successive codes of best practice have recommended against duality.
competition
debt covenants
demand for and assessment of performance information (especially financial
statements)
government regulations
managerial labour market
media pressure
takeovers
proxy firms
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corporation financial reports must be audited by an independent external
auditor who issues a report that accompanies the financial statements.
One area of concern is whether the auditing firm acts as both the independent
auditor and management consultant to the firm they are auditing. This may result
in a conflict of interest which places the integrity of financial reports in doubt due
to client pressure to appease management. The power of the corporate client to
initiate and terminate management consulting services and, more fundamentally,
to select and dismiss accounting firms contradicts the concept of an independent
auditor. Changes enacted in the United States in the form of the Sarbanes-Oxley
Act (following numerous corporate scandals, culminating with the Enron
scandal) prohibit accounting firms from providing both auditing and management
consulting services. Similar provisions are in place under clause 49 of Standard
Listing Agreement in India.
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11. Internal Control System
Basic Stance
TAIYO YUDEN's internal control activities form an integral part of the management
framework and indeed management itself to ensure accurate reporting of financial results,
compliance with laws and regulations, protection of assets and effective and efficient execution
of business operations. Securing the effectiveness of internal controls is a top-level, important
management priority at TAIYO YUDEN.
1.System for ensuring that Directors, Operating Officers and employees perform their
duties in accordance with laws, regulations and the Articles of Incorporation, as well as
a system for ensuring the appropriate business operations within the company group (the
"Taiyo Yuden Group") consisting of the Company and its subsidiaries
1) The Board of Directors shall resolve important matters in accordance with laws, regulations and the
Articles of Incorporation, as well as the "Board of Directors Regulations" and other internal regulations.
2) The Board of Directors shall strengthen the management system for risk factors surrounding the
management and supervise the execution of duties by Directors.
3) Audit & Supervisory Board Members shall monitor the appropriateness of resolutions by the Board
of Directors, as well as the execution of duties by Directors and Operating Officers.
4) A Internal Control Committee shall be established as a system to promote the Group's compliance
activities. The committee shall designate a responsible person for each of the items set forth in the
"Taiyo Yuden Group CSR Code of Conduct" and conduct compliance activities on an ongoing basis in
accordance with the compliance management system.
5) A whistle-blower system shall be operated for early detection of compliance-related problems of the
Group. The detected problems shall be investigated and corrective measures shall be taken to prevent a
recurrence.
6) Corporate information and other materials relating to the Group shall be swiftly and appropriately
disclosed to shareholders and investors.
7) A firm and uncompromising stance will be taken on an organizational basis against antisocial
movements or groups.
8) Internal control shall be streamlined and operated for the purpose of ensuring the reliability of
financial reports in accordance with the Financial Instruments and Exchange Act.
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sufficient exchange of information and coordination of interests shall be conducted with regard to
important information in accordance with the "Group Management Rules" to ensure appropriateness of
business operations while respecting the management intentions of the respective subsidiaries.
2. System for the storage and management of information with regard to the execution of
duties by Directors and Operating Officers of the Company
1)The Company shall record the statutory documents such as the minutes of the General Meetings of
Shareholders, the minutes of the Meetings of the Board of Directors, and the minutes of other important
meetings concerning the execution of duties by Directors and Operating Officers in the form of
documents or electromagnetic media, and store and manage them together with relevant materials, in
accordance with laws and regulations, as well as the respective meeting rules.
2)The Company shall maintain an environment that enables Directors and/or Audit & Supervisory
Board Members to access said information at any time in accordance with the respective meeting rules.
3. Rules for managing risks of loss with respect to the Company and other systems
2) As per the Company's Group Business Continuity and Risk Management Regulations, the effects on
business activities resulting from the occurrence of any risks including natural disasters shall be
preassumed, an emergency task force shall be formed depending on the scale of expected adverse effects
and preventive measures shall be taken in advance during peacetime. In case a business continuity
problem arises, countermeasures shall be taken in compliance with the BCP (Business Continuity Plan)
put in place to enable the early resumption of business activities.
4. System for ensuring the duties of Directors of the Company are efficiently performed
1) To ensure that decision making by the Board of Directors are appropriate and efficient, a collegial
body to deliberate important matters regarding the execution of business operations and personnel
affairs shall be established.
2) To improve the efficiency of the execution of duties by Executive Directors, Operating Officers shall
be in place.
3) An Internal Control Committee shall be established as a collegial body that deliberates on the internal
control system and evaluates its activities, and a person responsible for promotion shall be designated
for each item set forth in this resolution. The Internal Control Committee shall regularly receive
reporting from the aforementioned persons responsible for promotion on the activity achievements and
report the achievements to the Board of Directors.
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4) The decision-making process shall be simplified and accelerated by proactively leveraging various
computer systems for such applications as workflows, video conferences, the sharing of information
and information management by leveraging IT technology.
5. System for ensuring appropriate business operations within the Taiyo Yuden Group
1) System for reporting to the Company on matters concerning the execution of duties by Directors of
the subsidiaries of the Company and other persons with similar authority
ⅰ) The status of the performed business operations at subsidiaries shall be reported as per the
Company's "Group Management Rules" to encourage the sharing of information with relevant
departments of the Company.
ⅱ) The Company shall strive to understand the management circumstances of its subsidiaries
by dispatching some of its Operating Officers and/or employees to the relevant subsidiaries.
2) Rules for managing risks of loss with respect to any subsidiary of the Company and other systems
ⅰ) As per the Group risk management system, the subsidiary shall continuously perform its
risk identification, evaluation of risk levels, decision and execution of risk countermeasures and
monitoring/review of the status of implemented countermeasures.
ⅱ) As per the Company's Group Business Continuity and Risk Management Regulations, the
subsidiary shall preassume circumstances in which effects on business activities could result from the
occurrence of risks including natural disasters, determine the possible formation of an emergency task
force depending on the scale of expected adverse effects and take preventive measures in advance
during peacetime. In case a business continuity problem arises, the subsidiary shall take
countermeasures in compliance with the BCP (Business Continuity Plan) put in place to enable the early
resumption of business activities.
3)System for ensuring the duties of Directors, etc., of any subsidiary of the Company are efficiently
performed
ⅰ) The Company shall formulate its "Group Management Rules" to help subsidiaries handle
their decision making efficiently, whereas the subsidiaries shall put the rules into practice.
ii) The Internal Audit Office of the Company monitors whether business operations of
subsidiaries are conducted appropriately and efficiently from an independent standpoint. The
monitoring results shall be provided appropriately as feedback to the relevant subsidiaries and
to the Chief Executive Officer of the Company. The information therein also shall be shared
with the Audit & Supervisory Board Members of the Company.
4) System for ensuring that Directors and employees of any subsidiary of the Company perform their
duties in accordance with laws, regulations and the Articles of Incorporation of said subsidiary
ⅰ) As for important matters, the system to ensure the appropriateness of business operations
at subsidiaries shall be streamlined and maintained as per the Company's "Group Management
Rules."
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ii) As a system to promote compliance activities, a responsible person for each of the items set
forth in the "Taiyo Yuden Group CSR Code of Conduct" shall be designated to conduct
compliance activities on an ongoing basis in accordance with the compliance management
system.
6. System for ensuring effective audits by the Audit & Supervisory Board Members of
the Company
1) Matters regarding the employees appointed to support Audit & Supervisory Board Members of the
Company (Independence of said employees from Directors, ensuring effectiveness of the direction of
Audit & Supervisory Board Members, etc.)
ⅰ) As dedicated staff who support Audit & Supervisory Board Members' auditing operations
under the control of the Audit & Supervisory Board, employees who serve as secretariat
members (the "Secretariat Staff") shall be in place.
ii) Designation, transfer, performance evaluation, promotion, disciplinary actions, etc., of the
Secretariat staff shall be consulted with the Audit & Supervisory Board in advance to obtain its
accord.
2) Treatment of expenses that derive from the execution of duties by Audit & Supervisory Board
Members of the Company unless otherwise recognized that such costs are not necessary with regard to
the Audit & Supervisory Board Members' duties, the Company shall incur costs that have been caused
in relation to the audits by Audit & Supervisory Board Members.
3) Other systems for ensuring effective auditing by the Audit & Supervisory Board Members of the
Company
ⅰ) The Board of Directors shall create a system that allows Audit & Supervisory Board
Members to participate in important meetings on managerial matters and audit the decision-
making of Directors, as well as the execution of duties by Directors and Operating Officers.
ii) The Board of Directors shall create a system that allows Audit & Supervisory Board
Members to collect information in a timely manner that is necessary for their audits through
communication with Directors, Operating Officers, and employees, and also request, as
necessary, reports therefrom regarding the execution of their duties and inspect the relevant
documents.
iii) The Board of Directors shall create a system that allows Audit & Supervisory Board
Members to periodically exchange information with the Internal Audit Office, and take close
cooperation therewith.
iv) The Board of Directors shall create a system that allows Audit & Supervisory Board
Members to periodically, or on an as needed-basis, exchange information with the Accounting
Auditor, and request reporting therefrom, as necessary.
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7. System for reporting to Audit & Supervisory Board Members of the Company
1) System for reporting to Audit & Supervisory Board Members of the Company by Directors,
Operating Officers and employees of the Company
ⅰ) Directors, Operating Officers and employees of the Company, if any of them recognize a
fact that violates any laws, regulations, the Articles of Incorporation and/or internal regulations,
or a considerably improper fact that could be such a violating fact, or a fact that is feared to
cause significant damage to the Company, shall immediately report thereof to the Audit &
Supervisory Board Members.
ii) The system that allows any Director, Operating Officer or employee of the Company to
directly report to an Audit & Supervisory Board Member of the Company shall be streamlined
and maintained as per the Company's internal whistleblowing rules.
2) System for reporting to Audit & Supervisory Board Members of the Company by Directors and
employees of any subsidiary of the Company
ⅰ) The subsidiaries of the Company shall streamline and maintain the system that allows
Directors, etc., and employees of any subsidiary to directly report to Audit & Supervisory Board
Members of the Company with regard to the violation of laws, regulations and/or internal
regulations by Directors, etc., as per their respective internal whistleblowing rules.
ii) The Board of Directors shall endeavour to facilitate communication with full-time Audit &
Supervisory Board Members, Directors and employees of the subsidiaries, collect information
and maintain the environment for audits.
3) System for ensuring that anyone who has reported to an Audit & Supervisory Board Member does
not suffer from detrimental treatment for the reason of having made said report The Group shall stipulate
a scheme to fully protect informants in its internal rules, and streamline and maintain a preventive
system, under which anyone who has used the whistle-blower system to report to the Audit &
Supervisory Board and/or the Audit & Supervisory Board Members shall not be unfavourably treated.
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12. SUGGESTIONS
The study provides a useful framework for banks to improve and implement good
corporate governance structure and processes. The system of corporate
governance needs a change too with increasing competition, changes in business
environment and speeding up of technology and communication. There is need
to raise the standard of the corporate governance and make the nationalised banks
attractive for investments. There are suggestions made for individual banks,
shareholder’s bank’s supervisors or regulators
Bank
Corporate governance disclosure of the nationalised banks is good but in
relation to the mandatory disclosures banks need to adhere to the
compliance since it leads to violation of the SEBI guidelines leading to
stringent measures by the regulatory body. Bank should ideally give reason
for noncompliance.
Though the non-mandatory and other corporate governance requirement
disclosures are desirable but for effective and better governance it is
necessary that the banks comply the requirements. Disclosure in relation
to conducting postal ballot, nomination committee and independent
director needs to be enhanced. Banks without nomination committee need
to constitute since it helps in appointment of skilful and efficient directors.
CSR initiatives in banks are commendable however the disclosure levels
of Syndicate Bank and Vijaya Bank need to increase since it plays major
role in increasing its goodwill and reputation. Banks are engaging
themselves in various CSR activities which is indirectly contributing to
their increased market performance Rural development is taken as a major
initiatives by the Nationalised banks, apart from education, employment
and women empowerment. Banks need to have proper disclosure and clear
CSR strategy for its better performance.
Board committees are useful for better performance of the banks activities.
Canara bank needs to add up more number of committees according to the
requirement to enhance effective performance.
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Board Committees should comprise of members with appropriate talent for
its tasks assigned and who have diverse skills, knowledge and experience.
The competence or expertise of the Directors should become the principal
criterion for committee memberships.
Banks should initiate more seminars and workshops in order to highlight
the relevance of corporate governance.
Bank’s disclosure policy should be shared and approved by the
shareholders in AGM.
Since board meeting is showing positive correlation with that of corporate
governance disclosure level banks should make the meeting even more
effective for the betterment of the performance.
Bank’s annual general meetings with specific venue and timings make it
expensive and inconvenient for many shareholders to attend. It should not
be just a formality of holding the meetings but should be of productive
purpose. Hence the shareholders who are not able to attend the AGM
should avail of the postal ballot to cast their vote. However since the
procedure is not properly highlighted it is required that banks provide
details of the postal ballot in their annual report.
Grievance of shareholders needs to be redressed. Their feedback,
suggestions need to be given due consideration. Hence it is advisable to
have a help desk to shareholder’s which can provide handbook to
shareholder’s which highlights their rights and responsibilities since they
are one the major stakeholder’s of the bank. Corporate governance
should not be practiced just because of regulations but to ensure the
betterment and good performance to match to the level of various
stakeholders whom they are responsible.
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13. CONCLUSION
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Along with the compliance shareholders opinion in determining corporate
governance standards is also helpful. Hence the evaluation of the corporate
governance in banks is necessary to check the frauds and scams and protecting
the interest of the stakeholders becomes an essential element. CG is now
recognized as a paradigm for improving competitiveness, enhancing efficiency
and improving shareholders confidence.
The research finding shows that the corporate governance has a significantly
positive impact on the bank performance. It also indicated that the non-executive
director’s proportion has also major impact on the bank performance. Board
meeting enhances the corporate governance disclosure level but the board
committee does not have major impact on the corporate governance disclosure
level.
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14. BIBLIOGRAPHY
www.project fever.com
https://www.sebi.org
www.indianboards.com
https://blog.ipleaders.in
https://corporatefinance.com
https://www.civilserviceindia.com
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15. REFERENCES
7. Berle and Means' The Modern Corporation and Private Property, (1932,
Macmillan)
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