Corporate Governance under Clause 49 oI the Listing Agreement (As Revised on October 29, 2004) Compliance and CertiIication Provisions, Issues and Safeguards (Seminar in Vadodara on Dec. 17, 2005)
Corporate Governance under Clause 49 oI the Listing Agreement (As Revised on October 29, 2004) Compliance and CertiIication Provisions, Issues and Safeguards (Seminar in Vadodara on Dec. 17, 2005)
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Corporate Governance under Clause 49 oI the Listing Agreement (As Revised on October 29, 2004) Compliance and CertiIication Provisions, Issues and Safeguards (Seminar in Vadodara on Dec. 17, 2005)
Copyright:
Attribution Non-Commercial (BY-NC)
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Download as PPS, PDF, TXT or read online from Scribd
(As Revised on October 29, 2004) Compliance & CertiIication Provisions, Issues & Safeguards (Seminar in Vadodara on Dec. 17, 2005) By Mahavir Lunawat Corporate Secretarial, RIL istory Sequence oI Events Accounting Scams US Sarbanes Oxley Act, 2002 Narayana Murthy Committee on Corporate Governance Amendments to Clause 49 oI the Listing Agreement August 26, 2003 October 29, 2004 Outline Board Structure Subsidiary Check Board Procedure Compensation oI Non Exec Directors Audit Committee Policies/Codes - Code oI Conduct, Risk Mgt., Compliance Report CEO/CFO CertiIication Disclosures Other Provisions Non-Mandatory Provisions Board Structure Exec. and Non-Exec. Directors |49.I(A)(i)| Optimum Combination At least 50 - Non-Exec. on-Exec. Director may have a tenure not exceeding, in aggregate, a period oI 9 years Issues Issues Safeguards Safeguards Board Structure - Issues Optimum` ? Max No. oI Non-Executive Directors What iI 100 Term oI Non Executive Directors` OIIice From when ? Senior Directors? Board Structure - SaIeguards Optimum Combination Company`s discretion Balanced Board Term oI Non-Executive Directors` OIIice Board`s call Disclosure oI adoption / non-adoption Board Structure Independent Directors Number |49.I(A)(ii)| Non-Exec. Chairman - 1/3rd Independent Exec. Chairman - 1/2 the Board Independent (CP -SpeciIied Cos.(net worth 5 cr / turnover 20 cr) - Min. 7 Directors, Majority Independent) Board Structure contd. Independent Directors - DisqualiIications |49.I.(A)(iii)| Those Non-Exec. Directors not disqualiIied on any oI 6 grounds - Material Pecuniary Relationship Related to promoters/management olding oI Executive Post in the Company in last 3 years Partner/Executive oI Audit/Legal Firms associated in last 3 years Material Transactions which may aIIect independence Substantial Shareholding (CP Attributes`) Institutional Directors - Whether Investing or Lending - considered Independent Issues Issues Safeguards Safeguards Board Structure - Issues Prov. as to No. oI Independent Directors - lacks harmonisation. Very wide Monitoring ? UndeIined Terms Materiality ? Related` ? Executive ? Board Structure - SaIeguards Concept oI Materiality` to be judged Irom the director`s point oI view. Institution oI System to determine and ensure independence Initial as well as periodic. Relevant disclosures eg. list oI relatives`. Subsidiary Check olding Company Board Composition shall apply At least 1 Independent Common Director (Applicable to Material non-listed Indian Subsidiary`) Audit Committee oI olding Co. to review Fin. Statements, incl. Investments oI unlisted subsidiary. Unlisted subsidiaries` Board minutes & their periodic statement oI signiIicant transactions & arrangements to be placed beIore olding Company Board. |49.III| Issues Issues Safeguards Safeguards Material non-listed ndian subsidiary "material non-listed ndian subsidiary : An unlisted subsidiary, incorporated in ndia, whose turnover or net worth exceeds 20% of the consolidated turnover or net worth respectively, of the listed holding company in the immediately preceding accounting year. "significant transaction or arrangement : Any individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the material unlisted subsidiary for the immediately preceding accounting year. [Explanations to 49.] Subsidiary Check - Issues DeIinition oI subsidiary`? Overseas/JVSubsidiaries ? Common Independent Directors Problems Status oI Employees/Directors nominated by olding Co.? SEBI - Going Beyond Review oI Board Minutes, Fin. St., Investments : What would the term Review` mean? Goes against Cos. Act/AOA JV/Non wholly-owned Subsidiaries - Prejudicial to Shareholders Interest Concept oI Separate Entity` - ignored. Subsidiary Check Issues contd.. Subsidiary Check - SaIeguards Subsidiary` As per the Companies Act Subsidiary Monitor Periodic ReIerencer Review Periodicity - Quarterly Board Procedure Number & Frequency oI Board Meetings |49.I(c)(i)| At least 4 times a year, max. gap - 3 mths. (Cos. Act-Sec.285 - at least once in every quarter & Min. 4 meetings in a year; CP- Max. Gap between two consecutive meetings - 3 months.) InIormation to be placed - Prescribed. |49.I(c)(ii)| Committee Memberships/Chairmanships Max No. 10 / 5 committees (Remuneration Committee excluded) across all public companies excl. Sec.25 & Ioreign cos. (Cos. Act /CP - Max no. oI directorships) Issues Issues Safeguards Safeguards No. oI Meetings / Agenda Items What Systems ? Committee memberships within limit ow to ensure ? Max. gap oI 3 months ow to be construed ? Board Procedure - Issues Board Procedure - SaIeguards Illustrative List oI Board Agenda Circulation & Monitoring Register oI Committee Memberships / Chairmanships Month to be construed to mean a period oI 30 days. Tentative Board Calendar Compensation oI Non Exec Directors Fee/Compensation to be Iixed by Board and approved by shareholders in general meeting (Cos.Act Prov.) Limits to be set Ior max. no. oI Stock Options in a year and in aggregate (SEBI Guidelines on ESPS/ ESOS) |49.I.(B)| Issues Issues Safeguards Safeguards Compensation oI Non Exec Directors Issues Approval Ior sitting Iee ? Stock Options Prov. as to setting up oI limits should instead be provided under the ESOS Guidelines. SaIeguards Shareholders` Resolution in General Meeting Audit Committee |49.II| QualiIied & Independent Audit Committee mandatory (Cos. Act / CP: where 5 cr. paid-up capital) Members Number Min. 3, 2/3 rd to be independent. (Cos. Act : Min 3. 2/3 rd NEDs; CP : Min 2 Ind., Max Ind. 3/4 th , 2/3 rd to be NEDs) Eligibility All Iinancially literate, i.e., able to read and understand basic Iinancial statements. At least 1 having accounting or related Iinancial management expertise, satisIying any oI the Iollowing : Experience in Iinance or accounting, or Requisite ProIessional certiIication in accounting, or Financial Sophistication Audit Committee |49.II| Chairman - An Independent Director, to be present at AGM to answer shareholders` queries. (Cos.Act / CP- Chairman to be elected by the Members oI the Committee Irom themselves) Secretary - Company Secretary. Invitees - As the Committee considers Iit. Finance Director, ead-Internal Audit, Rep oI Auditor may be present. (Cos. Act / CP - Finance Director, Auditor shall be present) Audit Committee etc. |49.II| Meetings : At least 4 & max. gap between two meetings to be not more than 4 months. Quorum : 2 members or 1/3rd - higher; with Min. 2 Independent. Recommendations - Silent. (Cos. Act : Recommendations re. F.M. incl. Audit Report - binding on the Board. Non- acceptance - reasons to be recorded; communication to the shareholders.) Powers: Inclusive list Role Mandatory Review oI InIormation Issues Issues Safeguards Safeguards Audit Committee - Issues Financial Literacy - Needs Min QualiIication Accounting & related F.M. expertise - too wide, might have been made more clear & exact. CertiIication in Accounting only. Finance (like CFA/MBA)? No. oI years oI experience. Audit Committee Issues contd. Invitees Needs armonisation Should be restricted to the judgement oI the Committee Auditor - Diverse Requirement, Cost Auditor? Decisions oI Audit Committee? Review - what does it mean? Periodicity - Not speciIied. Audit Committee SaIeguards ConIirmation disclosures Irom Audit Committee members / proposed members Minuting Audit Committee Charter Tentative Audit Committee meetings calendar Compliance Review Board to periodically review |49.I.(C)(iii)| compliance reports oI all laws applicable to the company steps taken by company to rectiIy instances oI non-compliances. Issues Issues Safeguards Safeguards In conIlict with Naresh Chandra Committee I & II. Legal Compliance Report - too large Review what does mean? Going Beyond - Statutory Compliance other than Securities Law perhaps outside SEBI`s ambit. - Doctrine oI Colourable Legislation? Compliance Review - Issues Compliance Review - SaIeguards Exhaustive Statutory Compliance Checklists Summary Report covering compliance conIirmations; non-compliance to be highlighted alongwith reasons & steps Ior rectiIication thereoI. Back-to-back conIirmations or direct reports periodically Compliance OIIicer Periodicity May be monthly. Code oI Conduct Board to lay down a Code oI Conduct Ior Directors and Senior Management Explanation: 'senior management shall mean personnel oI the company who are members oI its core management team excluding Board oI Directors. Normally, this would comprise all members oI management one level below the executive directors, including all Iunctional heads. Code to be posted on website Such personnel to aIIirm compliance annually Annual Report to contain Declaration signed by CEO. |49.I.(D)| Issues Issues Safeguards Safeguards Although based on Section 406 oI SOX Act, 2002, no clue as to the contents. Not even broad parameters provided. What iI no website ? Breach oI Code ? Code oI Conduct - Issues Code oI Conduct - SaIeguards Exhaustive Code Compliance OIIicer Senior Management Web-site / Annual Report Provision Ior waiver / consequences oI breach Risk Management Company to lay down procedures to inIorm Board about risk assessment and minimisation procedures. Periodic Review oI Risk Control Framework through means oI properly deIined Iramework. |49.IV.(C)| Issues Issues Safeguards Safeguards Too wide; practicability ? Responsibility ? Purpose ? Periodicity ? Risk Management - Issues Risk Management - SaIeguards Manual Periodicity monthly / quarterly Reporting to Board through Audit Committee Risk Manager CEO & CFO CertiIication CEO & CFO to certiIy to Board that Reviewed Fin. Statements & Directors Report No material untrue/ misleading statement No omission oI material Iact They present true & Iair view in compliance with Accounting Standards and applicable laws CEO & CFO CertiIication contd.. They are responsible Ior internal controls - have evaluated their eIIectiveness - have disclosed to Auditors deIiciencies, iI any and action. have disclosed to Auditors and Audit Committee - signiIicant Irauds iI any involving mgmt./ employees no signiIicant changes in internal control and/ or accounting policies during the year |49.V| (Cos. Act - Responsibility Statement) Issues Issues Safeguards Safeguards Only an additional certiIication process Dilutes overall Board`s responsibilities Sec. 217(2AA) on Directors` Responsibility Statement introduced by Amendment Act, 2000 OIIicer in deIault` concept ? CEO & CFO CertiIication - Issues CEO & CFO CertiIication - SaIeguards Back-to-back conIirmations Periodicity annual Audit Committee role A comIort Related Party Transactions To Audit Committee periodically Summary Statement oI transactions with Related Parties Details oI material individual transactions with related parties not in normal course Management justiIication Ior transactions not on arm`s length |49.IV.(A)| Issues Issues Safeguards Safeguards Related Party Transactions Issues Periodicity? Material Individual Transactions ? SaIeguards Periodicity may be quarterly. Materiality may be linked to quantitative limit Auto systems Disclosures |49.IV| By Non-Exec. Directors - prior to appointment - shareholding/ beneIicial interest (Cos. Act - Sec. 308 covers same Reg. 13(2) oI Insider Trading Regulations) Treatment diIIerent than in Accounting Standards together with management explanation in Fin. St. (Cos. Act - Sec. 211(3B) contains the same prov.) Issue Proceeds Quarterly disclosure oI uses/application oI Iunds raised by PreIerential Allotment Annual Statement oI Iunds utilised Ior purposes other than stated purposes certiIied by statutory auditors to the Audit Committee till such time, money raised is Iully spent. Criteria oI making payments to NEDs - in Annual Report or corporate website Other Provisions Shareholders Grievance Committee Disclosure oI Directors` Remuneration Mgmt. Discussion and Analysis Report Shareholder InIormation on Website Quarterly Compliance Report Compliance Cert. Irom Auditors / Co. Secretaries Non-Mandatory Provisions OIIice oI Non-Exec Chairman Remuneration Committee alI-yearly perIormance Regime oI unqualiIied Iinancial statements Directors` training on corporate business model as well as risk proIile etc. NEDs` perIormance evaluation Whistle blower policy Extent oI adoption / non-adoption to be disclosed. Amidst the plethora of stipulations & issues, we Company Secretaries in employment as well as in practice have to excel and benchmark our professional excellence in the field of Corporate Governance Your views are welcome at - Mahavir.lunawatril.com, m_lunawat1rediffmail.com Thank You '
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