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BUSINESS AND AFFAIRS OF CORPORATE SECTOR IS DIRECTED AND MANAGED OBJECTIVE OF CORPORATE GOVERNANCE a) TO BUILD UP AN ENVIRONMENT OF TRUST AND
CONFIDENCE AMONGST THOSE HAVING COMPETING AND CONFLICTING INTEREST b) TO ENHANCE SHAREHOLDERS VALUE AND PROTECT THE INTEREST OF OTHER STAKEHOLDERS BY ENHANCING THE CORPORATE PERFORMANCE AND ACCOUNTABILITY Our corporate governance philosophy is based on the following principles: 1. 2. 3. 4. 5. 6. 7. Satisfy the spirit of the law and not just the letter of the law. Corporate governance standards should go beyond the law Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose Make a clear distinction between personal conveniences and corporate resources Communicate externally, in a truthful manner, about how the Company is run internally Comply with the laws in all the countries in which we operate Have a simple and transparent corporate structure driven solely by business needs Management is the trustee of the shareholders' capital and not the owner.
25 recommendations, 19 of them `mandatory' in the sense that these were enforceable. The listed companies were obliged to comply with these on account of the contractual obligation arising out of the listing agreement with Stock Exchanges. It will be interesting to note that Kumar Mangalam Committee while drafting its recommendations was faced with the dilemma of statutory v/s voluntary compliance. You may also be aware that the desirable code of Corporate Governance, which was drafted by CII and was voluntary in nature, did not produce the expected improvement in Corporate Governance. It is in this context that the Kumar Mangalam Committee felt that under the Indian conditions a statutory rather than a voluntary code would be far more purposive and meaningful. This led the Committee to decide between mandatory and non-mandatory provisions. The Committee felt that some of the recommendations are absolutely essential for the framework of Corporate Governance and virtually form its code, while others could be considered as desirable. Besides, some of the recommendations needed change of statute, such as the Companies Act for their enforcement. Faced with this difficulty the Committee settled for two classes of recommendations. The SEBI had already implemented through the amendment of the listing agreement of the stock exchanges (listing agreement's clause 49). The recommendations applicable first to all the listed companies which are included either in group A of the BSE and in S&P CNX Nifty index as on January 1, 2000 to be completed by March 31, 2001 and in the subsequent years to other companies in a phased manner. This substantially enhanced the standard of corporate governance in India. some of the norms related to corporate governance such as disclosure norms for IPOs, presentation of information on utilisation and end-use of funds, statement on cash flow in balance sheet, declaration of unaudited quarterly results etc. By march 31, 2001 all entities, which were included in Group 'A' of the BSE or in CNP Nifty index as on January 1, 2000 have been compulsorily required to fulfill the directions that have been issued. This effectively covered 80% of the market capitalisation. So, we can now see in the annual reports of listed Companies more details regarding directors, their remunerations, details of the audit committee, shareholder's grievance committee, and general shareholder information. SEBI has formed a Committee on corporate governance to review implementation by listed companies. Earlier Mr. JR Verma headed this committee. Recently SEBI has appointed Mr N.R. Narayana Murthy, Chairman, Infosys Technologies, to head the committee and to review implementation of the code by listed companies. He will take over from the former SEBI member, Mr. J.R.verma. According to SEBI, a few new members would also be inducted on the panel. The committee would study the implementation of CG code and recommend changes to improve practices. The rating agencies Crisil and ICRA were also working out a model and methodology of CG rating and would put it up to the Panel. It may suggest parameters for assessing the wealth sharing behaviour of corporates in the model. To propagate better compliance of the standards of corporate governance SEBI will be organising a conferences periodically at key metropolitan centers.
Announcement by the companies on dividend, rights etc. to be made only after the close of the market hours to avoid excessive volatility in stock prices.
Corporate like Infosys have changed the way annual reports used to be. Detailed charts and graphs, which are easy on the eyes, have become increasingly common. These steps are in the right direction and combined with quarterly results etc, there is a lot of information that a shareholder can get. Maybe companies need to look at small shareholders differently by issuing them separate reports, which are better prepared and speak in lay terms. They should have brief analysis, comparative charts, a brief industry report, performance highlights and some general information. Main points of audit reports could be presented in a readable manner. This will make the document less dense and more reader friendly. At their option, the shareholder could demand detailed report or access the company website. The company not only needs to treat its shareholders as the owners but also as their customers. A customer who can at least expect an annual report that is tailored with his profile in mind.
The board of directors is a combination of executive directors and non-executive directors. The nonexecutive directors comprise of promoter directors and independent directors. Independent directors are those, who, apart from receiving director's remuneration, do not have any material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries that in the judgement of the Board may affect their independence of judgement. The Chairman of the Audit Committee should be present at Annual General Meeting to answer shareholder-queries. The Company Secretary should act as the secretary to the Audit Committee. The Audit Committee should meet at least thrice a year. The quorum should be either two members or one-third of the members of the Audit Committee. The Audit Committee should have powers to investigate any activity within its terms of reference, to seek information from any employee; to obtain outside legal or professional advice, and to secure attendance of outsiders if necessary. The Audit committee should discharge various roles such as, reviewing any change in accounting policies and practices; compliance with Accounting Standards; compliance with Stock Exchange
and legal requirements concerning financial statements; the adequacy of internal control systems; the company's financial and risk management policies etc. The Board of Directors should decide the remuneration of the non-executive Directors. Full disclosure should be made to the shareholders regarding the remuneration package of all the Directors. The Board meetings should be held at least four times a year. A Director should not be a member in more than ten committees or act as the chairman of more than five committees across all companies in which he is a Director. This is done to ensure that the members of the Board give due importance and commitment of the meetings of the Board and its committees. The management must make disclosures to the Board relating to all material, financial and commercial transactions, where they have personal interest. In case of the appointment of a new Director or re-appointment of a Director, the shareholders must be provided with a brief resume of the Director, his expertise and the names of companies in which the person also holds Directorship and the membership of committees of the Board. A Board committee should be formed to look into the redressal of shareholders' complaints like transfer of shares, non-receipt of balance sheet, dividend etc. There should be a separate section on Corporate Governance in the annual reports of the companies with a detailed compliance report.
Apart from these, the Kumar Mangalam Committee also made some recommendations that are nonmandatory in nature as already mentioned by me above. Some of the non-mandatory recommendations are that: The Board should set up a Remuneration Committee to determine the company's policy on specific remuneration packages for executive Directors. Half-yearly declaration of financial performance including summary of the significant events in the last six months should be sent to each shareholder. Non-executive chairman should be entitled to maintain a chairman's office at the company's expense. This will enable him to discharge the responsibilities effectively.