Jewish

saying on
a wise
father
someone who hugs his
child with one hand, while
pushing him away with the
other hand
ideal relationship between
family and business
apt way to describe
Family Support
is indispensable
Financial
entanglement
harms both
family and
business
DISADVANTAGES
Personal assets at risk
Company is perceived as unprofessional by
employees and others. Difficulty in attracting
employees or partners
Financials are not trusted leading to lower valuation
and more difficulty in funding
Difficulties in scaling


Personal guarantee

Personal assets deployed in business

Family members in important positions who do not contribute

Same bank accounts or credit cards used for personal and official expenses

Personal expenses charged to business
Disentanglement has long term advantages and may require some sacrifices
A "balanced" relationship between family and business can get you the best of both worlds










Scalability - Help to survive in an increasingly competitive environment through
expansion, mergers, acquisitions, partnerships etc

Trust - Good business governance provides all stakeholders with greater confidence
in dealing with you and you will get better terms from them

Transparency Good business governance ensures that stakeholders are sufficiently
informed on decisions concerning fundamental issues

Reduces conflicts of interest Good business governance ensures a smooth inter-
generational transfer of wealth and divestment of family assets, as well as reducing the
chance for conflicts of interest to arise

Better margins - Good business governance practices leads to a better system of
internal control, thus leading to greater accountability and better profit margins.

Attracts Investment - Good business governance practices can pave the way for
possible future growth, diversification, or a sale, including the ability to attract equity
investors nationally and from abroad as well as reduce the cost of loans/credit for
corporations
Ethical Practices









Genuinely believe that
family and business
must be separated

Practice this belief and
be seen to be so
practicing - walk the talk

Not a short term process

Holistic process























Start by disentangling the finances

Keep true and transparent accounts -
engage a professional for this - not a family
retainer

The standards of expense claim must be
the same for the owners as for the
employees

No siphoning of funds

Avoid employing relatives or appointing
them to Board positions

Based on the above, build confidence with
bank wherein your personal guarantee is
withdrawn. Offer to the bank that they can
nominate an independent director to the
board

Build confidence with the tax department
too that no personal expenses are charged
to business






Use of home as office

Use of real estate as office or factory

Use of other assets for business

Personal and family funds loaned to
business








To disentangle


Some practical steps that can be taken





Pitfalls to avoid






Legitimate use of personal assets and
precautions to be taken





Breaching deposit regulations and
Company Law

Deemed dividend under Income Tax
law

Family
run
business

Disentangle
Build
ethical
practices

Some
sacrifices/
Sufferings

Good
business
governance


Corporate governance
introduced by SEBI vide
special provision Clause 49
of the listing agreement

Applicable to all listed
companies

Core concepts of corporate
governanceequity,
transparency, faith, and
accountability

Oriented to
shareholders

To ensure that a
company adopts ethical,
fair and transparent
practices across its
entire value chain and in
all its dealings with
stakeholders and
outsiders


Introduction and
meaning
Objective Current industry
perception
Corporate governance
equated with control and
compliance;

At best with reporting,
transparency and ethics.

Not as a core
management process
benefiting all stakeholders

Mandatory for
all listed
companies
Composition of
board of directors
Board procedure,
Code of conduct,
Audit committee,
Meeting of audit
committee,
The powers of
audit committee,
Role and review
of audit
committee, and
Disclosure
requirements
BOD should
have optimum
combination of
executive and
non-executive
directors
with not less
than fifty
percent of the
board of
directors
comprising of
non-executive
directors.
Mandatory
Minimum 3
directors, 2/3rds
of whom shall be
independent
directors
meeting should
be held 4 times a
year
ensure
compliance of
internal control
system
review the
financial
statements
To audit
committee -
Basis of related
party transaction
Board disclosure
on risk
management
Proceeds from
IPO
Remuneration of
Directors


1)M D &A, in the Annual Report
should include
Industry structure &
developments. Opportunities
and Threats.
Segmentwise or product-
wise performance.
Outlook.
Risks and concerns.
Internal control systems and
their adequacy.
Discussion on financial
performance with respect to
operational performance.
Material developments in
Human Resources / Industrial
Relations front, including
number of people employed
2)Report on Corporate
governance by the BOD in
the annual report
Clause 49 of the listing agreement
Applicability
Scope
B O D
Audit
Committee
Disclosure
Reporting
Requirements
Filing
To stock
exchange

File Quarterly
audited/unaudit
ed results
Violation Penalties / legal consequences
Listing agreement non-compliance

Companies cannot list their securities on BSE/NSE
Delisted for non compliance with Listing agreement
Imprisonment for a term which may extend to ten years or with fine,
which may extend to 25 crore rupees, or with both(section 23 of
SCRA)
Audit committee non-compliance
Fine of Rs.50,000 / imprisonment for 1 year/both
(section 292A of the Companies Act)
Non- Disclosure of interest of director
Fine of Rs.50,000 for each director
(section 299 of the Companies Act)
Board report non-compliance

Punishable with a fine of Rs. 20,000 or imprisonment for 6 months or
both
(section 217 of the Companies Act)
Moving beyond
investor
protection
Creating stakeholder
value through
transparent, efficient and
effective practices

Preventing
negative
behavior
Reinforcing
positive
behavior
Board and corporate level
Conflict of interest
False reporting
Misuse of authority
- Such as throttling competition
Destructive behaviour for short
term benefit
- Such as borrowing when there is
no potential to repay
Other unethical practices
- Such as bribing officials
Employee level
Conflict of interest
False reporting
Misuse of authority
- Such as sexual harassment
Other unethical practices
- Such as accepting bribes
Examples of negative behavior
Examples of positive behavior
Stated adherence to ethical practices

Employee appraisal and reward programmes which are fair and well
understood

Prompt payment to vendors with clear and measurable
communications on deficiency

Priority to addressing customer complaints

High sensitivity to all stake holders
Ethical practices are an essential condition for
good governance
Applies to both business and government
No misuse of authority
Maintaining clean set of books
Ethical practices -Business
No bribery, nepotism etc
Honesty in reporting of government finances
Ethical practices -Government
No favoritism
Decision by
Supreme Court
in Vodafone
case
Will encourage
unethical
practices by tax
payers
Unethical
Retrospective
legislation by
Government
No misuse of authority
Governance Management
Governance Management
When it moves
From
To


QUESTIONS