Changes Made Through Corporate Governance

Whistle-blower Procedures
Applies to the actions of any company member who exposes a perceived wrongdoing that is occurring within the organization.

Origin of the term whistleblower

From the practice of English bobbies who would blow their whistle when they noticed the commission of a crime. The blowing of the whistle would alert both law enforcement officers and the general public of danger.

Famous whistleblowers Cynthia Coopers

An internal auditor and consultant who is best known for being the whistleblower who exposed massive accounting fraud at WorldCom in 2002. A native of Clinton, Mississippi, Cooper worked as the Vice President of Internal Audit at WorldCom (telecom co.). After conducting a thorough investigation in secret, she informed the audit committee of WorldCom's board that the company had covered up $3.8 billion in losses through phony (false) bookkeeping. At the time, this was the largest incident of accounting fraud in U.S. history.
5

Satyendra Kumar Dubey

Project director at the National Highways Authority of India (NHAI). Accused employer in letter to the then Prime Minister Atal Behari Vajpayee. Was assassinated in Gaya, Bihar. For fighting corruption in the Golden Quadrilateral (Delhi, Mumbai, Chennai and Kolkata highway) construction project.
6

 Do you believe Whistle Blowing is more effective in U.S.A. than in India?

Importance
Two types of impressions : brave people and traitors to their company or colleagues. Whistle blowers need protection.

Example
Kopchinski blew the whistle on Pfizers marketing activity and received $51.1 million of the penalty that Pfizer paid for illegally marketing some of its drugs. Four other whistleblowers received some of the award as well, but Kopchinski earned the largest piece of the pie for his role.

 Prepare a role-play on Whistle Blowing in a team.

Protecting the Rights of Whistleblowers

The rights of whistle-blowers within a company publicly traded on a U.S. market are protected by the Sarbanes-Oxley (SOX) Act. Provides protection by offering specific penalties that may be implemented should whistle-blowers suffer from retribution/ vengeance.

Establishing Policies
SOX requires that corporations establish their own internal policies and procedures. Facilitate whistle-blowing activities and prevent unfair retribution. The inclusion of privacy provisions, processes for reporting, strategies for investigating reports, and, in some cases, the establishment of a compliance officer or committee.

Duties of the Whistle-blower

Expected to move through appropriate channels within their company before going public with their concerns. Conduct themselves with a strong sense of honesty and integrity. Allegations should be based on evidence.

Educating Employees
Company members must be informed and educated about the rights and duties of whistle-blowers. An employee education program could include the publishing of a formal written code and ethics workshops that discuss whistle-blowing.

Code of Ethics
An ethics code is valuable because it removes the question of whether an action is tolerable to the corporation or not. Reduces the ambiguity that can arise from unclear and unwritten guidelines.

Compensation Packages
The overpaid Chief Executive Officer Corporations benefit from high CEO salaries because those salaries allow them to recruit the best prospects.

Corporate Governance in India

Unlike South-East and East Asia, the corporate governance initiative in India was not triggered by any serious nationwide financial, banking and economic collapse. The initiative in India was initially driven by an industry association, the Confederation of Indian Industry

Corporate Governance in India

In December 1995, CII set up a task force to design a voluntary code of corporate governance The final draft of this code was widely circulated in 1997 In April 1998, the code was released. It was called Desirable Corporate Governance: A Code Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddys Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others

Corporate Governance in India

Following CIIs initiative, the Securities and Exchange Board of India (SEBI) set up a committee on May 7, 1999 under Kumar Mangalam Birla to design a mandatory-cumrecommendatory code for listed companies The Birla Committee Report was approved by SEBI in December 2000 Became mandatory for listed companies through the listing agreement, and implemented according to a rollout plan.

Corporate Governance in India

Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees

Corporate Governance in India

Based on the recommendations of this Committee, a new clause 49 was incorporated in the Stock Exchange Listing Agreements

Recommendations of the Kumarmangalam Birla Committee

Financial reporting To review the continuous disclosure requirements under the listing agreement for listed companies. To provide input to the Institute of Chartered Accountants of India (ICAI) For introducing new accounting standards in India To review existing Indian accounting standards Harmonize these accounting standards and financial disclosures on par with international practices.

Compliance with the Code and SEBIs experience

All companies are required to submit a quarterly compliance report to the stock exchanges within 15 days from the end of a financial reporting quarter. The report has to be submitted either by the Compliance Officer or by the Chief Executive Officer of the company after obtaining due approvals. SEBI has prescribed a format in which the information shall be obtained by the Stock Exchanges from the companies.

The companies have to submit compliance status on eight sub-clauses

Board of Directors Audit Committee Shareholders / Investors Grievance Committee Remuneration of directors Board procedures Management Shareholders and Report on Corporate Governance.

Financial literacy of members of the audit committee

Suggestions were received that all audit committee members should be financially literate and at least one member should have accounting or related financial management expertise. The term financially literate means the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows.

Financial literacy of members of the audit committee

A member will be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individuals financial sophistication.

Non-mandatory recommendation
Companies should be encouraged to train their Board members in the business model of the company as well as the risk profile of the business parameters of the company, their responsibilities as directors, and the best ways to discharge them.

Code of Conduct
Written code for executive management, For senior financial personnel It should be obligatory for the Board of a company to lay down the code of conduct for all Board members and senior management of a company. This code of conduct shall be posted on the website of the company.

Whistle Blower Policy

Mandatory recommendation

Personnel who observe an unethical or improper practice (not necessarily a violation of law) should be able to approach the audit committee without necessarily informing their supervisors. Companies shall take measures to ensure that this right of access is communicated to all employees through means of internal circulars, etc. The employment and other personnel policies of the company shall contain provisions protecting whistle blowers from unfair termination and other unfair prejudicial employment practices.