CORPORATE GOVERNANCE

Presented By:-

Shubhamveer Singh (mb15)Saurabh Pratap Rao (mb43)Jai Prakash Kushwaha(mb57)Ankur Jaiswal (mb70)

Corporate Governance

Corporate Governance is the application of

best management practices, compliance of

law in true letter and spirit and adherence to

ethical standards for effective management

and distribution of wealth and discharge of

social responsibility for sustainable

development of all stakeholders.

Conduct of business in accordance with

shareholders desires (maximising wealth)

while confirming to the basic rules of the

society embodied in the Law and Local

Customs

Corporate GovernanceRelationships among various participants in

determining the direction and performance of

a corporation.

Effective management of relationships among

– Shareholders

– Managers

– Board of directors

– employees

– Customers

– Creditors

– Suppliers

– community

Why Corporate Governance?

Better access to external finance

Lower costs of capital – interest rates on

loans

Improved company performance –

sustainability

Higher firm valuation and share performance

Reduced risk of corporate crisis and scandals

Principles of Corporate Governance

Sustainable development of all stake

holders- to ensure growth of all individuals

associated with or effected by the enterprise

on sustainable basis

Effective management and distribution of

wealth – to ensue that enterprise creates

maximum wealth and judiciously uses the

wealth so created for providing maximum

benefits to all stake holders and enhancing its

wealth creation capabilities to maintain

sustainability

Discharge of social responsibility- to ensure that

enterprise is acceptable to the society in which it is

functioning

Application of best management practices- to

ensure excellence in functioning of enterprise and

optimum creation of wealth on sustainable basis

Compliance of law in letter & spirit- to ensure value

enhancement for all stakeholders guaranteed by the

law for maintaining socio-economic balance

Adherence to ethical standards- to ensure integrity,

transparency, independence and accountability in

dealings with all stakeholders

Four Pillars of Corporate Governance

Accountability

Fairness

Transparency

Independence

Accountability Ensure that management is accountable to the

Board

Ensure that the Board is accountable to

shareholders

Fairness

Protect Shareholders rights

Treat all shareholders including minorities,

equitably

Provide effective redress for violations

Transparency

Ensure timely, accurate disclosure on all

material matters, including the financial

situation, performance, ownership and

corporate governance

Independence

Procedures and structures are in place so as

to minimise, or avoid completely conflicts of

interest

Independent Directors and Advisers i.e. free

from the influence of others

Elements of Corporate GovernanceGood Board practices

Control Environment

Transparent disclosure

Well-defined shareholder rights

Board commitment

Good Board Practices

Clearly defined roles and authorities

Duties and responsibilities of Directors

understood

Board is well structured

Appropriate composition and mix of skills

Good Board procedures

Appropriate Board procedures

Director Remuneration in line with best

practice

Board self-evaluation and training conducted

Control Environment

Internal control procedures

Risk management framework present

Disaster recovery systems in place

Media management techniques in use

Control Environment

Business continuity procedures in place

Independent external auditor conducts audits

Independent audit committee established

Control Environment

Internal Audit Function

Management Information systems established

Compliance Function established

Transparent Disclosure

Financial Information disclosed

Non-Financial Information disclosed

Financials prepared according to International

Financial Reporting Standards (IFRS)

Transparent Disclosure

Companies Registry filings up to date

High-Quality annual report published

Web-based disclosure

Well-Defined Shareholder Rights

Minority shareholder rights formalised

Well-organised shareholder meetings

conducted

Policy on related party transactions

Well-Defined Shareholder Rights

Policy on extraordinary transactions

Clearly defined and explicit dividend policy

Board Commitment

The Board discusses corporate governance

issues and has created a corporate

governance committee

The company has a corporate governance

champion

A corporate governance improvement plan

has been created

Appropriate resources are committed to

corporate governance initiatives

Board Commitment

Policies and procedures have been formalised

and distributed to relevant staff

A corporate governance code has been

developed

A code of ethics has been developed

The company is recognised as a corporate

governance leader

Other Entities

Corporate Governance applies to all types of

organisations not just companies in the

private sector but also in the not for profit and

public sectors

Examples are NGOs, schools, hospitals,

pension funds, state-owned enterprises

Corporate governance in India The Indian corporate scenario was more or less

stagnant till the early 90s.

The position and goals of the Indian corporate sector has changed a lot after the liberalisationof 90s.

India’s economic reform programme made a steady progress in 1994.

India with its 20 million shareholders, is one of the largest emerging markets in terms of the market capitalization.

Corporate governance of India has undergone a paradigm shift

In 1996, Confederation of Indian Industry (CII), took a special initiative on Corporate Governance.

The objective was to develop and promote a code for corporate governance to be adopted and followed by Indian companies, be these in the Private Sector, the Public Sector, Banks or Financial Institutions, all of which are corporate entities.

This initiative by CII flowed from public concerns regarding the protection of investor interest, especially the small investor, the promotion of transparency within business and industry

Securities and Exchange Board of India

The Government of India's securities watchdog, the

Securities Board of India, announced strict corporate

governance norms for publicly listed companies in

India.

The Indian Economy was liberalised in 1991. In

order to achieve the full potential of liberalisation and

enable the Indian Stock Market to attract huge

investments from foreign institutional investors (FIIs),

it was necessary to introduce a series of stock

market reforms.

SEBI, established in 1988 and became a fully

autonomous body by the year 1992 with defined

responsibilities to cover both development and

SEBI

On April 12, 1988, the Securities and Exchange

Board of India (SEBI)was established with a dual

objective of protecting the rights of small investors

and regulating and developing the stock markets in

India.

In 1992, the ‘BSE’ ,the leading stock exchange in

India, witnessed the first major scam masterminded

by Harshad Mehta.

Analysts felt that if more powers had been given to

SEBI,the scam would not have happened.

•As a result the ‘GoI’ brought in a separate legislation

by the name of ‘SEBI Act 1992’and conferred

statutory powers to it.

Since then, SEBI had introduced several stock

market reforms. These reforms significantly

SEBI and Clause 49

SEBI asked Indian firms above a certain size

to implement Clause 49, a regulation that

strengthens the role of independent directors

serving on corporate boards.

On August 26, 2003, SEBI announced an

amended Clause 49 of the listing agreement

which every public company listed on an

Indian stock exchange is required to sign.

The amended clauses come into immediate

effect for companies seeking a new listing.

The major changes to Clause 49…Independent Directors:- 1/3 to ½dependingwhether the chairman of the board is a non-executive or executive position.

Non-Executive Directors:- The total term of officeof non-executive directors is now limited to threeterms of three years each.

Board of Directors:- The board is required toframe a code of conduct for all board membersand senior management and each of them haveto annually affirm compliance with the code.

Audit Committee:- Financial statements and the draft audit report of management discussion and analysis of…

• Financial condition

• Result of operations of compliance with laws

• Risk management letters

• Letters of weaknesses in internal controls issued by statutory

• Internal auditors

• Removal and terms of remuneration of the chief internal auditor

Whistleblower Policy :- This policy has to be communicated to all employees and whistleblowers should be protected from unfair treatment and termination.

Subsidiary Companies:- 50% non-executive directors & 1/3 & ½independent directors depending on whether the chairman is non-executive or executive.

ConclusionAs Indian companies compete globally for access to capital markets, many are finding that the ability to benchmark against world-class organizations is essential.

For a long time, India was a managed, protected economy with the corporate sector operating in an insular fashion.

But as restrictions have eased, Indian corporations are emerging on the world stage and discovering that the old ways of doing business are no longer sufficient in such a fast-paced global environment.

Thank You