MY PRESENTATION AT CONFERENCE: CFO POWER TRANSFORMATION ORGANIZED BY MARCUS EVANS MALAYSIA AT HOTEL NOVOTEL JUHUBEACH MUMBAI ON 10TH JUNE 2011

1. 1
FELICITATIONS FROM
SUNIL KOHLI
INDIA: JUNE 2011

2. SUNIL KOHLI
INDIAN DEFENCE ACCOUNTS SERVICE
Joint Secretary And Financial Adviser
National Disaster Management Authority And
National Disaster Response Force(NDRF),
Ministry Of Home Affairs,
India
DEFENCE FINANCE AND ACCOUNTS DEPARTMENT
“ENSURING COMPLIANCE AND PROPELLING PERFORMANCE”
2
SUNIL KOHLI
INDIA: JUNE 2011

3. INDIAN DEFENCE ACCOUNTS SERVICE
DEFENCE FINANCIAL MANAGEMENT,
AUDITING AND ACCOUNTING
“ENSURING COMPLIANCE AND
PROPELLING PERFORMANCE”
3
SUNIL KOHLI
INDIA: JUNE 2011

4. 4
Welcome to
SUNIL KOHLI
INDIA: JUNE 2011

5. 5
PRESENTATION AT PANEL DISCUSSION ON THE
“Corporate Governance and Ethics”
AT
BY
SUNIL KOHLI, IDAS
JOINT SECRETARY & FINANCIAL ADVISER
NATIONAL DISASTER MANAGEMENT AUTHORITY
SUNIL KOHLI
INDIA: JUNE 2011

6. 6
“PRESENTATION
AT
PANEL DISCUSSION
ON THE
“Corporate Governance and Ethics”
by
Sunil KOHLI, IDAS ndc
Indian Defence Accounts Service
Joint Secretary and Financial Adviser,
National Disaster Management Authority
(NDMA) and
National Disaster Response Force (NDRF)
SUNIL KOHLI
INDIA: JUNE 2011

7. 7
“Corporate Governance and Ethics”
• Day 2: 10th June 2011
• 1345 Session Five – Panel Discussion
• Corporate Governance and Ethics:
• Whose responsibility is it?
• Strengthening the structure of board of directors and
stakeholders for appropriate management control structures
• Working in synergy with the top management to ensure
compliance to all regulations within the different business
entities
• Tracking the compliance of the organization with various
tools and making necessary amendments to organization
structures
SUNIL KOHLI
INDIA: JUNE 2011

8. 8
“Corporate Governance and Ethics”
• Corporate Governance and Ethics: Whose
responsibility is it?
• Moderator
• Uday Phadke
– President Finance, Legal & Financial Services Sector, Member of Group
Executive Board; Mahindra & Mahindra
• Panelists:
• Sunil Kohli, IDAS ndc
– Joint Secretary & Financial Advisor,
– National Disaster Management Authority, Ministry of Home Affairs
• Anil Parashar
– CFO; Interglobe Enterprises
SUNIL KOHLI
INDIA: JUNE 2011

9. 9
Precap
• Context
• Corporate Governance
• Key Issues
• CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• My Key Focus
• Panel Questions
• Views and Clarifications
SUNIL KOHLI
INDIA: JUNE 2011

10. 10
Corporate Governance
• Context:
• The initial stimulus for corporate governance reforms came after
the South-East and East Asian crisis of 1997-98.
• Governments, multilateral institutions, banks and companies
recalled that the devil lay in the details — the nitty-gritty of
transactions among companies, banks, financial institutions and
capital markets; corporate laws, bankruptcy procedures and
practices; the structure of ownership and crony capitalism; stock
market practices; poor boards of directors with scant fiduciary
responsibility; poor disclosures and transparency; and inadequate
accounting and auditing standards
SUNIL KOHLI
INDIA: JUNE 2011

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CONTEXT
• 2003: IFAC Research:16 companies were classed as failures including Cable &
Wireless (UK), Enron (USA), France Telecom (France), Marconi (UK), Marks
& Spencer (UK), Nortel Networks (Canada), WorldCom (USA), Xerox (USA)
etc.
• The most common problems:
– Poor ethical standards at the top; Aggressive targets and earnings
management; Misaligned incentives
– A CEO too dominant and charismatic; Weak board of directors (too cozy
with CEO); Weak internal controls (e.g., poor resource management)
– A CFO too involved in aggressive merger and acquisitions (M&A)
strategies; Poor choice of strategy and lack of clarity
– Poor execution (especially unsuccessful mergers and acquisitions)
– Failure to respond to change quickly enough
SUNIL KOHLI
INDIA: JUNE 2011

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CONTEXT
• Enron. Tyco. WorldCom. Vivendi. Satyam.
• Mention any one of them and the response you get is
rolling eyes and shaking heads. So what happened?
• Excessive risk-taking driven by overly aggressive targets and
accompanying incentives does seem to have opened the
door for unethical behavior, info-manipulation,
dishonest reporting, made even worse by ineffective
governance and control mechanisms.
• Consequent legislated corporate and management
accountability standards shouldn‟t surprise anyone.
SUNIL KOHLI
INDIA: JUNE 2011

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CEOs “cashed out” prior to economic
crisis
CEOs at major US financial and real
estate firms converted tens of
millions of dollars of overvalued
stock into cash prior to the eruption
of the current financial crisis.
•Shocking Reality Check
•Collapse of Financial Systems
•Breed Culture of Macho
Management and Self interest
•Block Information and Transparency.
SUNIL KOHLI
INDIA: JUNE 2011

14. 14
Corporate Governance
• Context:
• After the Enron debacle of 2001, came other scandals involving large US
companies such as WorldCom, Qwest, Global Crossing, and the auditing
lacunae that eventually led to the collapse of Andersen. These scandals
triggered another phase of reforms in corporate governance, accounting
practices and disclosures — this time more comprehensive than ever before.
• In July 2002, less than a year from the date when Enron filed for bankruptcy,
the Sarbanes-Oxley Bill (popularly called SOX) was enacted. The Act brought
with it fundamental changes in virtually every area of corporate governance
— and particularly in auditor independence, conflicts of interest,
corporate responsibility, enhanced financial disclosures, and severe
penalties, both fines and imprisonment, for wilful default by managers
and auditors. It is fair to predict that the SOX Act will do more to change
the contours of board structure, auditing, financial reporting and corporate
disclosure than any other previous law in US history.
SUNIL KOHLI
INDIA: JUNE 2011

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Corporate Governance
• Context:
• The Theory of Corporate Governance — The fundamental theoretical basis
of corporate governance is agency costs. Shareholders are the owners and are the
principals. By virtue of their ownership, the principals define the objectives of a
company.
• The management, directly or indirectly selected by shareholders to pursue
such objectives, are the agents. While the principals might wishfully assume that
the agents will invariably do their bidding, it is often not so. In many
instances, the objectives of managers are quite different from those of the
shareholders.
• Such misalignment of objectives is called the agency problem; and the
cost inflicted by such dissonance is the agency cost. The core of
corporate governance is designing and putting in place disclosures,
monitoring, oversight and corrective systems that can align the objectives of
the two sets of players as closely as possible and, hence, minimise agency
costs. SUNIL KOHLI
INDIA: JUNE 2011

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Corporate Governance
• Good corporate governance practices are a sine
qua non for sustainable business that aims at
generating long term value to all its shareholders
and other stakeholders.
SUNIL KOHLI
INDIA: JUNE 2011

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Corporate Governance
• “Citizens never support a weak
company and birds do not build
nests on a tree that does not bear
fruits.”
Chanakya
Arthshastra
SUNIL KOHLI
INDIA: JUNE 2011

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Corporate Governance
• Generic Issue
• Good Corporate Governance
practices essential to ensure
inclusive growth, wherein every
section of society enjoys the fruits
of the corporate growth.
SUNIL KOHLI
INDIA: JUNE 2011

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Corporate Governance
• Good corporate governance is essential for the
integrity of corporations, financial
institutions and markets.
• Strong governance standards focusing on
fairness, transparency, accountability and
responsibility are vital not only for the healthy
and vibrant corporate sector growth, as well as
inclusive growth of the economy.
SUNIL KOHLI
INDIA: JUNE 2011

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Context Drivers :
Four pillars of Good Governance
• Accountability
• Transparency
• Predictability
• Participation
SUNIL KOHLI
INDIA: JUNE 2011

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Governance?
• Governance is the oversight role and the process
by which companies manage and mitigate business
risks
• Governance manages the strategic directives a
company wants to follow.
• Good Governance is the most effective
measurement criteria for current and future
stakeholders.
• Good governance can only be achieved through
diligent risk and compliance management.
SUNIL KOHLI
INDIA: JUNE 2011

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Key Focus
“Organizations Reputation, Valuation
and Profitability are directly linked to
Good Governance, Effective and Real-
time Risk Management and adhering
to regulatory Compliance”
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
1. What is the Focus of corporates on the issue of
“CORPORATE GOVERNANCE”?
2. What are the corporates policies about good
governance?
3. Governments are creatures of law and as such,
they can do only what the law allows,(the
things that it is authorized to do) and using the
methods that are prescribed in contrast to
organizations in the private sector that can do
anything not prohibited by law
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• Governance is wider in scope than government.
• It includes non-governmental and informal organizations.
• It makes for crafting social institutions as a matter of
substantive public concern.
• In the present globalization scenario, we are witnessing an
increasing concern towards the issue of governance.
• The managerial orientation that is making way into the
domain of public administration with thrust on economy,
efficiency, and effectiveness is also emphasizing the
pursuance of governance for development.
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• Determinants of Good Governance relevant to the
corporate sector includes Competitive environment
injecting competition into service delivery;
• Organizational pluralism which demands
convergence of State, Market Forces
(represented by Corporate sector) and civil
society organizations for governance; Probity in
public life; Building social capacity; Performance
partnership between government, NGOs and
private agencies; Ethical approach to human
concerns and E-governance.
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• Organizations need to consider the ethical
environment and the expectations of the
society within which they operate.
• Optimizing profits for the shareholders at the
same time as you are building a reputation as a
ruthless operator that doesn‟t care about the
environment, your workers, or the community is
not a recipe for long-term success
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• While the reputation and respect for our country
had been growing internationally, in early 2009 one
word stood between our successful growth story
and the credibility of our institutions. That word
with which you are all too familiar is “SATYAM”.
• The story breaking in January, 2009 created ripples
in global economies about the quality of corporate
governance, efficacy of regulatory bodies and
probity in corporates.
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• What this country cannot risk is the deficit of
„ethics‟ in its corporates.
• No business can be sustainable in the long run
and have a consistent growth trajectory, unless it
is based on an edifice of credibility and integrity.
• Deficit in governance is not applicable to
government alone. It applies equally to the
business community.
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• The post reform period has witnessed a corporate culture of
diluting or ignoring stringent ethical standards.
• It is often considered ethical as long as a corporate
establishment, in its business practices, remains within legal
confines to survive in business and beat the competition.
• This is misplaced corporate governance.
• Probity in business is as important a trait in an outstanding
CEO as is to be articulate, positive, courageous, dynamic and
professionally competent. You have to be a developer of
talent and maintain cultural sensitivity. The culture to perform
has to be deeply inculcated. Without meritocracy, you fall into
the morass of nepotism and mediocrity.
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• Corporate lifespan: Sustainability Issue.
• The East India Company, with which we are all familiar, was
founded in the year 1600. It is often believed to be the
forerunner of the modern multinational. Starting as a humble
trader in Asian Spices, the company soon began to manage
Britain‟s Indian empire.
• Today, there is no sign, not even a plaque in any building or
location in London announcing the existence of the world‟s
one time most powerful corporation.
• What brought about the demise of this powerful company in
an era which was otherwise, promoting globalization? The
company‟s legacy provides compelling lessons on how to
ensure accountability and probity of today‟s global business.
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• The most fundamental challenge that all Institutions face is to ensure
that employees promote the collective rather than their individual self
interest.
• Private trading by its managers became one of the cancers that gnawed
at the company‟s ethical fiber. Taking „presents‟ to secure business
became common place. These „presents‟ influenced the quality and
cost of the commodities traded. The cancer erupted into intrigue,
corruption and speculation leading to its tragic decline and its non
existence today.
• History has repeated itself with Barrings Bank, Bears Stearns, Lehman
brothers, Fannie Mae and Freddie Mac personal greed versus
corporate interest.
• You need to deliberate on this and ensure that such temptations do not
befall you.
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• The immediate and defining challenge for all of us
today in our professional endeavours is that it
would be increasingly difficult for us to claim
innocence for ourselves in private enterprise on
account of the profits we make, if the effect of our
acts threatens or undermines the larger public
interest.
• In an interconnected and globalised world, it would
simply not work as an excuse if our conduct and
behavior are not fully informed of the larger
implications of our acts on all our stake holders.
SUNIL KOHLI
INDIA: JUNE 2011

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My Key Focus
• If the most powerful dictators of the world are unable to stem
the tide of protest from their people, it would be naïve to
assume that the so called private enterprise would be able to
shield itself from the consequences of its actions either on the
strength of its bottom-line or the economic doctrine of free
markets.
• This is what I would like to highlight as the requirement cast
upon managers and entrepreneurs such as you in the time to
come.
• So far, we have been used to the requirement of probity and
accountability in public life.
• It is about time that the private enterprise too voluntarily
embraces the values of probity and accountability to all their
stakeholders.
SUNIL KOHLI
INDIA: JUNE 2011

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Corporate Governance
• Key Issues: TOR of Naresh Chandra Committee: the heart
of corporate governance.
• the statutory auditor-company relationship, so as to further strengthen the professional nature of
this interface;
• the need, if any, for rotation of statutory audit firms or partners;
• the procedure for appointment of auditors and determination of audit fees; restrictions, if
necessary, on non-audit fees; independence of auditing functions;
• measures required to ensure that the management and companies actually present „true and fair‟
statement of the financial affairs of companies;
• the need to consider measures such as certification of accounts and financial statements by the
management and directors; the necessity of having a transparent system of random scrutiny of
audited accounts;
• adequacy of regulation of chartered accountants, company secretaries and other similar statutory
oversight functionaries; advantages, if any, of setting up an independent regulator similar to the
Public Company Accounting Oversight Board in the SOX Act, and if so, its constitution; and
• the role of independent directors, and how their independence and effectiveness can be ensured.
SUNIL KOHLI
INDIA: JUNE 2011

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Corporate Governance
• Ministry of Corporate Affairs
• CORPORATE GOVERNANCE VOLUNTARY
GUIDELINES 2009
• Report of the Task Force of CII on corporate governance
headed by Shri Naresh Chandra and
• The recommendations of the Institute of Company Secretaries
of India for strengthening corporate governance framework.
• National Foundation for Corporate Governance (NFCG) was
set up by the Ministry to provide a wide platform to deliberate
on issues relating to good corporate governance and sensitize
corporate leaders on the importance of good corporate
practices.
SUNIL KOHLI
INDIA: JUNE 2011

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CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• I. BOARD OF DIRECTORS
• A. APPOINTMENT OF DIRECTORS
• A.1 Appointments to the Board
• Issue of formal letters of appointment to Non-Executive Directors
(NEDs) and Independent specifying the fiduciary duties, along with
accompanying liabilities & the Code of Business Ethics
• A.2 Separation of Offices of Chairman & Chief Executive
Officer
• To prevent unfettered decision making power with a single
individual
• The roles and offices of Chairman and CEO should be
separated, as far as possible, to promote balance of power.
SUNIL KOHLI
INDIA: JUNE 2011

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CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• A. 3 Nomination Committee…..for searching, evaluating, and
recommending appropriate Independent Directors and NEDs, based on an
objective and transparent set of guidelines
• A.4. Number of Companies in which an Individual may become a
Director…For reckoning the maximum limit of directorships.
• B. INDEPENDENT DIRECTORS
• B.1 Attributes for Independent Directors…a policy for specifying positive
attributes such as integrity, experience and expertise, foresight, managerial
qualities and ability to read and understand financial statements.
• B.2 Tenure for Independent Director
• B.3 Independent Directors to have the Option and Freedom to meet
Company Management periodically
SUNIL KOHLI
INDIA: JUNE 2011

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CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• C. REMUNERATION OF DIRECTORS
• C.1 Remuneration
• C.1.1 Guiding Principles-Linking Corporate and Individual
Performance….. level and composition of remuneration is
reasonable and sufficient to attract, retain and motivate
• C.1.2 Remuneration of Non-Executive Directors (NEDs)
• C.1.3 Structure of Compensation to NEDs
• • Fixed component• Variable component: Additional
variable payment(s)
• C.1.4. Remuneration of Independent Directors (IDs)
• C.2 Remuneration Committee
SUNIL KOHLI
INDIA: JUNE 2011

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CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• II. Responsibilities of the Board.
• A. Training of Directors…inducted through a suitable
familiarization process…..the ability to understand basic financial
statements and information and related
documents/papers…adopt suitable methods to enrich the skills
of directors from time to time.
• B. Enabling Quality Decision making
• C. Risk Management….put in place critical risk management
framework across the company
• D. Evaluation of Performance of Board of Directors,
Committees thereof and of Individual Directors….a formal
and rigorous annual evaluation
SUNIL KOHLI
INDIA: JUNE 2011

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CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• E. Board to place Systems to ensure Compliance with Laws
• In order to safeguard shareholders' investment and the
company's assets…conduct a review of the effectiveness of the
company's system of internal controls
• The review should cover all material controls, including financial,
operational and compliance controls and risk management
systems.
• The Directors' Responsibility Statement should also include a
statement that proper systems are in place to ensure compliance
of all laws applicable to the company. It should follow the
“comply or explain” principle.
SUNIL KOHLI
INDIA: JUNE 2011

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CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• III. Audit Committee of Board
• A. Audit Committee – Constitution
• B. Audit Committee – Enabling Powers:
• To have independent back office support
• Have access to information
• Obtain professional advice from external sources.
• C. Audit Committee - Role and Responsibilities
• …monitor the integrity of the financial statements of the
company;…review the company's internal financial controls,
internal audit function and risk management systems
SUNIL KOHLI
INDIA: JUNE 2011

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CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• IV. Auditors
• A. Appointment of Auditors…The Audit Committee of the Board
should be the first point of reference regarding the appointment of
auditors…should discuss the annual work programme and the depth and
detailing of the audit plan to be undertaken by the auditor, with the auditor;
examine and review the documentation and the certificate for proof of
independence of the audit firm
• B. Certificate of Independence
• C. Rotation of Audit Partners and Firms
• D. Need for clarity on information to be sought by auditor
and/or provided by the company to him/it
• E. Appointment of Internal Auditor
SUNIL KOHLI
INDIA: JUNE 2011

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CORPORATE GOVERNANCE
VOLUNTARY GUIDELINES 2009
• V. SECRETARIAL AUDIT.. Board processes and compliance
mechanisms of the company are robust
• VI. INSTITUTION OF MECHANISM FOR WHISTLE
BLOWING
• institution of a mechanism for employees to report concerns
about unethical behaviour, actual or suspected fraud, or violation
of the company's code of conduct or ethics policy.
• The companies should also provide for adequate safeguards
against victimization of employees who avail of the mechanism,
and also allow direct access to the Chairperson of the Audit
Committee in exceptional cases
SUNIL KOHLI
INDIA: JUNE 2011

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Evaluating the Tone at the Top
• Practical Suggestions for Audit Committees
• “The audit committee‟s influence on
management‟s actions and the tone at the top
cannot be understated. I have seen the positive
impact that an engaged audit committee can
have on maintaining and enhancing a strong
corporate culture.”
• Steve Van Arsdell, chief executive officer, Deloitte &
Touche LLP
SUNIL KOHLI
INDIA: JUNE 2011

45. 46
Evaluating the Tone at the Top
Questions for Audit Committees to Consider
What processes does management have in place to evaluate the tone at the top?
Is the internal audit function assessing “soft controls,” those controls focused on the
motivation of employees and management style that could be used to help the audit
committee evaluate the tone at the top?
How do management‟s and the audit committee‟s processes for evaluating the tone at
the top compare to those of other companies that are viewed as leaders in this area?
Does the audit committee use quantitative as well qualitative measures in evaluating
tone at the top?
Are employees‟ perceptions of the tone at the top trending up, trending down, or flat?
How do they compare with those of employees at similar or leading companies?
Are there operating units or functions where employees‟ perceptions of the tone at the
top are much weaker than others? If so, why, and what remediation is management
implementing?
SUNIL KOHLI
INDIA: JUNE 2011

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Corporate Governance
• Questions
• Is there a need for a framework of best
corporate governance standards and
practices?
SUNIL KOHLI
INDIA: JUNE 2011

47. 48
Sunil Kumar Kohli,
Joint Secretary & Financial Adviser,
National Disaster Management Authority (NDMA), &
National Disaster Response Force (NDRF)
Ministry of Home Affairs, New Delhi, INDIA
• Shri Sunil Kumar Kohli is an officer of the Indian Defence Accounts Service
(IDAS) and has 1981 batch seniority. Mr. Kohli is a graduate in Science and Law.
• During service, he has also acquired Diploma in Management from IGNOU, New
Delhi and Post Graduate Diploma in Management (An executive MBA) from
Management Development Institute, Gurgaon in collaboration with Kellogg School
of Management, Northwest University USA.
• He is also an alumnus of National Defence College (NDC). He did NDC course
on “National Security and Strategy” in 2002.
• He has wide exposure to the Defence Finance, Accounting and Internal Auditing
matters having worked at various levels in Various Defence establishments and has
got over a decade of experience in Integrated Financial Advisor System. He has
been on deputation to the Ministry of Defence as Assistant Financial Advisor and
has handled important areas relating to Works (MES) and Ordnance (Material
Management, Inventory Management and Supply Chain Management).
• He has also done a tenure posting on deputation with the Ministry of Home
Affairs as Director (Finance), held additional charges of Financial Advisor of the
National Security Guards (NSG); India‟s elite commando force specializing in
Counter Hijacking and Counter terrorism, Financial Advisor of the Central
Industrial Security Force (CISF) and Intelligence Bureau (IB) under MHA.
• Currently he is working as Joint Secretary & Financial Adviser, National Disaster
Management Authority Ministry of Home Affairs New Delhi as well as the
Financial Adviser to the Director General, National Disaster Response Force
(NDRF), a premier Search and Rescue specialized Force in India
SUNIL KOHLI
INDIA: JUNE 2011

48. SUNIL KOHLI
Indian Defence Accounts Service
Joint Secretary And Financial Adviser
National Disaster Management Authority (NDMA),
and National Disaster Response Force(NDRF),
Government of India, Ministry of Home Affairs, India
# A-1, Safdarjang Enclave, Opposite AIIMS Trauma Centre,
New Delhi 110 029
Tel: +91 11 26701709 Office
+91 11 26180503 Direct
+91 11 26701715 Fax,
E Mail: skkohli@ndma.gov.in
Website: www.ndma.gov.in
FACEBOOK: http://www.facebook.com/sunilkumarkohli
49
SUNIL KOHLI
INDIA: JUNE 2011