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GOOD GOVERNANCE
 Good governance is an
indeterminate term used in
international development
literature to describe how
public institutions conduct
public affairs and manage
public resources.
 Governance is "the process
of decision-making and the
process by which decisions
are implemented (or not
implemented)".
BAD GOVERNANCE
OECB PRINCIPLES
Organization for
Economic
Cooperation and Development
INTRODUCTION
• The Organization for Economic Cooperation and
Development (OECD) is a group of 30 member
countries that discuss and develop economic and
social policy. OECD countries are democratic
countries that support free market economies.
• Originally developed by the OECD in 1999, then
updated in 2004, the 2015 revision of the
Principles of Corporate Governance addresses
these and other emerging issues that are
increasingly relevant.
PRINCIPLE 1
• Market integrity and the incentives it creates
for market participants as well as for the
promotion of transparent and efficient
markets.
• The legal and regulatory requirements that
affect corporate governance practices in a
jurisdiction should be consistent with the rule
of law, transparent and enforceable.
• They should clearly articulate the division of
responsibilities among different supervisory,
regulatory and enforcement authorities.
P 2 : SHARE HOLDERS’ RIGHTS
(i) Secure methods of ownership registration;
(ii) Convey or transfer shares;
(iii) Obtain relevant and material information on
the corporation on a timely and regular basis;
(iv) Participate and vote in general shareholder
meetings;
(v) Elect and remove members of the board; and
(vi) Share in the profits of the corporation
P3: Capital structures and
arrangements
• shareholders to obtain a degree of control
disproportionate to their equity ownership
should be disclosed.
• control in the capital markets, and
extraordinary transactions.
P4: SAME SERIES OF A CLASS
• All shareholders of the same series of a class,
including minority and foreign shareholders,
should be treated equally. Within any series of
a class, all shares should carry the same rights.
P5: Insider trading and abusive self-
dealing should be prohibited
P6: RIGHTS OF STAKEHOLDERS
• Established by law or through mutual
agreements and encourage active co-
operation between corporations and
stakeholders in creating wealth, jobs and the
sustainability of financially sound enterprises.
P7: Performance-enhancing mechanisms
for employee participation should be
permitted to develop.
P8:POLICIES & STANDARDS
• The corporate governance framework should
ensure that timely and accurate disclosure is
made on all material matters regarding the
corporation, including the financial situation,
operating results, objectives, performance,
ownership, remuneration policy and governance
of the company.
• Information should be prepared and disclosed in
accordance with high quality standards of
accounting and financial and non-financial
disclosure.
P9: AUDIT
• An annual audit should be conducted by an
independent, competent and qualified auditor in
order to provide an external and objective
assurance to the board and shareholders, such
that the financial statements fairly represent the
financial position and performance of the
company in all material respects.
• External auditors should be accountable to the
shareholders and owe a duty to the company to
exercise due professional care in the conduct of
the audit.
P10: STRATEGY
• The corporate governance framework should
ensure the strategic guidance of the company,
the effective monitoring of management by the
board, and the board's accountability to the
company and its shareholders. That is, the Board
members should act on a fully informed basis, in
good faith, with due diligence and care, and in
the best interest of the company and the
shareholders. It should review and guide
corporate strategy, major plans of action, risk
policy, annual budgets, business plans,
performance objectives, etc. as well as monitor
the effectiveness of company's governance
practices and make changes, wherever needed.
REFERENCES
http://www.archive.india.gov.in/business/cor
porate_governance/oecd_principles.php
Sarbanes-Oxley Act
• The Sarbanes-Oxley Act came into force in July
2002 and introduced major changes to the
regulation of corporate governance and
financial practice. It is named after Senator
Paul Sarbanes and Representative Michael
Oxley, who were its main architects, and it set
a number of non-negotiable deadlines for
compliance
Major elements
• Public Company
Accounting Oversight
Board.
• Auditor Independence
• Corporate Responsibility
• Enhanced Financial
Disclosures
• Analyst Conflicts of Interest
• Commission Resources and
Authority
• Studies and Reports
• Corporate and Criminal
Fraud Accountability
• White Collar Crime
• Penalty Enhancement
• Corporate Tax Returns
• Corporate Fraud
Accountability
references
https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act
SEBI INITIATIVES
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
regulation of the market.
ॐ 21
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 Bombay Stock Exchange (BSE),the leading stock exchange
in India, witnessed the first major scam masterminded by Harshad
Mehta.
•Analysts unanimously felt that if more powers had been given to SEBI,
the scam would not have happened.
•As a result the Government of India (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 transformed the face of Indian Stock Markets
ॐ 22
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.
ॐ 23
The major changes to Clause 49…
1.Independent Directors —1/3 to ½depending whether the chairman of
the board is a non-executive or executive position.
2.Non-Executive Directors ----The total term of office of non-executive
directors is now limited to three terms of three yearseach.
3.Board of Directors-----The board is required to frame a code of
conduct for all board members and senior management and each of them
have to annually affirm compliance with the code.
4.Audit Committee----Financial statements and the draft auditreport
/reports of management discussion and analysis of financial condition
and result of operations/reports of compliance with laws and risk
management/management letters and letters of weaknesses in internal
controlsissued bystatutory and internal auditors/appointment, removal
and terms of remuneration of the chief internal auditorॐ 24
Clause 49..
5.Whistleblower Policy ----This policy has to be communicated to all
employees and whistleblowers should be protected from unfair treatment
and termination.
6.Subsidiary Companies-----50% non-executive directors & 1/3 &
½independent directors depending on whether the chairman is non-
executive or executive.
7.Disclosures----Contingent liabilities./Basis of related party
transactions./Risk management/ . Proceeds from initial public offering/ .
Remuneration of directors.
8.Certifications----reviewed the necessary financial statements and
directors’report; established and maintained internal controls,
disclosed to the auditors andinformedthe auditors and audit committee of
any significant changes in internal control and/or of accounting policies
during the year. ॐ 25

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Good governance1

  • 1.
  • 2. GOOD GOVERNANCE  Good governance is an indeterminate term used in international development literature to describe how public institutions conduct public affairs and manage public resources.  Governance is "the process of decision-making and the process by which decisions are implemented (or not implemented)".
  • 3.
  • 4.
  • 7. INTRODUCTION • The Organization for Economic Cooperation and Development (OECD) is a group of 30 member countries that discuss and develop economic and social policy. OECD countries are democratic countries that support free market economies. • Originally developed by the OECD in 1999, then updated in 2004, the 2015 revision of the Principles of Corporate Governance addresses these and other emerging issues that are increasingly relevant.
  • 8. PRINCIPLE 1 • Market integrity and the incentives it creates for market participants as well as for the promotion of transparent and efficient markets. • The legal and regulatory requirements that affect corporate governance practices in a jurisdiction should be consistent with the rule of law, transparent and enforceable. • They should clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.
  • 9. P 2 : SHARE HOLDERS’ RIGHTS (i) Secure methods of ownership registration; (ii) Convey or transfer shares; (iii) Obtain relevant and material information on the corporation on a timely and regular basis; (iv) Participate and vote in general shareholder meetings; (v) Elect and remove members of the board; and (vi) Share in the profits of the corporation
  • 10. P3: Capital structures and arrangements • shareholders to obtain a degree of control disproportionate to their equity ownership should be disclosed. • control in the capital markets, and extraordinary transactions.
  • 11. P4: SAME SERIES OF A CLASS • All shareholders of the same series of a class, including minority and foreign shareholders, should be treated equally. Within any series of a class, all shares should carry the same rights. P5: Insider trading and abusive self- dealing should be prohibited
  • 12. P6: RIGHTS OF STAKEHOLDERS • Established by law or through mutual agreements and encourage active co- operation between corporations and stakeholders in creating wealth, jobs and the sustainability of financially sound enterprises. P7: Performance-enhancing mechanisms for employee participation should be permitted to develop.
  • 13. P8:POLICIES & STANDARDS • The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, operating results, objectives, performance, ownership, remuneration policy and governance of the company. • Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial disclosure.
  • 14. P9: AUDIT • An annual audit should be conducted by an independent, competent and qualified auditor in order to provide an external and objective assurance to the board and shareholders, such that the financial statements fairly represent the financial position and performance of the company in all material respects. • External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit.
  • 15. P10: STRATEGY • The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board's accountability to the company and its shareholders. That is, the Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders. It should review and guide corporate strategy, major plans of action, risk policy, annual budgets, business plans, performance objectives, etc. as well as monitor the effectiveness of company's governance practices and make changes, wherever needed.
  • 17. Sarbanes-Oxley Act • The Sarbanes-Oxley Act came into force in July 2002 and introduced major changes to the regulation of corporate governance and financial practice. It is named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects, and it set a number of non-negotiable deadlines for compliance
  • 18. Major elements • Public Company Accounting Oversight Board. • Auditor Independence • Corporate Responsibility • Enhanced Financial Disclosures • Analyst Conflicts of Interest • Commission Resources and Authority • Studies and Reports • Corporate and Criminal Fraud Accountability • White Collar Crime • Penalty Enhancement • Corporate Tax Returns • Corporate Fraud Accountability
  • 21. 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 regulation of the market. ॐ 21
  • 22. 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 Bombay Stock Exchange (BSE),the leading stock exchange in India, witnessed the first major scam masterminded by Harshad Mehta. •Analysts unanimously felt that if more powers had been given to SEBI, the scam would not have happened. •As a result the Government of India (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 transformed the face of Indian Stock Markets ॐ 22
  • 23. 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. ॐ 23
  • 24. The major changes to Clause 49… 1.Independent Directors —1/3 to ½depending whether the chairman of the board is a non-executive or executive position. 2.Non-Executive Directors ----The total term of office of non-executive directors is now limited to three terms of three yearseach. 3.Board of Directors-----The board is required to frame a code of conduct for all board members and senior management and each of them have to annually affirm compliance with the code. 4.Audit Committee----Financial statements and the draft auditreport /reports of management discussion and analysis of financial condition and result of operations/reports of compliance with laws and risk management/management letters and letters of weaknesses in internal controlsissued bystatutory and internal auditors/appointment, removal and terms of remuneration of the chief internal auditorॐ 24
  • 25. Clause 49.. 5.Whistleblower Policy ----This policy has to be communicated to all employees and whistleblowers should be protected from unfair treatment and termination. 6.Subsidiary Companies-----50% non-executive directors & 1/3 & ½independent directors depending on whether the chairman is non- executive or executive. 7.Disclosures----Contingent liabilities./Basis of related party transactions./Risk management/ . Proceeds from initial public offering/ . Remuneration of directors. 8.Certifications----reviewed the necessary financial statements and directors’report; established and maintained internal controls, disclosed to the auditors andinformedthe auditors and audit committee of any significant changes in internal control and/or of accounting policies during the year. ॐ 25