corporate governance

1. Corporate Governance in India
Dr. Shreyas Vyas
Assistant Professor
National Institute of Securities Market

3. Corporate Governance - Meaning
Corporate governance is a process and mechanism set up
for the corporations and firms based on certain guidelines
and principles by which a company is controlled and
directed.
The underlying principles are there to ensure that the
company is governed in a way that it is able to set and
achieve its goals and objectives in the context of the
social, regulatory and market environment in transparent
manner, and is able to maximize shareholder’s value and
benefit those whose interest is involved in it, in the long
run.

4. • The Cadbury Report which was released in the UK in
1991 outlined that "Corporate governance is the system
by which businesses are directed and controlled.“
Corporate Governance is the system of rules, practices and
processes by which a company is directed and
controlled. Corporate governance essentially involves
balancing the interests of the many stakeholders like
shareholders, management, customers, suppliers,
financiers, government and the community in a
company.
CONCEPT OF CORPORATE
GOVERNANCE

6. Why Corporate Governance Important ?
• Promote the TRUST OF INVESTORS
• Good corporate governance has a POSITIVE LINK TO ECONOMIC DEVELOPMENT
AND GOOD CORPORATE PERFORMANCE
• Promote the efficient use of scarce resources
• Funds will flow to entities which are seen to have INTERNATIONALLY ACCEPTED
STANDARDS OF CORPORATE GOVERNANCE
What if Corporate Governance is not there ?
• Financial scandals and crisis
• Loss of trust of investors
• Loss due to Lack of Controls
• Loss due to Lapses in the way IT and other Risks are managed
• Loss of Reputation due to incidents being report and Market Cap
• More than 1 Lac Cr. lost by Banking Sector itself (Fraud by Kingfisher, Geetanjali
Gems, Saradha Group, Global Trust Bank, Rotomac, Totem Infra and Parekh
Aluminex Ltd. and others)

8. Corporate Governance Enablers
• Accounting & Financials Controls
• Internal Audit and Assurance
• Regulatory Compliances and Reporting
• Risk Management and IT Security
• Right Organisation Approach and Structure
Simplified Corporate Governance Structure

10. Historical Back Ground for Corp. Governance in India
Regulatory Development
& Year
Objectives
1997 – CII Code on
Corporate Governance
CII was first to publish code of Corp. Governance where constitution of Audit
Committee was recommended
2000 – Kumarmangalam
Birla Committee
This committee gave 25 recommendation of Corp. Governance for Listed
Companies and to incorporate the same in Listing Agreement with the Stock
Exchange
2002 – Naresh Chandra
Committee
Committee major recommendation were to form AC consisting of all
independent directors, rotation of Auditors after 5 years term
2003 – Narayan Murthy
Committee
The review of the Scope of Audit Committee was deliberated and it was
suggested to include the MDNA, reports related to compliance & risks and on
Related Party Transaction
2003-SEBI Changes in Clause 49 of Listing Agreement
2011 – Co. Bill It brought about changes to bring Corporate Governance norms reporting
mandatory
2013 – Co. Act, 2013 NRC, Stakeholder Committee, Separate Committee Meeting of Independent
Directors, CSR Provisions for social Outreach program was implement
2015 – SEBI LODR, 2015 With a view to align and simplify the Regulatory norms for Listed Entities,
guidelines were consolidated in 1 set

11. Cont…Historical Back Ground for Corp. Governance in India
Regulatory
Development &
Year
Objectives
2017 – Uday Kotak
Committee
recommedation
1. Panel suggested that it was the the right time to split chairman, MD-CEO role of listed companies
2. Panel suggested it should be mandatory for top 500 companies by market capitalization to undertake
D&O insurance for its independent directors. D&O Insurance stands for Directors and Officers insurance
3. Panel suggests minimum of 6 directors to be on board of listed entities; every listed entity to have at
least 1 independent woman director
4. Panel suggested more transparency on appointment of independent directors; wants them to play a
more active role on the boards
5. Panel suggested maximum number of listed entity directorship to be reduced to 8. At least half of
every listed entities board to have independent directors
6. Panel suggested Audit Committee must review use of loans/adv/ investment by holding co in arm over
Rs 100 crore
7. Panel suggested application to fill a casual vacancy of office of any Independent Director must be
okayed by holders; minimum number of Audit Committee meetings be increased to five every year
8. Panel suggested no person to be appointed as alternate director for an independent director of a
listed company
9. Panel suggested a formal induction should be mandatory for every new Independent Director
appointed to the board
10. Panel suggested BoD to be updated on regulatory & compliance changes at least once a year; as well
as an interaction between NEDs & senior management
2017-18 • Constitution of National Financial Reporting Authority to place monitoring mechanism over CA firm.
• Whip on Shell Companies and disqualification of Directors with 1.06 lakh (1,06,578) disqualified
directors with association to ‘shell or on-paper companies’

12. • Fairness -Fairness refers to equal treatment, for
example, all shareholders should receive equal
consideration for whatever shareholdings they
hold.
• In addition to shareholders, there should also be
fairness in the treatment of all stakeholders
including employees, communities and public
officials. The fairer the entity appears to
stakeholders, the more likely it is that it can
survive the pressure of interested parties
BASIC PRINCIPLES OF CORPORATE
GOVERNANCE

13. • Accountability - Corporate accountability refers to the
obligation and responsibility to give an explanation or
reason for the company’s actions and conduct.
• Responsibility - The Board of Directors are given
authority to act on behalf of the company. The Board of
Directors are responsible for overseeing the
management of the business, affairs of the company,
appointing the chief executive and monitoring the
performance of the company. In doing so, it is required
to act in the best interests of the company.
• Accountability goes hand in hand with responsibility. The
Board of Directors should be made accountable to the
shareholders for the way in which the company has
carried out its responsibilities.
BASIC PRINCIPLES OF CORPORATE
GOVERNANCE - 2

14. • Transparency - A principle of good governance is
that stakeholders should be informed about the
company’s activities, what it plans to do in the
future and any risks involved in its business
strategies.
• Transparency means openness, a willingness by
the company to provide clear information to
shareholders and other stakeholders. For
example, transparency refers to the openness
and willingness to disclose financial performance
figures which are truthful and accurate.
BASIC PRINCIPLES OF CORPORATE
GOVERNANCE - 3

15. • Disclosure of material matters concerning the
organisation’s performance and activities should
be timely and accurate to ensure that all investors
have access to clear, factual information which
accurately reflects the financial, social and
environmental position of the organisation.
• Organisations should clarify and make publicly
known the roles and responsibilities of the board
and management to provide shareholders with a
level of accountability
BASIC PRINCIPLES OF CORPORATE
GOVERNANCE - 4

16. COMMITTEES
 AUDIT COMMITTEE
 INVESTMENT COMMITTEE
 RISK MANAGEMENT COMMITTEE
 POLICYHOLDER PROTECTION COMMITTEE
 REMUNERATION COMMITTEE
 NOMINATION COMMITTEE
 ETHICS COMMITTEE

17. • Few New Provisions of Companies Act 2013 for Directors and
Shareholders
• One or more women directors are recommended for certain classes
of companies
• Every company in India must have a resident directory
• The maximum permissible directors cannot exceed 15 in a public
limited company. If more directors have to be appointed, it can be
done only with approval of the shareholders after passing a Special
Resolution
• The Independent Directors are a newly introduced concept under
the Act. A code of conduct is prescribed and so are other functions
and duties
• The Independent directors must attend at least one meeting a year
CG IN INDIA – A REVIEW

18. • Every company must appoint an individual or firm
as an auditor. The responsibility of the
Audit committee has increased
• Filing and disclosures with the Registrar of
Companies has increased
• Top management recognizes the rights of the
shareholders and ensures strong co-operation
between the company and the stakeholders
• Every company has to make accurate disclosure
of financial situations, performance, material
matter, ownership and governance
CG in India - a review – 2

19. Additional Provisions in Companies Act 2013
• Related Party Transactions – A Related Party Transaction
(RPT) is the transfer of resources or facilities between a
company and another specific party. The company devises
policies which must be disclosed on the website and in the
annual report. All these transactions must be approved by
the shareholders by passing a Special Resolution as the
Companies Act of 2013. Promoters of the company cannot
vote on a resolution for a related party transaction.
• Changes in Clause 35B – The e-voting facility has to be
provided to the shareholder for any resolution is a legal
binding for the company.
CG in India - a review – 3

20. • Corporate Social Responsibility – The company
has the responsibility to promote social
development in order to return something that is
beneficial for the society.
• Whistle Blower Policy – This is a mandatory
provision by SEBI which is a vigil mechanism to
report the wrong or unethical conduct of any
director of the company.
CG in India – a Review – 4

21. CG deficiency leads to Financial Crisis

22. MAJOR ELEMENTS OF CORPORATE GOVERNANCE
• Governance structure
• Board of Directors
• Control Functions
• Senior management
• Disclosures
• Outsourcing
• Relationship with stakeholders
• Interaction with the supervisor
• Whistle Blowing Policy
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23. • Ineffective corporate governance may result in
financial crisis both for the company and the
stakeholders. Shareholders lose confidence in the
company and share prices will decline. The high
profile corporate governance failure scams like
stock market scam, the UTI scam, Ketan Parekh
scam, Satyam scam which were severely
criticized by the shareholders called for a need to
make corporate governance in India transparent as
it greatly affects the development of the country.
CG - TRANSPARENCY IN ACCOUNTING

24. • Good corporate governance helps in improving
the competitiveness of the firm strengthening
the relationship with the interested and all
contracting parties.
• Over 60 percent of investors cite Good
Corporate Governance Practices in
corporations as a key factor in their investment
decisions (Mc Kinsey study ,2002
CG – Investment decisions

25. Corporate Governance in India
• Corporate governance is not so matured in South
Asia like it is in U.S. or U.K. In India, the
effective initiative for corporate governance came
from the listed companies and industrial
association, Confederation of Indian Industry
(CII) in 1997. Ever since India’s biggest ever
corporate fraud and governance failure unearthed
at Satyam Computer Services Limited, the
concerns about good corporate governance have
increased phenomenally.
Scams and CG in India

26. • In 1999, The Securities and Exchange Board
of India (SEBI) made it mandatory for all
listed companies in phases. From April 2003,
all the listed companies were brought under
mandatory requirement to follow the SEBI
corporate governance code.
SEBI and CG in India

27. • Basic Principles of Fairness, Accountability, Responsibility,
Transparency and Disclosure must be internalized in the
firm
• Companies Act 2013 is in right direction. It is in consistence
with changes in the world
• Transparency in Accounting gets improved with immediate
convergence of Accounting standards in India with IFRS
• CG is related to Investment Decisions, Intangibles
Contribution, Information technology changes and there is
a need for sensitization among all stakeholders
• Hence there is strong need for International Corporate
Governance Day to be adopted and ICSI efforts are in right
direction
CG – A WAY FORWARD

28. Conclusion
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29. THANK YOU
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