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Corporate Governace Ca Seminar


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Corporate Governace Ca Seminar

  1. 1. Corporate governance “ Leading towards Accomplishments ” By. Pavan Kumar Vijay Past President, The Institute of Company Secretaries of India 02/22/12
  2. 2. “ Corporate governance is… … the application of best management practices , compliance of law in 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” Institute of Company Secretaries of India
  3. 3. <ul><li>Corporate Governance rests with the Vision and Perception of the Leadership </li></ul>
  4. 4. <ul><li>and </li></ul><ul><li>A Leader need to adopt a </li></ul><ul><li>Vision for Corporate Governance </li></ul>
  5. 5. Corporate Governance Framework Output – Input = Wealth Created ? Sustainability Happiness and Prosperity of all Stakeholders Reinvestment Distribu- tion <ul><li>Research and </li></ul><ul><li>Development </li></ul><ul><li>HR Development </li></ul><ul><li>Infrastructure </li></ul><ul><li>Risk Management </li></ul><ul><li>SUPPLIERS </li></ul><ul><li>Adequate Returns </li></ul><ul><li>HUMAN ASSETS </li></ul><ul><li>Adequate </li></ul><ul><li>Remuneration </li></ul><ul><li>CUSTOMERS </li></ul><ul><li>Affordable Prices </li></ul><ul><li>PUBLIC </li></ul><ul><li>Payment of Taxes and Partnership in National Development Projects </li></ul>Wealth Creation Wealth Management Wealth Sharing Enhanced Capabilities Best Management Practices are Vital Here Law and Ethics are Vital Here
  6. 6. Constituents of Corporate Governance
  7. 7. The stakeholder value chain SUPPLIERS CUSTOMERS HUMAN RESOURCE Supply Funds, Materials and Services Value Addition and Management of Resources Give Opportunity to Co. to Satisfy their Needs Adequate Returns for Funds, Material and Services Supplied Adequate Salary and Security for leading a Happy Life Best Quality Products and Customer Care at Minimum Prices ROLE OF STAKEHOLDERS EXPECTATIONS OF STAKEHOLDERS Potential Suppliers, Human Resources and Customers Biological, Economic and Cultural Environment PUBLIC PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT
  8. 8. The Principles of Good Governance
  9. 9. A Case Study on Corporate Governance - Examples from India vs
  10. 10. The vision adopted in Infosys <ul><li>Systematic Scheduling of Board Meetings with maximum Participation assured. </li></ul><ul><li>Ensuring delegation at committee level being composed of optimum number of Independent Directors. </li></ul><ul><li>Maximum tenure of independent directors is nine years. </li></ul><ul><li>Dissemination of regular information to investors through e-mail, telephone, face-to-face meetings, road shows etc. </li></ul><ul><li>Cont… </li></ul>
  11. 11. The vision adopted in Infosys <ul><li>Presentations are made by executive directors to familiarize the new non-executive directors with the Company’s operations. </li></ul><ul><li>Evaluation of non-executive directors through a peer-evaluation process. </li></ul><ul><li>Whistle blower policy providing direct access of employees to Chairperson of Audit Committee. </li></ul>
  12. 12. And That’s what makes Infosys A value driven organization and resuts into greater valuation and overlall benefits 25.6 A Comparison of Infosys in IT Industry with their P/E multiple
  13. 13. The Satyam Disaster!!! <ul><li>Depiction of rosy picture in disclosures </li></ul><ul><li>Lack of transparency </li></ul><ul><li>Ineffective participation of Independent Directors </li></ul><ul><li>Falsification of accounts </li></ul><ul><li>Failure of Board Procedures & Systems </li></ul><ul><li>Unproductive Whistle Blower </li></ul>Eventually the whole system of Corporate Governance was treated as a mockery by not adoption of principles in Spiritual sense which resulted in a Corporate Slaughter
  14. 14. <ul><li>The age old mantra of Indians is </li></ul><ul><li>that </li></ul><ul><li>Commitment to well-being and progress of all stakeholders </li></ul>
  15. 15. Capacity, Knowledge and Resources Maximization of stakeholders’ value and well-being and progress of humankind TOWARDS THROUGH Transparency, accountability and truthful disclosure of state of affairs Righteousness Truth Corporate are also expected to use their
  16. 16. Companies that have followed these principles of Corporate Governance have
  17. 17. <ul><li>Consistently earned high returns, </li></ul><ul><li>increased their net worth, </li></ul><ul><li>enhanced their shareholders wealth </li></ul>
  18. 18. <ul><li>Invested significantly in proactive research and development </li></ul>
  19. 19. <ul><li>Developed people into ‘ achievers ’ than just ‘ performers’ </li></ul>
  20. 20. <ul><li>Dealt ethically with customers, government and business partners </li></ul>
  21. 21. <ul><li>Maintained and updated their professional management culture, system and processes </li></ul>
  22. 22. <ul><li>..and accomplished </li></ul>
  24. 24. <ul><li>Advantages of applying </li></ul><ul><li>Best Corporate Governance Practices </li></ul>
  25. 25. <ul><li>Widespread Goodwill and Brand Reputation </li></ul>Access to Global Markets Better Access to Human Capital Ready Market for New Products Widening Customer Base
  26. 26. <ul><li>Enhanced Trust and Confidence of all Stakeholders </li></ul>EMPLOYEES INVESTORS CUSTOMERS SUPPLIERS GOVERNMENT AND REGULATORS SOCIETY
  27. 27. <ul><li>Leading to… </li></ul>
  28. 28. Environment Civil Society Business Society SUSTAINABLE DEVELOPMENT OF NATION
  29. 29. The Nation’s Welfare <ul><li>Happier Nation </li></ul><ul><li>World wide recognition </li></ul><ul><li>Overall Growth </li></ul><ul><li>Enhanced confidence amongst foreign investors though Primary/Secondary Market </li></ul><ul><li>Overall stakeholders benefit </li></ul><ul><li>Enhanced repute and significance of Citizens at the global platform. </li></ul>
  30. 30. <ul><li>Corporate Governance </li></ul><ul><li>The Latest Initiatives </li></ul>
  31. 31. Corporate governance voluntary guidelines 2009 <ul><li>Board of Directors </li></ul><ul><li>Responsibilities of the Board </li></ul><ul><li>Audit committee of the Board </li></ul><ul><li>Auditors </li></ul><ul><li>Secretarial Audit </li></ul><ul><li>Institution of Mechanism of Whistle Blower </li></ul><ul><li>Corporate Social Responsibility </li></ul>The Existing Initiatives <ul><li>Securities Laws </li></ul><ul><ul><li>Listing Agreement </li></ul></ul><ul><ul><li>Prohibition of Insider Trading Regulations </li></ul></ul><ul><ul><li>Capital Market Regulations </li></ul></ul><ul><li>Companies Act, 1956 </li></ul>Existing Vs Latest
  32. 32. BOARD OF DIRECTORS – Appointment of Directors <ul><ul><li>Appointment of Board </li></ul></ul><ul><ul><ul><li>Issuance of formal letter of appointment containing specified details </li></ul></ul></ul><ul><ul><ul><li>Such letter to be formed part of disclosures and should be placed at the website of the company </li></ul></ul></ul><ul><ul><li>Separation of the office of managing Director & Chairman </li></ul></ul><ul><ul><ul><li>To ensure independent and effective decision making </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Cont… </li></ul></ul></ul></ul></ul>
  33. 33. BOARD OF DIRECTORS - Appointment of Directors <ul><ul><li>Nomination Committee </li></ul></ul><ul><ul><ul><li>To be chaired by independent director and formed of effective mix of directors for the purpose of screening and appointing Non executive directors (including independent) and fixing their term of appointment </li></ul></ul></ul><ul><ul><ul><li>Such procedure to be disclosed in the annual report </li></ul></ul></ul><ul><ul><li>Limit to directorship of any Director </li></ul></ul><ul><ul><ul><li>Limit to include public limited and subsidiaries of public companies </li></ul></ul></ul><ul><ul><ul><li>For an executive director, maximum no. of companies wherein he can serve as Non executive director should be restricted to seven </li></ul></ul></ul>
  34. 34. BOARD OF DIRECTORS - Remuneration of Directors <ul><li>Remuneration </li></ul><ul><li>Guiding Principles-Linking Corporate and Individual </li></ul><ul><li>Performance </li></ul><ul><ul><li>specifying performance benchmark for deciding remuneration </li></ul></ul><ul><ul><li>Remuneration policy should be laid for Board and KMPs specifying proper mix of fixed and flexible pay-out </li></ul></ul><ul><ul><li>Performance related incentive to be specifically emphasized for Executive directors </li></ul></ul><ul><ul><li>Cont… </li></ul></ul>
  35. 35. BOARD OF DIRECTORS - Remuneration of Directors <ul><li>Remuneration </li></ul><ul><li>Remuneration of Non-Executive Directors (NEDs) </li></ul><ul><ul><li>Specific policy bearing fixed and flexible component (in form of share of net profit/ESOP) to be specified for such directors </li></ul></ul><ul><ul><li>Minimum lock in period after his exit from the Board to be fixed </li></ul></ul><ul><li>Structure of Compensation to NEDs </li></ul><ul><ul><li>Remuneration package should be defined in terms of fixed, variable and additional variable payment , the details of which should be disclosed in the annual report </li></ul></ul><ul><ul><li>Cont… </li></ul></ul>
  36. 36. BOARD OF DIRECTORS - Remuneration of Directors <ul><li>Remuneration </li></ul><ul><li>Remuneration of Independent Directors (IDs) </li></ul><ul><ul><li>Sitting fee to be increased </li></ul></ul><ul><ul><li>Payment should not be made in the form of stock options or profit linked commission, which may hamper their independence </li></ul></ul>
  37. 37. BOARD OF DIRECTORS - Remuneration of Directors <ul><li>Remuneration Committee </li></ul><ul><li>Constitution – at least one to be independent director </li></ul><ul><li>Objective - to determine remuneration packages of all executive directors </li></ul><ul><li>Basis – to determine the principle, basis and rationale behind remuneration </li></ul><ul><li>Roles – recommendation and making available such information for the shareholders </li></ul>
  38. 38. RESPONSIBILITIES OF THE BOARD <ul><li>Training of Directors </li></ul><ul><li>Enabling Quality Decision making </li></ul><ul><li>Risk Management </li></ul><ul><li>Evaluation of Performance of Board of Directors, Committees thereof and of Individual Directors </li></ul><ul><li>Board to place Systems to ensure Compliance with Laws </li></ul><ul><ul><li>Annual review the compliance of all laws and its effectiveness </li></ul></ul><ul><ul><li>Adoption of ‘comply and explain principle’ </li></ul></ul><ul><ul><li>Discuss the Impact Analysis on Minority Shareholders on each Board agenda item </li></ul></ul>
  39. 39. AUDIT COMMITTEE OF BOARD <ul><li>Audit Committee – Constitution </li></ul><ul><li>Audit Committee – Enabling Powers </li></ul><ul><li>Audit Committee - Role and Responsibilities </li></ul>
  40. 40. AUDITORS <ul><li>Appointment of Auditors </li></ul><ul><li>Certificate of Independence </li></ul><ul><li>Rotation of Audit Partners and Firms </li></ul><ul><li>Need for clarity on information to be sought by </li></ul><ul><li>auditor and/or provided by the company to him/it </li></ul><ul><li>Appointment of Internal Auditor </li></ul>
  41. 41. SECRETARIAL AUDIT <ul><li>Arrangement for an independent audit by professionals to ensure transparent, ethical and responsible </li></ul><ul><li>governance of the company. </li></ul>
  42. 42. INSTITUTION OF MECHANISM FOR WHISTLE BLOWING <ul><li>Provide for code specifying unethical behavior, actual or suspected fraud, or violation of the company's code of conduct or ethics policy. </li></ul><ul><li>Ensure safeguards for the person blowing the whistle. </li></ul>
  43. 43. INDEPENDENT DIRECTORS <ul><li>Roles </li></ul><ul><li>& </li></ul><ul><li>Responsibilities </li></ul>
  44. 44. Roles of Independent Director <ul><li>Ensuring effective, balanced and rational board </li></ul><ul><li>Challenge the company proposals in light of the overall analysis </li></ul><ul><li>Scrutinize performance of management and key officials </li></ul><ul><li>Examine the role of and work performed by the auditor in the company </li></ul><ul><li>Contribute to the betterment of the company by the varied thoughts and specialization </li></ul><ul><li>Reconfirm the financial information in consensus with the Statutory Auditors </li></ul><ul><li>Cont … </li></ul>
  45. 45. Roles of Independent Director <ul><li>Formulate and deal in effective investor interaction/redressal forum </li></ul><ul><li>Oversee the whole procedure and practices adopted by the company and the manner of performance </li></ul><ul><li>Active role in being the whistle blower for any mal practice adopted in the company </li></ul><ul><li>Review fulfillment of any commitment made by the company with its shareholders such as utilization of IPO proceeds </li></ul><ul><li>Secretly review the internal control and internal audit system in the company and give suggestions for its improvement </li></ul>
  46. 46. Responsibility of Independent Director <ul><li>Review the legal compliances in the company and the steps taken to curb its deficiencies </li></ul><ul><li>To take effective measures towards the responsibilities granted by virtue of different positions held in the company </li></ul><ul><li>To act as an advisor and inspector to any policies/decisions performed by the company </li></ul><ul><li>To follow a proper information dissemination system and report of any malfunctioning in the company to the general public </li></ul><ul><li>Not to extract any undue privilege or benefit from the company </li></ul>
  47. 47. CORPORATE GOVERNANCE VOLUNTARY GUIDELINES 2009 Further Initiative <ul><li>Attributes of Independent Directors </li></ul><ul><ul><li>To specify the positive attributes with reference to such directors </li></ul></ul><ul><ul><li>The certificate of independence to be taken and placed on company website </li></ul></ul><ul><li>Tenure of Independent Directors </li></ul><ul><ul><li>Fixing the maximum years of directorship to 7 years </li></ul></ul><ul><ul><li>Period of 3 years should lapse before such person is given different designation in the company </li></ul></ul><ul><ul><li>No more than 3 tenure to any independent director </li></ul></ul><ul><ul><li>Maximum no of companies to be fixed to 7 </li></ul></ul><ul><li>Independent Directors to have the Option and Freedom to meet Company Management periodically </li></ul>
  48. 48. <ul><li>Corporate </li></ul><ul><li>Social </li></ul><ul><li>Responsibility </li></ul><ul><li>(CSR) </li></ul>
  49. 49. What is CSR? <ul><li>CSR is about alignment of business behaviors and values with the expectations and needs of stakeholders , which includes, not just investor and customers , but also the employees, suppliers, communities, regulators, special interest groups and society as a whole. </li></ul><ul><li>It describes the social commitment of an organization on a macro level. </li></ul><ul><li>It is not philanthropy activity but a voluntary effort of going beyond any statutory requirement or obligation </li></ul>
  50. 50. CSR The core elements <ul><li>Care for all Stakeholders </li></ul><ul><li>Ethical functioning </li></ul><ul><li>Respect for Workers' Rights and Welfare </li></ul><ul><li>Respect for Human Rights </li></ul><ul><li>Respect for Environment </li></ul><ul><li>Activities for Social and Inclusive Development </li></ul>
  51. 51. CSR - The implementation <ul><li>Creation of CSR Policy </li></ul><ul><li>Laying down investment strategy </li></ul><ul><li>Allocation of specific amount </li></ul><ul><li>Association with specified persons </li></ul><ul><li>Dissemination of information regarding the CSR initiatives taken </li></ul>
  52. 52. PSU’s & CSR The guidelines to PSU provides Such investment to be in project based & mere donation to charity and philanthropic activity would not be included in this . Expenditure related to staff excluded Net profit CSR Amount less than US$ 22.5 million (100 crores) 3-5 per cent of profit between US$ 22.5 million - US$ 112.5 million(100 – 500 crores) 2-3 per cent over US$ 112.5 million (500 crores) 0.5-2 per cent of net profits
  53. 53. The Corporate Failures Company Country What went wrong Ahold NL earnings overstated Enron USA inflated earnings, hid debt in SPEs Parmalat Italy false transactions recorded Tyco USA looting by CEO, improper share deals, evidence of tampering and falsifying business records WorldCom USA expenses booked as capital expenditure Xerox USA accelerated revenue recognition Satyam India Board failure, accounts falsification Lehman Brothers USA Failure of Board, management & regulator
  54. 54. Corporate Governance Reasons of Collapse <ul><li>Insufficient dissemination of information </li></ul><ul><li>Lack of awareness amongst the Investor </li></ul><ul><li>Board Manipulations </li></ul><ul><li>Insufficient contributions from Independent Directors </li></ul><ul><li>Lack of internal control and internal audit systems </li></ul><ul><li>Lack of proper accountability </li></ul><ul><li>In sufficient cross verification </li></ul>
  55. 55. Failure of Corporate Governance - Impact & Preparation Impact Preparation Loss of Investor Trust India Inc. Caution and initiation of steps towards good governance Failure of trust on intermediaries such as Statutory Auditors, Internal Auditors, Secretarial Auditors etc. Effective information dissemination Overall loss of the economy through market loss Activated role of the regulator
  56. 56. Outstanding Performance, Higher Profits, Expanded Market Reach and the like FAILS to protect a company which has put good governance & ethics at the back burner…. History is Witness D I S A S T E R
  57. 57. Secret behind building foundations ..…Only the culture of strict adherence to good compliance can keep a company ahead on sustainable basis , bring in larger profits!!! S U C C E S S
  58. 58. <ul><li>Corporates should act like Honeybee which suck the nectar of the flowers without effecting its fragrance and produce honey for the well –being of society . </li></ul><ul><li>The Ancient Indian Philosophy </li></ul>
  59. 59. <ul><li>Thank you </li></ul>Pavan Kumar Vijay Managing Director Corporate Professionals (India) Pvt. Ltd. D – 28, South Ext- I, New Delhi 1100049 Tel: +91.11.40622200, Fax: +91.11.40622201 Email: [email_address] Visit us at: