Independency Of Director -Myths and Realities

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This presentation deals with the concept of corporate governance, how it originated, its principles and framework. Then it explains one of the key concept of corporate governance i.e. appointment of independent director and how the apointment of independent director ensures adherence to corporate governance and myths and realities thereto.

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  • Ladies and Gentlemen Corporate Governance rests with the Vision and Perception of the Corporate Leadership
  • and The ICSI has adopted a Vision for Corporate Governance itself
  • The ICSI Parivar follows principles based on ethics and humanity Fairness to all stakeholders Mutual Trust, Transparency and Togetherness Unrestricted Communication and Continuous Feedback Sharing Knowledge, Success Stories and Experience Sharing Happiness and Concerns Helping Each Other – Round the Clock
  • In fact, these basic principles are the foundation of Best Governed Organisations, irrespective of their form and size
  • Corporate Governance is not a buzzword, there are so many advantages of applying good corporate governance practices
  • The first advantage is GROWTH Growing Revenues Growing Profits Growing Market Value
  • Companies get Widespread Goodwill and Brand Reputation, resulting into Widening Customer Base Ready Market for New Products Access to Global Markets, and Better Access to Human Capital
  • and Enhanced Trust and Confidence of all Stakeholders INVESTORS EMPLOYEES CUSTOMERS SUPPLIERS GOVERNMENT AND REGULATORS, and SOCIETY at large
  • Leading to…
  • SUSTAINABLE DEVELOPMENT
  • Ladies and Gentlemen Commitment to well-being and progress of all stakeholders is our age old mantra
  • Taittariya Upanishad, which has for ages strengthened our centres of education, contains invaluable advice to students passing out from an institute of learning - Satyam Vada Dharmam Chara
  • “ Forever speak the truth and follow the dharma”
  • Truthful disclosure of State of Affairs i.e. transparency operations and transactions.
  • In the Karna Parva of the Mahabharata Chapter 69 says: Dharma is for the stability of society, the maintenance of social order and the general well-being and progress of humankind i.e. the Overall Governance
  • In Ayodhya Kand of Ramayana, Lord Rama explains the concept of Governance as “ to provide the maximum happiness for the maximum number of people for the maximum period, based as it is on the principles of Dharma –righteousness and moral values.”
  • Mahatma Gnadhi said “The Customer is King”
  • This is the soul behind modern Marketing Management
  • We have been worshipping 33 Crore Gods signifying various species, plants, cosmic elements, … or 33 Crore Components of Nature.
  • We Care for Panchtatvas - Prithvi, Jal, Vaayu, Akaash and Agni that make a human being
  • This is our approach to Environment Protection.
  • The four essential principles of Mahatma Gandhi's philosophy - Truth, Ahimsa, Trusteeship and Constructive Action are widely quoted the worldover. Gandhi said we don't own the talent but we are appointed  "Trustees" by God and so we must use the talent to help others, less fortunate or talented than us. The Board of Director being Trustees should work with highest level of integrity and independence and strive for growth of all stakeholders.
  • Similarly, Corporates are also expected to use their Capacity, Knowledge and Resources towards maximisation stakeholders’ value and well-being and progress of humankind (i.e. Dharma) through Transparency, accountability and truthful disclosure of state of affairs (i.e.Truth)
  • This is our own age old mantra of Good Governance.
  • Ladies and Gentlemen Companies that have won ICSI National Award for Excellence in Corporate Governance have
  • Consistently earned high returns, increased their net worth and enhanced their shareholders wealth
  • Invested significantly in proactive research and development
  • Developed people into ‘achievers’ than just ‘performers’
  • Dealt ethically with customers, government and business partners
  • Maintained and updated their professional management culture, system and processes
  • ..and accomplished
  • Growing Investors Winning Employees Delighted Customers Trusted Suppliers Satisfied Government And Regulators Happy Society That is Excellence, which everyone aspires for and that leads to National Growth
  • Thank You
  • Independency Of Director -Myths and Realities

    1. 1. INDEPENDENCE OF DIRECTOR Myth or Reality Pavan Kumar Vijay
    2. 2. Concept of Independent Director <ul><li>Independent director means a director who is not connected or associated with the company in any manner and works only to safeguard the interest of members who individually cannot look after their interest. </li></ul>
    3. 3. Genesis <ul><li>The concept of Independent director has been originated to drive the companies towards inculcating the concept of corporate governance in their management. </li></ul>
    4. 4. What is Corporate Governance???
    5. 5. <ul><li>Corporate Governance rests with the Vision and Perception of the Leadership </li></ul>
    6. 6. <ul><li>and </li></ul><ul><li>A Leader need to adopt a </li></ul><ul><li>Vision for Corporate Governance </li></ul>
    7. 7. 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
    8. 8. Stakeholders in 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
    9. 9. Principles of Corporate Excellence Fairness to all stakeholders Mutual Trust, Transparency and Togetherness Unrestricted Communication and Continuous Feedback Sharing Knowledge, Success Stories and Experience Sharing Happiness and Concerns Helping Each Other – Round the Clock
    10. 10. Infact, these principles are the foundation of Best Governed Organisations irrespective of their form and size
    11. 11. <ul><li>Advantages of applying </li></ul><ul><li>Best Corporate Governance Practices </li></ul>
    12. 12. <ul><li>Growth </li></ul>Growing Revenues Growing Profits Growing Market Value
    13. 13. <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
    14. 14. <ul><li>Enhanced Trust and Confidence of all Stakeholders </li></ul>EMPLOYEES INVESTORS CUSTOMERS SUPPLIERS GOVERNMENT AND REGULATORS SOCIETY
    15. 15. <ul><li>Leading to… </li></ul>
    16. 16. Environment Civil Society Business Society SUSTAINABLE DEVELOPMENT
    17. 17. <ul><li>Commitment to well-being and progress of all stakeholders is our age old mantra </li></ul>
    18. 18. Satyam Vada Dharmam Chara - Taittariya Upanishad
    19. 19. <ul><li>“ Forever speak the truth and follow the dharma ” </li></ul>
    20. 20. <ul><li>Truth : Disclosure of Actual State of Affairs (Transparency in operations and transactions) </li></ul>
    21. 21. <ul><li>Dharma : “Dharma is for the stability of society, the maintenance of social order and the general well-being and progress of humankind .” </li></ul><ul><li>- Karna Parva of the Mahabharata. Verse-58 in Chapter 69 </li></ul>
    22. 22. Governance Concept in ‘Ramayana’ <ul><li>To provide “the maximum happiness for the maximum number of people for the maximum period, based on the principles of Dharma – righteousness and moral values.” </li></ul>- Ayodhya Kand
    23. 23. <ul><li>“ The Customer is King” </li></ul>- Mahatma Gandhi
    24. 24. <ul><li>This is the soul behind modern </li></ul><ul><li>Marketing Management </li></ul>
    25. 25. Worshipping 33 Crore Godheads signifying various species, plants, cosmic elements, …
    26. 26. <ul><li>Care for Panchtatvas - Prithvi , Jal , Vaayu , Akaash and Agni that make a human being </li></ul>
    27. 27. <ul><li>This is our approach to </li></ul><ul><li>Environment Protection </li></ul>
    28. 28. The four essential principles of Mahatma Gandhi's philosophy Truth , Ahimsa , Trusteeship and Constructive Action
    29. 29. <ul><li>Corporates are also expected to use their </li></ul>Capacity, Knowledge and Resources Maximisation of stakeholders’ value and well-being and progress of humankind TOWARDS THROUGH Transparency, accountability and truthful disclosure of state of affairs Dharma Truth
    30. 30. <ul><li>This is our own age old mantra of </li></ul><ul><li>Good Governance </li></ul>
    31. 31. <ul><li>Companies that have followed these </li></ul><ul><li>principles of </li></ul><ul><li>Corporate Governance </li></ul><ul><li>have </li></ul>
    32. 32. <ul><li>Consistently earned high returns, </li></ul><ul><li>increased their net worth and </li></ul><ul><li>enhanced their shareholders wealth </li></ul>
    33. 33. <ul><li>Invested significantly in proactive research and development </li></ul>
    34. 34. <ul><li>Developed people into ‘ achievers’ than just ‘ performers’ </li></ul>
    35. 35. <ul><li>Dealt ethically with customers, government and business partners </li></ul>
    36. 36. <ul><li>Maintained and updated their professional management culture, system and processes </li></ul>
    37. 37. <ul><li>..and accomplished </li></ul>
    38. 38. WINNING EMPLOYEES XCELLENCE GROWING INVESTORS DELIGHTED CUSTOMERS TRUSTED SUPPLIERS SATISFIED GOVERNMENT AND REGULATORS HAPPY SOCIETY
    39. 39. <ul><li>“ 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.” </li></ul><ul><li>- The Institute of Companies Secretaries of India </li></ul>
    40. 40. <ul><li>Independent Director??? </li></ul>
    41. 41. Definition of Independent Director – Clause 49 (1)(A)(iii) of Listing Agreement He has not been an executive of the company in the immediately preceding three financial years He is not associated with the statutory audit firm or the legal firm having material association with the company. He is not related to promoters or persons occupying management positions at the board level or at one level below the board He does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates. He is not a material supplier, service provider or customer or a lessor or lessee of the company. He is not owning two percent or more of the block of voting shares
    42. 42. Appointment of Independent Director <ul><li>An Independent director can be appointed by passing a Board resolution or Ordinary resolution in the General Meeting of the Company. </li></ul>
    43. 43. Duties & Responsibilities “Duty is what we expect of others” “The price of greatness is responsibility” <ul><li>As Present directors </li></ul><ul><li>As Past directors </li></ul><ul><li>As Members of Audit Committee </li></ul><ul><li>As Explicit and implicit </li></ul><ul><li>Responsibility for subsidiaries </li></ul>
    44. 44. Duties & Responsibilities <ul><li>Primary Duties: </li></ul><ul><li>Act in the best interests of the company </li></ul><ul><li>Safeguard the interests of the stakeholders </li></ul><ul><li>Attend Board Meetings and participate in decisions </li></ul><ul><li>Avoid conflict situations </li></ul><ul><li>Not seek personal gains </li></ul><ul><li>Maintain confidentiality </li></ul><ul><li>Fiduciary duty </li></ul><ul><li>Discharge duties required in specific committees of the Board </li></ul>
    45. 45. Enhanced Responsibilities & Duties <ul><li>To compel directors to act in accordance with the strict terms of their mandate </li></ul><ul><li>To compel them to exercise care and skill in carrying out their various functions </li></ul><ul><li>To compel them to use their wide discretionary powers in good faith and proper purpose, & </li></ul><ul><li>Finally, to compel them to act loyally in advancing the interest of their company. </li></ul>
    46. 46. Is an independent Director as a member of the Company Board equally responsible as the Company Board ? <ul><li>No, unless he, the independent director, is charged with a </li></ul><ul><li>specific responsibility. </li></ul>AN IMPORTANT QUESTION
    47. 47. Rights & Authorities <ul><li>Right to be sent the notice of every Board Meeting of the company in advance as per the Articles. </li></ul><ul><li>Right to be sent the agenda of every Board Meeting of the company in advance as per the Articles. </li></ul><ul><li>Right to be appointed on various committees like Audit Committee, Remuneration committee, Shareholder Grievance Committee etc. </li></ul><ul><li>Right to vote on every matter brought before the Board of Company </li></ul><ul><li>Right to get minutes of the Board Meeting </li></ul>
    48. 48. MYTHS…
    49. 49. MYTHS-Qualities of Independent Directors <ul><li>Independent directors should have </li></ul><ul><ul><li>Unbiased attitude </li></ul></ul><ul><ul><li>Highest standards of personal integrity </li></ul></ul><ul><ul><li>Excellent judgment and an ability to make informed decisions within time constraints </li></ul></ul><ul><ul><li>Professional credibility </li></ul></ul><ul><ul><li>Capacity to think strategically </li></ul></ul><ul><ul><li>Demonstrate sound communication skills </li></ul></ul><ul><ul><li>Sound interpersonal skills </li></ul></ul><ul><ul><li>Team orientation </li></ul></ul>
    50. 50. <ul><li>Protection of minority interest </li></ul><ul><li>Impediments to cross border voting will be removed </li></ul><ul><li>Insider trading and abusive self-dealing will be prohibited </li></ul><ul><li>Board members and KMPs will be compelled to disclose their interest in material contracts </li></ul>MYTHS-Presence of Independent Director means…
    51. 51. MYTHS-Presence of Independent Director means… <ul><li>Employees participation in management: performance enhancing mechanisms will be promoted </li></ul><ul><li>Whistle-blowers’ interest will be protected </li></ul><ul><li>Creditors’ rights will be protected through security interest enforcement and bankruptcy laws </li></ul>
    52. 52. REALITY…
    53. 53. Reality <ul><li>Makes the Board of Directors broad based </li></ul><ul><li>Inculcate professionalism in the working of the family businesses </li></ul><ul><li>Brings more transparency in the functioning of the Board </li></ul><ul><li>Enhance investors’ Confidence </li></ul>
    54. 54. Guidance for Independent Directors – The Taste and Smell Tests <ul><li>Reputation of company </li></ul><ul><li>Capability to meet the requirements and expectations </li></ul><ul><li>Demonstrate independence </li></ul><ul><li>Whether the company has adequate controls and whether they can be relied upon </li></ul><ul><li>Ability to resist pressure </li></ul><ul><li>Knowledge on current developments </li></ul><ul><li>Aware and abide by corporate code of conduct </li></ul><ul><li>Seek expert help </li></ul><ul><li>Prepare in advance for Board Meetings </li></ul><ul><li>Maintain Confidentiality </li></ul>
    55. 55. Thank You

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