2. Mistry who was dismissed as Tata Sons chairman on October 24 by its
board alleged “lack of corporate governance” and “failure on the part of
directors to discharge the fiduciary duty” owed to shareholders of Tata
Sons and other Group companies.
Following Mistry’s e-mail, proxy advisory firms feel that the reporting and
governance structures between Tata Trusts, Tata Sons and other operating
companies needs to be clearly defined.
The e-mail seems to be suggesting that Ratan Tata regards Tata group as a
fiefdom, and Independent Directors aren’t truly independent and assertive.
Mistry’s e-mail has alleged that despite making losses of Rs 1000 crore,
Tata’s low-cost Nano has not been shut down due to emotional reasons and
also due to the fact that it will “stop the supply of the Nano gliders to an
entity that makes electric cars and in which Ratan Tata has a stake”.
Apart from this, Mistry has alleged that the conduct of two directors of
Tata Sons-Nitin Nohria and Vijay Singh has “created the added risk of
contravening insider trading regulations.
J N Gupta, managing director of Stakeholders Empowerment Services (SES)
said that governance issues raised by Mistry if true will not only impact the
shareholders but will also hit the Tata brand. He said Mistry’s e-mail has
raised important questions on the independence of the independent
directors and their conduct on all the boards of Tata firms.
CYRUS MISTRY’S VS TATA GROUP
Ruby Sharma
3. Reebok India, owned by Adidas AG, alleged a Rs.870 crore fraud
by its former managing director (MD) Subhinder Singh Prem and
former Chief Operating Officer (COO) Vishnu Bhagat, in a
criminal complaint filed in May, 2012.
In March 2013, Adidas, the parent company, announced a 153
million Euros loss on account of the Reebok India episode.
The two were accused of criminal conspiracy and fraudulent
practices including stealing products by setting up “secret
warehouses”.
There has been a grave failure of corporate governance as well
since the company has also alleged that the former officials
fudged accounts and indulged in fictitious sales causing a multi -
crore dent to the company– which again points to the importance
of internal checks for malpractices and corruption.
KINGFISHER AIRLINES LOSES LICENSE TO FLY
SAHARA TOLD TO REPAY $3 BILLION TO SMALL INVESTORS
REEBOK INDIA SUFFERS A MAJOR SCAM
Ruby Sharma
4. A system is required which is intended to increase the
accountability of company and avoid massive disasters before
they occur.
A system is required which is needed to create a corporate
culture of transparency, accountability and disclosure.
NEED OF HOUR
Ruby Sharma
5. Corporate governance is the system of principles, policies,
procedures, and clearly defined responsibilities and
accountabilities used by stakeholders to overcome the
conflicts of interest inherent in the corporate form.
Corporate governance is the interaction between various
participants (Shareholder, Board of Director and Company
Management) in shaping corporation’s performance and the
way it is proceeding towards.
Corporate governance ensures transparency which ensures
strong and balance economic development. This is also
ensures that the interest of all shareholders (Majority as well
as minority shareholder) are safeguard.
CORPORATE GOVERNANCE
Ruby Sharma
7. Good corporate governance ensures corporate success and
economic growth.
Strong corporate governance maintains investors’ confidence, as
a result of which, company can raise capital efficiently and
effectively.
There is a positive impact on the share price.
It provides proper inducement to the owners as well as managers
to achieve objectives that are in interests of the shareholders
and the organization.
Good corporate governance also minimizes wastages, corruption,
risks and mismanagement.
It helps in brand formation and development.
It ensures organization is managed in a manner that fits the best
interests of all.
IMPORTANCE OF CORPORATE
GOVERNANCE
Ruby Sharma
9. Principle of :
The structure of the board and its committees
Director appointment procedure
Director’s duties, remuneration and performance
Risk governance and internal control
Reporting and integrity
Audit
Relations with share holders and other key shareholder
CORPORATE GOVERNANCE PRINCIPLES
Ruby Sharma
10. The Benefits to Shareholders
Good CORPORATE GOVERNANCE can provide the proper
incentives for the board and management to pursue
objectives that are in the interest of the company and
shareholders, as well as facilitate effective monitoring.
Better CORPORATE GOVERNANCE can also provide
Shareholders with greater security on their investment.
Better CORPORATE GOVERNANCE also ensures that
shareholders are sufficiently informed on decisions
concerning fundamental issues like amendments of statutes
or articles of incorporation, sale of assets, etc.
BENEFITS OF CORPORATE GOVERNANCE
Ruby Sharma
11. The Benefits to the National Economy
Empirical evidence and research conducted in recent years
supports the proposition that it pays to have good CORPORATE
GOVERNANCE. It was found out that more than 84% of the
global institutional investors are willing to pay a premium for
the shares of a well-governed company over one considered
poorly governed but with a comparable financial record.
The adoption of CORPORATE GOVERNANCE principles – as
good CORPORATE GOVERNANCE practice has already shown in
other markets – can also play a role in increasing the
corporate value of companies.
BENEFITS OF CORPORATE GOVERNANCE
Ruby Sharma
12. Ethics: clearly ethical practices applied to the business
Align Business Goals: appropriate goals, arrived at through
the creation of a suitable stakeholder participation in
decision making model
Strategic management: an effective strategy process which
incorporates stakeholder value
Organization: an organization suitably structured to give
effect to the good corporate governance
Reporting: reporting systems structured to provide
transparency and accountability.
FIVE GOLDEN RULES OF CORPORATE
GOVERNANCE
Ruby Sharma
13. The organizational framework for corporate governance
initiatives in India consists of the Ministry of Corporate Affairs
(MCA) and the Securities and Exchange Board of India (SEBI).
SEBI monitors and regulates corporate governance of listed
companies in India through Clause 49.
This clause is incorporated in the listing agreement of stock
exchanges with companies and it is compulsory for listed
companies to comply with its provisions.
MCA through its various appointed committees and forums
such as National Foundation for Corporate Governance
(NFCG), a not-for-profit trust, facilitates exchange of
experiences and ideas amongst corporate leaders, policy
makers, regulators, law enforcing agencies and non-
government organizations.
REGULATORY FRAMEWORK IN INDIA AND
MANDATES
Ruby Sharma
14. CII Code of Desirable Corporate Governance (1998)
Kumar Mangalam Birla Committee (2000)- Clause 49: Listing
Agreement
Reserve Bank of India (RBI) Report of the Advisory Group on
Corporate Governance (2001)
Naresh Chandra Committee (2002)
N.R. Narayana Murthy Committee (2003)
J.J. Irani Committee (2005)
NATIONAL COMMITTEES ON CORPORATE
GOVERNANCE
Ruby Sharma
15. Appointment of Women Director.
Tenure of Independent Directors and performance evaluation.
Formal letter of appointment to independent directors.
Separate meeting of independent directors and training of
IDs.
Succession plan for board/ senior management.
Disclosure in Annual Report about Remuneration Policy and
evaluation criteria.
Compulsory Whistle Blower Mechanism.
Constitution of Nomination and Remuneration Committee.
Related Party Transactions.
Corporate Social Responsibility(CSR).
EVOLUTION IN CORPORATE GOVERNANCE
NORMS
Ruby Sharma
16. The Board shall have optimum combination of Executive
Directors (EDs) and Non-Executive Directors (NEDs) with at
least one-woman director on the Board of the
company AND not less than 50% of the Board comprising
NEDs.
Requirement of Woman Director is to align with Section
149(1) of the Companies Act, 2013. As per new Companies
Act, 2013 Non-Listed companies having:
Paid-up share capital of Rs.100 Cr. or more OR
Turnover of Rs.300 Cr. or more
Need to have Woman Director before 31st March 2015.
COMPOSITION OF THE BOARD
Ruby Sharma
17. Where Chairman is NED – at least 1/3rd of the Board.
Where Chairman is Executive – at least 1/2 of the Board
Also Where Chairman is NED but is a promoter or is related to
any promoter or person occupying management position at
the Board level or at one level below the Board – at least 1/2
of the Board
INDEPENDENT DIRECTORS
Ruby Sharma
18. An Independent Director shall hold office for a term up to five
consecutive years on the Board of a Company and shall be
eligible for re-appointment for another term of up to 5
consecutive years on passing of a special resolution by the
Company.
Provided that a person who has already served as an ID for
five years or more in a company shall be eligible for re-
appointment, on completion of his present term, for one more
term of up to five years only.
Provided further that an ID, who completes his above
mentioned term shall be eligible for appointment as ID in the
company only after the expiration of three years of ceasing to
be an ID in the company.
MAXIMUM TENURE OF INDEPENDENT
DIRECTORS (ID)
Ruby Sharma
19. A related party transaction is a transfer of resources, services
or obligations between a company and a related party,
regardless of whether a price is charged.
The company shall formulate a policy on materiality of related
party transactions and also on dealing with Related Party
Transactions. Provided that a transaction with a related party
shall be considered material if the transaction / transactions
to be entered into individually or taken together with previous
transactions during a financial year, exceeds 5% of the annual
turnover or 20% of the net worth of the company as per the
last audited financial statements of the company, whichever
is higher.
All Related Party Transactions shall require prior approval of
the Audit Committee.
RELATED PARTY TRANSACTIONS
Ruby Sharma
20. As per section 177 of the Companies Act, 2013 read with Rule
6 of Companies (Meetings of Board and its powers) Rules,
2014,
every listed company and all other public companies
with paid up capital of Rs. 10 crore or more;
or having turnover of 100 crore or more;
or having in aggregate, outstanding loans or borrowings or
debentures or deposits exceeding Rs.50 Crores or more,
to have an Audit Committee which shall consist of not less
than three directors and such number of other directors as the
Board may determine of which two thirds of the total number
of members shall be directors, other than managing or whole-
time directors.
AUDIT COMMITTEE
Ruby Sharma
21. The following shall be disclosed in the Annual Report:
(1) Training imparted to IDs.
(2) Establishment of Vigil Mechanism (Also in Board Report).
(3) Remuneration Policy and the evaluation criteria.
Report on Corporate Governance
There shall be a separate Section on Corporate Governance in the
Annual Report of the Company with a detailed Compliance Report on
Corporate Governance.
Non-compliance of any mandatory clause to be specifically
highlighted.(Suggested list including non-mandatory requirements is
appended to Clause 49).
A Quarterly Compliance Report is to be submitted to Stock Exchanges
within 15 days of the close of the Quarter.
Compliance
The Company shall obtain a certificate from either the auditors or
practicing CS of-compliance with the conditions of Corporate
Governance and annex the same with the Directors’ Report.
DISCLOSURE IN ANNUAL REPORT
Ruby Sharma
22. To promote better disclosures and transparency, the 2013 Act, requires
the company’s Annual Report to include a Director’s Responsibility
Statement stating the following:
(a) Applicable accounting standards had been followed in the
preparation of the annual accounts
(b) The directors have selected such accounting policies and applied
them consistently and made judgments and estimates that are
reasonable and prudent so as to give a true and fair view of the state
of affairs of the company
(c) Proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for
safeguarding the assets of the company and for preventing and
detecting fraud and other irregularities
(d) The annual accounts of the company are prepared on a going
concern basis
(e) The directors have laid down internal financial controls to be
followed by the company and that such internal financial controls are
adequate and were operating effectively
(f) The directors had devised proper systems to ensure compliance with
the provisions of all applicable laws and that such systems were
adequate and operating effectively.
DIRECTORS’ RESPONSIBILITY
STATEMENT
Ruby Sharma
23. Internal control is a process, effected by an entity’s board of
directors, management and other personnel, designed to
provide reasonable assurance regarding the achievement of
objectives in the following categories:
− Effectiveness and efficiency of operations,
− Reliability of financial reporting, and
− Compliance with applicable laws and regulations.
The Naresh Chandra Committee for the first time required the
signing officers, to declare that they are responsible for
establishing and maintaining internal controls which have
been designed to ensure that all material information is
periodically made known to them; and have evaluated the
effectiveness of internal control systems of the company.
CEO/CFO CERTIFICATION
Ruby Sharma
