A comprehensive explaination of Corporate boards and committes and which plays an significant role in the Business ethics and corporate Governance

1. Unit: 5 Corporate Board and Committees:
Prepared by:
Basavaraj M Naik
Teaching Assistant, Department of Studies in Commerce
Rani Channamma University Belagavi,
P.G.Centre, Jamkhandi.
Mail id: basunaik221@gmail.com
Corporate Board:
Meaning of Corporate Board:
Corporate Board is a board which consists of a group of directors to manage the affairs of a
company and to act as a liaison with the shareholders to protect the interests of its
shareholders.
Different types of Corporate Boards:
1. Advisory Boards.
2. Collective Boards.
3. Fund Raising Boards.
4. Governing Boards.
5. Managing Boards/Executive Boards.
6. Policy Boards.
7. Working Boards.
Powers of Corporate Board:
 To develop policies for a company.
 To protect the interests of the shareholders.
 To manage the operations of a company.
 To act as a liaison with the shareholders.
 To assist the management with the company.
 To help the company to become more competitive and viable.
 To help the company with succession planning.
 To look for greater opportunity.
Roles and Responsibilities of Corporate Boards:
 Determine and review company goals.
 Determine the values to be promoted throughout the company.
 Determine the company’s vision and mission to guide and set the pace for its current
operations and future developments.
 Determine the company policies.
 Avoid bureaucracy in decision making.
 Avoid loopholes in the implementation process.
 Ensuring that the enterprise complies with legal and ethical standards.
 Ensuring that the enterprise is able to manage crisis and that its actions come in hardly
in the prevention of crisis.

2. Board Chairman
Meaning and Appointment:
(i) Board Chairman is usually appointed by the Articles of Association u/s 175 of the
company’s act, 1956 provides.
(ii) Unless the A/A of the company otherwise provide, the members personally
present at the meeting shall elect one of themselves to be the Chairman thereof on
a show of hands.
Usually and in the majority cases, the Chairman of the company will preside over
the meeting. And, the Chairman of the company will be the Board Chairman.
 Responsibility for the effective administration of the Board.
 To run the Board and to govern the functions of the board.
 To oversee the company’s management with a view to protect the interests
of shareholders and to enhance the shareholders’ value.
Roles and Functions of Board Chairman:
1. Determining board composition and Organisation.
2. Developing effectiveness of board.
3. Manage the affairs of the Board, with the objective that is properly organized, function
effectively and fulfill its obligations and responsibility.
4. Facilitate the functioning of the Board independently of management and maintain &
Enhance the quality of the Board’ governance.
5. Encourage the board role in strategic planning.
6. Ensure that all board committees are properly established, composed and operated.
7. Ensure effective communication with the shareholders.
8. Establish harmonious and open relationship with Chief Executive Officer.
9. Promote effective relationship and communication between Non-Executive directors
and members of Executive committees.
10. Evaluate annually performance of organisation in achieving mission.
11. Monitoring financial planning & reporting.
12. Perform other responsibilities assigned by the Board.
Chief Executive Officer
Meaning of Chief Executive Officer:
 Executive Responsibility of running the entire operations of the corporation.
 Run the company vis-à-vis goals set by the Board of Directors headed by the
Chairman.
 Managing the company well, resulting in better corporate performance.
 Report directly to the Chairman and Board of Directors.
Roles and Responsibilities of CEO Vis-à-vis governance:
1. To act as a liaison between Management and Board.
2. To assess the principal risk of the company and to ensure that those risks are being
monitored and managed.

3. 3. To abide by specific internally established control system and authorities to lead by
personal example and encourage all employees to conduct their activities in
accordance with all applicable laws and the company standards and policies,
including its environmental, safety and health policies.
4. To communicate effectively with the shareholders, employees, Government
authorities, other stakeholders and public.
5. To ensure integrity of all public disclosure by the company.
6. To ensure that the company maintain high standards of corporate citizenship and
social responsibility where it does business.
7. To ensure that the company has appropriate systems to enable it to conduct its
activities both lawfully & ethically.
8. To ensure that expenditure of the company are within the authorized annual budget of
the company.
9. To lead in conjunction with Board the development of the company strategy.
10. To lead and oversee the implementation of the company’s long term plans and short
term plans.
Distinctions between Board Chairman and Chief Executive Officer:
Points of
differences
Board Chairman Chief Executive Officer
1. Oversee Company’s management to
protect the interests of
shareholders and enhance the
shareholders’ value.
Company should act well and
corporate performance.
2. Run The board and to govern the
functions of the Boards.
Company and fulfillment of
objectives.
3. Responsibility Effective administration of the
board.
Running the entire operations of
the company.
4.Monitor. Performance f Chief Executive
Officer.
Report directly to the Chairman
and Board of Directors.
Board Committees
Board:
A Board is a committee of persons organized under the authority of law –
 in order to exercise certain authorities.
 Have oversight or control of certain matters, or
 Discharge certain functions of a managerial, representative, or fiduciary character.
For Example: Board of Directors.
Committee:
A committee (or “Commission”) is a type of small deliberate assembly that is usually
intended to remain subordinate to another, large deliberate assembly-which when organized
so that action on committee requires a vote by all its entitled members. Or
Board is a group of people officially delegate or appointed to perform a specified service or
functions.
Board Committee:

4. Board committee is a committee which consisting of the members of a board of directors and
mandated to carryout specified functions, programs or projects assigned by the Board.
In other words, Board committee is a committee which is established to assist the Board in
discharging its responsibilities.
For Example:
Reliance company is having Board committees like audit committee, remuneration
committee and shareholders or investor’s grievance committee.
Need and Objectives of Board Committees:
1. To oversee and control the matters of affairs of the company.
2. To exercise and administer certain authorities.
3. To discharge some functions or as managerial, representative and fiduciary duties.
4. To carry out such other specified functions or services.
5. To assist the Board in discharging its responsibilities.
Functions of Board Committees:
1. Provide assistance and guidance to the Board.
2. Assessing the major risks to be faced by the company and find options to avoid such
risks.
3. Monitoring and approving of financial and business strategy.
4. Advise, review and approve management strategic plans and decisions.
5. Advising, evaluating and overseeing the succession planning.
6. Ensuring compliance with all applicable statutory and legal requirement.
7. Maintaining integrity of the company i.e., preparation of financial statements,
application of ethics, compliance with law, having good relationship with
stakeholders.
8. Monitoring corporate performance against strategic business plans.
Different Types of Board Committees:
1. Audit Committee.
2. Nominating Committee.
3. Compensation Committee.
4. Enterprise Risk Committee.
5. Strategic Board.
6. Special Committee.
7. Governance Committee.
8. Shareholders’ Grievance Committee.
1. Audit Committee
a) Meaning:
Audit Committee is a committee which is established from amongst the Board of
Directors and formed to implement accounting, audit function, financial reporting
and internal control function.
b) Composition:

5. The Audit Committee should have atleast or minimum 3 directors, all must be
financially literate and atleast one member shall have accounting and financial
management expertise. And out of the total members, atleast 2/3 shall be
independent directors. The Chairman shall call for Annual General Meeting and to
answer shareholders queries.
c) Meetings:
The Audit Committee shall convene atleast 4 meetings in a year and should not
have a gap of 4 months between the meetings.
d) Quoram:
The quoram of audit committee is atleast 2 members or 1/3 rd of the members of
audit committee, whichever is greater is considered as quoram of audit committee.
e) Powers:
(i) To investigate into any activity and affairs of the company.
(ii) Seek any information from any employee.
(iii) To obtain legal and professional advise.
(iv) To ensure attendance of outsiders with relevant to expertise.
f) Roles & Responsibilities of Audit Committee:
(I) Financial:
 Financial reporting must be made quarterly, before submission to the
Board for approval.
(II) Board:
 Give recommendations as to appointment, reappointment, replacement
and removal of statutory auditors.
 All other functions assigned by the Board to perform.
(III) Internal Auditor:
Discussion with internal auditors about significant findings and followup.
(IV) Statutory Auditor:
 Discussion with statutory auditors about nature and scope of audit,
before and after the audit.
 Approve payments to statutory audits for services rendered.
(V) Whistle Blower Policy:
Develop a policy to avoid any unethical conducts within the company.
(VI) Default in repayment:
Find the reasons for non-payment of interest and depots or non- payment of
dividend.
2. Nominating/Nomination Committee
a) Meaning:
Nomination Committee is a committee which is constituted so as to carryout some
of the important functions like-

6. To oversee the evaluation of the board and management.
To assist the board in election activity of directors.
To recommend to the Board, directors nominees for each committees.
b) Composition:
The Nomination Committee should have atleast or minimum 3 or more directors,
should be formed to monitor issues pertaining to the recommendations,
nominations and election activities of the directors. The committee should be
composed of all independent directors.
c) Meetings:
The Committee shall meet atleast annually and chair shall report to the Board on
the major items covered at each committee meetings.
d) Quoram:
The majority of the members of the committee shall constitute a quoram. The
committee shall act only on the affirmative vote of atleast two members.
e) Appointment and Removal:
The Chairman and the members of the committee shall be elected annually by the
Board of Directors at its annual organisation meetings and the members may be
removed by the Board in its discretion.
f) Roles & Responsibilities of Audit Committee:
 Annually review and evaluate its own performance.
 Assessing the need for new directors.
 Assisting the election of qualified new directors.
 Co-ordinate and approve the Board and committee meetings schedules.
 Conduct an annual review on succession planning, report it findings &
recommendations to the Board, and work with the board in evaluating
potential successors to executive management positions.
 Design and implementation of executive compensation plans.
 Evaluation of directors.
 Evaluate and recommend termination of membership of individual
directors in accordance with the board’s governance principles, for cause
or for other appropriate reasons.
3. Compensation Committee
a) Meaning:
Compensation Committee is a committee which is established from amongst the
Board of Directors and formed to implement and determine the compensation &
benefits of directors and each of executives of the company.
b) Composition:

7. The Compensation Committee should have atleast or minimum 3 or more
directors, should be formed to monitor issues pertaining to the recommendations,
nominations and election activities of the directors. The committee should be
composed of all independent directors.
c) Meetings:
Usually the Committee shall meet atleast annually in conjunction with regular
Board Meetings, otherwise from time to time at the call of chair shall report to the
Board on the major items covered at each committee meetings.
d) Quoram:
The majority of the members of the committee shall constitute a quoram. The
committee shall act only on the affirmative vote of atleast two members.
e) Appointment and Removal:
The Chairman and the members of the committee shall be elected annually by the
Board of Directors at its annual organisation meetings and the members may be
removed by the Board in its discretion.
f) Roles & Responsibilities of Audit Committee:
1. Board:
Recommendations for establishment of incentive compensation plans, equity
compensation plans.
2. Management:
 Review and discuss the disclosures to be made in “Compensation
Discussion and analysis”.
 Review and approve compensation related matters.
3. External Compensation: Consult as to assist the Board of Directors to retain and
terminate and to approve the consultant’s fees and other terms and conditions.
4. Monitor loans to directors and officers and with all other applicable laws affecting
employee compensation and other benefits.
5. Oversight of performance objectives and funding for executive incentive plans.
6. Approve and administer the cash incentives.
7. The committee shall perform all other duties and responsibilities as assigned by
the Board.
4. Enterprise Risk Management:

8. A process, effected by an entity’s board of directors, management, and other
personnel applied in strategy setting and to the whole enterprise, designed to identify
potential events that may affect the entity, manage risk to be within its risk appetite
and provide reasonable assurance regarding the achievement of entity objectives
5. Strategic Board:
Board committee composed of both executives and non-executive directors charged
with advising and approving management strategic plans, decisions and actions, with
members of the board serving only on the governance or other special board
committees.
6. Special Committee:
Independent board committees formed to assist the board in carrying out strategic and
oversight functions including financing, budgeting, investment, risk management and
mergers & acquisitions.
7. Governance Committee:
Board committee consisting of both executive and non-executive directors
established to advise, review, and approve management strategic plans, decisions and
actions in managing the company. In-charge of developing and monitoring
government principles, establishing agenda.
Cadbury Committee Recommendations on Corporate Governance
Introduction:
 Committee Set Up: May 1991.
 Committee Chairman: Sir Adrian Cadbury.
 Submission of Report: December 1992.
 Intention of Committee: It was the first committee to be constituted to report on the
financial aspects of the corporate governance.
 Areas Focused: The Board of Directors, Auditing & Shareholders.
 Reason of Establishment: Due to financial scandals in the 1980s involving UK
listed companies, which led to a fall in investor confidence in the quality of
company’s financial reporting.
The Major Recommendations are –
(I) The Board of Directors:
1. The Board should meet regularly, retain full and effective control over the company
and monitor the effective management.

9. 2. There should be a clearly accepted division of responsibilities at the head of the
company, which will ensure a balance of power and authority, such that no one
individual has unfettered powers of division. Ideally the roles of chairman and CEO
should be separated, although this may not always be practical, in which case there
should be a strong and independent element on the board.
3. The Board should include non-executive director’s sufficient caliber and number for
their views to carry significant weight in the board’s decision.
(II) Non-Executive Directors:
1. Non-Executive or “outside” directors as the committee’s chairman preferred to call
them, should bring an independent judgment to bear on issues of strategy,
performance, resources, including key appointments and standards of conduct.
2. The majority of non-executive directors should be “independent” of management and
free from any business or other relationship which could materially interfere with the
exercise of their independent judgment, apart from their fees and shareholding.
3. Non-Executive directors should be appointed by formal process and their appointment
should be a matter for the board as a whole. Appointments should be for specified
terms and re-appointments should not be automatic.
(III) Executive Directors:
1. Directors’ service contracts should not exceed 3 years without shareholders’ approval.
2. Directors’ pay and emoluments, including pension contributions and stock options
and the amount and the basis for any preference-related elements, should be fully
disclosed and subject to the recommendations of a remuneration committees
consisting mainly or wholly of non-executive directors and preferably chaired by a
non-executive directors.
(IV) Reporting and Controls:
1. It is the board’s duty to present a balanced and understandable assessment of the
company’s position.
2. The board should ensure that an objective and professional relationship is maintained
with the auditors.
3. The board should establish an audit committee which should consist of atleast 3 non-
executive directors. Originally, the committees referred to the annual audit as “one of
the cornerstones of Corporate Governance.”
4. The directors should report on the effectiveness of the company’s system of internal
control.

10. 5. The directors should report that the business is a going concern, with supporting
assumptions or qualifications necessary.
Kumar Mangalam Birla Committee Recommendations on
Corporate Governance
Introduction:
 The first formal committee was appointed in India by SEBI.
 This committee was formed on May 7, 1999.
 It is so called as Birla committee, because Chairman was Kumar Mangalam Birla.
(Because, he was then the member of SEBI).
 Objective:
 “To promote and raise the standards of Corporate Governance.”
 “ To study the corporate governance from listed companies perspective.”
 Applicability of Recommendations:
 Applicable to the listed companies whose paid up share capital of Rs.3 Crores and
Above including Private Companies and Public Companies.
(I) Audit Committee:
 To setup a qualified and independent audit committee by the Board of a company to
enhance financial disclosures and to promote transparency.
 The committee should consists of all non executive directors, minimum 3
independent directors and atleast one director having financial and accounting
knowledge.
 The chairman of the audit committee e must be an Independent Director.
 The committee should convene atleast 3 meetings in a year.
 The quorum of the meeting should be either 2 members or 1/3 of total members,
whichever is higher.
(II) Board of Directors:
 The optimum combination of executive and non-executive director with not less than
50% of the board comprising the Non-Executive Directors.
 Atleast 1/3rd
of the board should comprise of independent directors.

11.  The institutions should appoint nominees on the board companies only on a selective
basis where such appointment is considered necessary to protect the interest of the
institutions.
 Board meetings should be held atleast 4 times in a year with a maximum time gap of
4 months between any two meetings.
(III) Management:
 Responsible for ensuring to what extent principles of Corporate Governance are
adhered to.
 Responsible for ensuring proper disclosures relating to material, financial &
commercial transactions.
(IV) Shareholders:
 The General Body Meeting of the shareholders should be convened and conducted to
fulfill many intentions.
 Half yearly declaration of financial performance should be sent to each shareholders.
 Board committees should redress the complaints of shareholders.
 If any new director or reappointment of director, the shareholders must be provided
with following information –
• Resume of Director.
• Nature of expertise.
• Names of companies in which the person holds the directorship.
(V) Remuneration Committee:
 The committee recommends that the Board should set up a remuneration committee to
determine on their behalf and on behalf of the shareholders with agreed terms of
reference, the company’s policy on specific remuneration packages for executive
directors including pension rights and any other compensation payments.
(VI) Disclosure of Remuneration Packages:
 All elements of remuneration packages of all directors i.e., salary, benefits, bonuses,
stock options and pension, etc.
 Details of fixed component and performed linked incentives along with the
performance criteria.
 Service contracts, notice period, etc.
 Stock option details, if any.

12. Naresh Chandra Committee Recommendations on Corporate Governance
Introduction:
 It is so called as Naresh Chandra Committee, because the chairman of the committee
was not other than Naresh Chandra (being an IAS officer of Rajasthan cadre, who
served as the Cabinet Secretary of India, Defence Secretary of India, Home Secretary
of India, Water Resources Secretary of India and Indian Ambassador to the United
States. He was also awarded India's second highest civilian honour, the Padma
Vibhushan for civil service in 2007.
 The committee has submitted it report on 21/08/2002, popularly known as CII Task
Force Report.
 In a quick response to save India Inc's image from the ripple effects of the Satyam
fraud, industry body Confederation of Indian Industry (CII) today set up a special task
force on corporate governance to be headed by former Cabinet Secretary and India's
Ambassador to the US, Naresh Chandra. The decision to set up the task force was
taken by the CII, which met in Ahmedabad.
1) Nomination Committee:
 Nominate and appoint the Executive Directors and Independent Directors.
 Appoint nominees to each of the board.
 Evaluate and appraise the performance of directors.
2) Letter of Appointment:
 Formal letter of appointment should issue to each Non-Executive Directors and
Independent Directors.
 Term of appointment and tenure of service.
 Work profile to be handled and responsible to be managed.
3) Fixed Contractual Remuneration:
 Fixed contractual remuneration to Non-Executive Director and Independent based on
nature and size of companies.
 Fixed contractual remuneration to Non-Executive directors and Independent directors
based on 1% to 3% of net profits of the company.
4) Structure of compensation to Non-Executive Directors.

13.  Fixed component : Should not be more than 30% of Total cash remuneration.
 Variable Component: Should be more than 70% of Total Cash remuneration including
sitting fees, additional payment being Chairman and members of different
committees.
5) Remuneration Committee:
 It should consists of majority members of remuneration committee should be Non-
Executive Directors and they will frame Remuneration pay policy.
 Disclosure as to the components of remuneration packs.
 Proper approval as to the remuneration pay.
6) Audit Committee:
 It should consists of majority members of audit committee should be Non-Executive
Directors, out of them minimum 3 must be Independent Directors.
7) Separation of offices of Chairman and CEO:
 There should be a clearly accepted division of responsibilities at the head of the
company, which will ensure a balance of power and authority, such that no one
individual has unfettered powers of division. Ideally the roles of chairman and CEO
should be separated, although this may not always be practical, in which case there
should be a strong and independent element on the board.
8) Board Meetings through the Tele-Conferencing:
 If a director who is not physically present to attend the proceedings of the meeting,
then he can attend the meeting through tele-conference/ video conferencing.
9) Executive Sessions:
Separate sessions of executives of the audit committee with both internal and external
auditors as well as the management.
10) Related Party Transactions:
 Disclosures as to the parties who deal with the organisation.
 Other than related parties not transacted on Arms Length, but proper prior approval
and permission from shareholders.
11) Risk Management:
 Risk Management Policy has to be developed.
 Assessment and minimization of risk should be made once for every 6 months.

14. 12) Harmonization of Corporate Governance Standards:
The Central Government and SEBI being the large market regulators should promote the
standards of good corporate governance.
13) Cancellation of Fraudulent Securities:
If a shareholder engaged himself in any unethical and fraudulent securities, then the share
amount to be confiscated and forfeited.
14) Shareholders Activism:
Shareholders actively participate in the affairs of the company through appointing the
Board of Directors, through voting power and attending the meeting of the company.
15) Appointment of Auditors:
The Board of Directors of the company take an initiation to appoint some internal auditors
and external auditors to verify and scrutiny books of accounts and financial statements of the
company.
Narayan Murthy Committee Recommendations on Corporate Governance
Introduction:
 The committee on Corporate Governance was set up by the SEBI.
 It is so called as Narayan Murthy committee, because the Chairman of the committee
was not other than N.R.Narayan Murthy.
 The committee submitted its report on February 2003.
 Objective:
 To promote corporate governance practices in Indian Companies.
 To review the performance of corporate governance.
 To avoid the rumors and unethical practices with respect to price sensitive
information about the shares of the company.
1) Audit Committee:
 Management discussion and analysis to improve the financial condition and results.
 Suggestions from shareholders should be taken from time to time.
 Financial Statements and reports must be filed as to compliance of law.
 Weaknesses of Internal Control system must be properly disclosed.

15. 2) Related Party Transactions:
 Disclosures as to the parties who deal with the organisation.
 Other than related parties not transacted on Arms Length, but proper prior approval
and permission from shareholders.
3) Proceeds from Initial Public Offerings:
 The company should disclose the sources and application of funds.
 Proper declaration and certification should be made by an Independent Directors if
any funds utilized other than major category.
4) Risk Management:
 Risk Management Policy has to be framed by an Audit Committee.
 Assessment and minimization of risk and quarterly reports must be submitted by the
management.
5) Code of Conduct:
 Code of Conduct adopted by the management and must be posted on the company
website.
 Compliance and declaration by the CEO and COO in the annual reports of the
company.
6) Nominee Directors:
 The institutions should appoint nominees on the board companies only on a selective
basis where such appointment is considered necessary to protect the interest of the
institutions.
7) Financial Literacy of members of Audit Committee:
All the members of an Audit Committee should be financially literate, one should be
financial expertise.
8) Disclosure of Accounting Treatment:
 Proper disclosures are to be made with respect to any accounting treatment which is
different from Accounting Standards.
 Explaination and justification by the management regarding treatment of accounting
policy so adopted by the company.

16. 9) Subsidiary Company:
 Atleast one independent director of Holding company should be the Independent
director of Subsidiary company.
 The Holding companies should set up an audit committee to review financial
statements and to review the investments made by subsidiary company.
10) Whistle Blower Policy:
 The Whistler Blower Policy should be developed and adopted by the company.
 Any unethical or improper practice observed approach to the audit committee.
 A supervisor or an officer has to be appointed to effective manage the whistler Blower
Policy.
11) Stock Analyst Report:
 Disclosure in the report issued by a security analyst whether the company that is being
written about is a client of the analyst’s employer or an associate of the analyst’s
employer, and the nature of services rendered to such company; and
 Disclosure in the report issued by a security analyst whether the analyst or the
analyst’s employer or an associate of the analyst’s employer hold or held (prior to 12
months immediately preceding the date of report) or intend to hold any debt or equity
instrument in the issuer company that is the subject matter of the report of the analyst.
12) Non-Executive Directors:
 The compensation of Non Executive Director fixed from Board of directors , proper
approvals should be taken from the shareholders.
 Publish Compensation Philosophy in the annual reports of the company.
 If the Non Executive directors held any stock options in other companies, proper
disclosures are to be made.
J. J. Irani Committee Recommendations on Corporate Governance
Introduction:
 Dr.J.J.Irani Committee is constituted by Government of India. The committee was set
up since 2nd
December, 2004.

17.  It is so called as J.J.Irani committee, because the Chairman of the committee was
none other than Dr.J.J.Irani,who being the MD of TISCO and also presently working
as a director of TATA Sons Ltd.
Intentions of the Committee:
1) Protecting the interest of the investors, stakeholders and small investors.
2) Issues arising from the revision of the companies act, 1956.
3) Bringing about compactness by reducing the size of the Act and removing the
redundant provisions.
4) Enabling easy and unambiguous interpretation by recasting the provisions of law.
Major Recommendations of the Committee:s
1. Protecting the interests of investors and stakeholders:
 Effective measures and corrective actions can be taken.
 Sound Corporate Governance practices adopted and followed.
2. Shareholder Democracy:
 Control not only by majority but minority too.
 Mis-use of powers not been made by promoters of the company.
3. Disclosures:
 Proper disclosures are to be made with respect to material aspects of the company.
 If any non-disclosures/incorrect disclosures, non-filing of documents, penalty are to
be imposed.
4. Changing the name of the company:
No freedom to be given to a company to change its name. Proper care should be taken to
avoid frequent change of name and prevent cheating the investors.
5. Setup Stakeholders Relationship Committee:
 To protect the interests of the shareholders, deposit holders and debentures.
 Provide the resolutions for solving the grievances.
6. Holding of Annual General Meeting:
AGM should not be hold not only at Registered Office, but also at the other places apart
from Registered Office.

18. And, where out of total members, atleast 10% members reside at that place, the Annual
General Meeting can be held.
7. Role of Board of Directors:
Board of Directors of the company play many important responsibilities, namely –
 Strategy formulation.
 Oversee the administration of the company.
 Any other duties, powers so assigned by the shareholders.
8. Promotion of Agency-Coordination system:
If any Board of Directors of the company involved in Corporate Scams/frauds, then they
must be properly punished.
9. e-governance:
It is one of the effective tool introduced by MCA. It can be used for-
 Process of registration of documents.
 Filing for disclosures.
 Retrieval of data efficiently and at a low cost.
10. Appointment of Independent Directors:
Out of the total number of Board of Directors of the company, atleast 1/3rd
must be
appointed as the Independent Directors. They can create and promote the independence and
transparency.
Clause 49 of Listing Agreement
Introduction:
 The concept of Listing and Listing Agreement.
 It contains of 51 clauses.
 The first introduced by BSE and then other Stock Exchanges.
 It comes into effect on 31/12/2005 and Revised Clause 49 of Listing Agreement on
1/1/2006.
 Applicability:

19.  All listing companies having paid up share capital of Rs.3 Crores or More OR
where Networth is Rs.25 Crores of more at any time in the history of the company.
 Objective:
 “ It has been formulated for the improvement of Corporate Governance in all listed
companies.”
Annexure I
(I) Board of Directors:
(a) As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of
the board should comprise independent directors. In the case of a company with a
non-executive Chairman, at least one-third of the board should be independent
directors.
(B) Non-Executive director’s compensation & disclosures.
(C ) Other provisions as to Board and Committees.
(D) Code of Conduct.
(II) Audit Committee:
(a) Qualified and Independent audit committee.
(b) Meetings of Audit committee.
(c) Role and Powers of Audit committee.
(III) Subsidiary Companies:
The Holding companies should set up an audit committee to review financial
statements and to review the investments made by subsidiary company.
(IV) Disclosures:
(a) Basis of Related Party transactions.
(b) Disclosures of Accounting treatment.
(c) Board Disclosures with respect to Risk Management.
(d) Proceeds from public issues, right issue ad preference issues, etc.
(e) The company as to disclose about utilization and application of funds on quarterly
basis.

20. (V) CEO/CFO Certification:
Certification must be made by CEO/ CFO
about –
 About the efficiency of internal control
system.
 Significant changes in the accounting Policies.
 Not containing of untrue statement.
 Not involving any kinds of frauds.
 (VI) Report on Corporate Governance:
 It requires that, companies need to submit quarterly compliance report to stock
exchange in the prescribed form.
 (VII) Compliance:
 A company is also required to obtain a certificate either from auditors or practicing
Company Secretary regarding compliance of conditions as stipulated, and annexure
the same to the Directors’ Report.
The Securities and Exchange Board of India
(SEBI)
Introduction:
 SEBI is the regulator for the securities market in India shall be deemed to have come
into force on the 30th day of January, 1992.
 It was established on 12 April 1992 through the SEBI Act, 1992.
 The Head office of the SEBI is situated at Mumbai and the present Chairman of SEBI
is Ajay Tyagi.
 Objectives:
• Regulating the capital market.
• Promoting the fair trade practices.
• Protecting the interests of investors.

21. • Establishment and Incorporation of SEBI:
• As per Section 3 of SEBI Act, 1992 -
• With effect from such date as the Central Government may, by notification,
appoint, there shall be established, for the purposes of this Act, a Board by the name
of the Securities and Exchange Board of India.
•
• The Board shall be a body corporate by the name aforesaid, having perpetual
succession and a common seal, with power subject to the provisions of this Act, to
acquire, hold and dispose of property, both movable and immovable, and to contract,
and shall, by the said name, sue or be sued.
• Management of the Board.
• The Board shall consist of the following members, namely:-
• (a) a Chairman;
• (b) two members from amongst the officials of the [Ministry] of the Central
Government dealing with Finance [and administration of the Companies Act, 1956(1
of 1956)];
• (c) one member from amongst the officials of [the Reserve Bank];
• (d) five other members of whom at least three shall be the whole-time members] to
be appointed by the central Government.
• Term of office and conditions of service of Chairman and members of the
Board.
• (1) The term of office and other conditions of service of the Chairman and the
members referred to in clause (d) of sub- section (1) of section 4 shall be such as may
be prescribed.
• (2) Notwithstanding anything contained in sub-section (1), the Central
Government shall have the right to terminate the services of the Chairman or a
member appointed under clause (d) of sub-section (1) of section 4, at any time before
the expiry of the period prescribed under sub-section (1), by giving him notice of not
less than three months in writing, the Chairman or a member, as the case may be,
shall also have the right to relinquish his office, at any time before the expiry of the
period prescribed under sub-section (1), by giving to the Central Government notice
of not less than three months in writing.
• Removal of member from office.
• The Central Government shall remove a member from office if he -

22. • (a) is, or at any time has been, adjudicated as insolvent;
•
• (b) is of unsound mind and stands so declared by a competent court;
•
• (c) has been convicted of an offence which, in the opinion of the Central
Government, involves a moral turpitude;
•
• (d) has, in the opinion of the Central Government, so abused his position as to
render his continuation in office detrimental to the public interest.
• Provided that no member shall be removed under this clause unless he has
been given a reasonable opportunity of being heard in the matter.
• Meetings of the SEBI:
• (1) The Board shall meet at such times and places, and shall observe such
rules of procedure in regard to the transaction of business at its meetings (including
quorum at such meetings) as may be provided by regulations.
• (2) The Chairman or, if for any reason, he is unable to attend a meeting of the
Board, any other member chosen by the members present from amongst themselves at
the meeting shall preside at the meeting.
• (3) All questions which come up before any meeting of the Board shall be
decided by a majority votes of the members present and voting, and, in the event of an
equality of votes, the Chairman, or in his absence, the person presiding, shall have a
second or casting vote.
• Functions of the SEBI:
• 1. Protecting the interest of the investors in the securities market.
• 2. Prohibiting Insider trading in the securities.
• 3. Prohibiting the fraudulent and unfair trade practices relating to the securities.
• 4. Promote the self-regulatory agencies.
• 5. Promote Fair trade practices.
• 6. Promote the investor’s education and training of intermediaries of securities
market.
• 7. Calling for information.

23. • 8. Conducting inquiries and audits of securities exchange.
• 9. Discovery and production of books of accounts.
• 10. Examining them on oath.
• 11. Summoning and enforcing the attendance.
• 12. Suspend the trading of any securities.
• 13. Inspection of books and important registers.
• 14. Regulating the securities and capital market.
• 15. Substantial acquisition of shares and takeovers.
• 16. Working of Venture Capital fund and Mutual Funds, etc.
• 17. Working of sub brokers, stock brokers, share transfer agents, merchant banks,
banker to issue, underwriters, trustees of trust deeds, investment advisors and all other
intermediaries associated with the capital market.
• 18. Regulating the working of Depositories, Custodian of securities, Foreign
Institutional Investors and credit rating agencies, etc.
OECD Principles
Introduction:
 The full form of OECD means Organisation for Economic Co-operation &
Development. It first released in May 1999 and revised in 2004.
 It is a Non-Government Organisation. It brings together 34 democracies of Europe,
North & Latin America and the Pacific.
 It provides a forum for discussing issues and reaching agreements, some of which are
legally binding and also acts all the 34 countries which believe strongly in the free
market system.
Purposes and Intentions of OECD Principles:
1. It is one of the 12 key standards for international financial stability of the “Financial
Stability Board.”
2. It come out with such principles, practices which govern companies in their goal to
attain long term shareholders value.
3. It addresses a wide range of international and domestic policy issues.

24. Objectives of OECD Principles:
(i) To ensure Sustainable Economic Growth.
(ii) To discuss Economic And Social Issues.
(iii) To provide Employment Opportunities.
(iv) To raise the Standard of living of people.
Important Elements of OECD Principles:
1. The Rights of Shareholders.
2. Equitable Treatment of Shareholders.
3. The Role of Stakeholders in Corporate Governance.
4. Disclosure and Transparency.
5. The Responsibilities of the Board.
Corporate Governance Rating
Introduction:
 The MCA setup an Institute i.e., CRISIL.
 This Institute will undertake research in the area of Corporate Governance:
 To rate Corporate Excellence.
 To improve the overall legal framework.
 To advise companies and directors on how they can take corporate excellence
forward.
 Then, individual corporate excellence ratings will be available to investors, lenders
and the public.
 For that reason , The Securities And Exchange Board of India (SEBI) has sought the
services of credit rating agencies in the country such as -

25. CRISIL: Credit Rating Information Services of India Ltd.
ICRA: Investment Information & Credit Rating Agency.
CARE: Credit Analysis & Research Ltd. and
FITCH India.
 It would enable the securities market regulators to judge the compliance status of
Corporates on parameters such as effective creation, management and distribution of
investors wealth.
 CARE, under the Corporate Governance Rating exercise, assesses seven key
parameters identified as under:
 Board Composition and functioning.
 Ownership Structure.
 Organisation Structure and MIS.
 Shareholders Relationships.
 Disclosures and Transparency.
 Financial Prudence.
 Statutory and Regulatory Compliance.
 ICRA’s Long Term Rating Scale:
LAAA : The highest credit quality rating assigned by ICRA. The rated
instrument carries the lowest credit risk.
LAA : The high credit quality rating assigned by ICRA. The rated
instruments carries low credit risk.
LA :The adequate credit quality rating assigned by ICRA. The rated
instrument carries average credit risk.
LBBB : The moderate credit quality rating assigned by ICRA. The rated
instrument carries higher than average credit risk.
LBB : The inadequate credit quality rating assigned by ICRA. The rated
instruments carries high credit risk.
LB : The risk prone credit quality rating assigned by ICRA. The rated

26. instrument carries very high credit risk.