The Birla Committee report made recommendations to improve corporate governance practices of listed companies in India. It classified recommendations as mandatory or non-mandatory. Mandatory recommendations applied to larger companies and included requirements regarding board composition, audit and remuneration committees, and disclosures. Non-mandatory recommendations covered issues like the role of the chairman and shareholders' rights. Compliance would require restructuring boards and may be difficult for smaller companies.

1. Cadbury
CommitteeReport

2. Backdrop
of Cadbury
committee
• Robert Maxwell's death while cruising on the Canary Islands in 1990
shone a spotlight on his company's affairs.
• A series of risky acquisitions in the mid-eighties had led Maxwell
Communications into high debts, which was being financed by diverting
resources from the pension funds of his companies.
• After his disappearance, it emerged that the Mirror Group's debts (one
of Maxwell's companies) vastly outweighed its assets, while £440 millions
(GBP) were missing from the company's pension funds.
• Despite the suspicion of manipulation of the pension schemes, there was
a widespread feeling in the City of London that no action was taken by UK
or US regulators against the Maxwell Communications Corp.
• Eventually, in 1992 Maxwell's companies filed for bankruptcy protection
in the UK and US.
• At around the same time the Bank of Credit and Commerce
International (BCCI) went bust and lost billions of dollars for its
depositors, shareholders and employees.
• Another company, Polly Peck, reported healthy profits one year while
declaring bankruptcy the next.

3. Backdrop of
Cadbury
committee
• Following the raft of governance failures, Sir Adrian Cadbury
chaired a committee whose aims were to investigate the
British corporate governance system and to suggest
improvements to restore investor confidence in the system.
• The Committee was set up in May 1991 by the Financial
Reporting Council, the London Stock Exchange, and the
accountancy profession.
• The report embodied recommendations based on practical
experiences and with an eye on the US experience, further
elaborated after a process of consultation and widely
accepted.
• The final report was released in December 1992 and then
applied to listed companies reporting their accounts after
30th June 1993.

4. SIR ADRIAN CADBURY
• Chairman of Cadbury and Cadbury Schweppes for 24
years.
• He was a Director of the Bank of England from 1970–
94 and of IBM from 1975–94.
• In recognition of his contribution to commerce,
corporate governance and public life, Sir Adrian has
received honorary degrees from many universities.
• He has also been conferred with various awards
including ALBERT MEDAL and INTERNATIONAL
CORPORATE GOVERNANCE AWARDS.

5. THE BOARD
OF
DIRECTORS
NON-
EXECUTIVE
DIRECTORS
EXECUTIVE
DIRECTORS
REPORTING
AND
CONTROLS
‘CODE OF BEST PRACTICE’
The committee’s focus was on control and reporting functions of the
board of directors.
 Committee published its report in December 1992, which contained a
code of corporate governance.
This code was known as :

6. The board should meet regularly, retain full and effective
control over the company and monitor the executive
management.
Regular meetings and full control.
There should be a clearly accepted division of
responsibilities at the head of company, which will ensure
a balance of power and authority, such that no one
individual has unfettered powers of decision.
Clearly accepted division of
responsibilities
The board should include non- executive directors of
sufficient calibre and number for their view to carry
significant weight in the board’s decisions.
Include non-executive directors
THE BOARD OF DIRECTORS

7. The board should have a formal schedule of matters specifically
reserved to it for decisions to ensure that the direction and
control of the company is firmly in its hands.
Formal schedule of matters specifically reserved to it
There should be an agreed procedure for directors in the
furtherance of their duties to take independent professional
advice if necessary, at the company’s expenses.
Agreed procedure for directors to take independent
professional advice
All directors should have access to ‘the advice and services of
the company secretary, who is responsible to the board for
ensuring that board procedures are followed and that applicable
rules and regulations are complied with.
Any question of the removal of the company secretary should
be a matter for the board as a whole.
Access to the advice and services of the company
secretary
THE BOARD OF DIRECTORS

8. Non executive directors should bring an
independent judgement to bear on issues
of strategy, performance, resources,
including key appointments, and
standards of conduct.
 The majority should be independent of
management and free from any business or
other relationship which could materially
interfere with the exercise of their
independent judgement, apart from their
fees and shareholding.
 Their fees should reflect the time which they
commit to the company.
Independent of
management and
free from
business
relationship
NON-EXECUTIVE DIRECTORS

9. Non-executive
directors should
be selected
through a formal
process and both
this process and
their
appointment
should be a
matter for the
board as a
whole.
Selection
through formal
process
NON-EXECUTIVE DIRECTORS
Specific term
 Non-executive
directors should be
appointed for
specific term.
 Reappointment
should not be
automatic.

10. They should not exceed three years without the shareholders’
approval.
Director’s Service Contracts
The salary or fees of the directors should be properly disclosed
including pension contribution and those of the chairman as well.
Full and Clear disclosure of emoluments
The pay of the executive directors’ should be subject to the
recommendations of the remuneration committee made up of
non-executive directors.
Pay subject to remuneration committee
THE EXECUTIVE DIRECTORS

11. Duty to present a balanced and understandable assessment of company’s
position.
Ensure objective and professional relationship with the auditors.
Establish an audit committee which deals clearly with its authority and duties.
Explaining responsibility by directors next to the auditor’s statement of their
reporting responsibilities.
Report on the effectiveness of the company’s internal control system by the
directors.
Report with supporting assumptions about the business going concern.
REPORTING AND CONTROLS

12. Birla Committee
Report

13. Introduction
• Securities and Exchange Board of India
(SEBI) in 1999 set up a committee under
Shri Kumar Mangalam Birla, member SEBI
Board, to promote and raise the
governance.
• The primary objective of the committee
was to view corporate governance from
the perspective of the investors and
shareholders and to prepare a ‘Code’ to
suit the Indian corporate environment.

14. Recommendations
Mandatory: The recommendations
which are absolutely essential for
corporate governance can be
defined with precision and which
can be enforced through the
amendments of the listing
agreement is classified as
mandatory.
Non-mandatory: Others, which are
either desirable or which may
require change of laws be classified
as non-mandatory

15. Mandatory
Recommendations
• The mandatory recommendations apply to the
listed companies with paid up share capital of 3
crore and above.
• Composition of board of directors should be
optimum combination of executive & non-executive
directors.
• Audit committee should contain 3 independent
directors with one having financial and accounting
knowledge.
• Remuneration committee should be setup
• The Board should hold at least 4 meetings in a year
with maximum gap of 4 months between 2
meetings to review operational plans, capital
budgets, quarterly results, minutes of committee’s
meeting

16. Mandatory
Recommendations
• Director shall not be a member of more than 10
committee and shall not act as chairman of
more than 5 committees across all companies
• Management discussion and analysis report
covering industry structure, opportunities,
threats, risks, outlook, internal control system
should be ready for external review
• Any Information should be shared with
shareholders in regard to their investments.

17. Non Mandatory
Recommendations
• Role of chairman
• Remuneration committee of board
• Shareholders’ right for receiving half yearly
financial performance.
• Postal ballot covering critical matters like
alteration in memorandum
• Sale of whole or substantial part of the
undertaking
• Corporate restructuring
• Further issue of capital
• Venturing into new businesses

18. • These recommendations were to apply to all the listed private and
public sector companies, their directors, management, employees
and professionals associated with such companies.
• The Committee recognizes that compliance with the
recommendations would involve restructuring the existing boards of
companies.
• It also recognizes that smaller ones will have difficulty in immediately
complying with these conditions.