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- 2. CONTENTS:- WHAT IS CORPORATEGOVERNANCE? DEFINITIONS SOME IMPORTANT POINTS NEED OF CG PRINCIPLES OF CG
- 3. CORPORATE GOVERNANCE? Corporate governanceis set of principles or guidelines on which a company is governed. It ensures that the corporate works in a way it supposed to work to achieve the desired goals. It makes the corporations accountable to each stakeholder including, directors, shareholders, employees, customers etc. The term governance itself explains the meaning that it is an act of managing a corporate entity. The entity of a corporation is separate from its officials which makes corporate governance an important subject to study. Corporate governance plays an important role to protect the rights of thousands of shareholders, who have ownership in the company but do not play an active role in governing day to day business activities.
- 4. DEFINITIONS “Corporate governance meansthat company manages its business in a manner that is accountable and responsible to the shareholders. In a wider interpretation, corporate governance includes company’s accountability to shareholders and other stakeholders such as employees, suppliers, customers and local community.” – Catherwood. “Corporate governance is the system by which companies are directed and controlled.” – The Cadbury Committee (U.K.)
- 5. IMPORTANT POINTS Corporate governancein India is a collection of internal controls, policies, and procedures that form the basis of an organization’s activities and its relationships with various stakeholders, such as clients, management, staff, government, and industry bodies. Corporate governance is more than company administration. It refers to a fair, efficient and transparent functioning of the corporate management system. Corporate governance refers to a code of conduct; the Board of Directors must abide by; while running the corporate enterprise. Corporate governance refers to a set of systems, procedures and practices which ensure that the company is managed in the best interest of all corporate stakeholders.
- 6. NEED OF CORPORATE GOVERNANCEIN INDIA The need of Corporate Governance in India is because it is an essential determinant of industrial effectiveness and competitiveness. WIDE SPREAD OF SHAREHOLDERS:- A corporate has a lot of shareholders with different attitudes towards corporate affairs, corporate governance protects the shareholder democracy by implementing it through its code of conduct. CHANGING OWNERSHIP STRUCTURE:-Large corporate investors are becoming a challenge to the management of the company because they are influencing the decision of the company. Corporate governance set the code to deal with such situations. CORPORATE SCAMS & SCANDALS:- Corporate governance is necessary to build public confidence in the corporation which was shaken due to numerous corporate fraud in recent years. It is important for reviving the confidence of investors. https://www.proschoolonline.com/blog/corporate-governance-india
- 7. NEED OF CORPORATE GOVERNANCEIN INDIA GREATER EXPECTATIONS OF SOCIETY FROM CORPORATE:- Society having greater expectations from corporate, they expect that corporates take care of the environment, pollution, quality of goods and services, sustainable development etc. code to conduct corporate is important to fulfil all these expectations. HOSTILE TAKE-OVERS:- Takeovers of the corporate entity created lots of problems in the past. It affects the right of various stakeholders in the company. This factor also pushes the need of corporate governance in the country. GLOBALIZATION:- made the communication and transport between countries easy and frequent, so many Indian companies are listed with international stock exchange which also triggers the need for corporate governance in India. The huge flow of international capital in Indian companies are also affecting the management of Indian Corporates which require a code of corporate conduct.
- 8. PRINCIPLES OF CORPORATE GOVERNANCE TRANSPARENCY Disclosureof the relevant information about corporate in timely and accurate manner is necessary. It helps stakeholder to know their rights and day to day activity of the corporate. ACCOUNTABILITY It ensures the liability of the person who takes decision for the interest of the others. Hence persons like managers, chairmen, directors and other officers should be accountable to other stakeholders of the corporate. INDEPENDENCE Independence of top manager is important for smooth functioning of the corporate. Board of Director must work without the interference of any interested party in the corporate.
- 9. SEBI CODE OFCORPORATE GOVERNANCE: To promote good corporate governance, SEBI (Securities and Exchange Board of India) constituted a committee on corporate governance under the chairmanship of Kumar Mangalam Birla. On the basis of the recommendations of this committee, SEBI issued certain guidelines on corporate governance; which are required to be incorporated in the listing agreement between the company and the stock exchange. https://www.nfcg.in/UserFiles/kumarmbirla1999.pdf
- 10. OVERVIEW OF SEBIGUIDELINES ON CORPORATE GOVERNANCE (a) Board of Directors: (i) The Board of Directors of the company shall have an optimum combination of executive and non-executive directors. (ii) The number of independent directors would depend on whether the chairman is executive or non-executive. In case of non-executive chairman, at least, one third of the Board should comprise of independent directors; and in case of executive chairman, at least, half of the Board should comprise of independent directors. The expression ‘independent directors’ means directors, who apart from receiving director’s remuneration, do not have any other material pecuniary relationship with the company.
- 11. (b) Audit Committee: (1)The company shall form an independent audit committee whose constitution would be as follows: (i) It shall have minimum three members, all being non-executive directors, with the majority of them being independent, and at least one director having financial and accounting knowledge. (ii)The Chairman of the committee will be an independent director. (iii)The Chairman shall be present at the Annual General Meeting to answer shareholders’ queries.
- 12. (b) Audit Committee: (2)The audit committee shall have powers which should include the following: 1.To investigate any activity within its terms of reference 2.To seek information from any employee 3. To obtain outside legal or other professional advice 4. To secure attendance of outsiders with relevant expertise, if considered necessary.
- 13. (b) Audit Committee: (3)The role of audit committee should include the following: (i) Overseeing of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. (ii) Recommending the appointment and removal of external auditor. (iii) Reviewing the adequacy of internal audit function (iv) Discussing with external auditors, before the audit commences, the nature and scope of audit; as well as to have post-audit discussion to ascertain any area of concern. (v) Reviewing the company’s financial and risk management policies.
- 14. (c) Remuneration ofDirectors: The following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the Annual Report: (i) All elements of remuneration package of all the directors i.e. salary, benefits, bonus, stock options, pension etc. (ii) Details of fixed component and performance linked incentives, along with performance criteria.
- 15. (d) Board ProcedureSome Points in this Regards are: (i) Board meetings shall be held at least, four times a year, with a maximum gap of 4 months between any two meetings. (ii) A director shall not be a member of more than 10 committees or act as chairman of more than five committees, across all companies, in which he is a director.
- 16. (e) Management: A ManagementDiscussion and Analysis Report should form part of the annual report to the shareholders; containing discussion on certain matters (within the limits set by the company’s competitive position).
- 17. (f) Shareholders: (i) Incase of appointment of a new director or reappointment of a director, shareholders must be provided with the following information: 1.A brief resume (summary) of the director 2.Nature of his expertise 3. Number of companies in which he holds the directorship and membership of committees of the Board.
- 18. (g) Report onCorporate Governance: There shall be a separate section on corporate governance in the Annual Report of the company, with a detailed report on corporate governance. (h) Compliance: The company shall obtain a certificate from the auditors of the company regarding the compliance of conditions of corporate governance. This certificate shall be annexed with the Directors’ Report sent to shareholders and also sent to the stock exchange.
- 19. CORPORATE GOVERNANCE FRAMEWORK ININDIA The Indian framework on Corporate Governance has been vastly in sync with the international standards. Broadly, it can be described in the following: The Companies Acts 2013 has provisions concerning Independent Directors, Board Constitution, General meetings, Board meetings, Board processes, Related Party Transactions, Audit Committees, etc. SEBI (Securities and Exchange Board of India) Guidelines ensure the protection of investors and have mandated the companies to adhere to the best practices mentioned in the guidelines. Accounting Standards issued by the ICAI (Institute of Chartered Accountants of India) wherein the ICAI is an autonomous body and issues accounting standards. The disclosure of financial statements is also made mandatory by the ICAI backed by the Companies Act 2013, Sec. 129
- 20. CORPORATE GOVERNANCE FRAMEWORK ININDIA Standard Listing Agreement of Stock Exchanges applies to the companies whose shares are listed on various stock exchanges. Secretarial Standards Issued by the ICSI (Institute of Company Secretaries of India) issues standards on ‘Meetings of the board of Directors’, General Meetings’, etc.. The companies Act 2013 empowers this autonomous body to provide standards which each and every company is required to adhere to so that they are not punished under the Companies Act itself
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