GOVERNANCE

COMMITTEES
CORPORATE GOVERNANCE
INTRODUCTION

• Introduction to Governance Committees Governance committees are

specialized sub-groups within an organization’s board of directors or
governing body. Their primary role is to ensure that the organization
adheres to high standards of governance, transparency, accountability,
and ethical conduct.These committees help the board to oversee
critical aspects of management and decision-making, improve
effectiveness, and fulfill legal and fiduciary responsibilities. By
delegating specific governance functions to committees, boards can
focus more effectively on strategy and oversight.
 COMMITTEES IN UK CADBURY, HAMPEL,
GREEN BURY, SMITH & COMBINED CODE
In the UK, a series of committees and codes have significantly shaped corporate governance practices. These initiatives
were primarily driven by concerns about financial reporting, accountability, and the overall effectiveness of company
boards. Here's a breakdown of the committees you mentioned and the Combined Code:
• 1.Cadbury Committee (1992)

*Purpose: Formed to address concerns about financial reporting and accountability following a series of corporate
scandals.
* Key Recommendations (Cadbury Code of Best Practice):
* Separation of CEO and Chairman roles: To ensure a clear division of power and prevent excessive concentration of
authority in one individual.
* Minimum of three non-executive directors (NEDs) on the board: To bring independent judgment and scrutiny to board
decisions.
* Establishment of audit committees: Composed of NEDs to oversee financial reporting and internal controls.
• 2.Greenbury Committee (1995)
• Context: A direct response to public outcry and shareholder discontent over escalating executive remuneration, particularly the
perceived disconnect between executive pay and company performance.
• Core Problem Addressed: Excessive and undisclosed executive pay, lack of transparency and accountability in remuneration setting.
• Major Recommendations:
• Remuneration Committees: Recommended that listed companies establish remuneration committees composed solely of independent non-
executive directors. These committees would be responsible for setting the remuneration of executive directors.
• Performance Link: Stressed the importance of linking executive remuneration to company performance, advocating for a significant portion of
pay to be performance-related and tied to long-term incentives to align executive interests with those of shareholders.
• Enhanced Disclosure: Mandated more detailed and transparent disclosure of executive directors' remuneration, including all components of
pay (salary, bonuses, share options, pension contributions).
• Shareholder Approval: Required remuneration reports to be put to an advisory vote by shareholders at the Annual General Meeting (AGM).

• Impact: Brought greater transparency and accountability to executive pay practices and established a structured process for its
determination.
• 3. Hampel Committee (1998)
• Context: Commissioned to review the implementation and effectiveness of the Cadbury and Greenbury reports, aiming to consolidate
and simplify the principles. There was a perception that the existing guidance was too prescriptive.
• Core Problem Addressed: The need for a more principles-based approach to corporate governance, avoiding a "tick-box" mentality.
Major Recommendations:
• Principles-Based Approach: Reaffirmed the "comply or explain" principle, emphasizing that companies should focus on the
underlying principles of good governance rather than just adhering to the letter of the code. It believed that detailed rules could stifle
innovation.
• Consolidation (Combined Code): Its most significant output was the creation of the first UK Combined Code on Corporate
Governance, which brought together and refined the recommendations of Cadbury and Greenbury. This provided a single,
comprehensive source of guidance.
• Internal Controls: Clarified the board's responsibility for maintaining and reviewing a sound system of internal controls, including
financial, operational, and compliance controls.
• Role of Auditors: Articulated the private reporting role of auditors to the board regarding internal controls.
• Impact: Streamlined governance guidance in the UK and cemented the "comply or explain" approach as a cornerstone.
• 4. Smith Committee (2003)

*Purpose: Chaired by Sir Robert Smith, this committee specifically focused on the role and effectiveness of
audit committees, particularly in the wake of major corporate scandals like Enron.
*Key Recommendations:
* Strengthening Audit Committee Independence and Authority: Emphasized the importance of audit
committees having the necessary power and access to information.
*Clearer Responsibilities for Audit Committees: Delineated specific duties for audit committees, including
overseeing financial reporting, internal controls, and the relationship with external auditors.
*Assessment of Internal Financial Controls: Audit committees should satisfy themselves that there is a proper
system for monitoring internal financial controls.
* Policy on Non-Audit Services: Developing and implementing policy on the engagement of external auditors
to supply non-audit services to ensure auditor independence.
• 5. Combined Code (initially 1998, with subsequent revisions)

*Evolution: The Combined Code was initially created by the Hampel Committee, bringing together the recommendations of
Cadbury and Greenbury. It has been periodically revised by the Financial Reporting Council (FRC) to reflect evolving best
practices and address new challenges. It is now known as the UK Corporate Governance Code.
*Key Principles (current UK Corporate Governance Code): The Code outlines principles and provisions across several key areas:
*Board Leadership and Company Purpose: Emphasizes the board's responsibility for the company's long-term success, its
purpose, values, and strategy.
* Division of Responsibilities: Highlights the importance of a clear division of responsibilities between the chairman and chief
executive, and the role of independent non-executive directors.
*Composition, Succession, and Evaluation: Focuses on board diversity, skills, regular evaluation of board effectiveness, and
succession planning.
* Audit, Risk, and Internal Control: Underscores the board's role in risk management, maintaining robust internal controls, and
the function of the audit committee.
Remuneration: Reiterates the principles of fair and transparent executive
remuneration linked to long-term performance and shareholder interests.
* "Comply or Explain" Principle: Continues to be a central tenet, requiring
listed companies to either comply with the Code's provisions or explain
any deviations in their annual reports.These committees and the
resulting codes have played a crucial role in establishing and evolving
the framework for good corporate governance in the UK, aiming to
promote accountability, transparency, and long-term sustainable success
for companies.
KING’S COMMITTEE RECOMMENDATIONS

• The "King's Committee" you're referring to is most likely the King Committee on Corporate
Governance in South Africa, led by Professor Mervyn King. This committee has produced a series of
influential reports on corporate governance, known as the King Reports (King I, King II, King III, and
King IV). These reports are highly regarded globally and have significantly shaped corporate
governance practices not just in South Africa, but also internationally.
The latest and currently effective report is King IV Report on Corporate Governance for South Africa,
2016.
Here's a summary of the key recommendations and overarching philosophy of the King Reports,
particularly King IV:
Overarching Philosophy of King IV:
King IV is built on the philosophy of ethical and effective leadership by the governing body (board). It
views good governance as being inextricably linked to:
• 1. CII Committee (1998)
• Significance: This was the first major proactive step by Indian industry to formulate a code of corporate
governance, signaling a growing awareness and commitment. It was a voluntary code.
• Major Recommendations:
• Board Composition: Suggested a mix of executive and non-executive directors, with at least 30% of the
board comprising independent directors (if there's a non-executive chairman) or 50% (if there's an
executive chairman).
• Audit Committee: Recommended the establishment of a strong and independent audit committee.
• Director Remuneration: Called for greater transparency in disclosing directors' remuneration.
• Board Meetings: Suggested a minimum of four board meetings annually.
• Impact: Paved the way for official regulatory interventions and set a benchmark for voluntary compliance.
• Birla Committee (Kumar Mangalam Birla Committee, 2000)
• Context: Formed by the Securities and Exchange Board of India (SEBI) in 1999 to suggest a mandatory code of corporate
governance for listed companies. This marked a shift from voluntary guidelines to regulatory requirements.
• Major Recommendations:
• Board Composition: Defined requirements for the optimal combination of executive and non-executive directors, and the proportion
of independent directors (e.g., 50% independent if chairman is executive).

• Audit Committee: Mandatory for listed companies, with at least two-thirds independent directors. The chairman of the audit
committee must be an independent director and be present at the AGM.
• Disclosures: Enhanced disclosures related to board and management, especially directors' remuneration, in the annual report.
• Management Discussion & Analysis (MD&A): Introduction of an MD&A section in the annual report to discuss operational
and financial performance.
• Shareholder Grievance Committee: Establishment of a committee to address shareholder complaints.
• Impact: Many of these recommendations were incorporated into Clause 49 of the Listing Agreement, making them legally
binding for listed companie
• 3. Naresh Chandra Committee (2002)
• Context: Appointed by the Department of Company Affairs (now Ministry of Corporate Affairs) to examine issues
related to auditor independence and the responsibilities of independent directors.
• Major Recommendations:
• Definition of Independent Directors: Provided a more precise and stringent definition of independent directors to ensure
true independence. Recommended at least 50% of the board be independent.

• Auditor Independence: Suggested measures to enhance auditor independence, including a prohibition on statutory
auditors providing certain non-audit services.
• Independent Quality Review Board: Proposed setting up a National Oversight Body (later morphed into the
National Financial Reporting Authority - NFRA) to oversee accounting and auditing standards and professional conduct.
• Liabilities of Independent Directors: Discussed limiting the criminal liability of independent directors for actions
not directly attributable to them, to encourage professionals to take up these roles.
• Impact: Influenced later legal and regulatory changes concerning auditor oversight and director responsibilities.
• The Role of Stakeholders in Corporate Governance:
• Recognizes the rights of stakeholders established by law or mutual agreements (e.g., employees, creditors, suppliers, local
communities).
• Encourages active cooperation between corporations and stakeholders for wealth creation, job sustainability, and financially sound
enterprises.
• Disclosure and Transparency:
• Ensures timely and accurate disclosure of all material matters regarding the corporation.
• This includes financial situation, performance, ownership, and governance arrangements.
• Promotes high-quality accounting, auditing, and reporting standards.
• The Responsibilities of the Board:
• Ensures the strategic guidance of the company, effective monitoring of management by the board, and the board's accountability to
the company and shareholders.
• Includes reviewing and guiding corporate strategy, risk policy, annual budgets, business plans, and setting performance objectives.
• Ensures compliance with applicable laws and regulations.
• Listing Agreement and Clause-49

*In India, the concepts of "Listing Agreement" and "Clause 49" are historically significant in the evolution of
corporate governance. While Clause 49 itself has been superseded, understanding its context is crucial to
appreciating the current regulatory framework. The Listing Agreement A Listing Agreement was a formal contract
entered into between a company and a recognized stock exchange (like the BSE or NSE) when the company's
securities were admitted for trading on that exchange. This agreement laid down the terms and conditions that the
listed company had to abide by to ensure transparency, investor protection, and good corporate governance. The
Listing Agreement encompassed various clauses that mandated disclosures, compliance with regulations, and
adherence to specific corporate governance practices. Failure to comply with these clauses could lead to
disciplinary actions, including suspension or even delisting of securities.
Clause 49 of the Listing Agreement (Historical Context)Clause 49 was a pivotal part of the erstwhile Listing
Agreement. It was introduced by the Securities and Exchange Board of India (SEBI) in 2000, based on the
recommendations of the Kumaramangalam Birla Committee on Corporate Governance. Its primary aim was to
introduce and enforce good corporate governance standards for all listed companies in India.
 OECD PRINCIPALES OF GOVERNANCE

• The OECD (Organisation for Economic Co-operation and Development) has developed important principles
in two key areas of governance:
• G20/OECD Principles of Corporate Governance: These are widely recognized as the international standard
for corporate governance. They aim to help policymakers evaluate and improve the legal, regulatory, and
institutional framework for corporate governance, supporting economic efficiency, sustainable growth, and
financial stability. They were first issued in 1999 and have been revised multiple times, most recently in
2023.
The key areas covered by these principles include:
Ensuring the basis for an effective corporate governance framework: Promoting transparent and efficient
markets, consistent with the rule of law, and a clear division of responsibilities among authorities.
The rights and equitable treatment of shareholders and key ownership functions: Protecting and facilitating
shareholders' rights and ensuring equitable treatment for all, including minority and foreign shareholders.
This includes rights such as secure ownership registration, transferring shares, timely information,
participation and voting in meetings, electing board members, and sharing in profits.
Disclosure and transparency: Ensuring timely and accurate disclosure on all material matters regarding the
corporation, including financial situation, performance, ownership, and governance.
ROLE OF SEBI IN ENFORCEMENT OF
GOVERNANCE CODE
The Securities and Exchange Board of India (SEBI) plays a crucial and multifaceted role in the enforcement of corporate governance
codes for listed companies in India. Its primary objective is to protect the interests of investors and promote the development and
regulation of the securities market. Here's a breakdown of SEBI's role in enforcing governance code:
1.Formulation of Regulations and Guidelines:
*SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations): This is the cornerstone of corporate
governance in India for listed entities. It consolidates various governance norms and mandates strict compliance for companies. The
LODR Regulations cover a wide range of aspects, including:
*Board Composition and Independence: Mandates the presence of independent directors, their proportion on the board, and encourages
the separation of the roles of Chairperson and CEO. It also sets criteria for independent directors' qualifications and duties.
*Board Committees: Makes it compulsory for companies to form essential committees like the Audit Committee, Nomination and
Remuneration Committee, and Stakeholders' Relationship Committee, with defined roles and responsibilities, often requiring a majority
of independent directors.
Disclosure Requirements: Enforces stringent and timely disclosure of financial and non-financial information, related party transactions,
corporate governance reports, and any price-sensitive information, promoting transparency.
* Shareholder Rights: Focuses on protecting shareholder rights, including their participation in key decisions and access to information.
• Risk Management Committee (RMC):
*Mandate: Mandatory for the top 1000 listed entities by market capitalization (as per SEBI LODR Regulations).
*Composition: A majority of members should be directors. At least one independent director must be a member.
*Role and Responsibilities:
* Formulating a detailed risk management policy.
* Overseeing and reviewing the company's risk management framework.
* Identifying and assessing various risks (strategic, operational, financial, compliance, etc.) faced by the
company.
* Developing and implementing risk mitigation strategies.
* Periodically informing the Board about risk assessment and mitigation procedures.These committees ensure
specialized attention to critical governance areas, enhance the effectiveness of the Board of Directors, and
promote better corporate governance practices in India.
EXTENT OF COMPLIANCE OF
GOVERNANCE CODE IN INDIA
• Compliance with corporate governance codes in India has seen
significant improvements, especially following the introduction of
Clause 49 and subsequent regulations by SEBI.
• Here are some key points highlighting the extent of compliance
1. Listed Companies : Most large and mid-cap listed companies
comply with the governance norms set by SEBI. This includes
requirements for independent directors, audit committees, and
disclosure norms.
Compliance is higher among companisa listed on major exchanges
like the NSE and BSE due to stringent monitoring and enforcement by
SEBI.
*Increased Scrutiny: SEBI continues to strengthen its scrutiny of corporate governance
practices and take action against non-compliant companies.
* Digital Transformation: The adoption of digital tools and AI is improving transparency
and aiding in the detection of fraud and mismanagement. In conclusion, India has made
significant strides in strengthening its corporate governance framework, largely driven
by SEBI's proactive regulations. The extent of formal compliance is generally high,
reflecting increased awareness and regulatory pressure. However, the true measure of
governance lies in its effective implementation and adherence to the spirit of the law,
where continuous efforts are required to address existing challenges and foster a truly
robust and ethical corporate environment.
• Challenges and Areas for Further Improvement:
• "Form over Substance": While companies may comply with the "letter" of the law, the "spirit" of governance (e.g., true
independence of directors, effective questioning by the board) can still be a challenge.
• Promoter Dominance: In many promoter-driven Indian companies, the influence of the founding family can sometimes
overshadow board independence.
• Quality of Independent Directors: Ensuring a sufficient pool of truly independent, qualified, and committed directors remains a
challenge. Concerns around "crony capitalism" or "revolving door" appointments persist.
• Effectiveness of Board Committees: While committees are formed, their actual effectiveness in terms of rigorous oversight and
decision-making can vary.
• Risk Management Maturity: While risk committees are mandatory, the maturity of enterprise-wide risk management frameworks
still has room for growth in some organizations.
• Ethical Culture: Beyond formal compliance, fostering a strong ethical culture throughout the organization remains an ongoing
endeavor.
• MSME and Unlisted Companies: Governance standards are generally lower in smaller and unlisted companies, posing risks to the
broader ecosystem.
KINGS COMMITTEE(SOUTH AFRICA)

• King I (1994):

Introduced corporate governance in South Africa.

Emphasized voluntary compliance and integrated reporting.

• King II(2002):

Introduced risk management, sustainability, and corporate citizenship.

• King III(2009):
Focused on ethical leadership, sustainability, and stakeholder inclusiveness.
KOTAK COMMITTEE:

• Formally known as the Kotak Committee on Corporate Governance, was established by the
Securities and Exchange Board of India (SEBI) in 2017 to improve corporate governance practices
in Indian companies
• Chair person: Uday Kotak
• Constituted in: October 2017

Recommendations:
• Board Composition:

Independent Director: At least one third of the board should consist of independent directors.
Separation of Roles: The roles of Chairman and CEO should be separated.
Increased Scrutiny: SEBI continues to strengthen its scrutiny of corporate governance
practices and take action against non-compliant companies.
* Digital Transformation: The adoption of digital tools and AI is improving transparency
and aiding in the detection of fraud and mismanagement. In conclusion, India has made
significant strides in strengthening its corporate governance framework, largely driven
by SEBI's proactive regulations. The extent of formal compliance is generally high,
reflecting increased awareness and regulatory pressure. However, the true measure of
governance lies in its effective implementation and adherence to the spirit of the law,
where continuous efforts are required to address existing challenges and foster a truly
robust and ethical corporate environment.
• Key Provisions

• Board of Directors: Requirements for the composition of the board, including the presence of independent directors.

• Audit Committee: Establishment of an audit committee with a majority of independent directors.

• Internal Control: Implementation of robust internal control systems.

• Disclosure: Enhanced disclosure requirements related to financial performance, related party transactions, and compliance.

• Clause 49 aims to improve transparency, accountability, and the protection of shareholder interests in Indian companies.
• Governance committees play a critical role in ensuring transparency,
accountability, and effective decision-making within organizations. By
establishing clear structures and processes, these committees help
boards fulfill their fiduciary responsibilities, manage risks, and uphold
stakeholder trust. Whether it is the audit committee ensuring financial
integrity, the nomination committee promoting merit-based board
appointments, or the remuneration committee overseeing fair
executive pay, each governance committee adds value by providing
focused oversight and expertise.
• the importance of well-functioning governance committees cannot be
overstated. Organizations that invest in strengthening their governance
frameworks are better equipped to achieve long-term sustainability,
manage crises effectively, and enhance their reputation. Ultimately,
good governance is not just about compliance but about building
resilient institutions that serve the interests of all stakeholders.
EXTENT OF COMPLIANCE OF GOVERNANCE IN
INDIA
• The extent of compliance with corporate governance norms in India has
significantly improved over the past two decades, driven by regulatory
reforms, global investor expectations, and judicial activism. Key
initiatives such as the Companies Act, 2013, SEBI (LODR) Regulations,
and recommendations from committees like Kumar Mangalam Birla,
Narayana Murthy, and Uday Kotak have strengthened the governance
framework.Many listed companies and large corporations demonstrate
a high degree of compliance, with structured board committees,
independent directors, disclosures, and audit practices. The adoption of
ESG norms, whistleblower policies, and gender diversity on boards
further indicates growing maturity.
• However, challenges remain, particularly among public sector
enterprises, family-owned businesses, and small and mid-cap firms,
where compliance is often seen as a regulatory burden rather than a
strategic imperative. Instances of board ineffectiveness, related-party
transactions, insider trading, and tunneling of resources still occur,
reflecting gaps in implementation.
• In summary, while India has made commendable progress in
establishing a strong corporate governance regime, the degree of
actual compliance varies across sectors, and enforcement remains
uneven. Continuous monitoring, capacity building, and a shift in
mindset from box-ticking to ethical governance are necessary to ensure
deeper and more uniform compliance.
Thank you