Corp Gov ppt_ Dr. Shreyas Vyas.pptx
- 1. Corporate Governance in India Dr. Shreyas Vyas Assistant Professor National Institute of Securities Market
- 3. Corporate Governance - Meaning Corporate governance is a process and mechanism set up for the corporations and firms based on certain guidelines and principles by which a company is controlled and directed. The underlying principles are there to ensure that the company is governed in a way that it is able to set and achieve its goals and objectives in the context of the social, regulatory and market environment in transparent manner, and is able to maximize shareholder’s value and benefit those whose interest is involved in it, in the long run.
- 4. • The Cadbury Report which was released in the UK in 1991 outlined that "Corporate governance is the system by which businesses are directed and controlled.“ Corporate Governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders like shareholders, management, customers, suppliers, financiers, government and the community in a company. CONCEPT OF CORPORATE GOVERNANCE
- 6. Why Corporate Governance Important ? • Promote the TRUST OF INVESTORS • Good corporate governance has a POSITIVE LINK TO ECONOMIC DEVELOPMENT AND GOOD CORPORATE PERFORMANCE • Promote the efficient use of scarce resources • Funds will flow to entities which are seen to have INTERNATIONALLY ACCEPTED STANDARDS OF CORPORATE GOVERNANCE What if Corporate Governance is not there ? • Financial scandals and crisis • Loss of trust of investors • Loss due to Lack of Controls • Loss due to Lapses in the way IT and other Risks are managed • Loss of Reputation due to incidents being report and Market Cap • More than 1 Lac Cr. lost by Banking Sector itself (Fraud by Kingfisher, Geetanjali Gems, Saradha Group, Global Trust Bank, Rotomac, Totem Infra and Parekh Aluminex Ltd. and others)
- 8. Corporate Governance Enablers • Accounting & Financials Controls • Internal Audit and Assurance • Regulatory Compliances and Reporting • Risk Management and IT Security • Right Organisation Approach and Structure Simplified Corporate Governance Structure
- 10. Historical Back Ground for Corp. Governance in India Regulatory Development & Year Objectives 1997 – CII Code on Corporate Governance CII was first to publish code of Corp. Governance where constitution of Audit Committee was recommended 2000 – Kumarmangalam Birla Committee This committee gave 25 recommendation of Corp. Governance for Listed Companies and to incorporate the same in Listing Agreement with the Stock Exchange 2002 – Naresh Chandra Committee Committee major recommendation were to form AC consisting of all independent directors, rotation of Auditors after 5 years term 2003 – Narayan Murthy Committee The review of the Scope of Audit Committee was deliberated and it was suggested to include the MDNA, reports related to compliance & risks and on Related Party Transaction 2003-SEBI Changes in Clause 49 of Listing Agreement 2011 – Co. Bill It brought about changes to bring Corporate Governance norms reporting mandatory 2013 – Co. Act, 2013 NRC, Stakeholder Committee, Separate Committee Meeting of Independent Directors, CSR Provisions for social Outreach program was implement 2015 – SEBI LODR, 2015 With a view to align and simplify the Regulatory norms for Listed Entities, guidelines were consolidated in 1 set
- 11. Cont…Historical Back Ground for Corp. Governance in India Regulatory Development & Year Objectives 2017 – Uday Kotak Committee recommedation 1. Panel suggested that it was the the right time to split chairman, MD-CEO role of listed companies 2. Panel suggested it should be mandatory for top 500 companies by market capitalization to undertake D&O insurance for its independent directors. D&O Insurance stands for Directors and Officers insurance 3. Panel suggests minimum of 6 directors to be on board of listed entities; every listed entity to have at least 1 independent woman director 4. Panel suggested more transparency on appointment of independent directors; wants them to play a more active role on the boards 5. Panel suggested maximum number of listed entity directorship to be reduced to 8. At least half of every listed entities board to have independent directors 6. Panel suggested Audit Committee must review use of loans/adv/ investment by holding co in arm over Rs 100 crore 7. Panel suggested application to fill a casual vacancy of office of any Independent Director must be okayed by holders; minimum number of Audit Committee meetings be increased to five every year 8. Panel suggested no person to be appointed as alternate director for an independent director of a listed company 9. Panel suggested a formal induction should be mandatory for every new Independent Director appointed to the board 10. Panel suggested BoD to be updated on regulatory & compliance changes at least once a year; as well as an interaction between NEDs & senior management 2017-18 • Constitution of National Financial Reporting Authority to place monitoring mechanism over CA firm. • Whip on Shell Companies and disqualification of Directors with 1.06 lakh (1,06,578) disqualified directors with association to ‘shell or on-paper companies’
- 12. • Fairness -Fairness refers to equal treatment, for example, all shareholders should receive equal consideration for whatever shareholdings they hold. • In addition to shareholders, there should also be fairness in the treatment of all stakeholders including employees, communities and public officials. The fairer the entity appears to stakeholders, the more likely it is that it can survive the pressure of interested parties BASIC PRINCIPLES OF CORPORATE GOVERNANCE
- 13. • Accountability - Corporate accountability refers to the obligation and responsibility to give an explanation or reason for the company’s actions and conduct. • Responsibility - The Board of Directors are given authority to act on behalf of the company. The Board of Directors are responsible for overseeing the management of the business, affairs of the company, appointing the chief executive and monitoring the performance of the company. In doing so, it is required to act in the best interests of the company. • Accountability goes hand in hand with responsibility. The Board of Directors should be made accountable to the shareholders for the way in which the company has carried out its responsibilities. BASIC PRINCIPLES OF CORPORATE GOVERNANCE - 2
- 14. • Transparency - A principle of good governance is that stakeholders should be informed about the company’s activities, what it plans to do in the future and any risks involved in its business strategies. • Transparency means openness, a willingness by the company to provide clear information to shareholders and other stakeholders. For example, transparency refers to the openness and willingness to disclose financial performance figures which are truthful and accurate. BASIC PRINCIPLES OF CORPORATE GOVERNANCE - 3
- 15. • Disclosure of material matters concerning the organisation’s performance and activities should be timely and accurate to ensure that all investors have access to clear, factual information which accurately reflects the financial, social and environmental position of the organisation. • Organisations should clarify and make publicly known the roles and responsibilities of the board and management to provide shareholders with a level of accountability BASIC PRINCIPLES OF CORPORATE GOVERNANCE - 4
- 16. COMMITTEES AUDIT COMMITTEE INVESTMENT COMMITTEE RISK MANAGEMENT COMMITTEE POLICYHOLDER PROTECTION COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE ETHICS COMMITTEE
- 17. • Few New Provisions of Companies Act 2013 for Directors and Shareholders • One or more women directors are recommended for certain classes of companies • Every company in India must have a resident directory • The maximum permissible directors cannot exceed 15 in a public limited company. If more directors have to be appointed, it can be done only with approval of the shareholders after passing a Special Resolution • The Independent Directors are a newly introduced concept under the Act. A code of conduct is prescribed and so are other functions and duties • The Independent directors must attend at least one meeting a year CG IN INDIA – A REVIEW
- 18. • Every company must appoint an individual or firm as an auditor. The responsibility of the Audit committee has increased • Filing and disclosures with the Registrar of Companies has increased • Top management recognizes the rights of the shareholders and ensures strong co-operation between the company and the stakeholders • Every company has to make accurate disclosure of financial situations, performance, material matter, ownership and governance CG in India - a review – 2
- 19. Additional Provisions in Companies Act 2013 • Related Party Transactions – A Related Party Transaction (RPT) is the transfer of resources or facilities between a company and another specific party. The company devises policies which must be disclosed on the website and in the annual report. All these transactions must be approved by the shareholders by passing a Special Resolution as the Companies Act of 2013. Promoters of the company cannot vote on a resolution for a related party transaction. • Changes in Clause 35B – The e-voting facility has to be provided to the shareholder for any resolution is a legal binding for the company. CG in India - a review – 3
- 20. • Corporate Social Responsibility – The company has the responsibility to promote social development in order to return something that is beneficial for the society. • Whistle Blower Policy – This is a mandatory provision by SEBI which is a vigil mechanism to report the wrong or unethical conduct of any director of the company. CG in India – a Review – 4
- 21. CG deficiency leads to Financial Crisis
- 22. MAJOR ELEMENTS OF CORPORATE GOVERNANCE • Governance structure • Board of Directors • Control Functions • Senior management • Disclosures • Outsourcing • Relationship with stakeholders • Interaction with the supervisor • Whistle Blowing Policy 22
- 23. • Ineffective corporate governance may result in financial crisis both for the company and the stakeholders. Shareholders lose confidence in the company and share prices will decline. The high profile corporate governance failure scams like stock market scam, the UTI scam, Ketan Parekh scam, Satyam scam which were severely criticized by the shareholders called for a need to make corporate governance in India transparent as it greatly affects the development of the country. CG - TRANSPARENCY IN ACCOUNTING
- 24. • Good corporate governance helps in improving the competitiveness of the firm strengthening the relationship with the interested and all contracting parties. • Over 60 percent of investors cite Good Corporate Governance Practices in corporations as a key factor in their investment decisions (Mc Kinsey study ,2002 CG – Investment decisions
- 25. Corporate Governance in India • Corporate governance is not so matured in South Asia like it is in U.S. or U.K. In India, the effective initiative for corporate governance came from the listed companies and industrial association, Confederation of Indian Industry (CII) in 1997. Ever since India’s biggest ever corporate fraud and governance failure unearthed at Satyam Computer Services Limited, the concerns about good corporate governance have increased phenomenally. Scams and CG in India
- 26. • In 1999, The Securities and Exchange Board of India (SEBI) made it mandatory for all listed companies in phases. From April 2003, all the listed companies were brought under mandatory requirement to follow the SEBI corporate governance code. SEBI and CG in India
- 27. • Basic Principles of Fairness, Accountability, Responsibility, Transparency and Disclosure must be internalized in the firm • Companies Act 2013 is in right direction. It is in consistence with changes in the world • Transparency in Accounting gets improved with immediate convergence of Accounting standards in India with IFRS • CG is related to Investment Decisions, Intangibles Contribution, Information technology changes and there is a need for sensitization among all stakeholders • Hence there is strong need for International Corporate Governance Day to be adopted and ICSI efforts are in right direction CG – A WAY FORWARD
- 28. Conclusion 28
- 29. THANK YOU 29