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Ketan T Bhatt
Shanti Business School
1
2
So far…
• Ethical issues in Finance, Operations, and Strategic
Management
• CSR Rules as per Companies Act 2013, Standards of CSR
(SAI 800 and ISO 26000)
• Relationship between responsibility and ethics
• CSR – India & Western World
• Corporate Governance – Theories & Models
• Corporate Governance – Role of Board & its Committees
3
Continuum of Response to Ethical & Social
Responsibility Issues
Ketan T Bhatt
Shanti Business School
23 October 2015
4
5
Business Ethics / ValuesBusiness Ethics / Values
Corporate
Governance
Corporate
Governance
Corporate Social
Responsibility
Corporate Social
Responsibility
Stakeholder
Expectations
Stakeholder
Expectations
Government
Rules
Government
Rules
Third Party /
Other Agencies
Third Party /
Other Agencies
6
Cadbury Committee
• Set up in May 1991
• By the Financial Reporting Council and London Stock
Exchange
• To address the financial aspects pertaining to the
Corporate governance
7
Cadbury Committee
Why the Committee was set up?
• Absence of a clear framework for formal & robust internal
controls
• Inadequate faith in the ability of auditors to provide safeguards
• Lack of auditors’ ability to withstand the Board pressure
• Low level of confidence in financial reporting
8
Cadbury Committee
Scope
• Responsibilities of EDs and NEDs for reviewing & reporting on
performance to shareholders
• Composition and role of Audit committee of the Board
• Principal responsibilities of auditors
• Links between shareholders, boards, and auditors
9
Cadbury Committee
Code of Best Practice
• Role of Board of Directors and its composition
• Role of EDs & NEDs
• Remuneration of NEDs
• Addressing questions of financial reporting & financial controls
10
Cadbury Committee
Key Recommendations
• Clear separation of the roles of Chairperson of the Board and the
CEO
• NEDs should act independently while discharging their
responsibilities
• Majority of Directors should be INED without any direct / oblique
financial interest in the company
11
Cadbury Committee
Key Recommendations
• Director’s term should be extended only with prior approval of
share-holders
• Regular rotation of auditors / partners
12
Kumar Mangalam Birla Committee
• Set up in May 1999
• By SEBI
• To promote and raise the standards of good corporate
governance and prepare a code to suit the Indian
corporate environment.
• Gave mandatory & non-mandatory recommendations
Tata Finance & HLL Scam
13
Stakeholders /
Shareholders
Board of
Directors
Audit Committee
Chairman
Nomination
Committee
MD / CEO
Independent /
Statutory Auditors
Internal Auditors
Remuneration
Committee
14
Kumar Mangalam Birla Committee
Key Recommendations:
• Roles, procedures and composition of Board
• Clarity on meaning and responsibilities of IDs
• Composition, powers, and functions of the Audit Committee
• Role of Remuneration Committee
• Accounting standards and financial reporting
• Management reporting on SWOT, risk assessment, and internal
controls
• Shareholders’ rights and responsibilities
15
CII Task Force – Chaired by Mr. Naresh Chandra
• Set up in 2009
• “Desirable Corporate Governance: A Code” – 1998 –
adopted by SEBI (clause 49 of Listing Agreement)
• Satyam episode prompted a relook at CG standards and
practices
• Advocated against overregulating
• ‘Much of best-in-class corporate governance is
voluntary’
16
CII Task Force – Chaired by Mr. Naresh Chandra
Focus Elements
• Board of Directors
• Auditors
• Regulatory Agencies
• External Institutions
17
CII Task Force – Chaired by Mr. Naresh Chandra
Key Recommendations
• Role of Nomination Committee
• Content of appointment letter to NEDs & IDs
• Contractual payment OR profit linked payment - “Levels of
remuneration for NEDs should reflect the time commitment and
responsibilities of the role”
• Separation of roles of Chairman & CEO, wherever possible
• Prohibition of non-audit services by statutory auditors
• Independence of auditors (revenue based)
• Whistle Blowing Policy
18
Organization for Economic Cooperation &
Development (OECD)
• The Organization for Economic Cooperation and Development
(OECD) is a unique forum where the governments of more
than 30 democracies with market economies work with each
other, as well as with more than 70 non-member economies
to promote economic growth, prosperity, and sustainable
development
19
Organization for Economic Cooperation &
Development (OECD)
• Corporate Governance Principles developed by the OECD in 1999
and last updated in 2004 – Global business context
• Corporate Governance Principles under revision & likely to be
endorsed by end 2015
• Corporate Governance is a means to create market confidence
and business integrity, which in turn is essential for companies
that need access to low-cost equity capital for long term
investment.
20
Organization for Economic Cooperation &
Development (OECD)
• Board Responsibilities
• Timely & accurate disclosure on all material matters regarding
the Company, including the financials, ownership, and
governance of the company.
• Recognizing the rights of stakeholders established by law or
through mutual agreements
• Equitable treatment of all shareholders, including minority and
foreign shareholders

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Corp Governance - Institutional Committees

  • 1. Ketan T Bhatt Shanti Business School 1
  • 2. 2 So far… • Ethical issues in Finance, Operations, and Strategic Management • CSR Rules as per Companies Act 2013, Standards of CSR (SAI 800 and ISO 26000) • Relationship between responsibility and ethics • CSR – India & Western World • Corporate Governance – Theories & Models • Corporate Governance – Role of Board & its Committees
  • 3. 3 Continuum of Response to Ethical & Social Responsibility Issues
  • 4. Ketan T Bhatt Shanti Business School 23 October 2015 4
  • 5. 5 Business Ethics / ValuesBusiness Ethics / Values Corporate Governance Corporate Governance Corporate Social Responsibility Corporate Social Responsibility Stakeholder Expectations Stakeholder Expectations Government Rules Government Rules Third Party / Other Agencies Third Party / Other Agencies
  • 6. 6 Cadbury Committee • Set up in May 1991 • By the Financial Reporting Council and London Stock Exchange • To address the financial aspects pertaining to the Corporate governance
  • 7. 7 Cadbury Committee Why the Committee was set up? • Absence of a clear framework for formal & robust internal controls • Inadequate faith in the ability of auditors to provide safeguards • Lack of auditors’ ability to withstand the Board pressure • Low level of confidence in financial reporting
  • 8. 8 Cadbury Committee Scope • Responsibilities of EDs and NEDs for reviewing & reporting on performance to shareholders • Composition and role of Audit committee of the Board • Principal responsibilities of auditors • Links between shareholders, boards, and auditors
  • 9. 9 Cadbury Committee Code of Best Practice • Role of Board of Directors and its composition • Role of EDs & NEDs • Remuneration of NEDs • Addressing questions of financial reporting & financial controls
  • 10. 10 Cadbury Committee Key Recommendations • Clear separation of the roles of Chairperson of the Board and the CEO • NEDs should act independently while discharging their responsibilities • Majority of Directors should be INED without any direct / oblique financial interest in the company
  • 11. 11 Cadbury Committee Key Recommendations • Director’s term should be extended only with prior approval of share-holders • Regular rotation of auditors / partners
  • 12. 12 Kumar Mangalam Birla Committee • Set up in May 1999 • By SEBI • To promote and raise the standards of good corporate governance and prepare a code to suit the Indian corporate environment. • Gave mandatory & non-mandatory recommendations Tata Finance & HLL Scam
  • 13. 13 Stakeholders / Shareholders Board of Directors Audit Committee Chairman Nomination Committee MD / CEO Independent / Statutory Auditors Internal Auditors Remuneration Committee
  • 14. 14 Kumar Mangalam Birla Committee Key Recommendations: • Roles, procedures and composition of Board • Clarity on meaning and responsibilities of IDs • Composition, powers, and functions of the Audit Committee • Role of Remuneration Committee • Accounting standards and financial reporting • Management reporting on SWOT, risk assessment, and internal controls • Shareholders’ rights and responsibilities
  • 15. 15 CII Task Force – Chaired by Mr. Naresh Chandra • Set up in 2009 • “Desirable Corporate Governance: A Code” – 1998 – adopted by SEBI (clause 49 of Listing Agreement) • Satyam episode prompted a relook at CG standards and practices • Advocated against overregulating • ‘Much of best-in-class corporate governance is voluntary’
  • 16. 16 CII Task Force – Chaired by Mr. Naresh Chandra Focus Elements • Board of Directors • Auditors • Regulatory Agencies • External Institutions
  • 17. 17 CII Task Force – Chaired by Mr. Naresh Chandra Key Recommendations • Role of Nomination Committee • Content of appointment letter to NEDs & IDs • Contractual payment OR profit linked payment - “Levels of remuneration for NEDs should reflect the time commitment and responsibilities of the role” • Separation of roles of Chairman & CEO, wherever possible • Prohibition of non-audit services by statutory auditors • Independence of auditors (revenue based) • Whistle Blowing Policy
  • 18. 18 Organization for Economic Cooperation & Development (OECD) • The Organization for Economic Cooperation and Development (OECD) is a unique forum where the governments of more than 30 democracies with market economies work with each other, as well as with more than 70 non-member economies to promote economic growth, prosperity, and sustainable development
  • 19. 19 Organization for Economic Cooperation & Development (OECD) • Corporate Governance Principles developed by the OECD in 1999 and last updated in 2004 – Global business context • Corporate Governance Principles under revision & likely to be endorsed by end 2015 • Corporate Governance is a means to create market confidence and business integrity, which in turn is essential for companies that need access to low-cost equity capital for long term investment.
  • 20. 20 Organization for Economic Cooperation & Development (OECD) • Board Responsibilities • Timely & accurate disclosure on all material matters regarding the Company, including the financials, ownership, and governance of the company. • Recognizing the rights of stakeholders established by law or through mutual agreements • Equitable treatment of all shareholders, including minority and foreign shareholders