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Corporate governance presentation by jayanth viswanathan

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A presentation for the students community to better understand the basics of Corporate Governance.

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Corporate governance presentation by jayanth viswanathan

  1. 1. CORPORATE GOVERNANCE By Jayanth Viswanathan 27.08.2013 (total slides 29) 1
  2. 2. WHAT IS CORPORATE GOVERNANCE To understand that, we need to know what is “Governance” 2
  3. 3. GOVERNANCE = ETHICS  Ethics as per Oxford Dictionary is “moral principles that govern a person’s behavior or the conducting of an activity ” 3
  4. 4. Who mandates “Corporate Governance”  Securities Exchange Board of India, known as “SEBI” mandates Corporate Governance in listing agreement. 4
  5. 5. Whom are these “Ethics” applicable to  Listed Companies.  Why only listed companies? Why not other companies? 5
  6. 6. Why was “Corporate Governance” mandated  SCAMS in Secondary market Pre Y2K scams:  1. Harshad Mehta scam – year 1992  2. NBFC Companies Scam- year 1995-1998  3. CRB Finance and Mutual Funds Scam of Year 1995-1997  4. Plantation’s Company scam- year 1997-1999  5. Vanishing Company’s Scam year 1995-1999  6. Name Changing Scam year 1999-2000  7. Dot Com. Company Scam year 1999 2000  8. US-64 Disaster “Gadbud” of year 1997-1998  9. Ketan parekh Scam year 1999 2001  10. UTI Fiasco “Gadbad” year 1994 2000 6
  7. 7. Why was “Corporate Governance” mandated  After effects of such scams: Loss to the exchequer Loss of faith by Stake holders Loss of faith by Share holders 7
  8. 8. Why was “Corporate Governance” mandated  Thus in order to mitigate further losses, SEBI came up with “Corporate Governance” also called “Clause 49”  Effects of CG: Transparency in working of the company Loss to exchequers were “minimized” Faith of Stake holders and share holders restored. 8
  9. 9. Who drafted Corporate Governance  First Corporate Governance was drafted by Confederation of Indian Industry (CII) in the year 1998.  It was a voluntary code, since it was not recognized by any statutory authority. 9
  10. 10. Who drafted Corporate Governance  Subsequently the Statutory Authorities felt that under Indian conditions a statutory rather than a voluntary code would be more purposeful, and meaningful.  First Committee on Corporate Governance was set: Kumaramangalam Birla Committee - 1999 10
  11. 11. KUMARAMANAGALAM BIRLA COMMITTEE    ROLE OF THE COMMITTEE to suggest suitable amendments to the listing agreement executed by the stock exchanges with the companies and any other measures to improve the standards of corporate governance in the listed companies, in areas such as continuous disclosure of material information, both financial and non-financial, manner and frequency of such disclosures, responsibilities of independent and outside directors; to draft a code of corporate best practices; and to suggest safeguards to be instituted within the companies to deal with insider information and insider trading 11
  12. 12. Key objectives of KBC  enhancement of shareholder value, keeping in view the interests of other stakeholder  Stakeholders: includes suppliers, customers, creditors, the bankers, the employees of the company, the government and the society at large 12
  13. 13. Narayana Murthy Committee 2003 Purpose: Review of Corporate Governance Code Reason: Improve Corporate Governance standards in India Perspective: (a) to evaluate the adequacy of the existing practices (b) to further improve the existing practices. 13
  14. 14. Clause 49  Listing Agreement as on date has 55 Clauses.  Clause 49 deals with Corporate Governance. Corporate Governance Mandatory Disclosures Non Mandatory Disclosures 14
  15. 15. Mandatory Disclosure Board of Directors II. Audit Committee III. Subsidiary Companies IV. Disclosures V. CEO/CFO Certification VI. Report of Corporate Governance VII. Compliance I. 15
  16. 16. I. Board of Directors Board of Directors Executive Non Executive Independent Non Independent 16
  17. 17. Non Executive Director  Criteria No to be an Independent Director pecuniary material relationship with Company, Promoters, Directors, Senior Management, Holding, subsidiary or associate Company Is not a relative of any of the Directors Is/was not an employee of the company or was partner of audit firm or legal firm which has pecuniary interest in the past 3 years Is not a substantial shareholder, i.e. not more than 2% shareholding Is not less than 21 years old 17
  18. 18. Board of Directors  Strength of Board If Chairman is Non - Executive Director, then 1/3 of Directors should be Independent Directors. If Chairman is Executive Director, then ½ the Directors should be Independent Directors. If Chairman is Non - Executive promoter Director, then also ½ the Directors of the Board should be Independent Directors. 18
  19. 19. Board of Directors  Board Meeting Frequency:  Four times a year  Maximum gap of Four Months only  No. of Directorships/Chairmanships:  Member of not more than 10 Committees and cannot be Chairman of more than 5 committees  Code of Conduct:  Board shall draft a Code of Conduct and shall be applicable to all Board Members and Senior Management.  It shall be posted on the Website of the Company.  Information  As to be made available to the Board per Annexure I A given to you. 19
  20. 20. II. Audit Committee A Sub Committee of the Board  Members should be Financially Literate  Chairman of Audit Committee to be Independent  Company Secretary to be the Secretary to the Committee  Audit Committee Meeting Frequency: Four times a year, with maximum gap of Four Months 20
  21. 21. Powers and Role of Audit Committee  Overview Financials Statements – Quarterly and Annual.  Review performance of the company  Appoint & re-appoint Statutory and Internal Auditors  Approval of appointment of CFO 21
  22. 22. III. Subsidiary Companies  “Material Non-Listed Indian Subsidiary”  Atleast one independent director of Holding company to be in subsidiary company.  Audit Committee of Holding company to review financials of Subsidiary company.  Minutes of Subsidiary to be placed before Board of Holding Listed company. 22
  23. 23. IV. Disclosures A. Basis of Related Party Transactions B. Disclosure of Accounting Treatment C. Board Disclosure – Risk Management D. Proceeds from Public, Rights, Preferential Issues E. Remuneration of Directors F. Management G. Shareholder 23
  24. 24. V. CEO/CFO Certification  CEO- Managing Director and CFO – Director/Head Finance shall submit a certificate to the Board on following: Reviewed financials statement and it contains no untrue or misleading statements. Financial Statements present true and fair view. They accept responsibility for establishing and maintaining Internal control for financial report and rectifying deficiencies, if any. 24
  25. 25. VI. Report on Corporate Governance  Annual Report should contain a separate section on Corporate Governance with detailed compliance report. Format as per Annexure I-C given to you.  Quarterly Compliance certificate should be submitted to Stock Exchange. Format as per Annexure I-B given to you. 25
  26. 26. VII. Compliance A Certificate from either the Auditor or a Practicing Company Secretary on compliance of conditions of corporate Governance should form part of Directors Report. 26
  27. 27. Non Mandatory Compliance  There are certain Non- mandatory provisions in this clause, which can be implemented at the discretion of the Company.  Details of which are available in Annexure I D as given to you. 27
  28. 28. Latest update  SEBI has vide it PR 4/2013 dated January 04, 2013 issued a consultative paper to review the norms of Corporate Governance.  Main Objective:  To bring in line with the principles and text of Companies Bill, 2012.  Suggestions shall be made and the Committee set up for the purpose will review the suggestions and bring ammendments to Clause 49. 28
  29. 29. THE END  O, what a goodly outside falsehood hath! William Shakespeare Email: jayanthviswanathan@gmail.com 29