Chapter11 E3-E4 FINANCE-Corporate Governance.ppttraining.bsnl.co.in/digital_library_source... ·...

March 25, 2011 1For BSNL internal circulation only

E3 E4 FINANCE CORE MODULE

CORPORATE GOVERNANCECORPORATE GOVERNANCE

March 25, 2011 2

WELCOME

This is a presentation for the E3-

E4(Finance) Core Module for the Topic:

Corporate governance .

Eligibility: Those who have got the Up

gradation from E3 to E4.

This presentation is last updated on 21-3-

2011.

You can also visit the Digital library of

BSNL to see this topic.

For internal circulation of BSNL only


AGENDAAGENDA

Meaning of Corporate Governance

Factors influencing Corporate Governance

Corporate Governance in Public sector Units

& Indian companies

Report on Corporate Governance

Benefits of Corporate Governance

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MEANING OF CORPORATE GOVERNANCE

For BSNL internal circulation only

A corporation is directed and laws and

customs affecting that directions

Laws governing the form of firms, the

bylaws established by the firm itself,

and the structure of the firm

Comprises the systems and processes

which ensure the efficient functioning

of the firm in a transparent manner for

the benefit of stakeholders

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MEANING OF CORPORATE GOVERNANCE

“Corporate Governance is holding the

balance between the economic and

social goals and between individual and

community goals”

Sir Adrain Cadbury


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PROJECTED BENEFITS OF CORPORATE GOVERNANCE

Good governance leads to congruence of interests of board, management including owner managers and shareholdersGood governance provides stability and growth to the companyGood governance system builds confidence among investorsGood governance reduces perceived risks, consequently reducing cost of capital


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Well governed companies enthuse employees to acquire and develop company specific skills

To leverage a competitive advantage in the financial market

Promotes stability and long-term sustenance of stakeholders’ relationship


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Good corporate citizen becomes an ethical icon and enjoys a position of pride in corporate culture

Potential stakeholders aspire to enter into relationships with enterprises whose governance credentials are exemplary


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FACTORS INFLUENCING CORPORATE GOVERNANCE

Integrity of ManagementAbility of the BoardAdequacy of the processCommitment level of individual board membersQuality of corporate reportingParticipation of stakeholders in the management


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CADBURY COMMITTEE RECOMMENDATIONS

Relating to the Board of directors:

Board should meet regularly

There should be a clearly accepted division of responsibilities at the head of a company

The board should include non-executive Directors of sufficient calibre and number


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Relating to the Board of directors:

The board should have a formal schedule of matters specifically reserved to it for decisionThere should be an agreed procedure for directors in the furtherance of their duties All directors should have access to the advice and services of the company Secretary


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Relating to the Non-Executive Directors:

Non-Executive Directors should bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments and standards of conduct

Majority should be independent of the management and free from any business or other relationship


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Relating to the Non-Executive Directors:

All directors should have access to the advice and services of the company SecretaryNon-Executive Directors should be appointed for specified terms and reappointment should not be automaticNon-Executive Directors should be selected through a process


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Relating to Executive Directors:

Director’s service contracts should not exceed three years without shareholders’ approvalThere should be full and clear disclosure of their total emoluments Executive Directors pay should be subject to the recommendations of Remuneration committee made up wholly or mainly or Non-Executive Directors


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Reporting and Control – Best Practices:

It is the Board’s duty to present a balanced and understandable assessment of the company’s positionThe board should ensure that an objective and professional relationship is maintained with the AuditorsThe Board should establish an Audit Committee of at least with 3 Non-Executive Directors


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Reporting and Control – Best Practices:

The Directors should explain their responsibility for preparing the accounts The Directors should report on the effectiveness of the company’s system of internal controlThe Directors should report that the business is a going concern, with supporting

assumptions or disqualifications as necessary


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CORPORATE GOVERNANCE IN PUBLIC SECTOR UNITS

Governance principles are common for both Govt. Corporation and Public Limited CompaniesGovernance principles are embedded in constitution for administration of Govt. bodiesThe executive, legislature and judiciary are responsible for check & balances of Public Sector undertakingsPublic sector corporations are subjected to all rules & regulations laid down in various acts to regulate management or corporations


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CORPORATE GOVERNANCE IN INDIAN COMPANIES

Measures for strengthening the process of information flow:

Companies are required under listing agreement to make disclosures on a continuing basisThe decision on dividend, bonus & right announcements are required to be disclosed within 15 minutes of conclusion of board meetings


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CORPORATE GOVERNANCE IN IN INDIAN COMPANIES

Measures for strengthening the process of

information flow:The accounting practices were streamlined with norms introduced for segment reporting, related party transactions & consolidated balance sheetInsider trading is a criminal offenseThe takeover process has been made transparent to protect the interest of minority shareholders


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Independent Director (Naresh Chandra Committee Report):

Not receiving remunerationNot related to promoters or managementNot an executive or the company in the last 3 yearsNot a partner or executive in the auditing firmNot a significant supplier or vendor or customerNot a shareholder owing 2% or moreNot been a Director for more than 3 terms of 3 years each


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Board’s Report- items to be disclosed in

Directors’ Report:

1.Under sec 217(1) of Companies Act

State of company’s affairs

The amount to carry reserves in the balance

sheet

The amount by way of dividend


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The material changes and commitments affecting the financial position of the companyEfforts taken for conservation energy, technology absorption and details of foreign exchange earnings


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Board’s Report- items to be disclosed in Directors’ Report:

2. Under sec 217(2) of Companies Act

Change in the nature of company’s business

Change in company’s subsidiaries or in the nature of business carried on General change in the clauses of business in which the company has an interest


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3. Under sec 217(2A) of Companies Act

The Director report should also contain astatement showing the particulars of aboutcertain employees whose remuneration is notless than Rs.24 lakhs for the financial year and ifemployed for a part of the financial year at Rs.2lakhs or more per month


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4. Under sec 217(3) of Companies Act

The Board of Directors are bound to givefullest information and explanation on everyreservation, qualification and adverse remarkscontained in the Auditors report


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5.Responsibilities of Board of Directors under Sec 217(2AA):In the preparation of annual accounts the applicable account standards have been followed

That the Directors have selected such accounting policies

and applied them consistently

That the Directors have taken proper and sufficient care for

the maintenance of adequate accounting records

That the Directors had prepared the annual accounts on a going concern basis


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REPORT ON CORPORTATE GOVERNANCE

Company’s philosophy on the code of governanceDirectors composition, number of meetings, attendance of each directorAudit committee- composition, terms of reference, meetings and attendanceRemuneration committee-composition, terms of reference, meetings and attendanceShareholders committee-names of non-executive directors heading the committee


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REPORT ON CORPORTATE GOVERNANCE

General Body meetings, location and time where last 3 AGMs held etc.Other disclosures like significant related party transactions, penalty and strictures imposed on the company by stock exchange or SEBIMeans of communicationGeneral shareholder information-date, time and venue of AGM, financial calendar, date of book closure, dividend payment date, stock code, market price data, registrar and transfer agent details, distribution of shareholding etc.


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ROLE OF AUDIT COMMITTEE

Plays an important role in the wider

governance process

Audit committee should be independent

director which would render the role of audit

committee effective and serve useful

purpose


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ROLE OF AUDIT COMMITTEE

The audit committee has to ensure active and independent oversight of financial reportingEnsure appropriateness of company’s accounting policies and the internal controls including management controlsThe audit committee has to meet once every quarter and interact with internal and external auditors



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