Corporate Governance Gr p 11

7/24/2019 Corporate Governance Gr p 11

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Second Generation

Reforms&

CorporateGovernancePresented by:

51-Sachin Sharma

52-Avi Kathuria53-Ramit Gahlaut

54-Deepanshu

Gupta

55-Anurag Singh


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IN July 1991,India has taken a series of measures tostructure the economy and improve the BOP position. The

new economic policy introduced changes in several areas.

The policy have salient feature which are:

1.Liberlisation (internal and external)

2.Extending Privatization

3.Globalisation of the economy

Which are known as LPG . (liberalization privatization

globalization)

Introduction:


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LPG

Liberalization is a very broad term that usually refers tofewer government regulations and restrictions in theeconomy in exchange for greater participation of privateentities

Privatization means transfer of ownership and/ormanagement of an enterprise from the public sector to theprivate sector .It also means the withdrawal of the statefrom an industry or sector partially or fully. Privatization isopening up of an industry that has been reserved for publicsector to the private sector.

Globalization implies integration of the economy of thecountry with the rest of the world economy and opening upof the economy for foreign direct investment by liberalizingthe rules and regulations and by creating favorablesocioeconomic and political climate for global business.


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REASONS FOR IMPLEMENTING LPG

Large and growing fiscal imbalances.(Gross fiscal deficitrose to 12.1% of GDP in 1991)

Growing inefficiency in the use of resources.

Low foreign exchange reserves.($1.2 billion in January1991)

High inflation rate.(13.87% in year 1990-91)

The low annual growth rate of Indian economy stagnatedaround 3.5% from 1950s to 1980s, while per capita incomeaveraged 1.3%.


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NEED FOR SECOND GENERATION REFORMS


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SECOND GENERATION REFORMS

Second generation reforms are more than a response to the fact that

weak markets and instittions redce gains from pri!ati"ation and

market opening#

Second$generation reforms can contri%te to a &onger$term'comprehensi!e a&ignment of state' market' and ci!i& societ(' which

is re)ired to ma*imi"e the potentia& %enefits of !igoros market

competition#

It mandates from state to find wa(s to effecti!e&( protect otherco&&ecti!e interests throgh %etter instittions and po&ic( too&s'

market incenti!es' and cooperation with ci!i& societ(#


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CORPORATE GOVERNANCE IS

The system of rules, practices and processes by which a company isdirected and controlled.

Corporate governanceessentially involves balancing theinterests of the many stakeholders in a company - these include its

shareholders, management, customers, suppliers, financiers,government and the community.

Safeguards against corruption and mismanagement, whilepromoting fundamental values of a market economy in a democraticsociety.

A sincere commitment to creating and sustaining an ethicalbusiness culture in public and private sectors.


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SE+I AND C,A-SE ./

Clause 49of the ,isting Agreement to the Indian stock e*change comes into

effect from 01 Decem%er 2334# It has %een form&ated for the impro!ement

of corporate go!ernance in a&& &isted companies#

SE+I asked Indian firms a%o!e a certain si"e to imp&ement C&ase ./' a

reg&ation that strengthens the ro&e of independent directors ser!ing on corporate

%oards# It specified the minimum number of independent directors required onthe board of a company.

The setting up of an Audit committee, and a Shareholders Grievancecommittee, among others, were made mandatory .

Separate Report on Corporate Governance to be a part of AnnualReport.

Certificate is to be obtained by the company from the Auditor orPracticing Company Secretary.


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AMENDMENTS

On 17th April 2014 SEBI amended Clause 49 of theListing Agreement. This came into effect on 1stOctober 2014.

Some of the key changes are:

1. Appointment of a Woman Director2. Tenure of Independent Directors3. Formal letter of appointment to Independent

Directors4. Performance evaluation of Independent Directors5. Separate meeting of Independent Directors &Training of IDs

6. Succession Plan for Board/Sr. Management


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7. Compulsory whistleblower mechanism

8. Constitution of Nomination and Remuneration

Committee9. Disclosure in Annual Report about RemunerationPolicy and evaluation criteria

10. Related Party Transactions

11. Compulsory Electronic Voting for all shareholdersresolutions (new Clause 35B)

HIGHLIGHTSOFTHENEW


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HIGHLIGHTS OF THE NEWAMENDMENTS

1. Widening the Definition of Independent Director-.ID shall mean a non-executive director (i.e., not MD, WTD) other thannominee

.director of the Company:-

.a. who, in the opinion of the Board, is a person of integrity andpossesses

.relevant expertise and experience;

.b. (i) who is or was not a promoter of the company or its holding,subsidiary or

.associate company;

.(ii) who is not related to promoters or directors in the company, itsholding,

.subsidiary or associate company;

.c. apart from receiving director's remuneration, has or had nopecuniary

.relationship with the company,


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Limit on number of Directorships

- As Independent Director (if he is not WTD in any listedco.) --maximum seven listed cos.

- As Independent Director (if he is WTD in any listedco.) --maximum three listed cos.

Maximum Tenure of Independent Directors (ID) -

An Independent Director shall hold office for a term upto five

consecutive years on the Board of a Company and shall be eligibleforre-appointment for another term of upto 5 consecutive years onpassing of a special resolution by the Company.Provided that a person who has already served as an ID for five

yearsor more in a company as on October 1, 2014 shall be eligible forre-appointment, on completion of his present term, for one moreterm ofupto five years only.


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2. Role of Audit Committee-

1. Formulation of the criteria for determining qualifications, positiveattributes and independence of a director and recommend to the Board apolicy, relating to the remuneration of the directors, key managerialpersonnel and other employees;

2. Formulation of criteria for evaluation of IDs and the Board;

3. Devising a policy on Board diversity;

4. Identifying persons who are qualified to become directors and who maybe appointed in senior management in accordance with the criteria laiddown, and recommend to the Board their appointment and removal. Thecompany shall disclose the remuneration policy and the evaluationcriteria in its Annual Report.


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3. Disclosures:

A.Related Party Transactions1.Details of all material transactions with related parties shall be disclosedquarterly along with the compliance report on corporate governance.

2.The company shall disclose the policy on dealing with related party

transactions on its website and also in the Annual Report.

B.Disclosure of Accounting Treatment

1.A company has followed a treatment different from that prescribed in anAccounting Standards, the management of such company shall justify

why they believe such alternative treatment is more representative of theunderlined business transactions.

2.Management is also required to clearly explain the alternativeaccounting treatment in the footnote of financial statements.


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4. DISCLOSURE IN ANNUAL REPORT

The following shall be disclosed in the AnnualReport:

(1) Training imparted to IDs

(2) Establishment of Vigil Mechanism (Also inBoard Report)

(3) Remuneration Policy and the evaluationcriteria


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REPORT ON CORPORATEGOVERNANCE

- There shall be a separate Section on CorporateGovernance in the Annual Report of the Company with adetailed Compliance Report on Corporate Governance.

- Non-compliance of any mandatory clause to be

specifically highlighted. (Suggested list including non-mandatory requirements is appended to Clause 49)

- A Qtly. Compliance Report is to be submitted to SEswithin 15 da ys of the close of the Qt r.


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SATYAM SCAM

The scale of the scandal and the auditing firms neglectbrought to light glaring loopholes in the regulatory and legalframework dealing with the directors and the auditors ofcompanies. Eventually, it led to changes in the law

(i) the voluntary adoption of international financial reporting

standards; (ii) the appointment of chief financial officers by auditcommittees based on qualifications, experience, andbackground; and

(iii) the rotation of auditors every five years so that familiarity

does not lead to corporate malpractice and mismanagement. After Satyam, aggrieved Satyam stakeholders in the UnitedStates were able to initiate class action suits against thecompany and its auditors for damages. The same remedy isnow available to Indian stakeholders.


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Corporate Governance Gr p 11

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