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E2-E3 Finance Corporate Governance For Internal Circulation in BSNL only
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Page 1: E2-E3 Finance

E2-E3 Finance

Corporate Governance

For Internal Circulation in BSNL only

Page 2: E2-E3 Finance

WELCOME

This is a presentation for the E2-E3(Finance)

Module for the Topic: Corporate Governance .

Eligibility: Those who have got the Up gradation

to from E2 to E3.

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 in BSNL only

Page 3: E2-E3 Finance

AGENDA

Meaning of Corporate Governance

Factors influencing Corporate Governance

Corporate Governance in Public sector Units &

Indian companies

Report on Corporate Governance

Benefits of Corporate Governance

For Internal Circulation in BSNL only

Page 4: E2-E3 Finance

MEANING OF CORPORATE GOVERNANCE

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

For Internal Circulation in BSNL only

Page 5: E2-E3 Finance

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

For Internal Circulation in BSNL only

Page 6: E2-E3 Finance

PROJECTED BENEFITS OF CORPORATE GOVERNANCE

Good governance leads to congruence of

interests of board, management including owner

managers and shareholders

Good governance provides stability and growth

to the company

Good governance system builds confidence

among investors

Good governance reduces perceived risks,

consequently reducing cost of capital

For Internal Circulation in BSNL only

Page 7: E2-E3 Finance

PROJECTED BENEFITS OF CORPORATE

GOVERNANCE

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

For Internal Circulation in BSNL only

Page 8: E2-E3 Finance

PROJECTED BENEFITS OF CORPORATE GOVERNANCE

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

For Internal Circulation in BSNL only

Page 9: E2-E3 Finance

FACTORS INFLUENCING CORPORATE GOVERNANCE

Integrity of Management

Ability of the Board

Adequacy of the process

Commitment level of individual board members

Quality of corporate reporting

Participation of stakeholders in the management

For Internal Circulation in BSNL only

Page 10: E2-E3 Finance

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

For Internal Circulation in BSNL only

Page 11: E2-E3 Finance

CADBURY COMMITTEE RECOMMENDATIONS

Relating to the Board of directors:

The board should have a formal schedule of

matters specifically reserved to it for decision

There 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

For Internal Circulation in BSNL only

Page 12: E2-E3 Finance

CADBURY COMMITTEE RECOMMENDATIONS

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

For Internal Circulation in BSNL only

Page 13: E2-E3 Finance

CADBURY COMMITTEE RECOMMENDATIONS

Relating to the Non-Executive Directors:

All directors should have access to the advice

and services of the company Secretary

Non-Executive Directors should be appointed

for specified terms and reappointment should

not be automatic

Non-Executive Directors should be selected

through a process

For Internal Circulation in BSNL only

Page 14: E2-E3 Finance

CADBURY COMMITTEE RECOMMENDATIONS

Relating to Executive Directors:

Director’s service contracts should not exceed

three years without shareholders’ approval

There 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

For Internal Circulation in BSNL only

Page 15: E2-E3 Finance

CADBURY COMMITTEE RECOMMENDATIONS

Reporting and Control – Best Practices:

It is the Board’s duty to present a balanced and

understandable assessment of the company’s

position

The board should ensure that an objective and

professional relationship is maintained with the

Auditors

The Board should establish an Audit Committee

of at least with 3 Non-Executive Directors

For Internal Circulation in BSNL only

Page 16: E2-E3 Finance

CADBURY COMMITTEE RECOMMENDATIONS

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 control

The Directors should report that the business is a

going concern, with supporting assumptions or

disqualifications as necessary

For Internal Circulation in BSNL only

Page 17: E2-E3 Finance

CADBURY COMMITTEE RECOMMENDATIONS

Governance principles are common for both

Govt. Corporation and Public Limited Companies

Governance principles are embedded in

constitution for administration of Govt. bodies

The executive, legislature and judiciary are

responsible for check & balances of Public Sector

undertakings

Public sector corporations are subjected to all

rules & regulations laid down in various acts to

regulate management or corporations

For Internal Circulation in BSNL only

Page 18: E2-E3 Finance

CADBURY COMMITTEE RECOMMENDATIONS

Measures for strengthening the process of information

flow:

Companies are required under listing agreement

to make disclosures on a continuing basis

The decision on dividend, bonus & right

announcements are required to be disclosed

within 15 minutes of conclusion of board

meetings

For Internal Circulation in BSNL only

Page 19: E2-E3 Finance

CORPORATE GOVERNANCE 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 sheet

Insider trading is a criminal offense

The takeover process has been made

transparent to protect the interest of minority

shareholders

For Internal Circulation in BSNL only

Page 20: E2-E3 Finance

CORPORATE GOVERNANCE IN INDIAN COMPANIES

Independent Director

(Naresh Chandra Committee Report):

Not receiving remuneration

Not related to promoters or management

Not an executive or the company in the last 3 years

Not a partner or executive in the auditing firm

Not a significant supplier or vendor or customer

Not a shareholder owing 2% or more

Not been a Director for more than 3 terms of 3 years

each

For Internal Circulation in BSNL only

Page 21: E2-E3 Finance

CORPORATE GOVERNANCE IN INDIAN COMPANIES

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

For Internal Circulation in BSNL only

Page 22: E2-E3 Finance

CORPORATE GOVERNANCE IN INDIAN COMPANIES

The material changes and commitments

affecting the financial position of the company

Efforts taken for conservation energy,

technology absorption and details of foreign

exchange earnings

For Internal Circulation in BSNL only

Page 23: E2-E3 Finance

CORPORATE GOVERNANCE IN INDIAN COMPANIES

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

For Internal Circulation in BSNL only

Page 24: E2-E3 Finance

CORPORATE GOVERNANCE IN INDIAN COMPANIES

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

Report:

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

The Director report should also contain a statement

showing the particulars of about certain employees

whose remuneration is not less than Rs.24 lakhs for

the financial year and if employed for a part of the

financial year at Rs.2 lakhs or more per month

For Internal Circulation in BSNL only

Page 25: E2-E3 Finance

CORPORATE GOVERNANCE IN INDIAN COMPANIES

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

Report:

4. Under sec 217(3) of Companies Act

The Board of Directors are bound to give fullest

information and explanation on every reservation,

qualification and adverse remarks contained in the

Auditors report

For Internal Circulation in BSNL only

Page 26: E2-E3 Finance

CORPORATE GOVERNANCE IN INDIAN COMPANIES

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

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

For Internal Circulation in BSNL only

Page 27: E2-E3 Finance

REPORT ON CORPORTATE GOVERNANCE

Company’s philosophy on the code of

governance

Directors composition, number of meetings,

attendance of each director

Audit committee- composition, terms of

reference, meetings and attendance

Remuneration committee-composition, terms of

reference, meetings and attendance

Shareholders committee-names of non-executive

directors heading the committee

For Internal Circulation in BSNL only

Page 28: E2-E3 Finance

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 SEBI

Means of communication

General 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.

For Internal Circulation in BSNL only

Page 29: E2-E3 Finance

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

For Internal Circulation in BSNL only

Page 30: E2-E3 Finance

ROLE OF AUDIT COMMITTEE

The audit committee has to ensure active and

independent oversight of financial reporting

Ensure appropriateness of company’s

accounting policies and the internal controls

including management controls

The audit committee has to meet once every

quarter and interact with internal and external

auditors

For Internal Circulation in BSNL only

Page 31: E2-E3 Finance

For Internal Circulation in BSNL only


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