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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
March 25, 2011 3For BSNL internal circulation 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
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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
March 25, 2011 5
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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March 25, 2011 6
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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March 25, 2011 7
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
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March 25, 2011 8
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
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March 25, 2011 9
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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March 25, 2011 10
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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March 25, 2011 11
CADBURY COMMITTEE RECOMMENDATIONS
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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March 25, 2011 12
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
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March 25, 2011 13
CADBURY COMMITTEE RECOMMENDATIONS
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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March 25, 2011 14
CADBURY COMMITTEE RECOMMENDATIONS
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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March 25, 2011 15
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 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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March 25, 2011 16
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 controlThe Directors should report that the business is a going concern, with supporting
assumptions or disqualifications as necessary
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March 25, 2011 17
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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March 25, 2011 18
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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March 25, 201119
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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March 25, 2011 20
CORPORATE GOVERNANCE IN IN INDIAN COMPANIES
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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March 25, 2011 21
CORPORATE GOVERNANCE IN 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
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March 25, 2011 22
CORPORATE GOVERNANCE IN IN INDIAN COMPANIES
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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March 25, 2011 23
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
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March 25, 2011 24
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 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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March 25, 2011 25
CORPORATE GOVERNANCE IN 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 givefullest information and explanation on everyreservation, qualification and adverse remarkscontained in the Auditors report
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March 25, 2011 26
CORPORATE GOVERNANCE IN 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
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March 25, 2011 27
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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March 25, 2011 28
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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March 25, 2011 29
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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March 25, 2011 30
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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March 25, 2011 31For BSNL internal circulation only