NARAYAN MURTHY COMMITTEE

REPORT,2003

The report on corporate governance set up by SEBI under the chairmanship of N.R.NARYAN MURTHY was submitted in february 2003.

The main objective of the report was to review the performance of corporate governance and to determine the role of companies in responding to rumour and other price sensitive information circulating in the market in order to enhance integrity of the market.

Disclosure of contingent liabilities.Certification by CEO’s and CFO’S.Definition of independent directors.Independence of audit committees.

MAJOR POINTS IN THE REPORT

AUDIT COMMITTEE: An audit committee is the bedrock of quality governance. An effective audit committee is a pre-requisite for achieving high standard of governance. It is required to review the following points:

Financial statements and draft audit reports including quarterly and half-yearly information.

Report related to compliance with laws and risk management.

MANDATORY RECOMMENDATIONS

Management letters of internal control weaknesses issued by statutory internal auditors.

Records of related party transactions.It is also empowered to recommend the

appointment and removal of statutory auditors, fixation of audit fees and also approval for payment for any other service in addition to the powers of review.

Contd…

A Statement of all transactions with related parties including their bases should be placed before the audit committee for formal approval and if any transaction is not on an arm’s length basis, management should provide explanation to the audit committee justifying the same.

RELATED PARTY TRANSACTIONS

o Companies raising money through initial public offerings should disclose to the audit committee the uses and application of funds under major heads on quarterly basis.

Each year the company should prepare a statement of funds utilised for purpose other than those stated in the prospectus. The audit committee should make recommendations to the board to take major steps in this matter.

PROCEEDS FROM INITIAL PUBLIC OFFERINGS.

Procedures should be in place to inform the board members about the risk assessment and minimization procedures. These procedures should be periodically reviewed.

Management should place a report before the entire board of directors every quarter documenting the business risks faced by the company. The board should formally approve the document.

In clause 49,there is a stipulation that the management discussions and analysis report should include discussions on risks and concern.

RISK MANAGEMENT

It should be obligatory for the board of a company to lay down a code of conduct for all board members and senior management of the company.

The annual report of the company shall contain a declaration to this effect signed off by the CEO and COO.

The code should be posted on company’s website and all members should affirm compliance with the code on annual basis.

CODE OFCONDUCT

If a corporation wishes to appoint a director on the board, such appointment should be made by the shareholders.

An institutional director should have the same duties and responsibilities and shall be subject to the same liabilities as any other director.

Mandatory recommendations of the committee are:Compensation to non-executives directors( to be

approved by the shareholders in general meeting, restrictions placed on grant on stock option.

Whistle blower policy to be placed in the company.

NOMINEE DIRECTORS

All these suggestions are well merited and deserve implementation.

The non-mandatory recommendations pertain to moving to a regime providing for unqualified corporate financial statements, training of board members and evaluation of non-executive director’s performance.

Contd…

THANK YOU