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TRANSCRIPT
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INTRODUCTION
Corporate Governance may be define as a set of rule, regulation, procedure and practices
be adopted by a firm management to manage its affairs in the best interest of its stokehold
-der, especially the share holder.
Corporate governance as the acceptance by management of inalienable right of share holder as
the true owner of the corporation and of their own role as trustees on behalf of the shareholder. It
is about commitment to values, about ethical business conduct and about making a distinction
between personal and corporate funds in the management of the company.
Corporate Governance has also been defined as a system of low and
sound approaches by which corporation are directed and controlled focusing on the internal and
the external corporate structure with the intention of monitoring the action of management and
thereby mitigating agency risk which may stem from the misdeeds of corporate officers
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A%pet o! Corporate Governane
'irst ther is no uni(ue structure of corporate governanace in the developed world.the
corporate governance code of each country has to be designed keeping in view the
peculiarities of the country. second company will have to greater disclosures more
tansparent explanation for maor decision and better corporate value.
Rea%on% !or orporate governane
The assertion of right by the shareholder
The new growth apportunities brought about by changes in the business environment resulting
from globali$ation
The singnificant presence of foreign financial investors,who have high expectation about the
(uality of management.
The greater accountability on the part of the financial institution.
The international standerds of disclosures and practices.
The need to comply with the statutory authorities such as )*+I in india.
Corporate Governane Report"
The item to be included in corpoated governance report are
brief statement on companys philosophy on code of governance
Composition and catrgory of board of directors
ole of committee
ole of shareholder committee
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/etails of general body meetings
/iclosure relating to promoters and directors interest that may conflict with the interest of the
company at large.
PRINCIPP&ES OF CORPORATE GOVRNANCE
!-En%'r$ng the #a%$% !or an E!!et$ve Corporate Fra(e)ork
The corporate governance framework should developed with a view to its impact on overall
economic performance ,market integrity and the incentives it creates for markets participants
and the promotion of transparent and efficient market.
The legal and regulatory re(uirement that affect corporate governance practices in a urisdiction
should be consistent with the rule oflaw, transparent and enforceable
The division of responsibilities among different authorities in a urisdiction should be clearly
articulated and ensure that the public interest is served.
*"The R$ght o! Shareholder and ke+ O)ner%h$p !'nt$on
!-The basic shareholder right should include the right
secure methods of wnership registration
convey or transfer share
obtain relevant and material information on the corporation on a timely and regular basis
participate andvote in general shareholder meeting
elect and remove member of the board
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%-shareholder should have the righanges.t to participate in,and to be sufficient informed
on,decision concerning fundamental corporate changes.
mendments to the statutes,or articles or incorporation or similar governing documents of the
company.the authori$ation of additional shares
0-shareholder should have th apportunity to participate effective and vote in general shareholder
meeting and should be inform of the rules including voting procedures that govern general
shareholder meeting
1-marketing for corporate control should be allowed to function in an efficient and transparent
manner.
0-The E,'$ta#le Treat(ent o! Shareholder
!-ll shareholder of the same series of a class should be treated e(ually
%-Insider trading abusive self- dealing should be prohibited
0-2embers of the board and key executives should be re(uired to disclose to the board whether
they directly,indirectly or on behalf of third parties,have a material interest in any tansaction or
matter directly affecting the corporation
1"The Role o! Stakeholder $n Corporate Governane
!3The right of stakeholder that are establishe by low or through mutual agreement are to be
respected.
%3"here stakeholder interests are protected by low,stakeholder should have the apportunity to
obtain effective redress for violation of their right.
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034erformance-enhancing mechanisms for employee participation should be permitted to
devlop.
13The corporate governance framework should be complemented by an effective insolvency
framework and by effective enforcement of credited right
-"D$%lo%'re and tran%pran+
!3/isclosure should include, but not be limited to, material information
-the financial and operating result of the company
-company obectives
-maor share ownership and voting rights
%3information should be prepared and disclosed in accordance with high (uality standards of
accounting and financial, non financial disclosure
03n annual audit should be conducted by an independent, competent and (ualified ,audit in
order to provide and external and obective assurance to the board and shareholder.
13*xternal auditor should be accountable to be shareholder and owe a duty to the company to
execise due professional care in the conduct of the audit.
5. The re%pon%$#$l$t$e% o! the #oard%
The corporate governance framework should ensure the strategic guidance of the company, the
effecting monitoring of management by the board , and the board accountability to the company
and the shareholder
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!3+oard member should act on fully informed basis, in good faith, with due diligence and care ,
and in the best interest of the company and the shareholder.
%3"here board decision may affect different shareholder group differently,the board should treat
all shareholder fairly.
03The board should apply high ethical standard. it should take into account the interest of
stakeholder
COMPAN/ AND ITS GOVERNANCE
0hat $% a o(pan+
Company , an association of person who contribute money to a common corpus to carry on abusiness ,has its origin in !566 ./. when a east india company established by way of royal
charter in *ngland. The modern form of company has its genesis in the legislative department in
the mid-nineteen century in the 78. Traditionally called oint stock company. The key concept
of the company is incorporation in the legal entity separate from its owner.
'eatures of accompany are outline as under9
Inorporated a%%o$at$on
Company is an incorporated association of a person created by a low of the country.Inthe
commonwealth countries including India, +ritish law is the basis of the company low under
which companies are formed and registered.
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Independent lagal ent$t+
a company has a legal entity distinct and separate from it: constituent members. The rights and
obligations of a company are different from that of members. )hare holders are not owner or part
of owner or oint owner of the company. ;o member can claim any ownership rights in the assets
of the company during its existence or on its winding up. The corporate personality is clearly
distinguished from the shareholder propery. member cannot have any insurable interest in the
property of the company.
&n account of the independent corporate existence, the creditor of a company are creditors of the
company alone and their remedy lies against the company not against it:s shareholder.
1Separat$on o! o)ner%h$p and Manage(ent
company is owned by a number of shareholder which is too large a body to manage the affairs
of the company .)hareholder set the obectives of the company and appoint their representatives
or agent to manage the affairs of the company on their behalf to pursue their obectives.
&$($ted &$a#$l$t+
The liability of shareholder of a company is different from the liability of the company.
)hareholder generally have limited liability- limited to the extent o unpaid value of share help
us. )hareholder have no obligation to the company once they have paid full amount on the share
held by them. In case of losses, shareholder are not called upon to make good the losses. credited
cannot claim from the personal wealth of the shareholder.
Tran%!era#$l$t+ o! Share%")hare of a company are transferable .&ne can sell one:s share of
ownership rights to an interested buyer ."hile in case of public companies share are freely
transferable which is provided by the low, there are some restriction in the transferability of share
of private companies.
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Theoret$al A%pet o! Corporate Governane
Mean$ng o! orporate governane"
Corporate governance is the act or manner of governing a company. The issue has been a long
standing one over since a company marked by separation of ownership with management was
conceived
)eparation of management and ownership become more focused in the early twentieth century
with the rise of many public companies in the united state and the united kingdom.berle andmeans
property. The pioneering work of berle and means led to the development of corporate
governance a concept. It also promoted a plethora of a research of the subect. The phrase >
corporate governance >came into vogue much later in [email protected] C.;elson, president of the
merican ssembly nated >corporate governance is a fancy term for the various influences that
determine what a company does not do or should or should not doA
Corporate governance, since it evolution as a concept, has diverse approaches and interpretation.
It steel does not have a universally settle meaning and a theoretical base.
T2EORIES OF CRPORATE GOVERNANCE
1Theories of corporate governance may be broadly categori$ed9
gency Theory
)tewardship theory
)takeholder Theory and stakeholder-agency theory
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4OARD OF DIRECTORS
Mean$ng and t+pe% o! d$retor%
/irector is one of a body of person appointed to direct and supervise the affairs of a
company.ny person occupaying the position of the director by whatever name called may be
termed as director.Company law in india and most other countries does not distinguish between
different type of director.;evertheless,type of directors in the board of a company has relevance
for corporate governance and has been emphasi$ed by both researchers and practitioners.
Shado) d$retor
In addition to those who are formally appointed as directed, any person,other than a professional
adviser, with whose instruction the instruction the director of a company normally comply is a
shadow director.In other words,where a person who is not a director exerts such an influence
over the directors of a company and those directors are accustomed to act in accordance with that
person:s instruction,that persons is ashadow director
De !ato D$retor
de facto director is a person who are formally appointed or who is dis(ualified to be appointed
as directed. +ut who in effect occupies the position of,and act as if he were,a director.
Add$t$onal D$retor
Constitution of companies may allow their boards to appointment of additional directors to hold
the position of directors till the ensuring annual general meeting of the company .dditional
directors are in addition to the directors of accompany appointed at the annual general
meeting.power,right and duties of additional directors are at par with other directors.
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Alternate D$retor
lternate /irectors is a person who is nominated to act in placeof director during his agreement
of maority of a directors ."hile acting as a directors, the alternate director has the same right
and duties s other directors have under the low.
No($nee D$retor
;ominee director is a person who is nominated to the board a maor shareholder or other
contractual stakeholder such as a bank or financial institution to represent and safeguard their
interest.The nominee directorA appointed by the public financial institution have been widely
prevalent in the boards of most companies in India till recently.
E5e't$ve% d$retor%
*xecutives directors are those directors who are also involved in day to day management of the
company .lso termed as whole time directors .They are in full time employment with the
company .s they are involved in the company they may, in practice, have a specific titles and
managerial responsibilities within the company for example managing director ,finance director,
marketing directors etc.
Non"E5e't$ve% D$retor%
;on-executive director are not involved in day to day management of the company and do not
hold any executives management position within the company .the rationale behind appointing
non executives director is that ,as they are not involved in day to day management, they can
bring an independent voice and perspective to the board..
Role and Re%pon%$#$l$t$e% o! 4oard o! D$retor%
The prime responsibility of board of director is to determine the broad strategy of the company
and to ensure its implementation .The board needs to perform following roles.
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To established corporate obects including vision, mission and value of the company.
To develop, review and guide broad strategy of the company
To establish governance practices of the company and making changes as needed.
To set performance obectives, monitor corporate performanceB oversee capital expenditure,
ac(uisitions and divestitures
)electing compensating, monitoring and when necessary replacing chief executives officers and
other key executives and overseeing succession planning.
To provide and an ultimate direction to the company
To monitor and evaluate the implementation of the policies, strategies and business plan.
To act as custodian of assets of the company and add value to those assets.
To ensure that the company has ade(uate information, internal control and audit system in place
to meet the business obectives. +oard has to ensure the integrity of companies accounting and
financial reporting systems.
To ensures the company:s compliance with all the applicable laws and its own ethical standards.
To ensure that the communication with all the stakeholder is effective.
To monitor the relationship with all the stakeholder by effecting communicating with them and
thereby to enhance the image of the company
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4OARD OF COMMITTEE
Committees of the board are use for various purposes, the main being to assist the dispatch ofbusiness by considering it in more detail than would be convenient for the whole board.
A'd$t Co(($ttee
udit committee, the most important of the board sub-committees was originated in the 7) in
the !=?6s. It was conceived as an interface between the external auditors and the board. To
lessen the dominance of the senior executives in the audit process, the committee was designed
to comprise entirely or predominantly of independent non-executives directors.
Re('nerat$on o(($ttee
Imperative of good governance demand fairness and transparent procedures for setting the
remuneration level of executive directors and other senior executive. llegedly excessive
executive director:s remuneration remains a concern around the worlds. To avoid conflict of
interest, executives direction should not determined their own pay structure.
Co(po%$t$on o! re('nerat$on o(($ttee
To ensure fairness and transparency in determination of remuneration structure of the executives,
it is absolutely vital that remuneration committee consist entirely of independent non-executives
directors. The chairman of the company may be member of the committee provided he meets the
criteria of independent directors.
No($nat$on o(($ttee
s stated earlier, the director of a company are appointed-reappointed by the shareholder of a
company at the annual general meeting of a company. The appointment or reappointment, in
practice takes place on the recommendation of the directors.
The nomination committee is responsible for formulating policy and making recommendation to
the board of directors on nomination, appointments of directors and board succession.
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Committee develops selection procedures for candidates, and considers different criteria of
selection including appropriate professional knowledge and industry experience.
Model% o! Corporate Governane
The comparative corporate governance literature has described corporate governance models
along several dimensions. The important being the ownership structure, role of bank and other
intermediaries, worker participation, legal protection and corporate philosophy are the other
notable dimensions which have attracted the attention span of researchers.
'ollowing four broad models of corporate governance can be distinguished9
Anglo"Sa5on Model
The corporate governance system of the 7.).,7.8, Canada, ustralia and Commonwealth
countries including India is broadly categories as the nglo-)axon model.
+ased on market capitalism, the model is characteri$ed by a well developed stock market with
substantial degree of li(uidity and depth. The market capitali$ation of domestic stock expressed
as a percentage of G/4 is also very high
The striking feature of the nglo-)axon model is the structure of ownership pattern. The
comparative study by Da 4orta et al.
as widely dispersed. Influences of trade union are much less in the nglo-)axon models as
compared with the *uropean model of Germany.
The nglo merican countries have a low and declining rate of unioni$ation as the model does
not allow for labour to participate in strategic management decision.
Ger(an (odel
German model, also known as Continental *urope model, is prevalent in Germanic countries
such as Germany, )wit$erland, ustralia, and ;etherlands. This model is based on the
stakeholder theory of corporate governance. Comparatively less developed financial market,
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closely held large block holding of share, inter-firm cross shareholding, dominant role of bank
and employee representatives in the two tier board of director are the striking feature of
corporate governance system in large parts of the Continental *urope.
key feature of the German model is the dual-board system. ll public limited companies and
private limited companies with more than E66 employees have a supervisory board and
executive:s board. The three organ of corporate governance in German model9
German model is based on the prominent role of bank and an extensive cross ownership link. It
is common for the universal bank in Germany ,ustralia, )wit$erland to act as suppliers of
bank loan and e(uity capital
6apane%e Model
The classic Fapanese business model is that of the aibastu, which is a totally integrated group
engaged in manufacturing, distribution, trade and finance across a wide range of businesses. The
present Fapanese model comprises a small number of dominant group called 8eiretsu. 2ost of
thes group are diversified and vertically integrated by cross #shareholder and relationship with
number of small businesses. This group is close to the governance as group often employ retired
civil servant and work together on government sponsored committees also.
The government plays an important role of supervision and control over the corporate activities.
etired government officers are placed on the board of the companies to seek preferential
treatment from the government. The retired bureaucrats also ensure effective implementation of
the government policies.
The main source of fund of Fapanese companies is mostly banks and other financial institutions
which provide debts as well as e(uity capital by a consortium led by a maor bank called main
bank.
Fa($l+"#a%ed (odel
'amily based model of corporate governance is prevalent in many emerging as well under
developed country of the world, particularly in *ast sia, )outh merica, 2iddle *ast and India.
The model has not received much attention in the west dominated corporate governance
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Initiatives in India on the development of the corporate governance code are reviewed separately
for a detailed analysis.
Code $n the Un$ted 7$ngdo(
The movement for better corporate governance evolved in response to the failure of big
corporation. 7.8. was once the first countries in the worlds to take a nationwide initiative in this
direction conse(uential to the collapse of corporation such as the 2axwell publishing group,
+CCI +ank and policy peck. The Dondon )tock *xchange and +ank of *ngland set up a
committee in !==! under the chairmanship of sir drian Cadbury to look in to the financial
aspect of corporate governance.
Code $n the U8S8A8
The need for good corporate governance dawned even earlier in the 7.).. the stock market
crash of !=%= did considerable damage to investor confidence. The main reason for the crash was
analysed to be lack of understandable information to shareholder, and diversity in accounting
practices due to absence of national regulation. )ecurities and *xchange Commission, a federal
regulatory agency was conse(uently set up in !=01. gain way back in!=?@ the ;ew Hork )tock
*xchange was the first to re(uire every listed company to have audit committee comprising
solely of independent directors. 2ost of suggestion of the Commission focused on the audit
committee.
Code% o! A'%tral$a
Corporate governance system of ustralia is on the lines of the nglo )axon model. In!=@?,
ustralia )tock *xchange was formed by amalgamating six independent stock exchanges which
were functioning since the nineteen century. ) corporate governance Council was formed
in%66% by bringing together %! diverse shareholder and investment group. The council chaired
by the ustralian )tock *xchange 2arket is mandated to developed principle- best corporate
governance framework for the ustralian listed companies.
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Code $n Ger(an+
The German corporate governance model is best on the dual board system comprising of a
supervisory board and an executive board. The governance the companies in Germany is based
on the co- determination principle which provides for compulsory board level participation of
employees. &ne #third to one half of the directors on the supervisory board is elected by the
employees. The supervisory board consist of both full time employees and of non-executives
outsiders such as professional advisors to the company, representatives from bank and other
firms with which the corporation has a relationship.
Code% $n So'th A!r$a
)outh frica, although an emerging economy, has some of the most advanced corporate
governance principles and practices in the world. Corporate governance was institutionalised in
)outh frica with the formation of the 8ing Committee on corporate governance in !==% under
the auspices of the Institute of the directors.
Code% $n Mala+%$a
Corporate governance system in 2alaysia is broadly based on the nglo-)axon model. The main
legislation concerned with corporate activity in 2alaysia in the companies act, !=5E which is
based on 78 companies ct of !=1@. The securities Commission under the 2inistry of 'inance
regulate the capital market.
Code% $n So'th 7orea
Corporate governance system in )outh 8orea is pre-dominantly family based. The chaebols, the
descendant of the individual who founded 8orean business group, wield considerable control in
various companies through both direct e(uity holding and cross holding of shares. *ast sian
financial crisis of !==? brought the issue of corporate governance to the fore #front in )outh
8orea. 2any analysts including the world bank pointed to weak corporate governance
characteri$ed by the lack of disclosure and transparency, ineffective boards and family
dominance as the maor factors behind the financial and economic collapse of the affected sian
economies.
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In the wake of liberali$ation and globali$ation process as part of the structural adustment
programme unleased in India!==!, the key tenets of the nglo-merican model of corporate
governance were adopted. The Indian companies act,!=E5 which was already in line largely with
the basic nglo-merican model was revamped to reduced its complexity and bureaucratic
interferences. The capital issue control act,!=1? was scrapped removing the control of the
government over the issue of securities. The securities and exchange board of India was set up
ininin!==%.
Reg'lator+ Fra(e)ork o! Corporate Governane $n Ind$a
Indian corporate sector consist of private and public limited companies both in the governmentand non-government sector. There were @1?!5E companies registered in India as on %6!6.these
@!5%0 were the public limited companies in the non government sector and !!== in the
government sector. lthough India has %! recognised stock exchanges have emerged as the
nation-wide stock exchanges contributing more than == percent of the total turnover of the Indian
stock market.
The legal framework in India is base on the +ritish common law. The corporate sector is
governed by the companies: act of !=E5 as amended. The companies act aims to achieve a
minimum standard of good behaviour and conduct by the company management. It is a
substantive law for corporate business in India which provides a legal framework for regulating
the corporate activities including governance and administration of companies, rights of
shareholder and directors, disclosure of shareholder of information relevant for shareholder. The
companies act,!=E5 closely parallels the nglo-merican model wherein a single-tier board:s
role is that of governance, while management is responsible for day to day operation of the
company.
The ct is administered by the ministry of corporate affairs and enforced by the Company Daw
+oard and the courts.
The )ecurities and *xchange +oard of India regulates the stock exchanges, stock brokers,
share transfer agents, merchant banks, portfolio managers, other market intermediaries collective
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investment scheme and primary issues. It prohibits fraudulent and unfair trade practices, and
regulates the substantial ac(uisition of shares and takeovers.
Reg'lator+ Prov$%$on $n re%pet o! the Pr$n$ple% o! Corporate Governane
The R$ght o! Shareholder%
)hare &wnership9- In India shares may be held in physical form or in demateriali$ed form.
egistration in a depositoryJ share Certificate is proof of ownership of shares
Transferability of )hares-9 )hares are freely transferable in case of a public company
&btaining relevant information-9 nnual and half yearly statement are mailed to shareholder
(uarterly account are published in newspapers and posted on the websites of the companies and
stock exchanges.
The E,'$ta#le Treat(ent o! %hareholder
2inority shareholder and redressal of grievances9 The companies act confer right to shareholder
in matters of oppression by the maority of management. The lesser of the!66 shareholder or
those holding!6 percent of voting rights can apply to the CD+ for redress.
Insider trading and self dealing9 )*+I egulation, !==%, criminali$es insider trading and abusive
self dealing. nybody in possession of price sensitive information is considered an insider.
Role on %takeholder $n Corporate Governane
4rotection of rights of stakeholder 9 Creditor can petition the CD+, )*+I, 2C, +oard for
Industrial and 'inancial econstruction, civil and high courts, as well as dept recovery tribunals
for violation of their rights. *mployees and environmental group can seek redress through the
civil and high courts.
ccess to relevant information 9 Company is re(uired to post the relevant information on the
company and stock exchange websites.
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Prov$%$on o! the Co(pan$e% 4$ll *9::onern$ng Corporate Governane
The companies: bill %6!!, introduced in the parliament in /ecember %6!! is expected to
overhaul the corporate law of the country to strengthen corporate governance and increased
transparency. The new law proposes to make it mandatory for big companies to adopt corporate
social responsibility policy and set aside fund for it. The provisions of the +ill concerning
corporate governance are as under9
D$%lo%'re o! Pro(oter%; 2old$ng
*very listed company shall file a return in the prescribed form with the egistrar with respect to
change in the number of shares held by promoters and top ten shareholder of such company,
within fifteen days of such changes
Vot$ng #+ Eletron$ (ean%
The central government may prescribe the class or the classes of companies and manner in which
a member may exercise his right to vote by the electronic means.
Nat$onal F$nan$al Report$ng A'thor$t+
1The central Government may constitute a ;ational 'inancial eporting uthority to provide for
matters relating to accounting and auditing standard.
2onitor and enforce the compliance with accounting and auditing standards recommended by it
in such manner as may be prescribedB
perform such other function as may be prescribed.
Corporate So$al Re%pon%$#$l$t+
*very company having net worth of rupees five hundred corer or more, during any financial year
shall constitute a Corporate )ocial esponsibilities Committee of the +oard consisting of three
of more directors, out of which at least one director shall be an independent director.
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The +oard:s report shall disclose the composition of the Corporate )ocial esponsibility
Committee.
A'd$t and A'd$tor%
*very company shall, at the first annual general meeting, appoint and individual or a firm as an
auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth
annual general meeting and thereafter till the conclusion of every sixth meeting and the manner
and the procedure of selection of procedure of auditor by the member of the company at such
meeting shall be such as may be prescribe.
;o listed company or a company belonging to such class or classes of companies as may be
prescribed shall appoint of re-appoint9
The central government may, by rules, prescribe the manner in which the companies shall rotate
their auditors.
A'd$t o(($ttee
The +oard of /irectors of every listed company and such other class or classes of companies, as
may be prescribed, shall constitute an audit Committee.
The audit Committee shall consist of a minimum of three directors with independent directors
forming a maority. *very audit committee of a company existing immediately before the
commencement of this act shall, within one year of such commencement, be reconstituted in
accordance with sub section
No($nat$on and Re('nerat$on Co(($ttee
The board of director of every listed company and such other class classes of companies, as may
be prescribed shall constitute the ;omination and emuneration Committee consisting of three
or more non- executive director out of which not less than one half shall be independence
directors. The ;omination and remuneration Committee shall identify person who are (ualified
to become directors and who may be appointed in senior management in accordance with the
criteria laid down, recommend to the board their appointed and removal and shall carry out
evaluation of every director:s performance.
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Cla%% At$on
)uch number of member, of members, depositor or depositors or any class of them, as the case
may be as are indicated in sub section may, if they are of the opinion that the management or
conduct of the affair of the company are being conducted in a manner preudicial to the interest
of the company or its member or depositors for seeking all or any of the following orders,
namely.
To restraint the company from committing an act which is ultra vires the articles of
memorandum of the company.
To restrain the company from committing breach of any provision of the companies
memorandum of article.
Spe$al Co'rt%
The central government may, for the purpose of providing speedy trial of offences under
this ct, by notification, established or designate as many special courts as may
necessary.
special court shall consist of a single udge who shall be appointed by the central
government with the concurrence of the chief ustice of high court whose urisdiction the
udge to be appointed is working.
&$a#$l$t+ !or Fra'd
"ithout preudice to any liability including repayment of any debt under this ct or any other
law for the time being in force, any person who is found to be (uilt of fraud , shall be punishable
with imprisonment for a term which shall not be less than six month but which may extent to ten
years and shall also be liable to fine which shall not be less than the amount in the fraud, but
which may extent to three time the amount involved in the fraud. "here the fraud in (uestion
involves public interest, the term of imprisonment shall not be less than three years.
Corporate Governane Prat$e% $n Ind$a
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In the nglo-)axon countries # 7.), 7.8, ustralia and Canada- the primary corporate
obectives is maximi$ing the shareholder:s value, although there is a growing recognition to
address the other stakeholders: interest to maximi$ed shareholder value over the long-term. The
;arayana 2urty Committee also affairs the aim of good corporate governance: as enhancement
of long term value for its shareholder and all other partner. The key obective of good corporate
governance of most of companies in India as stated in their philosophy statement is enhancement
of long #term shareholders: value keeping in view the interest of other stakeholder. )ome cases
in point are9
Role o! 4oard o! d$retor
2ost corporate governance guideline and codes affirm the board of directors as the focal point of
corporate governance being collectively responsible for the success of the company. The board
of directors is the central mechanism for oversight and accountability in the corporate
governance system entrusted with the direction of corporation, including responsibility for
deciding how the board itself should be organi$ed, how it should function, and how it should
order priorities. The responsibilities of the board include setting the company:s strategic aims,
providing the leadership to put them into effect, supervising the management of the business and
reporting to shareholder on their stewardship.
4oard (eet$ng Fre,'en+
;umber of meeting of board of directors of a company is an indicator of board:s efforts in
discharging its role and its involvement in the effective government of the company. "hile most
of code of best practice world over lay down that the board should meet sufficiently regularly to
discharge its responsibilities effectively, )ection %@E of the Indian companies act !=E5 and also
the clause 1= re(uire a company to hold at least 1 board meeting in a year with a gap not more
than 0 month between the consecutive meeting.
4oard %$
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To accommodate family member and associates. nother important factors was the presence of
nominees directors: appointed on the board of assist companies by the financial institution. "ith
the statutory Codes of Corporate Governance being in vogue, the board si$e has become more
important an issue as the re(uirement of non-executives directors and independent directors on
the board of the companies are linked with the total number of directors.
4oard Co(po%$t$on= Independent D$retor%
Composition of directors has undergone a rapid transformation worldwide following the
publication of corporate governance guideline and code of best practice which call for a maority
of the board to be comprised of independent directors. /efinition of independence varies. The
Cadbury Code, for example , states non executives directors should bring an independent
udgment to bear on issue of strategy, performance, resources, including key appointment, and
standard of conduct. The maority. The maority should be independent of management and free
from any business or other relationship which could materially interfere with the exercise of the
their independent udgment, apart from their fees and shareholding
4oard Co(po%$t$on Prat$e%
s pointed out earlier, traditionally Indian companies were by and large one family controlled
and in a si$able proportion of listed companies, the board of director comprises of all non-
executive director. s per the gupta:s study covering the period !=@%-@0, the proportion of
executive director was only !E.? percent out of %66? directorship in %%E companies surveyed.
The study of kapur
of executive director to total director ranged between !6-06 percent. This was owing to the
compulsion of families controlling many companies. La family firm moving into the second
generation may find that, whilst some family members continue to be directly involved in themanagement of the firm, other where now outside the firm and shareholder only. Calls for non-
executive director to represent the non-management family shareholder on the board may now
ries Lin India, the nominees of promotes are non-executive director continue to wield
considerable power over the companies since the managing agency days.
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Independent D$retor%= prat$e% $n Ind$a
Indian companies began to induct independent director on their board from the year %666-6!
largely to meet the re(uirement of the mandatory provision of the statutory code. lthough, a few
company such as Infosys, ;icholas piramal
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Corporate Governane $n Ind$a= I%%'e and Conern%
Role o! Independene D$retor%
ole of independent directors in the board of the companies is an issue which is of concern in
India especially after the debacle of the )atyam. Independent directors were imposed by the
regulators on the Indian board which were accustomed to work as a Lco$y club: or Lrubber stamp
at times showering bou(uets of praises on the moves including antics of the promoters of the
companies who usually happened to be the established Lindustrial families:. It seems not much
has changed in most of the companies in India with the advent of Lindependent directors:. The
promoters have learned to live with them slightly adusting the way boards were functioningbefore.
Role o! A'd$tor
The companies act in India contains provision directed at independence of the auditors of the
companies. It provides for appointments of a company auditors by the shareholders of the
company in the annual general meeting. udit committee of the company has the mandate to
recommend the appointment of the auditors. In practice, however, the auditors is appointed by
the company management, and in most cases the auditors are retained year after year for many
years. This creates conflict of interest-perverse incentives, which heightens the risk of lack of
over-sight and fraud. udit firms compete fiercely to bag big corporate assignment.
Role o! In%t$t't$onal Inve%tor%
The Lapathetic: behavior of the institutional investors reported by several surveys and studies is a
cause of concern in India. 2ost corporate codes worldwide including the &*C/ 4rinciple of
corporate governance advise the institutional investors to intervene, state their voting policies
and exercise voting power at the general meeting of the companies. The 7.8. combined code
recommends that the institutional institutional shareholder should enter into a dialogue with
companies based on the mutual understanding of obectives
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Part$$pat$on and Protet$on o! Reta$l? M$nor$t+ Shareholder%
etail shareholder or individual shareholders, although contribute to the e(uity capital of
companies they have a little influence and power in the functioning of companies. the legal
framework and policy initiatives of the regulators are geared towards protection of the interest of
investors including minority shareholder. In practice, however they have no real effective right
and at times have to bear the brunt of unscrupulous promoters. The views of individual
shareholder are seldom taken seriously and their votes have virtually no impact.
Corporate Fra'd% and Corr'pt$on
It is widely that a culture of greed and self-interest in organi$ation in variably lead to fraud and
inimical to corporate governance. In resent year India has seen a market increase in the number
of scams that have surfaced both and private and public sectors.
)ome cases of corporate scams which rocked the country are given9
)atyam )cam
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Corporate Governane $n Un" l$%ted Co(pan$e%
Corporate governance practices in India have gained impetus after the adoption of the )ecurities
nd *xchange +oard of India appointed 8umar 2angalam +irla Committee eport on corporate
governance. The report was a timely intervention to keep a check on the uninhibited corporate
misdememeanors rampant in India.
S(all and (ed$'( Enterpr$%e%
)mall and medium enterprises play and important role in the Indian economy. +esides acting as
an entrepreneurial engine, they are also the largest employment generators. The maority of
companies in India are small- to- medium enterprises which often view corporate governance
with skepticism only relevant to large companies.
Corporate Governane Rat$ng
Corporate governance rating is the assessment by independent agencies, of corporate governance
practices being followed in a company. )uch a rating may contribute to the process of open,
transparent and timely information sharing in a market characteri$ed by the information
asymmetry. The market participant cans guage the level and (uality of corporate governance of
the rated companies. This could bring down the risk premium associated with the e(uity
investment and may lower down the price volatility.
M'lt$pl$$t+ o! Reg'lator+ Agen$e%
The regulatory framework in India places the oversight of listed companies partly with the
2inistry of Company ffairs, partly with the )ecurities and *xchange +oard of India and partly
with the stock exchanges. In addition, in case of banking companies, eserve +ank of India, and
insurance egulatory and /evelopment uthority exercise power of supervision over insurance
companies.