Corporate Governance

Corporate Governance in Indian Context
Date: 24-Mar-2018
Jaipur
INDEX
S No.
Headings
Corporate Governance & Key Stakeholders for Corporate

1 Governance
2 Historical Background of Corporate Governance

2 Corporate Governance, its Enablers & Structure
3 Corporate Governance – Why Important
4 Regulatory Framework & Other Developments
5 Setting Right Organisation Structure
2
Historical Back Ground for Corp. Governance in India
Regulatory Development Objectives
& Year
1997 – CII Code on CII was first to publish code of Corp. Governance where constitution of Audit
Corporate Governance Committee was recommended
2000 – Kumarmangalam This committee gave 25 recommendation of Corp. Governance for Listed
Birla Committee Companies and to incorporate the same in Listing Agreement with the Stock
Exchange
2002 – Naresh Chandra Committee major recommendation were to form AC consisting of all
Committee independent directors, rotation of Auditors after 5 years term
2003 – Narayan Murthy The review of the Scope of Audit Committee was deliberated and it was
Committee suggested to include the MDNA, reports related to compliance & risks and on
Related Party Transaction
2003-SEBI Changes in Clause 49 of Listing Agreement
2011 – Co. Bill It brought about changes to bring Corporate Governance norms reporting
mandatory
2013 – Co. Act, 2013 NRC, Stakeholder Committee, Separate Committee Meeting of Independent
Directors, CSR Provisions for social Outreach program was implement
2015 – SEBI LODR, 2015 With a view to align and simplify the Regulatory norms for Listed Entities,
guidelines were consolidated in 1 set
Cont…Historical Back Ground for Corp. Governance in India
Regulatory Objectives
Development &
Year
2017 – Uday Kotak 1. Panel suggested that it was the the right time to split chairman, MD-CEO role of listed companies
Committee 2. Panel suggested it should be mandatory for top 500 companies by market capitalization to undertake
recommedation D&O insurance for its independent directors. D&O Insurance stands for Directors and Officers insurance
3. Panel suggests minimum of 6 directors to be on board of listed entities; every listed entity to have at
least 1 independent woman director
4. Panel suggested more transparency on appointment of independent directors; wants them to play a
more active role on the boards
5. Panel suggested maximum number of listed entity directorship to be reduced to 8. At least half of
every listed entities board to have independent directors
6. Panel suggested Audit Committee must review use of loans/adv/ investment by holding co in arm over
Rs 100 crore
7. Panel suggested application to fill a casual vacancy of office of any Independent Director must be
okayed by holders; minimum number of Audit Committee meetings be increased to five every year
8. Panel suggested no person to be appointed as alternate director for an independent director of a
listed company
9. Panel suggested a formal induction should be mandatory for every new Independent Director
appointed to the board
10. Panel suggested BoD to be updated on regulatory & compliance changes at least once a year; as well
as an interaction between NEDs & senior management
2017-18 • Constitution of National Financial Reporting Authority to place monitoring mechanism over CA firm.
• Whip on Shell Companies and disqualification of Directors with 1.06 lakh (1,06,578) disqualified
directors with association to ‘shell or on-paper companies’
Corporate Governance - Meaning
Corporate governance is a process and mechanism set up
for the corporations and firms based on certain guidelines
and principles by which a company is controlled and
directed.
The underlying principles are there to ensure that the

company is governed in a way that it is able to set and
achieve its goals and objectives in the context of the social,
regulatory and market environment in transparent manner,
and is able to maximize shareholder’s value and benefit
those whose interest is involved in it, in the long run.
Corporate Governance Enablers
• Accounting & Financials Controls
• Internal Audit and Assurance
• Regulatory Compliances and Reporting
• Risk Management and IT Security
• Right Organisation Approach and Structure
Simplified Corporate Governance Structure

Why Corporate Governance Important ?
• Promote the TRUST OF INVESTORS
• Good corporate governance has a POSITIVE LINK TO ECONOMIC DEVELOPMENT AND
GOOD CORPORATE PERFORMANCE
• Promote the efficient use of scarce resources
• Funds will flow to entities which are seen to have INTERNATIONALLY ACCEPTED
STANDARDS OF CORPORATE GOVERNANCE
What if Corporate Governance is not there ?

• Financial scandals and crisis
• Loss of trust of investors
• Loss due to Lack of Controls
• Loss due to Lapses in the way IT and other Risks are managed
• Loss of Reputation due to incidents being report and Market Cap
• More than 1 Lac Cr. lost by Banking Sector itself (Fraud by Kingfisher,
Geetanjali Gems, Saradha Group, Global Trust Bank, Rotomac, Totem Infra
and Parekh Aluminex Ltd. and others)
Wells Fargo: https://www.youtube.com/watch?v=sOBmn0xU7wY
Regulatory Framework & Other Developments
Companies Act Changes/Developments
The Companies • Board constitution, Board meetings, Board processes, independent
Act, 2013 & directors and general meetings
Secretarial • Prior Approval of related party transactions,
Standards 1 • disclosure requirements in financial statements in Board’s report
• Separate Meeting of Independent Directors meting
• CSR Provisions for sustainability initiatives
• Corporate Social Responsibility Policy
• Whistle Blower Mechanism
• Anti-Bribery Policy
• Formation of NCLT and NCALT for early resolution of NPA
SEBI • Guidelines on Performance Evaluation of Board

• Clause 35 B The e-voting facility has to be provided to the shareholder for
any resolution is a legal binding for the company.
• SEBI Listing Obligations and Disclosure requirements, 2015 including
Committee Structure
Other Regulatory • Implementation of GST

Developments • Bankruptcy Code
• Data analytics on credit flow for CIC Companies & CERSAI
BOARD & COMMITTEES REQUIRED UNDER
LODR, 2015
Board/Committee & Activities (Reg. 17-21) Constitution
Board Optimum combination of executive and non-executive
directors
At least one woman director
Not less than 50% non-executive directors
Independent directors
Shall meet at least four times a year
Audit Committee: This committee should consist of at least 3 members &
• Review of Financial Reporting and Controls 2/3 of Directors should be Independent Directors &
• Compliance with Applicable accounting Standards and Chairman Should be Independent Director
applicable Laws
• Internal Audit & Branch Audit Reports
Risk Management Committee: No Such Requirements
• Review of Bank’s risk management stratégies, processes
and controls
• Review of Credit Risk & NPA Management of (Retail &
Wholesale) , Operational Risks, Information Technology &
Security related Risk and ALM & Market related Risk.
Nomination & Remuneration Committee: This committee should consist of at least 3 Non-
• Compensation policy for Directors, KMPs and other Sr. executive Directors as members and 50% of Members
employees. should be Independent Directors
• Nomination and Succession Plan for above officials
• Evaluation of performance of Directors, KMPs and other Sr.
employees including Administration of ESOP Plans
Stakeholders’ Relationship Committee: No Minimum, Chairman shall be Non-Executive Director
• Review and resolution of the grievances/ queries of the
security holders of the Bank and ensures expedite
resolution of grievances/ queries.
Corporate Social Responsibility Committee: > Co. Act, 2013 requirement

• Formulate and review the Corporate Social Responsibility > Minimum of 3 members
(CSR) strategy for Social Outreach programs of the Bank > Chairman shall be Independent Director
Regulatory Framework & Other Developments
Other Changes/Developments
Accounts and • Additional Disclosure in Director’s report under Section 134
Financial controls • Section 129 of the New Companies Act inter alia provides that the financial
statements shall give a true and fair view of the state of affairs of the company
Internal Audit & • Lot of Emphasis being placed on Mandatory list of items to be reviewed by
Assurance Audit committee and in Banking sector the Audit Committee calendar of
reviews being fixed
• Terms of reference being covered under Companies Act, 2013 and LODR also
to broaden its scope.
• Internal Audit is being developed as assurance job wherein various activities
are being carried out in manner laid down in the process and suggest
improvements.
• Audit has become more efficiency led approach then fault finding process.
Risk Management Risk Management is focusing on taking advantage of Technological advancement
both to curb the risk of IT fraud and also to improvement in areas of
implementation of Risk Strategies.
Right Organisation Approach & Structure
Approach Actions
Knowing what With Evolving Business environment, Organisations are focusing more on
Governance Structure is what should be the Right Board and Management Structure should be and
acting accordingly.
• Right Mix of Executive and Non-Executive Directors
• Focus on True Independence of Directors
• Linking of Executive Compensation & Performance Evaluation
• Strategic Alignment in Unity of Direction & of Command between CEO
and Board and Sr. Management
How Business should be • Clearly Articulated mission and vision

run • Achievement oriented culture and fair treatment at all levels
Workable Board Size
• Focus on Improvements
• Working on removing ambiguities and duplication
• Fair and Transparent Treatment of Employees at all levels
• Policies and “Zero Tolerance” Governance framework
Risk Management & • Strong Risk Management and Responsive approach leads to strong
Assurance Functions message at all levels
• Internal Audit department focusing on assurance and improvements
Thank You
Manmohan Parnami
manmohanparnami@gmail.com
Linkedin@
Cell no. 9001111345

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Corporate Governance in Indian Context

Corporate Governance & Key Stakeholders for Corporate

2 Historical Background of Corporate Governance

The underlying principles are there to ensure that the

Simplified Corporate Governance Structure

What if Corporate Governance is not there ?

SEBI • Guidelines on Performance Evaluation of Board

Other Regulatory • Implementation of GST

Corporate Social Responsibility Committee: > Co. Act, 2013 requirement

How Business should be • Clearly Articulated mission and vision

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