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Corporate Governance. Clause 49 Anubhav lamba A.C.S, LL.B. What do you mean by Business ?. It’s an economic activity related to:- (a) Trade (b) Commerce (c) Manufacturing
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Corporate Governance Clause 49 Anubhav lamba A.C.S, LL.B
What do you mean by Business ? It’s an economic activity related to:- (a) Trade (b) Commerce (c) Manufacturing (d) Services For profit
Need of Corporate Governance • Many socialists criticize that business exist for the comforts of its rich owner. • So, there should some ethics for business. • Ethics in business should be neither against the business nor against the society. • It is not choice between profit and ethics. • But making profit in ethical manner.
Need of Corporate Governance • Corporate Governance surfaced as result of corporate scandals at:- (a) Enron scandal (b) Worldcom scandal (c) Satyam scandal It was felt that the divergent interests of the stakeholders of a business enterprise need to be protected
Need of Corporate Governance • Above all , globalization and liberalization of market have led to evolution of CorporateGovernance which is about promoting:- (a) Corporate fairness (b) Transparency (c) Accountability
Importance of Corporate governance • Corporate Governance arrangements play a crucial role in determining the organization’s relationship with the world as its scope includes:- • Management’s accountability to stake holder • Processes by which stake holder influence management decisions
Who are Stakeholders • Past beliefs utter that the shareholders or investors are the only persons to whom management is accountable. But now, the activities of corporate entity also affect other sections of the society and therefore , the management is accountable to them as well. • Stakeholders of corporate entity include employees, trade union, customers, shareholder and investors, suppliers and the community at large
SEBI inserted clause 49 in listing agreement which is one of the clauses of agreement, which make compulsory for company to ensure good Corporate Governance, specially deal with issues arising from :- (a) Separation of ownership and management (b) Various scandal This is also known as corporate governance clause
This clause 49 includes:- • 1. Composition of Board of directors. • 2. Audit Committee. • 3. Remuneration of Directors. • 4. Board Procedure. • 5. Management Discussion and Analysis report. • 6. Shareholders. • 7. Report on Corporate Governance.
Composition of Board of directors • Half of the directors in board should be independent directors • In case of non executive chairman, at least one third of board should comprise of independent directors. • Independent directors means who apart from receiving director’s remuneration, do not have any other material relationship or transaction with company, its promoters, its management, or its subsidiaries so that he can act fairly
Audit Committee • The company agrees that a qualified and independent audit committee shall be set up. • The audit committee shall have minimum three members, all being non executive directors, with majority of them being independent, and with at least on director having financial and accounting knowledge. • The chairman of the committee shall be an independent director. • The chairman shall present at Annual general meeting to answer shareholder.
Works of audit committee • Reviewing with management the annual financial statements before submission to the board. • Recommending the appointment and removal of external auditor. • Reviewing the company’s financial and risk management policies. • Discussion with internal and external auditors
Remuneration of Directors • The company agrees that remuneration of non-executive directors shall be decided by the board of directors. • The company will have to disclose about remuneration in section in corporate governance of the annual report.
Board Procedure • The company agrees that the board meeting shall be held at least four times a year, with maximum gap of four months between any two meetings • A director shall not be a member in more than 10 committees or act as chairman of more than 5 committees across all the company in which he is a director.
Management • A Management Discussion and Analysis report should be part of annual report to shareholder and report should include:- (a) Industry structure and developments. (b) Opportunities and threats. (c) Segment-wise and product-wise performance. (d) Outlook. (e) Risks and concerns. (f) Internal control systems and their adequacy. (g) Discussion on financial performance. (i) Material developments in human resources.
Shareholders • In case of appointment and re-appointment of director the shareholders must be provided with following information: (a) A brief resume of the director. (b) Nature of his expertise in specific functional areas. (c) Names of the companies in which the persons hold directorship and the membership of committees of the board. Committee for redressing of shareholders and investors complaints.
Report on Corporate Governance • There shall be separate section on Corporate Governance in the annual reports of the company, with detailed compliance report on Corporate Governance. • Company shall obtain a certificate from the auditors of company regarding compliance of Corporate Governance. • The report should send to stock exchange.
