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Governance in PSUs

Governance in PSUs. What is Corporate Governance?. “Corporate Governance is nothing but a step towards strengthening of the organization so as to face the challenges”

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Governance in PSUs

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  1. Governance in PSUs

  2. What is Corporate Governance? “Corporate Governance is nothing but a step towards strengthening of the organization so as to face the challenges” “It is stepping into the shoes of the shareholders, stakeholders, vendors, suppliers & employees by the Top Managers and CEO of the company” “Process and mechanisms by which the capital market monitors the actions of corporate management”

  3. World wide privatization wave. Mergers and takeovers. Deregulation and capital market integration. Scandals and failures at major corporations. The historical roots of corporate governance :

  4. Why Corporate Governance? • TRANSPARENCY • ACCOUNTABILITY • CONTROL • TRUSTEESHIP • ETHICS

  5. Emergence of Corporate Governance in India • SEBI appointed in May 1997 the Kumar Mangalam Birla Committee • Companies Amendment Act, 2000 introduced - Setting up of Audit Committee - Directors’ Responsibility Statement • Kumar Mangalam Birla Committee recommendations adopted by SEBI in 2000 • Clause 49 introduced in Listing Agreement • Narayana Murthy Committee recommendations revised Clause 49 • Definition of independent directors • Certificate by CFO & CEO • Risk Assessment & Mitigation strategy of the company • Code of Conduct for top Management

  6. Recent Scandals Serious issues in some companies

  7. Concept of Independent Directors introduced for the first time. • A full-time director is also covered under the definition of "key managerial personnel.“ • The auditor is to be rotated "at such interval" as may be determined by resolution. • The limit of the number of companies for which a person may be appointed as auditor is proposed as 20 companies. In case of an audit firm, the limit is applicable to each partner. Companies Bill 2012

  8. Appointment of auditors for a five-year period is subject to ratification at every annual general meeting. The bill proposes that corporates spend certain percentage of three years average profits towards CSR activities.

  9. Dominance of Public Sector in the Financial and non financial sector. • 75% banking space by PSBs • 55% general insurance space by PSGICs. • 85% life insurance space by LIC. POSITION of public sector :

  10. Multiple audits. • Control of Government. • Strong system and procedures. • Directors on the board, who are mostly not promoters. • Statutory Auditors are appointed by CAG. • Faith of the public. INHERENT STRENGTHS OF PUBLIC SECTOR

  11. Challenges in PSUs

  12. Dominant shareholder Interference of Govt. and others Too much social orientation Rapid changes in Information Technology Human resource challenges Composition of the board

  13. Managing Challenges - Steps to Shape Future

  14. Better process for appointment of Independent Directors. • Board training programs. • Sub Committees of Board to be more active. • Administrative Ministry not to be on Board. • Segregation of Chairman and Managing Director position. • Chairman to be a person of eminence. • Involvement of employees and other stakeholders on board. • Independent Directors to be rotated every 3 years. WAY FORWARD

  15. Insurance industry is regulated by various regulators and other laws and regulations. IRDA in 2009 issued guidelines for corporate governance for insurance companies. The IRDA in its guidelines outlined in general terms, governance responsibilities of the Board in the management of the insurance functions under various regulations notified by it covering different operational areas. These guidelines are in addition to provisions of the Companies Act 1956, Insurance Act 1938 and requirement of any other laws or regulations framed thereunder. Governance in insurance industry

  16. Governance structure Board of Directors Control Functions Senior management Disclosures Outsourcing Relationship with stakeholders Interaction with the supervisor Whistle Blowing Policy MAJOR ELEMENTS OF Corporate Governance in insurance industry

  17. AUDIT COMMITTEE • INVESTMENT COMMITTEE • RISK MANAGEMENT COMMITTEE • POLICYHOLDER PROTECTION COMMITTEE MANDATORY COMMITTEES

  18. REMUNERATION COMMITTEE • NOMINATION COMMITTEE • ETHICS COMMITTEE NON MANDATORY COMMITTEES

  19. Conclusion

  20. THANK YOU

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