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By
CS N.K. JAIN
SECRETARY & CEO
22, Institutional Area, Lodi Road, New Delhi 110 003, INDIA
DEVELOPMENTS IN CORPORATE
GOVERNANCE
Knowledge Partner
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GLOBAL DEVELOPMENTS IN CG
Revised UK CG Code, 2010
UK Stewardship Code, 2010
HKSE -Revised CG Code and
Associated Listing Rules.
New CG Code Singapore
KING III REPORT South Africa
CG Developments in India
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Recognised the value of diversity in
boardrooms.
Evaluations of the board of FTSE 350
companies be externally facilitated every three
years.
All directors of FTSE 350 companies be subject
to annual election by shareholders.
Levels of remuneration for NEDs should reflect
the time commitment and responsibilities.
REVISED UK CORPORATE GOVERNANCE CODE, 2010
The UK Stewardship Code (2010) provides that Institutional
Investors should-
Publicly disclose their policy on how they will
discharge their stewardship responsibilities.
Have a robust policy on managing conflicts of
interest in relation to stewardship and this policy
should be publicly disclosed.
Monitor their investee companies.
Be willing to act collectively with other investors.
Have a clear policy on voting and disclosure of
voting activity.
UK Stewardship Code, 2010
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The findings of impact analysis of the UK CG and
Stewardship Codes by Financial Reporting Council in
December 2011:
80% of FTSE 350 companies put all their
directors up for re-election in 2011
More companies are bringing in external advisers to
assist with evaluation of the boards effectiveness;
As of December 2011 the Stewardship Code has
attracted234 signatories. This is an indication
that the market is willing to take the concept of
stewardship seriously.
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HKSE -Revised CG Code and
Associated Listing Rules
Directors should ensure that they are
fully aware of their duties under the
law/rules
Take an active interest in the issuers
affairs
Obtain a general understanding of
Companys business.
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Majority of a companys board be made up of
independent directors, when the
chairman and CEO is the same person or
chairman is not independent
A director cannot be considered independent
after serving on a board for more than
9 years
The board must be responsible for risk
management and internal controls.
New Corporate Governance Code Singapore
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The board should be led by an
independent non-executive chairman who
should not be the CEO of the company.
Training and development of directors
should be conducted through formal
processes.
EMERGING GOVERNANCE PRINCIPLES
INCORPORATED IN THE KING III REPORT
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The performance of the board, its
committees and the individual directors
should be evaluated annually.
The board should report on the
effectiveness of risk Management.
Sustainability Reporting and disclosure
should be formalised as part of the
companys reporting processes.
EMERGING GOVERNANCE PRINCIPLES
INCORPORATED IN THE KING III REPORT
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CORPORATE GOVERNANCE DEVELOPMENTS IN INDIA
MCA Corporate Governance Voluntary Guidelines,
2009 mainly focus on-
Separation of Offices of Chairman & CEO
Constitution of Remuneration and Nomination
Committees
Training of Directors
Board Evaluation
Rotation of Auditors
Secretarial Audit
Institution of mechanism for Whistle Blowing
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Corporate Governance developments in India.
New Companies Bill, 2011
Separation of Role of Chairman & CEO in the
prescribed class of companies.
Concept of independent directors introduced in
Company Law.
Constitution of Nomination and Remuneration
Committees made mandatory for listed /prescribed
companies.
Secretarial Audit by a practicing Company Secretary
made mandatory for listed / prescribed companies.
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Corporate Governance developments in India.
New Companies Bill, 2011
At least one woman director mandatory in the
prescribed companies.
CSR Committee to be constituted.
Board should make every endeavour to spend
at least 2% of the average net profits of the
company made during the three immediately
preceding financial years, in pursuance of its
Corporate Social Responsibility Policy.
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SEBI vide its Circular dated 15 March, 2011
mandated that the Institutional Investors (i.e.
AMCs) shall disclose their general policies
and procedures for exercisingthe voting
rights on their website and in the Annual Report
fromthe financial year 2010-11.
The AMCs are also required to disclose the
details of voting in AGMs/EGMs of the
investee companies.
ROLE OF INSTITUTIONAL INVESTORS IN
CORPORATE GOVERNANCE
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CG SCORECARD OF INDIA INC.
ICSI Research Studies of TOP 50 participating companies in
CG Award reveal the following CG developments in Indian
Corporate Sector and the challenges ahead-
Rotation of Independent Director by Companies in the
year 2010-11
- 20%of Cos rotated IDs in 6 years.
- 32%of Cos rotated IDs between 6-9 years.
- 52%of the Companies disclosed on rotation of
IDs in the year 2010-11.
More than 50% of Companies have a policy for induction
of IDs.
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CG SCORECARD OF INDIA INC
Remuneration Committee in the year 2010-11
92%companies constituted Remuneration
Committee as compared to 88% in the year
2009-10 and 72%in the year 2008-09.
25% of the companies have constituted
Remuneration Committee with 100%
independent directors.
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CG SCORECARD OF INDIA INC
Separate Meetings of Independent Directors
58%of Companies organise
separate meetings of IDs.
CHALLENGES
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Challenge I
Gender Diversity
The issue of gender diversity on boards has received
increasing attention globally.
While some countries like Norway, Spain and Iceland have
introduced mandatory quotas (i.e. 40%), other countries are
seriously discussingintervention to tackle this issue.
In India, women comprise only 5.3% per cent of BSE 100
company boards.
This percentage compares unfavourably with Norway
(40.1%), US (16.1%), UK (12.5%), Canada (10.3%), Hong
Kong (8.9%) and Australia (8.4%).
Companies Bill-2011- At least one woman director mandatory
in the prescribed companies. 18
Challenge II
Separation of roles of Chairman & CEO
UK Corporate Governance Code, 2010
The roles of chairman and chief executive should not be
exercisedby the same individual.
South Africa
The Board should be led by an independent non-executive
Chairmanwho shouldnot be the CEO of the Company.
Australia
The Roles of Chair and CEO should not be exercised by the
same individual.
Companies Bill, 2011
unless the articles of the company provide otherwise, an
individual shall not be the chairperson of the company as well
as the managing director or Chief Executive Officer of the
companyat the same time.
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Challenge III
Development of Board Members
ICSI Research study shows that
companies have started to focus on the
training/development needs of the Board
of Directors specially the new directors
inducted on the Board.
On an average 56% Companies have
provided training to its Board Members
during the years 2009-2011 as compared
to 40% in 2008-09.
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Challenge IV
Lead Independent Director
Good governance norms recommend appointment of
Lead Independent Director on the Board, especially if
the position of Chairman and CEO are held by the
same person.
Less than 5% of the top companies have appointed
lead Independent Director (LID).
Companies like Infosys, Wipro, Vedanta Resources
Plc have appointed Lead Independent Director.
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Challenge V
Performance Evaluation
ICSI Research Study shows that this is an
area where Indian companies need to
focus as only 15% companies provide the
mechanism for Board Evaluation.
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Performance Evaluation
Companies Bill 2011-Schedule IV (Code for Independent
Directors)
(1) The performance evaluation of independent directors shall
be done by the entire Board of Directors, excluding the
director being evaluated.
(2) On the basis of the report of performance evaluation, it
shall be determined whether to extend or continue the term
of appointment of the independent director.
Report of Panel of Experts on Reforms in CPSEs
recommended that CPSE Boards evolve a system of
annual self evaluations. This could first begin with
Maharatna/Navratna companies. These evaluations
should be done internally, commenting on the Boards
view on the effectiveness of its own functioning.
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" When it comes to the future, there
are three kinds of people: those who
let it happen, those who make it
happen, and those who wonder what
happened.
-John M. Richardson, Jr.
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The framework for Governance
has continually to evolve .
not simply to develop in parallel
with the developments of
business, but to keep one step
ahead.
- Sir Adrian Cadbury
Thank You
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