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Corporate

Governance
Prof. Sarbesh Mishra
Assistant Professor, NICMAR
Necessity
1. Too much of power with few individual
2. Large scale diversion of funds to
associated companies & risky ventures
3. Unfocussed business decisions leading
to losses
4. Preferential allotment of sweat equity at
low prices
5. Spinning off profitable business
operations to subsidiary companies
Recent Happenings
 World Com – Improper accounting of
$3.9bn in expenses leading to bankruptcy
 Enron – Off balance sheet deals used to
hide the debt
 AOL Warner – AOL division accused of
improperly accounted for some advertising
revenues
 XEROX – Financial Fraud
 UTI – Indiscriminate investment by UTI
Origin

The Sarbanes – Oxley Act, 2002, a recent


enactment in USA which deals with the
Corporate Governance & Corporate Social
Responsibilities has emphasized audit
functions & financial disclosures.
Indian Context
 Kumara Mangalam Birla Committee on
Corporate Governance (2000) (SEBI Sponsored)
 Naresh Chandra Committee on Corporate
Governance (2002)
 Narayana Murthy Committee on Corporate
Governance
Clause 49 – Corporate Governance

 SEBI has advised all stock exchanges to


amend their listing agreements by
inserting new clause 49 which deals with
good corporate governance practices to
be adopted by all listed private & public
sector banks.
Contd….
 Corporate governance implies that the
company would manage its affairs with
diligence, transparency, responsibility and
accountability, and would maximise
shareholder wealth.
 Companies are needed to at least have
policies and practices in conformity with the
requirements stipulated under Clause 49 of the
Listing Agreement.
 Board of Directors
 The Board of Directors should be composed
of Executive and Non-Executive Directors
meeting the requirement of the Code of
Corporate Governance.
Contd….
 Audit Committee
2. The appointment of the Audit Committee
is mandatory, and it’s a very powerful
instrument of ensuring good governance
in the financial matters
(The new section 292A incorporated in the
Companies Act, 1956 made it obligatory
for a company having paid up capital of
rupees 5 crore or more to have an ‘audit
committee’ comprising at least three
directors & two third of the total members
shall be non-executive directors)
Contd….

 Shareholders’/Investors’ Grievance
Committee
2. As a part of corporate governance,
companies should form a
Shareholders’/Investors’ Grievance
Committee under the Chairmanship of a
non-executive independent director.
Contd….
 Remuneration Committee
 The company may appoint a Remuneration
Committee to decide the remuneration and
other perks etc. of the CEO and other senior
management officials as the Companies Act
and other relevant provisions.
 Management Analysis
 Management is required to make full
disclosure of all material information to
investors.
Contd….
 Communication
 The quarterly, half-yearly and annual financial
results of the Company must be sent to the
Stock Exchanges immediately after they have
been taken on record by the Board.
 Auditors’ Certificate on Corporate
Governance
4. The external auditors are required to give a
certificate on the compliance of corporate
governance requirements.

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