Corporate Governance

Legal & Statutory Compliances

Opportunities & Constraints

Pavan Kumar Vijay

What is Corporate Governance??

Corporate Governance is a process

to achieve Corporate Excellence

Corporate Governance rests with the Vision and Perception of the Leadership

and
A Leader need to adopt a Vision for Corporate Governance

Corporate Governance
Corporate Governance is the application of best management practices, compliance of law in letter and spirit and adherence to ethical standards

for effective management and distribution of wealth

and discharge of social responsibility for sustainable development of all stakeholders The Institute of Company Secretaries of India

Corporate Governance Framework

Wealth Creation
Output Input = Wealth Created

Wealth Management

Wealth Sharing
Happiness and Prosperity of all Stakeholders SUPPLIERS Adequate Returns HUMAN ASSETS Adequate Remuneration

?
Reinvestment

Distribution

Enhanced Capabilities

Sustainability Research and Development HR Development Infrastructure Risk Management

CUSTOMERS Affordable Prices PUBLIC Payment of Taxes and Partnership in National Development Projects

Best Management Practices are Vital Here

Law and Ethics are Vital Here

Stakeholders in Value Chain

ROLE OF STAKEHOLDERS
Supply Funds, Materials and Services Value Addition and Management of Resources Give Opportunity to Co. to Satisfy their Needs

SUPPLIERS

HUMAN RESOURCE

CUSTOMERS

Adequate Returns for Funds, Material and Services Supplied

Adequate Salary and Security for leading a Happy Life

Best Quality Products and Customer Care at Minimum Prices

EXPECTATIONS OF STAKEHOLDERS

Potential Suppliers, Human Resources and Customers

PUBLIC

Biological, Economic and Cultural Environment

PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT

Principles of Corporate Excellence

Fairness to all stakeholders

Mutual Trust, Transparency and Togetherness

Unrestricted Communication and Continuous Feedback

Sharing Knowledge, Success Stories and Experience Sharing Happiness and Concerns

Infact, these principles are the foundation of Best Governed Organisations irrespective of their form and size

Advantages of applying Best Corporate Governance Practices

Growing Revenues

Growing Profits

Growth

Growing Market Value

Widening Customer Base

Ready Market for New Products

Widespread Goodwill and Brand Reputation

Access to Global Markets

Better Access to Human Capital

INVESTORS

CUSTOMERS

EMPLOYEES

Enhanced Trust and Confidence of all Stakeholders

GOVERNMENT AND REGULATORS

SUPPLIERS

SOCIETY

Leading to

Environment

SUSTAINABLE DEVELOPMENT
Civil Society Business Society

Companies that have followed principles of Corporate Governance have

Consistently earned high returns, increased their net worth and enhanced their shareholders wealth

Invested significantly in proactive research and development

Developed people into achievers than just performers

Dealt ethically with customers, government and business partners

Maintained and updated their professional management culture, system and processes

..and accomplished

WINNING EMPLOYEES

GROWING INVESTORS

DELIGHTED CUSTOMERS

HAPPY SOCIETY

TRUSTED SUPPLIERS

SATISFIED GOVERNMENT AND REGULATORS

Professionals Role & responsibility For achieving Corporate Excellence

Excellence in Corporate Governance leads to National Excellence

Social Excellence Corporate Excellence Excellence in Corporate Governance

National Excellence

Professionals are acting as Catalyst in applying best practices in Corporate Governance

Professionals are adequately developed to take this challenging job

We have to Commit our self for well-being and progress of all stakeholders Which is our age old mantra

Satyam Vada Dharmam Chara

- Taittariya Upanishad

Forever speak the truth and follow the dharma

Truth : Disclosure of Actual State of Affairs

(Transparency in operations and transactions)

Dharma :

Dharma is for the stability of society, the maintenance of social order and the general well-being and progress of humankind.

- Karna Parva of the Mahabharata. Verse-58 in Chapter 69

This is our own age old mantra of

Good Governance

Professionals are expected to use their

Capacity, Knowledge and Resources
TOWARDS

Dharma
Maximisation of stakeholders value and wellbeing and progress of humankind THROUGH

Truth

Transparency, accountability and truthful disclosure of state of affairs

Through
Ethical Behavior Unmatched Competency Multifacet effective value addition Expert knowledge & implementation Competent services International standards

To implement Corporate Governance process which lead to

Wealth Creation Distribution Management

Clause 49 of the listing agreement Tries to manage this process

Clause 49 of the Listing Agreement

Provision
Board of directors - Composition - Procedure - Committees - Code of Conduct

Purpose
Better governance and management

Clause 49 of the Listing Agreement

Provision Independent & Qualified Audit Committee Purpose Independent view Expert opinion Suggestions for development

Clause 49 of the Listing Agreement

Provision Purpose

Subsidiary Company

Governance of Group Company Affairs Part of Wealth creation & Management

Clause 49 of the Listing Agreement

Provision Compliance of all the applicable legal provisions, rules & regulation Purpose Ethical conduct of affairs Part of Wealth Management

Clause 49 of the Listing Agreement

Provision Purpose Avoidance of undue advantage to the related parties Part of Wealth Management

Related party transactions

Clause 49 of the Listing Agreement

Provision Purpose

Disclosure of accounting treatment

Governance of affairs of the company, transparency

Part of Wealth Management

Clause 49 of the Listing Agreement

Provision Purpose

Risk management

Insurance / disaster management Part of Wealth Management

Clause 49 of the Listing Agreement

Provision Purpose

Proceeds from public issues, rights issues, preferential issues etc.

Utilization of funds for the specified purpose / transparency

Part of Wealth creation & Management

Clause 49 of the Listing Agreement

Provision Purpose

Management Discussion & analysis report

Development / new avenues / future strategy Part of Wealth creation & Management

Clause 49 of the Listing Agreement

Provision Purpose

Shareholders grievance redressal mechanism

Stakeholders interest / effective complaints redressal

Part of Wealth creation & Management

Clause 49 of the Listing Agreement

Provision Purpose Transparency

Remuneration of directors
Part of wealth distribution & management

Clause 49 of the Listing Agreement

Provision Purpose Good governance Transparency Part of wealth management

CEO/ CFO Certification financial statement authenticity

No misleading or fraudulent transaction internal controls. accounting policies

Clause 49 of the Listing Agreement

Provision Purpose

Report on Corporate Governance

separate section on Corporate Governance in the Annual Reports Non Compliance of any mandatory requirement with reasons thereof Quarterly compliance report to the stock exchanges within 15 days from the close of quarter

Disclosure

Clause 49 of the Listing Agreement

Provision Purpose

Compliances Independent Certificate from auditor / Practicing certification Company Secretaries (PCS) regarding compliance of conditions of corporate governance, to be sent annually to all the shareholders of the co. & to the stock exchanges along with annual report filed by the co.
Disclosure of the compliances of mandatory & adoption/ non-adoption of non-mandatory requirements shall be made in the section on corporate governance of the annual report.

Voluntary Corporate Governance Practices followed by the companies

New Practices Followed

Companies have started complying with revised clause 49 of listing agreement which will come into effect from 1st January 2006 Following policies/codes have been formulated: Code of Corporate Governance Code of Conduct for Directors, Senior Management, and employees Personnel/HR policy Supply Chain Management Formulation of Vision and Mission Secretarial Audit other than the SEBI Audit is being undertaken by the companies Companies are following secretarial Standards issued by ICSI.

New Practices Followed

Audited half yearly results to shareholders Social Responsibility & insurance Performance Appraisal system in the companies for evaluation of contribution of Directors. Companies are conducting survey to know the level of shareholder satisfaction remuneration committee to govern management remuneration distribution.

New Practices Followed

Policy for induction of independent directors Disclosure of criteria for appointment of independent directors in the annual report. Concept of Lead Independent Director has been introduced Succession planning is being done. In some companies nomination committee constantly works with the Board to evolve succession planning. To ensure the separation of ownership and management, the position of Chairman and CEO/MD is being held by different persons

It can be visualized as

New Opportunities
For Professionals

New Responsibilities

Opportunity is always clubbed with responsibility

New Opportunities
Segment wise role & responsibilities Specialized Knowledge & expertise Compliance mechanism for all the applicable laws Applicable national & international accounting standards Vigilance and surveillance as independent director Expert services under Audit Committee & BOD committees

New Opportunities contd. Guidance and Board Procedures Code of Conduct Guidance & implementation Good Governance Practices Implementation of International practices Implementation of time bound flawless compliance mechanism

Opportunities & Responsibilities

As a Independent Director As a Professional in Employment As a Professional in Practice

As a independent director
Expectations Value addition Expert Guidance Vigil on the affairs Responsibility Knowledge Applicable legal provisions Information extraction True & effective governance

Unbiased opinion

As a professional in employment
Expectations as CEO/CFO Compliance of all provisions Better management & governance Vigil on the affairs Expertise utilization for the growth of the organization Responsibility True & correct representation Specialized Guidance to the management Information extraction Evaluating future growth potential

As a professional in practice
Expectations Extended Expertise Multifacet and updated knowledge Compliance of all applicable provisions Implementation of effective policy and practice Responsibility True & Independent representation Specialized Guidance to the management Regular & quick updation to the management Proactive actions in the interest of the company

To cater these responsibilities

We need
Process System

Policy

Companies need help of professionals to formulate these processes, systems & policies to maximize the benefits of Corporate Governance

Constraints

Protection of independent directors ??

Your negligence can make you liable under

Provisions of :
Companies Act, 1956 Income Tax Act, 1961 Factories Act, 1948 Environment Laws Labour Laws Other stringent liabilities under plethora of national & international laws

Example
Provision Signing of Prospectus Liability Criminal liability for any misstatement in the prospectus

All the directors

Imprisonment 2 Years

Conclusion
Corporate Governance has bought up new opportunities coupled with hard responsibilities

Professionals need to be cautious about the constrains and maintain extra vigilance and care while discharging their responsibilities

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