 In December 1995, CII set up a task force to
design a voluntary Code of Corporate
Governance
 The final draft of this C...
Kumar Mangalam Birla Committee Report [2000]
 Following CII’s initiative, SEBI set up a committee under Kumar
Mangalam Bi...
 SEBI Committee on Corporate
Governance was constituted under the
Chairmanship of N. R. Narayana Murthy,
to look into: go...
MandatoryNon-Mandatory
 Audit committee
 Related party transactions
 Proceeds from initial public offerings
 Risk Mana...
Mandatory
Recommendations
 Review of information by audit committees regarding
› Financial statements and draft audit reports, including
quarterly/...
 A statement of all transactions with related parties including their
bases (methodology) should be placed before the ind...
 Procedures should be in place to inform Board
members about the risk assessment and minimization
procedures. These proce...
 Companies raising money through an Initial Public
Offering (“IPO”) should disclose to the Audit
Committee, the uses / ap...
• Lay down a code of conduct for all
board members and senior
management of the company
• Posted on the company’s website
...
• Appointment should be made by
the shareholders
• Nominee of the Government shall
be similarly elected and shall be
subje...
Compensation
Compensation to non executive
directors to be approved by the
shareholders in general meeting;
 Restrictions...
Whistle Blower Policy
• Whistle blower policy to be in
practiced in a company
• The directors of the holding company
are t...
Non-Mandatory
Recommendations
 Moving to a regime where corporate
financial statements are not qualified
 Instituting a system of training of board
me...
ProsCons
 Strengthening of corporate governance
framework.
 Higher transparency in the functioning of
the company.
 Pro...
Narayan Murthy Committee Report 2003 on Corporate Governance
Narayan Murthy Committee Report 2003 on Corporate Governance
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Narayan Murthy Committee Report 2003 on Corporate Governance

Corporate Governance
Published on: Mar 3, 2016
Published in: Business      
Source: www.slideshare.net


Transcripts - Narayan Murthy Committee Report 2003 on Corporate Governance

  • 1.  In December 1995, CII set up a task force to design a voluntary Code of Corporate Governance  The final draft of this Code was widely circulated in 1997  In April 1998, the Code was released. It was called Desirable Corporate Governance: A Code  The code was voluntary, contained detailed provisions, and focused on listed companies.
  • 2. Kumar Mangalam Birla Committee Report [2000]  Following CII’s initiative, SEBI set up a committee under Kumar Mangalam Birla to design a mandatorycum- recommendatory code for listed companies.  approved by SEBI in December 2000. Department of Company Affairs (DCA)[2001-02]  Following CII and SEBI, DCA modified the Companies Act, 1956 to incorporate specific Corporate Governance provisions regarding Independent Directors and Audit Committees Naresh Chandra Committee Report [2002]  In August 2002, DCA appointed Naresh Chandra Committee to examine various corporate governance issues.  The Committee was entrusted to analyse and recommend changes, to the issues related to the statutory auditor-company relationship, certification of accounts and financial statements by the management and directors; and role of independent directors.
  • 3.  SEBI Committee on Corporate Governance was constituted under the Chairmanship of N. R. Narayana Murthy, to look into: governance issues / review Clause 49, suggest measures to improve corporate governance standards.  The committee laid down some mandatory and non- mandatory recommendations.
  • 4. MandatoryNon-Mandatory  Audit committee  Related party transactions  Proceeds from initial public offerings  Risk Management  Code of conduct  Nominee directors  Compensation to non executive directors  Whistle blower policy  Moving to a regime where corporate financial statements are not qualified  Instituting a system of training of board members  The evaluation of performance of board members
  • 5. Mandatory Recommendations
  • 6.  Review of information by audit committees regarding › Financial statements and draft audit reports, including quarterly/half yearly information. › Management discussion and analysis of financial condition and the results of operations. › Report relating to compliance with laws and risk management. › Management letter/s of internal control weaknesses issued by statutory/internal auditors and › Records of related party transactions.  Financial literacy of members of the audit committee › All audit committee members should be “financially literate” and at least one member should have accounting or related financial management expertise.
  • 7.  A statement of all transactions with related parties including their bases (methodology) should be placed before the independent audit committee for formal approval / ratification. If any transaction is not on an arm’s length basis, management should provide an explanation to the audit committee justifying the same. › The ‘arm's length’ is the condition or the fact that the parties to a transaction are independent and on an equal footing.  The term “related party” shall have the same meaning as contained in Accounting Standard 18, Related Party Transactions, issued by the Institute of Chartered Accountants of India.  Under AS 18, related party includes: › Enterprises, directly or indirectly, controlled by one or more other enterprises; › Associates or Joint Ventures of an enterprise; › Individuals who own interest in the voting power of an enterprise and are in a position to significantly influence the enterprise; › Key Management Personnel and their relatives; › Enterprises which share common directors.
  • 8.  Procedures should be in place to inform Board members about the risk assessment and minimization procedures. These procedures should be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework.  Management should place a report before the entire Board of Directors every quarter documenting the business risks faced by the company, measures to address and minimize such risks, and any limitations to the risk taking capacity of the corporation.  This document should be formally approved by the Board.
  • 9.  Companies raising money through an Initial Public Offering (“IPO”) should disclose to the Audit Committee, the uses / applications of funds by major category (capital expenditure, sales and marketing, working capital, etc), on a quarterly basis.  On an annual basis, the company shall prepare a statement of funds utilised for purposes other than those stated in the offer document/prospectus. This statement should be certified by the independent auditors of the company.  The audit committee should make appropriate recommendations to the Board to take up steps in this matter.
  • 10. • Lay down a code of conduct for all board members and senior management of the company • Posted on the company’s website • Affirm compliance with the code on an annual basis. • Annual report- declaration to this effect- signed off by the CEO • Best practices
  • 11. • Appointment should be made by the shareholders • Nominee of the Government shall be similarly elected and shall be subject to the same responsibilities and liabilities as other directors
  • 12. Compensation Compensation to non executive directors to be approved by the shareholders in general meeting;  Restrictions placed on grant of stock option  Requirement of proper disclosures of details of compensation.
  • 13. Whistle Blower Policy • Whistle blower policy to be in practiced in a company • The directors of the holding company are to be in the picture; audit committee of the holding company to review financial statements of subsidiaries etc.
  • 14. Non-Mandatory Recommendations
  • 15.  Moving to a regime where corporate financial statements are not qualified  Instituting a system of training of board members  The evaluation of performance of board members
  • 16. ProsCons  Strengthening of corporate governance framework.  Higher transparency in the functioning of the company.  Protection for whistle blower against termination or unjust treatment.  Unclear Whistle Blower policy › Instrumental in breeding indiscipline as most likely the audit committee would be flooded with frivolous complaints and minor issues. › Many complainants might go by their personal likes and dislikes and thus the possibility of the right of access to the audit committee being misused would always be there.  While this panel has suggested that audit committee members should be non-executive directors, the Naresh Chandra committee that preceded it suggested that only independent directors should be on audit committee. The reality is that while all independent directors are non-executive directors it is not so vice versa.  It needs to be clarified whether a partner of an audit firm or a solicitor's firm can be treated as an independent director of a company if his firm is the auditor or legal advisor of another company in the same group.

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